Order Code RL31930
CRS Report for Congress
Received through the CRS Web
Section 8 Housing Choice Voucher Program:
Funding and Related Issues
Updated March 17, 2005
Maggie McCarty
Analyst in Social Legislation
Domestic Social Policy Division
Congressional Research Service ˜ The Library of Congress

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Section 8 Housing Choice Voucher Program:
Funding and Related Issues
Summary
The largest federal program designed to provide affordable housing to low-
income families is the Section 8 Housing Choice Voucher program, which serves
over 2 million households. Section 8 vouchers are tenant-based subsidies that low-
income families use in the private market to lower their rental costs to 30% of their
incomes. The modern program began in the early 1980s and has grown to replace
public housing as the primary tool for subsidizing the housing costs of low-income
families. Its creation and much of its history are characterized by support from both
ends of the political spectrum — for its use of the private market, on the one hand,
and for its deep subsidies for the poorest families, on the other.
Over the past several years, the program has come under fire for its rising cost.
From 2001 to 2005, the cost of the program has increased by over 34%, although the
number of people served has remained roughly the same. These cost increases can
be attributed to a number of factors, not the least of which is the structure of the
benefit. The value of a voucher is calculated as roughly the difference between rents
in a community and 30% of participating households’ incomes. In recent years,
rents have been rising faster than incomes, which, along with federal policy changes
designed to expand household choice and deconcentrate poverty, has driven up the
cost of a voucher and therefore the cost of the program. In FY2005, the overall
Section 8 program, at more than $20 billion, accounted for over half of the entire
budget of the Department of Housing and Urban Development (HUD). The voucher
component alone constituted more than a third of HUD’s budget. In order to provide
that funding level while remaining within discretionary budget caps, congressional
appropriators had to enact funding cuts to almost all other HUD housing programs.
In order to address the rising cost of the program, the Bush Administration has
proposed to enact some form of block grant in the Section 8 voucher program in each
of the last two years and has stated that a reform proposal will again be introduced
in the 109th Congress. Both Administration proposals submitted during the 108th
Congress were designed to devolve additional authority to the local level, increase
administrative ease, and cut the cost of the program. While neither initiative saw
congressional action, they did spark major debate about the future of the program.
When considering these reforms, Congress will face difficult trade-offs between the
federal policy goals of providing safe, decent, and affordable housing to low-income
families and the federal budget realities of decreasing funds available for domestic
social programs.
This report, which will be updated, provides an introduction to the Section 8
voucher program, its funding, and current issues and proposals.

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Contents
Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Section 8 Voucher Program Basics . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
How the Voucher Program Works . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Voucher Supply and Demand . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
Special-Purpose Vouchers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
Funding Structure and Recent Changes in Appropriations Law . . . . . . . . . . . . . . 9
Renewal Costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
FY2003 Funding Changes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
FY2004 Funding Changes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
FY2005 Funding Changes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
New Voucher Costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
Administrative Fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
Other Initiatives . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
The Cost of the Voucher Program . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
New Vouchers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
Utilization Rates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
Expiring Contracts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
Fair Market Rents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
Payment Standards . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
Options for Restraining or Reducing Costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
Maintain Current Funding Structure . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
Redefining “Safe” and “Decent” . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
Redefining “Affordable” . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
Redefining “Low-Income” . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
Create New Program . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
Housing Assistance for Needy Families (HANF) . . . . . . . . . . . . . . . . 27
The Flexible Voucher Program . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
Developments in the 109th Congress . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
President’s FY2006 Budget Proposal . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
Budget-based Funding . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
Legislative Reform . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
Discussion of FY2006 Budget Request . . . . . . . . . . . . . . . . . . . . . . . . 32
Conclusion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
List of Figures
Figure 1. Expiring Long-Term Section 8 Project-based Contracts and
Vouchers that Would Require Renewal over the Next 10 Years . . . . . . . . . 21

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List of Tables
Table 1. Income Thresholds for a Three-Person Family in Selected Areas
in 2005 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Table 2. Section 8 Vouchers Eligible for Payment, FY1999-FY2005 . . . . . . . . . 6
Table 3. Characteristics of Voucher Recipients, 2000 . . . . . . . . . . . . . . . . . . . . . 7
Table 4. Changes in Section 8 Housing Certificate Fund
Appropriations and Spending, FY2000-FY2005 . . . . . . . . . . . . . . . . . . . . . 16
Table 5. Incremental Vouchers Created and Funded, FY1999-FY2005 . . . . . . . 17
Table 6. Section 8 Vouchers and Project-based Units Eligible for Payment,
FY2000-FY2005 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
Table 7. Section 8 Voucher Utilization Rates, FY2000-FY2004 . . . . . . . . . . . . 19
Table 8. Budget Authority and Net Budget Authority for the Section 8
Program, FY2000-FY2004 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
Table 9. National Average Population-Weighted Changes in Fair Market
Rents for Two-Bedroom Apartments from the Previous Year . . . . . . . . . . 22
Table 10. Comparison of FVP Proposal to Existing Program . . . . . . . . . . . . . . 28

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Section 8 Housing Choice Voucher
Program: Funding and Related Issues
Most Recent Developments. On February 7, 2005, President Bush
submitted his FY2006 budget proposal to Congress. It included a request for $15.9
billion for tenant-based rental assistance (Section 8 vouchers), a $1 billion increase
over FY2005. It would continue and expand the practice of budget-based funding
for PHAs (which is explained in this report), and it indicates that the President will
propose voucher reform legislation in the 109th Congress. For more details on the
President’s FY2006 budget, see Developments in the 109th Congress at the end of this
report.
Introduction
The federal government operates a number of programs designed to assist low-
income families with housing costs. The Public Housing program provides publicly
owned and federally subsidized housing to low-income families. The HOME
Investment Partnerships program provides money to states and local communities to
fund the development and rehabilitation of low-cost housing. The Low-Income
Housing Tax Credit program provides tax credits to states, which allocate them to
developers building lower-cost housing targeted at low-income families.
This report focuses on the largest direct housing assistance program targeting
low-income families: the Housing Choice Voucher (HCV) program, also referred to
as the Section 8 voucher program. Section 8 of the U.S. Housing Act of 1937, as
amended, actually governs two programs, the Section 8 voucher program and the
Section 8 project-based rental assistance program. These two programs were
previously funded under a joint account, called the Housing Certificate Fund;
however, the FY2005 appropriations law split the Housing Certificate Fund into two
accounts. The tenant-based rental assistance account now funds the voucher
program, and the project-based rental assistance account now funds project-based
Section 8 rental assistance.
The Housing Choice Voucher (HCV) program provides subsidies to low-income
families to help with their housing costs.1 Through the HCV program, eligible
families can receive subsidies, called vouchers, that they can use to reduce their rent
in housing units owned by private landlords. The voucher program is different from
the Public Housing program, which allows eligible families to move into low-rent
1 Housing costs that account for no more than 30% of a low-income family’s adjusted
income are considered “affordable” under most HUD assisted housing programs. For
example, most HUD low-income housing programs require participants to pay 30% of their
adjusted income toward rent.

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CRS-2
housing units owned by public agencies. The Section 8 voucher program is
administered federally, by the Department of Housing and Urban Development
(HUD), but it is managed locally, by quasi-governmental public housing authorities
(PHAs).2
The Housing Choice Voucher program is the largest program in the federal
budget that subsidizes the housing costs of low-income households. For FY2005,
over $20 billion was provided for all of Section 8, almost $15 billion of which was
for the voucher program. Section 8 accounts for over half of the total HUD budget;
vouchers alone account for more than a third of HUD’s budget. The voucher
program serves over 2 million low-income households.
The government has created housing assistance programs for a number of
reasons. Many studies have shown that a large percentage of poor people spend more
than half of their income for housing, which can inhibit their ability to meet other
basic needs and/or put them at a greater risk of homelessness. Studies have also
shown that a lack of low-cost housing can serve as a barrier to employment for
families transitioning from welfare to self-sufficiency;3 housing instability can
jeopardize employment stability. Additionally, housing cost, availability, and quality
all play an important role in the health of a community. Many studies have shown
that unhealthy communities — those plagued by crime, drugs, and concentrations of
very poor people — are dangerous for families, especially children.
There are some indications that these problems may be getting worse for low-
income renters. According to Harvard University’s Joint Center for Housing Studies,
contract rent increases outpaced renter income gains for households across the board
in 2003. During the most recent recession, the real median income of renters fell by
1.8%, while rental costs continued to grow beyond the rate of inflation. Since the
homeownership boom began in 1993, only slightly more rental units have been
developed than have been demolished; although 1.8 million units were constructed
from 1993-2003, they represent a net gain of only 100,000 units. Despite this modest
increase in units, the pressure on the low-cost rental market has not subsided. The
new apartments that have been built are substantially more expensive on average than
the ones being lost. While vacancy rates overall are on the rise, vacancy rates on
units affordable to the bottom income quintile are notably lower than vacancy rates
on more expensive units.4
Despite the generally agreed-upon goal of safe, decent, and affordable housing
for all families, debate persists as to the appropriate role of the government in its
provision. While the voucher program has in the past enjoyed wide popularity as the
most effective and efficient tool in meeting the nation’s affordable housing needs,
2 For more about the legal structure of PHAs, see 42 U.S.C. § 1437a (b)(6).
3 For a synthesis of studies on Housing and Welfare, see Barbara Sard and Margy Waller,
Housing Strategies to Strengthen Welfare Policy and Support Working Families, Center on
Urban and Metropolitan Policy, Brookings Institution, and Center on Budget and Policy
Priorities, Research Brief, Apr. 2002.
4 The State of the Nation’s Housing, 2003, from Harvard University’s Joint Center for
Housing Studies, at [http://www.jchs.harvard.edu/publications/markets/son2003.pdf]

