Arlene Conn, PHADA Policy Analyst
On February 10 the White House released its FY 21 budget, “A Budget for America’s Future”. The Budget, while adhering to the Defense spending limits agreed to between Congress and the Trump Administration in last July’s two-year budget deal, seeks to cut Non-Defense Discretionary (NDD) spending by nearly $45 billion.
The 2019 budget deal allowed for a $5 billion increase in NDD, yet the President’s budget states: “The Budget also reflects restraint in NDD spending, which the Budget proposes to keep five percent below 2020 NDD spending levels, and reduce spending in future years.” Many federal agencies saw much greater decreases, including HUD with an $8.6 billion cut, or 15.2 percent, from the prior year’s budget.
Even with a $5 billion increase in NDD for FY 21, PHADA is concerned that the HUD budget could very well be cut. It has been widely reported that the cost of veterans’ health care is expected to increase significantly and would use up most of this $5 billion, though it also expected that Congress will identify additional funding for these increased costs. In other areas, Novogradac has estimated that “…just to maintain the current households in HUD rental assistance programs will require an increase of about $2 to 3 billion.” Staff on the Hill have indicated that Renewals for existing households will be the top priority under HUD funding, and that we are likely to see cuts in community development programs like the HOME Investments Partnership Program (HOME) and the Community Development Block Grant (CDBG) Program if NDD is capped at a $5 billion increase.
For a third year, the Administration’s budget proposes to eliminate the Capital Fund, with all unobligated balances, excluding set-asides, to be directed to a newly created “Public Housing Fund.” The stated justification of the renaming is to emphasize that the Budget provides flexibility for public housing authorities (HAs) to use this funding for capital improvements as well; however, aside from some very limited grant dollars, there is no infusion of capital funds necessary to address the national backlog.
The amount requested for the Public Housing Fund is $3.572 billion, which is $977 million less than the 2020 enacted level for the Public Housing Operating Fund. The Budget moves $672 million, which is not included in the $3.572 billion, to a newly created Moving to Work account for Operating expenses. This Moving to Work account also includes a transfer of funds from Voucher Renewals and administrative fees (see page 4 for information on the MTW account). The Budget also transfers $128 million from the Public Housing Fund for Tenant-Based Rental Assistance through the Rental Assistance Demonstration (RAD), leaving $3.444 billion to be distributed to HAs based on Operating Fund formula.
PHADA is concerned that HUD’s re-allocation of funds to a newly established Moving to Work account lacks transparency and prevents HAs and Congress from assessing the accuracy of HUD’s forecasting, particularly when 30 of the MTW agencies have yet to be selected under this demonstration. To a certain extent, HUD is redefining how it calculates need, making assessments that cannot be reviewed or critiqued by agencies or appropriators. Furthermore, it is impossible to discern the effect on all of the accounts HUD has drawn from to determine whether funds have been accurately disbursed to HAs. HUD needs to provide greater detail on its process and justifications since the errors that could occur, and the real life impacts for HAs and their constituencies, far outweigh the goals HUD has stated it hoped to achieve with this proposed change.
The Budget justification states that the Operating Fund represents a 100 percent proration against formula eligibility; however, this is only after shifting unobligated Capital funds to the Operating account and factoring in savings achieved through the Administration’s proposed rent reform policies (see page 3 for information on rent reforms). This HUD rationale is wholly inadequate, not consistent with the intent of the Operating Fund formula, and does not come close to a 100 percent proration for this account. PHADA believes that Congress will not adopt rent reform policies in its FY 21 appropriations bills and that the final budget for the Operating Fund will be significantly higher than the White House proposal. PHADA, NAHRO and CLPHA will soon issue industry estimates of need for this and other major accounts.
The elimination of the Capital Fund would have a devastating effect on residents of public housing and goes against a trend that has been developing over the last several years to preserve the public housing stock through a massive infusion of funding. PHADA has estimated that at least $70 billion is needed to address the capital needs backlog. House Financial Services Committee Chairwoman Maxine Waters introduced the Housing is Infrastructure Act of 2019, which boldly and responsibly proposes to provide $70 billion in funding for the Capital Fund as part of any infrastructure package, citing PHADA’s analysis in support of the capital need. Without funding for Capital needs, HAs would be unable to address the primary causes of health and safety threats (see the President’s Forum column on page 2 for more details).
Capital Funding in Infrastructure Plan
Last month House Democrats unveiled a five-year, $760 billion plan, “Moving Forward Framework”, to rebuild the nation’s highways, airports and other infrastructure. Disappointingly, the measure introduced by Maxine Waters, intended to be part of any infrastructure package, was not included. The lawmakers leading the effort are Reps. Peter A. DeFazio of Oregon, the chairman of the House Transportation and Infrastructure Committee; Frank Pallone, Jr. of New Jersey, the chairman of the Energy and Commerce Committee; and Richard E. Neal of Massachusetts, the chairman of the House Ways and Means Committee.
