For thirty years, the Section 8 program, or the Housing Choice Voucher Program, has provided rental assistance to low-income families, the elderly and the disabled. Today, 2 million households rely on Section 8 vouchers to make rents in the private market affordable. However, recent actions by HUD and constrained budgets are causing severe problems. This paper outlines what has happened to the program from 2003 through today.

Congress Attempts to Limit Funding

2003.  In FY03, Congress first began to limit funding for the Section 8 program in the FY03 Appropriations Act.

In the Act, Congress:

• Limited renewal funding to only vouchers actually in use, rather than for all vouchers authorized, forcing PHAs to ask HUD for additional funding whenever they served more families.
• Prohibited PHAs from ending the year over-leased. In previous years, HUD had encouraged PHAs to over-lease, or issue more vouchers than they currently had, so that more families could successfully use available vouchers.
• Created a central reserve fund to cover cost increases related to either increased utilization or increased voucher costs. PHAs could only access this fund after spending 50 percent of their reserves.
• Allowed HUD to recapture administrative fees in excess of 105 percent of fees earned in FY02.

HUD Implementation of Appropriation Act Leads to Funding Shortfalls

 January 22, 2004. Three months after the beginning of the 2004 fiscal year, Congress passed the FY04 Appropriations Act.

• Although the FY04 act limited funding for the Section 8 program, Congress made it clear that it intended to fund every voucher currently in use. It appropriated $19.3 billion for the program, a 13 percent increase over 2003.

• The FY04 funding act continued some of the measures introduced in 2003. However, there were a few significant changes in the law:

Þ    Renewal funding for vouchers currently in use was fixed at a PHA’s costs as of August 1, 2003, adjusted by local or regional inflation factors.

Þ    Congress limited the central fund to only cover increases in utilization. Increases in voucher cost would no longer be eligible.

Þ    Congress mandated that PHAs receive a pro rata percentage of the total administrative fee funding available in FY04. This would be equal to the pro rata percentage they were eligible to receive in FY03.

April 22, 2004. Nearly three months after the FY04 Appropriations Act was signed into law, HUD issued an implementing notice. However, HUD’s implementation of the law led to a funding shortfall for many PHAs caused by:

• Insufficient Housing Assistance Payments (HAP) and Annual Adjustment Factor (AAF): HUD’s interpretation of Congress’s mandates has dramatically reduced HAP to PHAs. 

• HUD determined the amount it would pay PHAs for vouchers using an average of three months of HAP costs—May, June and July of 2003. This resulted in a HAP that was, in many cases, significantly lower than PHAs’ current HAP.

• HUD then adjusted this amount using the annual adjustment factor or AAF. However, with this adjustment, the HAP was still insufficient. To make matters worse, HUD only applied one quarter of the AAF to HAP costs, since it pays PHAs on a quarterly basis.

• Even worse, the new HAP would be retroactive to January 1, 2004. PHAs that had received a higher HAP would see a decrease in funding in future months to make up for the “surplus.”

• Even if HUD had applied the full AAF, the new HAP would have still been insufficient because, since August 1, 2003, many PHAs had experienced increases in utility costs, property taxes or rents. These increases are not captured in the AAF. In addition, the AAF did not take into account decreases in tenant income, an omission that is especially important to PHAs located in areas that are still recovering from economic downturns.

How did an increase in funding lead to decrease in administrative fees? In FY04, Congress appropriated 16 percent more for administrative fees than in FY03. However, HUD’s initial distribution of administrative fees was contrary to the Appropriations Act and led to a 13 percent decrease in administrative fees. When CLPHA and other housing industry groups complained that HUD had not distributed fees according to the specifications of Congress, HUD agreed to adhere to the language of the law and recalculated the fees. This new calculation resulted in a 6.2 percent cut. Although a 6.2 percent cut is better than a 13 percent cut, HUD has yet to account for the discrepancy.

• Cut in administrative fees: Due to HUD’s interpretation of the FY04 act, PHAs’ administrative fees were cut by at least 13 percent. (This was challenged by CLPHA and other housing industry groups. See text box at right.)

