Section 202 and 811 Operating Costs Needs
HUD funds the operating costs of housing produced under the current Section 202 program for the elderly and the Section 811 program for persons with disabilities through a Project Rental Assistance Contract or PRAC. Created by the National Affordable Housing Act of 1990, these programs provide capital advances for non-profit developers to finance the construction and rehabilitation of supportive housing for the elderly and persons with disabilities. Thus, the properties have no debt, and the PRAC pays the difference between rental revenues and HUD-approved operating expense levels. Each PRAC has a three-year term and is renewable subject to the availability of federal funds.
Before 1990, federal housing assistance for the elderly and persons with disabilities was provided through the Section 202 Direct Loan Program for Housing for the Elderly or Handicapped, which offered direct loans to non-profit sponsors. Instead of PRAC, the federal operating subsidy for these developments was provided as part of project-based Section 8 rental assistance. (These projects are henceforth referred to as Section 8 202s, while projects with operating subsidies provided by PRAC are called PRAC 202s and PRAC 811s.) Under the Section 8 202 program, a contract rent agreed to at the time of the development of the housing and subsequently adjusted for inflation covered both repayment of the Section 202 loan and operating expenses. Congress changed the structure of the program—from a repayable loan plus a rent subsidy to a grant plus an operating subsidy—in order to reduce the budget authority that had to be appropriated to support the program. In effect, the government was appropriating funds to repay itself, which the legislators who enacted the National Affordable Housing Act decided made the program appear to cost more than it really did and made it harder for the program to compete for funds each year within the federal budget.