This report focuses on the two most recent proposals to dismantle HUD—S. They also recognize that budgetary constraints dictate changes. To manage these changes, the bill would redesignate HUD as the Housing and Urban Development Programs Resolution Agency and make this agency responsible for administering and concluding HUD’s affairs within 5 years.Among other things, the resolution agency would have to resolve, or provide for resolving, hundreds of billions of dollars in financial commitments and manage HUD’s shutdown. Objectives, Scope, and Methodology

The Chairs of the Senate Committee on Banking, Housing, and Urban Affairs and its Subcommittee on Housing Opportunity and Community Development and Senator Faircloth asked GAO to examine the implications of one of the proposals to dismantle HUD—S. 1145, the Housing Opportunities and Empowerment Act. Specifically, the requesters asked GAO to (1) examine the bill’s proposed changes in housing assistance, community development, and housing finance and the potential impact of these changes on the customers of these programs and (2) discuss the capacity of the states and other federal agencies to assume HUD’s functions and the tasks to be accomplished in dismantling HUD within the 5 years specified in the bill. S. 1145 Could Increase Choice in Housing and Community Development, but Some Vulnerable Populations Might Receive Less Assistance

S. 1145 would dramatically reduce the federal role in housing and community development and could have far-reaching effects on renters and communities. The bill’s plan to institute a voucher system could expand housing choices for renters in some areas, but its phaseout of project-based assistance could reduce the supply of affordable housing—and housing choices—in other areas. Similarly, the bill’s creation of a single block grant for community development would give the states and localities more choice in spending federal funds for projects in their communities, but some of HUD’s current clients, especially the homeless and very low-income families, might receive less assistance. These officials would prefer federal programs that channel funds directly to local areas. In addition, HUD noted that the impact on communities and on the poor of consolidating and cutting—by 40 percent—the funding for the Community Development Block Grant, the HOME program and the current programs for the homeless—would also be devastating. 3.1.) Particularly hard hit would be low-income and first-time home buyers. Similarly, a majority of the federal agencies that would receive HUD’s functions generally indicated that they could assume the additional responsibilities if they received adequate resources; however, they said implementation would pose problems. Balanced budget requirements exist in 49 states, according to the National Conference of State Legislatures. HUD, in contrast, maintained that transferring its functions to other agencies would break up the network it has developed to implement its programs and could adversely affect the delivery of services to its clients.
Why GAO Did This Study

Pursuant to a congressional request, GAO examined the implications of one of the proposals to dismantle the Department of Housing and Urban Development (HUD), the Housing Opportunities and Empowerment Act, focusing on the: (1) bill's proposed changes in housing assistance, community development, and housing finance and the potential impact of these changes on the customers of these programs; and (2) capacity of the states and other federal agencies to assume HUD's functions and the tasks to be accomplished in dismantling HUD within the 5 years specified in the bill.

What GAO Found

GAO found that: (1) the recent proposal to dismantle HUD, S. 1145, couples reduced federal funding with fundamental changes to the federal role in housing and community development; (2) if enacted, such a bill could have far-reaching effects on renters, communities, and would-be home buyers; (3) while the bill's plan to institute a voucher system to allow tenants to choose their residence could expand housing choices for renters in some areas, its phaseout of assistance for specific projects could reduce the supply of affordable housing and housing choices in other areas, according to HUD and state officials; (4) nonetheless, rising costs make current levels of housing assistance increasingly difficult for the nation to afford in an era of declining federal discretionary budgets; (5) accordingly, budgetary constraints may well reduce federal housing programs and services, whether these programs are reformed or not; (6) the bill's creation of a block grant for community development would give the states and localities more choice in spending federal funds, but the total federal funding for community development programs would be cut by about 40 percent; (7) the current beneficiaries of federal programs targeted to their needs might receive less assistance in an open competition for funds at the local level; (8) also, small cities would see a significant reduction in the federal funding for their projects; (9) although some of the bill's other provisions are designed to reduce the federal government's risk in insuring loans and guaranteeing mortgage-backed securities, these same provisions would make purchasing a home more difficult, especially for low-income and first-time buyers; (10) both the states and the federal agencies that would receive HUD's functions generally believed that they could assume additional programmatic and administrative responsibilities if they also received additional resources; (11) however, several of the federal agencies cautioned that they did not seek to assume HUD's functions; (12) HUD maintained that transferring its functions to other agencies would break up the network it has developed to implement its programs, would adversely affect the delivery of services to its clients, and would eliminate the focus on housing and community development it has provided as a cabinet-level department; and (13) the bill's implementation would depend on the resolution agency's ability to transfer functions and administer, and in some cases resolve, complex financial commitments within the required 5-year period.