National Housing Law Project Housing Law Bulletin

Both HUD and the General Accounting Office have recently issued reports covering the impact of the changes in welfare on public housing agencies (PHAs) and their tenants.¹ The GAO report is described briefly in the accompanying box. This article will describe some interesting information provided by the HUD report and analyze some of its conclusions.

The purpose of HUD's report was to begin the process of predicting whether the changes in welfare would jeopardize the financial stability of PHAs and, if so, to suggest countermeasures that the PHAs, HUD and Congress could take to mitigate the adverse impact. To make its prediction, HUD focused intensely upon two Virginia PHAs, Richmond and Norfolk, and less intensely on six others — Los Angeles and San Francisco, Cleveland, Columbus and Toledo, and Dallas. HUD examined how many of each PHA's tenants would be affected by the welfare changes, then attempted to determine how many of those tenants would succeed in getting jobs and how many would not, and finally projected the impact of their new incomes on the rents collected by the PHAs and the operating subsidies paid by HUD.

HUD analyzed three separate scenarios, each based upon different assumptions about how many of the tenants would succeed in securing jobs. The worst case scenario assumed none of the tenants secured jobs. A second, the conservative estimate, assumed that the number of successful public housing tenants would be the same as the percentage of jobs available for all entry level job seekers in the PHA's Metropolitan Statistical Area (MSA). The third, labeled optimistic, assumed that public housing welfare tenants would eventually participate in the workforce at the same rate as other people in the area with similar employability characteristics.

The studied PHAs altogether would collect $5 million more rent as a result of the welfare changes if the optimistic assumptions proved correct. But if the conservative estimates came true, HUD concluded the PHAs collectively would receive $4 million less than they currently collect from those tenants. That loss would amount to a 27-percent decrease in rent collections from those tenants, or a 5-percent drop in the PHAs' total revenue of $78 million. The overall drop of 5 percent is because welfare recipients constitute only about one-fourth of these PHAs' tenants, and the current rents collected from them are lower per household than the collections from the other tenants households.

The changes, however, are not the same for each PHA under any of the scenarios. Under the optimistic scenario, all but one of the PHAs — Norfolk — come out better than before the welfare changes. Under the conservative assumptions, three of the PHAs come out better and five do worse. Not surprisingly, under the worst case scenario, seven of the eight PHAs come out worse. One, however, Columbus, still does better than before the welfare changes.² The primary variables that seem to influence the outcomes are the availability of jobs in the PHA's area and the proportion of tenants at the PHA who receive welfare, as well as, to a lesser extent, the PHA's minimum rent level and the welfare grant levels in the state.

Although the major purpose of HUD's report was to analyze the possible financial impact of the welfare changes on PHAs and HUD, in the process of doing that analysis, the HUD report reveals several interesting facts, discussed below. They concern the number of tenants who will be affected, the types of jobs for which they may qualify and the availability of those jobs, the tenants' chances of securing those jobs and the factors that will affect those chances.

Finally, the HUD report analyzes the financial consequences of the emerging picture and the policy choices that the PHAs, HUD and the Congress might make to mitigate the adverse consequences.

The Number of Affected Tenants

HUD's beginning point was to determine how many tenants at each of the eight PHAs were receiving welfare payments and would not be exempt from the work requirements and time limits. As the accompanying table shows, in most of the PHAs about 25 percent of the tenants receive welfare and are subject to the time limits. The only major deviation was Los Angeles, where 37 percent of the tenants were receiving welfare and subject to the limits.

Table 1

Number of Tenants Affected by Welfare Changes
 

	Total Tenants	Percent on Welfare	Percent Affected  by Welfare Limits	Number Affected by Welfare Limits
Cleveland	8,074	26	23	1,857
San Francisco	5,640	29	24	1,354
Columbus	3,568	29	25	892
Dallas	5,287	29	25	1,321
Toledo	2,988	34	25	747
Norfolk	3,575	32	25	898
Richmond, VA	4,398	36	26	1,158
Los Angeles	8,991	43	37	3,327

Source: HUD, Welfare Reform Impacts, at 6.

