National Housing Law Project Housing Law Bulletin

HUD and Rural Housing Budgets for FY 1997 Announced
Despite Incomplete FY 1996 Budget Process

According to budget documents, the increased HUD funding will be directed toward three primary departmental goals. First, the Department is committed to the restoration of funding to programs, most notably public housing, that have taken a disproportionate share of cuts since the FY 1995 rescission. Second, the budget increases support the program overhaul begun last year, primarily through the Reinvention Blueprint, which had as a goal consolidation of many of HUD's programs.³ In the current budget proposal, consolidation is implemented through performance-based funding streams, supplemented by bonus pools designed to reward high-performing public housing authorities (PHAs), defined by the Department as those who meet "locally designed performance benchmarks."⁴ Finally, the increased funding will be used to respond to the growing demand for budget authority for Section 8 rental assistance.

The proposed budget authority for selected HUD programs is set out below:

The budget echoes the themes promoted in HUD's Reinvention Blueprint II of community empowerment, transforming public and assisted housing, increasing homeownership opportunities and "right-sizing" the Department to focus on "locally driven priorities."¹¹

Section 8

HUD decries the break in the federal government's 20-year commitment to expand the supply of affordable housing through Section 8 rental assistance as evidenced by the failure of the FY 1995 Rescission and FY 1996 appropriations to fund incremental vouchers and certificates.¹² As part of its objective of "transforming Section 8 and older subsidized inventory," the Department plans to use 30,000 of the requested 50,000 one-year incremental vouchers to launch a welfare-to-work initiative designed to enhance housing choices which are located near employment opportunities. The remaining 20,000 certificates are to be used for families dislocated as a result of FHA multifamily portfolio restructuring.¹³

In HUD's view, the proposed Housing Certificate Fund, targeted to families at up to 50 percent of area median income, will afford local jurisdictions flexibility to administer the certificate program unrestrained by many of the program rules, including tenant protections that have characterized the program.¹⁴ Fair market rents (FMRs), as provided in the FY 1996 HUD Appropriations Act, are set at the 40th percentile, and PHAs have discretion to replace the now prohibited federal preferences with local ones that may reward self-sufficiency or other locally identified priorities.¹⁵

The Department is requesting money to fully fund Section 8 contract renewals as well as amendments, but for limited one-year terms. This is consistent with the FHA's multifamily re-engineering proposal which, for certain project-based properties, will "lower Section 8 rents to reflect comparable prevailing market rents."¹⁶ The budget document projects that the re-engineering process will yield significant discretionary savings by adjusting the subsidy to properties now receiving above-market rent subsidies. The proposal cites HUD's modification of its FY 1996 "mark-to-market" proposal which had generated almost universal skepticism because of fear of widespread displacements and other concerns. In previewing some elements of the revised proposal, HUD plans to leave to localities the decision about whether tenants living in developments currently receiving project-based assistance should be protected through tenant-based or project-based subsidies.¹⁷

Public Housing

The proposed budget will accelerate the Department's objective of "changing the dynamic of public housing" through demolishing the most distressed projects and improving the public housing environment by promoting rules that reward work and punish crime and mismanagement.¹⁸ HUD officials have mentioned the figure of 23,000 units approved for demolition in FY 1997. A proposed Public Housing Capital Fund has a $200 million bonus pool to reward high high-performing PHAs, while $2.5 billion remains available in the general fund to meet modernization and rehabilitation needs. In addition, the Budget contains proposed revisions to the Public Housing Management Assessment Program (PHMAP) to aid in assessing PHAs' "progress toward key Federal program objectives."¹⁹ In addition to funding capital and management improvements and vacancy reduction, among other priorities, modernization monies may be used for the development of new units. The Budget proposes a $20 million set-aside from modernization monies for the Tenant Opportunity Program and several additional programs, including a Jobs-Plus Demonstration for public housing families.²⁰

