Order Code RL31930
CRS Report for Congress
Received through the CRS Web
Section 8 Housing Choice Voucher Program:
Funding and Related Issues
Updated August 10, 2005
Analyst in Social Legislation
Domestic Social Policy Division
Congressional Research Service ˜ The Library of Congress
Section 8 Housing Choice Voucher Program:
Funding and Related Issues
The largest federal program designed to provide affordable housing to lowincome families is the Section 8 Housing Choice Voucher program, which serves
over 2 million households. Section 8 vouchers are tenant-based subsidies that lowincome 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 enacted funding cuts to almost all other HUD housing programs.
To address the rising cost of the program, the Bush Administration proposed to
enact a major reform of the Section 8 voucher program in both sessions of the 108th
Congress, and an Administration-backed reform proposal has been introduced in the
109th Congress. The State and Local Housing Flexibility Act of 2005 was introduced
in the Senate on April 13, 2005 (S. 771) and in the House on April 28, 2005 (H.R.
1999). The first title of the bill would replace the current Section 8 voucher program
with a broader-purpose grant program, called the Flexible Voucher Program. It
would eliminate most of the current program rules, devolve additional authority to
the local level, and increase administrative ease for local public housing authorities
This report, which will be updated, provides an introduction to the Section 8
voucher program, its funding, and current issues and proposals.
Most Recent Developments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Section 8 Voucher Program Basics . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
How the Voucher Program Works . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Voucher Supply and Demand . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
Special-Purpose Vouchers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
Funding Structure and Recent Changes in Appropriations Law . . . . . . . . . . . . . 10
Renewal Costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
FY2003 Funding Changes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
FY2004 Funding Changes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
FY2005 Funding Changes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
New Voucher Costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
Administrative Fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
Other Initiatives . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
The Cost of the Voucher Program . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
New Vouchers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
Utilization Rates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
Expiring Contracts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
Fair Market Rents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
Payment Standards . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
Options for Restraining or Reducing Costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
Maintain Current Funding Structure . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
Redefining “Safe” and “Decent” . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
Redefining “Affordable” . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
Redefining “Low-Income” . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
Create New Program . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
Housing Assistance for Needy Families (HANF) . . . . . . . . . . . . . . . . 29
The FY2005 Flexible Voucher Program . . . . . . . . . . . . . . . . . . . . . . . 30
Developments in the 109th Congress . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
President’s FY2006 Budget Proposal . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
Budget-based Funding . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
Discussion of FY2006 Budget Request . . . . . . . . . . . . . . . . . . . . . . . . 31
Congressional Action on HUD Appropriations . . . . . . . . . . . . . . . . . . 32
The State and Local Housing Flexibility Act of 2005 (S. 771/H.R. 1999) . 32
Conclusion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
List of Figures
Figure 1. Expiring Long-Term Section 8 Project-based Contracts and Vouchers That
Would Require Renewal over the Next 10 Years . . . . . . . . . . . . . . . . . . . . 22
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,a FY1999-FY2005 . . . . . . . . 6
Table 3. Characteristics of Voucher Recipients, 2000 . . . . . . . . . . . . . . . . . . . . . 8
Table 4. Changes in Section 8 Housing Certificate Fund Appropriations
and Spending, FY2000-FY2005 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
Table 5. Incremental Vouchers Created and Funded,
FY1999-FY2005 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
Table 6. Section 8 Vouchers and Project-based Units Eligible for Payment,
FY2000-FY2005 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
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 . . . . . . . . . . . . . . . 23
Table 10. Comparison of Key Provisions in Flexible Voucher Program Proposal
(S. 771/H.R. 1999) to Current Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
Section 8 Housing Choice Voucher
Program: Funding and Related Issues
Most Recent Developments
Congressional Action on FY2006 Appropriations. On July 21, 2005,
the Senate Appropriations Committee reported its version of H.R. 3058, the FY2006
HUD appropriations bill which was approved by the full House of Representatives
on June 30, 2005. The House and Senate versions differ in the way that they would
distribute Section 8 voucher funding and the total amount they provide for the
voucher program. For a discussion of the House and Senate bills, see Developments
in the 109th Congress at the end of this report and CRS Report RL32869, The
Department of Housing and Urban Development (HUD): FY2006 Budget.
