Order Code RL33929
Recent Changes to the Section 8 Voucher
Renewal Funding Formula
March 19, 2007
Maggie McCarty
Analyst in Social Legislation
Domestic Social Policy Division
Recent Changes to the Section 8 Voucher Renewal
Funding Formula
Summary
Changes enacted by Congress during the appropriations process in each of the
past several years have significantly altered the way that public housing authorities
(PHAs) receive funding to administer the Section 8 Housing Choice Voucher
program. Prior to FY2003, PHAs received funding for each voucher they were
authorized to administer, based on their average costs from the previous year, plus
inflation. Most PHAs were not using all of their vouchers, and each year the
Department of Housing and Urban Development (HUD) was able to recapture
unspent funds. Some Members of Congress expressed concern about the
underutilization of vouchers and the amount of recaptures.
Beginning in FY2003 and culminating in FY2006, Congress fundamentally
changed the way PHAs receive voucher funding. The changes were designed to limit
the amount of unspent funds held by PHAs and limit the cost of vouchers, which had
begun to grow rapidly, due in part to market changes and in part to policy changes.
In FY2006, PHAs were funded based on what they had received in the previous year
(regardless of changes in their costs and utilization), plus an inflation adjustment,
prorated to fit within the amount appropriated. Under this formula, some agencies
received more funding than they were legally permitted to spend, while other
agencies did not receive enough funding to distribute all of the vouchers they were
authorized to administer.
The Administration supported this conversion to a “budget-based” formula, and
has requested that Congress enact permanent reforms to complement the new funding
method. Low-income housing advocates and PHA industry groups have generally
opposed both the funding changes and the Administration’s proposed policy reforms.
In FY2007, Congress again changed the voucher funding formula through the
appropriations process. PHAs are now eligible to receive funding based on what they
were spending in the previous year (rather than what they had been allocated in the
previous year). As a result, PHAs that had not been spending all of their funding in
FY2006 may see a reduction in funding in FY2007. Nonetheless, preliminary
estimates indicate that all PHAs will receive more than 100% of their 2006 costs and
utilization.
The Section 8 voucher renewal funding formula may again be a focus of debate
as Congress considers the FY2008 funding legislation. The President has requested
that Congress enact a Section 8 voucher funding formula similar to that in place in
FY2006. However, bipartisan voucher reform proposals considered in the 109th
Congress — and may be reintroduced in the 110th Congress — contained formula
changes more closely aligned with those included in the FY2007 funding act.
This report describes changes in the formula included in appropriations bills for
FY2003 through FY2007. For more information on Section 8, see CRS Report
RL32284, An Overview of the Section 8 Housing Programs, and CRS Report
RL33270, The Section 8 Housing Voucher Program: Reform Proposals.
Contents
Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Pre-FY2003 Funding . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
FY2003 Funding Changes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
FY2004 Funding Changes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
FY2005 Funding Changes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
FY2006 Funding Formula . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
FY2007 Funding Formula . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
The FY2008 Budget and Voucher Reform Legislation . . . . . . . . . . . . . . . . 8
Conclusion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
List of Tables
Table 1. Section 8 Voucher Renewal Funding, FY2003-FY2007 . . . . . . . . . . . . 1
Recent Changes to the Section 8 Voucher
Renewal Funding Formula
Introduction
Each year, Congress provides funding to the Department of Housing and Urban
Development (HUD) to renew the more than 2.1 million Section 8 vouchers — also
called Housing Choice Vouchers — authorized by Congress (see Table 1 below). The
Section 8 voucher program is federally funded and governed by federal rules, but is
administered at the local level by quasi-governmental public housing authorities
(PHAs). Section 8 vouchers are rental subsidies that low-income families use in the
private market to help make up the difference between their rent and their expected
contribution toward that rent (30% of adjusted income). The cost of a voucher to a PHA
is the difference between the lesser of a tenant’s actual rent or the maximum subsidy
level set by the PHA — called a payment standard — and 30% of a tenant’s income.
