National Housing Law Project Housing Law Bulletin

Implications for Low-Income Housing Programs

Although the Concurrent Resolution primarily deals with macro budget functions, leaving specific programmatic activity for the recommendations of the relevant appropriations and sometimes authorizing committees, its implications for the low-income housing programs, both for the coming year and the five-year glidepath toward a balanced budget, are foreboding.

The budget resolution seeks to achieve a reduction to 3.1 percent a year in the rate of growth in federal government spending, down from the current projected annual growth rate of 4.4 percent. It projects the lowest level of federal spending in almost a quarter century. Coupled with the deficit reduction is a net tax cut of $85 billion from FY 1998 through FY 2002. Although the Conference Agreement points to increases during the next five years for some "priority spending programs," including education, the environment and transportation among others, it projects an overall spending increase "for all appropriated non-defense programs of less than a 0.5 percent annual average [growth] rate. . . ."² Various economic assumptions -- including the Gross Domestic Product (GDP) deflator which measures the value of all output, and the Consumer Price Index (CPI), among others -- go into the baseline which underlies the budget resolution.

How inflation figures into budget projections. The Senate Concurrent Resolution points out that the Congressional Budget Office (CBO) and Office of Management and Budget (OMB) forecast very similar "average annualized real GDP growth" (i.e., inflation). The CBO proposes an annual rate of 2.18 percent over the "budget window," while OMB projects a rate of 2.23 percent.³ The Conference Report indicates that the CPI is expected to increase by just under 3 percent for each year of the glidepath. Real GDP growth is expected to average 2.2 percent per year from FY 1998 through FY 2002.⁴

Increased spending for favored, non-housing programs. To the extent that any increases in funding are apparent over the next five years, particularly in Function 600 -- Income Security (described below), those increases will largely be consumed by inflation and the priority treatment to be accorded programs such as education, the environment and transportation, as indicated in the Conference Report.⁵

Budget authority represents the funding provided annually through the appropriations process to each federal agency to make new commitments. Outlays are the net amount of money each agency spends in a given year to meet its program obligations. In a multi-year budget reflecting dramatically slowed government spending growth, increased spending for favored programs, coupled with tax cuts, almost certainly raises the need for cuts in programs such as federal low-income housing. To the extent that the apparent increases in budget authority and outlays in the descriptions of HUD budget functions (set out below) do not reflect inflation, they probably represent actual increases in these favored programs.

Increases in discretionary funding may be more apparent than real.

For discretionary programs, the Conference Report provides budget authority of $510.1 billion for FY 1997, rising to $551.1 billion by FY 2002. The increase for FY 1998 is $16.8 billion, or 3.3 percent, over FY 1997; for FY 1999, it is $6.1 billion or 1.1 percent over the prior fiscal year. For FY 2000, there is only a $4.2 billion increase, followed by a $4.8 billion increase in FY 2001. At the end of the five-year glidepath, budget authority of $551.1 billion is projected. Despite the nominal increases in budget authority, inflation alone would eat up most, if not all, of them, increasing pressure for cuts in real dollars on disfavored programs. The outlay projections for these same programs are more telling, resulting in an actual decrease when the balanced budget is achieved in FY 2002. Beginning with almost $549 billion in FY 1997, outlays grow moderately, by about $4.8 billion (less than 1 percent), in FY 1998; $6 billion (less than 1 percent) in FY 1999; $5 billion (1.1 percent) in FY 2000; and $0.1 billion in FY 2001. In FY 2002, outlays will actually decrease by almost $4 billion.

Low-income housing falls into three budgetary functions. The federal low-income housing programs fall principally within three functions in the United States Budget: Function 370, Commerce and Housing Credit; Function 450, Community and Regional Development; and Function 600, Income Security. The FHA mortgage insurance programs and subsidies for single- and multifamily rural housing programs are included in Function 370, along with funding for the Postal Service and the census, among other activities. Among HUD programs, Function 450 includes the Community Development Block Grant Program. Function 450 also contains the Federal Emergency Management Agency (FEMA) programs, certain Department of Agriculture programs, and the Department of Commerce's Economic Development Administration, among others. Function 600 is the principal funding stream for HUD's low-income housing programs, but it also includes the primary cash and in-kind welfare and nutrition programs administered by a number of other agencies, including the Departments of Health and Human Services and Agriculture.⁷

FY 1998 funding, as well as funding for the "out years," is set out for each of the HUD budget functions in the charts below.

Under Function 370, budget authority for FY 1998 of $9.3 billion is assumed. This is an increase of $3.3 billion over FY 1997 levels. Budget authority will increase in each year of the glidepath to $15.6 billion in FY 2001 and $16.9 billion in FY 2002. Outlays during this period jump from $1.8 billion for FY 1998 to $11.6 billion in FY 2001 and $12.8 billion in FY 2002. These increases might be encouraging for beneficiaries of the FHA mortgage programs and the Rural Housing Service (RHS) housing programs, but, as indicated above, inflation will consume part of this increase, with the other favored programs absorbing any remainder, leading to the need to cut the housing programs. In fact, the Continuing Resolution sets the blueprint for achieving savings within this function by directing the House Banking and Financial Services Committee to continue the alteration of the single-family assignment program to provide lender forbearance for only up to one year.⁸ The Conference Report suggests that "targeting and efficiency" can be improved by continuing the current program, coupled with one-year forbearance from loss of their homes for FHA homeowners under temporary economic distress.⁹ Few more vivid examples exist of how the availability of dollars drive policy formulation even when the policy result injures vulnerable populations (such as FHA mortgageholders who have fallen into temporary economic distress) and the funding calculations are not even sound.

