Fixing the Housing Voucher Formula: A No-Cost Way to Strengthen the “Section 8” Program
November 1, 2006
Congress will reconvene in mid-November for a "lame duck" session to finish work on the nine unfinished appropriations bills for fiscal year 2007. Among the bills to be completed is the Transportation-Treasury-HUD bill, which includes funding for most federal housing programs.
A key item in the bill is the appropriation for Section 8 vouchers, the nation's leading form of housing assistance for low-income families. Over the past three years, Congress and the U.S. Department of Housing and Urban Development (HUD) have made a series of changes in the formula that determines how voucher funds are distributed among the 2,400 state and local housing agencies that administer the program. These changes have had the unintended effect of destabilizing the program and causing shortfalls at many housing agencies, even as other agencies have received more voucher funding than they can use.
As a result, 130,000 vouchers have been lost nationally since early 2004. (See Figure 1.) And voucher "utilization" rates -- i.e., the percentage of authorized vouchers actually in use, a standard that is used to measure the program's success -- have fallen significantly. Contributing to this decline, many agencies have sought to protect themselves against possible future funding shortfalls by leasing fewer vouchers than they are authorized to administer. Nationwide, voucher utilization fell from 98.5 percent of the authorized vouchers in 2003-04 to about 92.5 percent in 2006.
The President's budget requested $14.4 billion to renew housing vouchers in fiscal year 2007, and the House and Senate Appropriations Committees included that amount in their appropriations bills. This should be enough funding to renew all of the vouchers that are currently in use -- but only if the existing formula for distributing voucher funds is replaced with one that distributes funds efficiently, based on agencies' actual needs. If, on the other hand, the funding formula is not improved, another round of voucher cuts will ensue, even though the appropriations bills include sufficient funds to avoid that.
What Funding Approach to Use?
A major issue that will confront Congress when it fashions the final HUD appropriations bill is thus what approach to use to allocate funding for existing housing vouchers. The position taken earlier this year by HUD and the House Appropriations Committee was that the current funding formula, which distributes funds on the basis of data that in 2007 will be up to three years old, should be retained despite its flaws. (Since 2005, each agency's funding has been based on its number of authorized vouchers in use during the three-month period of May-July 2004 and their cost at that time, adjusted by a HUD inflation factor and with other minor adjustments.)
In June, however, the House Financial Services Committee, which is responsible for setting housing policy, approved a bill -- H. R. 5443, the Section 8 Voucher Reform Act (or SEVRA) -- that contains a much improved funding formula. SEVRA also contains a series of incentives to encourage housing agencies to serve as many families as their funding allows, including a mechanism to reallocate unspent voucher funds from agencies that cannot use them to agencies that can. When the Senate Appropriations Committee crafted its version of the Transportation-Treasury-HUD appropriations bill one month later, it included the essence of SEVRA's new funding formula but only one of SEVRA's incentives for agencies. The Senatebill does not include one of the most important incentives in the SEVRA bill -- a provision to recapture funds that agencies have failed to use after one year, and to redistribute those funds to high-performing agencies so those agencies can put more of their authorized vouchers to use.
Members of the House-Senate appropriations conference committee will have to decide whether to incorporate the SEVRA approach in whole or in part into the final Transportation-Treasury-HUD appropriations bill. The decision they make will determine whether the voucher program continues down the path of serving fewer families despite a substantial unmet need for affordable housing -- or whether program stability is restored, more families are able to use the vouchers Congress has authorized, and more of the funds Congress has appropriated are used for their intended purpose.
SEVRA Formula Makes Most Efficient Use of Federal Dollars, According to Latest HUD Data
We estimated the impact of the three different funding approaches -- the approach in the SEVRA bill, the approach in the House's 2007 HUD appropriations bill, and the approach in the Senate's 2007 HUD appropriations bill -- on each of the 2,400 state and local housing agencies, using the latest available HUD data on voucher use and cost. We assumed that $14.2 billion in fiscal year 2007 funding would be available for allocation under each of the formulas. In addition, for the SEVRA formula, we estimated that HUD would recapture a portion of unspent prior-year funds and provide them to high-performing agencies, as the SEVRA bill calls for, so those agencies can lease more of their authorized vouchers. (Appendix A summarizes the key features of the three proposed policies.)
We now proceed to the results of this analysis, looking first at the SEVRA approach, then at the House appropriations bill, and finally at the Senate bill.
 For a more detailed analysis of the SEVRA bill, including both the voucher formula and other elements of the legislation not discussed here, see Barbara Sard and Will Fischer, "Bipartisan Bill in House Would Make Marked Improvements in Housing Voucher Program," Center on Budget and Policy Priorities, May 30, 2006.
 The House of Representatives approved H.R. 5576 on June 14, 2006. The Senate Appropriations Committee approved its version of the bill on July 20, 2006. The full Senate has not considered the bill and likely will not vote on the bill before a final version is agreed to by House and Senate conferees.
 The President's budget requested $14.4 billion for renewal of housing vouchers, with $100 million set aside for certain cost adjustments and unforeseen "exigencies" and the remaining $14.3 billion allocated among all agencies by formula. The bills approved by the House and Senate Appropriations Committees include these same amounts (though the Senate bill would allocate funds under a different formula). The final House bill increased the total available for voucher renewals by $70 million. Our analysis assumes that the final bill will provide $14,178,501,800 in voucher renewal funding for distribution under a formula. This is the amount in the President's budget and the House and Senate committee bills, reduced by 1.1 percent, which is the amount each remaining appropriations bill would have to be cut below the level the Senate Appropriations Committee provided for that bill to make up for the $5.3 billion that Congress added to the defense and homeland security appropriations bills in September. See James Horney, Martha Coven, and Matt Fiedler, "Recent Action by Congress Sets Up Larger Appropriations Cuts in Lame-Duck Session," Center on Budget and Policy Priorities, October 13, 2006.
 This analysis relies on data through March 2006 provided by agencies to HUD through the Voucher Management System. The Technical Appendix explains how we estimated voucher leasing and costs for the remainder of 2006 and provides the details on how we modeled the effect of each funding policy.