a/ Beginning in fiscal year 1998, the estimate for HA-owned units under management excludes Indian units.
b/ Beginning in fiscal year 1998, the estimate for HA-owned units under management reflects funds received in 1997 from the Justice Department pursuant to a law suit settlement under the False Claims Act.
c/ Represents outlays from 1997 obligations of the "Preserving Existing Housing Investment" account, as well as pre-1997 obligations of the "Payment for Operation of Low-Income Housing" account.
SUMMARY OF BUDGET ESTIMATES
1.SUMMARY OF BUDGET REQUEST
The fiscal year 1999 Budget proposes an appropriation of $2.8 billion for the Public Housing Operating Fund. The 1999 request does not include any funds for Indian Housing Authorities (IHAs). Beginning in fiscal year 1998, funds for that purpose are provided through the Native American Housing Block Grants program. The $2.8 billion request combined with $113.4 million of anticipated carryover into fiscal year 1999 will provide total funds available of $2,931 million for 1999.
The Public Housing Operating Fund will provide operating subsidy payments, as determined by the Performance Funding System (PFS), to approximately 3,200 Housing Authorities (HAs) with a total of 1,252,575 units under management. The PFS determines the level of funding necessary to enable HAs to provide a reasonable level of services, including maintenance, utilities, and protective services to residents. The requested level of funding will allow HAs to provide decent, safe, and sanitary housing for lower-income families as required by the United States Housing Act of 1937. Also incorporated in the fiscal year 1999 Public Housing Operating Fund are proposals for a disregard of earned income for certain newly employed workers, and a
$25 minimum rent. In 1999, the Department projects that HAs will receive the full 100 percent of their PFS subsidy eligibility which, on average, represents 60 percent of the total operating expenses of HAs.
In fiscal year 1999, the Department continues the transformation of public housing through Management 2020 by pursuing administrative, regulatory and legislative changes that will: (1) remove and replace the worst public housing; (2) turn around troubled PHAs and improve all aspects of PHA management; (3) promote public housing communities with a greater income diversity and allow PHAs to implement rent policies that encourage and reward work, and are coordinated upon welfare reform; (4) demand greater household responsibility as a condition of housing assistance through more vigorous screening, eviction, and lease enforcement provisions; and, critically, (5) implement the Administration's key management reforms in order to increase the Department�s capacity and PHAs� ability to ensure excellence and accountability in PHA management. Important provisions for management reform include program consolidation and streamlining, deregulation of well-managed PHAs, an improved performance assessment system for PHAs that includes increased reliance on assessments of physical conditions, and more certain treatment of the most troubled PHAs.
The transformation of public housing is well underway. In recent years, this transformation has focused on the largest and most troubled HAs in the country, where swift and decisive action has occurred to correct chronic management and operational deficiencies. Tougher expectations that hold public housing residents accountable for their actions are also being implemented through the Administration's "One Strike and You're Out" initiative. Under this initiative, HAs are being encouraged to design policies on screening and eviction to eliminate individuals with records of illegal drug-related or criminal activity. Some HAs are already effectively screening and evicting drug dealers and other criminals from public housing. The Department is also aggressively moving to demolish older high-density public housing that has become unlivable, and replace it with smaller-scale, economically integrated public housing that will be architecturally appealing, and will serve as an anchor for neighborhoods and community renewal.
The Operating Fund will strengthen the transformation of public housing in fiscal year 1999. The 1999 request integrates the public housing demolitions that continue across the country as part of this transformation strategy. Demolitions decrease the number of units funded under the PFS formula resulting in a decrease in the requirements on which the annual subsidies are based. It is currently estimated that 15,000 units will be approved for demolition in fiscal years 1998 and 1999 respectively. This aggressive action to transform America's public housing will continue into fiscal year 2000, at which point 100,000 units of unlivable public housing will have been approved for demolition over an 8-year period. Residents displaced by these demolitions will be relocated in other public or subsidized housing or receive Section 8 tenant-based rental assistance to relocate elsewhere. It is projected that all demolished public housing would be replaced with either low-density units or vouchers.