The public housing operating subsidy request grew by $100 million from the FY 1996 appropriated amount, but still represents only 87 percent of performance funding system (PFS) need.²¹ The Budget acknowledges that pending and enacted legislative proposals designed to loosen federal controls will reduce projects' dependence on operating subsidies by increasing public housing's ability to house families with a broader range of incomes. This will be accomplished through reforms such as more aggressive income disregards and ceiling rents.²²

The Budget endorses the Severely Distressed Public Housing Program as the centerpiece of what HUD is dubbing "New Urbanism," where revitalized public housing will serve as the anchor for economic revitalization for decaying communities. The requested funding is for multiple uses, including project demolition, site revitalization, replacement housing for families displaced as a result of demolitions and reduced concentrations of poverty. Half of the funds sought are dedicated to reconstruction and redevelopment activities, while the remainder is to be used for demolitions and relocation vouchers.²³

Homeless Assistance

The Budget proposes to consolidate six categorical McKinney Act homeless programs into a single need-based formula program, the Homeless Assistance Fund. Among program objectives are helping states and localities partner with private nonprofit service providers, simplifying rules and regulations, making homeless assistance more locally driven, and promoting the Continuum of Care approach. As with the block grants program, HUD proposes a performance-based bonus pool of $110 million to be awarded PHAs in the form of challenge grants to high performers and earmarked for "national priorities such as homeless persons with multiple diagnoses, particularly mental illness and/or drug or alcohol addictions."²⁴

Fair Housing

The Budget requests a total of $33 million for comprehensive fair housing activities to fund both state and local fair housing agencies under the Fair Housing Assistance Program and through the Fair Housing Initiatives Program. These funds would be used to support the complementary work of primarily private nonprofits in fair housing enforcement and compliance, voluntary compliance, and education and outreach.

Rural Housing

The Department of Agriculture's budget proposes a 31-percent increase over FY 1996 in the Rural Housing Service (encompassing the former Farmers Home Administration) budget for FY 1997. Specifically, the Section 502 single-family direct housing loan program is proposed to increase from $1 billion in FY 1996 to $1.32 billion, a 32-percent increase. This program is targeted to provide low-interest loans and loan guarantees for the purchase and repair of single-family housing for low- and very low-income rural residents. Through its combined programs the Department of Agriculture projects it can serve 110,000 rural families in FY 1997, an increase over recent years.

Similar growth is proposed for the single-family housing guaranteed loan program which aids moderate-income rural families in achieving homeownership. Twice as much funding as was appropriated in FY 1996 is being sought for mutual and self-help, or "sweat equity," housing construction technical assistance grants. These, when combined with Section 502 financing, can serve very low- and low-income families more cost effectively than the traditional direct loan program.²⁵

For the reauthorized Section 515 multifamily rental housing program, the Administration has requested $220 million in FY 1997, a 45-percent increase over the FY 1996 appropriation of $152 million.

The Department of Agriculture is recommending level funding of $541 million in FY 1997 for Section 521 multifamily housing rental assistance, but anticipates proposing program modifications designed to guarantee that the housing needs of very low-income rural families currently served by the program continue to be served.²⁶

Funding for several low-income rural housing programs is summarized in the following table:²⁷

In summary, the Administration proposes to serve the needs of nearly 110,000 families and 375 rural communities in FY 1997 (whereas FY 1996 served only 96,000 families and 375 communities), while saving the taxpayer 4 percent in budget authority compared to FY 1996. This savings is in part the result of lower interest rates projected for the next fiscal year.

Next Steps

HUD is expected to forward to Congress a legislative proposal in support of its proposed budget during April. Similarly, the Department of Agriculture will include its rural housing proposals in its overall legislative program, which is still being developed as this article goes to press.

