Beyond Sequestration

The Real Risks Lie in a Deficit Reduction Deal to Replace It

Sequestration — the harsh, indiscriminate cuts in federal defense and non-defense programs that are scheduled for January 2013 — has received lots of attention. As Washington insiders have expressed growing confidence that lawmakers will avert sequestration, many housing advocates and practitioners are breathing sighs of relief.

They shouldn’t. Sequestration is a painful stick intended to spur lawmakers to reach agreement on a plan to reduce our federal budget deficit. A deal to cancel sequestration will almost certainly achieve this goal. But at what cost?

Policymakers agree that Social Security and Medicare benefits for current retirees should be protected, and many oppose cutting defense below levels agreed to last year under the Budget Control Act (BCA). But this leaves just three areas of the budget: non-defense discretionary spending – which makes up just one-sixth of the budget, includes most housing and community development programs, and has already taken a big hit under the BCA – low-income entitlement programs such as Medicaid and food stamps, and revenues.

It will be nearly impossible to avoid very deep cuts in low-income programs, including housing assistance and community development programs, if substantial new tax revenues are not part of a budget agreement. The House-passed budget resolution, which relies entirely on spending cuts to balance the budget over the next decade, provides a clear example of just how deep these might be.

Under the House resolution, the cuts in non-defense discretionary funding would be more than twice as deep as the cuts required under sequestration, and more than four times as deep as those under the BCA caps (see Figure 1).

Adopting a balanced approach to deficit reduction is therefore essential to avoiding deep cuts in assistance for low-income families and communities, but other steps are also important. The BCA spending caps will put intense pressure on the U.S. Department of Housing and Urban Development (HUD) budget in coming years. For example, funding caps imposed by the BCA would mean a $2.5 billion annual funding cut to HUD by 2021. This is equivalent to eliminating Housing Choice vouchers for more than 300,000 low-income families, or to reducing funding for the three largest block grants — CDBG, HOME, and the Native American Housing Block Grant – by 55 percent.

To prevent such harmful cuts in assistance to low-income families and communities, policymakers should prioritize housing, community development, and other low-income programs in making discretionary funding decisions. While the BCA spending caps are tight, the Administration and Congress can set priorities among agencies and programs — and they should act to protect low-income people.

Lawmakers should also work to pass comprehensive rental assistance reform legislation, such as the Affordable Housing and Self-Sufficiency Act (AHSSIA). AHSSIA would streamline the major federal rental assistance programs and save an estimated $700 million per year in program costs, once it’s fully implemented. AHSSIA would also expand a demonstration of the Administration’s proposal to let housing public housing agencies convert their existing funding streams to “project-based” rental assistance contracts, which promises to enable housing agencies to access more private capital to help meet the estimated $26 billion backlog of capital repair needs.

A thoughtful, balanced approach is the only way to ensure that deficit reduction is not carried out on the backs of families who can afford it least.

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