Housing Certificate Fund (Including Contract Renewals)

PROGRAM HIGHLIGHTS

NA = Not Applicable

a/ Reflects program level.
b/ Includes advance appropriation of $4.2 billion.
c/ The actual total carryover was $2.66 billion. However, $107 million was rescinded in the fiscal year 1999 Appropriations Act.

SUMMARY OF BUDGET ESTIMATES

1. SUMMARY OF BUDGET REQUEST

   A total of $13.9 billion is expected to be available for the Housing Certificate Fund in fiscal year 2000. This includes $11.5 billion in new budget authority, $4.2 billion of which is requested as an advance appropriation to be available on October 1, 2000. The remaining $2.4 billion is anticipated in recaptures, carryover from fiscal year 1999, and transfers from the Annual Contributions for Assisted Housing account. These budgetary resources will be used for the purposes described below.

   A total of $13 billion will be used for contract renewal needs. Of this amount, $4.2 billion will be in the form of an advance appropriation for Section 8 contracts where the cost falls in fiscal year 2001. Also included in the total is $25.1 million to fund Family Self-Sufficiency Coordinators.

   Of the remaining $.9 billion, $491 million will be used to support 85,000 incremental units. These include 42,000 vouchers for Section 8 incremental rental assistance, 25,000 vouchers for Welfare-to-Work and 18,000 vouchers for the homeless. An additional 15,000 vouchers for the elderly are requested as mandatory funding for the Housing for Special Populations program. The incremental units are part of an overall total request of 100,000 incremental units of tenant-based assistance.

   Finally, $209 million is requested for Contract Administrators, $134 million for tenant protection activities to support 27,000 units, $22 million for Multifamily Enforcement, $20 million for Regional Opportunity Counseling, and $6 million for anticipated administrative fee increases resulting from the enactment of the Quality Housing and Work Responsibility Act of 1998. Section 8 Amendments require no additional discretionary budget authority in fiscal year 2000 and will be funded through recaptures of budget authority remaining on expiring contracts.

2. CHANGES FROM 1998 ESTIMATES INCLUDED IN THE 1999 BUDGET

   There was a net decrease of approximately $615 million in actual 1998 activities compared to the estimates for fiscal year 1998 included in the fiscal year 1999 Budget. This decrease is attributable to the following. First, in fiscal year 1998, Congress appropriated Section 8 Amendment funds based on the "leveling" approach. This approach would spread the effects of future shortfalls in budget authority on a contract over the remaining years of a contract's term. It requires more budget authority than funding the contract through the end of the current fiscal year. Instead of the "leveling" approach, the Department decided to reserve Section 8 amendment funds to meet only short-term contract authority needs in fiscal year 1998. As a result, only $516 million was used for Section 8 Amendments instead of $984 million as originally anticipated. Second, tenant-protection vouchers weren't utilized as had been expected due to slower than anticipated implementation of the Mark-to-Market program. In addition, the Department had expected to utilize tenant-protection funds for Preservation Enhanced Vouchers. However, pursuant to the fiscal year 1998 Appropriations Act, contract renewal funding was utilized for that purpose. As a result, only $103 million was utilized for tenant-protection activities instead of the $398 million anticipated. Third, prior to fiscal year 1998, the Housing Authorities (HAs) were permitted to use project reserves to lease units above the number of contracted units. Consequently, additional fiscal year 1998 funds were used to authorize renewals of these units, as well as to restore HAs reserves where amounts that had been recaptured posed a potential future shortfall in required funding. As a result, $10.6 billion was used for contract renewals instead of $10.5 billion anticipated.

3. CHANGES FROM 1999 ESTIMATE INCLUDED IN THE 1999 BUDGET

   There was a net increase of $1.1 billion from the estimates included in the fiscal year 1999 Budget. One of the major factors is the carryover of $2.6 billion from fiscal year 1998. In addition, Congress enacted the 50,000 Welfare-to-Work vouchers ($283 million) in the Housing Certificate Fund rather than as a separate program as originally requested. The fiscal year 1999 Budget proposed the use of $10.8 billion for contract renewals. Our current estimates indicate that $11.2 billion will be used for contract renewals in the Housing Certificate Fund.

