HUD Refuses to Disperse Allocated Housing Assistance Funds

The Center on Budget and Policy Priorities reports that Housing and Urban Development Secretary Alfonso Jackson is instituting policies that will effectively cut the Housing Assistance funds Congress has already allocated by simply preventing agencies from dispersing them.

HUD’s new fiscal year 2004 funding policy (which is distinct from an Administration budget proposal to cut voucher funding sharply in fiscal year 2005 and to convert the program to a block grant) is compelling state and local housing agencies to institute cuts in assistance that will cause significant hardship among low-income families. The actions that Secretary Jackson announced on May 20 — correcting an error in the method that HUD initially used to calculate funding levels for some agencies and providing added funds for reserve accounts that agencies can use to cover shortfalls — reduced the magnitude of the required reductions, but has not eliminated the need for harsh cuts in some areas.

For example, some agencies are raising rent burdens on low-income families that receive vouchers by reducing the maximum amount of rent a voucher can cover. Other agencies are reducing the number of families assisted, by rescinding vouchers provided to families that are searching for housing but have not yet found a unit to rent with their voucher, and by “shelving” vouchers that become available when current voucher holders leave the program (rather than reissuing the vouchers to needy families on waiting lists as is the normal practice). For some agencies, the shortfalls created by the new HUD policy are so severe that the agencies may have no alternative but to terminate assistance to some low-income families that currently rely on vouchers to help pay the rent.

Under the fiscal year 2004 appropriations law enacted in January, HUD could have taken — and still can take — stronger steps that would largely avert housing assistance cuts. HUD has acknowledged that it has $190 million in funds that could be used to cover shortfalls under its new policy, but has failed to institute measures to distribute these funds to many of the housing agencies that otherwise will be forced to reduce assistance to needy families.

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Under the new system, HUD will limit the average amount of funding that a state or local agency receives for each voucher in use to the agency’s average cost per-voucher in May-July 2003, plus an adjustment for rent inflation that has occurred since that time in the agency’s region of the country, as determined in accordance with a rent inflation formula HUD has devised.

Voucher costs at many housing agencies have risen since July 2003 at a faster or slower rate than the regional rent inflation factor that the HUD formula uses (which is often based on inflation in a region encompassing several states), and generally have done so for legitimate reasons. If an agency’s average voucher costs have risen faster than HUD’s rent inflation factor, however, the agency will not receive sufficient funds to pay landlords for all vouchers now in use. In such cases, housing agencies will be able to receive additional funds to address the shortfalls the new HUD policy creates only if they are successful in an appeal to HUD for a larger cost adjustment. Based on the information that HUD has provided about the timeline of the appeals process and the permitted grounds for appeal, it appears unlikely that this process will provide adequate or timely relief to local agencies that will be underfunded as a result of HUD’s new policy.

Some agencies have access to “program reserve” funds that can be used to make up for a shortfall in HUD funding. But despite the distribution of $152 million in additional reserve funds to local agencies, announced by Secretary Jackson on May 20, HUD has fallen short of providing many agencies with reserve funding that brings the reserves to their traditional levels. As a result, many agencies’ reserves are too small to make up for the under-funding that is resulting from HUD’s new policy. Furthermore, as discussed below, other measures that HUD has instituted may deter even agencies that have adequate reserves from using those reserves to cover the gap between their actual voucher costs and the funding levels they are now receiving from HUD; such agencies may thus feel compelled to institute cuts anyway.[1]

The adverse effects of the new HUD policy are intensified by the late date on which the policy was announced. The delay in announcing the policy reduced the amount of time available to housing agencies to plan for and respond to it, and is forcing agencies to impose deeper cuts than otherwise would have been necessary to adapt to the reduced levels of funding. While some housing agencies received advance information, most were not informed by HUD about the policy until the April 22 notice was released more than three months after Congress passed the fiscal year 2004 appropriations legislation. Moreover, agencies were not told the specific amount of funding they would receive (which could not be calculated from the information in the April 22 notice) until the third week in May, and some important details of the policy remain unclear even now.

Section 8 funds have been under attack by conservatives for 20 years, and the tricks the CBPP is describing are the same ones Stockman used in the 80's to starve all kinds of welfare and poverty programs. It works like this: when an agency like HUD doesn't disperse all its money, that money has to go back to the Congress at the end of the fiscal year. The returned money will then be used by influential think-tanks like the Heritage Foundation or the American Enterprise Institute to 'prove' in carefully crafted and entirely bogus reports that Section 8 is over-funded. Those influential reports will then be used by conservative Congressman to justify further cuts in HUD's Section 8 Housing Assistance--"They didn't use what we gave them last year! Why should we give them more this year?"--but more importantly they will help to lay the groundwork for the claim that the housing crisis has been overblown and that Federal funds aren't needed to help people cope with it--an argument that will result in...more budget cuts, of course.

It's also a way for politicians to have it both ways: they can say--correctly--that they voted for housing assistance for the poor and when the money isn't spent, they can call themselves 'budget-cutters'. Whenever a politician says s/he voted for poverty programs, the next question should always be: "Did they disburse the money?"

In this case, Jackson's 'policy' tricks are setting up the next revision: the Bush Administration wants Section 8 turned into a block grant--another recycled Reagan-era budget manipulation. Block grants are fixed sums paid to states for various programs. The amount of a block grant is determined by formulas that are heavily skewed toward cutting the allocation using every possible excuse, no matter how unrealistic or far-fetched. They're generally cut 10-20% simply on the assumption that states are 'more efficient' than the 'wasteful' Federal government and therefore need less money to provide the same level of services. It gets worse from there. For instance, in the 80's Massachusetts' pre-school block grant was reduced by almost half in one year when the formula was changed fom an 'area determination'--a formula that looked at whole regions to determine need--to a 'local determination'--a formula that looked only at regional centers.

The reality on the ground was that waiting lists were longer, we were getting more kids with severe emotional and physical disabilities who needed special help, and a state budget crisis caused by the passage of Proposition 2 1/2--an anti-tax law that capped the amount of money the state could raise in taxes to 2 1/2% over the previous year, not even enough to cover inflation at the time--had already caused budget cuts so severe that many schools had closed their doors. It was a decade before pre-school services for poor kids were back up to their previous levels, and it took direct payments replacing block grants to do it.

It's a shell game and a self-fulfilling prophecy: they find excuses not to disperse the money, no matter howm great the need, and then use the lack of dispersement to prove it wasn't necessary in the first place. And all that has to happen to make it work is for a few tens of thousands of families to lose their vouchers and end up on the streets. They think that's a price they can live with.