Updates to the FY2013 Federal Budget

(from Memo to Members' of the NLIHC) For the fourth consecutive year, President Obama’s proposed budget includes $1 billion at the initial capitalization for the NHTF. Again, the budget calls for the $1 billion to come from the mandatory side of the federal budget, which means it is not part of regular HUD appropriations. Although the budget documents refer to the Housing Trust Fund as “subject to PAYGO,” which means the funding must be offset by a spending cut or revenue raiser elsewhere in the budget, the budget documents do not identify a specific offset. The President included this same NHTF proposal in his housing plan released on February 1. The President’s FY13 budget proposal also included $15 billion for the Neighborhood Stabilization Program (NSP), again subject to PAYGO. This latest iteration of NSP is Project Build, which was part of the President’s American Jobs Act proposed in September 2011, as well as in the February 1 housing plan.

In other developments on the NHTF, both New Jersey Senators, Robert Menendez (D) and Frank Lautenberg (D) have recently become co-sponsors of S. 489, the bill introduced in March 2011 by Senator Jack Reed (D-RI) that would provide $1 billion for NHTF from the sale of TARP warrants. This brings the number of cosponsors in the Senate to 18. A companion bill, H.R. 1477, introduced in April 2011 by Representative Elijah Cummings (D-MD), now has 48 cosponsors. In news from HUD, the final regulations for the NHTF are expected to be released this summer, as reported by HUD Assistant Secretary for Community Planning and Development Mercedes Marquez on a conference call to discuss the FY13 HUD budget.

In yet another budget year when Congress is focused on spending reductions, President Obama released an austere budget request for HUD and the Department of Agriculture affordable housing programs. The President’s request reflects a struggle to keep housing programs alive in the face of insufficient funding and competition with other Administrative priorities. While HUD Secretary Shaun Donovan reported that HUD’s budget authority increased by 3% over FY12, the budget request includes large cuts to several of HUD’s main programs. For other programs, the President maintains funding at the FY12 level or at levels still well below the FY11 allocation. The FY11 funding level is the high water mark for numerous HUD programs in the last two years. For the USDA Rural Housing Service, the President requests approximately the FY12 funding levels for several of the rental housing programs serving extremely low income (ELI) households but eliminates funding for another key rental housing program. The President’s budget request for affordable housing resources is primarily a mix of maintenance-level funding, and cuts to housing programs due in part to the FY13 discretionary spending caps established by Congress and observed by the request.

The President’s HUD request relies in part on increasing cost burdens for the lowest income households as a revenue-generating measure for HUD.  Other revenue-generating measures include eliminating or cutting some programs and combining others.

Tenant-Based Rental Assistance - The President requests $19.074 billion for the Tenant-Based Rental Assistance (TBRA) account, a slight increase over the enacted FY12 level of $18.914 billion. For contract renewals, the President requests $17.238 billion, a 1% increase over FY12 levels. Congress’s FY12 allocation for contract renewals, however, was not sufficient to renew all existing vouchers in FY12. The FY13 request, though slightly over the FY12 funding level, would fall short of funding all existing vouchers. HUD plans to make up this underfunding by implementing revenue-generating measures in the voucher program.

One revenue-generating measure establishes mandatory minimum rents in the TBRA, Project-Based Rental Assistance, public housing, Section 202, Section 811 and Section 236 programs (see article elsewhere in Memo). Minimum rents would increase rent payments for the lowest income households served by HUD’s programs in order to generate revenue to fund contract renewals. Another proposed revenue-generating measure, raising the threshold for medical deductions from 3% to 10%, would similarly increase costs for the lowest income tenants. The President’s budget request also includes a proposal to modify unit inspections, allowing less frequent inspections in order to generate savings.