The fact that 75 percent of the tenants of seven of the PHAs either do not receive welfare or are not going to lose it considerably mitigates the financial impact of the welfare changes on the PHAs. The impact is even lower because welfare tenants have lower incomes than their neighbors, and the PHAs thus collect proportionately less rent from them. This good news for the PHAs, however, does not directly make it any easier for individual tenants to cope with the welfare changes. Nonetheless, it does indicate that PHAs have more flexibility to assist tenants who may not secure jobs and lose their welfare than otherwise would be the case.

Job Availability

The success of the welfare changes and of individual welfare recipients will be highly affected by the availability of jobs for which the recipients can qualify, not only in absolute numbers but also in relation to the number of people seeking them. Based upon information secured about the public housing tenants' qualifications, the HUD researchers concluded that the vast majority of the welfare tenants would have to seek jobs in the retail, manufacturing and administrative sectors, as well as service jobs in hotels, hospitals, restaurants and other food services. They noted that many of the tenants would be ineligible for even the clerk positions in the administrative sector because of a lack of high school degrees. They also concluded that most of the tenants would not be able to secure jobs at the semiconductor plants opening outside Richmond, because the jobs required high school degrees plus additional education or specialized training.

The description of the types of jobs to which most tenants will be confined brings home the difficulty that many public housing tenants on welfare will have in the next two or three years. That will be especially true if the welfare departments continue their emphasis upon work first and withhold from the tenants the opportunity to fill in the gaps in their educations and to secure vocational training. The report brings that fact home when it observes that more retail jobs are available because the turnover in those jobs is 200 to 300 percent per year.

The chances that a particular person will secure a job are influenced not only by the number of jobs available but also by the number of people seeking them. For each PHA's area, the researchers began analyzing these factors by comparing the number of people in the MSA seeking the kinds of jobs welfare tenants would be seeking with the number of openings for such jobs. As the attached chart shows, in no place were there as many jobs as job seekers. The best situation was in Richmond, where there were nearly two people seeking a job for each opening. The range went up from there to Toledo, where there were 13 times as many people looking for entry-level jobs as there were openings.

Table 2

Comparing Job Seekers with Job Openings
 

	Job Seekers for  Each Entry-Level  Opening in MSA	Unemployment  Rate (%)
Richmond	1.7	3.3
San Francisco	2.7	3.2
Norfolk	3.6	4.6
Dallas	4.1	3.9
Columbus	5.8	3.2
Los Angeles	6.2	5.5
Cleveland	10.7	5.5
Toledo	12.7	5.0

Source: HUD, Welfare Reform Impacts, at 14 and 17.

Of course, not every entry-level job opening in an MSA can be considered a potential job for a public housing welfare tenant. Most of the recent job growth and, in many places, most of the openings are located in the suburban areas of the MSAs. The HUD report cites statistics indicating that, in the Richmond MSA during the 15 years from 1979 to 1994, the jobs in the city declined by 6 percent while the jobs in the suburbs increased by 34 percent. The end result was that currently 60 percent of the entry level jobs are located outside of the city. The public housing tenants who will be seeking jobs live in the city, do not often have cars and rely upon public transportation. Many of the jobs in the suburbs are not accessible by public transportation. Moreover, information about the openings in the suburbs is less likely to reach tenants living in public housing in the cities.

To assess the impact of the distance between their homes and the jobs spread throughout the MSAs, HUD contracted for more detailed research in the three Ohio sites — Cleveland, Columbus and Toledo. There the researchers looked at the entry-level job openings in the areas that were realistically within commuting distance of the public housing developments where the tenants lived. That more detailed analysis indicated that, in almost all of the cases, each accessible job opening had more people seeking the job than were anticipated from the MSA-wide analysis. In a few cases, the analysis showed the tenants would have less competition for the jobs within their commuting range. The one area where the tenants would have the best chance was a Columbus neighborhood which had the greatest concentration of entry-level jobs in the entire MSA. In two-thirds of the cases, the tenants' chances were worse under this more detailed analysis, and in one Cleveland neighborhood the analysis showed that there would be an astounding 76 times as many job seekers as job openings within the tenants' commuting range.

