National Housing Law Project Housing Law Bulletin

HUD Reinvention Blueprint II Sounds Many Old Themes

Another current that runs throughout the document is the notion of bonus funding pools as incentives to localities for exceeding minimum performance of the HUD programs. In light of the dire budget prospects, many view with skepticism any allocation of bonus pools beyond appropriated core program levels. There is the additional concern that the bonus pools, if funded, may divert resources from the basic programs.

Blueprint II focuses on four primary areas: (1) the devolution to communities of more control over federal programs, principally through consolidation of more than 20 programs into three funds; (2) alteration of public and assisted housing by addressing crime and mismanagement more vigorously, demolishing the worst highrises and replacing them with fewer townhouse developments, and altering rules to reward resident movement toward economic independence and personal responsibility; (3) guaranteeing homeownership opportunities through reform of FHA and assisting public housing residents and Section 8 participants to purchase their own homes; and (4) "rightsizing" HUD and refocusing programs and staff on communities.

Some highlights of particular interest to low-income residents and advocates are set out below.

Community Empowerment

The CDBG fund would rely upon performance measures and benchmarks drawn from priorities identified in the particular locality's Consolidated Plan.² Examples of such performance measures might include job creation and delivery of social services, for which each jurisdiction may establish more specific goals. The 10-percent bonus pool, to be competitively awarded to grantees with the highest ranked performance, would be available to distressed communities for economic revitalization activities or to provide related employment opportunities for residents of such communities. This pool would replace the Administration's Economic Development Initiative which was funded in FY 1995 at $350 million.

Similarly, the HOME Investment Partnerships program, the affordable housing production program created in the National Affordable Housing Act of 1990, would operate through a formula-based performance fund available to states and localities for a range of activities, including construction, tenant-based rental assistance and supportive services.³ As with the CDBG fund, local performance standards established by the recipients themselves would be categorized into national benchmarks, such as new rental development or housing rehabilitation, designed to help assess a community's progress toward meeting its specific goals. The 10-percent bonus pool would be administered as a challenge grant for proposals which marry a wide range of non-federal resources to create homeownership opportunities. The bonus would be specifically targeted for the creation of large-scale homeownership communities or "Homeownership Zones" in specific areas targeted to "hard working moderate- and middle-income families."⁴

The Homeless Assistance Fund would consolidate the existing HUD McKinney Act homeless assistance programs, including Shelter Plus Care, Supportive Housing, Emergency Shelter Grants and Section 8 single-room occupancy units (SROs), to continue the "continuum of care" approach that has characterized the Department's homelessness strategy.⁵ Funds would be distributed to states and localities according to a needs-based formula. Recipient jurisdictions would set their own performance measures, such as increasing the availability of emergency shelter space or transitional housing. A 10-percent bonus pool would be dedicated for use by grantees responding to the needs of the multiply-diagnosed homeless people, particularly those suffering from both mental illness and substance abuse.

HUD proposes to use the performance measures to provide closer scrutiny and monitoring for communities that fail to meet minimum performance standards. Blueprint II threatens that persistent poor performance could subject communities to future financial penalties.⁶ The Department plans to publish data about actual performance as a means to provide incentives for more effective citizen participation and enhanced program participation, although Blueprint II offers little guidance about what such participation could encompass. The idea of closer HUD scrutiny and increased monitoring of local performance at a time of Department downsizing and devolution, however, would appear to be an unrealistic, if not conflicting, proposition.

HUD commits to aiding the expansion of community development corporations, community-based and other nonprofit housing and community development organizations and to provide substantial levels of technical assistance for capacity-building to community-based organizations.⁷

Legislative authority will be sought to provide an option to use a combination of funding pools for up to 10 percent of core program levels to permit jurisdictions to address cross-cutting needs, including CDBG, HOME, public housing modernization, public housing drug elimination and McKinney Act programs for homeless people. Authority will also be sought to permit jurisdictions to pursue broader "community partnership" strategies through which all the players at the local level, including beneficiaries, community-based organizations, educational institutions and others, work to integrate government resources to undertake community development and to create affordable housing.⁸ HUD would execute a performance contract with the community partnership, contemplating a maximum five-year funding commitment and setting out the performance measures, among other components. Flexibility among funding streams would be the hallmark of the community partnership.

