(a) The Commissioner of Social Services, in collaboration with the Commissioner of Housing and the Connecticut Housing Finance Authority, shall maintain a demonstration project to provide subsidized assisted living services, as defined in § 19-13-D105 of the regulations of Connecticut state agencies, for persons residing in affordable housing, as defined in § 8-39a. The demonstration project shall be conducted in at least three municipalities to be determined by the Commissioner of Social Services. The demonstration project shall be limited to a maximum of three hundred subsidized dwelling units. An applicant shall be eligible for such subsidized assisted living services if such applicant is (1) eligible for the Connecticut home care program for the elderly pursuant to § 17b-342, or (2) sixty-five years of age or older and eligible for the home and community-based program established pursuant to § 17b-602a for adults with severe and persistent psychiatric disabilities.

(b) There shall be a memorandum of understanding among the Commissioner of Housing, the Commissioner of Social Services and the Connecticut Housing Finance Authority. Such memorandum of understanding shall specify that (1) the Department of Social Services apply for a Medicaid waiver to secure federal financial participation to fund assisted living services, establish a process to select nonprofit and for-profit providers and determine the number of dwelling units in the demonstration project, (2) the Department of Housing provide rental subsidy certificates pursuant to § 8-402 or rental assistance pursuant to § 8-119kk, and (3) the Connecticut Housing Finance Authority provide second mortgage loans for housing projects for which the authority has provided financial assistance in the form of a loan secured by a first mortgage pursuant to § 8-403 for the demonstration project.

(c) Nothing in this section shall be construed to prohibit a combination of unsubsidized dwelling units and subsidized dwelling units under the demonstration project within the same facility. Notwithstanding the provisions of § 8-402, the Department of Housing may set the rental subsidy at any percentage of the annual aggregate family income and define aggregate family income and eligibility for subsidies in a manner consistent with such demonstration project.