Reform Legislation Introduced. The State and Local Housing Flexibility
Act of 2005 was introduced by Senator Allard as S. 771 on April 13, 2005, and by
Representative Gary Miller as H.R. 1999 on April 28, 2005. Title I of the Act would
replace the current Section 8 voucher program with a new broader-purpose grant
program called the Flexible Voucher Program. For a discussion of the proposal, see
Developments in the 109th Congress at the end of this report.
FY2006 Budget Submitted. 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
pursue reform of the voucher program in the 109th Congress. For more details on the
President’s FY2006 budget request for Section 8 vouchers, see Developments in the
109th Congress at the end of this report.
The federal government operates a number of programs designed to assist lowincome 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 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 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 lowincome renters. According to Harvard University’s Joint Center for Housing Studies,
contract rent increases outpaced renter income gains for households across the board
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.
For more about the legal structure of PHAs, see 42 U.S.C. § 1437a (b)(6).
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.
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 relatively high, Harvard
estimates a shortfall in affordable and available units of about 5.2 million 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,
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 and reform bills have been introduced in both
the House and the Senate (H.R. 1999/S. 771).
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
The State of the Nation’s Housing, 2003 and The State of the Nation’s Housing, 2005, from
Harvard University’s Joint Center for Housing Studies, at [http://www.jchs.harvard.edu].
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
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.
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 projectbased 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 mixedincome 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 adjusted gross
incomes8 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. 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 lowincome limits
Jefferson County, MS
New York, NY
San Francisco, CA
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,
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.
Mandatory income deductions include: $480 for each dependent, $400 for each elderly
or disabled family, reasonable child care costs, disability assistance expenses, and medical
expenses for the elderly and disabled.
helping families find units, and signing contracts with and making payments to
landlords. PHAs also own and manage Public Housing, although not all PHAs
manage both programs.
Once an eligible family receives an available voucher, different steps are taken
and different rent calculations are made depending on whether the voucher is tenantbased 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).9
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 income10 plus the HAP paid
by the PHA. The HAP paid by the PHA for tenant-based vouchers, like the HAP
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 tenantbased 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 tenantbased 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.11
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
FMRs are determined annually by HUD and are calculated as the 40th percentile rental cost
for a given jurisdiction.
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.
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.
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
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.
Table 2. Section 8 Vouchers Eligible for Payment,a
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.
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.12
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
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
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.
Table 3. Characteristics of Voucher Recipients, 2000
Percent of all voucher recipients
Elderly Head of Household (HH)
All non-elderly, non-disabled HH
Non-elderly, non-disabled HH, with children
Source of income
Percent of non-elderly, non-disabled
Income from work
Income from welfare but not work
Income from other sourcesa
Non-elderly, non-disabled HH
With no welfare
With some welfare
Median length of stay in voucher
program (in years)
Non-elderly, non-disabled HH
Non-elderly, non-disabled HH
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.
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.
a. This category includes income sources such as child support and/or gifts as well as reports of zero
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.13
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 decide 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.
Demonstrations. 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 10year 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. Small positive impacts were found
on child education, but no impacts have yet been seen on employment, earnings, or
receipt of public assistance.14
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
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.
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.
for providing and administering housing assistance. The demonstration directed
HUD to select up to 30 PHAs to participate. 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 by allowing them to blend funding sources and
experiment with rent rules, with the constraint that they had to continue to serve
approximately the same number of households. It also permits them to seek
exemption from most Public Housing and Housing Choice Voucher program rules.
An evaluation for MTW published in January 2004 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.15
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.16 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
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’
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.
See CRS Report RL32869, The Department of Housing and Urban Development (HUD):
FY2006 Budget, by Maggie McCarty, Bruce Foote, and Eugene Boyd, for a detailed
discussion of HUD appropriations.
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
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
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.17 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:
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
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.”
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
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.19
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.20
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
contracts (ACC), including the budget based21 practice of renewing expiring
ACCs, and expect the Secretary to utilize these tools.22
P.L. 108-7, Title II, Section (1).
HUD Notice PIH 2003-23, Issued Sept. 22, 2003.
