PAYING THE RENT:

An evaluation of the Section 8 Existing
Housing Program in New York City

A CHPC Research Report

October, 1997

Epilogue: Housing, Politics and Accounting

Shortly after the Republican Party gained control of Congress in the 1994 elections, the Clinton administration released its blueprint for "reinventing" the Department of Housing and Urban Development. The plan was widely seen as an attempt to seize the initiative from the Republican Congress, among whose leaders were several legislators who advocated the dismemberment of HUD and its termination as a cabinet-level agency.

Underlying both congressional hostility to HUD and the Clinton administration's response was a looming budget crisis centered in the Section 8 program, which focused a spotlight on housing spending at the very time the President and Congress were locked in a bitter political struggle over the necessity and means of balancing the federal budget. The vast majority of Section 8 new construction and substantial rehabilitation projects had been built between 1975 and 1985, typically with federal rent subsidy contracts that were drawn for 20 years. The contracts were coming due for renewal beginning in 1995, as were thousands of early tenant-based Section 8 contracts, which had a term of 15 years. The contract renewals were projected to drive Section 8 spending authority requirements from about $5.6 billion in FY95 to almost $17 billion by FY98. [1]

The "reinvention blueprint" sent shock waves throughout the professional housing community. Its sweeping proposals included the conversion of federal operating subsidies to public housing authorities into tenant-based rent vouchers, a change intended to give public housing residents the freedom to choose their housing accommodations and force PHAs to compete with other subsidized and private market housing. The blueprint also proposed that federal rent subsidies to the vast stock of private Section 8 project-based housing be converted into tenant-based subsidies, and that the mortgages on those properties be written down to a level at which they could be serviced at market or street-level rents. While the "mark-to-market" plan for Section 8 projects was couched in terms of increasing competitive discipline on housing managers, it also had an ulterior motive: to shift Section 8 contract renewal costs from the federal budget to the FHA's insurance funds.

The reinvention blueprint represented the high-water mark of tenant-based rent subsidies in national housing policy planning. Soon after the 104th Congress took office, it became clear that the Republican Party's pledge to balance the budget within five years would take precedence over its ideological affinity for demand-side housing programs. Early in 1995 a memo authored by the staff of the House subcommittee responsible for HUD's appropriations took aim at the cost of Section 8, and a House Republican Budget Committee report prepared around the same time specifically called for contraction of the program. Several months later, Congress enacted huge rescissions to the FY95 budget, which included a 20 percent reduction in appropriations by HUD. Almost half of the HUD cuts were made by eliminating $2.4 billion that had been appropriated for incremental Section 8 certificates and vouchers.

As Congress and the President began their political maneuvering over the FY96 budget that led to the temporary shutdown of most federal agencies, government and independent budget analysts questioned the cost savings that would be realized from implementation of the blueprint. Furthermore, both public housing authorities and private owners of Section 8 project-based housing saw their financial stability threatened by the proposed transition to tenant-based subsidies, and their lobbying efforts convinced Congress that it would be imprudent to plunge hastily into a wholesale "voucherization" of these subsidy programs.

In the HUD budgets that emerged for FY96 and FY97 Congress took a cautious approach toward the conversion of public housing and project-based Section 8 subsidies. Only public housing developments that met certain criteria for distress were subject to subsidy conversion, and a voluntary $50 million "mark-to-market" demonstration program for project-based Section 8 was created. In order to forestall a Section 8 budget crisis Congress required HUD to renew expiring project-based Section 8 contracts for one year. While funds were also appropriated for renewal of expiring tenant-based Section 8 subsidies, the only new certificates or vouchers authorized were those needed to carry out the limited public housing voucherization and Section 8 mark-to-market demonstrations, and those for low-income tenants residing in projects leaving the Section 236 program. No funding for general incremental Section 8 certificates or vouchers was appropriated in FY96 or FY97. Moreover, public housing authorities are now required to delay, for three months, the reissue of certificates and vouchers that become available through the death or loss of eligibility of existing tenants, a provision which may be a harbinger of future Congressional attempts to "recapture" a portion of those that are already in use.