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concerns — primarily about its cost but also about how well it works — have been
increasing. Reform proposals were introduced in both sessions of the 108th Congress
and, although none were enacted, Congress included changes designed to curb the
cost of the voucher program in the FY2003, FY2004, and FY2005 appropriations
laws. It is likely that Congress will continue to debate reforms to the Section 8
voucher program in the 109th Congress.
This paper focuses specifically on the voucher program’s funding and related
issues, beginning with a brief overview of how the voucher program works. For
background on Section 8 in general, including project-based Section 8, see CRS
Report RL32284, An Overview of the Section 8 Housing Program.
Section 8 Voucher Program Basics
How the Voucher Program Works. Eligible families can receive one of
two types of vouchers: tenant-based vouchers and project-based vouchers.5 Families
receiving tenant-based vouchers are responsible for finding housing units owned by
landlords that accept vouchers. Families receiving project-based vouchers move into
units that PHAs already have under contract with private landlords. Families
receiving tenant-based vouchers pay between 30% and 40% of their incomes for
housing;6 families receiving project-based vouchers pay 30% of their incomes for
housing.
The majority of vouchers are tenant-based. By law, only 20% of a PHA’s
vouchers can be project-based and only 25% of units in a building can have project-
based vouchers attached to them. These caps on project-based vouchers are intended
to prevent PHAs from concentrating very low-income families in one area or
building. The deconcentration of high-poverty areas has increasingly become a goal
in federal housing programs; even traditional public housing is moving to a mixed-
income model through programs such as HOPE VI.7
In order to be eligible for a voucher, a family must have a very low income.
Very low-income families are defined by HUD as families whose incomes are less
than 50% of the local area median income. Area median income (AMI) is calculated
by HUD for every jurisdiction in the country. Although very low-income families
are eligible for vouchers, extremely low-income families are targeted for vouchers.
5 Note that project-based vouchers are different from project-based Section 8 rental
assistance. Project-based vouchers are an allowable use of vouchers; project-based Section
8 rental assistance is a program of subsidized housing units not included in the voucher
program.
6 Families must pay 30% of their incomes toward rent, but cannot be required to pay more
than 30%. They can choose to pay up to 40% in the first year of their lease and can choose
to pay more than 40% in subsequent lease renewals.
7 The HOPE VI program provides grants to PHAs to revitalize distressed public housing
through demolition and construction of new, mixed-income housing units. For more
information on the HOPE VI program, see CRS Report RL32236, HOPE VI: Background,
Funding, and Issues, by Maggie McCarty.

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CRS-4
Three-quarters of all vouchers must, by law, be given to extremely low-income
families. Extremely low-income families are defined by HUD as families whose
incomes are less than 30% of AMI. To illustrate the regional variation in these
definitions of low-income and their relationship to federal definitions of poverty,
Table 1 compares HUD’s income definitions to the Department of Health and
Human Service’s (HHS) poverty guidelines for several geographic areas. Note that
HHS poverty guidelines are uniform in all parts of the country (except for Alaska and
Hawaii, not shown in the table below).
Table 1. Income Thresholds for a Three-Person Family
in Selected Areas in 2005
HUD very low-
HUD extremely
HHS poverty
income limits
low-income limits
guidelines
Jefferson County, MS
$16,450
$9,850
$16,090
Missoula, MT
24,050
14,450
16,090
New York, NY
28,250
16,950
16,090
San Francisco, CA
50,900
30,550
16,090
Source: Department of Housing and Urban Development 2005 Income Limits and Department of
Health and Human Services 2005 Poverty Guidelines.
Families wishing to receive Section 8 voucher assistance must apply to their
local PHAs for an available voucher. PHAs are quasi-governmental bodies that
manage the HCV program. Their functions include setting local program policies,
including subsidy levels, screening families for eligibility, maintaining waiting lists,
helping families find units, and signing contracts with and making payments to
landlords. PHAs also own and manage Public Housing.
Once an eligible family receives an available voucher, different steps are taken
and different rent calculations are made depending on whether the voucher is tenant-
based or project-based. If the family receives a project-based voucher, then the
family signs a contract with HUD and a contract with the landlord and moves into the
unit. Once in the unit, the family pays 30% of its income towards rent and the PHA
pays the landlord the rest. The amount paid by the PHA, called the Housing
Assistance Payment (HAP), cannot exceed 110% of the fair market rent (FMR).8
If the family receives a tenant-based voucher, then the family must find an
eligible unit. In order to be eligible, a unit must meet minimum housing quality
standards (HQS) and cost less than 40% of the family’s income9 plus the HAP paid
by the PHA. The HAP paid by the PHA for tenant-based vouchers, like the HAP
8 FMRs are determined annually by HUD and are calculated as the 40th percentile rental cost
for a given jurisdiction.
9 This 40% cap on a tenant’s contribution is in effect only for the first year. After the first
year, if rent increases and the family wishes to continue to live in the unit, then the family
can choose to contribute more than 40% of its income toward rent.

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CRS-5
paid for project-based vouchers, is capped; however, with tenant-based vouchers,
PHAs have the flexibility to set their caps anywhere between 90% and 110% of FMR
(up to 120% FMR with prior HUD approval). The cap set by the PHA is called the
payment standard. Once a family finds an eligible unit, the family signs a contract
with HUD, and both HUD and the family sign contracts with the landlord. The PHA
will pay the HAP (the payment standard minus 30% of the family’s income), and the
family will pay the difference between the HAP and the rent (which must total
between 30 and 40% of the family’s income).
Once a family is using a voucher, the family can retain the voucher as long as
the PHA has adequate funding for it and the family complies with PHA and program
requirements. If a family with a tenant-based voucher wants to move, the tenant-
based voucher can move with the family; a family with a project-based voucher can
convert to a tenant-based voucher after one year and then move, as long as a tenant-
based voucher is available. Once the family moves to a new area, the two PHAs (the
PHA that originally issued the voucher and the PHA that administers vouchers in the
new area) negotiate regarding who will continue to administer the voucher.10
The voucher program does not contain any mandatory time limits. Families exit
the program in one of three ways: their own choice, non-compliance with program
rules (including non-payment of rent), or if they no longer qualify for a subsidy.
Families no longer qualify for a subsidy when their incomes, which must be
recertified annually, have risen to the point that 30% of that income is equal to rent.
At that point the HAP payment will be zero and the family will no longer receive any
subsidy.
Voucher Supply and Demand. Eligible families are not guaranteed
vouchers. The Section 8 voucher program is not an entitlement program, and the
number of vouchers administered in the program is determined by how much money
Congress provides in the appropriations process. In FY2005, over 2 million vouchers
were available for families. Table 2 shows the number of vouchers eligible for
funding over the most recent seven years.
10 The feature of a voucher that permits a family to move from one jurisdiction to another
while retaining their assistance is referred to as portability. The administration of portability
has proven to be complicated for PHAs. In some cases, the originating PHA is billed for the
cost of the family’s voucher by the receiving PHA; in other cases, the receiving PHA
transitions the new family onto one if its vouchers and the original voucher reverts to the
originating PHA. PHA advocacy groups have called for HUD to make regulatory reforms
to ease the administration of portability.

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CRS-6
Table 2. Section 8 Vouchers Eligible for Payment,a
FY1999-FY2005

1999
2000
2001
2002
2003
2004 (est.)
2005 (est.)
Vouchers
eligible for
payment
1,681,774
1,837,428
1,966,171
1,997,733
2,095,327
2,136,808
2,142,455
Source: Data for 1999-2002 are taken from HUD FY2002 Performance and Accountability Report,
pp. 1-15; data for 2003 and 2004 are taken from HUD FY2005 Congressional Budget Justification,
p. T-1; data for 2005 are calculated by CRS based on HUD schedules of voucher expirations.
a. HUD reports the number of vouchers eligible for payment each year. However, all vouchers
eligible for payment may not be used in a year. Therefore, the vouchers eligible for payment
are not an accurate measure of the number of households served by the program in a year. The
number of households served is some number less than the number of vouchers eligible for
payment.
There are far fewer vouchers than eligible families. According to HUD analysis
of American Housing Survey data, over 5 million households had worst-case housing
needs in 2001. HUD defines families as having worst-case housing needs if they are
unassisted renters with very low incomes (50% of area median income or below) and
they pay 50% or more of their incomes toward rent and/or live in severely
substandard housing. Not surprisingly, the poorest families have the greatest needs.
Of those more than 5 million households with worst-case housing needs, 75% had
extremely low incomes (30% of area median income or below).
A family’s need for a voucher can be perceived in one of two ways: the family’s
income is too low, or housing prices in a community are too high, for a family to
avoid paying an excessive percentage of its income toward housing costs. Either
way, there were only 42 available units for every 100 extremely low-income renters
in the United States with rent that would have required 30% or less of an extremely
low-income family’s income in 2001. This means, theoretically, that only about two
out of every five extremely low-income renters in the U.S. could find housing that
was “affordable.” This ratio had remained steady since the 1999 American Housing
Survey. The odds are better for households as their incomes rise. For families
earning up to 50% of area median income in 2001, there were about 76 units
available and affordable for every 100 families. However, this availability shows a
decline from 1999, when there were 78 affordable and available units for every 100
very low-income families.11
As a result of the large number of families who could be eligible for a voucher
relative to the small number of vouchers available, most PHAs maintain waiting lists.
In some jurisdictions, these lists are many years long and in others, the lists are
11 Data cited in the previous two paragraphs are taken from HUD analysis of 2001 American
Housing Survey data as presented in the report Trends in Worst Case Needs for Housing,
1978-1999: A Report to Congress on Worst Case Housing Needs, plus Update on Worst
Case Needs in 2001, Office of Policy Development and Research, Department of Housing
and Urban Development, Dec. 2003.