That cost increases or decreases with changes in tenant incomes and changes in rents
and payment standards. (For more information on Section 8 voucher reform proposals,
see CRS Report RL32270, The Section 8 Housing Voucher Program: Reform
Proposals, by Maggie McCarty.)
In recent years, Congress has enacted, and HUD has implemented, a series of
changes in the way that voucher renewal funding is distributed to local PHAs. These
changes have led to funding uncertainty for many PHAs, and has put pressure on
Congress to adopt a permanent funding formula, possibly through enactment of Section
8 voucher reform legislation.
This report discusses the renewal funding formula changes that Congress has
enacted as a part of the annual appropriations process, starting in FY2003, and
concludes with a discussion of their impact.
Table 1. Section 8 Voucher Renewal Funding, FY2003-FY2007
(in millions of dollars)
FY2003
FY2004
FY2005
FY2006
FY2007
Renewal Funding
11,259
12,721
13,355
13,949
14,436
Source: Table prepared by CRS. Figures are derived from HUD budget documents. For more details,
see CRS Appropriations Reports. The FY2006 figure is taken from HUD’s website [http://www.hud.gov/
offices/pih/programs/hcv/1]. The FY2007 figure is taken from P.L. 110-5. Central Reserve funding is
included.
CRS-2
Pre-FY2003 Funding
Prior to FY2003,1 PHAs administering the voucher program were funded based on
their average annual per-voucher cost from the previous year, adjusted by an inflation
factor and multiplied by the number of vouchers that the PHA was authorized to lease.2
In the event that a PHA’s voucher costs 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. Despite the fact that they received full funding, few PHAs were
able to lease 100% of their authorized vouchers. In fact, low utilization rates were a
major concern of Congress for several years.3 While PHAs are expected to have
utilization rates of at least 95%4, in FY2000 and FY2001, national voucher utilization
rates were just over 91%.5 Since PHAs were not utilizing all of their vouchers, they
typically had more money in their budgets than they needed, and they rarely had to dip
into their one-month program reserves, even if their costs rose significantly. At the end
of the year, HUD and each PHA would reconcile their budgets, and HUD was typically
able to recapture excess funds from PHAs’ reserves.6
HUD generally used this same formula — last year’s actual costs, plus an inflation,
times the number of authorized vouchers — each year to determine how much funding
to request from Congress for the renewal of tenant-based Section 8 vouchers. HUD
would also make available to Congress for rescission those unused funds that the agency
had recaptured from PHAs. The end result of this system for PHAs was that their
funding increased along with their costs. If their costs dropped, they were permitted to
use some of their excess funds to create new vouchers, a process called maximized
leasing. The end result of this system for Congress was that each year it provided more
funds for voucher renewals than PHAs could reasonably be expected to use, and then
1 The formula in place prior to FY2003 was authorized by the Quality Housing and Work
Opportunity Reconciliation Act of 1998 (P.L. 105-276, codified at 42 USC 1437f(dd)).
2 PHAs “lease” vouchers when they sign contracts with tenants and landlords under which
PHAs agree to provide payments to landlords on behalf of tenants. Each PHA has a fixed
number of vouchers it is authorized to “lease.”
3 Voucher utilization was the topic of Congressional hearings; an Appropriations
subcommittee staff report on the topic was developed in the Senate (Empty Promises —
Subcommittee Staff Report on HUD’s Failing Grade on the Utilization of Section 8
Vouchers, September 12, 2000); and in the FY2001 appropriations law, Congress included
language permitting PHAs to increase their payment standards to help increase utilization.
4 According to HUD’s Housing Choice Voucher Guidebook, 95% utilization is considered
standard performance and 98% is considered high performance.
5 Hearing before the House Subcommittee on VA, HUD and Independent Agencies, Hearing
on the FY2003 HUD budget, 107th Congress, 2nd Session, Mar. 19, 2002, document Part 6.
