Updated January 19, 2000
How the Statutory Changes Made by the
Quality Housing and Work Responsibility Act
of 1998 May Affect Welfare Reform Efforts
by Barbara Sard and Jeff Lubell
Click here for a January 2000 update on the information contained in this report.
Table of Contents
On October 21, 1998, President Clinton signed the Quality Housing and Work Responsibility Act of 1998 (QHWRA). Four years in the making, the Act devolves authority over many areas of housing policy that affect low-income families and individuals to the approximately 3,400 state and local public housing agencies (PHAs) that manage public housing or administer tenant-based Section 8 programs. The devolution of control over federal low-income housing programs, however, is not as far-reaching as the devolution of authority over the federal welfare system that took place in 1996 when Congress transformed the Aid to Families with Dependent Children (AFDC) program into the Temporary Assistance to Needy Families (TANF) block grant. No new housing block grant program has been created, and most federal rules regulating low-income housing programs remain in place.
The limited devolution effected by the QHWRA creates both new responsibilities for state and local decision-makers and new opportunities for tenants and other interested members of the community to have input into the decision-making process. The focal point for local decision-making is now the "PHA plan," a new document that each PHA is required to create and submit to the U.S. Department of Housing and Urban Development (HUD) summarizing the PHA's key policy decisions. Among other things, the PHA plan will indicate which groups of families will receive preference for admission to subsidized housing resources administered by the PHA and how families' rents will be set. As part of the process of developing a plan, PHAs will be required to hold a public hearing and consult with an advisory board of subsidized housing residents.
Federal Housing Programs Serving Poor Families
Tenant-based Vouchers and Certificates - These subsidies help tenants rent housing in the private market. The subsidies cover the difference between the apartment rental and the tenant's rent payments, usually set at 30 percent of the tenant's income. There are currently about 1.5 million vouchers and certificates nationwide, of which nearly one million are occupied by families with children. Under the QHWRA, the certificate and voucher programs will be combined into a single voucher program.
Public Housing - Public housing consists of rental units owned and operated by public housing agencies (PHAs), which are public or quasi-public entities. There are approximately 1.2 million units of public housing available for occupancy, of which about 550,000 are occupied by families with children. Public housing units are found in a variety of housing structures, including garden-style apartments, high-rise buildings, and even single family homes. (Construction of high-rise public housing has been prohibited since the late 1960s.) Rents are generally set at 30 percent of tenants' incomes. In addition to tenant rents, PHAs receive an operating subsidy from the federal government.
Project-based Section 8 Housing - These are subsidized rental units in buildings owned and operated by private owners. Section 8 project-based subsidies can cover all of the units in a given housing development or a designated number of a building's units. Under this program, the federal government pays private owners the difference between a unit's rent and the tenant's rent payment, which is fixed at 30 percent of income. There are approximately 1.4 million project-based Section 8 units nationwide, of which about 480,000 are occupied by families with children.
Many of the policy decisions PHAs are authorized to make under the QHWRA and required to record in their PHA plan have the potential to affect welfare reform efforts. For example, PHAs now have greater discretion to prefer working families for admission to their housing programs, particularly in public housing. The PHA plan process will provide an opportunity for public and tenant input into a PHA's determination whether to adopt such a preference and, if so, whether to define "working" broadly to include families enrolled in job training programs or certain other welfare-to-work activities. PHAs also will have more authority to set rents in a manner designed to encourage tenants to go to work and working tenants to remain in public housing. The determination of whether to adopt such a rent policy also will be subject to public and tenant input as part of the PHA plan process.
It is important for PHAs, tenants, and other interested parties to understand the new menu of policy options available to PHAs as they formulate and submit their plans to HUD and to consider the likely effects of various policy choices on welfare reform efforts. This paper discusses the housing policy changes made by the QHWRA that are most relevant to welfare reform efforts and identifies some of the decisions that need to be made in these areas during the PHA plan process.(1)
The following is a brief summary of the policy changes this paper covers. The summary omits many of the details described in the body of the paper.
Eligibility and Targeting Requirements. The QHWRA permanently repeals the federal rules that specified which categories of families must receive preference for admission to subsidized housing and increases PHAs' discretion to set their own admissions preferences. In setting their admissions policies, however, PHAs must abide by new "income targeting" rules which require that at least 40 percent of newly available public housing units be provided to families with incomes below 30 percent of the area median income (AMI) and that at least 75 percent of newly available Section 8 vouchers be provided to such families. Private owners of Section 8 housing projects may not skip a lower-income family in favor of a higher income family and must provide at least 40 percent of newly available units to families with incomes below 30 percent of AMI.
PHAs can use the greater discretion provided by the QHWRA to set admissions preferences that either help or hinder welfare reform efforts. For instance, PHAs can give preference for available subsidized housing resources to families trying to move from welfare to work, thereby providing more families with the stability they may need to focus on getting and keeping jobs. On the other hand, PHAs can give preference to working families with higher incomes, reducing the share of subsidized housing resources available to families attempting to make the transition to work.
Rent Rules. The QHWRA greatly expands the options for calculating tenants' rents in public housing. For example, public housing tenants will now have the option of paying "flat" rents that do not depend on their income. (Alternatively, they can choose to pay 30 percent of their adjusted income in rent, as they do now.) PHAs will continue to be able to set maximum or "ceiling rents" for their units, with greater flexibility in determining the amount. Both flat and ceiling rent policies can be used to offset the potential disincentive to work caused by a rent structure that ties rent payments to income. To similar effect, the QHWRA expands the categories of families eligible to benefit from a mandatory disregard of a portion of their earned income in calculating rent payments and gives PHAs the right (at their option) to extend the disregard to still more families. With limited exceptions, these rent policies do not apply to Section 8 tenants (which comprise nearly three-fourths of all subsidized tenants with children receiving welfare payments).
Although the QHWRA permits PHAs to establish a minimum rent of up to $50 for public housing tenants and Section 8 voucher-holders and authorizes HUD to set a similar minimum rent for families in project-based Section 8 housing, the Act requires that any minimum rent policy contain a number of hardship exemptions. Among the families exempt from minimum rents are those who have lost income due to welfare time limits or those who would face eviction as a result of the minimum rent policy. On the other hand, the QHWRA prohibits PHAs from reducing the rent of families who have lost welfare income as a result of fraud or failure to comply with work requirements.
