Thursday, February 25, 2016

HUD Funding in the Presidential Budget Prioritizes Economic Mobility and Rental Assistance

Irene Lew
Research Analyst
Several weeks ago, President Obama released his final budget proposal to Congress. In it, the President requests $48.9 billion in gross discretionary funding for HUD—a $1.6 billion increase over the amount that Congress appropriated in FY 2016. With the exception of the Community Development Block Grant (CDBG) and the public housing capital fund, HUD’s FY 2017 budget maintains or requests increases for key programs over the levels that lawmakers approved in FY 2016 (Figure 1).

Source: US Department of Housing and Urban Development, FY 2017 Congressional Justifications; White House Office of Management and Budget FY 2017 President’s Budget 

Funding for Rental Housing Assistance

More than three-quarters (78 percent) of the funding request would support 4.5 million low-income households through HUD’s three largest rental housing assistance programs: housing choice vouchers, project-based rental assistance, and public housing (through its capital and operating funds) (Figure 2).

Source: US Department of Housing and Urban Development, FY 2017 Congressional Justifications.

After several years of uncertainty in the wake of sequestration in 2013, the request of $20.8 billion for the housing choice voucher program would fully fund all voucher renewals in calendar year 2016. The request includes a 26-percent boost in administrative fees to cover public housing agencies’ (PHAs) costs to administer the voucher program under a new formula based on the recommendations of a HUD-commissioned study released last year that highlighted the underfunding of PHAs.

Meanwhile, the budget would provide a full 12 months of funding for all contracts under the project-based rental assistance program, including public housing units and privately-owned units that were converted to long-term project-based Section 8 contracts under the Rental Assistance Demonstration (RAD) program. For the second straight year, HUD is seeking $50 million to expand the RAD program and remove the 185,000 unit cap on the number of public housing conversions under the first phase of RAD. Since it received Congressional authorization in 2012, RAD has been a key part of HUD’s strategy to access private capital to rehabilitate and preserve the aging public housing inventory, which has experienced a net loss of 139,000 units since 2000. Until RAD’s authorization, HUD’s public housing program was largely prohibited from accessing non-federal funding sources for making critical repairs to the stock. As of December 2015, HUD estimates that PHAs and their partners have raised over $1.7 billion through RAD to convert more than 26,000 public housing units.

With an increased emphasis on public housing RAD conversions, the request for the public housing program in FY 2016 was a marginal increase—less than 1 percent—over the FY 2016 enacted level. The budget proposes a 2 percent reduction for the public housing capital fund, which is troubling given that the public housing stock has an estimated capital needs backlog of about $26 billion, and that adequacy issues among public housing units are much more common than among other types of federally assisted and unassisted units. While RAD will help address adequacy issues in the public housing inventory, there is no guarantee that RAD funding will continue, and the ongoing disinvestment in the public housing capital repairs fund may offset gains made under RAD.

Meanwhile, the President’s budget also requests funding increases for key multifamily rental housing assistance programs administered by the US Department of Agriculture (USDA) that serve roughly 403,000 low-income households annually in rural communities, including $33 million for the Section 515 Rural Rental Housing Loans program, up 18 percent from $28 million enacted in FY 2016, and $1.4 billion for the Section 521 Rural Rental Assistance program, a modest increase (1 percent) from the FY 2016 enacted level.

Commitment to Ending Homelessness

Funding for homelessness prevention remains a priority in the President’s budget, which includes an 18 percent increase in discretionary funding over the FY 2016 enacted level for Homeless Assistance Grants. The increase will fund $25 million in new projects for homeless youth in coordination with the Department of Health and Human Services (HHS), an additional 25,500 new units of permanent supportive housing targeted at the chronically homeless, and 8,000 new rapid rehousing units for homeless families. Overall, in contrast to many other HUD programs whose funding levels have declined sharply over the past decade in real terms, funding for homeless assistance grants is now 43 percent higher in FY 2016 than in FY 2006 (Figure 3).

Note: Percent change is based on dollar values that have been adjusted for inflation using the CPI-U for All Items.
Source: White House Office of Management and Budget; US Department of Housing and Urban Development FY 2017 Congressional Justifications.

Building on the findings in HUD’s recent Family Options report highlighting the effectiveness of vouchers in improving the housing stability of homeless families, the budget is seeking $88 million in discretionary funding for 10,000 new vouchers for this population. In addition to this request, the budget has also proposed $11 billion in mandatory funding for an ambitious new 10-year initiative to end homelessness among families with children. This initiative, which would be exempt from the annual Congressional appropriations process, aims to assist 555,000 families over the coming decade through a significant expansion of housing choice vouchers and rapid rehousing assistance. As I noted in a blog post last year, the reduction in family homelessness has been much smaller than among veterans and chronically homeless individuals. In fact, as of the 2015 Point-in-Time count, which estimates both the sheltered and unsheltered homeless populations on a single night every January, the number of homeless persons in families in shelter is actually 4 percent higher than in 2007.