HUD would seek creation of a $100 million fund to aid underserved populations with assistance targeted to nonprofits and local units of government addressing the housing needs of farmworkers, residents of colonias and Native Americans.

Transformation of Public and Assisted Housing

Under a provision, the Campus of Learners initiative, especially favored by the Secretary, PHAs will link up with local schools, universities and training centers to help residents move toward economic self-sufficiency.

"New Urbanism": Replacing Distressed Public Housing Units

The Department acknowledges that it is moving forward to demolish many of the 100,000 units identified as severely distressed. It proposes replacing some of those units pursuant to a strategy dubbed "New Urbanism," by which housing is constructed, owned and managed by partnerships of nonprofit and for-profit developers.

As with HUD's first Reinvention Blueprint, PHAs would be required to convert to tenant-based rental assistance "those large, densely constructed projects experiencing costs in excess of market rents."⁹

Informed by the recent experience with the Chicago and Washington, D.C., housing authorities, HUD plans to seek further legislative authority to facilitate its takeover of troubled PHAs.

Similar to the funding consolidations proposed in its first phase of reinvention,¹⁰ HUD proposes the creation of two consolidated public housing funds: the Public Housing Operating Fund and the Public Housing Capital Fund. The former would pool drug elimination grants, monies for service coordinators and operating subsidies into a formula-based fund that would reflect the addition of new components to the current Performance Funding System. For example, a new component for anti-crime activities will result in the targeting of funds to large city PHAs, those with crime problems, and recent Public Housing Drug Elimination Grant Program (PHDEP) grantees.

Admission Preferences and Work Incentives

While rejecting federal preferences, HUD supports legislation that would permit PHAs to serve a broader range of incomes through establishing their own preference rules for admission, including a preference for working families in addition to ceiling rents and other income adjustments, which will remove disincentives for work.

As with the funds under the community development banner, the Public Housing Operating Fund proposes a 10-percent bonus pool to be distributed to local jurisdictions on the basis of need and performance.

Eligible activities under a newly consolidated Public Housing Capital Fund will be those currently available under modernization, Major Reconstruction of Obsolete Projects (MROP) and HOPE VI for severely distressed public housing, public housing development, and the Family Investment Center program.

Tenant-Based Programs

Certificate/Voucher Portability Reaffirmed

HUD cites the Gautreaux experience¹¹ in validating its emphasis on tenant-based subsidies but launches the frequently heard complaint that burdensome program regulations reduce private landlord participation in Section 8. Lack of counseling services is acknowledged as a shortfall of the program. HUD further attributes the inability of participants to exercise real choice to the current administration of the Section 8 program by individual PHAs within political jurisdictions rather than by metropolitan area.

The Blueprint II announces a strategy of pursuing remedies to encourage wider landlord participation and community acceptance of Section 8 participants through repeal of the "endless lease" and 90-day notice provisions and the "take one, take all" requirement adopted in the FY 1996 appropriations bill that has since been vetoed).¹² In addition, tougher admission policies would deny assistance to families previously evicted for cause or having current members with drug-related or violent criminal backgrounds.¹³

The Department has reacted to recent protests by neighborhood residents against the "influx" of Section 8 participants into their neighborhoods with a proposed strategy that borders on "steering." HUD proposes that, before units come into the program, PHAs ascertain whether the additional units would cause a concentration of assisted households in the neighborhood. The Secretary's representatives, who serve in each of the 10 HUD regions, will troubleshoot in communities where problems are attributed to overconcentration of program participants or to tenant or owner misconduct. HUD plans outreach to Section 8 recipients regarding the availability of rental housing opportunities beyond private landlords, such as the FHA multifamily, HOME and rental housing stock developed with low-income housing tax credits, sited in areas with greater economic potential.

Preferences

Blueprint II's pervasive undercurrent of directing limited housing resources to the "deserving poor" is reflected in a proposed welfare-to-work initiative that would provide 50,000 incremental certificates to permit families to locate near job opportunities.

