Chairman Schumer, Ranking Member Crapo, thank you for the opportunity to share the U.S. Department of Housing and Urban Development's (HUD) views on S. 2684, the Section 8 Voucher Reform Act.

The Housing Choice Voucher program is HUD's largest program - currently, two million families receive voucher assistance to rent decent, safe, and sanitary housing on the privately owned rental market through a national network of 2,400 public housing agencies (PHAs). With annual funding of $17 billion dollars, the Voucher program accounts for over half of HUD's entire budget. As a result, the future of the housing choice voucher program is of critical importance to HUD and to our mission of helping very low-income Americans with their housing needs.

The Housing Choice Voucher program has helped millions of low-income American families over the past several decades. The challenge before us now is to strengthen and reform the Voucher program so that it may serve millions more in the decades ahead. As the Committee is aware, the Administration submitted a legislative proposal in July, 2007 entitled "The Voucher and Rent Simplification Act of 2007" (VRSA) to meet this challenge.

Housing Choice Voucher Reforms
To meet that challenge we need a Housing Choice Voucher program that encourages and reward families that are working toward the goal of economic self-sufficiency, and for disabled and elderly to live as independently as possible. To accomplish this objective, the program needs a sustainable funding structure and operational authority that allow PHAs the flexibility to tailor it to local needs. Further, we need income and rent formulas that are straight-forward and easy to understand by both program administrators and families alike. We need a simpler and transparent program that will allow HUD and PHAs to focus resources on expanding housing opportunities and self-sufficiency services to families, rather than concentrating the bulk of our efforts on compliance and enforcement of cumbersome and complex statutes, rules, and regulations.

PHAs need much greater administrative flexibility to tailor the voucher program to meet the needs and priorities of their individual communities. The most pressing challenges faced by a PHA administering the voucher program in Waterloo, Iowa, for instance, are vastly different than those in New York City or New Orleans. Yet we persist with a one-size-fits-all approach in key components of the program.

Finally, despite lengthy waiting lists for voucher assistance across the country, far too much voucher funding simply goes unused each year. The main reason for this unacceptable situation is two-fold. First, Congress continues to impose a cap on the number of units a PHA is allowed to place under lease during the calendar year, regardless of whether a PHA has sufficient funding to assist additional families. Second, the formula by which the PHA's voucher funding is renewed each year has been constantly changing from one Appropriations Act to the next. This inconsistency and uncertainty leads to PHAs taking a very cautious and conservative approach with their funding dollars as a hedge against potential decreases in future renewal funding.

Views on S. 2684
The housing choice voucher program cries out for legislative reform. Unfortunately, while S. 2684 does contain a number of provisions that HUD would support, our overall assessment is that the enactment of the bill in its current form would ultimately result in a more complicated and less effective program than we have today. For example, under S. 2684 an individual PHA's funding from year to year is impacted on the spending decisions of other PHAs; income calculations remain overly complex and error-prone; there is little additional flexibility for PHAs over critical areas such as income and rent determinations to make the program more responsive and effective in meeting the needs and priorities of local communities; the roles and responsibilities of PHAs and owners are blurred; and the bill includes several provisions that will have a chilling effect on owners' willingness to participate, inadvertently reduce housing opportunities for the families the housing choice voucher program serves.

Funding Renewal Structure
HUD strongly opposes the provision in S. 2684 that provides voucher renewal funding on a unit-based methodology. The formula provides that funding will be based on actual leasing and costs for the preceding calendar year, as adjusted by an annual adjustment factor. This unit-based methodology, often viewed as an entitlement-type funding model, provides no incentive for PHAs to manage program expenditures, control per-unit costs, and maximize assistance to needy families. The voucher program should not return to a flawed funding methodology which led to spiraling and unsustainable per unit cost increases just a few short years ago. Instead, the voucher program needs a permanent renewal funding formula that is budget-based and will successfully control costs and provided stability to the renewal process without a loss of assistance to existing families.