Section 8 Voucher Payment Standards. Prior to the QHWRA, there were two parallel Section 8 programs that subsidized the rents of apartments in the private market in which Section 8 participants resided: the certificate and voucher programs. These programs have now been merged into a single voucher program. Under the new voucher program, PHAs have greater flexibility to set the "payment standards" that determine the amount of the rental subsidy. In some locations, higher payment standards can help families afford apartments with better access to jobs. The payment standard will be determined in the PHA plan process.
Community Work Requirement. Some non-working residents of public housing must now perform at least 8 hours per month of community service. Adults enrolled in an economic self-sufficiency program or otherwise complying with work requirements under a state welfare program (including TANF programs and wholly state-funded non-TANF programs) are exempt from this requirement.
Family Self-Sufficiency Program. Although earlier versions of the QHWRA would have eliminated the Family Self-Sufficiency (FSS) program, the final Act leaves it largely intact, at least for the foreseeable future. The FSS program strives to promote work through case management services and the use of escrow accounts. The QHWRA continues PHAs' existing obligation to operate FSS programs but provides PHAs with an opportunity to satisfy and terminate that obligation. The Act also authorizes PHAs to set up optional FSS programs.
Home Rule Demonstration. The QHWRA authorizes HUD to establish a "home rule" demonstration in up to 100 cities over the next five years. Under this demonstration, cities will be given substantial freedom to combine public housing and Section 8 program funds that would otherwise go to the PHA in their area and may obtain waivers from HUD of many provisions of the Housing Act.
It will take years to gauge the full impact of the QHWRA's many changes in federal low-income housing policy. This is partly because of the breadth of different areas affected by the bill and partly because changes made at the federal level take time to filter down through local decision-making. The QHWRA also contains several novel provisions whose outcomes are hard to predict; these include the home rule demonstration and the requirement that each PHA develop a plan providing for the "deconcentration" of poverty in public housing.
The Act devolves significant authority over low-income housing programs to state and local PHAs. Yet it resists more sweeping changes that had been contemplated in earlier versions of the bill. It did not abolish the Housing Act of 1937. Eligible families that comply with the conditions of their tenancy will continue to be able to receive housing assistance without time limits. Most subsidized families will continue to pay about 30 percent of their income in rent (though some will pay more and some will pay less).
The QHWRA gives PHAs new tools to encourage work among public housing residents but does not require PHAs to adopt them. Similarly, PHAs now have discretion to set admissions policies that could help welfare reform efforts but are not required to do so. The availability of these new options, together with the requirement for public input into the PHA plan process that determines which options PHAs choose, make that process an important focal point for local welfare reform efforts.
The PHA Plan Process: Public and Tenant Input Into Local Decision-Making
As noted above, the QHWRA requires every PHA to have an annual plan containing a written statement of key policies over which the PHA has some discretion. Because consideration of public and resident comments on the plan is required, persons interested in promoting welfare reform efforts have the opportunity to try to affect PHA decisions about key areas of housing program policy that intersect with welfare reform. PHA implementation of each of the provisions of the QHWRA described in this paper is subject to public input as part of the PHA plan process.
The statute provides a lengthy list of required elements of a PHA plan, and HUD may add additional topics by regulation. (HUD is required to issue interim rules on the PHA plan content and process by February 18, 1999.) Admissions and rent policies must be included in the plan. Rent policies include the payment standard adopted by the PHA for the new merged voucher program explained below. In addition, PHAs must describe "any policies or programs of the public housing agency for the enhancement of the economic and social self-sufficiency of assisted families." For each required element of the plan, a PHA must consult with the resident advisory board(s) required to be established by the Act and must attach and respond in writing to resident advisory board comments. In addition, a PHA must make a draft comprehensive plan available for public review for at least 45 days and then hold a public hearing to receive comments on the draft plan.
Most PHAs are likely to draft their plans and hold public hearings during the spring and summer of 1999. Some may delay into the fall or winter of 1999, as the due date for submission of the initial plan to HUD depends on a PHA's fiscal year. HUD's power to require the revision of any elements of a PHA's plan is quite limited, and its review time is very short. It is important that persons interested in the policy decisions reflected in the PHA plan make their concerns known to PHAs before these initial plans are finalized.
Eligibility and Targeting Requirements
The QHWRA gives state and local PHAs greater (although not unfettered) discretion to decide who receives the limited supply of federally-funded housing subsidies. PHAs now have discretion to admit a greater proportion of relatively higher income families into public housing; private owners of project-based Section 8 housing projects also may admit more families who are not poor than was possible under prior law. Although these changes could lead to a loss of units for poor families, the extent of any loss depends significantly on the admissions policies set by each of the approximately 3,400 PHAs and thousands of private owners of developments with project-based Section 8 subsidies.(2)
The QHWRA permanently repeals the so-called federal preference rules, which had required that most housing assistance go to applicants with urgent housing needs. The requirement to admit a substantial percentage of applicants with federally-defined urgent housing needs had been suspended annually by Congress since 1996. Nonetheless, due to uncertainty about the permanent law, many local agencies have still been using admissions policies that incorporated the federal preference rules. In place of the federal preference rules, Congress has enacted eligibility and targeting rules based on income rather than on housing need. These new "income targeting" rules are effective October 21, 1998.
The Section 8 Voucher and Certificate Programs
Families use Section 8 vouchers and certificates to subsidize the rents of apartments they locate on the private market. More than 160,000 vouchers and certificates become available each year through "turnover;" vouchers also may become available through new appropriations. Under the QHWRA, at least 75 percent of newly available vouchers and certificates must be used by households with incomes at or below 30 percent of area median ("extremely low income" or ELI).(3) The remainder may be used by households with incomes as high as 80 percent of area median. Prior law had capped eligibility for most tenant-based assistance at 50 percent of area median.(4) The requirement in the final law that at least three-fourths of new families receiving tenant-based assistance be in the lowest income group is a significant improvement over earlier versions of the bill passed by the House and the Senate.
Income Targeting. More than 150,000 public housing units become available each year through turnover. Under the QHWRA, 40 percent of public housing units newly rented each year must be occupied by households with incomes at or below 30 percent of area median. The remainder may be rented to applicants with incomes up to 80 percent of area median. By contrast, prior law permitted only about 25 percent of public housing units to go to households with incomes between 50 and 80 percent of area median.