A performance-based Housing Certificate Fund will consolidate the existing certificate and voucher programs with fair market rents set at the 40th percentile, with locally established preferences consistent with the local Comprehensive Housing Affordability Strategy/Consolidated Plan substituting for repealed federal preferences.¹⁴ A standardized application process and virtual universal mobility will be proposed.¹⁵ A performance measurement system for Section 8 similar to the system in place for conventional public housing will be implemented.¹⁶ Prompt action will be taken to contract out the management responsibilities of poor performers to other PHAs or private firms and, as with the other proposed funds, a bonus pool of the greater of 15 percent of incremental certificates and turnovers or 1.5 percent of total funding will be established to reward high-performing projects.¹⁷

Mark-to-Market Strategy for Expiring Section 8 Contracts

Section 8 Contract Renewals

Blueprint II recounts the challenge of contract renewals spiraling to an eventual annual cost of $20 billion in 2002. HUD will propose one-year contract renewals commencing with FY 1997 as a means of conforming its budget practices with those of all the other federal discretionary programs. HUD justifies shorter contract terms by its shift to portable tenant-based assistance, for which multi-year contract terms are unnecessary. Yet even the one-year funding gimmick does not reduce the ultimate annual renewal price tag, which would swallow HUD's entire budget; it only shifts the timing of the cost. For that reason, HUD intends to seek congressional approval to take the renewal cost "off budget."

Increasing the Supply of Affordable Housing

As part of its overall homeownership strategy, Blueprint II proposes an expansion of sales of public housing units to residents under the Section 5(h) demonstration program, including technical assistance grants to help PHAs with related expenses such as counseling, training, legal fees and sales management.¹⁹ The Department plans legislation to provide supports for the transition to homeownership such as "limited post-sale subsidies for the new owners or for an intermediary non-profit organization that can own the property during the transition."²⁰ Sales will be possible to any low-income families, though current residents will have a priority. No restrictions on resale will be proposed, assuring permanent loss of this valuable housing stock for future public or low-income housing purposes. Funding for the rehabilitation of units to be sold could be tapped from a range of resources available to the PHAs, including modernization, HOPE VI, CDBG or HOME.

HUD will propose legislation to provide the flexibility to permit the use of Section 8 vouchers for homeownership.²¹ In addition, Section 8 will be usable in lease-purchase
arrangements.

The "Homeownership Zone" initiative, noted above, operating within existing Enterprise Zones and Empowerment Communities as well as in other areas of economic disinvestment, is designed to revitalize abandoned neighborhoods through a $200 million HOME "bonus pool" that would be competitively available to jurisdictions to create "large scale homeownership opportunities in targeted areas."²² The bonus pool would be available for use for deferred-payment second mortgages. As indicated above, HUD contemplates the homeowners to be middle- and moderate-income households.

Fair Housing

A "Right-Side-Up" HUD

The pace of HUD's downsizing and devolution of its priorities and mandates to local jurisdictions, a process that has been underway for the past two years, will continue and perhaps be accelerated by pending legislation.

Next Steps

1. Henry G. Cisneros, Secretary of HUD, "Renewing America's Communities from the Ground Up — The Plan to Complete the Transformation of HUD" (Jan. 24, 1996, draft) (hereafter "Blueprint II").
2. Id. at 32.
3. Id.
4. Id. at 33.
5. Id. at 34.
6. Id. at 35.
7. Id. at 36.
8. Id. at 37.
9. Id. at 49.
10. See HUD's Reinvention: From Blueprint to Action — Proposed Changes for Public Housing, 25 HOUS. L. BULL. 71 (Apr. 1995).
11. The settlement of Gautreaux v. Chicago Hous. Auth. established a demonstration program for some public housing tenants living in racially segregated communities to use Section 8 certificates to seek housing in non-impacted jurisdictions in an effort, seen by low-income advocates as largely successful, to enhance the household's housing, economic and educational opportunities.
12. H.R. 2099, Making Appropriations for FY 1996 for the Department of Veterans Affairs, Housing and Urban Development and Independent Agencies, 141 CONG. REC. H13249 (Nov. 17, 1995), vetoed December 18, 1995.
13. HUD Blueprint II, at 52.
14. Id. at 53.
15. Id. at 54.
16. Id. "SEMAP" in the Blueprint refers to the proposed Section 8 Management Assessment Program.
17. Id.
18. Blueprint II at 56.
19. Id. at 67.
20. Id. at 68.
21. Id.
22. Id. at 69.