Revitalization of Severely Distressed Public Housing

PROGRAM HIGHLIGHTS

NA = Not Applicable

SUMMARY OF BUDGET REQUEST

1. SUMMARY OF BUDGET REQUEST

   The Department is requesting an appropriation of $625 million for the Severely Distressed Public Housing (HOPE VI) program in fiscal year 2000. These funds will be used for HOPE VI implementation grants, relocation/replacement units, and technical assistance. Funding will be used to assist Housing Authorities (HAs) to respond to significant unmet requirements of severely distressed public housing developments and to revitalize properties with high vacancy rates. In fiscal year 2000, the Department plans to approve for demolition an additional 10,000 obsolete units, and to fund 5,100 hard replacement units. The 2000 request also includes funding to provide 5,000 tenant-based rental assistance vouchers for units demolished using HOPE VI funds. Replacement vouchers for public housing units demolished with non-Hope VI funds (estimated at 5,000 vouchers) will be provided from the Housing Certificate Fund. To a large extent, replacement units will be incorporated in economically diverse neighborhoods in an effort to stimulate healthy and stable communities. The Department is committed to reversing the past patterns of isolation, and overconcentration of very low-income families. The requested funding of $625 million for fiscal year 2000 is expected to enable the Department to achieve the administration's goal of 100,000 units by fiscal year 2003.

   Consistent with Section 24 of the U.S. Housing Act of 1937, as amended, up to 2 percent of the requested appropriations will be used for technical assistance which will be provided directly or indirectly by grants, contracts, cooperative agreements or private oversight. Funds will be used for data collection, and to provide on-site management expertise to monitor HAs demolition and revitalization activities. The provision of such assistance, especially for the majority of HAs that are inexperienced with demolition, and the related redevelopment of new units, is critical to ensure that these activities are conducted in a timely manner in accordance with an established plan. The complexities of the program, and its national scope underscore the need for technical assistance funding. Up to $400,000 of the technical assistance funding will be used for travel expenses associated with program administration.

   The Department also is requesting to extend 24 CFR Part 58 of the environmental review process to the HOPE VI program, rather than continue using the 24 CFR Part 50 process. 24 CFR Part 50 requires that reviews be performed by HUD staff. Part 58 is now used for all other public housing programs, and authorizes the Department to have local governments prepare the environmental reviews subject to HUD concurrence. The request proposes that the authorization to use 24 CFR Part 58 for HOPE VI be extended to all prior grants, as well as those to be awarded in fiscal year 2000.

2. CHANGES FROM 1998 ESTIMATES INCLUDED IN 1999 BUDGET

   Actual obligations in fiscal year 1998 were approximately $30 million less than the total funds available. Fiscal year 1998 outlays were $237 million which is $168 million less than estimated in the fiscal year 1999 Budget. The decrease in outlays is attributed to the slow progress made by some of the grantees during the early years of the program, i.e., fiscal years 1993 through 1995.

3. CHANGES FROM 1999 ESTIMATES INCLUDED IN 1999 BUDGET

   Carryover funding in the amount of $29.9 million will be used in fiscal year 1999 to increase HOPE VI grant awards, demolition grants, and rental assistance. Fiscal year 1999 outlays are estimated to be $517 million.

EXPLANATION OF INCREASES AND DECREASES

The fiscal year 2000 request of $625 million is the same amount appropriated for fiscal year 1999. Outlays are expected to increase in fiscal year 2000 to $588 million, reflecting the increased spendout of the obligations in the growing pipeline.

FUNDING ACTIVITY

In fiscal year 1998, a total of $507 million in highly competitive HOPE VI grants was awarded to 22 cities. These awards are expected to support the demolition of 10,407 units of obsolete public housing, 5,627 hard-replacement units through new construction; and the major rehabilitation of 1,161 obsolete public housing units. Of the 10,407 units to be demolished, about 7,000 are occupied units of severely distressed public housing, and 3,407 are vacant units in extremely poor condition. The $507 million investment is expected to help generate a record $1.15 billion in additional investment in housing and jobs programs at public housing developments, including $854.1 million in private funds and $300.2 million in other government funds. This additional investment will fund 5,275 units of affordable and market-rate housing to compliment the HOPE VI replacement housing.

The Department also awarded $57.4 million to support 50 demolition-only grants which are expected to remove 11,223 severely distressed units.

PROGRAM DESCRIPTION

The HOPE VI program was created for the purpose of revitalizing severely distressed or obsolete public housing developments. This program has been a principal element of the Department's efforts to revamp public housing rules in order to achieve efficient development, sound management, good design, and strong incentives for resident responsibility and self-sufficiency.