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CRS-7
closed. In the case of project-based vouchers, PHAs allow landlords to keep separate
waiting lists for their buildings, which can also be long.
Table 3 displays the characteristics of families who used vouchers in 2000 (the
most recent version of this analysis available). As illustrated below, over one-third
of all voucher households were elderly or disabled. Of those who were not elderly
and not disabled, over half were employed and about a quarter were receiving income
from TANF (or state funded general assistance). The median length of stay in the
voucher program was just over three years for all households, with the elderly staying
in the program the longest and families with children moving out of the program the
fastest.
Table 3. Characteristics of Voucher Recipients, 2000
Household type
Percent of all voucher recipients
Elderly Head of Household (HH)
17%
Disabled HH
22%
All non-elderly, non-disabled HH
61%
Non-elderly, non-disabled HH, with children
53%
Source of income
Percent of non-elderly, non-disabled
voucher recipients
Income from work
57%
No welfare
50%
Plus welfare
6%
Income from welfare but not work
21%
Income from other sourcesa 22%
Zero income
6%
Household type
Average earnings
Non-elderly, non-disabled HH
$12,074
With no welfare
$12,506
With some welfare
$8,580
Median length of stay in voucher
Household type
program (in years)
Elderly HH
5.3
Disabled HH
3.0
Non-elderly, non-disabled HH
(with children)
2.6
Non-elderly, non-disabled HH
(without children)
3.8

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CRS-8
Source: CRS reproduction of data found in Jeffrey M. Lubell, Mark Shroder, Barry Steffen, “Work
Participation and Length of Stay in HUD-Assisted Housing,” Cityscape, vol. 6, no. 2 (2003); authors
used HUD 2000 data.
a. This category includes income sources such as child support and/or gifts as well as reports of zero
income.
Note: “HH” stands for “Head of Household.” A family is defined as elderly or disabled based on
whether the head of the household is elderly or disabled, not on whether any member of the household
is elderly or disabled.
Special-Purpose Vouchers. The voucher program also has several special
programs or uses. These include family unification vouchers and vouchers used for
homeownership. Family unification vouchers are given to families for whom the
lack of adequate housing is a primary factor in the separation, or threat of imminent
separation, of children from their families or in preventing the reunification of the
children with their families. According to the Child Welfare League of America,
HUD has awarded 33,497 family unification vouchers to PHAs since the inception
of the program.12
While there are no specifically authorized “homeownership vouchers,” since
2000 certain families have been eligible to use their vouchers to help pay for the
monthly costs associated with homeownership. Eligible families must work full-time
or be elderly or disabled, be first-time homebuyers, and agree to complete first-time
homebuyer counseling. PHAs can choose whether to run a homeownership program
and an increasing number of PHAs are choosing to do so. According to HUD’s
FY2004 Performance and Accountability Report, a total of 2,052 homeowners were
assisted with vouchers in FY2004.
Two large-scale demonstrations are currently underway in the Section 8 voucher
program. The Moving to Opportunity Fair Housing Demonstration (MTO) was
authorized in 1992 (P.L. 102-550, P.L. 102-139). MTO combines housing counseling
and services with tenant-based vouchers to help very low-income families with children
move to areas with low concentrations of poverty. The experimental demonstration was
designed to test the premise that changes in an individual’s neighborhood environment
can change his or her life chances. Since participating families were selected between
1994 and 1998, the full results of the 10-year demonstration are not yet available.
However, HUD has published several interim evaluations of the short- and mid-term
impacts of MTO. They have found some improvements in housing quality,
neighborhood conditions, safety and child and adult health for families that moved to
lower-poverty areas. Mixed effects were found on youth delinquency and risky behavior.
12 HUD awarded 33,497 FUP vouchers from 1992 to 2001. Each award included five years
of funding per voucher and the voucher’s use was restricted to FUP-eligible families for
those five years. At the end of those five years, PHAs were eligible to convert those FUP
vouchers to regular vouchers. While the five-year use restrictions have expired for all FUP
vouchers, according to surveys conducted by the Child Welfare League of America, the vast
majority of PHAs have continued to use their original FUP vouchers for FUP-eligible
families and some have even chosen to use some regular-purpose vouchers for FUP families.
As a result of these two factors, it is unclear how many families are receiving FUP vouchers
at this time.

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CRS-9
Small positive impacts were found on child education, but no impacts have yet been seen
on employment, earnings, or receipt of public assistance.13
The Moving to Work Demonstration, authorized in 1996 (P.L. 104-134), was
created to give HUD and PHAs the flexibility to design and test various approaches
for providing and administering housing assistance. The goals were to: reduce
federal costs, provide work incentives to families, and expand housing choice. MTW
allows participating PHAs greater flexibility in determining how to use federal
Section 8 voucher and Public Housing funds. It also permits them to seek exemption
from most Public Housing and Housing Choice Voucher program rules. An
evaluation for MTW published in January 200414 reported:
The local flexibility and independence permitted under MTW appears to allow
strong, creative [P]HAs to experiment with innovative solutions to local
challenges, and to be more responsive to local conditions and priorities than is
often possible where federal program requirements limit the opportunity for
variation. But allowing local variation poses risks as well as provides potential
benefits. Under MTW, some [P]HAs, for instance, made mistakes that reduced
the resources available to address low-income housing needs, and some
implemented changes that disadvantaged particular groups of needy households
currently served under federal program rules. Moreover, some may object to the
likelihood that allowing significant variation across [P]HAs inevitably results in
some loss of consistency across communities.
Funding Structure and Recent Changes
in Appropriations Law
The funding structure of the Section 8 voucher program differs from many other
direct assistance programs for low-income families in that funds flow from the
federal government (HUD), through local field offices, directly to local PHAs.
Except for when acting as PHAs, states are not involved in administering the voucher
program and funds do not flow through them to reach the local level.
The voucher program is not an entitlement program, and its funding is
determined through the congressional appropriations process.15 However,
historically, Congress has funded the voucher program in a way similar to an
entitlement program — meaning the amount of appropriations was based on an
13 Moving to Opportunity Fair Housing Demonstration Program Interim Impacts
Evaluation, US Department of Housing and Urban Development, Prepared by Larry Orr,
et al., Abt Associates; and Lisa Sanbonmatsu, et al., National Bureau of Economic
Research, Sept. 2003.
14 Housing Agency Responses to Federal Deregulation: An Assessment of HUD’s “Moving
to Work” Demonstration, U.S. Department of Housing and Urban Development, Prepared
by Martin D. Abravanel, et al., Urban Institute, Jan. 2004.
15 See CRS Report RL32443, The Department of Housing and Urban Development: FY2005
Budget, by Richard Bourdon, Bruce Foote, Maggie McCarty, and Eugene Boyd, for a
detailed discussion of HUD appropriations.

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CRS-10
estimate of actual anticipated costs. Every year, Congress provided one year’s worth
of funding to cover program costs, based on the anticipated cost of vouchers
multiplied by the number of vouchers that Congress had previously authorized and
that required renewal. Since the size of a voucher is determined on the basis of a
statutory formula (the payment standard (or rent) minus a family’s contribution (30%
of income)), the cost of a voucher is largely predetermined by participating families’
incomes and rents in a community. However, beginning in FY2003 and continuing
into FY2004 and FY2005, Congress has changed the way that it funds the voucher
program, particularly the way it pays for the renewal of existing vouchers. These
changes, which have proved to be controversial, were designed to help curb the cost
of the program by shifting from an actual cost-driven model to a more traditional
discretionary funding model based on a fixed dollar amount.
In addition to renewal costs, Congress has also funded new vouchers,
administrative costs, and the costs of other initiatives. These are described in
detail below.
Renewal Costs
In order to continue to be available to families, vouchers require renewal when
their funding runs out. Recent changes enacted by Congress and implemented by
HUD have raised questions about whether the past practice of funding the voucher
program based on the expiration of existing contracts will be maintained in the
future.
FY2003 Funding Changes. Prior to FY2003, PHAs administering the
voucher program were funded based on their average annual per voucher cost from
the previous year, adjusted by an inflation factor, multiplied by the number of
vouchers that the PHA was authorized to lease.16 In the case that a PHA’s voucher
costs had increased faster than the inflation factor established by HUD, HUD
maintained a reserve equal to one month of voucher funding on behalf of each PHA.
However, few PHAs were able to lease 100% of their vouchers, so they typically
had more money in their budgets than they needed and rarely had to dip into their
one-month program reserves, even if their costs went up disproportionately. At the
end of the year, HUD and the PHA would reconcile their budgets, and HUD was
typically able to recapture unused funds from PHAs’ budgets.
In FY2003, Congress changed the way PHAs were funded in an attempt to limit
recaptures of unspent funds and provide funding levels that better reflected actual
use. Congress directed HUD to use PHAs’ average annual per voucher cost from the
previous year, increased by the inflation factor, and multiplied by the number of
vouchers the PHA could reasonably be expected to lease in that year. Specifically,
the law stated:
16 PHAs “lease” vouchers when they sign contracts with tenants and landlords under which
they agree to provide payments to landlords on behalf of tenants. Each PHA has a fixed
number of vouchers it is authorized to “lease.”

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CRS-11
The Secretary shall renew expiring section 8 tenant-based annual contributions
contracts for each public housing agency ... based on the total number of unit
months which were under lease as reported on the most recent end-of-year
financial statement submitted by the public housing agency to the Department,
adjusted by such additional information submitted by the public housing agency
to the Secretary which the Secretary determines to be timely and reliable
regarding the total number of unit months under lease at the time of renewal of
the annual contributions contract, and by applying an inflation factor based on
local or regional factors to the actual per unit cost as reported on such
statement.17
HUD implemented this provision so that PHAs’ budgets were based on their
utilization rates and costs as reported on their end of the year statements, or more
recent data, if available. Guidance released by HUD stated:
Renewal calculations under the [Federal Fiscal Year] 2003 Appropriation will
be based on the total number of unit months under lease and actual cost data, as
reported on the PHA’s most recent year-end settlement or as subsequently
submitted to HUD by the PHA. Actual costs will be adjusted by applying the
[Annual Adjustment Factors]. Expiring voucher funding increments will
generally be renewed for terms of three months. The use of the most recent
leasing and cost data and the short renewal terms will enable HUD to calculate
funding more accurately than previous procedures allowed.18
Congress also created a Central Reserve fund to be used by the Secretary to
replenish PHA one-month reserves in the event that PHAs had to use their reserves
to cover the costs of increased utilization or increased per voucher costs. The
language of the law stated in regard to the Central Reserve fund:
The Secretary may use amounts made available in such fund, as necessary, for
contract amendments resulting from a significant increase in the per unit cost of
vouchers or an increase in the total number of unit months under lease as
compared to the per unit cost or the total number of unit months provided for by
the annual contributions contract.19
FY2004 Funding Changes. The FY2004 appropriations law continued in
the direction of the FY2003 funding bill, directing HUD to fund PHAs based on
actual utilization of vouchers rather than on the total number of vouchers they were
authorized to lease. Moreover, the conference report that accompanied the FY2004
appropriations law stated that the conferees were concerned about “spiraling” cost
increases in the voucher program and that they expected the Secretary to control
costs. They stated:
The conferees are aware that the Secretary has the administrative authority to
control the rapidly rising costs of renewing expiring annual contributions
17 P.L. 108-7, Title II, Section (1).
18 HUD Notice PIH 2003-23, Issued Sept. 22, 2003.
19 P.L. 108-7, Title II, Section (2).

