Much Uncertainty as Year’s Last Quarter Approaches
PHADA President John T. Mahon.
By the time you receive this publication in the U.S. mail, Congress will have returned from its summer recess with hopes of completing a FY 26 budget by the October 1 deadline. Once again, it is doubtful that lawmakers will be successful in meeting that deadline. At the same time, there are several other pending issues that will have an impact on our industry in 2025 and in the future. Below is a brief synopsis.
FY 26 Budget—Congress is nowhere near completing all the appropriations bills, so lawmakers will again have to adopt a Continuing Resolution (CR), or the government will shut down on October 1. A CR of some duration is likely, but one can never be certain in the always unpredictable Washington political climate.
The budget debate kicked off this year with Congress rejecting the Trump Administration’s plan to block grant HUD funding to the states. While we appreciate that development, the overall funding situation is problematic. The appropriations committees in each chamber have their own versions of a HUD spending bill. Generally speaking, the Senate bill is preferable but is still inadequate, especially for the operating and capital funds.
In addition, it is notable that the Senate version would not fund all HCV renewals even though it includes almost a 6 percent increase compared to current funding. This is so because rents are rising at nearly 9 percent, leading to PHADA’s fears of significant voucher shortfalls. (see PHADA Position Paper here.)
Overall Domestic Budget Situation—Congress addressed this year’s HCV funding predicament by including an “anomaly” in the CR to significantly boost voucher funding. They will need to do so again for FY 26, or many voucher holders could lose their assistance.
Meanwhile, the macro budget situation is challenging for HUD and all other government programs. The U.S. debt just hit a record $37 trillion, and the government now spends more annually to pay the interest on the debt than it does on the defense budget. Also, millions of baby boomers are retiring every year, and the two entitlement programs—Social Security and Medicare—both face insolvency in the next 7–8 years. These factors will constrain domestic appropriations and create more fiscal headaches for the current and future Congresses.
Political Lay of the Land—The voting margins in the House and Senate are very slim. Some degree of collaboration will be necessary for lawmakers to pass a CR. Congress used the “reconciliation” process to adopt the “One Big Beautiful Bill.” That is not an option in the appropriations process, which will be especially challenging in the Senate, where sixty votes are needed to proceed to debate.
Cash Management poses a new challenge to the industry. We are concerned that HUD’s recent issuances effectively rewrite existing operating fund regulations and procedures. The changes may result in large administrative burdens, increased costs, and possible resident services cuts.
HUD’s guidance includes new requirements for HAs to submit the SF-425 form annually through the Operating Fund portal. Some of the most concerning provisions include those requiring HAs to now classify rental income and other revenue sources as “program income.” HUD also dictates that such program income must be expended first before operating subsidy. In addition, some of the new procedures conflict with current regulations governing operating reserves, financial assessment indicators, and subsidy drawdowns.
Is the process HUD is using legal? The changes are so considerable, there is some thought that HUD may have to go through formal rulemaking to institute them. Along with our industry partners, we are exploring a legal review.
Lack of HUD capacity is another concern. Even before the Department lost thousands of staff, it was struggling to keep up with matters that affect our operations. Delays around the implementation of its Housing Information Portal have persisted for years now, leading to constant starts and stops around HOTMA requirements. Similarly, we are concerned that HAs will encounter lengthy delays waiting on the Administration to render decisions on BABA and NSPIRE waivers.
Local Flexibility—Congress and HUD have not heeded our calls for more local flexibility and deregulation. The Moving to Work expansion in the Senate’s Road to Housing Act is disappointing and does not provide HAs the tools they need to operate more effectively in the challenging budget environment. We will keep making the case for broad deregulation and local decision-making.
LIHTC Expansion—On a brighter note, Congress and the Administration agreed to a major expansion of the tax credit program as part of the reconciliation bill. This will no doubt help maintain and create thousands of low-income units.
Industry Personnel Changes—Two of the industry’s long-time leaders, our own Tim Kaiser, and CLPHA’s Sunia Zaterman, are retiring soon. This may create a potential leadership vacuum. Still, new leadership could yield innovation and new creative approaches. Similarly, there is much in turnover in our own agencies. This could generate more uncertainties for the membership organizations and many of us at the local level.
Conclusion
As always, our situation is affected by budgetary and political factors in Washington. Accordingly, it is essential that we work to ensure our message is heard and considered throughout the remainder of this year and well into the future. PHADA is a reliable resource to help us deliver that message. Our position paper and talking points on the 2026 budget and cash management may be found here. As always, I encourage you to contact our Washington staff for additional information.