The unit-based funding system put forth in S. 2684 is further flawed in that it encourages PHAs to increase program costs unnecessarily simply in order to claim a larger share of the subsequent year's appropriations. Under S. 2684, PHAs that spend more per unit in a given year will get more the next year at the expense of those PHAs that control or reduce per-unit costs to serve additional families. Moreover, this unfair dependence on the spending decisions of all the other PHAs makes it difficult for a PHA to plan or manage its program beyond the current calendar year. It also creates difficulty for HUD and Congress to properly forecast the budgetary needs of the voucher program for future year appropriations, increasing the likelihood of significant decreases in funding from one year to the next due to the need to pro-rate appropriated funding.

It is crucial that we look back at the recent history of the voucher program when considering the right approach to crafting a permanent renewal authority. As noted earlier, just a few years ago Congress was forced to supersede the unit-based regulatory renewal methodology and impose a budget-based renewal formula in the Appropriations Acts in order to halt the rapidly escalating and unsustainable increases in voucher program costs. The voucher renewal methodology set forth in S. 2684 would ultimately return us to those spiraling per-unit cost increases in the voucher program. Such a result would require either substantial pro-rated reductions in individual PHA voucher funding allocations (necessitating the termination of assistance for some participating families) or absorption by the voucher program of a disproportionate share of the HUD budget at the expense of other critical HUD programs and activities.

VRSA, by contrast provides for a renewal funding methodology that is budget-based, but provides for re-benchmarking based on actual leasing and costs every three years to reflect changes in market conditions. In the intervening years, the PHA budget will be adjusted by an inflation factor. This provides transparency and predictability to the renewal funding formula, allowing PHAs to appropriately manage the program beyond the calendar year.

Rent Reform
HUD believes that simplification of tenant income and rent calculations is desperately needed to ensure fairness and transparency in not only the voucher program but also public housing. The current system is staggeringly complex and cries out for reform. However, while the bill makes minor adjustments to the existing rent guidelines (not just in the voucher program but also to public housing and other Section 8 programs), it does not fundamentally alter the convoluted and complicated rent and income rules. In fact, rather than simplifying the calculations, the bill makes the system even more complicated, thereby increasing the risk of improper payments and inaccurate family share contributions.

The bill's primary failing with regard to rent and income is that it does not address one of the most glaring problems with the current system, which is that a one-size-fits-all approach cannot be responsive to all the different individual concerns, priorities, and market conditions of thousands of individual local communities. True reform of the rent determination system must: (1) reduce PHAs' administrative burden; (2) provide PHAs with the necessary flexibility to control tenant rents to properly address the needs and priorities of their communities; (3) increase the incentives to work for able adults; and (4) help eliminate improper payments that occur due to difficulties in determining the proper incomes and rents for participating families. Finally, the income and rent changes contemplated by the bill are not cost neutral, and the resulting higher per-unit costs will ultimately reduce the number of families the program will be able to serve.

VRSA provides PHAs the flexibility to choose among several different rent structures which may include flat rents that are not directly tied to income; income-based rents; income-tiered rents or rents that are determined in accordance with today's requirements.

Housing Quality Standards
HUD supports the concept of reducing the frequency of housing quality standards (HQS) inspections put forth in S. 2684, as such a change would allow the PHA to concentrate its resources on its higher-risk properties or economic self-sufficiency efforts. However, the bill would also permit the PHA to use abated housing assistance payments resulting from owner HQS violations to make repairs directly to the owner's property. This blurs the respective roles and responsibilities of the owner and PHA. Furthermore, it is likely to discourage owner participation in the voucher program, as many owners will be reluctant to participate in a program that allows the PHA to unilaterally, without any hearing or appeal process, perform work or contract for work to be done on the rental property without the owner's permission. In addition, there may be significant liability concerns for both parties as a result of such work.

Using Rental Assistance for Other Uses
HUD also opposes the provision in S. 2684 that allows the agency to use rental assistance funds to pay the owner's utilities as this once again muddies the respective roles of the PHA and the owner. The PHA is not the owner of the unit or a party to the lease and should not assume the owner's responsibilities for that unit. If the owner fails to pay for utilities for his property, the role of the PHA should continue to be one of enforcing the provisions of the HAP contract, not assuming property management functions of the owner.