Under a provision known as "fungibility," PHAs that provide more than three-fourths of newly available vouchers and certificates to ELI households may reduce the number of ELI households they are required to admit to public housing. For every "extra" ELI household provided a voucher or certificate, a PHA is permitted to reduce by one the number of ELI households admitted to public housing. This "fungibility" credit has three main limitations. First, the credit may only be used if non-ELI families occupy public housing units located in areas of high poverty concentration. Second, the credit may not exceed 10 percent of the number of newly available vouchers and certificates under the PHA's control. Finally, in no event may fewer than 30 percent of newly available public housing units be leased each year to extremely low income applicants.
Deconcentration of Poverty. An additional aspect of the new public housing eligibility and targeting rules is a new "deconcentration" requirement. The QHWRA prohibits concentration of the relatively lowest income families in certain projects, and obligates PHAs to develop and utilize an admissions policy "designed to provide for deconcentration of poverty and income-mixing by bringing higher income tenants into lower income projects and lower income tenants into higher income projects." What this obligation will entail in practice will depend substantially on HUD's regulations that are expected to be issued in mid-February, 1999.
PHA Discretion to Set Local Admissions Preferences
PHAs can allocate a higher proportion of newly available public housing units and tenant-based subsidies to extremely low income families than these federally-required floors. They also can establish selection criteria based on personal characteristics, such as employment of a household member or housing need, so long as they comply with the federal income targeting requirements.(5) PHAs must give resident groups and the public an opportunity to comment on their proposed admissions preferences, both in writing and at a public hearing, before local preferences are finally adopted.
The Project-Based Section 8 Program
About 180,000 project-based Section 8 units become available each year through turnover.(6) For these units, Congress retained the targeting requirements of current law, and added a further requirement applicable to extremely low income households. Taken together, these rules mean that of the units available each year, at least 40 percent must go to applicants with incomes at or below 30 percent of the area median, and not more than 15-25 percent may go to applicants with incomes between 50 and 80 percent of area median. Further, private owners, unlike PHAs, are prohibited from skipping over lower income applicants on the waiting list "for the purpose of selecting relatively higher income families." The statute clarifies that a preference for applicants with an employed member is permissible, so long as the preference is not tied to income at a particular level.
Potential Effects of Eligibility and Targeting Changes
It is difficult to evaluate what effect the new targeting rules will have in practice. The achievement of a high level of targeting of Section 8 vouchers on families below 30 percent of AMI means that there may be little if any change in the number of poor families newly receiving vouchers. However, more relatively higher income families may receive one of the Section 8 vouchers not targeted on poor families due to an increase in the eligibility level from 50 percent to 80 percent of AMI. The new rules could lead to a decrease in the number of poor families admitted to project-based Section 8 housing.(7) Similarly, PHAs now have discretion to admit a greater share of relatively higher income families to public housing. Local conditions will determine the extent to which PHAs seek higher income applicants and whether moderate income households are willing to move into public housing.(8)
What admissions preferences PHAs and owners choose can significantly impact welfare reform efforts. In all, about 500,000 housing subsidies become available each year through turnover, about half of which assist families with children.(9) While not nearly enough to house all families in need, many families currently or recently receiving welfare benefits could receive stable, affordable housing each year if they received preference for available units. Nationally, only about one-quarter of families with incomes from TANF receive housing assistance.(10) It is important that those with knowledge of the housing needs and incomes of families affected by welfare reform contribute their views to PHAs and owners formulating new admissions preferences.
Families in public housing and who have Section 8 subsidies generally pay 30 percent of their gross income in rent, with minor income adjustments. The QHWRA exhorts PHAs to adopt rent policies for public housing tenants that encourage work and may give PHAs a financial incentive to do so. While the new law increases PHAs' flexibility in determining how much of tenants' income they must pay in rent for public housing, tenants largely retain the current law guarantee that their rent will be no greater than 30 percent of their adjusted income. Few of the changes in rent rules affect Section 8 tenants.
Of most immediate importance for public housing tenants and Section 8 participants facing a loss of income due to welfare changes, protections are added that will exempt those losing benefits due to a time limit from a minimum rent requirement. Tenants losing income due to work-related welfare sanctions, however, will no longer be entitled to a rent reduction. These provisions are discussed in more detail below, after an initial discussion of changes in the rules governing income disregards.
The QHWRA changes somewhat the eligibility criteria, amount and duration of the mandatory earnings disregard for some public housing tenants. In addition, the Act gives PHAs the option of disregarding portions of tenant income in three different ways.
Mandatory earnings disregard for public housing tenants. Currently, federal law requires PHAs to disregard, for a period of 18 months, any increase in public housing tenants' earnings resulting from participation in a public program of employment training and supportive services. The new law eliminates this mandatory disregard as of October 1, 1999. In its place, the QHWRA enacts a new, albeit similar, time-limited mandatory disregard of incremental earnings of some public housing tenants. The new provision, which will be effective October 1, 1999, makes the following groups of public housing tenants eligible for the mandatory earnings disregard:
- those whose total income increases as a result of employment of a family member who was previously unemployed(11) for one or more years;
- those whose earned income increases during the participation of a family member in any family self-sufficiency or other job training program;(12) and
- those who are or were receiving TANF-funded assistance within the previous six months.
The duration of the new mandatory disregard is also changed. The current rule disregards all incremental earnings for a period of 18 months, generally calculated from when the PHA would otherwise have increased the family's rent. The new rule disregards 100 percent of increased income from employment for a period of 12 months; for the following 12 months, rent can be increased by only 50 percent of the amount it otherwise would have been increased without the disregard.
Public housing families eligible for the mandatory earned income disregard may instead elect to have the PHA establish a savings account for them with the monies that would otherwise be paid in rent. Like the mandatory disregard provision, this savings alternative is not effective until October 1, 1999. It is unlikely that large numbers of families will choose the savings account alternative rather than simply retaining a lower rent obligation, particularly as they are only assured of being able to withdraw funds from the account if they move out of public housing (including through home ownership) or pay for education costs. Any other withdrawal of funds from the savings accounts is at the discretion of the PHA.(13)
Optional income disregards for public housing tenants. The new statute continues the authority included in recent appropriations acts for PHAs to establish their own earnings disregard policies for public housing tenants. Such policies may apply to all tenants or only those with certain characteristics, such as current or recent welfare receipt. PHAs also can choose to disregard a flat amount of earnings or a certain percentage of earnings, or limit a disregard to particular expenses.(14) They can limit the duration of a disregard or apply it to any earnings. A PHA's income disregard policies will have to be included in its new PHA plan and therefore are subject to resident and public input.