6 HUD had the authority to permanently reallocate vouchers (and their accompanying
funding) from PHAs that were not using all of their vouchers (and had surplus funding) to
those PHAs that were using all of their vouchers and had excess demand. The Department
published a notice in the Federal Register in November 2001 explaining the reallocation
process, however, HUD never implemented the process or made any reallocations.
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recaptured those unused funds the following year to offset the cost of that year’s
appropriation.
FY2003 Funding Changes
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.
HUD was directed in the annual appropriations bill to fund PHAs based on their 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 (rather than the larger number of authorized vouchers). Specifically, the
law 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, adjusted by
such additional information submitted by the public housing agency ... 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. (P.L. 108-7, Title
II, Section (1))
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. As stated in guidance released by HUD:
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. (HUD Notice PIH 2003-23, Issued Sept. 22,
2003)
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. (P.L. 108-7, Title II, Section (2))
Finally, the bill instituted restrictions on maximized leasing, stating that none of
the funds provided in the act could be used to support more vouchers than a PHA was
authorized to lease in a year. This presented problems for PHAs who were overleased.
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Many had to refrain from reissuing vouchers once families left the program in order to
get their leasing back to their authorized level.
FY2004 Funding Changes
The FY2004 appropriations law continued in the direction of the FY2003 law,
instructing HUD to fund PHAs based on actual utilization of vouchers — rather than on
the total number of vouchers they were authorized to lease — and restricting the use of
funds for maximized leasing. 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.7 As stated in the conference report:
The conferees are aware that the Secretary has the administrative authority to
control the rapidly rising costs of renewing expiring annual contributions contracts
(ACC), including the budget-based8 practice of renewing expiring ACCs, and expect
the Secretary to utilize these tools. (H.Rept. 108-235, Title II)
The FY2004 appropriations language was changed from FY2003 to state:
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. (P.L. 108-199,
Title II, Section (1))
The FY2004 language also varied from the FY2003 language in terms of 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 Secretary could use Central Reserve funds only
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. (H.Rept. 108-401, Division G, Title II)
7 The Government Accountability Office (GAO) estimated that, between 1998 and 2004, per
voucher costs grew 42% in nominal dollars (25% in real dollars). The highest rate of
growth happened between 2002 and 2003 and between 2003 and 2004 at 11% per year.
There were a number of factors driving this cost growth, ranging from changes in the way
the program was administered to changing market conditions. For more information, see
GAO report 06-405, Policy Decisions and Market Factors Explain Changes in the Costs of
the Section 8 Programs. See also, CRS Congressional Distribution Memo, Factors behind
cost increases in the Section 8 Housing Choice Voucher Program, FY2000-FY2004, by
Maggie McCarty (available from the author).
8 Budget-basing provides PHAs with a budget based on a fixed dollar amount, rather than
a fixed number of vouchers.
CRS-5
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 (AAF), but not adjusted by more recent data, even if
available. The notice stated that PHAs could appeal to the Secretary only if they could
document that rental costs in their areas had risen higher than the inflation factor
adopted by HUD. The notice proved controversial. Some housing advocates contended
that Congress gave HUD the authority to use a broader measure of inflation than the
AAF, taking into account not just rental costs but also other changes in PHAs’ costs,
such as utility costs and changes in their tenant populations. The notice was not
modified, and on August 31, 2004, HUD granted the appeals requests of 380 agencies
out of approximately 400 that applied, distributing a total of $160 million from the
Central Reserve. However, HUD did not necessarily provide the full level requested in
each appeal.
FY2005 Funding Changes
The final FY2005 Consolidated Appropriations Act (P.L. 108-447) moved the
program further in the direction of budget-based funding. It directed the Secretary to
fund PHAs based on their voucher costs and utilization rates as of May-July 2004 plus
the HUD-published AAF, adjusted for new tenant protection vouchers.9 If a PHA’s
May-July data were not available, HUD was directed to fund the agency based on
February-April 2004 data, or if these data were not available, to fund the PHA based on
its 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 were 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.” Agency reserves
were reduced from the one-month to the one-week level and no Central Reserve was
provided to replenish depleted reserves. Finally, the act continued the prohibition on
maximized leasing.