In addition, the bill requires the PHA to provide the tenant at least 120 days to remain in the unit from the start of an abatement of assistance payments due to HQS violations. This would be an unreasonable period of time to allow a family to remain in a dangerous unit with life-threatening deficiencies, and that the appropriate length of time before a family is required to move in such instances should not be mandated by Federal law. Instead, the program should continue to rely on the administering PHA's judgment and expertise over this issue.

The bill further provides that abated housing assistance payments may be used for repair costs and relocation expenses. HUD opposes using housing assistance payments for anything other than providing rental assistance to owners on behalf of families. Diverting the assistance to other uses ultimately reduces the number of families that receive housing assistance under the voucher program.

Fair Market Rents
FMRs are a key indicator for both the voucher program and other Federal housing programs. S. 2684 requires HUD to radically alter the manner in which Fair Market Rent (FMR) areas are determined and we have significant concerns about the unintended and potentially undesirable consequences with this part of the bill. These concerns are as follows:

1. Proposed FMR areas are not fully specified, leaving HUD at a loss as to how to interpret congressional intent;
   
   
2. The implied expectations that FMR areas can be re-defined on a timely on-going basis are unrealistic;
   
   
3. The data necessary for changes in FMR areas in response to public requests are not as available or as robust as is being assumed;
   
   
4. As drafted, the changes in FMR area definitions would have wide ranging
   consequences for many other HUD and non-HUD programs throughout the
   Federal Government including the Low-Income Housing Tax Credit because
   HUD's area median income estimate and income limit areas are the same as
   FMR areas except as required by statute; and
   
   
5. Staff at HUD and at Census would have to be increased significantly to timely implement the provisions related to FMR areas.

PHA Performance Standards
The provision in S.2684 concerning how to assess PHA performance is also problematic. As provided in VRSA, PHA performance assessment should focus on major core elements (physical condition of unit, utilization of funds, PHA reporting, financial condition of the PHA) in statute. Additional standards and performance assessment indicators that measure PHA performance would be promulgated in regulation.

Conversion to Project-Based Assistance
There are a number of provisions in S. 2684 regarding project-based vouchers that greatly concern HUD. The bill increases the percentage of voucher funding that may be available for project-basing. The housing choice voucher program is fundamentally a tenant-based program that allows families to choose the unit where the family wishes to reside. Tying more units to specific projects provides fewer families with the ability upon receiving a voucher to choose where they want to live or to move closer to job or educational opportunities.

The bill also adds a new provision to allow project-based assistance to be attached to an existing, newly constructed, or rehabilitated structure without following a competitive process. Competition among owners and developers for project-based assistance is in the public interest. Furthermore, the bill increases the proportion of units in any building that may be project-based. One of the benefits of the tenant-based voucher program is that it avoids the concentration of subsidized families in a particular building. The project-based voucher program recognizes the importance of avoiding clustering voucher families in a particular building and believes that the current standards should be maintained.

The bill also provides that project-based vouchers may be provided instead of enhanced vouchers for certain Housing Conversion Actions. HUD is concerned that this type of project-based voucher contract would not be restricted by the 20 percent limitation on voucher funds for project-based vouchers. This may result in a disproportionate share of tenant-based renewal funding going to support project-based preservation voucher assistance. In addition, impacted families would no longer have the opportunity to move immediately from the project with tenant-based assistance, as is the case now following a Housing Conversion Action.

We also oppose the S. 2684 provision that would allow a PHA to voluntarily transfer a portion of its vouchers and corresponding budget authority to be used as project-based assistance by other PHAs in the same or contiguous metropolitan statistical areas. Allowing such voluntary transfers to accommodate project-based efforts in other PHA jurisdictions is unfair to the families on the donating PHA waiting list, as the family's wait for housing assistance will be prolonged and they will not benefit from the project-based efforts by another PHA elsewhere in the metropolitan area or an adjacent metropolitan area.

