HUD Unveils FY 2013 Budget Proposal

In a briefing with stakeholders and interested parties on February 13, HUD Secretary Shaun Donovan unveiled HUD’s proposed budget for fiscal year 2013.  A departure from previous HUD budget’s of the Obama Administration, it is a proposal short on new, grand, bold changes, transformations and initiatives.  In spite of these tough, cost-cutting, fiscal belt-tightening times, Secretary Donovan proudly stated the proposal came out well given the priorities we have as a nation and reflects a “three percent increase in budget authority for HUD over fiscal year 2012.”  He proclaimed he will be “fighting to make the case” with policymakers in Congress that this budget proposal is a “starting point to go up, not down.”  Putting the budget proposal in context, Secretary Donovan reminded the audience that despite recent cuts to rental assistance programs, “we are serving 200,000 more families today than in 2009” when the Obama Administration took office.  According to the Secretary, in FY13, 83 percent of HUD’s budget request will be used to: 1) renew existing rental assistance and operating subsidies; 2) fund accrued capital needs of public housing; and, 3) renew existing homeless assistance grants.

While the overall HUD budget fared well with a 3% proposed increase --  public housing and Housing Choice Voucher programs are modestly increased  above FY12 appropriated levels --  CLPHA is concerned that the programs continue to be inadequately funded. For example, the public housing operating fund is only funded at 90 percent of need and the capital fund does not even cover half of the annual accrual need.  We also remain concerned about the adequacy of voucher funding levels to fully fund renewals and meet the costs of administering the program.

CLPHA will provide a more detailed analysis of the budget proposal, but an initial review of the budget reveals the following:

Operating Fund

According to HUD’s Congressional Justifications, the Administration’s proposal of $4.524 billion for the public housing operating fund will fund 90 percent of PHA’s estimated eligibility, making HUD’s estimate of total eligibility approximately $5.027 billion.  The proposed amount of $4.524 billion represents 89.4 percent of CLPHA’s request and calculation of eligibility (at $5.056 billion), and represents a decrease from FY12 eligibility (calculated at $4.962 billion) of $438 million.  Congress appropriated $3.962 billion for the operating fund in FY12, with a $750 million offset of PHAs’ “excess” operating reserves.  Secretary Donovan emphasized that HUD is not proposing to offset funding using operating fund reserves in FY13.  As he explained, “we made a commitment that the offset was a one year thing, and we are keeping our promise to not draw down on reserves.”

In addition, the Congressional Justifications state that “the Budget includes three reforms to the rent structure that reduce PHAs’ eligibility for operating subsidies,” which include requiring housing authorities to: increase the minimum rent to $75, set flat rents at 80 percent of applicable fair market rent, and increase the threshold for deducting unreimbursed medical expenses from three percent to 10 percent of family income.  HUD has not provided data on estimated savings of each of the reforms, though Secretary Donovan stated that the minimum rent reform would raise approximately $150 million annually across all programs.  The Congressional Budget Office (CBO) score for the medical deduction change to 10 percent for the Section 8 Voucher Reform Act of 2010 showed a savings of approximately $241 million across all programs.  CLPHA will continue to ask for detailed information and transparency in HUD’s calculations of eligibility and potential savings from the proposed rent reforms.

Capital Fund

The Administration’s FY13 proposal of $2.07 billion for the public housing capital fund is 86 percent of HUD’s FY12 request (a decrease of $335 million), with $1.980 billion for formula grants. Congress appropriated $1.875 billion for the capital fund in FY12, a historically low figure for the program. 

CLPHA estimates that annual accrual needs are over $4 billion, based upon the Abt. Associates Inc. 2010 Capital Needs Assessment average accrual number (adjusted for inflation).  Set-asides within the Administration’s proposal include up to $15 million for REAC, $20 million for emergency capital needs, and $5 million for administrative and judicial receiverships.  The proposal also includes up to $50 million as a set-aside in the capital fund for a new Jobs Plus Pilot Initiative, which HUD asserts will “provide over 30,000 Public Housing residents with job search assistance and other employment related services,” including financial incentives to work through changes to rent rules.  HUD will award competitive Jobs Plus grants to high-capacity PHAs working with local workforce organizations to support residents obtaining employment. 

Consolidated FSS Program for Public Housing and Section 8

HUD’s proposal does not include separate funding for the Resident Opportunities and Self-Sufficiency (ROSS) program, but instead proposes $60 million for a merged public housing and Section 8 Family Self-Sufficiency (FSS) program in an effort to “consolidate and align the FSS program into one program to enable PHAs to more uniformly serve both programs’ residents.”  Congress set-aside $50 million for the ROSS program out of the capital fund and $60 million for the FSS program out of Section 8 in FY12.