• Dwindling program reserves: Because of HUD’s actions many PHAs are experiencing budget shortfalls. PHAs could cope with these shortfalls if they had a sufficient program reserve of one-month of HAP costs. However, HUD officials have indicated that the Department is no longer committed to replenishing program reserves.

HUD’s Attempts to Alleviate Shortfall Are Too Little, Too Late

 

May 20, 2004.  HUD Secretary Alfonso Jackson announced two actions HUD was undertaking to assist PHAs with the funding crisis:

• HUD released $150 million in FY03 carryover funds to replenish the reserves of 525 PHAs.

• HUD agreed to immediately apply the full AAF to all PHAs’ HAP costs.

• Although Secretary Jackson stated that these two steps would “significantly improve the funding situations for most, if not all,” many housing authorities are still faced with funding shortfalls.

• HUD only replenished the reserves of certain PHAs—namely, those PHAs with reserves of less than 50 percent and that were not over-leased. HUD provided the PHAs with just enough funding to bring their reserves up to 50 percent or a 2 week reserve.

• PHAs were entitled to the full AAF, so receiving it up front does not mitigate their shortfall.

June 3, 2004. In response to inquiries from CLPHA and other housing industry groups regarding its calculation of administrative fees and the resulting 13 percent cut, HUD agreed to recalculate fees so that PHAs received a 6.2 percent cut.

HUD Grants Some AAF Appeals

September 2004. In July, HUD allowed PHAs to appeal their AAFs. In the guidance provided to PHAs about the appeals process, HUD informed PHAs that some of the factors that contributed to higher costs would not be considered in the appeals. HUD granted most of the appeals, awarding about $156 million to 379 of the 398 PHAs that appealed. HUD maintains that the appeals process alleviated the funding shortfall for most PHAs. However, in many cases the amount awarded to PHAs was insufficient to completely cover their shortfalls. And, only a fraction of the PHAs experiencing shortfalls benefited from the appeals process since, because of HUD’s previous statements about what would be disallowed, many PHAs did not appeal and were forced to take drastic action to cut costs.

HUD’s Polices Forced PHAs to Take Drastic Action

October 2004. Although the measures implemented by HUD provided some additional funding for PHAs, many PHAs were still facing shortfalls and tough decisions about how to cut costs. According to a survey of CLPHA members, 93 percent were taking drastic measures in order to deal with the funding crisis:

• Nearly two-thirds stopped issuing vouchers, despite long waiting lists.
• Over half lowered the payment standard.
• About two-thirds depleted their reserves.
• One-third raised minimum rents on tenants.
• Almost one-fifth recalled vouchers from applicants.

New Funding System in 2005 Results in 4 Percent Cut for All PHAs

 

December 17, 2004. HUD provided PHAs with an “estimate” of their 2005 calendar year funding. This estimate was based on cost and leasing data from the Voucher Management System (VMS) from May, June and July. PHAs could appeal any errors or omissions in this data. However, HUD initially gave PHAs only 4 days to file their appeals. After CLPHA and other groups complained about the short appeal period, HUD extended the period for appeals through December 31, 2004.

January 21, 2005. HUD provided PHAs with the final determination of their 2005 calendar year funding. The amounts provided to PHAs could not be appealed or changed. Because HUD was prohibited from expending more than had been appropriated, HUD prorated funding to all PHAs. HUD calculated the proration by first determining the overall need for all PHA funding ($13.923 billion) and dividing it by the appropriated amount ($13.355 billion). This resulted in a proration of 96 percent for all PHAs or a 4 percent cut in total funding.

Administrative Fees Continue to Lose Value

January 21, 2005. HUD also prorated administrative fee allocations for PHAs. Although the 99.4 % proration for administrative fees was an improvement over 2004, the total amount for fees remains below the levels allocated for 2003. In addition, administrative fees are no longer linked to units under lease, eliminating incentives for PHAs to serve more families and obscuring the true costs of administering such a labor-intensive program.