Without these policy provisions that could be damaging to the poorest households, the President’s TBRA contract renewal request would be insufficient to fund all current vouchers. The Center on Budget and Policy Priorities estimates that without the cost savings envisioned in the bill, HUD’s request will result in the failure to renew 60,000 vouchers. The budget requests $111 million for renewals of Section 811 Housing for Persons with Disabilities mainstream vouchers, 1% below the FY12 level. Section 811 vouchers were transferred from the Section 811 account to the TBRA account starting in FY11 and are now solely renewed out of the TBRA account. The TBRA budget request includes $75 million in funding for new tenant protection vouchers, level with the President’s FY12 request and the FY12 enacted level, but a decrease of 32% below the FY11 level.

The President requests $75 million in new Veterans Affairs Supportive Housing (VASH) vouchers, an amount that is level with FY12 funding and a 50% increase over FY11 funding.
Administrative fees are increased by 17% over the FY12 funding level, restoring them to FY10 levels. The deep cut to administrative fees enacted in FY12 raised concern that public housing agency (PHA) voucher administration could slow and that PHAs would not be able to use all of their authorized vouchers. Though this increase restores recent cuts, the budget also proposes a new discretionary use for the administrative fees in FY13, funding a new resident service initiative. Additionally, the Administration states that it can reduce administrative fees should there be insufficient funds in the TBRA account.

The President’s budget proposes a new sponsor-based assistance program within its TBRA request to serve homeless families and individuals. The proposal would enable PHAs to provide voucher funding, through a competition, to “not-for profit service providers that leverage and deliver supportive services for homeless families.” Under the proposal, PHAs could sponsor-base up to 5% of their existing authorized vouchers. HUD proposes that the authority for the sponsor-basing of vouchers could be achieved through the waiving of “provisions of Section 8 that would otherwise impede sponsor-basing.” HUD does not specify which provisions would have to be waived for such a program to be implemented.

The Administration once again does not request funding for Family Unification Program (FUP) vouchers. FUP vouchers were last funded in FY10 at $15 million. The Administration justified eliminating its request for the FUP set aside by saying that issuing FUP vouchers is already an eligible use of TBRA.

Project-Based Rental Assistance - The Administration requests $8.7 billion for the Project-Based Rental Assistance (PBRA) account, an amount HUD indicates is insufficient to renew all current contracts for a full year. The FY13 request is $639 million, or 7%, below FY12 funding. With only $8.7 billion in PBRA funding, HUD says it would renew just 5,300 property contracts for a full year, or about one-third of HUD’s PBRA portfolio, approximately 360,000 units. HUD would plan to issue short-term contracts for the contracts representing the other two thirds of its PBRA portfolio. In their roll-out of the FY13 request, HUD officials noted the possibility that new premiums in the Federal Housing Administration might result in HUD’s ability to push additional funds into the project-based Section 8 account in FY13.

The timing of contract payments would shift, reducing FY13 funds for contracts ending in FY14. These payments will eventually have to be made, but the HUD budget defers most of them to FY14. This creates pressure for the FY14 HUD budget to be sufficiently increased to meet this additional burden.

Offering short-term contracts to PBRA owners was a strategy used by HUD in FY07, when HUD admitted it did not fully understand and thus incorrectly estimated its renewal cost needs. Property owners, managers and advocates for the project-based Section 8 program are very concerned that investors will question the stability of the project-based program.

In addition to cutting project-based Section 8 funding by $639 million, the budget request relies on policy changes that would result in $411 million in revenue to the project-based account. These policy changes include increasing the minimum rents charged to the lowest income project-based tenants from $25 to $75 a month and the use of residual receipts accounts to offset assistance payments.

Public Housing - The Administration requests $2 billion for the public housing capital fund and $4.5 billion for the operating fund. This would increase the capital fund by 10% over the FY12 funding level but only restore funding up to the FY11 level. HUD estimates that the backlog of public housing capital needs as of 2011 is $26 billion.

