Funding Level Approved By House Subcommittee Would Reduce, But Not Eliminate, Shortfall In Housing Voucher Funding, Rev. 7/24/03

FUNDING LEVEL APPROVED BY HOUSE SUBCOMMITTEE WOULD REDUCE,
BUT NOT ELIMINATE, SHORTFALL IN HOUSING VOUCHER FUNDING
Reduction in Number of Families Assisted Would Be 85,000 Under House Subcommittee Bill,
Compared to 184,000 Under President’s Request
by Barbara Sard and Will Fischer

On July 15, 2003, the House VA-HUD Appropriations Subcommittee approved a bill that would provide $685 million in additional resources for renewal of existing housing vouchers in fiscal year 2004 beyond the amount that would be available under the Administration’s budget request. Nonetheless, data collected by the Department of Housing and Urban Development (HUD) in April 2003 from state and local housing agencies that administer nearly all federal housing vouchers indicate the funding level provided by the House bill is inadequate to fund all housing vouchers likely to be in use when the fiscal year starts in October 2003.

Analysis of these data shows that if the funding level approved by the subcommittee is enacted into law and additional resources do not become available from other sources, approximately 85,000 vouchers in use serving low-income families in October 2003 would not be funded. These cuts would fall primarily on low-income working families, the elderly, and the disabled, since these groups make up 70 percent of the population that the voucher program serves. The 85,000 vouchers in use that would be left unfunded under the House subcommittee bill is substantially below the 184,000 such vouchers that would be left unfunded under the Administration’s budget request but would still constitute an unprecedented reduction in assistance under the voucher program.

The shortfall in the funding estimate in the House bill results in large part from the House subcommittee’s use of a low estimate of the average cost of a voucher in fiscal year 2004. The subcommittee estimated that per-voucher costs would average $6,575 in fiscal year 2004; this estimate was based on data from periods that largely preceded the period covered by the HUD data collected in April 2003. Analysis of the April HUD data indicates that per-voucher costs will average $6,871 in fiscal year 2004, which is very close to the Congressional Budget Office’s March 2003 baseline estimates that these costs will average $6,842 in fiscal year 2004. The estimate the subcommittee used is nearly $300 below these estimates.

House Subcommittee Bill Would Increase Amount of Funding Available to Renew Existing Vouchers Beyond Level Requested By Administration

The House subcommittee bill would appropriate $13.23 billion for the renewal of existing housing vouchers.[1] This represents an increase of approximately $685 million above the amount that would be available under the Administration’s budget request. The increase in funding for voucher renewals in the House bill was accomplished in two main ways: first, by shifting $185 million away from other items in the voucher account; and second, by reducing the reliance of 2004 voucher funding on the availability of unspent funds from previous years. Both actions have potential downsides, although they would help to address some of the shortfall in the President’s request.

First, $185 million was added by reducing the funding levels provided for four other activities under the voucher account below the level the Administration requested and transferring these funds for use in renewing existing vouchers. Specifically, the House bill:

With the exception of the state capacity-building grants, each of these reductions could have a direct negative impact on low-income families. It is likely, however, that the overall harm from these reductions would be less severe than the harm that would result from allowing a greater number of existing vouchers to be left unfunded, as would occur if the $185 million were not transferred.

The remaining increase (approximately $500 million) was accomplished by reducing the reliance of voucher funding for fiscal year 2004 on the carryover of unspent funds from previous years. The Administration’s budget request identified $1.07 billion in unspent funds from fiscal year 2002 and previous years that it indicated would be available in FY 2004 and relied on these carryover funds to help fund the voucher program in 2004. After the budget was submitted, however, Congress rescinded $500 million of these unspent funds as part of the fiscal year 2003 appropriations act (based on Congressional assumptions at that time that the funds would not be needed). Consequently, only $570 million of the unspent funds identified by the Administration were left available to be used in fiscal year 2004. While it is possible that the actual amount of prior year funds carried over to fiscal year 2004 will be higher (or lower) than $570 million, the Administration has given no indication that this is likely to be the case.[2]

The House subcommittee bill would increase the appropriation of new budget authority for the voucher program by $1.07 billion above the Administration’s request, in effect directly appropriating the amount that the Administration had simply assumed would be available from carryover funds.[3] The House subcommittee bill also adds a rescission of $1.07 billion in unspent funds from fiscal year 2003 or before. This rescission could be drawn from the voucher program or any other HUD program. The approach in the House bill provides certainty that the $1.07 billion provided through the increase in the direct appropriation will be available to renew housing vouchers in fiscal year 2004. If, as the calculations in this analysis assume, the amount of available carryover funds would otherwise have been equal to the Administration’s estimate minus the amount rescinded in the 2003 appropriations act, the House bill would provide $500 million above the Administration’s request for voucher renewals.