To facilitate the replacement of obsolete public housing, the Department implemented a regulatory change which adds a provision to the PFS to provide a short transition funding period for some HAs that received approval to demolish units. This change encourages and supports efforts by an HA to reduce its overhead costs in a planned and orderly manner when its inventories of units are reduced by demolition and parallels a similar statutory requirement for Section 14 of the US Housing Act of 1937 (modernization) funding. The provision provides a one year phase out of transitional funds for units unoccupied for 12 months prior to demolition and a three year phase out for units that had been occupied within 12 months of approval. Units that are replaced by Section 8 certificates or vouchers will not be eligible for transition funding. The cost of this regulatory change is $24.9 million in fiscal year 1999. As a result of demolitions since 1994, operating subsidy requirements are $68 million lower in fiscal year 1998 and $114 million lower in fiscal year 1999.
Operating subsidies, even in the case of the best-managed HAs, will continue to be essential for the foreseeable future, though HA reliance on subsidies may decrease somewhat if HAs can increase the average income level of families in public housing. Reports indicate that this has occurred to a limited degree in the past 2 years. The Department continues to work with Congress on the enactment of permanent legislation that would replace Federal preferences with local preferences for tenant selection, while still targeting resources on those with substantial housing needs. This will give HAs at the local level more ability to attract working families into public housing developments. Other key reform legislation includes permanent enactment of public housing ceiling rent changes. Allowing HAs more control in setting a reasonable "cost floor" for ceiling rents is vital to attracting and retaining working families in public housing. Currently, HAs cannot set the cost floor below 100 percent of operating costs.
It is essential to give HAs the tools they need in order to continue to provide public housing, while at the same time promoting economies in operating subsidies. The Department believes that the steps it has taken and is proposing to achieve measured deregulation in the areas of demolition, tenant selection and rental charges will result in operating subsidy savings if HAs are given the resources necessary to effectively manage their developments.
2. CHANGES FROM 1997 ESTIMATES INCLUDED IN 1998 BUDGET
A comparison of fiscal year 1997 actual data with estimates included in the fiscal year 1998 Budget follows:
FISCAL YEAR 1997
There were 1,372,260 units under management by HAs at the end of fiscal year 1997. This is 50 more units under management than had been projected for fiscal year 1997 in the 1998 Budget.
The obligations during fiscal year 1997 were $109.9 million less than initially estimated in the 1998 budget, due to a 3 percent increase in tenant rental incomes in fiscal year 1997.
The outlays during fiscal year 1997 were $106.6 million less than initially estimated in the 1998 Budget. This decrease is mainly attributed to a 3 percent increase in tenant rental incomes in fiscal year 1997.
It was originally estimated that the fiscal year 1997 appropriation of $2.9 billion would fund 95 percent of PFS requirements. Actual 1997 operating subsidy requirements were
$113.4 million lower than initially estimated, primarily due to higher tenant income. The fiscal year 1997 appropriation will be adjusted to 99 percent and these funds will be obligated during fiscal year 1998.
3. CHANGES FROM 1998 BUDGET ESTIMATES
The proration of HA eligibility, based on the $2.9 billion enacted for fiscal year 1998, is estimated to be 100 percent.
Fiscal year 1998 available funding includes $113.4 million carried over from fiscal year 1997. Fiscal year 1998 outlays for operating subsidies are currently estimated to increase by $189.6 million. It is currently anticipated that $113.4 million will be carried forward into 1999 for use in that year.
EXPLANATION OF INCREASES AND DECREASES
Fiscal year 1999 outlays of $2.86 billion for represent the spend out of prior year obligated balances as well as disbursements from 1999 budget authority of $2.8 billion.
The following table compares the principle factors comprising the fiscal year 1998 estimated available budget authority to those estimated for fiscal year 1999.