In addition to continuing current policy on optional disregard of earned income, the new Act gives PHAs the discretion to disregard other types of income, such as pensions or public assistance. This new authority is effective October 1, 1999.
It is unclear at this point what the financial incentives or disincentives will be for PHAs to adopt optional income disregard policies. Currently, relatively few PHAs have adopted such policies.(15) HUD regulations now require PHAs to absorb any revenue loss resulting from optional disregard policies; no additional operating subsidy is to be paid. The QHWRA requires HUD to establish a new formula for distributing operating subsidy payments to PHAs through a negotiated rule-making process by late April 1999. The new operating subsidy formula "shall provide an incentive to encourage public housing agencies to facilitate increases in earned income by families in occupancy."(16) Whether PHAs still will have to bear the risk of reduced revenue due to optional earnings disregards depends on the outcome of the upcoming negotiated rule-making process.
Ceiling rents for public housing tenants. For public housing, PHAs may establish a maximum rent for a unit that is less than what the tenants of that unit otherwise may have paid based on 30 percent of their adjusted income (or based on the unit's "flat" rent, discussed below). Previously, a ceiling rent could be no lower than the PHA's average cost of operating a unit (without debt service). The QHWRA permits HUD to establish any ceiling rent policy it chooses through the negotiated rule-making process that will establish the new formula for distribution of operating subsidies. In the interim, or through October 1, 1999, whichever is earlier, a PHA may establish a ceiling rent for units in its family projects(17) that covers as little as 75 percent of the applicable operating costs. PHAs will receive additional operating subsidies in the interim period if they suffer a reduction in rental income as a result of such ceiling rents. This could be a powerful incentive for PHAs to adopt such policies.
The QHWRA ceiling rent provision has both positive and negative policy consequences. A ceiling rent of as little as $300 per month could well be permitted under the QHWRA interim rule.(18) Families with incomes above about $12,000 per year would benefit from a ceiling rent set at this level. Consequently, new ceiling rents may act as an incentive for families to go to work or increase their earnings, or at least be an effective income disregard policy for such families. (Prior ceiling rents at the level necessary to cover operating costs were probably too high to affect families leaving welfare for work). Relatively low ceiling rents are likely to help retain working families in public housing and may also attract more working families to become tenants. This was presumably the Congressional purpose in enacting this provision. As a result, however, there may be fewer units available to families on welfare in need of stable, affordable housing.
Financially, unless ceiling rents do result in attracting and retaining working families in sufficient numbers to offset any reduction in rent revenues in particular units, the new policy will require increased federal operating subsidies or decrease the amount of operating subsidy available to PHAs that do not adopt such policies. (The total appropriation for public housing operating subsidies is a fixed amount each year.) If federal policies on reimbursing PHAs for any lost income resulting from use of ceiling rents continue to be more favorable than similar policies regarding use of income disregards, PHAs will be more likely to adopt ceiling rents than other earnings disregard policies. This is unfortunate, because ceiling rents provide the greatest benefit to the highest income tenants, while optional disregards can be better targeted to the newly employed and lower-wage earners.
Balancing the multiple interests of PHAs, tenants, and the federal treasury, it may be most beneficial for PHAs to adopt ceiling rents only in developments to which they are trying to attract higher income tenants under the deconcentration requirement discussed in the eligibility and targeting section above. Alternatively, PHAs could set lower ceiling rents in developments with a high concentration of poor families than in other developments that already have a more mixed-income tenant population. The lower ceiling rents in the high-poverty developments could attract somewhat higher income families to remain in (or move into) those developments.
When considering whether to adopt any kind of income disregard policy, including ceiling rents, PHAs would be well-advised to consider their state's TANF program rules concerning earned income disregards and benefit levels. For families receiving TANF benefits, these rules may have a greater impact on work effort and net income than PHA rent policies. Among other questions PHAs should consider in determining whether to adopt an income disregard policy, and in choosing among various options for such policies under the new law, are the following:
- Will they receive additional federal subsidies to offset any revenue loss?
- Will a particular policy encourage tenants to go to work or work more hours?
- Will an income disregard policy encourage working families to remain in public housing?
- Does the PHA prefer to retain relatively higher income families or free up additional public housing units for needier families?
- Will adoption of a particular income disregard policy help families who go to work meet their basic needs?
Flat Rents and Rent Choice
Every PHA is required, by October 1, 1999, to establish a so-called "flat rent" for each of their public housing units, based on the PHA's determination of the rental value of the unit. In addition, a PHA's flat rents must be designed to "encourage and reward employment and economic self-sufficiency."(19) A "flat" rent is not based upon income, nor does the flat rent change due to changes in a tenant's income. A PHA may choose to have tenants pay part of their flat rent into a savings account for later withdrawal for particular purposes. Unlike ceiling rents, flat rents can be higher than 30 percent of tenants' adjusted income. While PHAs must set a flat rent for each unit, each tenant may decide annually whether to pay the flat rent or an income-based rent (normally, 30 percent of adjusted income). There are no statutory provisions regarding how a PHA must advise or counsel tenants about this rent choice.
Tenants who have chosen to pay a flat rent can switch to an income-based rent during the year only with the permission of the PHA. A PHA must, however, allow the switch if it determines that a family is unable to pay the flat rent because of financial hardship due to a decrease in income or increase in expenses.
The interplay between ceiling and flat rents is complex. It will be difficult to assess which of these approaches, or a more narrowly-tailored set of earnings disregards, may be preferable for PHAs, tenants, or organizations interested in helping tenants successfully transition into the workforce. This is particularly true in advance of HUD issuing regulations concerning both the various new rent rules and the operating subsidy formula.
Prior to October 1, 1999, however, it is clear that PHAs may establish ceiling rents as low as 75 percent of operating costs for units in family developments and be secure that they will be federally reimbursed for losses of revenue that may result. Regardless of the wisdom of such ceiling rents from an overall policy perspective, for the tenants in eligible developments they appear to be risk-free, as no tenant may be charged a ceiling rent higher than an income-based rent. This new ceiling rent is the only way for PHAs to obtain federal reimbursement in FY 1999 for a rent policy that encourages tenants who are not eligible for the mandatory earnings disregard to work and remain in public housing.