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CRS-12
contracts (ACC), including the budget based20 practice of renewing expiring
ACCs, and expect the Secretary to utilize these tools.21
The FY2004 appropriations language was changed from FY2003 and stated:
The Secretary shall renew expiring section 8 tenant based annual contributions
contracts for each public housing agency ... based on the total number of unit
months which were under lease as reported on the most recent end-of-year
financial statement submitted by the public housing agency to the Department,
or as adjusted by such additional information submitted by the public housing
agency to the Secretary as of August 1, 2003 (subject to verification), and by
applying an inflation factor based on local or regional factors to the actual per
unit cost.22
The FY2004 language also varied from the FY2003 language regarding how the
Central Reserve fund could be used. In FY2003, the Central Reserve fund could be
used to replenish PHA reserves that had been depleted due to either increased
utilization rates or increased costs. In FY2004, the language only allowed the
Secretary to use Central Reserve funds to replenish reserves depleted because of
increased utilization, not increased costs:
Language proposed by the House and Senate is not included to allow the Central
Fund to also be used for increased per unit costs as such costs have been
reflected in the amount provided for renewals.23
HUD issued a notice on April 22, 2004 (PIH 2004-7) implementing the FY2004
appropriations law. According to the notice, PHAs’ budgets would be based on their
utilization rates from their end-of-the-year statements, or more recent data if
available, and costs as reported on their end-of-the-year statements as of August 1,
2003, adjusted by the annual adjustment factor, but not adjusted by more recent data,
even if available. The notice stated that PHAs could appeal to the Secretary if they
could document rental costs that had risen higher than the inflation factor adopted by
HUD. On August 31, 2004, HUD granted the appeals requests of 380 out of
approximately 400 agencies that applied, but not necessarily to the full level
requested, distributing a total of an additional $160 million.24
FY2005 Funding Changes. The final FY2005 Consolidated Appropriations
Act moved the program further in the direction of budget-based funding. Under the
law (P.L. 108-447), the Secretary of HUD was directed to fund PHAs based on their
voucher costs and utilization rates as of May-July 2004 plus the HUD published
20 Budget-basing would provide PHAs with a budget based on a fixed dollar amount, rather
than a fixed number of vouchers.
21 H.Rept. 108-235, Title II.
22 P.L. 108-199, Title II, Section (1).
23 H.Rept. 108-401, Division G, Title II.
24 The $160 million came from a Central Reserve Fund created in the FY2004 appropriations
law to adjust agency budgets to reflect changes in the local rental market.

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CRS-13
annual adjustment factor (AAF). If an agency’s May-July data were not available,
HUD was directed to fund PHAs based on February-April 2004 data, or if that data
were not available, the agency’s most recently submitted year-end financial
statement, as of March 31, 2004. If the amount provided in the law was insufficient
to fund all PHA budgets under this formula, then the Secretary was directed to
prorate agency budgets. According to the conference report (H.Rept. 108-792),
PHAs are expected to manage their voucher programs within their budgets for
FY2005, regardless of their actual costs. The report also stated that “HUD shall
provide agencies with flexibility to adjust payment standards and portability policies
as necessary to manage within their 2005 budgets.” Finally, agency reserves were
reduced to the one-week level and no Central Reserve was provided to replenish
depleted reserves.
HUD published guidance implementing these provisions on December 8, 2004
(HUD Notice PIH 2005-1). Agencies received notification of their preliminary
budget levels on December 17, 2004. At that time, PHAs were directed to inform
HUD of any data irregularities within 10 days (although the deadline was later
extended through the end of December). The appeals were limited to data; agencies
were told that they could not appeal the formula used for calculating their budgets.
The final calculations, including a final proration factor, were published on January
21, 2005. Agencies were funded generally at 4.03% less than their May-July 2004
actual cost and utilization levels plus the 2005 AAF. This proration factor of just
under 96% was implemented because the amount of funding provided by Congress
for voucher renewals was not sufficient to fund agencies at 100% of the formula
amount.
The full implications of the funding requirements mandated by the FY2005
funding act are still unclear. Not enough funding was distributed to fund all
authorized vouchers at their most recent costs. According to CRS analysis of HUD
funding data, the median change in PHA renewal budgets from FY2004 to FY2005
was an increase of .17%. This number hides a wide variance; the 5th percentile
change was a decrease of 12% and the 95th percentile change was an increase of 14%.
According to the conference report:
PHAs are expected to manage utility costs, decreased tenant contributions and
protect the most at-risk families within these budgets.
The sum consequence of these funding changes, beginning with those enacted
for FY2003, has been to convert the program from a unit-based actual cost program
to a unit-based fixed cost program. Since the subsidies provided to families are
statutorily set (as roughly the difference between rent and 30% of income), PHAs
often have only limited control over their costs. In areas where they do have control,
such as in setting payment standards, selecting families from the waiting list, and
issuing vouchers, PHAs have made some changes. Some have lowered their payment
standards from 110% to 100% or less of FMR. Since changes in payment standards
only impact future families in the program, some PHAs have reduced rents paid to
landlords, some of whom have accepted the cut, others of whom will not renew
leases with families. PHAs may be selecting higher-income families from the
waiting list (for whom subsidy costs are lower), although they are still constrained

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CRS-14
by the 75% targeting requirement. Many PHAs have intentionally reduced their
utilization rates by not reissuing vouchers when families leave the program.
Agencies that have intentionally lowered their utilization rates in order to save money
in FY2004 likely encountered problems in FY2005 as their budgets were capped at
their costs and utilization rates as of the third quarter of FY2004. So, agencies with
low utilization rates may not be able to increase them as their budgets were reduced
to reflect that utilization rate and there is no Central Reserve fund in FY2005. It is
likely that, at least for some PHAs, these changes will result in fewer households
receiving vouchers in FY2005 than in previous years, and, if such changes continue,
possibly into FY2006.
New Voucher Costs
In past years, HUD has asked Congress to provide funds for new vouchers, in
addition to the costs of renewing existing vouchers. HUD typically requests funding
for two kinds of new vouchers: incremental vouchers and tenant protection, or
enhanced, vouchers.
Incremental vouchers are new vouchers that are often earmarked for a special
population, such as families transitioning from welfare to work or for non-elderly
disabled persons whose current housing has been designated as elderly-only. For
example, 50,000 Welfare-to-Work vouchers were authorized and funded25 in 1999.
Specifically, these vouchers are intended for families whose housing needs interfere
with their ability to obtain or retain employment. They were designed to be paired
with services such as job training, child care, and other work supports.
When Congress is deciding whether to authorize new incremental vouchers, one
consideration is that any new vouchers authorized in that year will come up for
renewal in the next year and each subsequent year — increasing the total cost of
maintaining the program. The cost of new vouchers is typically calculated by
multiplying the number of new vouchers to be authorized by the average annual per
voucher cost. When Congress has provided funding for this purpose in the past, it
has appropriated a specific amount of money to be used for new vouchers. For
example, in FY2002, Congress provided $143 million for new incremental vouchers
and indicated that the amount would be sufficient to fund 25,900 incremental
vouchers. Congress has not funded any incremental vouchers since FY2002.
Tenant protection vouchers are also new vouchers, but they are given to
families that were already receiving assistance through another HUD housing
program, before being displaced (e.g., a landlord is converting a subsidized property
to market-rate or units of public housing are being demolished). Since families
receiving tenant protection vouchers were typically subsidized through another
program (usually project-based Section 8), the creation of tenant protection vouchers
25 Vouchers are “authorized” when Congress provides funding for them in an appropriations
bill. While Congress currently funds vouchers in one-year increments — which is why new
vouchers are called incrementals — they have always been added to the number of vouchers
that require renewal when calculating the cost of the program for the next year.

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CRS-15
is generally not seen as a net increase in the number of people assisted, rather a shift
to vouchers from another form of assistance. Congress has typically funded all
needed tenant protection vouchers.
Administrative Fees
HUD pays fees to PHAs for administering the voucher program. Ongoing
administrative fees are generally calculated based on a percentage of the local fair
market rent (FMR), as determined by HUD. HUD has historically published the
administrative fee amounts for each jurisdiction annually in the Federal Register.
PHAs earn an ongoing fee for each voucher they are leasing in a year. PHAs can also
earn special fees for certain hard-to-house families and for starting a new voucher
program.
Prior to FY2003, the administrative fee was included as a part of the per
voucher cost, so administrative fee funding was included in renewal funding.
Beginning in FY2003, Congress provided HUD with separate funding for
administrative fees and directed HUD to ensure that administrative fee costs fell
within the amount appropriated. If the amount of administrative fees “earned” was
greater than the amount provided in appropriations, the Secretary was directed to
reduce administrative fees, down to the appropriated level. In FY2004, just over $1.2
billion was provided for administrative fees, which was not sufficient to fund all
PHAs at the amount they would have received using the figures published in the
Federal Register. Instead, agency administrative fees were distributed on a pro-rata
basis based on their previous year’s funding allocation. In FY2005, Congress
provided roughly the same funding level as in FY2004 and directed the Secretary
again to distribute the funds on a pro-rata basis.
Other Initiatives
In addition to funding the costs of vouchers and administrative fees, Congress
has also provided funding for other initiatives designed to support the voucher
program. The Family Self Sufficiency (FSS) program was established by Congress
as a part of the National Affordable Housing Act of 1990 (P.L. 101-625). The
purpose of the program is to promote coordination between the voucher program and
other private and public resources to enable families on public assistance to achieve
economic self-sufficiency. Families who participate in the program sign five-year
contracts in which they agree to work toward leaving public assistance. While in the
program, families can increase their incomes without increasing the amount they
contribute toward rent. The difference between what the family paid in rent before
joining the program and what they would owe as their income increases is deposited
into an escrow account that the family can access upon completion of the contract.
For example:
If a family with a welfare benefit of $450 per month begins working, earning
$800 per month, the family’s contribution towards rent increases from $135 per
month to $240 per month. Of that $240 the family is now paying towards rent,
$105 is deposited into an escrow account. After five years, the family will have

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CRS-16
$6,300 plus interest in an escrow account to use for whatever purpose the family
sees fit.
Congress’s role in the FSS program has been to provide funding for FSS
coordinators, who help families with vouchers connect with services, including job
training, child care, transportation and education. In FY2005, Congress provided $46
million for FSS coordinators.
The Cost of the Voucher Program
Arguably the largest Section 8 voucher issue facing Congress today is the cost
of the program. The amount of appropriations necessary to maintain the program at
its current level has increased significantly every year for the past several years. The
table below illustrates the large increases in both appropriations and spending over
the past five years. Note that separate voucher and project-based Section 8 budget
authority in some years and spending in all years are not available.26 As is illustrated
in Table 4 below, congressional appropriations have increased over 44% in the past
five years and the cost to the Federal Treasury has increased over 34% in the past
four years.
Table 4. Changes in Section 8 Housing Certificate Fund
Appropriations and Spending, FY2000-FY2005
(in millions of dollars)
Budget
authority
Voucher
Project-based
Outlays
(appropriation)
(appropriation)
(appropriation)
(spending)
2001
$13,941
NA
NA
$16,720
% change 00-01
22.5%
NA
NA
4.7%
2002
$15,536
NA
NA
$18,499
% change 01-02
11.4%
NA
NA
10.6%
2003
$17,116
$12,604
$4,507
$20,950
% change 02-03
10.2%
NA
NA
13.2%
2004 (est.)
$19,257
$14,186
$5,071
$22,356
% change 03-04
12.5%
12.6%
12.5%
6.7%
2005 (est.)
$20,064
$14,765
$5,298
NA
% change 04-05
4.2%
4.1%
4.5%
NA
% change 00-05
44.6%
NA
NA
34.1%a
Source: The Office of Management and Budget’s Public Budget Database and HUD FY2006 budget
documents.
26 HUD did not provide budget authority and outlay figures below the Housing Certificate
Fund level prior to FY2004. However, separate budget authority figures were provided for
FY2003 and FY2004 as a part of the President’s FY2004 and FY2005 budget requests to
accompany legislative reform proposals that proposed to split the accounts.

