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Tuesday, January 18, 2011

The Section 8 Voucher Renewal Funding Formula: Changes in Appropriations Acts

Maggie McCarty
Specialist in Housing Policy

Changes enacted by Congress during the appropriations process in each of the past several years have significantly altered the way that public housing authorities (PHAs) receive funding to administer the Section 8 Housing Choice Voucher program. Prior to FY2003, PHAs received funding for each voucher they were authorized to administer, based on their average costs from the previous year, plus inflation, referred to as “unit-based” funding. Most PHAs were not using all of their vouchers, due in part to rental market conditions, and each year the Department of Housing and Urban Development (HUD) was able to recapture unspent funds. In FY2001 and FY2002, some Members of Congress began expressing concern about the underutilization of vouchers and the amount of recaptures.

Beginning in FY2003, and culminating in FY2006, Congress fundamentally changed the way PHAs received voucher funding. The changes were designed to limit the amount of unspent funds held by PHAs and limit the cost of vouchers, which had begun to grow rapidly in 2001 and 2002, due in part to market changes and in part to policy changes. In FY2006, PHAs were funded based on the amount of funding they had received in the previous year (regardless of changes in their costs and utilization), plus an inflation adjustment, prorated to fit within the amount appropriated. Under this formula, the funding needs of the program became more predictable, but some agencies received more funding than they were legally permitted to spend, while other agencies did not receive enough funding for all of the vouchers they were authorized to administer. The Bush Administration supported this conversion to a “budget-based” formula and requested that Congress enact permanent reforms to complement the new funding method. Low-income housing advocates and PHA industry groups generally opposed both the funding changes and the Bush Administration’s proposed policy reforms.

In FY2007, Congress again changed the funding formula through the appropriations process. PHA funding was based on what they were spending in the previous year (rather than what they had been allocated in the previous year). As a result, PHAs that had not been spending all of their funding in FY2006 saw a reduction in funding in FY2007. Nonetheless, the funding provided was sufficient so that all PHAs received more than 100% of their 2006 costs and utilization. In FY2008 and FY2009, Congress adopted a cost and utilization-based formula similar to FY2007, but with a reduction in funding for PHAs with excess unspent funding in reserve. In FY2009, concerns were raised about how the implementation of the FY2009 formula may have left some PHAs without sufficient funding to continue serving all eligible families. Ultimately, Congress provided HUD with access to additional funding to help address shortfalls that could have resulted in families losing assistance. In FY2010, Congress again adopted a cost and utilizationbased formula, a hybrid of the “unit-based” and “budget-based” models, but without a reduction for excess reserves.

During the period of solely “budget-based” funding formulas, utilization of both authorized vouchers and of available funding declined. Since the adoption of a cost and utilization-based funding model, utilization has begun to increase again. As utilization increases, the cost of the program to Congress increases. This presents a set of policy tradeoffs between the goal of cost containment and the goal of serving as many eligible families as possible. The Section 8 voucher renewal funding formula continues to be a source of debate in the annual appropriations cycle, as well as in Section 8 voucher reform bills, which have contained proposals for statutory formula changes. This report describes changes in the formula included in appropriations bills for FY2003 to the present. It will be updated to reflect further enacted legislation.

Date of Report: January 6, 2011
Number of Pages: 16
Order Number: RL33929
Price: $29.95

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