HUD Budget Contains Major Funding Shortfalls
Congress Needs to Add $6.5 Billion to Administration’s Request to Avoid Cuts In Assistance for Low-Income Families
May 5, 2008
Last year, Congress rejected deep cuts the Administration proposed in affordable housing and community development programs and funded the Department of Housing and Urban Development at $2.1 billion above the Administration's budget request for 2008. For 2009, Congress will have to provide a substantially larger increase -- totaling $6.5 billion above the Administration's request -- to avoid cuts in core programs that help millions of low-income families secure decent housing at affordable rents. There are two primary reasons why.
First,Congress can no longer rely on large recaptures of unspent funds from the "Section 8" programs to finance HUD programs. For most of the past decade, Congress and the Administration have used roughly $2 billion per year in unspent balances in Section 8 program accounts to help finance the current costs of HUD programs, thereby reducing the amount of new funding required. Such large recaptures will not be available in 2009 (and probably not in subsequent years, either). As a result, Congress will have to provide an increase of $2 billion in budget authority in 2009 simply to maintain funding for HUD programs at the nominal (pre-inflation) 2008 levels.
Second, the President's budget fails to provide funding increases in HUD's three main rental assistance programs needed to prevent cuts in assistance to low-income families now being served. More specifically:
- The renewal of Housing Choice vouchers for 2 million low-income families will cost $15.5 billion in 2009, according to Center estimates, which is $868 million above the 2008 funding level and $1.3 billion above the President's 2009 request. Under the President's budget, at least 100,000 housing vouchers being used by low-income families this year would not be renewed. (For data showing the state-by-state impact of these cuts, see the Appendix.)
- The Public Housing Operating Fund will require $5.120 billion in 2009, $920 million above the 2008 level and $820 million above the President's request, to provide state and local housing agencies with the operating subsidies they are due under HUD's own formula. Deep underfunding of operating subsidies in recent years has resulted in the deterioration -- and ultimately, the sale or demolition -- of many public housing units. The loss of units can be expected to accelerate in 2009 unless progress is made in restoring funding to a sustainable level. (The Appendix includes a state-by-state breakdown of shortfalls in funding for public housing.)
- The President's budget fails to address satisfactorily a one-time, multi-billion-dollar shortfall in the project-based rental assistance program, which risks the loss of thousands of affordable apartments. Last year the Administration belatedly revealed a substantial shortfall in funding for Section 8 project-based rental assistance. (This program provides affordable housing to nearly 1.3 million low-income households, most of which contain someone who is elderly or has a disability.) Congress narrowed but did not eliminate the gap in its 2008 appropriations legislation. To close the gap and fully fund the program in 2009 -- and thereby restore confidence in the program's financial reliability among the property owners with whom HUD partners -- Congress needs to provide an estimated $3.4 billion more for the renewal of Section 8 contracts than it provided in 2008 (or $2.4 billion more than the President requested for 2009).
Table 1 below shows how these shortfalls affect HUD's 2009 budget. Once the nearly $2 billion in prior-year funds that were available (and rescinded) in fiscal year 2008 but will not be available in 2009 are netted out of Congress' 2008 appropriation, the President's overall 2009 budget for HUD is $885 million below the nominal 2008 level (i.e., the 2008 level before adjusting for inflation). To avoid reducing the number of people assisted through the Housing Choice Voucher, public housing, and Section 8 project-based rental assistance programs, Congress will need to provide funding in 2009 that is $5.2 billion above the 2008 level. Finally, another $386 million is required to provide an inflation adjustment for the remaining HUD programs.
As a result, a total of $6.5 billion above the President's budget (or $7.5 billion above the 2008 level before adjustment for inflation) is needed simply to maintain current levels of service in HUD programs and to avert losses in housing assistance.
