Revised August 29, 2003

HOUSE FUNDING LEVEL WOULD LEAD TO MORE THAN 60,000 FEWER FAMILIES RECEIVING HOUSING VOUCHER ASSISTANCE
Amendment Passed on House Floor Provides $150 Million Beyond Level
Approved by Appropriations Committee, but Eliminates Only Part of Shortfall
By Barbara Sard and Will Fischer

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On July 25, 2003, the House of Representatives approved H.R. 2861, the appropriations bill that funds the Department of Housing and Urban Development (HUD), the Department of Veterans Affairs, and certain other agencies in fiscal year 2004.  The bill would provide $835 million for the renewal of existing “Section 8” housing vouchers in fiscal year 2004 beyond the amount that would be available under the Administration’s budget.  Of this $835 million increment, $685 million was made available by the House Appropriations Committee, and $150 million was added by an amendment the full House approved.  Despite these increments, the funding level in the House bill falls short of what is needed to renew funding for all housing vouchers expected to be in use when the fiscal year starts in October, according to a Center on Budget and Policy Priorities analysis of data collected by HUD in April 2003 from state and local housing agencies that administer nearly all federal housing vouchers.

There are only two ways that this shortfall can be addressed.  The Administration and Congress can agree to provide more funds for the voucher program or they can identify additional funds already available at HUD from prior year appropriations or other sources that can be used to cover the vouchers that would otherwise be left unfunded.

 

House Bill Would Increase Amount of Funding Available to Renew Existing Vouchers Beyond Level Requested By Administration

The House bill would appropriate $13.38 billion for the renewal of existing housing vouchers.[2]  This represents an increase of approximately $835 million above the amount that would be available under the Administration’s budget request.  The increase in funding for voucher renewals in the House bill was accomplished by:

The first two changes were included in the version of the bill that the House Appropriations Committee approved, while the third was added by amendment on the House floor.  Each of these three actions would help to address some of the shortfall in the President’s request, although the actions could have some downsides.

The largest portion of the increase — approximately $500 million — was accomplished by reducing the reliance of voucher funding in fiscal year 2004 on the availability of unspent funds from previous years.  The Administration’s budget request identified $1.07 billion in unspent funds from fiscal year 2002 and previous years that it indicated would be available in fiscal year 2004, and it relied on these “carryover” funds to help fund the voucher program in 2004.  After the budget was submitted, however, Congress rescinded $500 million of these unspent funds as part of the fiscal year 2003 appropriations act (based on Congressional assumptions at that time that the funds would not be needed).  Consequently, only $570 million of the unspent funds identified by the Administration remain available for use in fiscal year 2004.  (The actual amount of prior year funds carried over to fiscal year 2004 could be higher or lower than $570 million, but neither HUD nor OMB has provided specific information since the submission of the budget concerning the amount of carryover funds expected to be available.)[3]

The House bill would increase the appropriation of new funds for the voucher program by $1.07 billion above the Administration’s request (not counting the $150 million shifted from the working capital fund on the House floor).  In effect, the House bill directly appropriates the amount the Administration had simply assumed would be available from carryover funds.[4]  The House bill also adds a rescission of $1.07 billion in unspent funds (technically “unobligated funds”) from fiscal year 2003 or prior years; this rescission could be drawn from unused funds in the voucher program or any other HUD program.  This approach provides certainty that the $1.07 billion, provided through an increase in the appropriation level, will be available to renew housing vouchers in fiscal year 2004.  If, as the calculations in this analysis assume, the amount of carryover funds available would otherwise have been equal to the Administration’s budget estimate minus the amount rescinded earlier this year, then the House bill would provide $500 million more for fiscal year 2004 voucher renewals than the Administration’s budget request would provide (since $500 million of the Administration’s original request disappeared when the $500 million rescission was enacted earlier this year).

Prior-year voucher funds could be used to meet the $1.07 billion rescission target under the House bill.  Depending on the amount of recaptured and other carryover funds that are available, some or all of the rescission likely would be met in this manner.  It is unlikely, however, that this rescission would have a harmful effect on the current operation of the voucher program.  It would not be lawful under the House bill for HUD to meet the rescission by withholding funds needed to meet its commitments under the voucher program during fiscal year 2003.