Section 8 tenants
None of the new income disregard rules will necessarily benefit Section 8 tenants. The QHWRA does make Section 8 tenants with both project-based and tenant-based subsidies eligible for the new mandatory disregard. (The current 18-month disregard is limited to public housing tenants.) But Section 8 tenants will be able to receive the benefit of the new mandatory earnings disregard only if prior approval is provided in an appropriations act. Since the FY 1999 HUD appropriations act did not provide such prior approval, Section 8 tenants will be eligible for the mandatory disregard only if approval is given in the FY 2000 or later appropriations acts (or some emergency or supplemental act).
While earlier versions of the QHWRA would have given PHAs the option to establish policies that disregard earnings of Section 8 certificate or voucher tenants in determining their rental contributions, the final bill omits this authority. It is unclear why Congress omitted the optional earnings disregard authority for Section 8 tenants from the final bill.
Minimum Rents and Hardship Exceptions
The QHWRA adds to the U.S. Housing Act a minimum rent provision similar to what the appropriations acts have enacted annually in recent years. PHAs may set a minimum rent of "not more than" $50/month, including utilities, for public housing and/or Section 8 tenants. (No PHA is required to have a minimum rent policy, and could set tenant rents at zero when they have no income.) HUD sets the minimum rent for tenants in project-based Section 8 developments. It is likely, but not certain, that HUD will continue its current policy for project-based Section 8 tenants, which is a minimum rent of $25/month.
In a potentially very important change from recent policy for welfare families facing time limits, other needy families who have been unable to obtain public assistance, and families in which a parent has lost a job, the QHWRA establishes mandatory hardship exceptions to any minimum rent policy. Among the exception categories are situations in which a "family has lost eligibility for or is awaiting an eligibility determination for a Federal, State or local assistance program," and "the income of the family has decreased because of changed circumstances, including loss of employment."(20) There is also a required hardship exception for families who would be evicted as a result of the imposition of a minimum rent requirement.(21)
Mandatory hardship exceptions to minimum rent requirements are new. PHAs were generally opposed to them during the legislative process, and it is unclear how quickly PHAs will move to revise their current policies to include hardship exceptions, despite the immediate effective date of the minimum rent and hardship provisions upon the signing of the bill. Enforcement at the local level could be critically important to prevent the homelessness of families unable to obtain welfare benefits or employment.
From the point of view of PHAs and private owners of project-based Section 8 developments, the inclusion of mandatory hardship exceptions to any minimum rent policy potentially alters the agencies' calculus of risks from state welfare reform policies. Requiring the reduction of tenants' rents to zero when they have no income due to welfare time limits makes it clear that assisted housing is to function as housing of last resort, at least for the tenants fortunate enough already to have it. Agencies will not lawfully be able to exclude tenants with no income through a minimum rent policy coupled with an aggressive eviction strategy. While this change poses a financial risk to PHAs if HUD does not compensate them for lost revenue through the operating subsidy, it also should increase the incentives for PHAs and private owners to undertake a variety of strategies to help make sure that their tenants have jobs when they lose welfare benefits.(22)
No Rent Reductions in Cases of Welfare Work-Related Sanctions
Public housing tenants and participants in the tenant-based Section 8 program who lose income from welfare or public assistance benefits due to "any failure of any member of the family to comply with the conditions under the assistance program requiring participation in an economic self-sufficiency program or imposing a work activities requirement" will no longer be entitled to a rent reduction.(23) (This change does not apply to project-based Section 8 tenants.). PHAs have no discretion to alter this rule. However, the rule may not take effect until after PHAs incorporate the new "no rent reduction" rule into leases.
This policy applies only in welfare sanction situations and not when benefits are reduced or terminated due to time limits. Further, it does not apply when benefits are reduced due to sanctions for failure to comply with a behavioral condition of the program other than one related to the parent's economic self-sufficiency. That is, if a family fails to comply with such matters as paternity establishment, learnfare or immunization/shotfare requirements and suffers a benefit reduction as a result, its rent must still be reduced under the usual income-based rent rules.
Section 8 Voucher Payment Standards
The QHWRA merges the two different Section 8 programs that allow families to rent housing of their choice in the private market - the certificate and voucher programs - into a single voucher program. The new Section 8 voucher program may enable more families with Section 8 subsidies to rent housing that is better located for access to jobs. Rather than being limited to units with rents at or below the HUD-established fair market rent (FMR)(24) as families with Section 8 certificates now are, families with vouchers will be able to rent more expensive housing so long as the rent is reasonable and the family is able to pay the additional rent. Nearly half a million families with income from TANF have tenant-based Section 8 subsidies. If these families are aided - by their PHA, welfare agency or other group - to understand the new flexibility of their housing subsidy and to locate landlords willing to rent units that are more accessible to jobs, they may be better able to obtain or retain employment.(25)
How PHAs exercise their discretion in setting the "payment standard" for the new voucher program will impact housing affordability and determine whether new program participants are able to rent costlier housing. The QHWRA permits PHAs to set their voucher payment standard from 90-110 percent of the FMR (and outside this range with HUD permission). Families renting units at or below the PHA's chosen payment standard will pay only 30 percent of their income for rent. Families renting more expensive units must pay the difference between the payment standard and their unit's rent, in addition to 30 percent of their income. Consequently, a higher payment standard is likely to result in fewer families having to pay more than 30 percent of their income for rent.(26)
As rental housing with better access to jobs frequently costs more than the area's FMR, it is important that PHAs consider using their new authority to set a relatively high payment standard, at least for housing in such neighborhoods. A PHA's proposed payment standard(s) for the new voucher program is subject to resident and public input as part of the PHA plan process. Those concerned with promoting Section 8 recipients' access to jobs need to make PHAs aware of the link between their choice of payment standard and their participants' employment prospects.
Community Work Requirement
One of the most contested issues in the bill was a new requirement that public housing tenants work in exchange for their housing. As enacted, the new Community Service Requirement will probably have mostly a symbolic effect, although there are a few categories of tenants who may have difficulty complying and whose continued tenancy may be at risk as a result. The new requirement does not take effect until October 1, 1999, so final HUD regulations ought to be in place before any tenants are subject to the requirement.