P.L. 108-7, Title II, Section (2).
Budget-basing would provide PHAs with a budget based on a fixed dollar amount, rather
than a fixed number of vouchers.
H.Rept. 108-235, Title II.
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
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.24
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.25
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
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
P.L. 108-199, Title II, Section (1).
H.Rept. 108-401, Division G, Title II.
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.
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
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
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
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
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 funded26 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
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.
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
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.
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
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.
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.
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
$6,300 plus interest in an escrow account to use for whatever purpose the family
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.27 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
Table 4. Changes in Section 8 Housing Certificate Fund
Appropriations and Spending, FY2000-FY2005
(in millions of dollars)
% change 00-01
% change 01-02
% change 02-03
% change 03-04
% change 04-05
% change 00-05
Source: The Office of Management and Budget’s Public Budget Database and HUD FY2006 budget
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.
a. Since FY2005 outlay data are not available, the cumulative outlay change shown is from FY2000
Given current questions about the state of the economy, deficit levels, 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
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.
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,
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%.28
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.
Table 6. Section 8 Vouchers and Project-based Units Eligible
for Payment, FY2000-FY2005
(in thousands of subsidies)
% change 2000-2001
% change 2001-2002
% change 2002-2003
% change 2003-2004
% change 2004-2005
% change 2000-2005
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%29
— 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.
Table 7. Section 8 Voucher Utilization Rates, FY2000-FY2004
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 Cong., 2nd sess., Mar.
According to HUD’s Housing Choice Voucher Guidebook, 95% utilization is considered
standard performance and 98% is considered high performance.
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 longterm 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.
Table 8. Budget Authority and Net Budget Authority for the
Section 8 Program, FY2000-FY2004
(in millions of dollars)
Net budget authority
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
— 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
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
Project Based Contracts 21,967 17,676 15,246 34,994 42,332 34,274 27,165 20,256 8,746
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.
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
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
% Change in two-bedroom FMR
% Change in general inflation
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. 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.30 PHAs raise their payment standards for a number of reasons. When rental
markets are tight and rents are rising, PHAs may 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.
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].
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 and either
serve fewer families or make 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.
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, 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.
These errors have led the Government Accountability Office (GAO) to designate the
Section 8 program as a “high risk” program, meaning it is particularly susceptible to
waste, fraud and abuse. 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.
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. One way to reduce errors to an acceptable
level is to adopt flat rents. Flat rents could work in a couple of different ways.
Families could pay some fixed, below-market rent, based on unit size, as set by the
PHA, regardless of their incomes. As incomes changed, rent would stay the same.
A PHA could also choose to adopted tiered rents. Under tiered rents, PHAs set
different flat rents for broad tiers of income. Families pay the rent charged for their
income tier and only fluctuations in income that move them from one tier to another
would change their rent. Flat rents are not as responsive to changes in family income
as income-based rents and their adoption can result in families paying much less or
much more towards rent than is generally considered affordable (30% of income).
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 have voiced concern at the prospect of flat rents, noting that
families could be left paying half or more of their incomes towards rent under a flat
rent system. There is also some concern 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. Lowincome 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.
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.31 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.32 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
There is a mandatory earned income disregard applicable only to disabled families in
certain situations. For more information, see The National Housing Law Project’s Earned
Income Disregard Packet for Public Housing Voucher Program and Other HUD Programs
available at: [http://www.nhlp.org/html/pubhsg/eid_packet.htm].
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.
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
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 had 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 lose assistance. 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 conversion of the Section 8 Housing Choice Voucher
program to a broader purpose grant program 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 broader purpose grants in general argue that they
provide the flexibility necessary 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.
Critics of this type of additional administrative flexibility 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., quality standards, 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,33 in support of their
FY2005 reform proposal, 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
Statement made by Assistant Secretary for Public and Indian Housing, Michael Liu,
Senate VA- HUD Appropriations Subcommittee, FY2005 Budget Hearing, Apr. 1 2004.
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. Proposals to encourage PHAs to move
families off of assistance are consistent with the goals of welfare reform. However,
critics note that more than one third 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. Low-income housing advocates 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.