As shown in the table, the fiscal year 1999 Budget proposes an appropriation of $2.8 billion for the Public Housing Operating Fund, which is $82 million less than the amount appropriated for fiscal year 1998. It is expected that $113.4 million in 1998 funds will remain available at the end of fiscal year 1998, after funding PFS eligibility at 100 percent. The $113.4 million in 1998 carryover funds, combined with the $2.8 billion request for fiscal year 1999, will provide $2.931 billion, which the Department projects will fund PFS eligibility at 100 percent.
It was originally estimated that the fiscal year 1997 appropriation of $2.9 billion would fund 95 percent of PFS requirements. Actual fiscal year 1997 operating subsidy requirements were
$113.4 million lower than estimated, primarily due to higher tenant income. The fiscal year 1997 proration will be adjusted to 99 percent and these funds will be obligated during fiscal year 1998.
Specific factors effecting the fiscal year 1999 operating subsidy estimates are:
1. Economic Assumptions. The fiscal year 1999 estimates reflect the most recent assumptions about inflation and assume a 2.2 percent increase in non-utility costs and a 1.5 percent decrease in utility rates. Increases in tenant income are reflected separately under "Change in Rental Income/Income Targeting." The calculation of individual HA subsidy requirements includes the use of an inflation factor which is a weighted average percentage increase in local government wages and salaries for the area in which the HA is located and non-wage expenses.
2. Adjustments to Operating Subsidy Requirements. The fiscal year 1999 estimate reflects adjustments in operating subsidy requirements for various HA income and expense factors based on both existing and anticipated legislation, procedures and regulations affecting tenant rent payments and HA operating costs. These adjustments reflect the following factors.
a. Energy Incentives. The estimate reflects additional operating subsidies above the current allowable utilities expense level to encourage HAs to pursue more advantageous purchasing arrangements and to use private financing for energy improvements pursuant to Section 118 of the 1987 Housing and Community Development (HCD) Act.
b. Non-Dwelling Units. The estimate reflects additional operating subsidies for the cost of funding for units removed from the dwelling rental inventory for non-dwelling use to support resident economic self-sufficiency and anti-drug programs.
c. Family Self-Sufficiency (FSS). The estimate for Family Self-Sufficiency (Section 554 of the Cranston-Gonzalez National Affordable Housing Act), includes the salary/benefit cost associated with a full-time service coordinator for each FSS project. The estimated cost also includes the subsidy of one non-dwelling unit for each FSS project for the provision of supportive services.
d. Transition Funding for Some Demolitions. The Department has published a regulatory change which adds a provision to the PFS to provide a short transition period of funding for HAs that have received approval to demolish units, and have not received replacement Section 8 certificates or vouchers. The purpose of the change is to encourage and support efforts by HAs to reduce overhead costs in a planned and orderly manner when the inventories of units are reduced by demolition.
e. Utility Consumption. The estimate of utility expenses reflects regulations that require the use of a "rolling-base" consumption level consisting of average consumption levels for the most recent 3-year period. This includes energy saving improvements funded from the Modernization program portion of the Public Housing Capital Fund, which will continue to decrease subsidy requirements for utility expenses.
f. Change In Rental Income/Income Targeting. The Department estimates savings from higher income tenants that will result from increases in tenant incomes as well as the anticipated permanent enactment of the repeal of Federal preferences for admission to public housing. Another reform measure anticipated to be enacted permanently and result in savings is the establishment of ceiling rents. Federal preferences will be replaced by locally determined preferences, which may include the admission of more working poor families. Through these mechanisms, HAs may increase income diversity in public housing.
g. Earned-Income Disregard. This legislative proposal will assist families in public housing in making the transition from welfare to work by barring against any increase in rent for public housing households for 18 months, as a result of the employment of a family member who was previously unemployed for 1 or more years. Any rent increases due to the continued employment of a family member would be phased in over a 3-year period after the 18 month moratorium.
h. Minimum Rents. HUD�s legislative proposals would require that families occupying public housing and Section 8 units pay minimum rents of $25 per month, with HUD or PHA authority to require specific hardship exemptions. This is a change from current law, which permits PHAs to establish rents up to $50 per month, through fiscal year 1998. Setting the minimum rent at $25 per month is sufficient to make the symbolic point that each family in assisted housing should make some contribution to support operation of their unit. However, minimum rents above $25 per month may pose a genuine economic hardship to families who, for whatever reason, have no significant income. HUD would protect these families by prohibiting minimum rents above $25 per month, and allowing PHAs, as well as the Department, to establish hardship exemptions, including exemptions for entire classes of people.
