HUD estimates that it will need $9.2 billion in budget authority in fiscal year 1998 to renew contracts for over half of all units assisted under Section 8. HUD’s current policy is to renew expiring Section 8 contracts for 1 year at a time. These include (1) $162 million allowance for contingencies to cover uncertainties in the number of units to be renewed; (2) $253 million to provide a 2-week funding allowance per housing unit to account for changes in economic conditions; (3) $116 million to account for the anticipated effects of welfare reform on tenants’ incomes and, in turn, on the rent that housing authorities can collect from these tenants. The Department expects to complete this process by March 31, 1997. This policy limits HUD’s ability to offset its budget request for contract renewals with accumulated unspent budget authority and raises the amount of budget authority that HUD must request. Premature Funding Requests Increase HUD’s Project-Based Contract Renewal Estimate

HUD’s budget request for Section 8 contract renewal funding includes two line items for project-based housing assistance that HUD has since determined do not require renewal in fiscal year 1998. Justification for Increasing Size of Section 8 Program Is Unclear

For fiscal year 1998, HUD has requested $305 million in budget authority to fund 50,000 incremental (new) certificates to help families required to move because of the Department’s Welfare-to-Work initiative. However, it is unclear how HUD determined that 50,000 vouchers would be needed to help families relocate or how HUD would distribute the new certificates to states and urban centers where this need is likely to be felt. Balances of Uncommitted Modernization Funding Have Decreased, but Some Housing Authorities’ Balances Have Increased

For fiscal year 1998, HUD is requesting $2.5 billion for public housing capital activities, the same amount it received in fiscal year 1997. Currently, housing authorities have approximately $925 million in backlogged funding. Of the 22 PHAs reviewed, 6 have larger backlogs than they did 3 years ago, including the 3 PHAs noted above. The Empowerment Zone/Enterprise Community Program May Not Need Full Funding in Fiscal Year 1998

HUD’s fiscal year 1998 budget proposal includes $100 million for a second round of the Empowerment Zone/Enterprise Community (EZ/EC) program. This means that HUD’s request of $100 million in fiscal year 1998 could be premature. Conclusions

HUD may not need all the budget authority that it has requested for the Section 8 program in fiscal year 1998 because it has built in several allowances to cover unexpected costs, while at the same time it has access to unspent budget authority from prior years that also can be used to address unexpected costs. Matters for Congressional Consideration

The Congress may wish to consider not funding the various contingency allowances that HUD has proposed in its fiscal year 1998 budget request for tenant-based Section 8 contract renewals until HUD provides the Congress a more complete justification of the need for each contingency allowance, including HUD’s policy that allows housing authorities to retain large excess contract reserves. The Congress may also wish to review HUD’s need for budget authority in fiscal year 1998 of $100 million for the second round of the EZ/EC program and to seek assurances from HUD that the program will be ready to commit funds. Housing and Urban Development: Comments on HUD’s FY 1997 Budget Request (GAO/T-RCED-96-205, June 17, 1996). 3, 1995).
Why GAO Did This Study

GAO discussed the Department of Housing and Urban Development's (HUD) fiscal year (FY) 1998 budget request, focusing on: (1) the estimates HUD used to develop its budget request for renewing Section 8 assisted housing contracts; (2) HUD's justification for 50,000 additional Section 8 certificates; (3) HUD's success in reducing the level of uncommitted public housing modernization funds held by housing authorities; and (4) HUD's request for $100 million to fund the second round of the Empowerment Zone/Enterprise Community (EZ/EC) program.

What GAO Found

GAO noted that: (1) HUD's FY 1998 budget request for $9.2 billion in budget authority to renew expiring Section 8 contracts for assisted housing includes amounts that may not be required or could be offset; (2) HUD's request contains allowances for contingencies, costs that may or may not accrue or that cannot be precisely estimated, with an estimated value of $531 million; (3) however, because HUD also allows housing agencies that administer the tenant-based program to retain a large portion of their unspent reserves for contingencies, HUD may not need funding for the contingencies noted above; (4) in developing this budget request, HUD may be able to offset (reduce) some of its current renewal needs after it has identified all unspent budget authority accumulated over prior years, an effort it plans to complete by March 31, 1997; (5) since its budget was released, HUD has found that two housing programs that provide project-based assistance do not need to be renewed in FY 1998, and therefore the programs do not require the $90 million that HUD budgeted for them; (6) HUD also has requested $305 million in budget authority for FY 1998 to fund 50,000 new Section 8 certificates; (7) according to HUD, the certificates will accommodate family relocation caused by HUD's Welfare-to-Work initiative, but it is unclear how HUD estimated the number of units or justified their need; (8) for example, HUD has neither given a basis for choosing 50,000 as its request nor provided a plan for distributing these certificates to states or urban centers according to their need; (9) in addition, HUD plans to request an additional 50,000 units over the next 4 years, adding approximately $2.4 billion in renewal costs through FY 2002 for the additional 100,000 certificates; (10) over the past 3 years, public housing authorities have decreased the amount of uncommitted public housing modernization funding that they have available for major modernization projects by approximately 30 percent; (11) despite this progress, approximately $925 million remains uncommitted; (12) in addition, several large troubled housing authorities have larger uncommitted balances than they did 3 years ago; (13) despite the pressure on HUD's budget because of the increasing need to renew Section 8 contracts, these housing authorities will continue to be granted additional funding in accordance with HUD's formula for awarding modernization grants; and (14) HUD's request for $100 million to fully fund a second round of the EZ/EC program appears premature as it is unlikely that HUD can commit this amount during FY 1998.