The House Committee bill also added $185 million for voucher renewals by setting the funding levels for four other activities under the voucher account some $185 million below the level the Administration requested, and transferring these funds for use in renewing existing vouchers.  The House bill:

With the exception of the state capacity-building grants, each of these reductions could have a negative impact on low-income families.  It is likely, however, that the overall harm from these reductions would be significantly less severe than the harm that would result from allowing a greater number of existing vouchers to be left unfunded, as would occur if the $185 million were not transferred.

Finally, the full House voted 217 to 208 to approve an amendment adding $150 million to the funding level for renewing existing housing vouchers beyond the level the Appropriations Committee approved.  The House achieved this increase by reducing the funding level for the HUD Working Capital Fund by $150 million below the level in the bill the Appropriations Committee reported.[5]  The working capital fund provides funds for improvements to HUD’s information technology systems.  It is not clear what the specific effects of reducing funding for the working capital fund would be.  This reduction, however, would not harm low-income families to the degree that a shortfall in voucher funding would.

 

House Funding Level Falls Approximately $430 Million Short of Amount Needed to Avoid Cutting Assistance

Despite these increments, the funding level in the House bill is still significantly below the level required to fund all vouchers likely to be in use at the beginning of fiscal year 2004.  The annual funding needs of the voucher program depend on two factors: the average cost per voucher and the proportion of vouchers that are in use (sometimes referred to as the utilization rate).   Each of these factors depends on local economic and housing market conditions and thus cannot be predicted with precision.  As a result, timely data on voucher costs and utilization is critical to estimating the funding needs of the voucher program. 

Analysis Using Recent HUD Data Shows Voucher Program
Costs Will Exceed Amount that House Bill Provides

In April 2003, HUD required state and local housing agencies that administer the voucher program to report data on both voucher costs and utilization for the six-month period from August 2002 to January 2003.[6]  These are the same data that HUD uses to determine the amount of funding to be distributed from the federal Treasury to housing agencies to administer their voucher programs.  Analysis of the April HUD data shows that the funding level requested in the Administration’s budget, which relied on older cost and utilization data that were available at the time the budget was submitted, would fall approximately $1.26 billion short of the amount needed to support the vouchers likely to be in use when fiscal year 2004 begins in October 2003.  As a result, the number of families receiving voucher assistance on average during fiscal year 2004 would need to be reduced by approximately 184,000.

The April HUD data were recently made available to Congressional staff.  The House Appropriations Committee did not use these data, however, in determining the funding level it approved for the voucher program.  As a result, the assumptions regarding fiscal year 2004 costs and utilization used by the committee in developing the House bill differ from estimates based on the April HUD data.[7]

Most significantly, the Appropriations Committee relied on an estimate of the average per-voucher cost in fiscal year 2004 of $6,565, which is well below the $6,871 estimate that results from the analysis of the April HUD data.  The primary reason for this difference is that the committee developed its estimate using data that, while somewhat more recent than the data used in the Administration’s budget request, are significantly less up-to-date than the April HUD data.  The report accompanying the House bill indicates that the committee’s estimate of per-voucher costs in fiscal year 2004 relied on cost data from fiscal year-end statements from state and local housing agencies.  Unlike the April HUD data, these statements are audited and are therefore likely to be more precise.  In part because of the auditing process, however, agencies’ year-end statements do not become available for a considerable period of time after the end of the fiscal year they cover.  A large majority of the data relied upon by the committee dates from periods that precede the period covered by the April HUD data.  It appears the committee used some data from as early as April 2001, 16 months before the first month covered by the April HUD data.[8]

The Appropriations Committee report accompanying the House bill states that these older data were adjusted for inflation.  Such an adjustment is unlikely to project changes in voucher costs accurately, however, because voucher costs are driven in part by economic conditions, policy decisions, and other factors that are not reflected in inflation indices.  For example:

When unemployment rises, the average income of voucher holders tends to decline, causing voucher costs to increase (since vouchers generally cover the difference between rental costs and 30 percent of a tenant’s income).

Congress, HUD, and local housing agencies implemented a series of policy reforms in recent years with the goal of making it easier for families to use vouchers and to reduce the number of authorized vouchers left unused.  Some of these reforms increased the amount of rent that a voucher is permitted to cover, and as a result raised per-voucher costs.

The rents paid by families with vouchers are driven by trends in rental costs for housing units at the lower end of the rent scale.  Inflation indices, by contrast, include costs for higher-rent units, whose costs may change at different rates from the costs of lower-rent units.

