Consolidating Rental Assistance Administration Would Increase Efficiency and Expand Opportunity

Nearly 3,800 public housing agencies (PHAs) provide wholly federally funded assistance to 3.2 million families through the Section 8 Housing Choice Voucher and public housing programs.^[2]  The large number of program administrators and the small number of households that many of them assist increase administrative costs and reduce rental assistance programs’ effectiveness.  The number of agencies also can hinder eligible families’ ability to use rental vouchers to live where they choose, including in safer neighborhoods that have better schools and access to jobs or other services but that are located in another housing agency’s jurisdiction.

Despite the potential benefits of consolidation to achieve economies of scale and facilitate administration of rental assistance throughout a metropolitan area, few PHAs have voluntarily merged with others.  Local boards of directors — and the public officials who usually appoint them — commonly want to retain their agency’s individual identity, making forming a consortium with other agencies a more attractive consolidation option than a full merger.  For a consortium actually to be more efficient and effective, however, requires a change in federal regulations to permit the PHAs in a consortium to have a single funding contract with the Department of Housing and Urban Development (HUD). 

The Administration should act promptly to finalize a proposed rule change to allow PHAs that form a consortium to have a single funding contract for Housing Choice Vouchers, and to revise the voucher administrative fee policy to remove the financial disincentive for small PHAs to enter into consortia or otherwise consolidate.  Congress could facilitate regional administration by providing the $15 million that the President’s fiscal year 2017 budget requests for a regional housing mobility demonstration.  In a small number of states, changes in state law also may be required.

Large Number of Public Housing Agencies a Vestige of History

Some 3,796 public housing agencies receive funding from HUD to operate public housing, administer Section 8 housing vouchers, or both.  (See Table 1.)  PHAs range dramatically in size:  some own or administer as few as four rental units, while the largest, the New York City Housing Authority, receives funding from HUD for about 274,000 public housing units and vouchers. 

The number of PHAs is a product of local, state, and federal decisions, built on the platform of the U.S. Housing Act of 1937, which authorized the use of funds to build public housing developments on land owned by a local public housing agency.^[3]  Largely to respond to this incentive, states enacted laws to authorize municipal, county and, in about half the states, regional public housing authorities.  (See Appendix 1.)  In 1974, Congress layered the administration of the Section 8 certificate (now voucher) program on top of the existing PHA platform, and HUD criteria for awarding Section 8 funds provided incentives for the creation of hundreds more state and local agencies solely to administer tenant-based rental assistance. 

As a result, HUD currently contracts with about 2,240 PHAs to administer housing vouchers and 2,990 PHAs to operate public housing.^[4]  (As Table 1 shows, 1,433 PHAs administer both programs.)  About three-quarters of these PHAs (73.2 percent) are small — that is, they administer 550 or fewer public housing units, authorized Section 8 housing vouchers, or a combination of the two.^[5] 

Differences in municipal and county governance as well as state politics have led to great variation among states in PHAs’ scale and geographic coverage.  On average, each PHA provides federal rental assistance to about 850 households.  In Nebraska, however, the average PHA serves 177 households, with four out of five serving fewer than 100, and one-third serving fewer than 20.  At the opposite end of the spectrum, Nevada has nearly as many units of federal rental assistance as Nebraska, but has only three PHAs, each serving an average of 5,949 households.  (Appendix 2 has PHA-related data for each state.) 

In some states, state-level agencies oversee a large share of the federal rental assistance resources.  About 30 states (including the District of Columbia) have state-level agencies that administer a portion of the housing vouchers in the state.  For example, the Montana Department of Commerce administers about two-thirds of the vouchers in Montana, and the Idaho Housing Finance Agency administers about half of that state’s vouchers.  State agencies in Alaska and Delaware manage both public housing and voucher programs.  Other states have created regional entities that respond to the administrative challenge posed by rural areas.  In Mississippi, for example, six regional housing authorities administer nearly 75 percent of the state’s vouchers and nearly 15 percent of its public housing units.  State or regional administration of rental assistance makes it easier for families to apply for assistance and to choose where to live, and typically increases economies of scale.