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 errors within 10 days (although the deadline was later extended). The appeals were
limited to data errors; agencies were told that they could not appeal the actual 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 less than 96% was implemented because the funding
9 Tenant protection vouchers are given to families being displaced from other HUD
assistance programs (such as public housing). PHAs’ costs may increase from one year to
the next because of an increase in the number of tenant protection vouchers they are
administering.
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amount provided by Congress for voucher renewals was not sufficient to fund agencies
at 100% of their formula eligibility.
According to CRS analysis of HUD funding data, the median change in PHA
renewal budgets from FY2004 to FY2005 was an increase of 0.17%. This number hides
a wide variance; the change at the fifth percentile was a decrease of 12% and the change
at the 95th percentile was an increase of 14%. On February 25, 2005, HUD published
Notice PIH 2005-9, entitled “[PHA] Flexibility to Manage the Housing Choice Voucher
Program in 2005.” It identified administrative options available to PHAs to lower their
costs in 2005. Suggestions included lowering payment standards; reducing utility
assistance to families; restricting portability;10 reviewing rents to ensure they are
reasonable in the market; suspending the reissuance of vouchers when families leave the
program; restricting bedroom sizes; instituting minimum rents; monitoring income
eligibility more strictly; and terminating assistance to families due to insufficient funds.
FY2006 Funding Formula
The FY2006 HUD Appropriations Act (P.L. 109-115) distributed renewal funding
using roughly the same formula as FY2005. HUD allocated renewal funds to PHAs
based on the amount they were eligible to receive in FY2005 (prior to proration), plus
inflation (using the AAF), adjusted for additional tenant protection vouchers or vouchers
that were reserved for project-based use,11 and prorated to fit within the amount
appropriated. The act provided the Secretary with $45 million to adjust the budgets of
agencies in two categories: (1) those for whom the May-July period used as the basis
for FY2005 funding represented unusually low leasing or costs and who applied to the
Secretary for an adjustment; and (2) those whose costs had risen due to unforeseen
circumstances or portability billings. The prohibition on maximized leasing was
retained in FY2006. HUD issued projected funding letters to all PHAs on January 19,
2006; PHAs were directed to respond with concerns by February 3, 2006. Again, the
amount provided by Congress was insufficient to fund PHAs at their full FY2006
formula eligibility, so PHAs were funded at about 94% of their eligibility.
The changes enacted up through FY2006 gave incentives to PHAs to reduce their
costs. Those changes, partnered with a cooled rental housing market,12 worked together
to reverse the “spiraling” cost growth trend seen in 2003. According to CRS analysis
of data provided by the Congressional Budget Office, average annual per voucher costs
remained flat from calendar year 2004 to calendar year 2005 and declined by about 1.5%
from calendar year 2005 through September 2006. Utilization also declined, from a
10 Vouchers are nationally portable, meaning that if a family moves from the jurisdiction of
one PHA to another, the family retains its assistance. However, if the new jurisdiction does
not wish to permanently accept the new voucher (a process called absorption), the new
jurisdiction can bill the old jurisdiction. This can present budget problems for the old
jurisdiction if rents are significantly higher in the new jurisdiction.
11 Vouchers are project-based when they are set aside for use in a particular unit of housing.
This adjustment is provided for PHAs who had artificially low utilization rates in May-July
2004 because they had reserved vouchers for new units that were under construction.
12 Rental markets began softening in 2002 and 2003 and remained flat in 2004.
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peak of over 98% in 2004 to around 90% as of September 2006.13 Most PHAs were not
spending all of their funding and therefore had accumulated some reserve funds. CRS
analysis of HUD data indicate that PHAs had accumulated, on average, unspent
balances of 10% of their budget authority from January 2005 though September 2006.