   The fiscal year 1999 Appropriations Act rescinded $1.7 billion which was to be derived from various sources. Of the $1.7 billion, $836 million will be rescinded from Section 8 project-based recaptures under the Housing Certificate Fund ($814 million will be taken from Section 8 project-based recaptures under the Annual Contributions for Assisted Housing account). In addition, in the fiscal year 1999 Budget, $1.3 billion was requested for Section 8 Amendments, however, no new budget authority was provided in the fiscal year 1999 Appropriations Act.

The net increase of $1.2 billion in new budget authority is due to several factors. The Department is proposing discretionary funding for 85,000 new incremental units (an additional 15,000 is proposed for mandatory funding). This is 35,000 more incremental units and $208 million more in budget authority than was provided in the 1999 Appropriations Act. The Department has also requested $209 million for contract administrators, and $6 million for an administrative fee increase pursuant to the Quality Housing and Work Responsibility Act of 1998. For Contract Renewals and Regional Opportunity Counseling, $10.6 billion and $20 million are requested in new budget authority respectively, which is a total of $1.1 billion more than provided in 1999. In addition, the Department has requested only $156 million for tenant-protection activities compared to $433 million provided in fiscal year 1999 Appropriations Act.

PROGRAM DESCRIPTION AND ACTIVITY

1. Contract Renewals. Contract renewals provide funding to renew expiring Section 8 rental assistance contracts covering certificates, vouchers, and moderate rehabilitation, Loan Management, New Construction/Substantial Rehabilitation, Property Disposition, and Preservation. In fiscal year 2000, $10.6 billion is requested to renew expiring contracts for an estimated 2,383,687 units. Further, $6.4 billion of this request is proposed to be made available during fiscal year 2000, and $4.2 billion to be made available on October 1, 2000 through an advance appropriation. All contracts are proposed to be renewed for 1-year term.

2. Section 8 Amendments. The need for Section 8 amendment funding results from insufficient funding being provided for long-term project-based contracts funded primarily in the 1970's and 1980's. During those years, the Department provided contracts for terms of up to 40 years. Estimating funding needs over such a long period of time proved to be problematic, and as a result, many of these Section 8 contracts were inadequately funded. The current practice of providing contracts for a 1-year term helps to ensure that the problem of inadequately funded contracts is not repeated. However, older long-term contracts must still be provided additional funding to maintain the current inventory of assisted project-based rental housing. For fiscal year 2000, no new funds are requested. Recaptures from prior year balances will be used to fund fiscal year 2000 Section 8 Amendment need.

3. Incremental Rental Assistance. For fiscal year 2000, the Department is requesting $243 million in budget authority to support a total of 42,000 incremental vouchers. This assistance will allow the Department to reduce the level of "worst case" need. The "worst case" need reflects those families that are paying more than 50 percent of their income toward rent or are living in substandard housing. Certificates and vouchers will also be used for the following in fiscal year 2000:
   • Family Unification Program. This program provides rental assistance to eligible families whose lack of adequate housing is a primary factor in the imminent placement or the delayed discharge of the family's child or children into or from out-of-home care.

   • Portability. Families receiving tenant-based assistance can move from the jurisdiction of the initial housing agency that issues the rental voucher or certificate to the jurisdiction of any receiving housing agency in the United States that administers the rental assistance program. The proposed funding would alleviate this regional imbalance; moreover, as the most popular locations often have superior job markets, this assistance would play a supporting role in self-sufficiency efforts.

   • Litigation. Approximately 2,000 units are required by the Department in fiscal year 2000 to meet the requirements of litigation settlements.

4. Welfare-to-Work Vouchers. For fiscal year 2000, the Department is requesting $144 million in budget authority to support 25,000 vouchers. These vouchers will be used to help families make the transition from welfare to work. The lack of affordable, stable housing, or housing located close to employment, impedes the efforts of families moving from welfare to work. These vouchers will provide States and communities with a new flexible tool to help families who need housing assistance in order to achieve self-sufficiency.

   The additional vouchers will be available on a competitive basis to the local housing agencies (including Tribally Designated Housing Entities.) Local housing agencies will submit an application plan, developed in consultation with State, local or Tribal welfare agency and the local Welfare-to-Work formula funds grantee (generally the local Private Industry Council), allowing both state and local participation in the effort. The vouchers will be used where they are essential to a successful transition from welfare to work, that is, where housing assistance is critical for a family to get or keep employment. For example, a family could use a welfare-to-work housing voucher to move to an area where there are more job opportunities, to reduce an extremely long commute, or to stabilize its housing situation in order to improve attendance and performance at work.