Public Housing Funding Consolidation

The Administration proposes to combine the public housing operating and capital funds into a single public housing subsidy stream, as a completion to “the transition of Public Housing to asset management” and a way to simplify the program and reduce administrative burden on housing authorities.  As a “first step,” the proposal provides all PHAs with full flexibility between operating and capital funds, with a legislative proposal to follow in Spring 2012 to fully consolidate the funds.

HOPE VI

For the fourth year, the Administration’s proposed budget requests no additional funds for the HOPE VI program, representing a reduction of $135 million from the annualized FY11 appropriations.  Instead, as in previous years, HUD proposes to build on the success of HOPE VI with its Choice Neighborhoods Initiative. 

Choice Neighborhoods Initiative

The Administration’s proposal of $150 million for the Choice Neighborhoods Initiative is a decrease from HUD’s FY12 ask of $250 million, and an increase of $30 million over the current annualized FY12 appropriations level of $120 million.  The $150 million will be used to fund four to six implementation grants, between 14 – 18 planning grants, and up to $5 million for program evaluation and technical assistance.  HUD anticipates each CNI grant will range from $35-$45 million resulting in 5-7 neighborhoods served per year.  According to HUD, the “requested level is necessary to make a real impact in high-poverty areas and to provide the models and lessons learned to promote this type of effective policy and resource approach across the nation.”

The proposal eliminates language from previous years that required a two-thirds set-aside of the grant funding for public housing agencies that are lead applicants or co-applicants. 

Housing Choice Voucher Renewals and Administrative Fees

The Administration’s proposal includes $17.349 billion for Housing Choice Vouchers (HCV) renewals (but includes $111 million for Section 811 Mainstream vouchers previously funded under another account), a decrease of $4 million over the annualized FY12 appropriations of $17.242 billion and an increase of $94 million from HUD’s FY12 request.  HUD asserts the $4 million reduction is due to savings that will occur as a result of the rent reforms explained above in the public housing operating fund.  HUD will also continue to seek “authority that would allow HUD to offset PHA contract renewal allocations by the excess amount of agencies’ reserves,” and that the authority will “discourage the build-up of excess reserves.”  The provision would require that the HUD Secretary “first use the funds from the offset to avoid or reduce the downward proration in renewal funding…If there is no downward proration of contract renewal funding, or if the offset funding remains after eliminating any downward proration, the Secretary would then have the authority to reallocate these renewal funds to other PHAs based on need and performance.”

Set-aside funding within this account for the administrative fee is $1.525 billion, $225 million more than the annualized FY12 appropriations of $1.300 billion, but lower than HUD’s FY12 request by $100 million.  HUD asserts that “the Department is extremely concerned that the deep administrative fee pro-ration in 2012, following the cut in 2011, has depleted many PHAs’ resources that are needed to cover basic PHA administrative responsibilities under the program.”  Secretary Donovan reiterated this sentiment at the budget briefing.  Despite these sentiments, HUD’s Congressional Justifications state that the FY13 request is 81 percent of administrative fee eligibility, down two percent from the 83 percent proration of administrative fee eligibility seen in FY12.

Other set-aside funding within this account include $75 million for tenant protection vouchers and $75 million in new vouchers for homeless veterans through the HUD-VASH program. 

Contract Administrators for Project-Based Section 8

The Administration requests up to $260 million as a set-aside within the project-based rental assistance (PBRA) program for contract administrators, a decrease of $29 million from the annualized FY12 appropriations of $289 million.  This activity funds the local level administration of the PBRA program through HUD contracts with performance-based contract administrators (typically PHAs and state housing finance agencies).

Transformation Initiative

The Administration proposes to continue its department-wide Transformation Initiative through transfers of funds of up to 0.5 percent from various program accounts, not to exceed a total of $214.8 million in transfers.  However, given the continued constraints on already-strained program funds, HUD anticipates limiting transfers from accounts to no more than $120 million total. The Administration requested the authority to transfer up to $120 million in FY12. 

Rental Assistance Demonstration

The Administration does not include a funding request for the Rental Assistance Demonstration (RAD), in contrast to last year’s request of $200 million for a Transforming Rental Assistance (TRA) demonstration to test conversion of public housing and other housing to long-term project-based rental assistance contracts.  Congress authorized RAD in the FY12 appropriations bill (though without any funding), allowing the conversion of up to 60,000 units of public housing to project-based or tenant-based rental assistance.  The budget proposal does, however, estimate $102 million from the operating fund and $46 million from the capital fund, for a total of $148 million, to be transferred evenly between tenant-based and project-based rental assistance programs once conversion takes place.  The proposal caps the number of public housing properties that could convert in FY13 to 60,000 units, while separately allowing Mod Rehab units to be unconstrained from a unit conversion cap.  CLPHA is requesting $40 million for RAD in FY13, similar to the amount requested for each year in the recent RAD proposal in the House authorization bill to reform Section 8 and other affordable housing programs.

CLPHA's comparative funding chart is here.(PDF)