Rural Area Definition – Legislative Update (June 28, 2013)

Approximately 900 communities across the United States that are currently considered “rural” for purposes of United Stated Department of Agriculture (USDA) programs are in danger of losing their rural designation. The communities will no longer be considered rural based on data from the 2010 census unless legislation is passed to “grandfather” those localities, allowing them to retain their rural designation.


Generally, communities with populations less than 20,000 are designated as “rural” if they meet other requirements. In 1983, Congress amended the Housing Act of 1949 to protect communities where the population had grown since the prior census; this protection is known as “grandfathering.”


The most recent grandfathering methodology allows communities with populations up to 25,000 to retain eligibility if they were previously eligible under either the 1990 or 2000 census. The most recent grandfather clause expired on September 30, 2012, and with the release of the 2010 census, any area that cannot meet the rural definition based on 2010 data will no longer be eligible for rural funding.


For existing properties to avoid losing their rural designation, Congress must pass a bill to extend the safe harbor for formerly rural communities with populations now in excess of the USDA limit. Congress would also have to pass a bill updating a 1974 definition of “rural” that excludes communities located in a metropolitan statistical area (MSA) for those communities to retain their rural designation.


A lose of rural designation could have substantial impact on certain LIHTC sites. Section 3004 of the Housing and Economic Recovery Act (HERA) allows developers of LIHTC properties without tax-exempt bond financing in rural areas to use the higher of the National Nonmetropolitan Income limits or the Multifamily Tax Subsidy Project (MTSP) income limits to determine income and rent. This benefit will be lost on a number of tax credit properties if Congress does not act to extend the rural designation.


Current Legislative Actions


On June 10, the Senate passed the Agriculture Reform, Food and Jobs Act of 2013 (S.954), also known as the Farm Bill, by a vote of 66 to 27. This bill includes language that rural communities eligible for USDA housing programs will retain their eligibility through 2020. The bill also raises the definition of “rural” from 25,000 to 35,000 in population.


The House version of the Farm Bill contains an amendment called the Rural Housing Preservation Act of 2013 (H.R. 858), which would allow any area currently considered rural to continue to be considered rural until 2020. On June 13, 2013, the House Appropriations Committee approved the fiscal year 2014 Agriculture Appropriations Bill, which also includes an amendment to extend the current definition of rural to 2020.


Unfortunately, on June 20, the House rejected its own version of the Farm Bill by a 234 to 195 vote. Even though the House bill called for more significant cuts to the food stamp program than the Senate bill, it still did not cut the program deeply enough to get majority support. Following the defeat of the Farm Bill, the Agriculture Spending Bill was pulled from the House calendar (no use appropriating money for a program that does not exist).


As for the future of the Farm Bill, it may be reconsidered by the House after the July 4 break. I would recommend that anyone with an interest in rural housing, including LIHTC owners with properties in rural areas, contact their House members and urge passage of the Farm Bill.