PROGRAM DESCRIPTION
Operating subsidies are provided to HAs to assist in funding the operating and maintenance expenses of their owned dwellings in accordance with Section 9 of the United States Housing Act of 1937, as amended. Annual subsidy requirements are calculated on the basis of the PFS formula which takes into account what it would cost a comparable well-managed HA to operate its units. Requirements are calculated separately for certain "non-PFS" areas (i.e., Alaska, Guam, Puerto Rico and the Virgin Islands) and HA-owned Homeownership projects due to their unique operating characteristics. The non-PFS HAs are treated individually because the PFS formula was not designed to apply to their economic markets.
Non-utility operating costs for each HA are based on what it would cost a well-managed HA of comparable location and characteristics to operate based on a PFS equation, including such variables as the local government wage rate index, ratio of three or more bedroom units to total dwelling units, and the ratio of two or more bedroom units in high rise family projects to total dwelling units. These cost levels are updated annually based on inflation and changes in the HA characteristics included in the equation. Utility expenses are estimated separately based on rules that set consumption at the average of a prior 3-year period ("rolling-base") and changes in utility rates.
FISCAL YEAR 1999 PERFORMANCE MEASURES
Performance Assessment Overview
Through fiscal year 1998, the Department has evaluated PHA management through the Public Housing Management Assessment Program (PHMAP). PHMAP, developed in accordance with section 502 of the Cranston-Gonzalez National Affordable Housing Act, identifies HA management capabilities and deficiencies and provides non-monetary incentives to high-performing HAs. It is used by the Department as a tool to rate HAs' performance and to gauge HAs' progress toward key Federal program objectives. Under PHMAP, HUD evaluates a HA's performance in the following areas: vacancy rate and unit turnaround; modernization; rents uncollected; work orders; annual inspection of units and systems; financial management; resident services and community building; and security. These performance measures will be used to rate all HAs at least annually as well as to determine which agencies are troubled or at risk of being troubled.
HUD defines an HA as "troubled" if it scores less than 60 out of a possible 100 under the PHMAP management evaluation system. Troubled agencies would have a maximum period of time in which to show steady improvement to avoid a declaration of breach or default and installation of an alternate administrator. In 1992, the number of troubled agencies appeared almost unmanageable. But, HUD has reduced the troubled agencies to a manageable number and confronted the remaining ones in sequence, starting with the worst. Among the 40 largest housing authorities, 9 remain classified as "troubled." HUD has an intensive recovery partnership in place for each one.
As part of the Department� overall management reform effort, a new system for assessing PHA performance is under development in 1998. This system will retain the best elements of PHMAP, while incorporating other important indices of management performance, such as increased emphasis on physical conditions. This improved assessment system will be implemented in fiscal year 1999.
Performance Measures
The four performance measures are as follows:
1. */ For PHMAP, improve HA numbers in each performance category:
- Increase number of PHAs passing with distinction
- Increase/ maintain number of PHAs passing
- Decrease the number of PHAs failing
2. */Improve average PHMAP score to 88.5% by FY 2000
3. Increase the percentage of families with children residing in public housing deriving most of their income from work (pertains to non-elderly, non-disabled families).
4. Increase the percentage of families with children who move from welfare to work while residing in Public Housing (pertains to non-elderly, non-elderly, non-disable families).
Baseline
*/ As part of the Department�s management reform effort, assesment methodology for PHA�s is undergoing substantial revision in fiscal year 1998. New baseline data will be available after fiscal year 1999, at which time the fiscal year 2000 goal will be established.
NA - Not Applicable
TBD - To Be Determined
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