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Issue Alert - 04-05-01

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Date:

May 06, 2004

Issue Summary:

HUD funding policy change will result in voucher program cuts

Persons Affected:

Section 8 voucher holders and applicants


Background

Section 8 "Housing Choice" Voucher Program

What's Happening?

For several years, the amount a PHA received in voucher funding was essentially determined by 3 factors: the number of its Section 8 vouchers in use (“units under lease”); the current average unit cost of each voucher; and an inflation index - the Annual Adjustment Factor (AAF). (The 3 factors were multiplied to produce a dollar figure). In the FY2004 HUD appropriations bill, Congress provided sufficient funding to renew all authorized vouchers. That bill said that the units under lease factor would be determined as of August 1, 2003. In a highly questionable interpretation of the bill, in Notice PIH 2004-7, HUD has declared the average unit cost factor would also be set as of that date, despite the bill’s use of the term “actual costs” which suggests that a PHA’s most current costs, not last year’s, be considered.The consequence of this new HUD policy is that local PHAs whose voucher costs are higher now than they were as of last August will be compensated for those higher costs only up to the inflation factor. The reasons that PHA voucher costs could be higher this year than last are several - higher voucher payment standards (see below) based on the updated HUD Fair Market Rents (FMR) or because of an effort to increase voucher success, lower tenant incomes in these uncertain economic times, or other PHA policy decisions such as targeting more vouchers to lower income households, including homeless families. Each of these possibilities would contribute to higher PHA voucher costs.(The payment standard is a figure that corresponds to a percentage, usually 100%, of the relevant FMR for the area, according to the bedroom size of a rental unit. A family’s voucher subsidy amount is determined by subtracting 30% of its adjusted monthly income from the applicable payment standard.) The new policy will wreak even more havoc because it appears the funding change will be made retroactive to January 1. And so, although since the FY2004 HUD appropriations bill was enacted in late January HUD has been funding PHAs based on their actual voucher costs, and PHAs reasonably expected that that their voucher funding for their entire fiscal years would be based on actual costs, it appears that HUD will demand that PHAs pay back, before the end of their fiscal years, any funds that exceed their funding allotment under the new formula. For PHAs whose fiscal years end June 30, the effects of retroactivity will be particularly onerous. Some PHAs will be able to draw on program reserve funds to dampen the impact of the funding reductions. But as compared to the past when HUD annually supplied PHAs with reserves equal to 1/12 of their annual voucher funding, it appears that HUD did not replenish those reserves last year and does not plan to do so this year. Of course, those who will most heavily suffer from the new policy are voucher tenant and applicant families. When a PHA’s voucher funding does not meet its voucher costs there is no alternative to program cuts. The only question is what form those cuts will take. As the CBPP analysis points out, the level of voucher assistance a PHA provides can be reduced in several ways, including:
  • imposing or raising minimum rents;
  • reducing voucher payment standards;
  • targeting assistance to higher income families;
  • not reassigning (“shelving”) a voucher when a family leaves the program (or lengthening the turnaround time for reassigning a voucher;
  • reclaiming a voucher from a family that hasn’t yet leased a unit;
  • and as a last resort, outright termination of assistance.
In the notice HUD also suggests that PHAs “redouble” their efforts on income matching and verification and “other anti-fraud activities”, and more closely monitor the relationship between family size and the bedroom size on its voucher. There are several other troubling aspect of this situation. Enough money was appropriated to the voucher program to fund all authorized vouchers in FY2004. Even if HUD repairs the AAF methodology, the CBPP estimates that under the new policy that at least $200 million appropriated for supporting voucher will go unspent ($330 million or more if an AAF fix is not made). Also, data suggests that per-voucher costs are decreasing, meaning that there will likely be a leveling off of future increases in voucher program, a reality that undercuts HUD claims of spiraling, out of control voucher costs.

What Should Advocates Do?

Advocates will want to at least contact their local PHAs to find out how they are planning to respond to their probable voucher funding predicaments; ideally advocates will want to work with their local PHAs to develop policies that will have the least adverse impact on voucher families.

What Should Clients Do?

Find out how your local PHA is planning to respond to the HUD funding policy change, and plan accordingly. Voucher holders and applicants may also want to consider other advocacy possibilities.

Finding Help

Most legal aid and legal services office handle these type of cases, and they do not charge a fee. You can locate the "free" legal services or legal aid office that serves your county on the Michigan LawHelp web site (http://MI.LawHelp.org) or look in the yellow pages under "attorneys" or call the toll-free lawyer referral number, (800) 968-0738.