This analysis of the mismatch between location of entry-level jobs and most public housing developments brings home the point that consideration must be given to the negative impact that a development's location may have upon a welfare tenant's chances of getting and retaining a job. The analysis has to be done carefully and the solutions have to be tailored to the problems. For example, some might leap to the conclusion that all public housing should be converted to tenant-based assistance with the hope that people would move to areas of less dire competition for jobs. That tactic would make little sense for developments like the one in Columbus, where the tenants' chances are actually better in the neighborhood where the project is located. Likewise, converting all public housing to tenant-based assistance would not make sense for project tenants who are already employed. It also throws away the advantage of having people who need education, training and services living near one another as they prepare to enter the job market. Thus, perhaps a more sensible and less drastic solution would be to make tenant-based assistance available to public housing tenants who have found jobs outside their realistic commuting range.

Public Housing Tenants' Chances of Obtaining Employment

Beyond the number of people competing for the same jobs, how public housing tenants stack up against the other competitors will influence how likely they are to succeed in obtaining employment. The HUD report indicates that, on average, public housing tenants will have more barriers to overcome than other job seekers. Data on four of the PHAs indicated that their welfare tenants were less likely to have high school degrees than other welfare recipients who would also be having to seek employment.³ In addition, 12 percent of the tenants in Richmond and 6 percent of those in Norfolk had not even finished the eighth grade. The public housing welfare tenants in Richmond and Norfolk were also short on work experience. Only 10 percent of them were currently working part time and only about 25 percent had previously held jobs.

Table 3

Welfare Recipients Without High School Educations
In and Out of Public Housing
 

	Public Housing  Welfare Recipients  Without a High  School Degree	Welfare Recipients  Not in Public Housing  Without a High School  Degree
Richmond	61%	48%
Norfolk	57%	48%
San Francisco	56%	49%
Los Angeles	42%	37%

Source: Welfare Reform Impacts, Table 1, at 9.

With less education and less work experience than others seeking the same jobs for which they apply, public housing welfare recipients are less likely to be successful in getting the jobs. In addition, the majority of the welfare tenants required to seek employment will be women. Some of the entry-level jobs which they will be seeking will be ones traditionally held by men. Although that does not mean that none of those jobs will be secured by women from public housing, it does present one more barrier for them to overcome.

Other Impediments to Securing Employment

In addition to availability and accessibility of jobs and qualifications for them, public housing tenants will encounter other problems in securing and retaining jobs. The report looked in detail at two sites, Richmond and Norfolk, concerning two additional factors. The first was transportation, which had been touched upon in the analysis of job availability. This time the HUD report explained the deficiencies in the Richmond and Norfolk public transportation systems. Primarily they were that: (1) most of the lines did not go into the suburbs, (2) some of those that did were express lines without stops near the major centers of entry-level jobs, and (3) even transportation in the cities became erratic or non-existent after normal commuting hours. Many of the entry-level jobs public housing tenants would be seeking would entail evening and weekend hours.

In Richmond — but not in Norfolk — the HUD report indicates there is an organization called Ride Finders whose mission is to arrange transportation for welfare recipients who are seeking jobs in the suburbs. The mechanism is to establish a network of vans which employers can rent that will take low-income employees to major employment sites with entry-level jobs. Ride Finders is also considering a separate van network to take children to childcare sites.

The second additional service that the report analyses is childcare. Its general conclusion is that there are or will be enough childcare slots, at least for children under six, but possibly not for school-age children. However, the major problem is that the childcare is too expensive. The report indicates that the cost per child per week are in the $50-75 range. For a family with two children, childcare can consume half of the take-home pay of a full-time minimum wage worker. Subsidies do not solve the problem. The Virginia welfare program will subsidize childcare only for one year after the recipient has left welfare, and the other childcare subsidy programs are heavily over-subscribed.