Most Metro Areas Served by Multiple Housing Voucher Programs

In most metropolitan areas, one agency administers the Housing Choice Voucher (HCV) program in the central city and one or more different agencies serve suburban cities and towns.  This pattern is the case in 97 of the 100 largest metro areas, where 71 percent of households in the HCV program lived in 2015.  In 35 of the 100 largest metro areas, voucher administration is divided among ten or more agencies.  This is the case even in mid-size metro areas such as Providence, Rhode Island, and Albany, New York, each of which has at least 35 agencies administering the HCV program.^[6]  (Appendix 3 has data for each of the largest 100 metro areas.)

One reason for this pattern is that HUD in the past allocated funds to hundreds of new small agencies to serve individual suburban towns or to administer special vouchers for people with disabilities.  These decisions result, at the extreme, in 68 different small PHAs administering the HCV program in the greater Boston metropolitan area (which includes part of southern New Hampshire), in addition to 25 larger agencies and two state-administered HCV programs.^[7] 

In addition to causing oversight challenges for HUD, this balkanization of rental assistance administration within metro areas creates significant burdens for families seeking assistance and searching with vouchers for available homes.

Large Number of PHAs Increases Costs, Reduces Program Effectiveness, and Limits Housing Choice

The proliferation of PHAs has made the operation of the federal rental assistance programs less efficient.  It has also made the programs less effective for families than they could be.

Oversight and Operation of Small PHAs Increase Federal Costs

The large number of PHAs increases the cost of federal oversight as well as the cost of local agency administration.  In an analysis of opportunities to increase HCV program efficiency, the Government Accountability Office (GAO) found that “consolidation of voucher program administration under fewer housing agencies . . . could yield a more efficient oversight and administrative structure for the voucher program and cost savings for HUD and housing agencies….”^[8]

The amount of federal staff time required to contract with each PHA, as well as to conduct many oversight functions, is roughly similar for each PHA regardless of the number of families a PHA serves.  A 2008 HUD report concluded:

For core compliance monitoring, HUD’s level of effort for small PHAs is grossly disproportionate to the level of risk, total units involved, and subsidy dollar volume. … [I]t is reasonable to conclude that HUD invests from half to two-thirds or more of its level of effort on 10% of its units, and an even lower level of related risk in terms of subsidy funds, which is about 5%.^[9]

HUD could modify to some extent its requirements for review of agency documents and monitoring protocols to reduce this disproportionate cost.  But contracting with so many individual PHAs and making sure that PHAs make lawful use of federal funds still costs far more than it would to contract with and oversee substantially fewer, larger agencies.

A careful HUD study recently examined the actual costs that high-performing agencies of various sizes incur in administering the HCV program, as well as the financial data that most voucher PHAs submit to HUD.  It found that PHAs that administered fewer vouchers had significantly higher costs per family served than larger programs, at least up to 10,000 vouchers (see Figure 1).^[10]  The main cost factor is additional staff per voucher in use.  This is likely because some basic administrative functions — such as overall planning and staying up to date on program rules — take essentially the same amount of time regardless of the number of vouchers a PHA administers.

Under current policy, HUD gives smaller agencies — those with 600 or fewer vouchers — higher per-unit subsidies for voucher administrative costs, with the payment boost phasing out for larger programs.^[11]  The recent HUD study recommends paying additional fees for agencies serving fewer than 750 families, with the biggest boost to agencies serving fewer than 250 families and then gradually phasing out the boost to avoid a funding cliff.  Whether federal policymakers maintain current law or adopt the study’s recommendation, the federal cost will be greater than if agencies were paid only the amount needed to operate at an efficient scale, without a boost.^[12] 

Unlike the voucher program, federal subsidies for public housing administration do not vary significantly based on PHA size.^[13]  Nonetheless, HUD incurs additional costs from contracting with and monitoring the nearly 3,000 individual agencies that manage public housing.