The Administration’s FY13 request for operating funding is 14% higher than in FY12; however, in FY12, the operating fund was supplemented by PHA reserves. The FY12 appropriations bill authorized HUD to calculate PHA funding needs by taking into account what HUD determined to be an excess level of reserves held by PHAs.  In 2011, the HUD Secretary stated that this was a one year strategy to save funds that would be discontinued in the FY13 request. While the FY13 request does not rely upon PHA reserves to fund the Operating Fund, it may not fully fund PHA operating expenses in FY13. 

The Administration also proposes merging the public housing operating and capital funds, allowing PHAs flexibility in utilizing those funds. If full funding is not provided for the operating fund, however, this could result in PHAs relying on funds appropriated for the capital fund for operating expenses instead. Shortchanging capital projects will increase the accrual of capital needs at a faster rate.

The budget request includes launching the Rental Assistance Demonstration (RAD) by transferring $48 million from the capital fund and $102 million from the operating fund to TBRA and PBRA for unit conversions in FY13. HUD expects these funds to facilitate the conversions of 48,000 public housing units. The current maximum number of units allowed for conversion annually is 60,000 and the Administration proposes exempting Moderate Rehabilitation units from this unit cap. HUD says this would allow them to run a demonstration and evaluation of Moderate Rehabilitation unit conversion they hope would help better preserve this housing stock over the long term. HUD expects that 4,000 to 6,000 units of Moderate Rehabilitation, Rent Supplement and Rental Assistance Payment units would convert in FY13 in addition to the 48,000 public housing units. The Administration also proposes allowing Tenant Protection vouchers to be used as RAD conversion subsidies instead of being reissued as Tenant Protection vouchers.

Homeless Assistance - A highlight of the President’s budget request is the $330 million increase to the Homeless Assistance Grants. This increase in an otherwise austere budget demonstrates the Administration’s commitment to advancing the federal plan to end homelessness for veterans in five years and the plan to end homelessness for families in ten years. The funding increase would bring the account to $2.231 billion, funding the Continuums of Care and rural housing stability assistance at $1.9 billion, the Emergency Solutions Grant (ESG) at $286 million, and the homeless data analysis project at $8 million. This increase in funding would enable HUD to further enact HEARTH, which the department has been unable to do fully without an increase in funding.

HOME - The funding request for the HOME Investment Partnership program is at only $1 billion, level with FY12. In FY12, HOME was cut by 38% from $1.6 billion. HOME is the only HUD production program that is currently funded. 

Policy Provisions - The budget request includes several policy proposals focusing on residents.  The Administration proposes changes to the funding and scope of the Family Self-Sufficiency (FSS) program. The FSS program would be funded by both TBRA and public housing funds and would be expanded to serve residents in project-based rental assistance properties.

The Administration proposes creating a program called Consolidated Opportunities for Resident Enrichment (CORE) that could be funded from public housing funds and TBRA administrative fees. The goal of CORE would be to promote positive quality of life outcomes for residents. PHAs could fund service coordination, case management, direct services, and tenancy preservation services for people with disabilities or the elderly. With CORE authorization, the HUD Secretary could choose to divert a small percentage of public housing and voucher funds to the CORE program. Individual housing authorities could, in turn, decide to operate a program under CORE. 

The budget request also contains a proposal for a $50 million Jobs Plus Pilot, based on the Jobs Plus Demonstration and funded by the public housing capital fund. Funding would be distributed as bonus awards.  The goal of the program would be to help residents gain employment and increase their earnings.  The pilot would offer competitive grants for partnerships between PHAs, Workforce Investment Boards and other organizations. HUD anticipates the pilot to fund employment and job search services for 30,000 households. 

HUD Programs for Special Needs Populations - The Section 202 housing for the elderly program would be funded at $475, a 27% increase over FY12, a 19% increase over FY11 but still well below the FY10 funding level of $825. The program would still not receive capital advance funding. HUD’s budget includes a proposal to provide rental assistance only similar to the new model for Section 811 Housing for persons with disabilities.