The April HUD data show that voucher costs rose by 2.0 percent from the first three months covered by the data to the second three months covered by the data.  By comparison, the Consumer Price Index (CPI) rose by 0.5 percent during this period, the housing component of the CPI rose by 0.6 percent, and the residential rent component of the CPI rose by 0.8 percent.  The committee report did not indicate what inflation index it used to adjust its voucher cost estimate, but regardless of what index it used, an estimate of fiscal year 2004 costs based on the older data the committee relied upon will tend to be less accurate than a projection using the more recent April HUD data.[9]

The data the committee used are likely to be somewhat more precise in describing per-voucher costs for the period they cover.  But because they are significantly out of date, these data are less reliable for estimating per-voucher costs and utilization in fiscal year 2004 than the April HUD data.   Indeed, as shown in Figure 1 above, the Congressional Budget Office in its Summer 2003 baseline estimated that per-voucher costs in fiscal year 2004 will average $7,028.  This estimate is somewhat higher than the estimate produced by the analysis of the April HUD data that these costs will average $6,871.

In large part because the funding level for renewal of existing vouchers in the House bill was developed using these older data on average voucher costs, the bill eliminates only part of the shortfall in voucher funding for fiscal year 2004 that likely would occur under the funding level in the Administration’s budget request.  The funding level in the House bill includes $150 million in addition to the amount the Appropriations Committee approved (and therefore beyond the amount calculated with the out-of-date information described above).  While helpful, this higher amount still is insufficient to eliminate the shortfall.  The House bill provides (including funds in a “central fund”) about $433 million less than the amount that analysis of the April HUD data on utilization and costs per voucher indicates will be needed to fund all vouchers in use at the beginning of fiscal year 2004.  (See Table 1 for details regarding the number of vouchers that would be funded under the budget request and the House bill.  The box on page 8 examines two sources of reserve funds available to state and local housing agencies, explaining why these funds are not adequate to overcome the funding shortfall in the House bill.) 

OMB Outlay Estimate Supports Conclusion that Funding
Level in House Bill is Inadequate

In July 2003, OMB released an updated estimate of expenditures for the Section 8 program (which includes the housing voucher program) as part of its mid-session budget review.   This estimate appears to indicate that expenditures (or “outlays”) under the voucher program in 2004 will be more than $500 million above the amount that our analysis of the April HUD data indicates will be required to fund renewal of vouchers likely to be in use at the start of fiscal year 2004.[10] 

Table 1
Fiscal Year 2004 Voucher Funding in House Bill and Administration’s Budget Request[11]

 

Cost Per Voucher in FY 2004

Funding Available for Voucher Renewals

Number of Renewal Vouchers

Funded

Number of Renewal Vouchers Not Funded[12]

Number of Vouchers in Use in October 2003 Not Funded[13]

Percent of Authorized Vouchers

Funded

Shortfall if FY 2004 Utilization Is at its Expected Level in October 2003[14]

Analysis of Administration request based on Administration assumptions regarding costs and availability of carryover funds

$6,468

$13.05 billion

2,017,000

89,000

0

95.8%

 

Analysis of Administration request using costs estimates based on April HUD data and reflecting rescission enacted in February 2003

$6,871

$12.55 billion[15]

1,826,000

280,000

184,000

86.7%

$1.26  billion

 

Analysis of House bill using cost assumptions in Committee report

$6,565[16]

$13.38 billion[17]

2,037,000

69,000

0

96.7%

 

Analysis of House bill using cost estimates based on April HUD data

$6,871

$13.38 billion

1,947,000

159,000

63,000

92.4%

$433 million

Analysis of House bill using CBO cost estimate

$7,028

$13.38 billion

1,903,102

203,131

108,000

90.4%

$925 million[18]

The outlay estimate from the mid-session review indicates that OMB is making one or both of the following assumptions:

In either case, the amount of additional resources required by the voucher program beyond the funding level in the House bill would substantially exceed $433 million. 

OMB’s outlay estimate includes only spending that can be supported by available funds, so the estimate implies that the Administration believes additional funds will be available to the voucher program in fiscal year 2004 from prior-year appropriations or other sources.  The Administration has not provided any specific information, however, regarding the source or quantity of added funding that could be available.  Moreover, there is no requirement under the House bill that funds from other sources be used to fund voucher renewals if such funds are not rescinded and reappropriated for this purpose.