Small PHAs Face Barriers to Innovation and High Performance

Agencies without sufficient scale to devote staff time to plan and implement new initiatives are less likely to take advantage of options that provide additional types of housing opportunities, such as supportive housing for people with disabilities or assisted homeownership.  Similarly, smaller PHAs are less able to spare staff time to develop partnerships with community agencies that could improve families’ finances or assist homeless individuals in navigating the housing application process and finding an appropriate unit in the private market if they receive a voucher.  Small agencies invest less in technology, making them less able to track various components of program operations to increase efficiency and improve outcomes, GAO found.^[14]

Small agencies are also much more likely than larger agencies to have difficulty meeting HUD’s basic performance standards for the voucher program, as determined by Section 8 Management Assessment Program (SEMAP) ratings.  Agencies with fewer than 250 authorized vouchers (about 44 percent of all HCV agencies) score significantly lower on SEMAP, on average, than agencies with more vouchers (see Figure 2), and are about four times more likely to be designated as troubled or near troubled.  Similarly, such small agencies are less likely to be designated as “High Performers” under SEMAP than agencies with larger HCV programs.^[15]

The substantial increases since 2000 in the number of poor households living in suburban areas and the number of vouchers in use in these areas make it even more important that the PHAs serving these areas can address the increasingly complex problems faced by the families they assist.^[16]  Some suburban counties operate large, innovative HCV programs, but in others HCV administration is divided among smaller cities and towns.^[17]  And in large metro areas, housing and labor markets span multiple suburban counties (as well as the central city).  This makes regional rather than city- or county-based HCV administration more effective both in responding to job opportunities and housing assistance needs that stretch across the metro area and in reducing economic and racial segregation. 

Fragmented Rental Assistance Administration Reduces Housing Choice and Is Less Efficient

Rental units in safe neighborhoods with good schools are more plentiful in some suburban areas than in the central cities or older suburbs, which are more likely to have higher-poverty neighborhoods with lower-performing schools.  A recent study by the Urban Institute and other analyses of data from the Annie E. Casey Foundation’s ten-site Making Connections Initiative, a comprehensive place-based initiative, found that interventions that don’t support relocation to suburban areas with high-quality schools “cannot reasonably expect improved educational outcomes for children, given the educational environment in most cities.”^[18] 

In addition to improving access to better-performing schools, low-poverty neighborhoods improve children’s long-term chances of success and mothers’ mental and physical health, research shows.  Such neighborhoods’ higher level of safety, which reduces the chance children will experience “toxic stress,” is likely a major factor in their positive impacts.^[19]

But the balkanization of metro-area HCV programs among numerous housing agencies often impedes greater use of vouchers in higher-opportunity areas.^[20]  Agency staff may be unfamiliar with housing opportunities outside of their jurisdiction and unlikely to encourage families to make such moves, particularly because agencies lose administrative fees when families use their voucher in another jurisdiction.  (Typically, under portability procedures, agencies have to transfer 80 percent of the HUD-provided administrative fee for a voucher used in another PHA’s jurisdiction to the receiving PHA.)  And PHAs in destination communities may be reluctant to accept new families or assist them in finding a willing landlord, seeing newcomers as potential competition with current residents for scarce rentals.  Racial prejudice also may play a role.^[21]         

In addition to these barriers to using housing vouchers to move to higher-opportunity areas, families most in need of affordable housing may have less chance to receive it in metro areas where multiple agencies administer federal rental assistance.  Waiting times for housing assistance vary widely, from weeks to ten years or more, depending on the availability of subsidized units or vouchers and whether agencies distribute assistance on a first-come, first-served basis or order their waitlists using other criteria.  To maximize their opportunity to receive housing assistance, families should apply to housing agencies throughout the region.  This can be time consuming and costly, particularly if many agencies in the area administer federal rental assistance and require in-person applications.  It also can be confusing, as GAO found, which can keep families from submitting all the applications they should to have the best chance to obtain the assistance they need.^[22]

Moreover, if housing agencies give first priority to their local residents — a common practice^[23] — families from communities with the longest waits will have less chance to receive rental assistance from another agency where the waits are shorter.  (There is little correspondence between the supply of public housing, vouchers, or other rental assistance — which is largely based on decisions made decades ago — and current local need or demand.)  Such local residency preferences also hurt the chances that families in very poor, racially concentrated cities will be able to move to higher-opportunity suburban communities.