The FY13 request proposes a new Section 202 Housing for the Elderly Program Project Rental Authority, modeled after changes that were made to the Section 811 Housing for Persons with Disabilities Program in the Frank Melville Supportive Housing Investment Act. If adopted, Section 202 funds would be used to provide operating assistance only, and would be applied to multifamily housing complexes that are made affordable through other sources such as the Low Income Housing Tax Credit, HOME, or private financing. Under the proposal, states would administer and award Section 202 funds. The proposal would likely change the financing structure for new projects, and it appears that statutory changes may be required for the proposal to be fully implemented.

The Administration requests $150 million for Section 811, a decrease of 9 percent below the FY12 level. The Housing for Persons With AIDS (HOPWA) program would be funded at $30 million, 1% below FY12 funding. 

Other HUD Programs - Other HUD programs would be cut or relatively level funded in the President’s budget request. The Community Development Fund would receive $3.143 billion, a 5% cut below FY12 funding and 10% below FY11. Community Development Block Grants would be funded level with FY12 at $2.948 billion, a 12% below FY11.

The Administration does not request any funding for the Self-Help Homeownership Opportunity (SHOP) program, saying that administering this program is already an eligible use of HOME funds. Given the deep cut to HOME, the elimination of SHOP funding would further constrain HOME funds. 

The Administration requests $55 million for the Housing Counseling program and announces a new office of Housing Counseling at HUD in the budget request. The Housing Counseling program was funded at $88 million in FY10 and Congress unexpectedly eliminated funding for it in FY11. Funding was partially restored to $45 million in FY12. 

Funding for Fair Housing and Equal Opportunity is requested at $68 million, a 4% cut below FY12 funding.  The budget includes $120 million for Health Homes and Lead Hazard Control, level with FY12 and FY11 funding. HUD’s Office of Policy Development and Research would be increased by 13% to $52 million. 

Rural Housing Service Programs - For the USDA’s Rural Housing Service, the Administration requests relatively level funding for three programs serving ELI households but eliminates funding for another. For the Farm Labor housing programs the President requests $26 million for Section 514 and $9 million for Section 516. This would be a 25% increase for Section 514 over FY12 funding, but would only restore the account to the FY11 funding level. The Section 516 program would see a 26% increase above FY12 level, again restoring funding to around the FY11 level. The Administration requests $907 million for the Section 521 Rental Assistance program, which would be a slight increase above FY12 funding levels but still fund the program at 5% below FY11 levels. 

The Administration requests no funding for the Section 515 Rental Housing Direct program which was funded at $65 million in FY12 and $70 million for several years prior. USDA states that it is shifting the focus of the program from production to preservation in FY13. USDA says it will use its multifamily revitalization funds to accomplish its Section 515 work. The USDA budget request does include preservation funding for Section 515 and also includes funding for the preservation demonstration for Section 515, Section 514 and 516 housing programs in FY13. 

The President’s austere housing budget is reliant on revenue generated from the Federal Housing Administration (FHA) and on policy provisions that will need to be scored by the Congressional Budget Office (CBO) in the coming month. CBO will evaluate the President’s proposal and calculate its own revenue estimates, which Congress will use to guide its appropriations decisions.

The committees on the budget and the committees on appropriations now begin their work (see article below on the first hearings in the budget committees as well.  The Senate Committee on Appropriations has scheduled its first hearing for March 1 and the House Committee on Appropriations has scheduled its first hearing for March 24. 

Congress’s FY13 appropriations will be a high mark for discretionary housing programs as the Budget Control Act of 2011 requires sequestration for discretionary programs. These across-the-board cuts of 9% would be exacted on the final FY13 funding levels on January 1, 2013.