The Financial Impact

After laying out the basis for estimating the likely success rate of welfare recipients in public housing who are required to secure work, the report then looks at the likely financial implications. The first picture is of what would happen if none of the welfare tenants, other than those who are currently working, secured a job and thus lost their cash income at the end of the time limits. Under that scenario, all of the PHAs except for Columbus would be worse off than they currently are. At Columbus, assuming it would be able to collect its $50 minimum rent from all of the former welfare recipients who did not get jobs, the housing authority would collect $125,000 more rent than it is collecting now. At the other seven PHAs, there would be a drop in income, even with the minimum-rent collections. The largest drop would be in Los Angeles, whose PHA would lose a total of $4,655,000. The loss range would be from 3 percent of the current rent collections (Dallas) to 21 percent (Los Angeles). The factors causing the differences are (1) the portion of current tenants who receive welfare and who will be subject to time limits and (2) the level of the welfare grants received by those tenants.⁴

Table 4

Drop in Rent Collections Under Worst-Case Scenario
 

	PHA Lost Rent	Total Rent	Current Loss as %  of Current Rent
Columbus	+$125,000	$5,000,000	(2.5%)
Dallas	$255,000	$7,901,000	3%
Cleveland	$562,000	$10,575,000	5%
Richmond	$497,000	$8,406,000	6%
Toledo	$429,000	$4,545,000	9%
Norfolk	$772,000	$6,774,000	11%
San Francisco	$1,727,000	$13,254,000	13%
Los Angeles	$4,655,000	$21,672,000	21%

Source: Welfare Reform Impacts, at xii, 34 and 38.

The HUD Report also presents, in percentage terms, the number of welfare tenants at each PHA who must secure a job for the PHA to break even, or be held harmless from the effects of the welfare changes. Because of the differences in the proportions of the tenants who are welfare recipients and the amounts of rent collected from them, the break-even level varies considerably. It ranges from zero for Columbus, where the PHA will still be ahead even if no non-working welfare recipient gets a job, to 61 percent for Los Angeles.

Table 5

Break-Even Point: Percentage of Welfare Tenants Who Must Get a Job for the PHA to Be Held Harmless
 

	Break Even Point	Conservative Estimate of % who will secure jobs	Optimistic Estimate of % who will secure jobs
Columbus	0%	17%	67%
Dallas	12%	24%	72%
Cleveland	22%	9%	45%
Richmond, VA	28%	61%	58%
Toledo	37%	8%	40%
San Francisco	45%	37%	63%
Norfolk	48%	28%	42%
Los Angeles	61%	16%	62%

Source: Welfare Reform Impacts, at xi.

Having established for each PHA the percentage of welfare recipients who would have to become employed for the PHA to break even, the report then makes two estimates of the percentage of welfare recipients at each PHA who are likely to become employed. The first estimate, labeled the conservative estimate, assumes that the percentage of tenants who will succeed at getting jobs will equal the ratio of job openings in the MSA to job seekers. That is if, as is the case in Richmond, the number of job openings equals 61 percent of the job seekers, then 61 percent of the tenants seeking jobs will secure them. The optimistic assumption is that public housing tenants will participate in the workforce, i.e., will succeed at getting jobs, at the same rate as other people who have the same characteristics with regard to employability.

With those two estimates of employability, the report presents the chances that each PHA will collect as much rent after the welfare changes as before. Using the optimistic estimates, the report concludes that enough welfare tenants will secure jobs so that all of the PHAs except Norfolk will collect more rent than before the welfare changes. Norfolk would need 48 percent of its welfare tenants to secure jobs for it to break even, but even under the optimistic estimate only 42 percent of them will succeed. With the conservative estimates, only three of the PHAs would break even: Columbus, Dallas and Richmond. At the other PHAs, the percentages of successful tenants would fall short by as little as 8 percent in San Francisco to as much as 45 percent in Los Angeles.

In dollar figures, the PHAs would collectively be more than $5 million ahead in rent collections if the optimistic estimates proved true. That would mean that HUD could increase the operating subsidies for Norfolk — the one PHA that would not break even under the optimistic estimate — and still need lower operating subsidies from Congress than before the welfare changes.