Emphasis on Economic Mobility and Fostering Inclusive Communities

With increasing evidence that neighborhood quality matters for child development and economic prospects, including a 2015 analysis of HUD’s Moving to Opportunity demonstration program, the President’s budget has requested a $75-million funding increase for Choice Neighborhoods, and has proposed a new three-year $15 million Housing Choice Voucher Mobility Counseling Demonstration program to help HUD-assisted families move and stay in higher-opportunity neighborhoods. In a similar vein, the budget has proposed the Upward Mobility Project, a new place-based initiative that will allow states and localities to blend funding across four existing block grant programs—HHS Social Services Block Grant and Community Services Block Grant, as well as HUD's HOME and CDBG programs—to implement evidence-based policies focused on poverty reduction and neighborhood revitalization. The budget maintains HOME funding at the FY 2016 enacted level of $950 million, which is an encouraging sign for many advocates who had rallied against FY 2016 Congressional proposals calling for severe cutbacks to the program, an important source of gap financing for tax credit projects and other local affordable housing initiatives. The budget also includes a request of $300 million in mandatory funding for a Local Housing Policy Grants program to help localities and regional coalitions fund policies and programs that minimize barriers to housing development and expand housing supply and affordability.

Reflecting the impact of the Supreme Court’s decision regarding low income housing tax credit (LIHTC) allocations in Texas Department of Housing and Community Affairs vs. Inclusive Communities Project and HUD’s Affirmatively Furthering Fair Housing ruling last summer, the President’s FY 2017 budget has also proposed that Qualified Allocation Plans (QAPs) for state housing finance agencies be required to include Affirmatively Furthering Fair Housing (AFFH) as an explicit preference for awarding tax credits. Additionally, part of the $69 million increase requested for the public housing operating fund in FY 2017 would go toward supporting increased PHA administrative expenses associated with implementation of the new AFFH regulations.

Serving the Lowest-Income Households

According to HUD’s 2015 Worst Case Housing Needs report, just 39 affordable units are available for every 100 extremely low-income renter households (those with income no higher than 30 percent of AMI). To incentivize developers seeking tax credits to provide deeper affordability for the lowest-income households—those who often cannot afford to live in LIHTC units without additional rental assistance—the President’s budget has once again proposed an income-averaging rule for LIHTC eligibility in which the average income for a minimum 40 percent of the units in a project does not exceed 60 percent of AMI.

The National Housing Trust Fund would also help address the shortfall in units that are affordable to the lowest-income households. Originally authorized in 2008 under the Housing and Economic Recovery Act, the Housing Trust Fund is a mandatory program funded by GSE contributions that will allocate funding to states and state-designated entities for the development, rehabilitation, and preservation of housing targeted at extremely low-income households. HUD predicts that it will collect $170 million in fee assessments from Fannie Mae and Freddie Mac for the fund in 2016, and an additional $136 million from the GSEs in 2017.

Preserving the Affordable Rental Stock

Despite an expansion of the voucher program, the budget included a $20 million reduction in tenant protection vouchers, which provide critical protection to residents at risk of displacement because they live in HUD-assisted units with expiring or terminating contracts. HUD notes that it will need to provide partial funding to approximately 33,500 vouchers in FY 2017 because the proposed amount of $117 million is insufficient to fund them for a full 12 months. Although HUD plans to request the full amount necessary for these voucher renewals in 2018, there is no guarantee that HUD will receive the funding it needs, putting families living in HUD-assisted units with expiring affordability contracts at risk for rent increases, eviction, or homelessness.

In addition to a requested expansion of the RAD program in order to preserve affordable stock, the President’s budget has also proposed that Section 202 Project Rental Assistance Contracts (PRACs), providing affordable rental housing to adults aged 62 and over, should also be eligible for conversion. While not part of the FY 2017 discretionary funding request, the budget has also recommended adding the preservation of federally assisted affordable housing to the other 10 criteria that state housing finance agencies are required to include in their QAPs for awarding LIHTC allocations.


What happens from here? As the Center on Budget and Policy Priorities (CBPP) notes in a recent memo, the House and Senate will likely begin working on their own budget resolutions earlier than usual this year because an agreement is already in place on overall Congressional funding limits for fiscal year 2017. However, final decisions on FY 2017 appropriations will likely occur after the November elections. 

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