   Families who receive the vouchers must be initially eligible for or currently receiving Temporary Assistance for Needy Families (TANF) or have received TANF within the past 2 years. However, local agencies will have great flexibility to design and operate the welfare-to-work voucher program within broad national guidelines. For example, the agencies would propose whether to focus on particular groups of welfare recipients and how to structure the assistance to meet local needs. The application would request any waivers of administrative provisions that are needed to substantially further the objectives of the program. HUD will review and select the local plans after consultation with the Departments of Health and Human Services and the Labor. HUD will evaluate the impact of this program.

5. Homeless Vouchers. For fiscal year 2000, the Department is requesting $104 million for Section 8 Incremental Vouchers for permanent housing. This level of funding would support 18,000 vouchers. This assistance is for both disabled and non-disabled people leaving Continuum of Care transitional facilities and will address the need for additional permanent housing within or related to homeless assistance in general. Since 1987, competitive Supportive Housing Demonstration Program and Supportive Housing Program funds have supported the development or operation of nearly 110,000 beds of transitional housing for homeless families and individuals. On average, usage of those beds turn over every 6-9 months as people receive the services and housing they need to achieve independent living. Very frequently, although they are ready to graduate to permanent housing, affordable permanent housing is not available to them. These Section 8 Incremental Vouchers will offer them the resource they so desperately need to move into the housing mainstream at the point they are ready to do so.

6. Contract Administrators. The Administration will take further steps to improve the oversight of HUD's project-based program. The Department currently administers approximately 21,000 Section 8 Housing Assistance Payments (HAP) contracts executed between HUD and private owners of multifamily housing developments. These developments are financed by HUD-insured, HUD-held or direct loans. HUD staff currently perform a wide variety of duties relative to the subsidy contracts and the mortgages on these properties. Many of the duties performed by HUD staff could be performed by non-HUD personnel. These include conducting annual physical inspection, reviewing project financial statements, conducting management and occupancy reviews, reviewing management agents, reviewing insurance draws and releases from replacement reserves, reviewing owner verification of tenant income and eligibility, and pre-validating monthly subsidy payments. The Department plans to procure the services of contract administrators to assume many of these specific duties, in order to release HUD staff for those duties that only the government can perform and to increase accountability for subsidy payments.

   The Department would solicit for competitive proposals from eligible public agencies to assume these contract administration duties, with a portion of these funds available for a demonstration of administration public or non- public agencies. The solicitation would specify exact duties, performance measures, and the method of selection and award. The evaluation would be based upon the respondent's capabilities and proposed contract price.

7. Tenant-Based Programs

   PUBLIC AND INDIAN HOUSING

   a. Regional Opportunity Counseling. The Department is committed to increasing the housing opportunities available to low-income families. The Budget request includes $20 million to pay for special counseling conducted by public housing agencies in partnership with local non-profit agencies to expand housing opportunities and to de-concentrate the number of families living in high poverty neighborhoods. The program is authorized under the administrative fee provision, Section 8(q)(2)(A)(ii) of the United States Housing Act of 1937. It is estimated that this will fund 10-20 sites.

   Some of the results the Department expects to receive by providing intense regional opportunity counseling include: (1) expanding landlord participation in Section 8 and increasing the number and diversity of neighborhoods in which Section 8 recipients locate; (2) assisting and encouraging Section 8 families to move to low poverty neighborhoods that offer high quality housing, education, and employment opportunities; (3) addressing existing barriers to mobility and choice in the Section 8 program, including administrative barriers to portability; (4) promoting greater cooperation and joint problem-solving among Section 8 programs operating in a metropolitan housing market; and (5) creating or strengthening institutions which administer the Section 8 program on a regional basis, including the provision of regional mobility counseling.

   b. Family Self-Sufficiency (FSS) Coordinators. The Family Self-Sufficiency program was established by the National Affordable Housing Act (NAHA) in 1990. In support of the program, Congress mandated that any housing agency that received new funding for rental vouchers and/or certificates in fiscal year 1993 and October 21, 1998 would be required to establish a self-sufficiency program equal to the number of rental vouchers or certificates received.