 

House Bill Would Leave Unfunded About 63,000 Vouchers Likely to Be in Use

As a result of the $433 million shortfall in the funding level the House bill provides, approximately 63,000 vouchers likely to be in use at the beginning of the fiscal year will be left unfunded.[19]  Most households with vouchers — seven out of ten according to the most recent available HUD data — are either working families with children or elderly or disabled households.   If the average fiscal year 2004 reduction of 63,000 vouchers in use under the House bill were applied proportionately across all types of households, the average number of households assisted during fiscal year 2004 would fall below the number assisted in October 2003 by the following amounts:

For a list of the reductions that would be required in each state under the House bill, see table 2.

Many housing agencies would not immediately impose their share of the 63,000-voucher reduction that would result from the funding level in the House bill.  Some families leave the program each year as their incomes rise, they die, or for other reasons, and housing agencies likely would try to meet their share of the cut that would be required by using such turnover to gradually reduce the number of families served.  Agencies that do not impose the full reduction at the beginning of the year, however, will have to reduce the number of families served by a greater number later in the year in order to achieve the reduction in the average number of families served over the full year that would be necessitated by the level of funding in the House bill.  If the overall reduction is imposed gradually with the number of families with vouchers declining steadily over the course of the fiscal year, the number of such families would have to be 126,000 lower by the end of the fiscal year than when the fiscal year began. (The 63,000 figure represents the average amount by which the number of families assisted over the course of the fiscal year will fall below the number assisted at the start of the year.)

Can Housing Agency Reserves Be Relied on to Prevent Cuts in Voucher Assistance?

The Appropriations Committee report accompanying H.R. 2861 states that two sources of funds would be available to the voucher program in fiscal year 2004 beyond the funding appropriated in the bill:  $1 billion from “program reserves”; and $721 million from “administrative fee reserves.”  It is unlikely that funds from these sources would adequately address the shortfall identified in this analysis.

Congress requires HUD to provide each state and local housing agency at the beginning of its fiscal year with a program reserve that contains an amount of funding equal to one month of the agency’s voucher costs.  This reserve is intended to enable the agency to cover funding needs that HUD did not anticipate, such as cost increases resulting from rent increases in the local housing market and initial costs for authorized vouchers that are newly put to use.

It also is not clear whether the $1 billion in added funds cited in the committee report actually will be available from program reserve accounts in fiscal year 2004.  The estimate in the committee report appears to assume that all program reserves used during fiscal year 2003 will be replenished either with $100 million included in the voucher program’s central fund for this purpose or with prior year funds.  In light of the large increases in voucher program costs demonstrated by the April HUD data and a large rescission of funds from prior years that was enacted as part of the 2003 appropriations act, however, there is a strong possibility that substantially more than $100 million in program reserve funds will be used during fiscal year 2003, and that few funds from prior years consequently will be available to replenish these reserves.  If this occurs, HUD could draw additional funds from the 2004 voucher appropriation to replenish reserves or it could fail to replenish depleted program reserves.  In either case, the amount of added funding available from program reserves to reduce the shortfall in fiscal year 2004 would be reduced — perhaps substantially — below the amount the House Appropriations Committee estimated. 

In addition, while some funds from program reserves should be available to cover voucher renewal costs for fiscal year 2004, many housing agencies are likely to be reluctant to use these funds to prevent reductions in the number of families receiving voucher assistance.   Much of the projected reduction in assistance would occur through attrition — that is, by not reissuing vouchers turned in by families leaving the program.  If, in fiscal year 2004, Congress and the Administration break the longstanding federal commitment to fund all housing vouchers in use, state and local housing agencies will have little reason to believe that Congress will appropriate sufficient funds in the future to enable HUD to replenish any reserve funds that the housing agencies spend.  A shortfall in funding in fiscal year 2004 also will signal housing agencies that they cannot count on receiving full funding for voucher renewals in future years.   As a result, many agencies likely would be reluctant to spend the one-time resource represented by program reserves to reissue turnover vouchers, since doing so would create an ongoing need for funds to support those vouchers.  Instead, agencies would be likely to use these funds primarily to avoid displacing current voucher holders and to conserve any reserve funds that remain to be used in response to future shortfalls.  If most agencies respond in this way, reserve funds will have only a limited impact on the projected reductions in assistance.