FY2007 Funding Formula
For FY2007, the President requested that Congress continue to fund the voucher
program using a budget-based formula similar to the one adopted in FY2005 and
FY2006. The President’s budget requested that Congress lift the prohibition on
maximized leasing, noting that, in a budget-based funding environment, some PHAs
may be receiving more funding than they are permitted to use. According to CRS
analysis of HUD data, as of the end of September 2006, 168 PHAs (or about 7% of all
PHAs), were at their cap on authorized vouchers.
The House-passed version of the FY2007 HUD funding bill (H.R. 5576, 109th
Congress) included the President’s requested budget-based formula for the voucher
program, including the elimination of the prohibition on over-leasing. The Senate
Appropriations Committee-passed version contained an allocation formula that differed
significantly from the President’s request and was similar to the formula in effect in
FY2004. It would have funded PHAs based on their leasing and cost data from their
most recent 12 months, with certain adjustments (such as for the first-time renewal of
HOPE VI and tenant protection vouchers and escrow deposits in the Family Self-
Sufficiency program), increased by the AAF, and pro-rated to fit within the amount
appropriated. It would have continued the prohibition on over-leasing.
On February 15, 2007, the 110th Congress enacted a revised year-long continuing
resolution (P.L. 110-5). It adopted a renewal funding formula for the Section 8 voucher
program similar to the formula enacted in FY2004 and proposed in the Senate version
of the FY2007 funding bill. Under this law, PHAs receive funding based on their leasing
and cost data from their most recent 12 months of reported data, adjusted for the first
time renewal of tenant protection and HOPE VI vouchers and vouchers reserved for
project-based contracts, inflated by the AAF, and prorated to fit within the amount
appropriated. The law includes a central reserve fund which the Secretary can use (1)
for adjustments for PHAs that experienced a significant increase in renewal costs
resulting from unforeseen circumstances or from voucher portability; and (2) for
adjustments for public housing agencies experiencing a significant decrease in voucher
funding due to the formula shift that could result in a loss of voucher units. Finally, the
act continues the prohibition on over-leasing.
Under this formula change, PHAs will be funded based on the amount of funds
they were using in FY2006, rather than the amount of funding they received in FY2006.
Those PHAs with higher costs and utilization rates relative to their FY2006 budgets will
do better under the FY2007 enacted formula than they would have done under the
President’s proposed formula; those PHAs with lower costs and utilization relative to
13 Utilization rates for 2004 come from HUD’s 2004 Performance and Accountability
Report; utilization rates for 2006 come from CRS analysis of currently unpublished HUD
data.
CRS-8
their FY2006 budgets will do worse. Preliminary CRS estimates indicate the funding
provided should be sufficient to fund agencies at more than 100% of their eligibility.
The FY2008 Budget and Voucher Reform Legislation
The President’s FY2008 budget request includes a proposal for a voucher funding
formula similar to the one requested in FY2007 and in place in FY2005 and FY2006.
The accompanying text indicates that the President would seek to re-benchmark the data
in the future, possibly in FY2009, as a part a larger voucher reform proposal he is to
submit sometime in the 110th Congress.
In recent years, some Members of Congress from both parties have introduced
voucher reform legislation containing a statutory change to the voucher renewal funding
formula. Most recently, in the 109th Congress, two primary reform bills were
considered. The State and Local Housing Flexibility Act containing the President’s
Section 8 voucher reform proposal was introduced in both the House and Senate (H.R.
1999/S. 771), although no further action was taken. Under the bill, the Secretary would
have been directed to develop a new funding formula; in the interim, PHAs would
receive a pro-rata share of their prior year’s funding. The other bill, the bipartisan
Section 8 Voucher Reform Act of 2006 (H.R. 5443) would have adopted a funding
formula similar to the formula in place prior to FY2005 and included in the FY2007
appropriations bill. While H.R. 5443 was approved by the House Financial Services
Committee, it was not enacted before the end of the 109th Congress. Similar voucher
reform legislation may be introduced in the 110th Congress. However, even if changes
to the allocation formula are enacted into law, the statutory formula may still be over-
ridden by any formula changes included in annual appropriations acts.