Only "adult" residents of public housing are subject to the requirement. Section 8 tenants are not. A non-exempt adult public housing resident must either contribute eight hours per month of "community service," which is not defined, or participate for eight hours per month in an economic self-sufficiency program. The statutory definition of an economic self-sufficiency program includes education and training programs. If a tenant cannot satisfy the economic self-sufficiency program prong of the requirement, she may do community service of her own design, so long as it is not political activity. Unpaid work on behalf of a tenants' group appears to qualify as community service. It is not clear whether PHAs must design community service programs, although it seems they would have to if tenants who are not exempt from the requirement claimed that they could not come up with their own activity. PHAs cannot create community service programs that displace paid employees. The statute permits PHAs to delegate administration of a community service program to a resident organization or an experienced contractor.
Most adults in public housing projects will qualify for one of the statutory exemptions. Anyone 62 or older, or who meets the definition of blind or disabled under the SSI or Social Security Disability Insurance programs, or is the primary caretaker of such a person is exempt. Any adult in a family that receives TANF or other state welfare assistance, including a state welfare-to-work program, who has not been found "to be in non-compliance with such program" is exempt. Any adult who meets a state welfare program's criteria for exemption from work requirements also is exempt from the community service requirement.(27) Finally, adults who are engaged in a work activity as defined under the federal TANF statute (sec. 407(d)) are exempt. This category includes regular as well as subsidized employment, community service (often called "workfare"), some types of training and education, and job search.
What are the categories of tenants likely to be affected by the community work requirement (i.e., that do not meet one or more of these exemption requirements or are not already engaged in qualifying activities)? Some possibilities include:
- parents who have exhausted their TANF benefits due to time limits or who have been sanctioned for any reason;
adult children who are not working or in school; single adults who do not qualify as disabled under SSI standards but may nonetheless be unable to get a job; and individuals receiving short-term disability or workers' compensation benefits or unemployment compensation.
It is unclear whether compliance with the community work requirement will be difficult for these tenants.
The enforcement mechanism established for the community work requirement is somewhat convoluted. While no tenant can be terminated during a lease term for non-compliance with community work, PHAs are required not to renew the lease of any household that includes an adult resident who was subject to the community work requirement and did not fully comply during the prior year. To make this requirement operational, all public housing leases are to be converted to 12-month leases. (They previously had been endless leases subject to termination for cause.) Thirty days before lease expiration, PHAs are to "review and determine" a resident's compliance with community work requirements. Despite the applicability of the grievance process, the statute could be read to require that a resident fully cure any violations of the community work requirement before the lease may be renewed, and PHAs are not permitted to extend the lease. It is difficult to see how such a schedule could be adhered to in many cases.(28)
Family Self-Sufficiency Program
The Family Self-Sufficiency (FSS) program has two major components: case management services that provide participating families with assessments of their employment goals and education/training needs and assist them to access the services identified as needed, and an escrow feature requiring PHAs to deposit in a special savings account the amounts a family pays in increased rent as a result of increased earnings during the five-year life of its FSS contract.
Since 1993, PHAs that received additional funding from HUD for incremental Section 8 certificates or vouchers or public housing units have been required to operate FSS programs for the equivalent number of Section 8 or public housing tenants. Participation in the program by any particular family is voluntary. It is estimated that more than 1,200 PHAs (out of a total of about 3,400) should be operating FSS programs for approximately 200,000 participants, most of whom should be Section 8 families. 1997 survey data indicated that several hundred of these PHAs were not operating FSS programs at all, however, and few appeared to have programs of the requisite size, as a total of only about 40,000 families were participating.(29)
The QHWRA substantially preserves FSS for at least the near future.(30) The new law makes three key changes in the FSS program. First, any incremental housing assistance for which HUD initially contracts with PHAs after October 21, 1998 will no longer carry an FSS mandate. Second, the pre-existing mandate will continue, except that the number of families a PHA is obligated to enroll in an FSS program will be reduced by one for each family that successfully completes the program after October 21, 1998. (No credit is given for previous program graduates, and none will be given for families that enroll but withdraw from or are terminated from the program without fulfilling their contract of participation.) Third, PHAs without an FSS obligation are authorized to carry out an FSS program and may do so at their discretion. All of these FSS changes are effective now.
A key issue remaining to be resolved through rule-making within the coming year is how PHAs will be financially compensated for the costs of operating an FSS program. The funding issue will critically affect both voluntary compliance with the continuing mandate as well as PHA decisions as to whether to initiate or expand FSS programs.
Housing/Welfare Agency Collaborations
Despite claims by some that this bill would be the housing companion to the 1996 overhaul of welfare, there are only a few rather limited provisions that promote collaborations between PHAs and other agencies, such as welfare, job-training, or welfare-to-work agencies. Congress exhorts PHAs to make their "best efforts" to enter into cooperation agreements with welfare and public assistance agencies to share relevant income and rent information. The new law also states:
A public housing agency shall seek to include in a cooperation agreement under this paragraph requirements and provisions designed to target assistance under welfare and public assistance programs to families residing in public housing projects and receiving tenant-based assistance under section 8, which may include providing for economic self-sufficiency services within such housing, providing for services designed to meet the unique employment-related needs of residents of such housing and recipients of such assistance, providing for placement of workfare positions on-site in such housing, and such other elements as may be appropriate.(31)
However, this appears to be solely a Congressional statement of policy unless Congress at some point applies the same directive to agencies receiving federal welfare-related funds.
The QHWRA directs HUD to include in its assessment of the quality of public housing management "the extent to which the public housing agency coordinates, promotes, or provides effective programs and activities to promote the economic self-sufficiency of public housing residents."(32) The new public housing management assessment rule that HUD published on September 1, 1998 does not rate PHAs' efforts to promote tenants' economic self-sufficiency. Assuming HUD timely revises the Public Housing Assessment System to reflect the QHWRA's directive, more PHAs may undertake activities, independently or in conjunction with other agencies, to promote tenants' employment.(33)
It is unclear, however, whether PHAs will receive federal subsidies for the costs of such efforts. The new operating subsidy formula may but is not required to take into account the cost of "programs and activities designed to promote the economic self-sufficiency and management skills of public housing residents."(34) If the negotiated formula does so, PHAs will obviously have a financial incentive to undertake such programs on their own, in addition to whatever incentive is provided by their management assessment rating. But unless they can quantify the staff time that may go into arranging collaborative service delivery through other agencies, there will be no incentive to create partnerships with other agencies in the community that may have greater experience with welfare-to-work efforts. And there is no guarantee that this element will be included in the formula, or that public housing operating subsidy needs will be fully funded in the future.