Finally, it is uncertain that administrative fee reserves (which contain the portion of the voucher administrative fees earned by a housing agency that have not yet been spent) can be relied on to make up any part of the voucher renewal shortfall in fiscal year 2004.  The fiscal year 2003 appropriations act contained new provisions that reduce the amount of new administrative fees provided to agencies with large fee reserves and therefore require such agencies to use reserve funds to cover current administrative expenses.  These provisions will reduce the amount of funds in administrative fee reserves before they can be used to meet the cost of voucher renewals or administrative expenses in fiscal year 2004.  (A lawsuit filed by a group of housing agencies may, if successful, prevent much of this reduction.  It is likely, however, that if the lawsuit is successful, it will also prohibit HUD from requiring housing agencies to use the fee reserves to cover voucher program costs in fiscal year 2004.  This outcome would mean that the $721 million cited by the committee still could not be relied on to fund voucher renewals in fiscal year 2004.)

 

House Bill Would Prevent Use of Vouchers that Have Been Previously Authorized by Congress but Are Not in Use in October 2003

The House bill, like the Administration’s budget request, provides for a central fund to cover unanticipated program costs and to enable state and local agencies to make fuller use of the number of vouchers they have been authorized to administer.[21]  Unless the funding level provided for the program is increased, however, all of the money in this central fund would be needed to support vouchers already in use at the beginning of fiscal year 2004 and, as a result, it would not be possible for state and local housing agencies to put to use vouchers that Congress has authorized but that are not in use in October 2003.

In recent years, Congress has repeatedly urged HUD and state and local housing agencies to increase the proportion of authorized vouchers that are in use, so that vouchers do not sit unused while families remain on waiting lists for assistance.  The newly released HUD data show that the voucher utilization rate rose significantly during the period the data cover.  This increase appears to have been caused in substantial part by the success of new policies put in place at the national, state, and local levels in recent years to raise the proportion of vouchers in use, as well as by a loosening of housing markets in some sections of the country that has made it easier for families to find housing where they can use their vouchers.  It is likely that the trend toward higher utilization will continue in fiscal year 2004 if adequate funding is available.  Moreover, HUD has the ability to put to use more of the vouchers that Congress has authorized by “reallocating” vouchers from agencies that have consistently failed to use them to agencies whose track record demonstrates they would be able to put the vouchers to use promptly. 

As noted, without additional funding beyond the level in the House-passed bill, no further progress in raising utilization will be possible.  Consequently, approximately 95,000 authorized vouchers that are not likely to be in use at the start of fiscal year 2004 but could be used to serve families if utilization continues to rise also would be defunded.  These 95,000 vouchers are in addition to the 63,000 vouchers in use at the start of the fiscal year that also would have to be defunded.  (For estimates of the number of authorized vouchers in each state that are not projected to be in use at the start of the fiscal year and that would be defunded under the House bill, see table 3.)  Approximately $326 million would be required to enable half of the 95,000 vouchers that are not likely to be in use at the start of fiscal year 2004 to be put to use serving families on average during the course of the fiscal year.  In combination with the $433 million needed to fund the 63,000 vouchers expected to be in use, this would amount to a total additional appropriation of about $759 million above the level provided in the House bill.

Table 2
Projected State Level Reductions in Voucher Assistance
Under Funding Level in House Bill

State

Number of Vouchers Projected to Be in Use in October 2003

Estimated Reduction in Average Number of Households Assisted During Fiscal Year 2004 if House Bill Funding Level is Enacted

Total

Reduction

Working Families

Elderly    Households

Disabled Households

Other Households

Alabama

25,830

810

250

140

180

250

Alaska

3,780

120

40

20

30

40

Arizona

19,810

620

190

110

140

190

Arkansas

21,300

660

200

110

150

200

California

286,610

8,940

2,730

1,520

1,970

2,730

Colorado

26,510

830

250

140

180

250

Connecticut

28,500

890

270

150

200

270

Delaware

4,140

130

40

20

30

40

District of Columbia

8,930

280

90

50

60

90

Florida

83,990

2,620

800

450

580

800

Georgia

45,560

1,420

430

240

310

430

Hawaii

10,800

340

100

60

70

100

Idaho</