Conclusion
Prior to FY2003, the Section 8 voucher program was funded much like an
entitlement program; the amount provided by Congress was largely determined by a
formula, limiting Congress’s ability to constrain funding without facing the prospect of
reducing the number of vouchers and providing little incentive for PHAs to restrain
costs. The final result of the funding changes, beginning with those enacted for
FY2003, had been a conversion of the program’s funding structure into one more
similar to other discretionary programs, in which grantees receive an annual fixed sum
of money, regardless of changes in their costs or the number of people served. While
these changes gave Congress greater control over the program’s budget, many PHAs
argued the changes made the program more difficult to administer. PHAs have only
limited control over their costs since the value of the subsidies provided to families are
statutorily set (as roughly the difference between rent and 30% of income).
In areas where they did have control, such as in setting payment standards,
selecting families from the waiting list, and issuing vouchers, many PHAs made
changes. Some lowered their payment standards from 110% to 100% or less of local
fair market rents. Since changes in payment standards only affect future families in the
program, some PHAs undertook rent reasonableness reviews and reduced rents paid to
landlords, some of whom accepted the cut, others of whom chose to no longer
participate in the program. PHAs may be selecting higher-income families from the
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waiting list (for whom subsidy costs are lower), although PHAs are still constrained by
a requirement that 75% of all vouchers be targeted to the lowest-income families. Many
PHAs intentionally reduced their utilization rates by not reissuing vouchers when
families left the program. Agencies that 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. It is likely that, at least for some PHAs whose costs have risen faster than their
funding under the new formula, these changes resulted in fewer households receiving
vouchers after FY2005 than in previous years.
Data from HUD indicate that voucher costs leveled off and utilization rates
declined from 2005 to 2006. According to CRS analysis of HUD data, average voucher
costs declined by around 1.5% and average utilization declined by over 2%. At the
same time, some agencies were receiving more money than they were legally permitted
to spend. Under the formulas used in the past two years, PHAs’ funding does not
necessarily decrease if their costs decrease (for example, due to changes in the types of
families they are serving). Since maximized leasing was prohibited, some PHAs had
funds that they were unable to spend, even if there are waiting lists for vouchers in their
communities (7% of all PHAs, as of September, 2006, according to CRS analysis).
The budget-based formula in place for FY2005 and FY2006, was advocated by the
President in each of his annual budget requests and is requested again for FY2007. The
President has also requested that Congress enact program reforms that would
complement a budget-based funding structure, ranging from lifting the prohibition on
maximized leasing (therefore permitting PHAs to use surplus funds to serve additional
families) to fundamentally restructuring the voucher program to eliminate the current
payment standard and tenant contribution structure.
The funding formula changes enacted in recent years proved controversial with
low-income housing advocates and PHA industry groups. Most low-income housing
advocates called for a return to an actual-cost and unit-based formula. PHA advocacy
groups were vocal about the difficult predicament they felt that the current formula put
them in, given the statutory constraints under which they must run their programs.
The FY2007 funding bill reversed recent trends by enacting a voucher renewal
funding formula similar to the one that was in place in FY2004. In FY2007, PHAs will
be funded based on the amount of funding they were using in the previous year, rather
than the amount of money they had received in the previous year. As a result, PHAs
that had large funding surpluses will likely receive a reduction in funding in FY2007,
although preliminary estimates indicate that the appropriations provided should be
sufficient to provide all PHAs with over 100% of their formula eligibility.
The funding formula may again be a focus of debate as Congress considers the
FY2008 appropriations bills. The President has requested that Congress enact a Section
8 voucher funding formula similar to that in place in FY2006. However, bipartisan
voucher reform proposals considered in the 109th Congress — which may be
reintroduced in the 110th Congress — contained funding formula changes more closely
aligned with those included in the FY2007 funding act.