The Bush Administration had made the argument to convert the program to a
broader purpose grant program and unsuccessfully proposed two initiatives during the
108th Congress, which are described below. A new reform initiative, supported by the
Administration, has been introduced in the 109th Congress and is also discussed later
in this report.
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 tenantbased 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 FY2005 Flexible Voucher Program. The President’s Flexible Voucher
Program (FVP), first 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 with loosened income eligibility, income
targeting, and quality inspection requirements. FVP was not enacted before the end
of the 108th Congress. A proposal similar to FVP is now pending in the 109th
Developments in the 109th Congress
President’s FY2006 Budget Proposal
On February 7, 2005, President Bush released his FY2006 budget request. It
included $15.9 billion for the Section 8 tenant-based voucher program, an increase of
over 7% from the FY2005 enacted level. The request also proposes to continue and
expand the practice of funding PHAs on a budget-basis (rather than a per-unit basis),
and it states that the President supports reform of the program. (For a more
comprehensive discussion of the FY2006 HUD appropriations, see CRS Report
RL32869, The Department of Housing and Urban Development (HUD): FY2006
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 lease34 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
Although they were permitted to increase their leasing up to their authorized level.
to budget-based funding. They argue that this shift will help in “controlling the
program’s upward spiral in costs.”35
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
calculated by HUD, prior to prorations, and by applying the 2006 annual
adjustment factor, as established by the Secretary.36
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.37 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.38 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 measured
from a current services perspective; under a new program, adequacy could be
discussed in the larger context of unmet need in a community.
Budget of the United States Government, FY2006 — Appendix, p. 528.
Ibid., p. 527.
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.
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.
Another concern that has been 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 costcutting 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.
Congressional Action on HUD Appropriations. On June 30, 2005, the
House of Representatives passed its version of the FY2006 HUD appropriations bill
(H.R. 3058). The bill adopted the President’s proposed formula for distributing
renewal funds (based on the prior year’s allocation), but included a set-aside of $45
million to be used by the Secretary to adjust the budgets of agencies that were
adversely impacted by the FY2005 formula because of a high number of portability
vouchers. The bill included $100 million more than the President requested for
voucher renewals, but a total funding level, $15.6 billion, that is below the President’s
On July 21, 2005, the Senate Appropriations Committee reported its version of
H.R. 3058. It adopted a different formula for distributing renewal funds to PHAs; it
would allocate funds based on PHA’s actual costs and utilization as reported over the
last 12 months. The Committee bill also includes a $45 million set-aside, which the
Secretary can use to adjust the budgets of agencies that were adversely impacted by
the FY2005 formula because of a high number of portability vouchers or because the
3-month time period used was an anomaly for the agency. After set-asides, the Senate
version provides less in renewal funding and less in total funding, $15.6 billion, than
the President’s request. Low-income housing advocates, while praising the Senate
formula, have raised concerns that the renewal funding level is not adequate to fund
agencies at 100% of their formula eligibility and may not be sufficient to maintain all
existing vouchers in use.
The State and Local Housing Flexibility Act of 2005
(S. 771/H.R. 1999)
The State and Local Housing Flexibility Act of 2005 was introduced by Senator
Allard on April 13th and by Representative Gary Miller on April 28th, as S. 771 and
H.R. 1999, respectively. The Act consists of three titles. Title I, The Flexible
Voucher Act, is discussed further below. Title II, Public Housing Rent Flexibility and
Simplification, would permit PHAs to alter the rent calculations for public housing
in the same ways they would be permitted to change voucher rents under Title I. Title
III, the Moving To Work Program, would make the current Moving to Work
demonstration a permanent program with expanded eligibility for PHAs and expanded
waiver authority for the Secretary of HUD.
Title I is similar to the Flexible Voucher Program proposed by the
Administration as a part of the FY2005 budget request. It would replace the current
voucher program with a broader-purpose grant program. PHAs would continue to
administer the program, although if they were not meeting the Secretary’s
performance standards, their funds could be awarded to other entities selected by the
Secretary. Flexible Voucher Program funds could be used for six eligible activities:
tenant-based rental assistance; project-based rental assistance; tenant-based
homeownership assistance for first-time homebuyers; self-sufficiency activities
including escrow savings accounts; other activities, as specified by the Secretary, in
support of tenant-based, project-based, or homeownership assistance; and
administrative costs. Income eligibility, targeting, subsidy determination, and quality
inspection rules would all be loosened, while portability rules and enhanced voucher
features would be restricted. The Secretary would be directed to implement temporary
implementing regulations within 90 days of passage and final regulations, not
including funding formulas, within 18 months. The Secretary would be directed to
undertake negotiated rulemaking to develop grant and administrative fee allocation
formulas, to be published within 24 months. A comparison of major changes from
current law can be found in Table 10.