NLIHC budget charts, 2/16 webinar slides, audio of 2/16 webinar:  http://nlihc.org/template/page.cfm?id=28

HUD’s Congressional Justifications for FY13 request: http://portal.hud.gov/hudportal/HUD?src=/program_offices/cfo/reports/2013/main_toc

USDA budget information: http://www.obpa.usda.gov/budsum/FY13budsum.pdf

Additional information from the White House on HUD and USDA budgets:  http://www.whitehouse.gov/omb/budget/Appendix

View CBPP’s preliminary analysis of the FY13 budget request: http://www.cbpp.org/files/2-15-12hous-memo.pdf

Overview of Policy Provisions in Administration’s FY13 Appropriations Request

As part of his FY13 budget request to Congress, President Obama asks for an increase, to $75, of the minimum monthly rent HUD-assisted households must pay. NLIHC strongly opposes this proposal.

Since the 1998 Quality Housing and Work Responsibility Act (QHWRA), public housing agencies (PHAs) have been allowed to set monthly minimum rents of up to $50 for public housing and voucher households. The same law allowed the HUD Secretary to set a minimum rent for project-based Section 8 residents, up to $50. After QHWRA, the HUD Secretary set the minimum monthly rent for project-based units at $25.

If a PHA sets a minimum rent above $0, it must also establish a hardship exemption policy. But, a 2011 HUD report shows that less than 1% of households impacted by minimum rents have requested a hardship exemption. NLIHC and other advocates contend that few eligible residents are aware of any hardship exemptions. Individual PHAs determine how their hardship exemptions will operate, including how cases are evaluated and residents are made aware of the exemption policies.

The President’s FY13 budget request would require all public housing, voucher and project-based Section 8 tenants to have minimum monthly rents of $75. Today, 27% of PHAs have chosen not to adopt minimum rents of $50; some have chosen not to have any minimum rent and some have adopted minimum rents of less than $50. The President’s request would remove any PHA discretion on minimum rents. The Center on Budget and Policy Priorities estimates that more than 500,000 households, predominantly families with children, would face rent increases under such a proposal. For these lowest income households, housing assistance is likely the only thing keeping them from becoming homeless.

The FY13 request would also extend the minimum rent law into the Section 202 supportive housing for the elderly, Section 811 housing for persons with disabilities, and Section 236 rent supplement programs. For these programs, the President’s request also establishes hardship exemption policies requiring the HUD Secretary to grant hardship exemptions when a family cannot pay the minimum rent because of financial hardship, including for when the family would be evicted as a result of inability to pay a minimum rent. But the FY13 request does not make any improvements to the hardship exemption requirements for the project-based Section 8, voucher, and public housing programs.

Each HUD-assisted household pays about 30% of its adjusted income toward rent. Federal appropriations make up the difference between tenant rent payments and what it costs to operate and maintain the unit, or to rent the private market apartment. Nationally, most HUD-assisted households pay rents somewhere in the $300 range each month. It is only the very lowest income households that are affected by minimum rent policies, because these are the households with incomes so low that their rent payment would be less than, say, the current $50 minimum rent. For a household to be captured by a minimum rent policy of $75 a month, its annual adjusted income would be around $3,000 a year.

According to HUD, raising the minimum rent and making it mandatory would generate about $150 million in new revenue in FY13, a paltry amount compared to the overall HUD budget but a massive amount to these lowest income households.

The request coincides with a debate in the House of Representatives on whether to raise the minimum rent. The latest draft of the House Financial Services Subcommittee on Insurance, Housing, and Community Opportunity Chair Judy Biggert’s (R-IL) housing reform bill, the Affordable Housing and Self-Sufficiency Improvement Act (AHSSIA), would also require an increase to the minimum rent for project-based Section 8, voucher, and public housing households, to $69.45. This bill, like the President’s request, would not make any improvements to the hardship exemptions for households in these programs. A tentative February 28 mark up in the House Committee on Financial Services of ASSHIA has been postponed.

Sponsor-Based Housing - The President’s budget proposes sponsor-based assistance to serve homeless families and individuals. The proposal would enable PHAs to provide voucher funding, through a competition, to “not-for profit service providers that leverage and deliver supportive services for homeless families.” Under the proposal, PHAs could sponsor-base up to 5% of their existing authorized vouchers. HUD proposes that the authority for the sponsor-basing of vouchers could be achieved through the waiving of “provisions of Section 8 that would otherwise impede sponsor-basing.” HUD does not specify which provisions would have to be waived for such a program to be implemented.

