HUD Submits Promising FY 2001 HUD Budget Request to Congress

(1) President Clinton submitted his Fiscal Year 2001 (FY 01) budget request to Congress on February 7. For the fiscal year beginning October 1, 2000, HUD seeks total budget authority(2) for Department of Housing and Urban Development (HUD) programs of around $32 billion, a figure that appears at first to be a bold increase of about $6 billion.(3)

Of this proposed $6 billion increase, however, approximately $2.37 billion is required to renew higher numbers of expiring Section 8 contracts, and another $1.69 billion is for miscellaneous "adjustments." Hence, less than $2 billion represents absolute dollar increases in HUD programs. About one-third of this increase is for new vouchers to meet growing housing needs and additional funds to improve voucher program operation. The rest of the requested FY 01 funding increase, about $1 billion, would provide marginally higher funding levels for most HUD programs, about the amount necessary to adjust for inflation.

For programs assisting very low-income individuals and families, such as public housing and Section 8, absent the proposed increase for 120,000 incremental vouchers, HUD’s budget provides nominally increased funding levels. Without much more information, it is difficult to determine whether these increases would even be sufficient to maintain current services.

Section 8 Funding ("Housing Certificate Fund")

For the Section 8 program, the request covers both full funding to renew all expiring contracts, as well as funding for 120,000 new vouchers, totalling $14.13 billion. The renewal component provides funding to renew all expiring tenant- and project-based Section 8 contracts, requiring about $13 billion in new budget authority, net of approximately $1.3 billion in recaptures, to cover 2.6 million expiring units, out of a program total of about 3 million. Of these expiring units, 1.76 million are tenant-based assistance and moderate rehabilitation units within the jurisdiction of the Office of Public and Indian Housing (budgeted at an average annual per unit cost of $5,733, a total of $10.09 billion), including those new vouchers first provided last year. About 760,000 are for project-based assistance administered through the Office of Housing (budgeted at an average cost of $4,969, a total of $3.78 billion). For the first time, HUD proposes to renew through the Housing Certificate Fund those expiring Section 8 contracts originally funded out of the Shelter Plus Care program authorized under the McKinney Act. This year, there are only 6,500 such units, budgeted at $37 million.

Beyond the total Section 8 budget requirement for FY 01, an additional $4.2 billion was pushed forward into this year by the use of the "advance appropriation" technique in the FY 00 Appropriations Act. The Administration seeks to offset the burden of that maneuver by proposing to replicate the technique for FY 01, pushing $4.2 billion of this year’s contract renewal burden into FY 02. So long as Congress continues to employ the technique, the one-time benefit in reducing FY 00's budget authority requirements can carry no real price tag. Every subsequent year’s price tag can simply be pushed forward into the following year by another advance appropriation of the same amount. Thus, each year’s Housing Certificate Fund needs are essentially unaffected when the effects of the advance appropriation technique are netted out.

More incremental vouchers are another highlight of this budget, with 120,000 new rental assistance vouchers requested, at an annual cost of $690 million. Of these, 60,000 are "fair share" vouchers allocated through ordinary channels and not targeted to any specific population. Another 32,000 are for families transitioning from welfare to work, and 18,000 are for people who are currently homeless (funded through the Homeless Assistance account). The remaining 10,000 are for a new "housing production voucher" program. The proposal also seeks $50 million for a "voucher success fund" to promote voucher utilization in areas where the program is experiencing operational problems. It would provide additional resources to housing authorities to help families with mobility counseling, create funds to assist with security deposits and provide technical assistance and outreach to landlords.

Under the proposed "production voucher" program, 10,000 of these incremental vouchers would be allocated to states along with their low-income housing Tax Credits to improve the affordability of newly produced units for extremely low-income renters. Existing income targeting guidelines require that at least 75 percent of vouchers be used by families with incomes less than 30 percent of their area's median income. Because the proposed new vouchers are limited to no more than 25 percent of the units in any new development, HUD projects that the program will encourage the construction of up to 40,000 units of mixed-income housing. The voucher-occupied Tax Credit units could also obtain Federal Housing Administration insurance. In addition to the vouchers and the FHA insurance linked to the Tax Credits, HUD is also requesting $8 million for one-time incentive payments to developers who build units targeted to specific needs, such as large families.

In reality, these units would be produced anyway under the Tax Credit program, regardless of the presence of the voucher assistance. However, the voucher could actually increase the affordability of the units produced if the program ultimately enacted ensures that voucher holders will continue to have reserved access to the units once the original voucher tenant decides to move.

The primary public housing accounts receiving appropriations are the Operating Fund, to cover the difference between operating costs and tenant rent contributions, and the Capital Fund, for project rehabilitation. For FY 01, the Administration requests only $3.19 billion for the Operating Fund, and $2.95 billion for the Capital Fund, increases of less than 2 percent over last year’s funding levels.

