March  17, 2003

by Barbara Sard

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In Congressional testimony the week of March 3, Department of Housing and Urban Development Secretary Mel Martinez stated that the Administration’s proposal to transform the housing voucher program into a state-administered block grant would eliminate two problems with the current program: (1) the failure of some housing agencies to use all their voucher funds; and (2) the time lag between changes in market rents and changes in voucher payment levels.  Both claims are misleading.


Block-Granting Not Needed to Address the Problem of Unused Voucher Funds

In recent years a number of public housing agencies have not been able to use all of their voucher funds, often because the local housing market is so tight that many families cannot find apartments where they can use their vouchers.  Unused funds have been recaptured by HUD and either used in HUD programs or rescinded by Congress and then used for other purposes.  A block grant is not the solution to this problem, however, for several reasons.

The problem of unspent funds will not recur if Congress continues the new funding method.  Recaptures of the type that have occurred in the past could resume only if funding for the voucher program were increased substantially beyond the amount needed to support the number of vouchers that housing agencies are able to use.  Neither the Administration nor Congress has indicated it will propose such an increase.


Block-Granting Will Not Make the Program More Responsive to Rent Increases

Secretary Martinez testified that states could respond more rapidly than HUD to escalating private market rents by increasing housing voucher payments, and that this would improve the voucher program’s effectiveness.  HUD, however, now plays only a limited role in determining voucher payment levels.  To the extent that lagging voucher payments are a problem in the program, neither state administration nor a block-grant funding structure is likely to fix it.  To the contrary, because it would force states to offset voucher payment increases with cuts in the total number of families served, a block grant funding structure would likely provide less real flexibility to adjust voucher payments than exists under the current program.

For example, under the current system, if a housing agency that administers 2,300 vouchers received permission from HUD to raise its payment standard from 110 percent of the Fair Market Rent to 120 percent of the Fair Market Rent, it would receive sufficient federal funding to administer all 2,300 vouchers at the new payment standard.  Under a block grant, the agency would receive no additional federal funding and would therefore need to reduce the number of families it serves.  If the increase in the cost of the average voucher were even half of the increase in the maximum voucher payment,[2] the agency would need to reduce the number of families served from 2,300 to 2,200.  By creating this strong penalty for raising payment standards, a block grant would reduce rather than enhance the program’s flexibility.

Beginning in 2004, however, HUD will have much more complete and up-to-date data on local rental costs.  In April 2004, HUD will publish new proposed Fair Market Rents based on data from the 2000 Census.  Beginning in 2006, data from the new American Community Survey is expected to provide HUD with updated rent data at least biannually.  The availability of these data should enable Fair Market Rents to reflect current local housing costs much more accurately.  As a result, fewer local housing agencies will need to set payment standards that are above 110 percent or below 90 percent of the Fair Market Rent and therefore require HUD approval.

The voucher program already provides substantial flexibility for local agencies to respond promptly to rapid changes in local housing markets.  Planned data improvements and minor policy modifications will enhance the program’s ability to keep pace with change.   A block grant financing structure, in contrast, would undermine the flexibility of voucher payments and the effectiveness of the program.

End Notes:

|[1] Unless HUD alters its current policies some funds from earlier fiscal years will continue to be recaptured through the end of fiscal year 2004. 

[2] Actual average voucher costs are affected by other factors in addition to the payment standard, including the incomes of households with vouchers and the costs of the specific housing units rented by voucher holders.