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CRS-17
a. Since FY2005 outlay data are not available, the cumulative outlay change shown is from FY2000-
2004.
Note: Outlays are higher than budget authority in each year because spending occurs in out-years
under long-term contracts, for which multiple years of appropriations were provided up-front.
Given current questions about the state of the economy, growing deficits, and
congressional priorities, funds available for domestic social programs have been
limited and will likely continue to be restricted in the immediate future. These
budget pressures have resulted in calls to restrain cost growth in the Section 8
voucher program. However, before debating the merits of reducing the program or
exploring ways to restrain costs, it is important to understand why costs have been
rising. Costs in the voucher program are determined by the individual value of each
voucher subsidy and by the number of vouchers funded. Recent increases in both the
number of vouchers funded and their cost can be attributed to a number of factors.
New Vouchers. Part of the increase in the cost of Section 8 vouchers can be
attributed to expansions in the program. Over the past several years, Congress has
provided appropriations for an increasing number of vouchers (see Table 5 below).
Congress has created more than 200,000 new incremental vouchers since 1999,
although no new incremental vouchers have been created since 2002.
Table 5. Incremental Vouchers Created and Funded,
FY1999-FY2005
FY1999
FY2000
FY2001
FY2002
FY2003
FY2004
FY2005
Incremental
vouchers
50,000
60,000
79,000
26,900
0
0
0
Source: CRS table based on information from HUD budget documents.
Although nearly a quarter of a million new vouchers have been created over the
past several years, they do not fully explain the increased cost of the program. Table
6 shows the actual and relative change in the number of subsidies funded in the
combined voucher and project-based programs over the past five years. As can be
seen by comparing Table 6 and Table 4, both appropriations (budget authority) and
spending (outlays) have increased much more rapidly than the number of subsidies
eligible for funding. While appropriations have increased over 44% between
FY2000 and FY2005 and spending has increased more than 34% between FY2000
and FY2004, the number of subsidies funded in the Section 8 program has increased
only about 2.3%.27
27 Part of the increase in increase in vouchers (9% as shown in Table 6) is attributable to
new tenant protection vouchers being added to the vouchers eligible for payment. As noted
earlier, tenant protection vouchers are used to subsidize families that are currently receiving
assistance under another HUD program but whose assistance will be ending, such as when
public housing is demolished or when project-based Section 8 contracts expire and the
owners opt not to renew.

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CRS-18
Table 6. Section 8 Vouchers and Project-based Units Eligible
for Payment, FY2000-FY2005
(in thousands of subsidies)
Project-based
Vouchers
Units Total
units
2001
1,966
1,343
3,309
% change 2000-2001
7.0%
-1.2%
3.5%
2002
1,997
1,328
3,326
% change 2001-2002
1.6%
-1.1%
0.5%
2003
2,095
1,276
3,371
% change 2002-2003
4.9%
-3.9%
1.4%
2004
2,136
1,247
3,384
% change 2003-2004
2.0%
-2.3%
0.4%
2005
2,142
1,244
3,386
% change 2004-2005
0.3%
-0.2%
0.1%
% change 2000-2005
9%
-7.4%
2.3%
Source: Data for 1999-2002 are taken from HUD FY2002 Performance and Accountability Report,
pp. 1-15; data for 2003 and 2004 are taken from HUD FY2005 Congressional Budget Justification,
p. T-1; data for 2005 are calculated by CRS based on HUD schedules of voucher expirations.
Vouchers in 2005 include Moderate Rehabilitation units and 25,927 project-based contracts that are
anticipated to convert to vouchers.
Utilization Rates. A PHA’s “utilization rate” is the higher of the percentage
of (1) its annual budget used in a year; or (2) its authorized vouchers actually under
lease. Utilization of 100% is unrealistic because it takes time for families who have
been given vouchers to find units. Sometimes, in tight housing markets, families
cannot find housing with their vouchers and they have to give them back to the PHA.
When this happens, a subsidy and its corresponding funding go unused for a number
of months. Ultimately, PHAs are expected to have utilization rates of at least 95%28
— meaning that they are leasing at least 95% of their units or spending at least 95%
of their money. However, as shown in Table 7 below, until recent years, national
utilization rates were much lower.
28 According to HUD’s Housing Choice Voucher Guidebook, 95% utilization is considered
standard performance and 98% is considered high performance.

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CRS-19
Table 7. Section 8 Voucher Utilization Rates, FY2000-FY2004
2000
2001
2002
2003
2004
Utilization rates
91.5%
91.6%
94.0%
97.4%
98.5%
Source: Table prepared by CRS using data from the Department of Housing and Urban Development.
The 2002 and 2003 figures taken from HUD 2003 Performance and Accountability Report. The 2000
and 2001 figures are taken from the printed version of a hearing before the Subcommittee on VA,
HUD and Independent Agencies, Hearing on the FY2003 HUD budget, 107th Congress, 2nd Session,
Mar. 19, 2002, document Part 6. The FY2004 estimate is taken from HUD 2005 Annual Performance
and Accountability Report. Note that the 2004 rate is calculated based on the four quarters July 1,
2003 to June 30, 2004, rather than the fiscal or calendar year. Given the program changes enacted in
2004, it is possible that the calendar year utilization would be lower.
Even with little expansion in the number of vouchers eligible for payment, if
more existing vouchers are used, then the cost of the program, in the form of outlays,
can increase. Recent and rapid increases in voucher utilization rates may explain part
of the recent increase in outlays for the voucher program.
Changes in utilization rates can also impact the amount of new budget authority
needed to maintain the program. HUD recaptures any unspent funds from PHA
budgets at the end of every year and makes those funds available to Congress to
rescind in the following year. When Congress rescinds those recaptured funds, they
are able to offset part of the cost of the program. When utilization rates increase,
PHAs spend more money, leaving less money available for recapture. Since it takes
one or more years for the recaptured funds to be made available for rescission by
Congress, one would expect to see a lag of one or two years from an increase in
utilization to result in a decrease in the amount of funds available for rescission.
Additionally, since HUD estimates its budget more than a year in advance, one would
expect a further lag in HUD’s estimate of the amount available for rescission. Thus,
it is likely that smaller amounts will be available for rescission over the next several
years because of the sharp increases in utilization in 2002 and 2003.
Table 8 shows past rescission levels and net budget authority. Note that the
spike in the amount rescinded in FY2004 was in part the result of over a billion
dollars in savings from a one-time accounting change in the program. Without that
change, HUD anticipated $1.37 billion would be available for rescission from
unobligated balances in FY2004. It is also important to note that unobligated
balances available for recapture do not come solely from low utilization rates.
(Another reason that excess balances may accumulate is that excess funding of long-
term contracts becomes available when those contracts expire.) Therefore, it is
impossible to estimate how much changes in unobligated balances result from
changes in utilization, although, conceptually, it is known that the two are related.

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CRS-20
Table 8. Budget Authority and Net Budget Authority for the
Section 8 Program, FY2000-FY2004
(in millions of dollars)
FY2000
FY2001
FY2002
FY2003
FY2004
FY2005
Budget authority
$11,377
13,941
15,536
17,116
19,257
20,064
Rescission
-2,341
-1,971
-1,588
-1,600
-2,844
-1,557
Net budget authority
9,036
11,970
13,948
15,516
16,413
18,507
Source: The Office of Management and Budget’s Public Budget Database.
Changes enacted in FY2003, described earlier in this report, may further
increase the importance of utilization rates in determining the cost of the voucher
program. Prior to FY2003, Congress funded the program based on the average cost
of a voucher multiplied by the total number of vouchers eligible for payment. As a
result, the number of vouchers actually used was not a factor in calculating the
budget authority needed for the program. Beginning in FY2003, Congress began to
fund only the vouchers that could reasonably be expected to be used in a given year,
based on current utilization rates. This led to a savings in FY2003. However, if
utilization rates remain high or increase further, this funding methodology will
continue to result in a need for increased budget authority for vouchers.
Expiring Contracts. The expiration of long-term Section 8 contracts has
also contributed to the need for increasing appropriations in the voucher program.
In the early years of the Section 8 program, contracts were written between HUD and
landlords for many years at a time — up to 20 to 40 years. This practice required
Congress to provide many years of budget authority up front for each subsidy. In
order to reduce up front costs, Congress decided to shorten contract terms. Today,
Congress provides one year of budget authority for each voucher it funds, so
contracts are only written for one year at a time.
Starting in the 1990s, those earlier long-term contracts began to expire, and
Congress began to be faced with the choice of whether or not to fund renewals. Thus
far, Congress has chosen to provide funding to renew each contract that has expired.
For vouchers, “renewal” means that each long-term voucher contract that expires is
replaced with another voucher under a one-year contract. For old project-based
Section 8 contracts, renewal can mean a couple of different things. If a landlord
agrees to stay in the program, then his or her contract is renewed and funded under
the current project-based component of Section 8. If the landlord decides to leave the
program and not renew his or her contract, then each displaced household can receive
a tenant protection voucher. This increases the size and funding needs of the voucher
program, although it does not increase the total number of people served within the
overall Section 8 program.
If Congress continues to provide sufficient funding to renew all expiring
contracts, costs will continue to grow for a number of years. Each year, Congress
will face the decision of whether to provide additional appropriations for Section 8