A single application for assistance to all housing agencies operating in a metropolitan area or rural county would help families in need.  Consolidated waiting lists also would reduce administrative costs for agencies, whose staff now must maintain waiting lists with many duplicative applicants.  For example, in Massachusetts, an organization representing local housing agencies oversees such a list for most of the voucher PHAs in the state, and the participating agencies have saved significant staff time as a result.  Similarly, recognizing the importance of a single application point for families seeking assistance, the Utah legislature recently required that all voucher-administering agencies in each county use a single consolidated waiting list.^[24] 

Federal Policy Changes Could Help Overcome Problems Related to the Multiplicity of PHAs

Overcoming the administrative divisions created when multiple PHAs serve a housing market is challenging.  Cumbersome federal portability policies — which hinder families’ ability to move to low-poverty suburban areas with better schools — exacerbate these difficulties and create financial disincentives for housing agencies to encourage such moves.  HUD recently made modest improvements in the portability process, but it left unchanged several key obstacles to families using vouchers to move to areas served by different PHAs.^[25]  HUD could substantially lessen these problems by encouraging agencies administering the HCV program in the same metro area to form consortia and modifying its policies governing administrative fees.  Congress could assist by providing the $15 million that the President’s fiscal year 2017 budget requests for a regional housing mobility demonstration.

HUD Should Revise Its Consortia Rule to Permit Single Voucher Funding Contract

If PHAs in a metro area could form a consortium in which they each retain their local board but together have a single voucher funding contract with HUD, families would be able to use their vouchers to move relatively seamlessly among the cities and towns in the consortium.^[26]  Under HUD’s current rules, however, agencies have little incentive to form consortia, and when they do, they still lack a single funding contract with HUD.^[27] 

Enabling agencies in a consortium to function as a single entity for funding, reporting, and oversight purposes would substantially reduce PHAs’ and HUD’s administrative burdens.  Agencies would also benefit from greater economies of scale.  GAO notes, for example, the greater efficiencies that are possible when small agencies join together to hire inspectors or when a voucher program is large enough to generate sufficient administrative fees to support a fraud detection unit.^[28]  Economies of scale also could free up staff time to take advantage of program options such as using project-based vouchers to help develop or preserve mixed-income housing and supportive housing.^[29]  Creation of a consortium with a single jurisdiction would also eliminate the administrative work required when a voucher holder moves from one community to another. 

In July 2014, HUD proposed revising its consortia rule to allow all agencies in a consortium to have a single voucher funding contract with HUD, but it hasn’t finalized the rule.  Last year, HUD announced a plan to solicit further comment on voucher consortia as part of a new proposed rule streamlining the requirements for forming consortia to manage public housing.^[30]  But to date, HUD has not begun the formal process to issue such a combined rule.  With the short time remaining in this Administration, it is highly unlikely HUD could complete the multiple steps in a rulemaking process that has not yet begun.  Instead, HUD should finalize the HCV consortia rule this year and add public housing procedures at a later date.

Allowing PHAs in a consortium to have a single funding contract with HUD would be a major improvement.  HUD could further improve the new rule by allowing PHAs to choose to form partial consortia to operate particular initiatives, such as promoting moves to higher-opportunity areas and using savings created by eliminating the costs of portability billing and paperwork exchanges to increase landlord outreach and provide other housing search assistance.  A partial consortium recognized by HUD could also enable PHAs to collaborate efficiently to operate a regional project-based voucher program with a regional waiting list at much lower cost than they could do under a cooperative agreement.^[31]

At least initially, many PHAs are likely to be more willing to enter into partial consortia than  consortia with a single funding contract, because it will be less challenging to agree on how to operate a single joint project than to merge much of their individual HCV programs’ administration, and because political resistance is likely to be substantially less.  As PHAs deepen their collaboration through partial consortia and political resistance diminishes, the administrative efficiencies of a single funding contract may outweigh concerns about losing control, resulting in the expansion over time in the number of PHAs that are willing to make the more dramatic change of forming consortia with single funding contracts.