   Since fiscal year 1993, Congress has appropriated funds to support approximately one service coordinator in each eligible PHA. Current funding supports approximately 530 FSS coordinators for a 1-year period. The HAs that received funding for FSS program coordinators were agencies that administered fewer than 1,500 rental vouchers and certificates.

   The Department is committed to administering the FSS program for families receiving assistance under the rental voucher and certificate programs and is including $25.1 million in the contract renewal budget authority request to allow the smallest housing agencies to hire FSS coordinators. Under the FSS program, families receive job training and employment that should lead to a decrease in their dependency on welfare programs and move towards economic self-sufficiency.

8. Tenant-Protection Set-asides

   HOUSING

   The Housing Certificate Fund will also serve a dual role of supporting families in FHA-insured, privately owned assisted housing projects affected by changes in project status. It is intended that eligible families who, through no fault of their own, are affected by HUD's management of the multifamily inventory be aided through the Housing Certificate Fund.

   The $134 million requested for fiscal year 2000 for Housing's Tenant-Protection will be used to provide funding for an estimated 27,000 Property Disposition, Opt Out/Termination and Portfolio Re-engineering protection requirements. The $22 million for Multifamily Enforcement will provide funding for additional costs for revised policies on eligibility and type of Tenant- Protections (enhanced vouchers, relocation assistance, etc.) available to impacted families.

LEGISLATIVE SAVINGS PROPOSALS

Over the past few years, the Administration and Congress have initiated efforts to slow Section 8 outlay growth. Actions have already been taken to reduce outlays by: (1) limiting Annual Adjustment Factor (AAF) on high-cost project-based units; (2) reducing the AAF for stayers; (3) eliminating the shopping incentive; (4) eliminating preferences for Section 8; (5) lowering PHA fees; (6) lowering Fair Market Rent (FMR) from 45th to 40th percentile; and (7) establishing minimum tenant rents. For fiscal year 2000, the Department's legislative proposals for additional savings are described below.

1. Occupancy Standards. The Department proposes to provide a lower rent subsidy for a new one-person voucher/certificate holder or a mover based on the cost of an efficiency apartment instead of a one-bedroom. This proposal is initiated for the portable tenant-based program. A person could still rent a one-bedroom by paying the difference. Fiscal year 2000 savings are expected to be $27 million from this proposal.

2. Income Verification. Savings may result from identifying tenants who under-report their incomes. But, more importantly, this income verification initiative will ensure that the right people are receiving the correct amount of income assistance for rental housing; and, that the project will correct a major internal control weakness, i.e., relative to overpayment of assistance. By not fully disclosing income received, tenants pay a smaller amount for rent and thus, require HUD to pay a larger portion. The Congress has authorized HUD to access the Social Security Administration and Internal Revenue Service data, under appropriate privacy safeguards, in order to verify assisted tenant incomes. In fiscal year 2000, HUD will implement a larger computer matching program. The Department requests appropriations language to facilitate further the income matching program. This includes extending the existing requirements for public housing residents to share an income mismatch letter with the public housing agency. The Department proposes to extend this language to owners responsible for determining the participants eligibility or level of benefits.

The Department is also seeking to eliminate the sharing of rental assistance from fraud recoveries with owners of project-based housing. This provision has been used infrequently and is no longer appropriate under the income matching program.

In addition, the Department is proposing the following administrative action:

Enforce Rent Reasonableness. The Department anticipates that its Section 8 Management Assessment program (SEMAP) rule will result in improvements in PHAs performance in carrying out their responsibility to ensure that Section 8 rents do not exceed comparable unassisted rents in the local market. Fiscal year 2000 savings are expected to be $30 million.

PERFORMANCE INDICATORS

Three indicators have been determined for the Housing Certificate Fund as indicated below:

Indicator #1 By fiscal year 2000, reduce the isolation of low-income groups within a community or geographic area by increasing the percentage of Section 8 families with children living in low-poverty census tracts.

Indicator #2

Increase the percentage of head of households with children who move from welfare to work while assisted by tenant-based Section 8 (pertains to non-elderly, non-disabled families).

Indicator #3