Shortfalls of this magnitude have few precedents among recent HUD budgets and would have sharp and painful effects. Moreover, these shortfalls would come at a time when affordable housing problems are growing among low-income families. HUD's analysis of recent Census data shows, for example, that the incidence of severe housing affordability problems among low-income families grew by nearly 20 percent from 2001 to 2005 (the latest year for which these data are available). Only one in four eligible low-income families receives federal housing assistance, a problem the Administration's budget proposal would worsen. And need now is increasing further as the economy deteriorates and unemployment and poverty rise.
This paper now analyzes the sources of the $6.5 billion shortfall in the Administration's budget in more detail.
[i] CBPP calculations based on Congressional Budget Office analysis of the HUD provisions of the omnibus appropriations act for fiscal year 2008. Total is adjusted to include advance appropriations for Housing Choice vouchers for fiscal year 2009. The CBO analysis deducts rescissions, certain receipts, and other offsets from the new budget authority that the appropriations act provides.
[ii] The 2008 HUD appropriations law included a one-time rescission of $723 million in housing voucher funds advanced in the 2007 law for the 4th quarter of calendar year 2007. (The voucher program is funded on a calendar-year, rather than fiscal-year, basis.) A similar rescission cannot be instituted in 2009 without harming the voucher program. In addition, the 2008 law rescinded $1.25 billion in recaptured funds from the Housing Certificate Fund. According to the President's budget, there are no such funds available for rescission in 2009. Thus, a total of $1.973 billion in Section 8 balances was rescinded in the 2008 law, with this amount counted as a budget offset.
[iii] OMB public database. Figure adjusted to treat Section 8 advances on calendar-year basis. The figure therefore is slightly higher than the $38.5 billion cited in Administration budget documents. The President's budget includes no proposed rescissions of recaptured Section 8 balances, and budget documents make clear that large recaptures will not be available in FY 2009.
[iv] According to the Center's estimates, $15.5 billion will be required to renew vouchers in use in 2009, some $1.3 billion above the President's request and $868 million above the 2008 level. This estimate is explained in more detail in the section of this paper on housing vouchers, especially the text box on page 5.
[v] The Center estimates that $5.12 billion is required to fully fund the Public Housing Operating Fund. This figure is based on a Center estimate of the amount of operating subsidies for which agencies will be eligible to cover utility costs and HUD estimates from the 2009 Congressional Budget Justifications of non-utility components of operating subsidy eligibility. The $5.12 billion is $190 million lower than HUD's estimate that a $5.31 billion appropriation would be required to provide agencies with the full amount of operating subsidies they are due, because the Center estimate of utility eligibility is lower than the estimate HUD uses. Utility eligibility in 2009 will be calculated based on utility rates during the period from July 2007 through June 2008, inflated based on the rate of utility inflation from May 2007 through May 2008. The Center estimate replicates this formula using available information on actual public housing utility costs in previous years, CPI data on utility inflation through January 2008, Department of Energy projections of energy prices in later months, and projections of non-energy utility prices that assume prices will continue to grow at the same rate in recent years.
[vi] $3.4 billion is the estimated amount needed above the FY 2008 level (or $2.4 billion above the budget request) to provide 12 months of funding for every Section 8 contract up for renewal in FY 2009. The Center estimate is based on HUD and Treasury data. Congress could meet a portion of the need for the project-based Section 8 program by appropriating supplemental funds in 2008 or including an advance appropriation of budget authority for 2010 in the budget resolution and the appropriations bill for 2009. These options could alleviate some of the pressure that the shortfalls in the Section 8 program will place on the HUD budget for 2009.
[vii] This amount is the difference between the CBO FY 2009 baseline for discretionary HUD programs and the actual FY 2008 funding level, excluding from both totals the Section 8 rescissions and amounts for housing voucher renewals, the Public Housing Operating Fund, and the renewal of Section 8 project-based rental assistance. Also excluded from the FY 2008 total was an additional offset of $509 million related to a one-year change in a statutory limitation on the FHA's insurance of home equity conversion mortgages.
[viii] Based on Administration's FY 2008 request of $35.571 billion as scored by CBO and adjusted to treat Section 8 advances on a calendar-year basis.