It is important to note that there is some risk that the approach in the House bill could have a negative impact on the voucher program in fiscal year 2003 or on other HUD programs. It is possible that HUD would end up meeting the terms of the rescission in a manner that reduces housing assistance for low-income families, whether in the voucher program or in other low-income housing programs such as public housing, elderly housing, or homelessness assistance grants to states and localities. Little information is publicly available about what funds might be available at HUD to meet the rescission target. To allow an accurate assessment of the effects the rescission would have, it is important that the Administration provide adequate information of this nature as soon as possible.

House Subcommittee Funding Level Falls Approximately $580 Million Short of Amount Needed to Avoid Cutting Assistance

The annual funding needs of the voucher program depend on two factors: the average cost per voucher and the proportion of vouchers that are in use (sometimes referred to as the utilization rate). Each of these factors depends on local economic and housing market conditions and therefore cannot be predicted with precision. As a result, timely data on voucher costs and utilization is critical to estimating the funding needs of the voucher program.

In April 2003, HUD required state and local housing agencies that administer the voucher program to report data on both voucher costs and utilization for the six-month period from August 2002 to January 2003.[4] Analysis of the April HUD data shows that the funding level requested in the Administration’s budget, which relied on older cost and utilization data that were available at the time the budget was submitted, would fall approximately $1.26 billion short of the amount need to support the vouchers likely to be in use when fiscal year 2004 begins in October 2003. As a result, the number of families receiving voucher assistance on average during fiscal year 2004 would need to be reduced by approximately 184,000.

The April HUD data were recently made available to Congressional staff. The House subcommittee, however, did not use the April HUD data in determining the funding level provided for the voucher program in the bill it approved on July 15. As shown in Table 1, the assumptions regarding fiscal year 2004 costs and utilization used in developing the House bill differ from estimates based on the April HUD data.[5]

Most significantly, the House bill relies on an estimate of the average per-voucher cost in fiscal year 2004 of $6,565, which is well below the $6,871 estimate that results from the analysis of the April HUD data. The primary reason for this difference is that the House subcommittee developed its estimate using data that, while somewhat more recent than the data used in the Administration’s budget request, are significantly less up-to-date than the April HUD data. The report accompanying the House bill indicates that the subcommittee’s estimate of per-voucher costs in fiscal year 2004 relied on cost data from fiscal year-end statements from state and local housing agencies. Unlike the April HUD data, these statements are audited and are therefore likely to be more precise. In part because of the auditing process, however, agencies’ year-end statements do not become available for some time after the end of the fiscal year they cover. A large majority of the data relied upon by the subcommittee dates from periods that precede the period covered by the April HUD data. It appears that the Subcommittee used some data from as early as April 2001, 16 months before the first month covered by the April HUD data.[6]

As a result, even though they may be somewhat more precise in describing per-voucher costs in the period they cover, the data relied on by the House subcommittee are less useful for estimating per-voucher costs and utilization in fiscal year 2004 than the April HUD data. In its March 2003 baseline, the Congressional Budget Office estimated that per-voucher costs in fiscal year 2004 would average $6,842. This estimate is very similar to the estimate produced by the analysis of the April HUD data.

In large part because it was developed using out-of-date information on average voucher costs, the funding level provided for renewal of existing vouchers in the House bill would eliminate only part of the shortfall in voucher funding for fiscal year 2004 that would be likely to occur under the funding level in the Administration’s budget request. The funding level the House bill provides (including funds in a central fund that is intended in part to allow additional vouchers to be put to use after the beginning of the year) is about $583 million below the level needed to fund all vouchers in use at the beginning of the fiscal year. As a result, the bill would leave unfunded approximately 85,000 vouchers that will be in use.[7]

Many housing agencies will not immediately impose their share of the 85,000-voucher reduction that would result from the funding level in the House subcommittee bill. Some families leave the program each year as their incomes rise or for other reasons, and agencies would be likely to try to meet their share of the cut that would be required by gradually reducing the number of families served through such turnover. Agencies that do not impose the full reduction at the beginning of the year will have to reduce the number of families served by a greater number later in the year, however, to achieve the reduction in the average number of families served over the full year that would be necessitated by the level of funding the House Subcommittee bill provided. If the overall reduction is imposed evenly over the course of the fiscal year the number of families with vouchers would be 170,000 lower by the end of the fiscal year than when the fiscal year begins. (The 85,000 figure represents the average amount by which the number of families assisted over the course of the fiscal year will be below the number assisted at the start of the year.)