Under the conservative estimates, the PHAs, after the welfare changes, would collectively be almost $4 million behind their current rent collections. That $4 million represents 5 percent of the eight PHAs' collective revenue. These PHAs lose 42,500 households, or approximately 3.5 percent of their public housing households. If the federal government were to decide to hold all the PHAs harmless from the effects of the welfare changes, one could project that, under the conservative estimates, Congress would have to raise the annual operating subsidy appropriation by about $113 million per year, or about 4 percent of the annual operating subsidy appropriation.⁵ That projection, however, requires caution, because it assumes that the situation for PHAs as a whole would be similar to the situations of these eight PHAs. Given the variations among these PHAs, one cannot be certain that the final result for all the PHAs would be the same.

Questions About Assumptions

There are several assumptions the HUD Report makes when projecting the revenue consequences for the PHAs that may not be realistic. For example, the conservative estimates of tenants' success at securing jobs are based solely on the ratio between all entry-level job seekers and all entry-level job openings in the MSA. If there are enough entry-level jobs for 61 percent of the job seekers, as is the case in Richmond, the report assumes that 61 percent of the welfare tenants will secure jobs. The discussion in the report, however, indicates many reasons why welfare tenants may not do as well as the average job seeker, including their lower educational, work experience and other qualifications and their geographic isolation from most of the jobs. Thus, even the conservative estimates may be too optimistic.

Moreover, the HUD Report assumes that the PHAs will be able to collect the minimum rents from the tenants who do not secure jobs and lose all their welfare income. Those minimums are $50 in Richmond and Columbus, and $25 at the other six PHAs. The assumption that the PHAs will collect these rents appears to be based upon the PHAs' current success at collecting the minimum rents. The report also suggests that tenants without income have paid the minimum rents so far because they either have lost their income for short periods of time and borrow from friends, family and charities to pay the rent or they earn income in an underground economy and do not report it to the PHA.

Those explanations for current tenants' ability to pay the minimum rents may not carry over to tenants who have permanently lost welfare and been unable to secure a job, either because of the shortage of jobs, lack of access to them or to affordable childcare, or their own inadequate qualifications. When the situation is not temporary, borrowing from others will not work forever. Some of the people who cannot get a job in the regular economy will also be unable to get one in the underground economy.

Even if the report is too optimistic on this point, however, the financial consequences for the PHA may not be negative. If the tenant moves out or is evicted for nonpayment of the minimum rent and the PHA can replace the tenant with an employed tenant, the PHA, after recovering eviction costs, will be collecting more rent.

Recommendations for the PHAs and HUD

The HUD Report presents some recommendations about what the Richmond and Norfolk PHAs are doing or could do to protect against any adverse financial impacts of the welfare changes. The recommendations, however, add little, if anything, to the current debate. The report cites the fact that collecting minimum rents limits the loss of revenue from tenants who have lost all their income. It suggests that Norfolk would limit its losses even more if it raised its minimum rent to $50, as Richmond has done. The recommendations, however, do not counterbalance that benefit with the hardships that tenants who cannot pay the $50 over the long term, accepting the view that that unreported sources of income will protect all of the minimum-rent tenants.

The report also cites Richmond's admissions policy that grants preference to employed applicants and applicants with higher incomes, which SSI and SSDI recipients can meet. It does not criticize such a policy for the fact that it leaves out not only unemployed people with no income but also welfare recipients who are participating in job training programs or other work-related activity. In contrast, as the report explains, Norfolk extends its preference to people who are in job training and would prefer to apply its preference to only 50 percent of the units it fills, saving the other half for the more traditional preference holders.

The report also presents the PHAs' dissatisfaction with ceiling rents, with optional earned income disregards, and with the current law that requires PHAs to reduce rents when welfare recipients lose income because of welfare sanctions. Again, there is nothing new here.