Funded through appropriations from fiscal years 1993 through 1998, the HOPE VI program is now authorized by the recently enacted Quality Housing and Work Responsibility Act of 1998. Since 1993, this program has been used to convert overly concentrated family developments, often high-rise buildings, into safe and respectable communities. The Department works with HAs to promote leveraging of program funds with other resources such as low-income tax credits, and bond financing. In addition, HAs are encouraged to work in partnership with experienced public and private sector developers to create privately owned, economically integrated developments that include public housing. Because of the mix of income levels and the private investment made in these leveraged transactions, the public housing components benefit from market incentives that promote good maintenance and management.

All program applicants are required to demonstrate a feasible, coherent, realistic strategy for helping residents become wage earners. Each grantee, including all implementation grantees since program inception in fiscal year 1993, have been required to develop a plan to implement local welfare reform objectives and programs. Approximately 12 percent of funds awarded to fiscal years 1993 through 1995 grantees was budgeted for community service and self-sufficiency activities. In addition, many grantees contracted with resident-owned businesses to further promote self-sufficiency. Several HAs have negotiated agreements with construction trade unions so that residents receiving job training in construction work can qualify for union apprenticeships after a predetermined number of months of work experience.

The HOPE VI program is also designed to foster innovative and comprehensive approaches to the problems of severely distressed public housing developments and their residents, including new ways for HAs and the Department to work together in collaboration with residents. HOPE VI grants are targeted toward public housing projects that require either demolition, replacement, major redesign or reconstruction to correct major deficiencies, including high population density, deferred maintenance, physical deterioration or obsolescence. In addition, they are directed towards projects occupied predominately by families with children who are at risk (due to unemployment, teenage pregnancy, single-parent households, long-term dependency on public assistance and minimal education) in areas with substantial criminal activity and vandalism, and projects with vacancy rates of 50 percent or more that other programs, such as traditional modernization, cannot remedy.

From fiscal years 1993 through 1998, a total of 104 HOPE VI implementation grants were awarded. Since 1996, the average grant size for projects funded has dropped significantly due to a stronger emphasis on leveraging HOPE VI funds with other sources of funding and cost controls. The approximate $2.9 billion approved for these implementation grants was used to leverage an additional $3.4 billion in non-HOPE VI funding. Through leveraged financing during the aforementioned 6-year period, over 33,000 revitalized public housing units will be augmented by an additional 15,404 affordable and market-rate units. Of the 48,413 units funded or leveraged to date, 7,290 were homeownership. This is expected to make a significant contribution to the creation of true mixed-income communities. Eighty-five of the 104 HOPE VI sites are implementing mixed-income developments.

A required program element is the provision of effective, targeted self-sufficiency initiatives so that public housing can regain its role as a stable platform for poor families who are determined to improve their status. Working closely with HOPE VI grantees, the Department will emphasize resident responsibility as well as community and supportive services in order to meet the social and economic needs of the residents and the surrounding communities. For many cities, this program inspires both the residents and the neighbors by providing an opportunity to redress the problems of one or more severely distressed public housing sites and to transform entire communities.

The Department approved the demolition of approximately 76,000 obsolete and distressed units between 1993 and 1998 and is committed to approving at least 100,000 demolitions by the end of fiscal year 2000 with actual demolitions to be completed by 2003. Of the total, it is expected that the HOPE VI program will fund or facilitate a substantial portion of these demolitions. Many families are being rehoused with Section 8 certificates and vouchers, enabling them to choose their housing circumstances, but hard-unit replacements are also necessary. In many cities, hard unit replacement is an essential component of cultivating the requisite community consensus to demolish buildings which may presently be occupied.

The replacements indicated in the above chart include both hard and soft units. Of the total demolitions expected to be approved for fiscal years 1998 through 2000, the following are attributed to the HOPE VI program: fiscal year 1998--8,000; fiscal year 1999--8,000, and fiscal year 2000�8,300. During this same 3-year period, the HOPE VI program is expected to fund the demolition of 61,630 units, including a substantial number pursuant to the Section 202 mandatory conversion program.

FISCAL YEAR 2000 PERFORMANCE MEASURES

1. Indicator: Increase percentage of HOPE VI grants that are on-schedule to accomplish revitalization of distressed public housing.

1. Baseline: The percentage of grants on-schedule is expected to show an incremental increase from 90 percent in fiscal year 1998 to 93 percent in fiscal year 2000.

2. Goals:

2. Indicator: Approve 100,000 replacement units by fiscal year 2000.

1. Baseline: The baseline through the end of fiscal year 1997 is 62,096 replacement units. Between fiscal years 1998 through 2000, 38,540 units will be approved for replacement.

2. Goals:
   

3. Comments: Replacement units are funded through the Section 8 and HOPE VI programs. It is estimated that 55,900 units will be replaced with Section 8, and the remaining 44,736 with "hard" units through HOPE VI, and other public housing capital funding.

   The projection for hard unit replacements was increased from 3,500 to 5,627 for fiscal year 1998, 5,500 in fiscal years 1999, and 5,100 in fiscal year 2000 based on revised average per unit grant awards for fiscal year 1998.