PHADA urges members, especially those represented by these legislators, to call the representatives noted above as well as Speaker of the House Nancy Pelosi and Majority Leader Steny Hoyer. Let them know that public housing should be part of any infrastructure package.
White House Budget Causes Problems for RAD Conversions
The Administration proposes an alternative to public housing, which is described as an expansion of the Rental Assistance Demonstration (RAD) program. RAD allows housing HAs to convert their public housing funding to a Section 8 platform in order to leverage private financing that addresses capital needs. Under this so-called expansion, the Administration proposes to eliminate the statutory cap, which PHADA and other industry groups support, and provide funding of $100 million for RAD.
The obvious problem with this approach is that RAD conversions can only be undertaken by HAs when their Operating and Capital funds are adequate to produce rents (under the RAD formula) sufficient to cover operating costs and debt service for capital investment over at least a fifteen-year period for Project Based Vouchers and twenty years for Project Based Rental Assistance.
The Administration’s RAD proposal is not a serious one. We know from RAD staff at HUD that RAD rents have increased by $40 to $50 per unit monthly due to increases in the Capital and Operating Funds in the last two appropriations bills. This increase has made it possible for more HAs to participate in RAD. The Administration puts at risk the very program it promotes to address the backlog of capital needs by drastically reducing the Operating Fund and eliminating the Capital Fund.
The Housing Choice Voucher Program
The Voucher Renewal account saw a decrease from $21.502 billion in FY 20 to $16.958 billion in FY 21, a $4.544 billion cut; however, the Budget moves $4.173 billion to the newly created MTW account for Voucher Renewal funds to MTW agencies. When considered together, the total budget for all Voucher Renewals is $21.131 billion, still a decrease of $371 million, or 2 percent. While the Budget purports to fund all existing Renewals, it is stated that the requested funding level assumes both program-specific savings policies and savings from proposed rent reforms. Based on some very preliminary review, PHADA, along with NAHRO, estimate the proration to be about in the mid 90 percent range. It is doubtful that Congress will include rent reform provisions in its appropriations bills.
The administrative fees account saw a decrease from $1.977 billion in FY 20 to $1.465 billion in FY 21, for a decrease of $512 million. However, $340 million of this amount is moved to the newly created MTW account for administrative fees to MTW agencies. When considered together, the total budget for all administrative fees is $1.805 billion, a decrease of $172 million, or 9 percent. HUD estimates this account to be at a 70 percent proration.
A 70 percent proration for administrative fees makes it untenable for HAs to administer the program for lower income seniors, veterans, persons with disabilities, and families with children. Combined with inadequate FMRs and declining landlord participation in the program, many HAs are having increased difficulty administering the program and must consider whether continued operation is an option. In response to HA concerns with their programs, some have argued for forced HA consolidation, but addressing local needs and having staff who are readily available to participants and landlords in their communities would be lost with that approach.
Project-Based Rental Assistance (PBRA)
The White House budget allocates $12.642 billion for the project-based rental account, a $72 million increase from FY 20. This is one of the few accounts, and the only major account, that received an increase. While the Administration’s budget for this account states that it would support the same number of households currently assisted, rent reforms are proposed “to ensure the long-term fiscal sustainability of HUD’s rental assistance programs.”
Community Development Programs
The President’s Budget again proposes to eliminate important community development programs such as HOME, CDBG and Choice Neighborhoods. This represents nearly $5 billion in funding to communities, which often enhances public housing development, addresses infrastructure needs, funds housing rehabilitation, and provides a variety of services to low-income households. Many of these programs are widely supported on a bicameral, bipartisan basis and will likely be preserved by Congress.
As with the last several budgets, it is Congress not the White House that has shown leadership in supporting public and assisted housing programs. The significant and unprecedented cuts that this Administration has made in all of its budgets, though dire if enacted, have largely fallen on deaf ears. If anything, they seem to have buoyed support on a bipartisan basis, with relatively healthy increases to HUD programs in response.
PHADA vigorously opposes the White House budget and continues to advocate for full funding of all public housing, tenant based rental assistance and other important HUD programs. PHADA urges all its members to contact their Representatives and two Senators to advocate for full funding and to include $70 billion for Capital Needs as part of any infrastructure package.
PHADA will keep members apprised in the coming months as Congress goes through its own budget processes, which ultimately determine what appropriations will be for FY 21.