#091 Jan/Feb 1997

Federal Housing Policy: The Road Ahead

Housing policy in the 105th Congress will continue to undergo a “quiet revolution.” The policies can be characterized as “revolutionary” because they involve breathtaking cuts in housing assistance at a […]

Housing policy in the 105th Congress will continue to undergo a “quiet revolution.” The policies can be characterized as “revolutionary” because they involve breathtaking cuts in housing assistance at a time of growing need and pronounced movement to devolve and deregulate the public and assisted housing programs. The changes have been “quiet” only insofar as neither the Clinton administration nor Congressional leaders have shown much concern about these developments.

The following articles, reviewing the changes set in motion in the last Congress and looking forward to what can be expected in the term just begun, point to the need for a strong, informed, and collaborative grassroots counter-revolution to bring these issues to the center of the national agenda and stop the reckless cuts in needed assistance.

While the 104th Congress has come to a close, the historic shift in the social policy agenda that took place will continue to influence the current Congress’s attitudes and priorities. A review of the major housing policies considered or approved by the last Congress is useful for anyone trying to influence, monitor, or understand the debate in the 105th.

The GOP regained control of Congress with a vengeance in January 1995 and promised to bring the era of federal government intrusion and free wheeling federal spending to a close. The Department of Housing and Urban Development (HUD) was one of several agencies targeted for elimination under the banner of fiscal conservatism and federal downsizing. The House set up a commission to study options for eliminating the department, and 57 Representatives signed on to a bill to reorganize HUD out of existence. Senator Faircloth (R-NC) also introduced a HUD elimination bill in the Senate.

HUD responded to the threat of extinction with its own “Reinvention Blueprint.” The Blueprint proposed consolidation of all HUD programs into three block grants to localities and outlined a process for converting all project based subsidies to portable vouchers. The plan slightly mollified opponents and significantly alienated traditional constituencies: housing authorities, assisted housing providers, mayors, activists and residents. It was however well received by the administration and forestalled or altered Office of Management and Budget (OMB) plans to eliminate and/or significantly change the configuration and resources of the department. HUD Secretary Cisneros effectively used the plan to build support among Congressional moderates for continued support of HUD as a federal cabinet-level agency.

Ultimately, the 104th Congress did not dismantle the Department. However, the agency and the activities it oversees were dealt a crippling blow in the spring of 1995 by the budget cuts enacted in the FY95 Rescissions Bill. With the stroke of a pen, Congress eliminated all funding for new Section 8 assistance and new public housing construction. FY95 represented the first time in the 20 year history of the Section 8 program that funds to assist the unassisted on waiting lists were zeroed out. (In comparison, during the early 70s over 400,000 new units were funded in HUD’s budget.)

The rescission slashed funds for public housing modernization by $900 million, elderly and disabled housing programs by $400 million, lead poison prevention activities by $85 million, and the housing counseling program by $38 million. All totaled, the agency lost 25 percent (over $6 billion) of its budget authority due to spending rescissions before the summer of 1995. The rescission bill also authorized the elimination of the one to one replacement rule for public housing, which required the replacement of each unit demolished, and suspended federal preference rules requiring that homeless and poor families with high housing costs get new assistance first.

The Power of the Purse

The FY95 rescission bill set a pattern that continued through the rest of the 104th Congress. The budget and reconciliation bill became the vehicle of choice for legislating sweeping social policy. The new Congress used its power over the purse aggressively, to contain the growth of affordable housing activities and force program change that would accommodate lower spending levels. The traditional role of the authorizing committee in setting program policy was thus greatly diminished. The FY95 rescission bill and all budget bills enacted for housing since have implemented and extended major changes to housing policy. The repeal of the federal preferences for admission to public and assisted housing, repeal of the one for one replacement rules, elimination of lease protections and anti-discrimination provisions in the Section 8 program, and implementation of minimum rent payments for public and assisted housing were all enacted through the appropriations process. While these changes had been under discussion during the preceding Congress, repeal legislation of this scope would have been unlikely to pass, en bloc, through the more open and deliberative authorization process controlled by the Banking Committees.

