February 2, 2004

Growth in Program Costs Set to Slow in Next Few Years
by Barbara Sard and Will Fischer

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Administration officials have raised concerns that the Section 8 housing voucher program, the nation’s principal low-income housing assistance program, has grown excessively in recent years.  They have said the Administration’s forthcoming budget will include proposals to reduce voucher costs.[1]

Analysis of total expenditures (or “outlays”) for the Section 8 program, which includes both the voucher program and a “project-based” housing assistance program, shows that the great majority of recent Section 8 spending growth has been due to two factors: (1) Congressional decisions to expand the program to serve more of the families eligible for it; and (2) a widening of the gap between housing costs and the incomes of low-income families, especially during the recent economic downturn.[2]  The good news is that the Congressional Budget Office and other analysts expect the growth in voucher costs to slow markedly in the next few years, due primarily to the cooling of the housing market.


Reasons for Past Growth in Voucher Spending

Over the past eight years, from 1996 to 2003, Section 8 expenditures have risen at an average rate of approximately 4 percent per year.  Of this increase:

The widening of this gap accounts for the great majority of the recent growth in the average cost of a voucher.  In fact, growth in per-voucher costs due to other factors, such as policy changes and increases in administrative expenses, accounts for only about five percent of the recent increase in Section 8 costs.

Second, Congress created some new “incremental vouchers” between 1999 and 2002.  These vouchers helped to reduce the number of eligible families unable to participate in the voucher program — and often stuck on long waiting lists — because of funding limitations.  Only about one in every four low-income families eligible for vouchers receives any type of federal housing assistance.

Outlays Are the Appropriate Measure of Section 8 Cost Growth

The federal government measures budget trends in programs in two ways: by tracking changes in the amounts of new funding (or “budget authority”) that Congress appropriates for a program, and by tracking changes in the level of actual program expenditures (or “outlays”).  For the Section 8 program, these two measures paint sharply different pictures of growth in recent years.  From 1996 to 2003, budget authority for the program grew at an annual rate of 19 percent, while outlays grew at an annual rate of 4 percent.

The important figures here are those for outlays.  This is true for two reasons.  First, it is outlays — or actual government expenditures — that determine a program’s cost and its impact on budget deficits or surpluses.  Second, the unusually large increases in budget authority for the Section 8 program are an artifact of a major change that was made in the Section 8 funding structure.  Most Section 8 units were initially funded in the 1970s and 1980s through long-term contracts under which Congress provided up front all of the budget authority expected to be needed to support the units during the full term of the contracts, which usually was a period of several decades.  Beginning in the mid-1990s, these long-term contracts started to expire, and Congress began providing new funding for these units on an annual, rather than a multi-year, basis.  As a result, the amount of new budget authority needed to support the existing Section 8 units each year grew at a substantial clip.  But this increase in budget authority did not reflect an increase in program costs or in the level of assistance provided.

Outlays for Section 8 units are recorded each year as they occur, regardless of whether the unit is under a long-term contract or a one-year contract.  Outlay growth provides the only accurate measure of actual increases in Section 8 costs.`


CBO Projects Voucher Cost Growth Will Slow Considerably

Each of the factors that have driven the recent growth in Section 8 costs is temporary and is likely to ease in coming years. 

For these various reasons, the Congressional Budget Office projects that growth in Section 8 spending will slow to 1.8 percent in fiscal year 2005.  CBO also projects Section 8 expenditures will rise 5.5 percent in fiscal year 2004, which is well below the rates of increase in fiscal years 2002 and 2003.

The bipartisan, Congressionally-mandated Millennial Housing Commission described the voucher program as “flexible, cost-effective, and successful in its mission” in its 2001 report, while a 2002 study by the General Accounting Office found the program to be more cost-effective than other major federal housing programs.  As this analysis of Section 8 spending growth in recent years indicates, most of the growth has been driven by a combination of rising housing costs and Congressional decisions to extend assistance to more low-income families, rather than by an erosion of program efficiency.

Careful steps to improve further the voucher program’s cost-effectiveness would be worthwhile, as they would for any government program.  There is, however, no need for drastic cost-cutting measures that risk harming the program and the more than two million low-income households — most of them working families, elderly people, or people with disabilities — that it serves.



[1]The New York Times reported that “housing officials” said the Administration was “alarmed at increases in the cost of vouchers” and the upcoming budget would “control the rising cost of housing vouchers for the poor.”  Robert Pear, “Bush's Budget for 2005 Seeks to Rein in Domestic Costs,” New York Times, January 4, 2004, p. A1.

[2] We will release a more detailed description of the analysis shortly.  The findings reported here are preliminary findings based on the best available data.  If additional data are provided in the Administration’s fiscal year 2005 budget request, which will be released on February 2, 2004, we will make revisions accordingly. 

[3] In the years prior to 2003, HUD provided some funds to state and local agencies for vouchers that were not put to use.  These funds were counted as outlays, even though they were not actually spent on vouchers and were later recaptured by HUD.  Consequently, only part of the increase of 5.5 percent or more in the share of voucher that were in use was reflected in increased outlays.