What the HUD Report does not do is make recommendations about what the PHAs, HUD or Congress could do to increase the number of welfare recipients who do secure jobs and to mitigate the hardships suffered by those who do not succeed. Despite acknowledging the lower educational and work experience characteristics of the welfare tenants, there is no discussion of what the PHAs could do to help them get more education or work experience. Nor are there any recommendations about what the PHAs could do with transportation schemes or the special use of tenant based-assistance to overcome the geographic separation between public housing tenants' homes and the job locations.

Even on childcare, where the report indicates that the major problem is cost, there is no recommendation of increased federal funding for childcare for public housing residents.

Finally, the report suggests the PHAs seek to cover any shortfalls from CDBG funds, but carefully does not suggest that Congress could increase the operating subsidy appropriation to offset shortfalls, even relatively minor ones.

Consequences for Tenants

The HUD Report is also short on its concern for the consequences to tenants of the welfare changes. It explains that, prior to expiration of a family's time limits, the family may still lose income if it is sanctioned for failure to comply with the welfare department's work-activity or other requirements. The report presents some speculation about the number of families that are likely to be sanctioned, with the figures ranging from 20 to 33 percent. But it is silent on what might be done to assist tenants who are sanctioned, even though a footnote states that in some cases the welfare department's fraud unit finds that the sanctions are unwarranted. There is no recommendation that PHAs help tenants secure reversals of improper sanctions or at least refer them to others who can help. Instead, the report recommends only that the law be changed to allow PHAs to withhold rent reductions from sanctioned tenants.

When the report moves to the consequences of the expiration of time limits, it blandly notes that tenants who fail to secure jobs will lose all their cash income and will still have to pay the minimum rent. However, it observes, many of those tenants may have unreported income and, if they do, they at least will be able to keep their homes by paying the minimum rent with it. There is no mention of the hardships that will be faced by families that do not have "unreported income" and are evicted because they cannot pay the minimum rents; nor are there any recommendations about steps the PHAs could take to avoid such evictions, for example, eliminating the minimum rent or waiving it in hardship cases.

For tenants who succeed in securing employment, the report states that the earnings of most will still remain below the poverty line and that expenses for transportation and childcare will consume most of their disposable income. Again, there is no recommendation for changes that might be made to help them secure higher incomes or to subsidize their childcare and transportation costs.

Conclusion

The HUD Report is valuable because it provides much new information and helpful initial analysis; however, it cannot provide more concrete estimates of the financial and other consequences of the welfare changes for PHAs and tenants. First, even to replicate, for all PHAs or a representative sample of them, the research and analysis done on these eight PHAs is beyond the resources for research on this topic. Second, ultimately, only the future will tell how many welfare recipients will secure employment, what their incomes will be, whether and for how long they will stay in public housing, how many tenants will not secure jobs, whether they will have to move out and, if so, who will replace them. Until we get more experience, we will have to continue to make policy recommendations on the basis of best guesses, not concrete knowledge.

What is disappointing about the HUD Report is its failure to present a full picture that would help Congress and others make the decisions they must now make. The report focuses upon the possible outcomes for purposes of estimating the financial exposure faced by HUD and the PHAs. The scanty recommendations it contains solely deal with ways for the PHAs and HUD to reduce their exposure. There is almost no analysis of the risks that tenants will face, and no recommendations about steps that could be taken to reduce those risks or to mitigate the hardships for those whose lives will be worse as a result of the welfare changes.

¹  HUD's Office of Policy Development and Research, Welfare Reform Impacts on the Public Housing Program: A Preliminary Forecast (Mar. 1998) (hereinafter HUD, Welfare Reform Impacts or "the HUD report"); United States General Accounting Office, Welfare Reform: Changes Will Further Shape the Roles of Housing Agencies and HUD (GAO/RCED-98-148 June 1998) (hereinafter "the GAO report").
²  Although the HUD Report does not explain how that would happen, apparently HUD assumed that the welfare tenants in Columbus who are already employed part time would become employed full time, and their increased earnings would more than offset the declines among tenants who lost welfare and did not find jobs.
³  See Table 3.
⁴  See Table 4.
⁵  The $4 million these PHAs would lose represents 3.5 percent of $113 million.