An exception to the trend of authorizing through appropriations was the relatively swift approval of the 1995 Housing Opportunity Extension Act. The legislation encouraged public housing authorities to adopt a zero tolerance approach in evicting public housing residents suspected of criminal activity. The bill broke new ground by authorizing evictions for criminal activities that public housing residents (or household members) committed away from the public housing development. The bill also made persons with disabilities due to drug or alcohol use ineligible for special access to “disabled” units in public and assisted housing.

These provisions carried another theme that sounded throughout the policy debate over poverty programs in the 104th Congress: the responsibility agenda. This theme was played out in a major way in the welfare and immigration reform measures passed by Congress. Whether or not the changes enacted will yield the touted results, it is increasingly clear that the poorest Americans were given responsibility for a disproportionate share of federal budget cuts in the 104th Congress, with six billion in cuts to housing programs in a single year and $55 billion in welfare related cuts over the next 6 years.

Interestingly enough, the welfare and immigration bills may be of greater significance for federal housing programs than any housing bill passed during the session. Public housing and Section 8 programs generally subsidize the difference between the cost of housing and the actual income a family has available to pay those costs. Because of the prevalence of welfare, SSI, and food stamp participation among HUD-assisted households, some of the reduced spending on welfare entitlements may reappear as increased discretionary federal housing budget expenditures.

Changes in Preservation Policy

The Housing Opportunity Extension Act also made a fundamental change in federal housing preservation policy. The law restores the right of owners of Section 8 housing with 40-year FHA insured mortgages to prepay their mortgages when the 20 year prepayment right accrues under their agreement with HUD. Since the passage of emergency legislation in 1988, owners of Section 8 projects financed through certain insured programs have been legally barred from using mortgage prepayment to convert affordable housing projects to other uses. The Low Income Housing Preservation and Resident Homeownership (LIHPRHA) program passed in 1990 to create a permanent program which gave owners a package of incentives to continue affordable use restrictions. The Act passed by Congress last year restores the mortgage prepayment right to owners, and gives residents in those projects vouchers to subsidize their housing costs. The restoration of the prepayment right marks a substantial retrenchment of the federal government’s commitment to wide-scale preservation of affordable stock.

On the budget side, every year for the past three the administration has requested zero funds for LIHPRHA. Congress has restored those funds at the behest of residents and advocates. However, the funding during those budget cycles has not been sufficient to cover all admissible projects. In the last year the Preservation Working Group, a group of affordable housing advocates from around the country, including the National Low Income Housing Coalition, helped convince Congress to appropriate $350 million for LIHPRHA. (The same fight the year before had yielded a much larger appropriation of $624 million.)

Given the increasing gravity of the budget outlook, some advocates have raised questions about the broad impact of gaining funds to stave off prepayment while Congress zeros out all funds for rental assistance for families on the waiting list. A related dilemma faces the public housing stock, as the federal government invests substantial funds in comprehensive revitalization of a narrow band of specific sites while placing general operating subsidies for the entire program on a starvation diet. In the reality of the zero-sum game of federal discretionary budgeting, advocates will have to confront such tough questions in the 105th or run the risk of fighting each other for an increasingly small slice of the pie. The alternative, however, is to increase the pie, and this debate will become more urgent and timely as the budget screws tighten.

Public Housing Reform

The authorizing committees devoted considerable time in the last Congress but failed to pass legislation to overhaul the public housing program. The House bill passed last May would have created two block grants (a capital fund and an operating fund) to public housing authorities and deregulated many aspects of the program. As introduced in the House, the measure would have given public housing authorities total discretion in setting rents. Since 1969, rents in public and assisted housing have been set according to a federally stipulated formula based on tenants’ income (known as the Brooke Amendment after the Republican Senator from Massachusetts who sponsored the rent formulation).

The version of the bill that passed the House in the Spring was slightly more moderate in approach on the issue of deregulating rents but still problematic to low income advocates and resident groups. The bill repealed the Housing Act of 1937, which contained 60 years of affordable housing laws and policy, and gave housing authorities great latitude to admit higher-income tenants and pass over those more in need of assistance. Finally, the bill would have created a “demonstration” to totally deregulate 300 public housing authorities, including New York City’s, one of the largest in the nation, with over 100,000 units.