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CRS-21
— on top of the amount needed to cover increasing housing costs and/or new
vouchers — just to maintain the program at its current level. For example, according
to HUD data, in 2005, 3,059,364 (2,109,724 voucher and 949,640 project-based)
contracts required new funds in order to prevent them from expiring. Those same
contracts will expire again in 2006 without continued congressional funding, as will
another 28,041 (2,639 voucher and 21,967 project-based) that had been funded under
long-term contracts that are ending. As a result, Congress will need to pay for over
28,000 additional contracts in 2006 just to prevent any households from losing their
subsidies.
Figure 1 illustrates the number of Section 8 subsidies (vouchers, project-based
units, and tenant protection vouchers for tenants whose landlords opt out of the
program) that will require new funding each year, in addition to those that were
funded in 2005, if Congress chooses to renew them.
Figure 1. Expiring Long-Term Section 8 Project-based
Contracts and Vouchers that Would Require Renewal
over the Next 10 Years
45,000
40,000
35,000
30,000
25,000
20,000
15,000
10,000
5,000
0
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
Project Based Contracts 21,967 17,676 15,246 34,994 42,332 34,274 27,165 20,256 8,746 3,507 5,288
Voucher Contracts
2639
1692
916
622
443
148
245
18
0
0
0
Source: CRS analysis of HUD data provided to the Congressional Budget Office (CBO).
Although the renewal costs of these expiring long-term contracts may be
expensive, non-renewal has a number of consequences. Non-renewal could result in
a reduction in the number of households assisted by HUD if there are not enough
appropriated funds to guarantee vouchers. Some tenants who are currently assisted
could face unaffordable rent increases that would force displacement or eviction.

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CRS-22
Furthermore, these assisted units represent a portion of the affordable housing stock
and, in some parts of the country, they may be the main source of low-cost housing.
This is particularly true of larger (three- and four-bedroom) and/or accessible units.
If their contracts are not renewed and the rents revert to market rate, there will likely
be a net loss in the amount of housing available for these families at an affordable
cost.
Fair Market Rents. FMRs are calculated as the 40th percentile median rent
in each part of the country and are meant to represent the cost of modest housing. In
some communities with high geographic concentrations of families living in poverty,
HUD sets FMRs at the 50th percentile rent. FMRs are presented by bedroom size and
are the basis upon which PHAs set the value of vouchers. As the table below shows,
FMRs for three recent years rose faster than inflation as defined by the CPI-U, which
is a measure of all other spending on consumer goods in the economy. Since FMRs
are the basis for setting voucher size, the faster they rise, the more expensive the
voucher program becomes.
Table 9. National Average Population-Weighted Changes in Fair
Market Rents for Two-Bedroom Apartments
from the Previous Year
1999-
2000-
2001-
2002-
2003-
2000
2001
2002
2003
2004
% Change in two-bedroom FMR
2.8
2.5
5.1
5.6
2.6
% Change in general inflation
(CPI-U)
3.5
2.6
1.5
2.3
2.5
Source: Unpublished HUD calculations of population-weighted FMRs provided to CRS and the
Bureau of Labor Statistics Consumer Price Index for all Urban Wage Earners September Unadjusted
12 month averages of each year.
Note: Average national changes in FMRs are weighted based on 1990 Census total population figures.
Payment Standards. Increases in the cost of vouchers are partly attributable
to increases in the maximum subsidy paid by a PHA, called the payment standard.
Prior to the 1999 Quality Housing and Work Opportunity Reconciliation Act
(QHWRA) (P.L. 105-276), which reformed public and assisted housing law, PHAs
were able to set payment standards between 80-100% of the FMR. (For a discussion
of payment standards, and their relationship to FMRs, see page 5 of this report.)
QHWRA changed the available range of payment standards to 90-110% of the FMR.
Many PHAs took advantage of this change and increased their payment standards.
According to HUD, in December 2000, the average payment standard was equal to
95% of the average FMR, but by December 2003, the average payment standard was
equal to 104% of the average FMR.29 PHAs raise their payment standards for a
number of reasons. When rental markets are tight and rents are rising, PHAs may
29 The Flexible Voucher Program: Why A New Approach to Housing Subsidy Is Needed —
A White Paper, May 18, 2004, available from the Department of Housing and Urban
Development, at [http://www.hud.gov/offices/pih/programs/hcv/fvp/wponfvp.pdf].

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CRS-23
increase their payment standards in order to make it easier for families to find
housing. Since PHAs can change payment standards faster than FMRs are updated,
PHAs can increase or decrease payment standards in reaction to rapid changes in the
rental market. Further, PHAs can increase payment standards for certain populations
who have greater difficulty finding units, such as larger families or individuals with
physical disabilities, in order to expand the range of housing available to them.
Finally, PHAs can increase payment standards to allow families to move to areas
with lower concentrations of poverty. Some have argued that the rapid increases in
payment standards adopted by PHAs have unnecessarily increased the cost of the
program and that Section 8 rents now lead the market rather than reflect the cost of
modest housing in the market.
Options for Restraining or Reducing Costs
If the goals of the Section 8 Housing Choice Voucher program are to provide
safe, decent, and affordable housing to low-income families, then the program has
had some success in meeting those goals for the over 2 million households currently
being served. Families with vouchers generally pay an “affordable” share of their
incomes towards rent to live in housing that must be certified as at least standard
quality. However, a tension has been growing in recent years between the desire to
meet these program goals — including new and expensive goals such as
deconcentrating poverty and moving families into homeownership — in the face of
large unmet need, while also controlling costs.
While the remainder of this report will focus on cost-saving reform proposals,
since that has been the focus of recent congressional debate, it is important to note
that these are not the only possible program changes. Some low-income housing
advocates have argued that, rather than trying to reduce the costs of the program,
Congress should focus on ways to expand the program, which they consider to be
largely successful, to serve more families while fixing any problems in the current
program, such as work disincentives or administrative complexity. Others argue that
recent cost increases are largely explainable and reasonable given the rental housing
market and recent policy changes, and that cost-saving reforms are not necessary as
costs are unlikely to continue to increase at the same pace. Instead, they argue,
Congress should focus its attention on program improvements, which may in fact
increase costs, but would better meet the needs of low-income families.
If the focus of Congress continues to be the restraint of program costs, several
options exist. One approach is to maintain the current funding structure while
making incremental changes to the program design in order to cut costs and/or
improve effectiveness and efficiency. Another option would be to convert the current
voucher program into a broader-purpose grant program with fixed funding, as
proposed by the Bush Administration, and allow PHAs or states to make more
decisions about program rules and goals.

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CRS-24
Maintain Current Funding Structure
In its current funding structure, the cost of the Section 8 voucher program is
largely determined by rents and wages. If Congress wishes to reduce the costs of the
program while maintaining its current program structure, it could enact policies that
would influence either the rental or labor markets to reduce rents or increase wages.
Options include subsidizing the construction of lower-cost housing, making changes
to the minimum wage, or undertaking other efforts through taxes or education and
training programs designed to increase families’ incomes. All of these options have
a number of pros and cons beyond their influence on the Section 8 voucher program.
As noted earlier, the cost of the current voucher program is driven by the goals of the
program and the structure of the benefit, which is contingent on rents and incomes.
In order to reduce the costs in the program while largely maintaining its current
structure, the goals of the current program may need to be changed.
Redefining “Safe” and “Decent”. The voucher program requires that
participating units meet federally established Housing Quality Standards (HQS).
Some argue that the standards are too strict and that they disallow more modest, and
therefore more affordable, housing. Some advocate lessening HQS to expand the
pool of available lower-cost housing for voucher-holders, thus reducing subsidy
levels. Others argue that the standards are important to prevent federal dollars from
flowing to slumlords. They credit HQS with helping to increase the generally high
quality of the nation’s housing stock.
One reason that subsidy levels have increased is that PHAs have been
encouraged to use vouchers to promote the deconcentration of poverty. Congress has
intentionally increased the value of a voucher to support this goal. For example,
Congress has allowed HUD to expand the FMR to 50% of median rent in areas with
high concentrations of poverty. Congress has also allowed PHAs to increase
payment standards up to 110% of local FMR without prior HUD approval and up to
120% with prior HUD approval, in part to promote the deconcentration of poverty
by expanding housing options for families. Higher-value vouchers give families
more options when choosing where to live, including in “better” neighborhoods.
While studies have found different levels of impact, it is generally agreed that areas
with lower poverty and crime are better for families. On the other hand, some argue
that, under the guise of deconcentrating poverty, PHAs have allowed subsidy costs
to soar, and families with vouchers are now living in housing that is higher quality
than was ever intended under the program.
Redefining “Affordable”. Another option for lowering the cost of the
voucher program is to make the subsidies more shallow by requiring families to pay
greater shares of their incomes toward rent. It is generally accepted that housing is
affordable for low-income families if it costs no more than 30% of their adjusted
gross income. The rationale behind the 30% figure is that low-income families need
the full remaining 70% to meet their other needs. However, this figure is somewhat
arbitrary. For some families with little work, transportation, medical, child care, or
other outside costs, 40% or even 50% of income might be the most reasonable
contribution toward housing costs. In fact, the current voucher program allows
families to choose to pay up to 40% of their incomes toward housing costs initially,
and even greater upon renewal of a lease. For other families, with high work,

