Over-Funded Federal Regulators & Contractors versus Revenue-Starved States

MHARR logoAn important aspect of the decline of the federal manufactured housing program that has largely gone under the radar in recent years and threatens now to subject the industry and consumers to a mountain of costly new de facto regulation, is the ever-expanding relationship between the program and paid contractors, while the role, involvement and funding of state agencies has correspondingly diminished. Consequently, MHARR is now moving to address such funding aspects of the federal program with Congress.

By way of background, when Congress enacted the Manufactured Housing Construction and Safety Standards Act in 1974, it envisioned a full partnership between the federal government and the states. The fundamental concept of the law was to replace the existing myriad of state “mobile home” laws with a system of uniform, preemptive, performance-based federal standards and federal enforcement oversight, with state agencies responsible for assuring proper consumer protection. This partnership makes sense because it combines the best elements of preemptive federal authority, to ensure uniformity and, therefore, the affordability of manufactured homes, and state authority which, being closest to the people, is tempered by broad societal interests such as jobs, commerce, economic development and expansion, affordable housing, homeownership and community development, as well as consumer protection and a host of other concerns.

In addition, Congress designed this partnership to be self-funding, with HUD authorized to level and collect a federal user (label) fee, with a substantial portion dedicated to funding the activities of approved State Administrative Agencies (SAAs). In establishing this self-funding mechanism, moreover, Congress was aware that there would be variations in available revenue, based on the business cycle and other factors affecting manufactured home production, and thus anticipated that program expenditures would vary as well, with higher expenditures during periods of increased production, and reduced expenditures during periods of declining production.

Later, in the Manufactured Housing Improvement Act of 2000, Congress made this federal-state partnership even stronger, by further clarifying the scope of federal preemption and by establishing a key role for the states in ensuring the proper installation of manufactured homes.

Unfortunately, however, since the enactment of the 2000 law, as manufactured home production has declined, the federal-state partnership has been degraded and largely supplanted – gradually at first, but at an accelerating pace over the past 3-4 years – by a new partnership, between the HUD program and paid contractors. This rapidly-expanding yet damaging alliance has effectively “taken all the oxygen out of the room,” leaving the states with a severely diminished role in the program, insufficient funding and, not surprisingly, declining interest in participation while, at the same time, it has improperly elevated the role of paid contractors.

This attempted transition, away from a balanced federal-state partnership to a dominant federal program energized and dependent on paid contractors, is bad news for both the industry and consumers. Unlike state agencies, that are accountable to elected state officials and ultimately the people, and are driven by the interests of their constituents in jobs and affordable homeownership, paid contractors are accountable only to HUD regulators (who themselves are largely unaccountable in the absence of an appointed, non-career HUD program Administrator), and are driven by the overriding dual priority of keeping their contract(s) and increasing revenue through expanded regulation.

Thus, even as manufactured home production has dramatically declined over the past 12 years – by over 90% since 1998 and at a 40% clip just between 2008 and 2009 – HUD regulators and their contractor partners, instead of scaling back operations to a level commensurate with significantly reduced production, have embarked on a full-court press to expand in-plant regulation of the smaller number of homes being produced, by making such regulation even more complex, intricate and costly through expanded paperwork, record-keeping, unnecessary training and red tape. Unveiled under the guise of “voluntary cooperation,” but later deemed “not optional,” this program is progressing toward expensive multi-layered, multi-day audits and a never-ending “continuous improvement process” that HUD regulators and contractors seem to be making up as they go along.

With this HUD-contractors alliance, regulation is not a matter of what consumers need, but rather what HUD and its contractors need – more staff, more billing hours and more revenue. Indeed, this is the real reason that HUD has refused to subject its regulatory expansion to the consensus and rulemaking procedures required by the 2000 reform law – because, very simply, it has not and cannot show, as also required by the 2000 law, that any such expansion is either justified from a consumer protection standpoint (as illustrated by the current minimal level of dispute resolution filings) or cost-justified. So HUD, with a wink and nod from the industry establishment and larger businesses, has bypassed the Manufactured Housing Consensus Committee and rulemaking, knowing that its overhaul of in-plant regulation has little or nothing to do with enhancing consumer protection and everything to do with maintaining contractor billing levels and maintaining – and expanding – program staff, notwithstanding historically low production levels … all at the expense of smaller industry businesses and consumers of affordable housing.

With label fee revenues down, however, HUD had to go to Congress to get additional funds to sustain this expanded level of activity. So it went to Congress for a supposed one-time appropriation of general tax revenues, which it got, in the amount of $5.4 million in 2009, ostensibly to implement the federal installation and dispute resolution programs. Instead of using this money to fully implement those programs, however, which continue to be delayed – especially the federal installation program – HUD used that money to increase staff and fund expanded in-plant regulation, even as funding for the states continues to dry-up. And now, with even lower production projected for 2010, HUD is aiming to get more tax revenues appropriated for the program.

Given HUD’s previous misuse of such funds, however, and the need to restore the program to Congress’ original vision, MHARR is rapidly raising the priority of this issue and will urge Congress to ensure that any additional appropriation of federal tax revenues is used: (1) strictly in accordance with the 2000 law to fully and properly implement that law, including the seven “responsibilities” of the Secretary set out in section 620; and (2) to properly fund state SAAs and encourage greater state participation in the HUD program.

In MHARR’s view, unless strictly controlled by Congress, more appropriated funds for the federal program are not warranted and will be misused to the detriment of the industry, consumers and the legitimate interests of the states.

Danny D. Ghorbani is President of the Manufactured Housing Association for Regulatory Reform. MHARR is a Washington, DC-based national trade association representing the views and interests of producers of federally-regulated manufactured housing. Danny can be reached at 202-783-4087.

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