Family Eligibility and Screening
With respect to family eligibility, HUD supports including the consideration of applicants' assets in determining eligibility. However, the bill's reliance on family self-certification calls in to question the provision's effectiveness. Also, in regard to the exceptions to the prohibition of assistance to families that own residential property, the bill as written would exempt families that are landlords (who typically do not have a legal right to reside in property they have leased to another party), which seems at odds with the intent to ensure that limited voucher assistance is going to those families that truly need help.

S. 2684 contains a provision that limits the PHA's ability to screen families to criteria that are directly related to an applicant's ability to fulfill the obligations under the lease. We are uncertain as to the underlying problem the provision is attempting to remedy and are concerned it may inadvertently or purposefully weaken or remove existing grounds to deny admission (e.g., failure to sign consent forms, failure to submit evidence of citizenship or legal non-citizen status, family in the past received other housing assistance at the same time as voucher assistance, etc.).

HUD also objects to the provision in S. 2684 that would prohibit the PHA from applying its admissions standards to families that may be eligible for enhanced vouchers due to a Housing Conversion Action. This may require PHAs to admit families that are registered sex offenders or drug-related or violent criminals. PHAs should not be required to assist such families simply because the Multifamily Housing owner may have done a poor job with background checks and criminal screening or enforcement of the lease.

Reporting Requirements
S. 2684 requires HUD to provide Congress and PHAs with an annual report on rent burdens and to submit an annual report on the degree to which families of particular race and ethnic groups assisted in each metropolitan area are clustered in high poverty areas, and the extent to which greater geographic distribution of such assisted families could be achieved, which includes increasing payment standards for particular communities with such metropolitan areas. To produce a report with specific determinations for each metropolitan area (as provided by the bill) will be costly and Congress will also need to authorize and appropriate funding to support this report if the requirement is enacted into law.

Rent Reasonableness
The section on rent burdens also contains a provision that would exempt tax credit units from the rent reasonableness requirement that the rent to owner may not exceed rents for comparable unassisted units. HUD opposes this provision as voucher program funds should not be used to support unreasonable rents, regardless of whether the unit is receiving tax credits.

The bill adds six new actions PHAs may take so that HUD may not deny a PHA's request to set a payment standard up to 120 percent of the FMR. HUD opposes this provision because HUD should have the authority to decide increases in the payment standard of the current basic range in a unit-based renewal system, since any exception payment standard and the resulting increased cost will impact the share of renewal funding for all PHAs.

While HUD would oppose S. 2684 in its present form, we commend the Committee for recognizing the need for legislative reform in the voucher program. We would note that the bill does contain a number of provisions that we support. For example, S. 2684 establishes an administrative fee formula that is based on units under lease as opposed to fixed amount regardless of the PHA's utilization rate. HUD also believes the concept of making funding for FSS coordinators part of the regular administrative fees for the program would be very beneficial to the self-sufficiency efforts under the voucher program. The bill would also allow PHAs to implement the voucher homeownership downpayment grant option using its existing resources, thereby increasing homeownership opportunities for voucher participants. And as stated earlier, the bill would reduce the frequency of required inspections, freeing PHAs to concentrate their resources to focus on the more marginal units in their voucher program.

In conclusion, we reiterate that VRSA would simplify the rent requirements for public housing and reforms the section 8 voucher assistance program. By removing the caps on authorized units, the legislation allows more low-income families in need of housing assistance to be served, fosters the deconcentration of poverty, and promotes more efficient service delivery. It also increases PHA flexibility by providing a stable, predictable budget-based renewal funding formula, encourages PHAs to spend their balances effectively and eliminates the administratively arcane and burdensome rent determination formulas. VRSA authorizes HUD to initially allocate administrative fees to each PHA that administers a housing voucher program based on the number of families assisted and makes provision for a future formula derived from research data. VRSA provides PHAs with the necessary flexibility over tenant rents to address the needs and priorities of their communities, increases the incentives to work for able adults, and helps eliminate improper payments that occur due to difficulties to determining the proper rent.

We look forward to working with Congress to develop comprehensive reforms for the Section 8 Voucher Program as the legislative process moves forward. Again, thank you for this opportunity to share our views and concerns on S. 2684.

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