The bill passed by the Senate early in 1996 limited rent deregulation to tenants in the top tenth percentile by income (presumably those who could afford a higher rent established through the PHA). The Senate bill’s provisions on income targeting also permitted some upper income admissions but reserved the lion’s share of new admissions for the poorest families. A House-Senate conference agreement on the legislation was stalled, however, by House Republicans’ refusal to compromise on the repeal of the 1937 Act and by the inability to reach consensus on how many poor vs. moderate-income families the program should serve. The pressures to get on to other higher profile legislation in a presidential election year conspired against enactment of a public housing reform bill. The voices of thousands of advocates and residents around the country protesting the reform also sealed its fate.

The 104th Congress did pass a Native American Housing Assistance Act (originally introduced as a subtitle within the public housing legislation) just before adjourning. The new law separates Native American housing from the conventional public housing programs and creates a housing block grant to tribes. The block grant takes effect one year from the date of enactment, and it will be interesting to see how recent media reports of scandals in the Indian Housing program will impact the negotiated rulemaking process over the next year.

McKinney Act Consolidation

Unlike the public housing bill, rewritten legislation to consolidate McKinney Act homeless programs will probably pick up a lot more support than the “Homeless Housing Programs and Flexibility Act” introduced by Rep. Rick Lazio (R-NY)last August. The legislation would have created a block grant for homeless programs and allocated 70 percent of homeless assistance to states for rental assistance and 30 percent to local government grantees for current McKinney Act activities. Homeless advocates raised concerns because the legislation authorized insufficient appropriations to comprehensively address the homeless problem – and Congress could in the end approve even less than it authorizes. Moreover, the bill would have frozen appropriations for four years. Also, a large percentage of the allocation would have gone to the States and for rental assistance, the bill contained no money for new construction activity, and some question whether the rental assistance authorized could support permanent housing as intended. Advocates also felt the block grant channeled money to government grantees, thereby excluding groups that have been assisting the homeless, and provided no role for nonprofit and community input.

In this Congress, H.R. 217, the “Homeless Housing Programs Consolidation and Flexibility Act,” authorizes $1 billion for the program from 1998 to 2002. The legislation, considered a vast improvement from last year’s, would allocate only 20 percent of the homeless funds for permanent housing in the first year. Of the balance, 30 percent would go to states for activities in non-entitlement areas and 70 percent would go to local grantees. The non-permanent housing funds would be administered through the Flexible Block Grant which authorizes the traditional McKinney activities (emergency shelter, supportive services etc.). Jurisdictions would run competitions to select qualified project sponsors to carry out these activities. At least half of the funds would have to go to nonprofit sponsors. Nonprofits would also have a prominent role in the local advisory boards which would oversee the development of the jurisdiction’s plans and application to receive the homeless dollars. The composition of the advisory groups would be 51 percent nonprofit.

Section 8 Housing

As with public housing reform, legislative efforts to reform the Section 8 program were stymied in the authorizing Committees but made it through as demonstration programs in the appropriations process. The Banking Committee in the House and the Senate did have a series of hearings in the last Congress on the status of Section 8 contracts. But these did not produce a strong enough consensus to push through legislative reform. The hearings provided an opportunity for interest groups and the administration to debate the merits of HUD’s Mark to Market initiative and the future of the Section 8 program in general.

Mark to Market (later called Portfolio Reengineering) proposed a mechanism for reducing ongoing costs of operating Section 8 assisted multifamily properties insured through the FHA insurance program. The concept of Mark to Market is simple: use the insurance fund to restructure the project’s financing, and lower or raise project rents to a level comparable with the market in which the project is located. HUD’s theory was that restructuring the projects in this way would create viable developments that could operate with or without government subsidies. Moreover, Mark to Market would allow conversion of project-based contracts for owners into portable vouchers for tenants, thereby severing the problematic connection between insurance commitments and subsidy contracts. (HUD admits to having too often spent Section 8 subsidies to prop up failing projects and avoid a claim on the insurance fund.)

