Our objectives for this report, therefore, were to evaluate the accuracy of HUD’s estimate of its unexpended funds in the Section 8 tenant-based program and the reasonableness of this amount and assess HUD’s budget formulation process for the Section 8 tenant-based program. This is funding that housing agencies received under contracts with HUD but did not expend because the funding was not needed as planned to make housing assistance payments to landlords on behalf of low-income families. After HUD reported this large unexpended balance, the Congress rescinded $4.2 billion, and after other adjustments of about $2.2 billion, the current balance is about $3.5 billion, which remains in a congressionally established Section 8 Reserve Preservation Account. With the results of the reconciliation, HUD updated its Section 8 tenant-based information system and subsequently determined that the unexpended budget authority in the tenant-based program was $20.7 billion and that $9.9 billion of that amount was not needed to meet current program needs. HUD’s revised estimate of $9.9 billion has been verified by an independent accounting firm. Recommendations

To improve HUD’s fiscal responsibility to the Section 8 program and to ensure that the Congress is adequately informed about the amount of excess unexpended budget authority at HUD in the future, we recommend that the Secretary of HUD direct the Office of the Chief Financial Officer to modify the agency’s consolidated financial statements so that they (1) identify the portions of the unexpended appropriations for the Section 8 program that accrued during the year and are attributable to the tenant-based and project-based programs, respectively and (2) disclose the amounts of budget authority in each program that are excess to current needs and therefore available for other uses; include in HUD’s annual budget justification documents the amount of unexpended budget authority in the Section 8 assisted housing program that is in excess of current obligations and recapture amounts that accumulate above what is prudently needed to address contingent costs. We found that HUD had problems with its budget submission; but we also found that HUD had corrective actions planned or in process to improve its budgeting process. Subsequently, HUD adjusted its fiscal year 1998 budget request and removed this request for funding. Because of Budget Estimating Errors, HUD Lowered Its Fiscal Year 1998 Contract Renewal Request

As a result of misestimating the unit cost and using cost estimates in its February budget submission that HUD later determined to be unnecessary, in September 1997 HUD proposed—and the Congress accepted—changes in its contract renewal estimate that lowered the average unit cost by approximately 14 percent, from $6,386 to $5,499. In particular, HUD believed that we should recognize that its initial estimate of the impact of welfare reform on fiscal year 1998 budget needs was based on the best information available.
Why GAO Did This Study

Pursuant to a congressional request and a legislative requirement, GAO: (1) reviewed the accuracy of the Department of Housing and Urban Development's (HUD) estimate of unexpended budget authority in the Section 8 tenant-based program; and (2) assessed HUD's budget formulation process for this program.

What GAO Found

GAO noted that: (1) in 1997, HUD estimated that $20.7 billion in unexpended budget authority existed in the Section 8 tenant-based program and that $9.9 billion of that amount was in excess to known program needs; (2) this is funding that housing agencies received under contracts with HUD but did not expend because the funding was not needed as planned to make housing assistance payments to landlords on behalf of low-income families; (3) because HUD based its estimate largely on the data in its tenant-based program's information system--which HUD's Office of Inspector General and an independent audit firm have tested and determined to be reliable--GAO believes that the estimate is reasonably accurate; (4) after Congress rescinded a total of $4.2 billion in June and October 1997 and HUD set aside $2.2 billion for unanticipated costs and to account for future transactions, the balance of $9.9 billion in excess unexpended budget authority was reduced to about $3.5 billion in October 1997 and placed in a congressionally established Reserve Preservation Account; (5) the budget information process that HUD used to prepare its fiscal year (FY) 1998 budget request for renewing Section 8 tenant-based contracts did not produce an accurate estimate of needs; (6) key HUD offices did not adequately oversee critical steps in the process, and the process did not require reasonable justification for substantial portions of the estimate--including several hundred million dollars proposed for contingency costs; (7) in addition, although at the time of its FY 1998 budget submission HUD had an estimate of the impact of welfare reform on the cost of the Section 8 program, more recent information caused HUD to conclude that including this estimate in the budget request was necessary; (8) as a result, HUD eventually lowered by $1 billion its FY 1998 budget estimate for renewing Section 8 contracts; and (9) to improve its process, HUD has further enhanced its tenant-based program's information system, consolidated its budget development with strategic planning and financial management, and changed its budget process; HUD also plans additional changes in these areas but does not have a timetable for accomplishing them.