Table 1
Fiscal Year 2004 Voucher Funding in House Bill and Administration’s Budget Request
Cost per voucher in FY 2004	Funding available for voucher renewals	Number of renewal vouchers funded	Number of renewal vouchers not funded[8]	Number of vouchers in use in October 2003 not funded[9]	Percent of authorized vouchers that would be funded	Shortfall if FY 2004 utilization is at its expected level in October 2003[10]
Analysis of House bill based on assumptions in bill	$6,565[11]	$13.23[12]	2,016,000	90,000	0	95.8%
Analysis of House bill based on April HUD data	$6,871	$13.23	1,926,000	180,000	85,000	91.4%	$583 million
Administration request	$6,468	$13.05 billion	2,017,000	89,000	0	95.8%
Analysis of Administration request based on April HUD data and reflecting rescission enacted in February 2003	$6,871	$12.55 billion[13]	1,826,000	280,000	184,000	86.7%	$1.26 billion

The great majority of the households with vouchers — seven out of ten according to the most recent available HUD data — are either working families with children or elderly or disabled households. As a result, the impact of such cuts in the voucher program would fall most heavily on these groups. If cuts were applied proportionately across all groups, the average number of households assisted during fiscal year 2004 would fall below the number assisted in October 2003 by the following amounts:

House Bill Would Prevent Use of Vouchers that Have Been Previously Authorized by Congress but Are Not in Use in October 2003

The House bill, like the Administration’s budget request, provides for a central fund to cover unanticipated program costs and to enable state and local agencies to make fuller use of the number of vouchers they have been authorized to administer.[15] Unless the funding level provided for the program is increased, however, all of the money in this central fund would be required to support vouchers already in use at the beginning of fiscal year 2004 and, as a result, it would be impossible for state and local housing agencies to use vouchers that Congress has authorized but that are not in use in October 2003, to serve additional families.

In recent years, Congress has repeatedly urged HUD and state and local housing agencies to increase the proportion of authorized vouchers that are in use, so that vouchers do not sit unused while families remain on waiting lists for assistance. The newly released HUD data show that the voucher utilization rate rose during the period the data cover. This increase appears to have been caused in substantial part by the success of new policies put in place at the national, state, and local levels in recent years designed to raise the proportion of vouchers in use and by a loosening of housing markets in some sections of the country that has made it easier for families to find housing where they can use their vouchers. It is likely that the trend toward higher utilization will continue in fiscal year 2004 if adequate funding is available. Moreover, HUD has the ability to put to use more of the vouchers that Congress has authorized by “reallocating” vouchers from agencies that have consistently failed to use them to agencies whose track record demonstrates they would be able to put the vouchers to use promptly.

If additional funding is not provided, no further progress in raising utilization will be possible. Consequently, approximately 95,000 additional authorized vouchers — vouchers that are not likely to be in use at the start of fiscal year 2004 but could be used to serve families if utilization continues to rise — would be defunded. These 95,000 vouchers are in addition to the 85,000 vouchers in use at the start of the fiscal year that, as mentioned earlier, also would have to be defunded.

State	Number of Vouchers Projected to Be in Use in October 2003	Estimated Reduction in Average Number of Households Assisted During Fiscal Year 2004 if House Bill Funding Level is Enacted
State	Number of Vouchers Projected to Be in Use in October 2003	Total Reduction	Working Families	Elderly Households	Disabled Households	Other Households
Alaska	3,785	159	49	27	35	49
Alabama	25,834	1,087	332	185	239	332
Arkansas	21,304	897	274	152	197	274
Arizona	19,814	834	254	142	183	254
California	286,609	12,065	3,680	2,051	2,654	3,680
Colorado	26,512	1,116	340	190	246	340
Connecticut	28,497	1,200	366	204	264	366
District of Columbia	8,935	376	115	64	83	115
Delaware	4,144	174	53	30	38	53
Florida	83,987	3,535	1,078	601	778	1,078
Georgia	45,557	1,918	585	326	422	585
Hawaii	10,797	454	139	77	100	139
Iowa	20,590	867	264	147	191	264
Idaho	6,438	271	83	46	60	83
Illinois	77,829	3,276	999	557	721	999
Indiana	34,608	1,457	444	248	320	444
Kansas	10,567	445	136	76	98	136
Kentucky	29,807	1,255	383	213	276	383
Louisiana	34,088	1,435	438	244	316	438
Massachusetts	68,626	2,889	881	491	636	881
Maryland	37,663	1,585	484	270	349	484
Maine	11,777	496	151	84	109	151
Michigan	43,181	1,818	554	309	400	554
Minnesota	28,413	1,196	365	203	263	365
Missouri	38,564	1,623	495	276	357	495
Mississippi	16,538	696	212	118	153	212
Montana	5,421	228	70	39	50	70
North Carolina	52,336	2,203	672	375	485	672
North Dakota