What was presented as a simple idea, however, created a firestorm of controversy. Low income advocates argued that the massive voucherization of the projects would ultimately mean losing the projects as affordable housing. Owners and managers warned that vouchers and “marking to market” would destabilize healthy projects and push marginal ones into distress. Congress challenged HUD’s cost savings assumptions and the reliability of its data.

The Appropriations Committees stepped into the void and enacted a Portfolio Reengineering demonstration in the FY96 and FY97 HUD budget to reduce the costs of Section 8 FHA insured projects with contracts in excess of 120 percent of the fair market rent. Projects going through the demonstration have generally continued to operate with project-based contracts and affordability restrictions intact.

The demonstrations, however, do not offer a solution for the many properties in the inventory that are troubled or distressed with below market rents. The contract rent levels may look good from a short-term budget standpoint, but may not be adequate to maintain project viability. Tough decisions lie ahead, as the administration will inevitably set up a system of triage, in which projects that are too financially distressed to make it are allowed into the inventory for disposition.

Moreover, the precipitous rise (HUD estimates that annual budget authority for Section 8 renewals grows from $4.3 billion in FY97 to $19 billion in FY2002) in Section 8 contracts needing renewal between now and the year two thousand is the 800 pound gorilla in the federal domestic discretionary budget that is yet to be addressed. The administration’s FY98 budget requests include $9.2 billion for renewal of 1.8 million units, housing some 4.4 million people. The administration looks to find $2.5 billion of this by implementing program changes: Portfolio Reengineering, continued reductions of the fair market rent (FMR) to the 40th percentile, reduction in the FMR standard for single households to an efficiency level, and expansion of the federal preference repeal to Section 8 project-based developments. Finding the political consensus to cash-in these outlay savers, and building the political will to increase HUD budget authority, poses a major challenge to HUD.

In the new Congress, reaction to preliminary discussions among Budget Committee staff about protecting budget authority for contract renewals in the next budget resolution have been mixed. Once the funds are provided, however, it is important that discussion of Section 8 housing’s future in this Congress include considerations of adequate supply, fair housing, and broader community impact, along with the fiscal and financial impact of preservation decisions. Housing advocates should continue urging legislators to give residents and communities most directly affected a meaningful opportunity to weigh in on these decisions.

Looking Ahead

The next year will indeed be a challenging one for federal housing programs and policy. We know that the 105th Congress is just as interested as its predecessor in zeroing out the deficit within a short and definable time frame. Proponents and opponents of a Constitutional amendment for a balanced budget are already gearing up for tough battles in the House and the Senate. Even if the attempt to amend the Constitution fails, the balanced budget goal is a White House and Congressional priority. This will place intense pressure and scrutiny on the allocation of scarce discretionary dollars. The outlook for housing and any other non-defense discretionary program is grim, unless the military budget is forced to more equitably absorb the estimated $258 billion in cuts needed to reduce the deficit by 2002.

Politically well-connected Andrew Cuomo, chosen to lead the charge for HUD in Clinton’s second term, will have rough waters to navigate in the next Congress to maintain adequate budgets and political support for HUD and affordable housing. The reform and consolidation of the public housing, Section 8, and homeless programs, as well as the reorganization of the department itself, will be key housing-related issues on the legislative agenda in 1997-1998. H.R. 2 has already been introduced in the House to consolidate the conventional public housing program and create a flexible block grant to combine Section 8 and public housing funding streams. Although H.R. 217, which consolidates the McKinney Act homeless programs, is likely to have more support among advocates than the version introduced last summer, homeless programs will probably be affected by changes in the welfare system. These changes are likely to have a ripple effect in the next two years and create more housing need and a greater demand for housing assistance dollars at the very time that Congress will be looking for more ways to cut budget costs. Public and private nonprofit sector organizations are already reporting increases in request for shelter beds, food donations, and emergency assistance.

Looking at the broader picture, the President’s budget includes provisions to restore $16 billion worth of cuts that passed in the welfare reform bill. Restoring food stamps to childless adults and SSI benefits to disabled immigrants, as well as finding the dollars to protect the 4.4 million people affected by expiring Section 8 contracts, are all compelling reasons to reorder national priorities and eliminate budgetary sacred cows in order to invest in the people and communities about which we all care.



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