1. HUD, Fiscal Year 1997 Budget (Mar. 19, 1996).
2. H.R. 2099, Making Appropriations for the Department of Veterans Affairs and Housing and Urban Development, and for Sundry Independent Agencies, Boards, Commissions, Corporations, and Offices for the Fiscal Year Ending September 30, 1996, and for Other Purposes, H. REP. NO. 353, 104th Cong., 1st Sess. (Nov. 17, 1995, vetoed Dec. 18, 1995).
3. For background on the changes HUD has proposed for itself and is currently implementing, see A Critique of HUD's Reinvention Blueprint, 15 HOUS. L. BULL. 29 (Feb. 1995), and HUD's Reinvention: From Blueprint to Action — Proposed Changes for Public Housing, 25 HOUS. L. BULL. 71 (Apr. 1995).
4. HUD, Fiscal Year 1997 Budget: Executive Summary (undated, but presented Mar. 19, 1996), at 2.
5. $400 million was included in the FY 1996 Budget for replacement units, rather than to add to the supply of affordable housing.
6. This amount will fund 50,000 certificates, 30,000 of which are to be used for a welfare-to-work initiative and 20,000 for "tenant protection." HUD, Fiscal Year 1997 Budget, at PIH-1.
7. Amendments under the rental certificate and Moderate Rehabilitation programs provide Section 8 contract budget authority increases to PHAs to offset increases in rents and/or decreases in family incomes. HUD, Fiscal Year 1997 Budget, at H-3.
8. Five thousand of the incremental Section 8 units are to be designated as property disposition replacement units. HUD, Fiscal Year 1997 Budget, at H-4.
9. HUD, Fiscal Year 1997 Budget, at CPD-9.
10. The Section 202 program for the elderly and Section 811 for persons with disabilities were formerly discrete housing programs. As a part of program consolidation they are being combined into one account, Housing for Special Populations: Elderly and Disabled. HUD, Fiscal Year 1997 Budget, at H-19.
11. See HUD Reinvention Blueprint II Sounds Many Old Themes, 26 HOUS. L. BULL. 26 (Feb. 1996).
12. HUD, Fiscal Year 1997 Budget: Executive Summary, at 9. See also President Signs FY 1995 Rescission Compromise Package — Bad News for Housing, 25 HOUS. L. BULL. 131 (Aug. 1995), and FY 1996 HUD Appropriations Bill: A Triage Plan that Sacrifices the Poorest of the Poor, 25 HOUS. L. BULL. 193 (Dec. 1995).
13. HUD, Fiscal Year 1997 Budget: Executive Summary, at 9. [For background, see, Enormous Challenges Ahead for Preservation of Subsidized Housing, 25 HOUS. L. BULL. 10 (Jan. 1995); Administration Proposes Gutting of Preservation Program, 25 HOUS. L. BULL. 37 (Feb. 1995); Status of HUD's "Mark-to-Market" Proposal Remains Uncertain, 25 HOUS. L. BULL. 133 (Aug. 1995).
14. See HUD-Proposed Housing Certificate Fund Would Significantly Alter the Current Tenant-Based Program, 25 HOUS. L. BULL. 119 (June/July 1995).
15. HUD, Fiscal Year 1997 Budget, at PIH-3.
16. Id. at H-2.
17. HUD, Fiscal Year 1997 Budget, Executive Summary, at 11.
18. Id. at 1.
19. HUD, Fiscal Year 1997 Budget, at PIH-3.
20. Id.
21. The performance funding system is used to calculate projects' operating subsidies. The Council of Large Public Housing Authorities (CLPHA), in its March 29, 1996, testimony prepared for the Senate Appropriations Subcommittee on the Veterans Administration, HUD and Independent Agencies states that the HUD request is only 87 percent of PFS requirements.
22. HUD, Fiscal Year 1997 Budget, at PIH-5.
23. HUD, Fiscal Year 1997 Budget: Executive Summary, at 8.
24. HUD, Fiscal Year 1997 HUD Budget, at CPD-11.
25. Rural Housing Service, Analysis of President Clinton's Fiscal Year 1997 Budget (Mar. 19, 1996), at 2.
26. Id. at 3.
27. United States Department of Agriculture, Fiscal Year 1997 Budget Summary (Mar. 1996), at 37.