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CRS-25
transportation, medical, child care, or other outside costs, some percentage lower than
30% might be the most reasonable contribution. Critics of the current rent
calculation generally argue for one of two changes: increase the amount of income
a family can pay toward rent or decouple rent from income by adopting flat rents.
Unless flat rents were set low, either change would result in shallower subsidies paid
to families. Shallower subsidies would allow PHAs to either save money or serve
more people with the same amount of money.
Some argue that serving more people by providing shallower subsidies would
be more equitable than the current system under which families in the same
circumstances do not necessarily get the same benefit. The horizontal inequity
results from the fact that there is not enough funding in the program to provide
vouchers to all eligible families, so some families receive large subsidies while other
families with the same financial situation, receive no subsidy.
Another argument in favor of moving from an income-based rent to a flat rent
concerns administrative ease. The complicated rent calculation, paired with the
difficulty of verifying the incomes of tenants, has led to high levels of error in the
subsidy calculation. According to a HUD 2001 Quality Control study, 60% of all
rent and subsidy calculations contained some type of error. HUD has estimated an
annual $2 billion in subsidy over- and under-payments in the Section 8 voucher
program. Beginning with the FY2003 Consolidated Appropriations Act (P.L. 108-7),
HUD has access to the National Directory of New Hires, a database that may allow
PHAs to better verify income data. This new option may help PHAs increase their
accuracy. However, some argue that the rent calculation itself is flawed. Since rent
goes up as income goes up, families have a disincentive to increase earnings and/or
an incentive to hide income. Furthermore, PHAs are directed to predict future
income based on past income history when determining the value of a voucher. As
work and income levels are often unstable in the low-wage job market, this can prove
a difficult task and can often result in miscalculations. Some argue that the only way
to reduce errors to an acceptable level is to adopt flat rents.
Low-income housing advocates are generally opposed to increasing the amount
of rent paid by families because they fear that families will not be able to meet their
other basic needs. They are also concerned that if the subsidies are made more
shallow, families will be unable to find housing with them.
Redefining “Low-Income”. Several options for reducing costs are centered
around the way the program defines eligibility and income. One option for lowering
the cost of the voucher program while maintaining its current structure would be to
subsidize higher-income families. Eligibility for the program could be increased, for
example, up to 80% of area median income. Additionally, the current requirement
that 75% of all subsidies be targeted at households at 30% or below area median
income could be reduced or eliminated. Since subsidy levels are tied to incomes, the
higher the family’s income, the lower the subsidy paid by the PHA. Raising
eligibility levels and loosening targeting requirements could result in either cost
savings, or the ability to serve more families with the same amount of money. Low-
income housing advocates support retaining current income eligibility and targeting
requirements. They argue that since the lowest-income households face the heaviest
rent burdens, they are the most needy of assistance and should therefore receive it.

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CRS-26
Another potential concern is that increasing the income standard increases the
number of households eligible for the program without necessarily increasing the
amount of money available for the program, exacerbating the horizontal inequity
problem.
Another option, outside of targeting higher-income families, is to give
incentives to families to increase their work efforts and therefore their incomes.
Non-elderly, non-disabled families could be encouraged to work through expansions
in the Family Self-Sufficiency program, or by the institution of time limits and/or
work requirements. Low-income housing advocates generally support expanding the
FSS program, which encourages work and increases in earnings. However,
expanding FSS would not result in cost savings, since as families incomes rise, their
rent increases are deposited in an escrow account.
The rent calculation in the Section 8 program has come under criticism for
discouraging work. As a family’s income rises in the voucher program, the amount
the family pays for rent rises, since a tenant’s contribution is based on income.
Families with Section 8 subsidies face an effective 30% tax on any increase in
earnings. In order to get around this problem in the Public Housing program,
Congress has instituted a mandatory income disregard. No such mandatory
requirements exist in the voucher program. Currently, in the voucher program, if
PHAs choose to disregard increased earnings, they must pay for it out of their own
budgets or face sanctions from HUD for not accurately calculating subsidies.
Adopting mandatory earned income disregards could help eliminate the disincentives
to work, but they do not decrease the cost of the subsidy.
Also, under the voucher program, there is currently no work requirement. The
Public Housing program does have a mandatory eight-hour work or community
service requirement for non-elderly, non-disabled tenants; however, most public
housing residents are exempted and it is unclear how thoroughly the provision has
been implemented.30 Adopting a strict work requirement in the voucher program
may help encourage non-elderly, non-disabled households that are not currently
working to go to work; however, it may not increase their incomes. Even with a
strict work requirement, research based on the 1996 welfare reform changes (P.L.
104-193) indicates that, for many poor families, increases in work do not necessarily
translate into greater total income and that most households who are not currently
working need a number of work supports (such as child care and transportation
assistance) in order to make them successful in becoming financially self-sufficient.
Such supportive services are not currently part of the voucher program and would
require additional funding.
Create New Program
In order to constrain costs, some argue that the existing voucher program should
be dismantled and replaced with a new, broader-purpose grant program. They argue
30 For more information on the community service/work requirement in public housing, see
CRS Report RS21591, Community Service Requirement for Residents of Public Housing,
by Maggie McCarty.

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CRS-27
that the current rules and regulations are too cumbersome to allow for efficiency, the
current income-based rent calculation is inherently flawed and that the unit-based
funding system has given PHAs no incentive to restrain costs. Additionally, the
current program is a discretionary program, but its unique unit-based funding
structure has put Congress in a difficult position when it comes to funding it
“sufficiently,” in that Congress is pressured by advocacy groups to renew each
expiring voucher regardless of its cost so that no families are displaced. By not
funding individual vouchers, but by creating a broader program, this annual funding
dilemma would be eliminated and Congress could fund the program at a level that
it deems appropriate given other priorities, rather than the amount calculated based
on the difference between rents and incomes in communities across the country. At
the same time, decoupling funding from individual vouchers may make it easier for
Congress to reduce overall funding for the program, which is a concern raised by
low-income housing advocates. The Bush Administration had made the argument
to convert the program and unsuccessfully proposed two initiatives during the 108th
Congress, which are described below. According to the Administration’s FY2006
budget documents, a similar reform proposal will be offered in the 109th Congress,
although it is not yet clear what form it will take (see the next section of this report
for information about the Administration’s FY2006 budget proposals).
Housing Assistance for Needy Families (HANF). The HANF program
(H.R. 1841 and S. 947, 108th Congress) was a Bush Administration initiative during
the first session of the 108th Congress that would have replaced the existing tenant-
based voucher program that is administered by local PHAs with a block grant
provided to states. Rather than receiving funding for a fixed number of units, states
would have received a fixed budget, proportional to the amount of funds the state
was receiving under the Housing Choice Voucher program. Under HANF, the
Secretary of HUD would have been able to lower the 75% targeting requirement to
55%, impose minimum rents, increase eligibility to 80% of area median income and
reduce the frequency of HQS inspections from annually to every three years.
Low-income housing advocates opposed HANF out of concern that it would
lead to an erosion of funding and that it would not serve low-income families
adequately. PHA groups opposed the proposal to transfer administration to states and
also voiced concerns about erosion in funding levels. HANF was not acted upon in
the 108th Congress, although multiple hearings were held.
The Flexible Voucher Program. The President’s Flexible Voucher
Program (FVP), recommended in the second session of the 108th Congress as a part
of the FY2005 budget request, would have converted the existing unit-based voucher
program into a broader-purpose grant program. Under the FVP proposal, PHAs
would have received a fixed number of dollars that they could have used to serve as
many families as they chose. The proposal would have made other significant
changes to the program, which are illustrated in the table below.

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CRS-28
Table 10. Comparison of FVP Proposal to Existing Program
Housing choice voucher program
FVP
Eligibility
Families are generally eligible if their
Families would be eligible if their
adjusted gross incomes are 50% or
gross incomes were 80% or below
below area median income. 75% of
area median income. The FVP would
all vouchers must be targeted to
have no targeting requirements.
households with adjusted gross
Income would be reexamined every
incomes at 30% or below area median
other year and every three years for
income. Income must be reexamined
elderly or disabled households.
annually.
Subsidy level
A voucher is worth roughly the
PHAs could provide whatever subsidy
difference between 90-110% of the
level they chose. If the PHA provided
fair market rent minus 30% of a
downpayment assistance, the
household’s adjusted gross income.
maximum grant would be $10,000.
In FY2004, CBO estimates that the
average voucher is worth $6,483 per
year.
Housing
Units must be inspected prior to a
Units would be required to be
quality
family’s occupancy to ensure that they
inspected within 60 days of a family’s
standards
meet federal HQS standards, or, if the
occupancy to ensure that they meet
PHA chooses, state or local HQS
the local, state or federal HQS
standards, if they are stricter. Each
standards, as chosen by the PHA.
unit under contract must be
One-quarter of all units under
reinspected annually.
contract with the PHA would be
required to be reinspected annually.
Administrative
Administrative fees are paid to PHAs
Administrative fees would be capped
fees
on a per unit basis calculated roughly
at 7% of the grant amount.
as a percentage of FMR, as published
Performance- and incentive-based
in the Federal Register. Recently, the
fees would be available at the
t o t a l amo unt availab l e fo r
Secretary’s discretion.
administrative fees has been capped
by appropriations laws.
Source: Congressional Research Service
The conversion of the Section 8 Housing Choice Voucher program to a broader
purpose grant program, such as FVP, would have multiple implications, which are
discussed below.
Flexibility. The current voucher program is governed by hundreds of pages of
regulations and guidance that make the program, some argue, overly prescriptive and
difficult to administer. Supporters of the FVP proposal, or broader purpose grants
in general, advocate a block grant approach as a way to allow PHAs the flexibility
to meet their local needs and priorities. Fewer rules and regulations may make the
voucher program easier to coordinate with other social service programs and PHAs
have long asked for greater administrative flexibility. However, PHA advocacy
groups have not come out in support of recent legislative reform proposals; they
contend that the greatest administrative burdens are found in the regulations
governing the current voucher program and that the Secretary could provide greater
flexibility without this larger legislative restructuring.

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CRS-29
Critics of a block grant approach, and additional administrative flexibility more
broadly, contend that many of the current rules governing the voucher program are
designed to protect voucher recipients. They worry that the needs of low-income
families could go unmet if current rules (i.e., HQS, portability, income targeting,
income-based rent, etc.) are abandoned.
Promoting Work. The Administration testified before the Senate
Appropriations Committee, VA, HUD, and Independent Agencies Subcommittee,31
that:
The current system fails to support families making the transition from public
assistance to self-reliance and work, and in doing so reduces the number of
families that could be helped for a given amount of money. Under the reform, the
voucher program would be a means for families to transition to a better life, and
more of them will be helped.
As discussed earlier in this report, time limits and work requirements are not
currently features of the voucher program. The FVP proposal appears to encourage
PHAs to move families off of assistance, consistent with the goals of welfare reform.
However, critics of FVP note that almost half of the voucher caseload is made up of
elderly and disabled families, families who do not use TANF and are not generally
expected to work. Of the non-elderly, non-disabled, about half are already currently
employed. Critics question whether low-income working families and elderly and
disabled families could transition off rental assistance when it is difficult for them to
increase their incomes and housing costs continue to rise. Their argument is
supported by HUD’s 2004 Annual Performance and Accountability Report (page 2-
65), which reports on a HUD study of all non-elderly, non-disabled families in the
voucher program within a five-year period. This study found that the vast majority
of such families — 75% — were in the program five years or less, yet generally were
unable to reach “self-sufficiency” (defined as able to afford housing at the local
FMR) within five years. For example, in 2004, only .8% of non-elderly, non-
disabled families in the voucher program could afford housing at their local FMR
level. This suggests that the majority of families in the voucher program are already
leaving the program relatively quickly, but their incomes are not necessarily
increasing, which raises questions as to where these families are going and why they
are leaving the program.
Funding. As noted earlier, historically, Congress had demonstrated a
commitment to renew all vouchers that it has previously funded so that no family
loses its housing assistance. Critics of broader-purpose grant proposals are
concerned that once the program is converted, Congress will no longer exhibit the
same level of commitment to meet the program’s funding needs, leaving PHAs with
insufficient funding to continue serving the same number and composition of
families. PHA advocacy groups and low-income housing advocates have expressed
concerns that funding cuts could change the character of the current program by
forcing PHAs to choose between serving higher-income families, requiring families
to pay more for their housing, or serving fewer families. Whereas the current
31 Statement made by Assistant Secretary for Public and Indian Housing, Michael Liu,
Senate VA- HUD Appropriations Subcommittee, FY2005 Budget Hearing, Apr. 1 2004.