Home Rule Demonstration
The QHWRA establishes a new 5-year demonstration program for up to 100 cities that have lower-performing PHAs. Participating cities will be permitted to combine public housing and Section 8 program funds that would otherwise go to the PHA in their area, and may obtain waivers from HUD of many provisions of the Housing Act. But core provisions of federal housing law would continue to apply. Cities would have to continue to use the HUD funds to provide housing assistance to families that meet the regular eligibility and targeting requirements established by the new law, and must serve substantially the same number of families. Current tenants are "grandfathered" and may not be displaced due to the demonstration. Families' rent burdens may not be increased, nor may cities demolish or voucher out public housing in ways not otherwise permitted under the QHWRA.
The purpose of the demonstration is generally to improve the administration of federally-assisted housing, and particularly to promote work and home ownership, reduce homelessness, increase the stock of affordable housing and reduce the geographic concentration of assisted families. Cities that are able to create savings through being relieved of certain HUD requirements could use such savings to provide additional services to tenants to achieve one or more of the purposes of the demonstration. One example of what a city could do if it were selected for the Home Rule Demonstration is to seek a HUD waiver in order to create earnings disregards not otherwise permitted, without any reduction of federal subsidy. Section 8 tenants in such a city could receive the benefit of earnings disregards, and public housing and Section 8 tenants may have increased access to rent escrow accounts for home ownership, if HUD approved such waiver requests.(35)
Cities may submit applications to participate in the Home Rule Demonstration only after receiving public comment through a public hearing process and considering comments from current and prospective residents. As with the policies discussed above, for which the PHA plan process provides an important opportunity for public and resident input, persons concerned about how housing programs further welfare reform efforts should make their views known if their city is considering applying to be part of the Home Rule Demonstration.
January 2000 Update to the Center's Paper on the
Impact of the Quality Housing and Work Responsibility Act
of 1998 on Welfare Reform Efforts
PHA Plan Process (pp. 5-6)
HUD has delayed the required submission date of the first annual PHA Plan until January 31, 2000 (for PHAs with fiscal years beginning January 1, 2000) and February 29, 2000 (for PHAs with fiscal years beginning April 1, 2000). For the remaining PHAs - those with fiscal years beginning July 1 and October 1, 2000 - plans must be submitted to HUD at least 75 days before the beginning of the PHA's fiscal year. See 64 Fed. Reg. 66, 106 (Nov. 24, 1999). HUD issued final regulations on the PHA Plan on October 21, 1999 (64 Fed. Reg. 56,844). The rules are found at 24 C.F.R. Part 903.
Rent Policies (pp. 9 - 17)
It has not yet been determined whether PHAs will be reimbursed by HUD for any revenue lost as a result of adopting public housing rent policies that support work. The negotiated rulemaking concerning the public housing operating subsidy, which will decide this question, is still underway.
Section 8 Voucher Payment Standards (pp. 17 - 18)
The merger of the Section 8 certificate and voucher programs took effect on October 1, 1999. Families already participating in these programs will be transitioned into the new merged program over the course of the next two years. Families admitted to the program on or after October 1, 1999, and participating families who move into a new unit after that date, will receive vouchers that are governed by the new rules. HUD issued the final rules for the new voucher program on October 21, 1999 (64 Fed. Reg. 56,894).
The Family Self-Sufficiency (FSS) Program (pp. 20 - 21)
According to 1999 HUD data, approximately 55,000 families are enrolled in FSS and about 1,400 PHAs have FSS programs. Under the law, there should be at least 140,000 families enrolled in FSS. For more information on FSS, see the Center's fact sheet available on the Internet at https://www.cbpp.org/5-5-99hous.htm.
1. The issues discussed in this paper are only a few of those covered by the new legislation. The October/November issue of the Housing Law Bulletin published by the National Housing Law Project contains a complete summary of the new law. A brief summary of the law is available on the web page of the National Low Income Housing Coalition, www.nlihc.org.
2. Data on the incomes of families recently admitted to each federal housing program and a comparison with various proposed targeting rules are contained in Jeff Lubell and Barbara Sard, Proposed Housing Legislation Would Divert Subsidies from the Working Poor and Weaken Welfare Reform Efforts, Center on Budget and Policy Priorities, August 3, 1998, available on the Center's web site: www.cbpp.org.
3. Nationally, 30 percent of area median income (AMI) for a family of three in 1997 was approximately $11,745, or 92 percent of the poverty line. Local variations in median income, however, are considerable. In most large cities the median income is substantially higher than the national average. In metropolitan areas, 30 percent of AMI for a family of three in 1997 averaged $12,609, approximately $2,000 more than annual earnings from full-time minimum wage work.
4. In 1997, 50 percent of AMI for a family of three nationally was nearly $20,000; 80 percent of AMI was $31,320. The most recent HUD-adjusted AMI figures for every metropolitan area and non-metropolitan county in the United States are available at www.huduser.org/data/asthse/fmr/fmr98.
5. PHAs must describe in their annual plan how any admissions policy they adopt is consistent with the "comprehensive housing affordability strategy" or Consolidated Plan applicable to their area and the data in the strategy or plan on housing needs of particular groups.PHAs must also state how they intend to meet identifiedhousing needs to the maximum extent practicable.
6. These are defined to include moderate rehabilitation and project-based certificate units for which admission is determined in the first instance by a PHA from a PHA's waiting list, as well as other project-based Section 8 units for which the waiting list is maintained by the private owners.
7. Although the new income targeting rules may result in fewer Section 8 housing subsidies being provided to poor families than was the case under the federal preference system, the new rules help to fill the vacuum caused by suspension of the federal preference rules in successive appropriations acts beginning in 1996. In jurisdictions that had ceased using the federal preferences, the new rules could be a significant improvement for the poorest families.
8. One critical factor will be whether particular PHAs choose to take advantage of new flexibility to use so-called "site-based waiting lists" rather than city-wide waiting lists for public housing, and how aggressive HUD is in doing reviews of such decisions for compliance with the fair housing laws, as well as reviewing PHAs' deconcentration plans.