HUD Should Modify Administrative Fee Policy to Encourage PHA Consolidation and Moves to Higher-Opportunity Areas

In August 2015, HUD completed a multi-year study of the cost of administering a high-performing HCV program.^[32]  As noted above, the study recommends paying additional fees for agencies that provide HCV assistance to fewer than 750 families.  It also recommends paying 20 percent more when a family moves with a voucher using portability procedures.  This would compensate PHAs in the destination communities for the full cost of administering families’ vouchers on an ongoing basis (rather than paying them 80 percent of the full fee) while continuing to allow the PHAs that issued the vouchers to be paid 20 percent of the fee for their initial costs and the time involved in transferring HUD funds.^[33] 

These recommendations reflect the study’s findings concerning the additional costs of small agency administration and having two different agencies involved in the administrative tasks when families move under portability procedures.  It is HUD’s responsibility, however, to determine whether these adjustments would be sound policy.  Implementing them could cost approximately $60 million more per year, at a time when Congress has only provided sufficient funding for PHAs to receive about 80 percent of the fees they’re due under current policy.^[34]  (The President’s fiscal year 2017 budget requests an increase of more than 25 percent — $427 million — for HCV administrative fees and indicates HUD’s intention to modify the fee formula.^[35])

In the upcoming revision of the administrative fee policy, HUD could substantially limit such additional costs by removing the financial disincentive for PHAs to form consortia or consolidate by paying all except isolated PHAs no more than the amount needed for operating a program of efficient size.  If a PHA is the sole HCV administrator in a metro area or non-metro county, making it impractical to join with another PHA to operate more cost-effectively, a size adjustment would make sense.  Otherwise, if local communities want to maintain their separate small PHAs despite their higher operating costs and the availability of feasible alternatives, they could supplement the federal payments.  With a portion of the money saved from discontinuing the bonus currently paid to small agencies, HUD should help PHAs meet the transition costs of forming a consortium or consolidating.   

It is important to fairly compensate agencies for their actual, higher net costs of administering vouchers under portability procedures to make them more willing to assist families in using their vouchers in higher-opportunity areas.  These additional costs would be substantially lower, however, if PHAs operating within a metro area formed consortia (or consolidated), enabling families to move within the expanded area of operations without having to use portability procedures. 

Congress Should Fund the Proposed Regional Housing Mobility Demonstration

The President’s 2017 budget includes $15 million for a new Housing Choice Voucher Mobility Demonstration.  This three-year demonstration would help public housing agencies in ten regions collaborate on initiatives to help low-income families use existing vouchers to move to higher-opportunity neighborhoods.  A growing number of communities are interested in developing or strengthening regional collaborations — including forming consortia — to facilitate housing mobility but are stymied by the lack of funding to support the related administrative costs.  Demonstration funds could be used to support staff time to plan for regional collaboration and align policies and administrative systems across public housing agencies, as well as to cover costs of enhanced landlord recruitment and other activities to expand families’ housing choices.  The one-time funding also would support research to learn what strategies are most cost-effective.  

The mobility demonstration is a modest investment that could improve outcomes for children by enabling more families to use their housing vouchers to live in safe neighborhoods where their children can attend good schools, helping to reduce intergenerational poverty.^[36]  It deserves Congressional support.

Some States’ Laws May Prevent Housing Agencies From Forming Consortia

Federal law broadly permits PHAs to form consortia unless state laws that govern PHAs stand in the way.  A national survey indicates that the laws authorizing PHAs to form consortia are inconsistent across the states and, in nine states, may limit or bar PHAs from forming consortia.  (Appendix 1 summarizes the survey findings.)^[37] 

Only one state, Nebraska, explicitly authorizes consortia in its housing authority laws.^[38]  Two other types of state laws, however, likely are sufficient to permit PHAs in most other states to form consortia.  Twenty-seven states have enabling legislation to form regional housing authorities.^[39]  The authority granted by these enabling laws could allow PHAs to form consortia that have a single funding contract with HUD, as the 2014 proposed rule would permit, because such consortia will be treated as separate legal entities for reporting, billing, and other requirements, thus operating like a regional PHA.

Most other states have a “joint powers” statute that may authorize collaboration among PHAs either through consolidation into a regional housing authority or formation of a consortia with a single funding contract with HUD.^[40]  But reliance on a general purpose “joint powers” statute is not assured.  At least nine states have attorney general opinions that limit the jurisdiction of local PHAs, and all nine of these states also have a joint powers statute.^[41] 

In enacting consortia statutes and regulations, federal policymakers intended for PHAs to consider consolidation to lessen administrative burdens and decrease costs associated with the administration of federally subsidized housing programs.  Once HUD finalizes its consortia rule and makes consortia a more attractive option for PHAs, the question of whether PHAs have the legal authority to form consortia will become more important.  The laws in many states that govern the powers of housing authorities are unclear, inconsistent, or confusing.  Accordingly, we recommend four steps that would make it easier for PHAs to form consortia.