Within public housing, HUD's request would move the $55 million Resident Opportunity and Self Sufficiency program from a Community Development Block Grant set-aside into the Public Housing Capital Fund. The budget proposes to allow public housing authorities to collect a one-month security deposit from all public housing residents beginning October 1, 2000 "to improve incentives for resident upkeep of units" and to parallel management practices in HUD's Section 8 program and the private rental market. Housing authorities will have discretion to decide how the security deposit will be paid, either in monthly installments, up-front, or a combination of the two.

The budget requests $625 million for HOPE VI, the federal grant program for "revitalizing" severely distressed public housing, a $50 million increase over last year. Of this amount, up to $180 million would be set aside to cover the costs of mandatory conversions of public housing into tenant-based assistance required by a 1996 law, outside of the regular HOPE VI program. The request also would provide $1.2 million for an Urban Institute study on the long-term effects of HOPE VI on former residents of targeted developments.

The budget request seeks an increase from $1.02 billion to $1.2 billion for homeless assistance programs, including Emergency Shelter Grants, Supportive Housing, Section 8 Single Room Occupancy units, and Shelter Plus Care. Of this amount, $105 million would fund 18,000 new rental assistance vouchers for people who are currently homeless. The request shifts Shelter Plus Care renewal costs into the mainstream Section 8 program. The Shelter Plus Care program provides rent subsidies that enable local governments and their nonprofit partners to provide housing linked to supportive services for extremely low-income, formerly homeless persons with disabilities, including mental illness, chronic substance addiction and HIV/AIDS. Shelter Plus Care renewal costs in many communities are eating away the majority of Shelter Plus Care funding; communities are forced to choose between forgoing the renewal of peoples' rent subsidies or developing needed new homeless programs. Shifting the renewal costs into the Section 8 program is supported by many advocates as a solution to this local dilemma. The budget request also would continue to require that all funding for services be matched 25 percent by grantees, while removing the existing requirement that 30 percent of funds be used for permanent housing.

CDBG and HOME funding

The budget requests $4.9 billion for the Community Development Block Grant (CDBG) program, an increase of $119 million over last year. Included is an Optional Entitlement Communities (OEC) proposal, permitting cities as small as 25,000 (that are not currently part of an entitlement county) and urban counties as small as 100,000 to choose "entitlement" status within a three-year period. These new OECs would receive formula grants directly from HUD, rather than as subgrantees from states.

The CDBG level also includes a new $20 million Community and Interfaith Partnerships Initiative to assist community-based nonprofit organizations (including faith-based ones) in their efforts to supply affordable housing, create economic opportunity, promote the goals of fair housing and increase the effectiveness of other programs and initiatives administered in distressed high poverty areas. These funds will be distributed through a competitive grant process.

The HOME program would receive $1.65 billion, an increase of $50 million over last year, to support a projected program level of 92,000 units through acquisition, rehab, or new construction, and about 10,900 units of tenant-based rental assistance.

The request seeks an increase from last year’s $232 million to $260 million for the Housing Opportunities for People with AIDS (HOPWA) program, supporting approximately 48,000 units.

Funding for elderly housing (Section 202) programs would increase $69 million to $779 million under the proposal, including:

• $50 million in new grants to states and localities to subsidize new, mixed-income assisted living units;
• $50 million for capital grants to convert units in existing Section 202 properties to assisted living units; and
• $50 million for an expanded service coordinator program to serve primarily Section 202 residents.

Funding for disabled housing (Section 811) programs would increase $9 million to $210 million. The request language would require from 25 to 50 percent of these funds to be earmarked for tenant-based rental assistance under five-year contracts.

HUD proposes raising the Federal Housing Administration's loan limits for single-family mortgages. The proposed higher limits would allow FHA single-family insurance to cover loans up to the same level as the Fannie Mae and Freddie Mac limits. Currently, FHA can only insure up to 87 percent of Fannie's and Freddie's limits in high-cost areas and up to 48 percent in low-cost areas.

Outside of the HUD budget, the President's budget also calls for increasing the Low-Income Housing Tax Credit from $1.25 to $1.75 per capita at a five-year cost of $5 billion in tax expenditures, and indexing it to inflation. HUD claims that this increase will support production of at least an additional 150,000 units (apparently at Tax Credit rents) over the next five years.

The budget process now turns to the Congress. The House and Senate Budget Committees hope to have a budget resolution completed by March 15, a month earlier than required. This budget resolution sets general budget guidelines and, theoretically, acts as a blueprint for the next step of distributing funds to appropriations subcommittees. These subcommittee allocations are critical to housing and community development program funding, and form the framework under which the actual annual appropriations decisions are made during the period between the late spring and fall, for the fiscal year commencing October 1, 2000.