Congressional appropriations for FY98 again provided no funding for incremental tenant-based Section 8 subsidies, other than those earmarked for specific portfolio restructuring purposes. Reflecting the onset of the full blown Section 8 budget crisis, however, appropriations for contract renewal purposes were increased from $3.6 billion to $9.2 billion. Simultaneously, Senate and House passed public housing reform bills that would permanently lift the federal preferences for Section 8 subsidies, further liberalize the portability rules, and effectively merge the certificate and voucher programs. The House bill would authorize $1.9 billion in tenant-based Section 8 appropriations for each fiscal year through 2002. According to a Congressional Budget Office analysis of the bill, that authorization would be sufficient to cover only 20 percent of the existing contracts up for renewal during that time period, heightening the fears of housing professionals that Congress would eventually revoke the rent subsidies of families already receiving them.

In New York City the cutbacks have reduced the annual availability of Section 8 certificates and vouchers from about 16,000 to 4,000, with the entire new supply generated through reissues. The effect on the city's poorest families and the low-income housing stock will be profound. As already detailed in this report, the Department of Homeless Services has become increasingly reliant on using Section 8/EARP to place homeless families living in Tier II shelters into permanent housing. If the entire annual flow of certificate and voucher reissues is used for that purpose, it could accommodate 60 to 80 percent of the number of families placed by DHS in recent years. The new federal welfare law and New York State's implementation of it, however, seem certain to increase the number of families seeking emergency housing from the city, potentially overloading DHS's capacity to relocate them.

By late 1996, long before the federal and state welfare restrictions took effect, early signs of an impending homeless crisis were evident. In an effort to reduce the intake of families into its shelter network to a degree commensurate with its dwindling outplacement resources, the city imposed tighter eligibility criteria for emergency housing. The new criteria have provoked advocates for the homeless to intensify their legal activities against the city, resulting in an even deeper involvement by the courts in the day-to-day management of the city's homeless services system. [2]

If history is any guide, financial, political and legal imperatives will encourage the city to assign homeless families the highest housing priority. There are likely to be few, if any, Section 8 certificates or vouchers available for other eligible applicants, including the thousands of tenuously housed families already on the Section 8 waiting list. Some of them will slip into homelessness, further straining emergency shelter resources.

Public and private efforts to rehabilitate housing and revitalize communities will also suffer. Without a flow of new certificates and vouchers the housing preservation impact of rent subsidies will be arrested, and the pace of private low-income housing rehabilitation through the Participation Loan and similar programs will be reduced. An ironic effect will be that the city's capacity to privatize in rem housing will also be impaired.

The greatest irony of the demise of the Section 8 Existing Housing program, however, is that the budget crisis that prompted the congressional cutbacks is more illusory than real. The budget bulge, relating to expiring tenant- and project-based Section 8, results from federal accounting rules that require the entire cost of multi-year obligations to be recorded in the year the spending authority is appropriated. There, however, is no reason to expect annual outlays under those contracts to increase at an unusual rate, [3] and actual outlays, not budget authority, ultimately determine the federal deficit and affect the economy. Congress has tacitly recognized this fact by appropriating funds for one-year Section 8 contract renewals. However, in halting the expansion of the Section 8 program which has reached just 12 percent of eligible families, the country has made a political choice that is more than mere accounting illusion.

Chapter 1: The Program | Chapter 2: The Tenants | Chapter 3: The Housing | Epilogue

Disclaimer: The New York City Rent Guidelines Board has converted this CHPC report to an electronic format and posted it on its web site. We do so to inform the public and the housing community, and further the debate on rent-subsidized housing. The Rent Guidelines Board did not participate in this study and does not necessarily agree with the findings of this report. The report is solely a production of the Citizen's Housing and Planning Council.