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President’s Forum: HUD Budget Raises Major Concerns

Robs Peter to Pay Paul


PHADA President Mark Gillett.

PHADA has reported on President Biden’s FY 25 budget request in recent editions. Below, I focus on two important aspects, which we believe are misguided. The association feels they set a bad precedent, run counter to prudent business practices, and would penalize well-run housing authorities.

All federal agencies including HUD face difficult budget challenges in FY 25. The Fiscal Responsibility Act holds domestic discretionary spending to current levels with little room for even inflation adjustments. As a result, the Administration’s proposal relies on gimmicks that involve capturing or offsetting reserves to backfill public housing funds and voucher renewals. In short, the Department uses a Rob Peter to Pay Paul approach in some parts of its proposed budget.


Public Housing Operating Fund

It is important to note that operating funds are based on a negotiated rule and the Harvard Operating Fund Cost Study that is benchmarked to private nonprofit operating costs. The Department claims its budget request would fund HAs at 90 percent of their formula eligibility. Almost $200 million that would normally be allocated under the formula would instead go to other HAs in shortfall situations. We have suggested that HUD request supplemental funding for those agencies. While we appreciate the President’s request to increase the shortfall account, it should not be explicitly tied to underfunding the public housing operating budget.

The Department’s proposal could make things worse for even more of us. About one in five HAs continue to have difficulty collecting rents, with HUD noting these agencies are “severely impacted” by abnormally high Tenant Accounts Receivable (TARs) that trace back to the pandemic. Ironically, the Department itself acknowledges that its plan will put more HAs closer to fiscal insolvency. “HUD estimates that, due to the projected 90 percent proration, there will be increased shortfall need compared to prior years,” states the budget.


Reserves Are Not “Extra” Money

Adequate operating reserves are essential to any prudent business operation, including those we administer. This is especially true in an environment of rising maintenance costs, salary and retention expenses, skyrocketing insurance rates, OPEB, higher TARs levels, utility cost increases, and the onslaught of HUD regulations and associated training costs. Contrary to what some in Washington assert, reserves are not “extra” funds. They serve a vital purpose for agency and program stability and sustainability.

In addition to driving more HAs into shortfall situations, there are other negative impacts on HAs and their residents stemming from this proposal. Some HAs will see declining PHAS and SEMAP scores through no fault of their own. This in turn hurts their standing in the community. Future RAD deals may be jeopardized because the rents are based on operating and capital funding, which will now be even more inadequate.

Well-run agencies have used sound fiscal management and judgment to accumulate needed reserves—they should not be penalized for their effective stewardship. Similarly, many Moving to Work (MTW) agencies have designated plans for reserves (development, preservation, etc.) to meet local housing needs.

HUD and Congress have long advised HAs to act more entrepreneurial. The Administration’s plan undermines those stated goals. HAs need their reserves to weather the present storm and/or create more innovative affordable housing programs.


The Housing Choice Voucher Account

HUD is taking a similar approach in the HCV part of the budget. Renewal funding relies on the recapture of nearly $1 billion of HAP reserves. As we all know, voucher program costs are increasing rapidly. In fact, renewal requirements have grown by about 40 percent in the last half-decade.

Over the past year, HUD strongly encouraged my housing authority—and many of yours—to aggressively lease-up, raise payment standards, and fully utilize our voucher funds. We understand the rationale, but such a strategy can be precarious with Congress constantly delaying budget approval under lingering threats of government shutdowns. Our agency maximized the usage of our funds and came quite close to a shortfall situation, which could have created problems for us (and other HAs in their own communities). The FY 25 proposed budget would likely place more of us in this same kind of difficult situation.

There are other uncertainties and concerns. About $6 billion of the proposed renewal funding is categorized as “emergency” to avoid strict budget caps. It is assumed Congress, or the next session of Congress will continue to support this approach to renewal funding. Is that a safe assumption?

In addition, while the Department aggressively pushes HAs to lease up, it is not requesting sufficient administrative funds to run the program. For that matter, HUD has instituted some policies that many believe will result in the loss of more private owners (NSPIRE V and the 30-day notice rule), further hindering our ability to serve eligible families. HUD’s lack of transparency regarding inflation factor formula changes also creates more uncertainty for our operations.

The pressure on HAs to expand lease-up, spend reserves, and adopt payment standards to increase housing options—combined with the potential recapture of HAP reserves—undermines our ability to effectively plan and manage in the context of a tenuous budget outlook.



The HUD plan creates a “moral hazard” for HAs because it encourages risky and even irresponsible agency behavior. In light of the foregoing, our message and request of Congress is: do not balance the HUD budget using needed reserves. They are crucial for well-run HAs in today’s environment of uncertainty and rising costs.

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