The Senate amendment assumes similar spending but suggests that necessary savings to meet the bipartisan budget agreement may be achieved through a variety of actions proposed in the President's Budget for Function 370 programs, including freezing at FY 1997 levels both the direct rural multifamily housing loans and related administrative expenses and FHA multifamily housing loan insurance.¹⁰

For Function 450 programs, the concurrent resolution assumes budget authority of $8.8 billion for Fiscal Year 1998 and outlays of $10.4 billion. The FY 1998 budget authority represents a reduction of $1.4 billion from the FY 1997 budget authority estimate of $10.2 billion. In the out years FY 2000 through 2002, budget authority stays fairly level at $7.8 billion, with a slight increase of $26 million in the last year of the glidepath. Outlays, reduced by $1.9 billion between FY 1997 and FY 1998, are further reduced to $8.4 billion in FY 2002. The budget resolution provides that savings must be achieved in order to satisfy the Bipartisan Budget Agreement's discretionary spending limits. With respect to HUD programs, it suggests that savings might come from a freeze in outlays for the CDBG program, [savings] actually proposed by the Administration in seeking $4.6 billion in budget authority and $4.7 billion in outlays, representing $115 million in budget authority less than the budget resolution baseline.¹¹

Function 450 demonstrates the brutal effect of both the short- and long-range budget on HUD programs. CDBG, for example, comprises $4.6 billion of the $8.8 billion in Function 450 budget authority for FY 1998. By FY 2002, Function 450 budget authority drops to $7.8 billion. That funding level includes no allowance for inflation and is coupled with a $1 billion cut in FY 1998, for an overall cut of $2.4 billion from FY 1997. In this formulation, CDBG competes with FEMA and the Community Development Financial Institution fund among other programs, for the reduced budget authority.¹² As observed above, the Conference Report suggests that at least by freezing CDBG at $4.6 billion, no increase will be anticipated for the next five years, resulting in an actual cut in terms of real dollars.

Function 600 programs appear to experience growth as budget authority climbs from $247.8 billion for FY 1998 ($9.9 billion more than for FY 1997) to $285.2 billion in FY 2002. Clearly, however, inflation will consume some of the growth within this function. Other programs, such as the one providing funding for Supplemental Security Income (SSI) disability and Medicaid benefits for noncitizens entering the country before welfare reform took effect or for those who enrolled in the program prior to June 1, 1997, will absorb more of the increase.

In the housing area, Congress recognizes the role of Section 8 contract renewals in the dramatic increase in need for budget authority. The Conference Report observes that there will be almost two million units requiring renewal for just 1998. Both the House and Senate support increased resources to renew all existing contracts, maintaining support for the same number of units as in FY 1997. Obviously, this will not result in additional units, but is designed to prevent displacement of persons currently housed in the Section 8 project-based program. The additional resources needed to fund contract renewals will devour any increased budget authority left after inflation adjustments, and Congress is willing to pay for the renewals. The House Resolution anticipates reforms to be adopted by the House Banking Committee which will facilitate the reduction of Fair Market Rents to actual market levels for currently oversubsidized properties by reducing their mortgages through restructuring. The House Resolution, in addition, points out that tax relief for project owners may be a necessary element of any reform and urges cooperation among the relevant committees of jurisdiction, including the Ways and Means Committee, in seeking solutions.¹³ Alarmingly, public housing operating and capital funds, which have experienced severe budget cuts in recent years, will be a major target as a source for the additional monies needed to fund the contract renewals. One savings measure promoted by the House resolution is reduction of annual adjustment factors for project-based housing, an action justified because so many owners receive subsidies that exceed the market rents for comparable units.¹⁴ Ending funding for the low-income housing preservation program (LIPHRA), and reducing funding for HOME, HOPE VI, homeless assistance grants and housing for special populations, among other programs, are suggested as additional potential savings devices.¹⁵

The chart set out below compares Section 8 contract renewals with Function 600 and illustrates how much of the apparent increase in Function 600 budget authority for each year must be dedicated to Section 8 contract renewals just to keep the program operating at a fixed level.¹⁶

Conclusion

Presentation of the five-year budget plan seems unnecessarily obscure, where figures are not revealing and increases may be illusory. While Function 450 funding clearly declines, both budget authority and outlays for functions 370 and 600 appear to increase, at least in nominal terms. However, it is clear that part of any increase is attributable to inflation and a substantial portion of any remaining increases represents growth for favored programs, most certainly at the expense of other programs such as public housing.

1. H.R. REP. NO. 116, 105th Cong., 1st Sess. (June 4, 1997), to accompany H. Con. Res. 84, Concurrent Resolution on the Budget for Fiscal Year 1998 (hereafter H.R. REP. No. 116 or Conference Report).
2. Id. at 55-56.
3. Concurrent Resolution on the Budget for FY 1998, S. PRT. 105-27, to accompany S. Con. Res. 27, 105th Cong., 1st Sess. (May 1997), at 4.
4. H.R. REP. NO. 116, supra note 1, at 60.
5. Id. at 56.
6. Does not include budget authority and outlays for defense.
7. For a description of programs within Function 450, see H.R. REP. NO. 116, supra note 1, at 75; for programs within Function 600, see id. at 85.
8. Id. § 105(c)(2) at 17.
9. Id. at 71.
10. Id. at 72.
11. Id. at 76.
12. Id. at 75-76.
13. Id. at 85.
14. Id. at 87.
15. Id. at 88.
16. See Section 8 Expirations: Housing Resource Up for Grabs at page 97 of this issue.
17. Source: HUD, Congressional Justifications for 1998 Estimates, Department of Housing and Urban Development (Feb. 1997), Part 1, at C-2.