President Biden Signs Debt Ceiling Bill

Deal Avoids Catastrophic Debt Default and Raises Debt Ceiling Until January 2025

On June 3, President Biden signed the Fiscal Responsibility Act of 2023, H.R. 3746, which raises the debt ceiling through January 2025 while enacting non-defense discretionary spending caps for the Fiscal Year (FY) 2024 and 2025 budgets. This ends the threat, at least for the next 18 months, of a catastrophic and unprecedented default on the county’s $31.8 trillion debt – which would have had grave consequences for HA operations and the economy at large.

The provisions in the Act represent a compromise between the White House and House Majority. While the White House and Congressional Democrats had favored a ‘clean’ debt ceiling increase without any conditions, Republicans favored imposing spending limits for the next 10 years as shown in the House-passed Limit, Save, Grow Act of 2023. As President Biden noted in a recent statement, “No one gets everything they want in a negotiation, but make no mistake: this bipartisan agreement is a big win for our economy and the American people.”

Bill Suspends Debt Ceiling to 2025, but Enacts Strict Spending Caps

Most importantly, the agreement suspends the debt ceiling until January 2025, and does not place any limits on the government’s ability to borrow money until then. This represents a change from the previous debt ceiling, which was affixed to a particular amount of money the government could borrow. However, and in contrast to some efforts to abolish the debt ceiling, it raises the possibility of another painful negotiation in less than 18 months.

The agreement caps Fiscal Year (FY) 2024 non-defense discretionary funding to approximately FY 23 levels and allows for only a one percent increase in FY 25 non-defense discretionary funding. Additionally, the Act claws back approximately $28 billion in unobligated COVID-19 relief funds, though as of press time the impact of those clawbacks on HUD programs is uncertain. The bill also places stricter work requirements for those receiving certain food and cash assistance but does not impose any work requirements on HUD programs.

The agreement also imposes stricter if Congress is unable to pass all 12 appropriations bills before January 1 of their respective fiscal years. In that event, non-defense discretionary spending would be capped at one percent below FY 23 levels for both years. Members should note that Congress has often failed to pass all 12 appropriations bills by this deadline in previous years.

Even Flat Funding Will Challenge HA Budgets

While the debt ceiling compromise does not include the draconian cuts proposed by the House, flat funding will challenge HA budgets in the next two years. The White House budget estimates that HUD will need an additional $2.4 billion in funding just to renew existing tenant-based vouchers and project-based rental assistance contracts.  Of that amount, approximately $1.4 billion is needed for tenant-based vouchers and an additional $997 million is for Project-Based Rental Assistance (PBRA) contracts.

Additionally, HAs are struggling with many other budgeting challenges that flat (or decreased) funding will exacerbate. Many agencies continue to struggle with tenant rent collection, and this will likely remain a challenge given HUD’s decision to continue the pandemic requirement to provide 30-day notice before evicting for non-payment of rent. Additionally, persistent inflation (currently estimated at 5 percent annually), the cost of training staff to implement new HUD programs like NSPIRE and HOTMA, and work to comply with the onerous reporting requirements of the new Affirmatively Furthering Fair Housing (AFFH) rule will further challenge HA budgets in the coming year.

Unobligated COVID-Related Funding Clawed Back, but Impact on HUD Programs Uncertain

The debt ceiling agreement also includes the clawback (or rescission) of unobligated COVID-related funding, though as of press time the impact of those rescissions on HUD programs is not certain. Material provided by the White House states that unobligated funding for the following HUD programs will be clawed back:

• $27 million in PBRA funding.
• $14 million in Tenant-Based Rental Assistance (TBRA).
• $8.8 million in Native American programs.
• $4.7 million in Section 202 funding (housing for the elderly).
• $3.6 million in Emergency Rental Assistance funding (funding obligated to Treasury, not HUD).
• $3.4 million in fair housing activities.
• $1.2 million in Section 811 funding (housing for persons with disabilities).

However, members should note that HUD staff are unsure whether awarded but unobligated COVID-19 Supplemental Payments (CSP) or other funds are eligible to be clawed back, and there is uncertainty as to whether any housing funding will be subject to rescissions at all. Aviva Aron-Dine, Deputy Director of the National Economic Council, stated on a recent call that housing funding will “not be clawed back at all.” It also appears that Emergency Housing Voucher (EHV) funding will not be subject to rescissions, though at press time PHADA has not confirmed this.

PHADA will continue to keep members updated in the Advocate as the impact of these recissions on HUD programs is made clear.

PHADA Will Keep Members Updated as the Appropriations Process Progresses

The debt ceiling agreement only establishes spending caps, and Congress will have to pass a Transportation and HUD (T-HUD) appropriations bill later this year that funds specific programs. For that reason, many House Republicans – who had initially supported more draconian spending cuts – voted in favor of the debt ceiling compromise. As Rep. Thomas Massie (R-KY) said recently, “The debt limit is a scrimmage match, and approps [appropriations] is the Super Bowl.”

Thus far in the appropriations process, only the White House budget has been released, and Congress will take up appropriations in the summer. T-HUD appropriators will be further challenged by the reduction in FHA receipts – estimated to be down by billions of dollars – due to the slowdown in the housing market, and this will force Congress. It is likely that both TBRA and PBRA will be fully funded to avoid displacement of existing families, as this is typically a HUD priority. This could result in painful cuts to other HUD programs, including public housing operating and capital funds as well as HCV administrative fees. It is also very unlikely that any new incremental vouchers will be funded in the next two years.

PHADA will continue to advocate strongly for the maximum amount of funding for HUD programs and will keep members apprised of appropriations developments in the Advocate. PHADA Executive Director Tim Kaiser and the PHADA policy team will soon meet with both House and Senate appropriations staff to both learn more about this year’s appropriations cycle and to encourage them to fully fund HUD programs. We also encourage PHADA members to meet with their local representatives to show both the impact of their programs and how funding cuts will negatively impact agencies’ ability to provide safe, sanitary, and decent housing to low-income families.