1. In the final consortia rule, HUD should include the express preemption language for tenant-based programs that exists in federal law.^[42]  Referencing HUD’s authority to contract with a consortium to administer the HCV program in the regulation will signal to PHAs that they may be able to form consortia to administer the Section 8 program on a regional level, even in the absence of clear state enabling legislation.

2. States should enact clearer and more flexible enabling legislation that allows PHAs to enter into consortia.  To guide the efforts of state legislators, it would be helpful for the Uniform Law Commission (ULC) to draft a uniform state-enabling law for states to consider.  If approved by the ULC, model state-enabling legislation would encourage states with inflexible laws that allow housing authorities to operate only within narrow jurisdictional boundaries to revise them to allow PHAs to form consortia and regional PHAs.

3. States should revisit restrictive attorney general opinions that limit the jurisdiction of local housing authorities, particularly in light of the anticipated change in federal policy on consortia.

4. Congress could revise the consortia section of the U.S. Housing Act^[43] to include a broad preemption provision for both Housing Choice Vouchers and public housing, modeled on (but expanding) Congress’ existing preemption of state law for purposes of administering tenant-based Section 8 (as noted in the first recommendation).  If Congress broadened the preemption language in the statute to apply to the administration of housing programs more generally, it could better enable PHAs to form consortia despite any uncertainty as to a state’s interpretation of its joint powers statute or other enabling laws.

Conclusion

The sheer number of PHAs administering wholly federally funded rental assistance — nearly 3,800 — undermines the effectiveness of the programs they manage and increases costs.  The multiplicity of PHAs in most metropolitan areas also creates barriers for families to use housing vouchers to move to safer neighborhoods with better schools and other services.  The Administration should act promptly to finalize a proposed rule change to allow the PHAs in a consortium to have a single HCV program funding contract with HUD.  It also should revise the voucher administrative fee policy to remove the financial disincentive for small PHAs to enter into consortia or merge by paying them no more than the amount needed for operating a program of efficient size. 

In addition, Congress should facilitate regional administration by providing the $15 million the President’s fiscal year 2017 budget requests for a regional housing mobility demonstration.  And in the small number of states where state laws may prevent PHAs from forming consortia, policymakers should revise their outdated statutes.

Appendix 1: State Enabling Laws for Housing Authorities

The table below details each state’s laws authorizing public housing authorities (PHAs) and consortia.  In summary:

• Only one state has a law that explicitly authorizes the formation of PHA consortia (Nebraska).

• 23 states do not have explicit enabling legislation for the formation of regional PHAs that extend through multiple jurisdictions.  These states are Arizona, Colorado, Delaware, Hawaii, Idaho, Indiana, Iowa, Kansas, Maryland (except municipal-level PHAs may act on a statewide basis), Maine, Michigan, Missouri, Montana, New Hampshire, New Jersey, New York, Ohio, Oklahoma, Pennsylvania, Rhode Island, South Dakota, Utah, and Wisconsin. 

  • In some of these states, however, the joint powers statute has been used to form regional authorities (Iowa and Kansas).

  • In some of these states, administrative opinions authorize the use of the joint powers statute to form regional PHAs. (Colorado and Illinois for example, although Illinois also has enabling legislation for regional authorities).

  • At least two of these states have regional PHAs by name (Idaho and Missouri).

• Nine states have opinions from their attorneys general that limit the jurisdiction of a local PHA to the geographic area in which it operates.

• Five states — Delaware, Indiana, Maryland (for counties only), Michigan and Pennsylvania — have an administrative opinion limiting the jurisdiction of a local PHA to their geographical boundary and no law that explicitly enables the formation of regional PHAs or consortia.

• 27 states have a state entity that is authorized to administer federal housing programs.

  • 15 states that do not have explicit enabling legislation for regional PHAs have a state entity allowed to administer housing programs.  State agencies could play a role similar to regional PHAs in that they administer housing programs throughout an entire geographic region.

Appendix 2

Appendix 3