Table 10. Comparison of Key Provisions in Flexible Voucher
Program Proposal (S. 771/H.R. 1999) to Current Law
Flexible Voucher Program
Generally, families are
eligible if their adjusted gross
income is at or below 50% of
area median income (AMI),
although PHAs must target
75% of all vouchers to
families at or below 30% of
Families would be eligible if
their gross income is at or
below 80% of AMI, although
PHAs would be directed to
target 90% of all assistance to
families at or below 60% of
Benefits are statutorily set as
the difference between the
lesser of rent or the payment
standard (set by the PHA at
between 90%-110% of the
fair market rent) and the
Benefits would be set by the
PHA and they would be
directed to establish
maximum subsidy levels.
Tenant contributions are
statutorily set as the greater of
30% of a family’s adjusted
gross income, 10% of a
family’s gross income, or the
minimum rent (set by the
PHA, not to exceed $50, with
a hardship exemption)
PHAs could establish rents
based on a percentage of
income, flat rents, tiered rents,
or some combination of the
three models, at their
discretion. They would be
required to set minimum
Flexible Voucher Program
Current law does not include
any time limits. Leasecompliant families can
continue to receive assistance
(even if their incomes
increase above eligibility
limits) until their tenant
contribution is equal to the
rent, at which point their
subsidy is zero.
Beginning in January 2008,
PHAs would be permitted to
establish time limits of no less
than 5 years. Families whose
gross income increases above
80% of AMI would lose
eligibility for assistance.
The payment standard for an
enhanced voucher is equal to
the rent for the unit (even if it
is greater than the PHA’s
payment standard), allowing a
family that would otherwise
be displaced to remain in that
unit, even if its rent is above
the local PHA’s payment
standard. The “enhanced”
feature of the voucher remains
for as long as the family lives
in the unit.
The payment standard for an
enhanced voucher would
remain equal to the rent for
the unit (even if it is greater
than the PHA’s maximum
subsidy level) for the first
year. After 12 months, the
voucher would revert to
tenant-based rental assistance,
subject to the local PHA’s
Flexible Voucher Program.
Inspection of Units
PHAs must inspect units to
ensure that they meet federal
housing quality standards
prior to occupancy and at
least annually thereafter.
PHAs would be required to
inspect units within 60 days
of the first payment made to
the owner and at least once
every four years thereafter to
ensure that they meet federal
housing quality standards or
other standards approved by
the Secretary. PHAs would
be required to inspect at least
25% of units each year.
Families who receive voucher
assistance, after one year, can
move to any jurisdiction in
the country where a voucher
program is being
Families receiving rental
assistance, after one year,
would be permitted to move
to another unit within the
jurisdiction of the PHA that
issued the voucher.
Flexible Voucher Program
homeownership assistance or
assistance on the day before
enactment of the Act would
continue to receive assistance
under current law for the
length of their contracts.
Elderly and disabled
assistance on the day before
enactment of the Act would
continue to be treated under
current law until January
2009. Elderly and disabled
assistance after the date of
enactment would also be
treated under current law until
January 2009, unless their
PHA had devised a plan for
meeting the needs of the
elderly and disabled prior to
the January 2009 deadline for
developing such a plan.
Source: Congressional Research Service.
Thus far, the Administration has signaled support for this legislation and both
bills have garnered several co-sponsors. Low-income housing advocates have
generally opposed the proposal. The bill has been referred to the Financial Services
Committee in the House, which held a full committee hearing on May 11 and a
Housing Subcommittee hearing on May 17, and to the Banking, Housing and Urban
Affairs Committee in the Senate, which had not scheduled a hearing at the time this
report was updated.
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:39
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.
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]