Section 202 - The FY13 request proposes a new Section 202 Housing for the Elderly Program Project Rental Authority, modeled after changes that were made to the Section 811 Housing for Persons with Disabilities Program in the Frank Melville Supportive Housing Investment Act. If adopted, Section 202 funds would be used to provide operating assistance only, and would be applied to multifamily housing complexes that are made affordable through other sources such as the Low Income Housing Tax Credit, HOME, or private financing. Under the proposal, states would administer and award Section 202 funds. The proposal would likely change the financing structure for new projects and it appears that statutory changes may be required for the proposal to be fully implemented.

Low Income Housing Tax Credits - The FY13 request includes four policy proposals from the Department of the Treasury regarding its low income housing tax credit program. In total, the requests would cost around $900 million to implement. Two of the proposals were also recommended in the President’s FY12 request. One proposal would allow for a third income targeting criteria in LIHTC properties. Instead of at least 20% of units housing tenants with incomes below 50% of area median or 40% of units serving tenants with incomes below 60% of area median, LIHTC properties could choose a new option, at least 40% of units served households with an income average of 60% of area median. This would allow LIHTC units to serve households up to 80% of area median income, while also serving lower income households and still meeting the 60% AMI average. In addition to the income averaging proposal, the request once again seeks a 30% basis boost for LIHTCs used to preserve federally-assisted housing.

Treasury also proposes making LIHTCs beneficial to Real Estate Investment Trusts (REITs) by permitting a REIT that receives LIHTCs to designate as tax exempt some of the dividends it distributes. In its budget request documents, the expansion to REITs would increase demand for LIHTC.

Finally, Treasury requests that protections similar to those in the Violence Against Women Act (VAWA) be required in all Long-Term Use Agreements. Such agreements are contracts between the owner of the property and the state’s LIHTC allocating agency and spell out certain requirements for the property, such as the prohibition on refusing to lease an LIHTC unit to a voucher holder simply because they are using a voucher to pay for their housing. The VAWA protections in the agreement would apply to both the low income and the market-rate units in the LIHTC building.

The Senate is current working on a bill to extend VAWA protections to nine federal housing programs, including the LIHTC program. Today, the VAWA housing discrimination provisions only apply to victims of domestic violence, dating violence, or stalking who live in public housing, project-based Section 8 properties, or who have a housing choice voucher. Housing-related VAWA legislation, S. 1892, sponsored by Senators Al Franken (D-MN), Susan Collins (R-ME), and Barbara Mikulski (D-MD) has been included in the broader VAWA reauthorization bill, S. 1925, which the Senate Committee on the Judiciary approved on February 2.

The legislation, among other provisions, would allow for the bifurcation of leases to ensure that a victim who shares a lease with the abuser is allowed to remain in the subsidized housing unit. The measure would also require property owners or managers to develop emergency transfer policies for victims to move to different subsidized units.

The House and Senate Committees on the Budget held hearings on the President’s FY13 budget request immediately after its release. The first set focused solely on the President’s FY13 budget request, with Jeffery Zients of the Office of Management and Budget (OMB) testifying. The House and Senate will continue to hold budget and appropriations after the February 20th recess week. The House Financial Services Subcommittee on Insurance, Housing and Community Opportunity will hold a February 28 hearing on the President’s FY13 budget request for HUD. Carol Galante, Acting Federal Housing Administration Commissioner; Sandra Henriquez, HUD Assistant Secretary for Public and Indian Housing; and Mercedes Marquez, HUD Assistant Secretary for Community Planning and Development, will testify at the hearing. The hearing will be at 10 am ET in room 2128 of the Rayburn House office building. The Senate Committee on the Budget will also hold a hearing on February 28, titled “Fiscal FY13 Budget.” The hearing will be at 9:30 am in room 608 of the Dirksen Senate office building.