9. Jill Khadduri, Mark Shroder, and Barry Steffen, Welfare Reform and HUD-Assisted Housing: Measuring the Extent of Needs and Opportunities, paper presented at the Fannie Mae Foundation/CBPP Conference on Managing Affordable Housing Under Welfare Reform: Reconciling Competing Demands, June 26, 1998.
10. The percent varies in each state. The most recent data available (from 1996-97) is contained in Barbara Sard and Jennifer Daskal, Housing and Welfare Reform: Some Background Information, November 5, 1998, available from the Center or on our web site, www.cbpp.org.
11. The statute does not define "unemployed." HUD will presumably define the term in its regulations. The key issue is whether complete lack of work for pay is required for one year or more. In a colloquy on the Senate floor before the Senate approved the compromise bill on October 8, 1998, Sen. Mack, the chair of the subcommittee responsible for the bill, stated with regard to the understanding of the conferees: "The rules defining `unemployment' for this purpose should provide sufficient flexibility so that a family member who may have a brief, temporary period of employment during the preceding year would not be ineligible for the disregard. At the same time, the rules must not encourage households to change their employment patterns to take advantage of the disregard."
12. How HUD defines "any family self-sufficiency or other job training program" will be critical to the reach of this eligibility category. It appears to include all participants in a PHA Family Self-Sufficiency program. The new provision no longer requires that the job training be a governmental as opposed to private program, as current law does.
13. There is no parallel in this new savings account provision to the requirement of the Family Self-Sufficiency (FSS) Program that when a participant successfully completes the program she is entitled to receive the funds in the escrow account established on her behalf.
14. A disregard for travel expenses, however, is limited to $25 per week. This disregard may apply to public housing tenants in educational programs, as well as for those with employment income.
15. In early 1998, the National Housing Law Project surveyed PHAs on their rent policies. 93 PHAs responded that together administer 10 percent of the federal public housing units in the country. Of the respondents, more than one-fifth (20 PHAs ) have adopted optional earned income disregard policies, such as a small percentage disregard or a disregard of mandatory payroll deductions or of health insurance premiums. 28 Housing Law Bulletin 89, 92 (June 1998).
16. Sec. 519, inserting a new sec. 9 (e)(2)(B) of the U.S. Housing Act.
17. Technically, the new ceiling rent provision applies to housing "other than housing predominantly for elderly or disabled families (or both)." See section 519(d)(1)(A)(i).
18. Under section 519(d) of the QHWRA, a ceiling rent must reflect the reasonable market value of the public housing unit, and be no lower than 75 percent of operating costs. Operating costs for public housing units probably average less than $400/month. A rent of $300 would thus be permitted if it reflected the reasonable market value of the unit.
19. Despite these two statutory requirements for determining flat rents, PHAs are explicitly permitted, but not required, to set flat rents at the full cost of operating each unit.
20. The exemption from minimum rents for families that suffer a loss of income does not apply to families that lose welfare income due to fraud or failure to comply with the requirements of an economic self-sufficiency program.
21. See section 507(a) of the QHWRA.
22. For a discussion of some of the strategies PHAs could use to promote work among subsidized tenants, see Barbara Sard, The Role of Housing Providers in an Era of Welfare Reform, paper presented at the Fannie Mae Foundation/CBPP Conference on Managing Affordable Housing Under Welfare Reform: Reconciling Competing Demands, June 26, 1998.
23. See sec. 512 of the QHWRA, inserting a new sec. 12 (d) to the U.S. Housing Act. The same policy applies to public housing tenants and tenant-based Section 8 participants whose welfare or public assistance benefits are reduced due to fraud. The fraud-related provision is not new; it was originally enacted by the federal welfare reform law as 42 U.S.C. 608a.
24. Annually, HUD determines the FMR in each metropolitan area and non-metropolitan county based on the 40th percentile of non-luxury units of different size that have recently become available for rent.
25. Families that currently have Section 8 certificates rather than vouchers will not be able to utilize this new program feature until October 1, 1999, unless in the interim their PHA permits them to have a so-called "over-FMR tenancy," in which tenants pay the difference between the FMR and their unit's rent in addition to 30 percent of their income. Most families that currently have tenant-based Section 8 subsidies have certificates rather than vouchers.
26. New program participants are only permitted to rent housing that costs less than 40 percent of their income for rent and utilities. "Rent" as used here includes the cost of tenant-paid utilities other than telephone.
27. Significantly, this provision does not say that the tenant has to have been found to have been exempt from the work requirements of a state welfare program but only that the individual "meets the requirements for being exempted." The PHA may need to make the exemption determination.
28. HUD regulations could provide for de facto extension of a lease when a resident is pursuing his or her grievance rights, or when necessary for full cure, so long as the tenant has entered into a written agreement to cure any non-compliance with the community work requirement prospectively. It is essential that HUD clarify how the exemption process is supposed to work from the front end, as it would not be sensible for a resident who thinks s/he is exempt to have to wait until the last month to learn whether the PHA agrees.
29. William M. Rohe and Rachel Garshick Kleit, Housing, Welfare Reform and Self-Sufficiency: An Assessment of the Family Self-Sufficiency Program, August 1998. HUD is in the process of improving the data it collects from PHAs through the Multifamily Tenant Characteristics System (MTCS). MTCS data should be available shortly that will provide a more accurate assessment of the number of PHAs operating FSS programs and the number of participating families. This information should be publicly available over the Internet.
30. The bills passed by both the House and the Senate would have eliminated the FSS statutory provision, thereby eliminating both the obligation that some PHAs have to operate FSS programs as well as the authorization for those that wished to operate such programs.
31. Section 512 of the QHWRA, inserting a new sec. 12 (d)(7)(B) to the U.S. Housing Act.
32. Section 564 of the QHWRA, inserting a new sec. 6 (j)(1)(H) to the U.S. Housing Act.
33. The amendment made by section 564 is effective October 1, 1999.
34. Section 519 of the QHWRA, inserting a revised sec. 9 (e)(2)(A)(iv) of the U.S. Housing Act.
35. See section 561 of the QHWRA. Only jurisdictions that wholly contain PHAs that are among the lowest 40 percent of PHAs in scores on the public housing management assessment program may be selected for this demonstration. The Home Rule provisions are complex and concern many issues other than rents. The full scope of what HUD may permit cannot be determined until HUD issues further guidance.
Additional housing reports.