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voucher program insures that the poorest families are prioritized for assistance by
requiring that 75% of all vouchers be targeted to them, the FVP proposal would have
eliminated this targeting requirement and allowed PHAs to serve higher-income
families. The Administration argues that eliminating targeting would allow PHAs
to reward families that are working and that current targeting rules punish families
pursuing self-sufficiency. Low-income housing advocates and PHA advocacy
groups contend that the Section 8 program is one of the few remaining resources
targeted at the extremely low-income and that many other programs (the HOME
Investments Partnerships program, the Community Development Block Grants
program, and the Low-Income Housing Tax Credit program) already serve less-poor
households.
Status of the FVP Proposal. Administration officials stated during a
hearing before the House VA, HUD and Independent Agencies Appropriations
Subcommittee on March 3, 2004 that they did not intend to introduce legislation to
enact the FVP proposal; rather, they hoped that the Appropriations Committees
would include the proposal in the FY2005 appropriations bill. The House Financial
Services Committee, in its Views and Estimates of the President’s Budget document,
raised several concerns about the Administration’s proposal. It stated:
The FY2005 budget request for Section 8 is $1.633 billion below the level HUD
projects is needed to renew all Section 8 assistance. This could result in the
elimination of funding for up to 250,000 vouchers.... The block grant feature
would let funding spiral downward in future years. The result is that housing
authorities would have to make either major reductions in the number of families
they assist, or in the subsidy provided to each family — or more likely, a
combination of the two.32
On April 1, 2004, the Senate Appropriations VA, HUD, and Independent
Agencies Subcommittee held a hearing on the Administration’s FY2005 budget
proposal. In response to the FVP proposal, the Chairman stated:
[There are] two fatal flaws in that proposal, namely, a lack of funding, [and]
elimination of the requirements of Section 8 tenant-based assistance be targeted
to our most needy families.33
He also stated, regarding the FVP and other proposals:
These are important policy proposals that cannot be taken lightly, and should not
be considered in an appropriations bill without comprehensive hearing and
debate. We have some significant questions about all of them, and, unfortunately,
32 Views and Estimates of the Committee on Financial Services on Matters to be Set Forth
in the Concurrent Resolution on the Budget for FY2005, approved by the Committee on
Feb. 25, 2004, Committee Print.
33 Federal Documents Clearing House Transcript, Senate Appropriations Subcommittee on
VA, HUD, and Independent Agencies FY2005 Appropriations, Apr. 1, 2004.

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it does not look like we’re going to have the luxury of the time to consider fully
these issues.34
Neither the House version, Senate version, nor final version of the FY2005
HUD funding bill included the FVP proposal, nor any other major reform to the
Section 8 voucher program. (See discussion beginning on page 12 of this report for
details of FY2005 appropriations for Section 8.)
Developments in the 109th Congress
President’s FY2006 Budget Proposal
On February 7, 2005, President Bush released his FY2006 budget request. It
included $15.8 billion for the Section 8 tenant-based voucher program, an increase
of over 7% from the FY2005 enacted level. Beyond the funding level, the request
has two main features: it would continue and expand the practice of funding PHAs
on a budget-basis (rather than a per-unit basis), and it states that the President intends
to introduce a new legislative reform proposal.
Budget-based Funding. As noted earlier in this report, PHAs were funded
on a unit-basis prior to 2004. Their budgets were determined based on the number
of vouchers they were allocated to administer at their actual costs. In FY2003, PHA
budgets were based on the number of vouchers they were reasonably expected to
lease at their actual costs. In FY2004, the formula was changed to fund PHAs based
on the number of vouchers they were expected to lease35 at a fixed cost. In FY2005,
the formula was changed again. It funded PHAs based on the number of vouchers
they were actually using over a fixed period of time at a fixed cost. In FY2005, the
appropriation was insufficient to fund all agencies at the level determined by the
formula, so their budgets were reduced across-the-board by 4.1%. The
Administration has stated that the FY2005 appropriation completed the shift of the
voucher program to budget-based funding. They argue that this shift will help in
“controlling the program’s upward spiral in costs.”36
In his FY2006 budget request, the President is proposing to fully dissociate PHA
budgets from units and costs. It recommends that each PHA’s funding be based on
the amount of funds it received in the previous year, prior to the proration, plus
inflation. Specifically, the budget states:
[HUD will] provide renewal funding for each public housing agency based on
each public housing agency’s 2005 annual budget for renewal funding as
34 Ibid.
35 Although they were permitted to increase their leasing up to their authorized level.
36 Budget of the United States Government, FY2006 — Appendix, p. 528.

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calculated by HUD, prior to prorations, and by applying the 2006 annual
adjustment factor, as established by the Secretary.37
Legislative Reform. According to the President’s FY2006 budget request,
the Administration will submit a legislative proposal that will “provide [PHAs] with
substantial new flexibility to manage the voucher program in a way that controls
costs and increases benefits to the 2 million families currently receiving assistance.”38
The budget states that the reforms will improve the delivery of rental and
homeownership subsidies for low-income families in a fiscally responsible manner,
thereby ensuring the long-term sustainability of the tenant-based voucher program,
and will contain greater PHA discretion in meeting local housing objectives and
provide for steady and predictable funding levels adjusted annually for inflation. It
is not clear when the Administration will submit the legislative proposal to Congress
and whether or not it will be modeled after prior proposals such as HANF or FVP
(see previous discussion of HANF and FVP).
Discussion of FY2006 Budget Request. Compared to last year’s budget
proposal, which included a cut in program funding, this year’s budget proposal for
the voucher program has received a relatively more favorable reaction from low-
income housing advocates. However, they have raised some concern regarding its
adequacy to fund all existing vouchers.39 A cursory look at the Congressional Budget
Office’s per-voucher cost estimate for 2006, multiplied by the number of vouchers
that can reasonably be expected to be used, indicates that the funding request is very
close to the amount needed to fund all vouchers that would likely be in use.40 If
CBO’s estimates of costs or projected vouchers are too low, or if utilization has
increased significantly, then the overall funding request may be too low to sustain the
current services level. However, given current pressures on PHAs to reign in costs
as a result of the FY2005 funding restrictions, utilization may be lower than last year
and costs may be lower than the CBO estimate, which is based on market conditions
and does not reflect recent program changes.
It is important to note that this discussion of “adequacy” is relevant in the
context of the current program where vouchers are defined by the federal government
as roughly the difference between rent and income, targeted at extremely low-income
families, and numerically allocated to PHAs. Under reform proposals that would
enable PHAs to determine their own voucher parameters, national estimates of
funding adequacy may be even more difficult to calculate. Further, the idea of
“adequacy” could be evaluated differently. Currently, adequacy is generally
37 Ibid., p. 527.
38 Ibid.
39 For example, see President’s Budget Would Restore Some Rental Vouchers Cut in 2005
But Reduce the Program Substantially in Future Years: 370,000 Fewer Families Could
Receive Voucher Assistance by 2010, Center for Budget and Policy Priorities, Feb. 18, 2005.
40 CBO, in an interested parties table, estimates that in 2006, the average annual per voucher
cost will be $6,895. CBO also estimates that the funding for 2.1 million vouchers will
expire in FY2006. At a 97% utilization rate (which has been the peak average annual
utilization rate in recent years), using these figures, just over $14 billion would be required
to fund all vouchers in use. The President’s request includes $14.1 for voucher renewals.

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measured from a current services perspective; under a new program, adequacy could
be discussed in the larger context of unmet need in a community.
Another concern that may be raised regarding the FY2006 budget request
surrounds the allocation of funding. The President’s budget proposes to fund PHAs
based on their allocation in FY2005. The allocation of funds in FY2005 was based
on a three-month period in 2004 (May-July), which may have been a low-point for
some PHAs’ budgets. All PHAs received notification of the FY2004 budget changes
in April 2004, and some had been notified that their budgets would be lower than
they had anticipated. After receiving that notification, many agencies undertook cost-
cutting measures, which may be reflected in that May-July period. If the FY2006
funding is based on the FY2005 allocation, then some agencies may receive an
allocation of funds for two consecutive years that is arbitrarily lower than it might
have otherwise been. This raises questions about whether using FY2005 as a base
is rational or equitable.
Conclusion
The Section 8 voucher program is the largest direct housing assistance program
for low-income families. With a FY2005 budget of over $14 billion ($20 billion for
all of Section 8), it reflects a major commitment of federal resources. That
commitment has led to some successes. Over 2 million families currently are able to
obtain safe and decent housing through the program, at a cost to the family that is
considered affordable. However, these successes come at a high cost to the federal
government. Given current budget deficit levels, Congress has begun to evaluate
whether the cost of the Section 8 voucher program can or should be controlled.
Minor revisions or major reforms are options currently facing Congress. As was
noted in the 2004 State of the Nation’s Housing report:41
Even at the peak of the full-employment economy in the late 1990s, housing
problems in the nation failed to improve and some even worsened. Without
fundamental changes, these challenges will continue to escalate, further dividing
the two-thirds of Americans who are well-housed and the remaining third who
are not — including a substantial minority who must struggle simply to keep a
roof over their heads and meet other basic needs.
41 The State of the Nation’s Housing, 2004, from Harvard University’s Joint Center for
Housing Studies, at [http://www.jchs.harvard.edu/publications/markets/son2003.pdf]

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