President Barack Obama released his fifth budget request to Congress on April 10, over two months after the statutory deadline passed. The FY14 discretionary request for affordable housing programs administered by HUD and USDA, while insufficient, is the bright spot for some programs in an otherwise gloomy fiscal outlook. As HUD and USDA discretionary programs experience cuts from sequestration, the budget request from the President that would restore cuts for some programs, partially address funding shortfalls due to flat funding in the FY13 continuing resolution, and resume funding levels not seen since FY11, is a respite from deeper cuts for some programs. For other programs, the President’s request is equal to or more than the funding levels of FY11, after two fiscal years of flat or decreased funding. For several programs, the FY14 request would continue a disappointing trend and further cut funds that have decreased over the past several fiscal years. The President’s budget includes numerous policy proposals for HUD, to find cost savings measures that can create resources for housing programs that are not funded sufficiently, and to advance program reforms. While some of these policy provisions have been vetted with Members of Congress and advocates in the past, others are new initiatives and have not yet been evaluated. HUD plans to propose “comprehensive legislation” in the spring of 2013 that will include its policy proposals that are not included in the request itself. Once again, HUD’s guiding principle for the budget is to maintain funding for all existing HUD-subsidized units. In past fiscal years, HUD has made this commitment but not requested sufficient funding to guarantee that its rental programs achieve that goal. While HUD’s request for rental programs is strong, it is not yet clear whether the budget request can achieve the goal of maintaining all existing units. The Administration’s request includes funding designated for the Administration’s new Promise Zones initiative to create a “ladder of opportunity,” a path to the middle class for residents of 20 impoverished communities across the country. The budget request includes several assumptions that are critical to the overall funding request for HUD programs. The budget assumes that sequestration is reversed in FY14, that receipts from the Federal Housing Administration (FHA) will be applied to HUD programs, and that a significant funding shortfall for the FHA’s Mutual Mortgage Insurance (MMI) fund will be largely addressed by policy changes. None of these assumptions are guaranteed.Tenant-Based Rental Assistance (TBRA). The President’s budget request for the Section 8 voucher program is $19.98 billion, including $17.97 billion for voucher renewals. The Administration claims this funding would allow HUD to renew all vouchers in use at the beginning of FY13, which could mitigate the impact of sequestration cuts and avert a loss of vouchers. The FY13 funding level, after sequestration, could result in the loss of 140,000 vouchers, according to the Center on Budget and Policy Priorities. The President also requests $111 million to renew the Section 811 Mainstream Vouchers. The Administration’s estimate of the FY14 TBRA renewal costs assumes that policy changes it requests will reduce costs in the TBRA account and result in a $235 million savings. It also assumes cost savings from collecting excess public housing agency (PHA) reserve funding. HUD proposes that PHAs be allowed to hold one month of reserves, and amounts above that threshold be designated as “excess.” These excess reserves would be applied to contract renewals and to provide funding to prevent termination of families served by PHAs that have insufficient funding. Administrative fees are funded at $1.69 billion in the President’s budget request, a level $300 million higher than in FY12 and FY13. HUD has undertaken a study of administrative fees and expects to publish the findings in 2014. Meanwhile, PHAs have expressed to HUD that the FY13 administrative fee funding level was insufficient; several PHAs have reportedly turned over their voucher programs to HUD or declined to receive Veterans Affairs Supportive Housing (VASH) vouchers due to what they call insufficient funding to administer the vouchers. The FY14 budget would fund 10,000 new VASH vouchers at $75 million. HUD cites this allocation of new VASH vouchers as critical to continuing its commitment to ending veteran homelessness; homelessness for veterans declined by 12% between 2010 and 2011. The TBRA request also includes $150 million for new Tenant Protection Vouchers, double the amount of FY12 and FY13 funding. The Administration anticipates serving 29,500 households with this funding. These vouchers are not new assistance. Rather, they are provided to tenants who lose their existing federally subsidized housing, like residents who are displaced because of public housing revitalization or because their project-based Section 8 owner decides not to renew its subsidy contract.The President does not request funding for the Family Self-Sufficiency program within the TBRA account, and instead requests this funding in a separate account. Project-Based Rental Assistance (PBRA). The Administration requests $10.27 billion for the PBRA program, an increase of nearly $1 billion over the FY13 funding level. In FY12, HUD proposed underfunding the PBRA account by providing only partial-year contracts for some of the properties in its portfolio. While HUD originally reported that the FY14 request of $10.27 billion is sufficient to renew all contracts for a full year in FY14, it now reports that between $11.1 and $11.4 billion would be needed to renew all contracts. HUD requests that funds from the Housing Certificate Fund be directed to the PBRA account to supplement the appropriation, continuing the practice of recent years. The budget request also includes several policy provisions that HUD would use to direct additional funding to the PBRA account. HUD proposes to collect excess reserve funding from property owners to supplement funding for assistance payments. In FY12, HUD collected excess public housing operating reserves from PHAs to supplement an appropriations request that was insufficient to fund public housing operating costs. The budget request does not limit the number of years that HUD would collect PBRA reserve funding from owners. HUD also proposes creating a demonstration on energy efficient retrofits for HUD-assisted properties called “Pay for Success.” HUD would encourage private entities to invest upfront money for retrofits in these HUD-assisted properties and enter into multi-year agreements to repay these investors. Presumably, these retrofits would reduce costs in the portfolio over time. HUD also proposes creating a “Flexible Portfolio Demonstration” to secure cost savings and preserve HUD-assisted properties. High-performing owners would be granted “regulatory and administrative flexibilities” in exchange for commitments to provide cost savings and to preserve property affordability. It is not yet clear what flexibilities HUD intends to provide owners, what level of savings these provisions would net, or the whether this flexibility would increase preservation of units in the portfolio.HUD proposes another policy provision focused on preservation of affordable properties in the PBRA portfolio, which would amend policies related to the Low Income Housing Preservation and Resident Homeownership Act (LIHPRHA) to align them with other PBRA properties. This alignment, says HUD, would better “facilitate preservation transactions.”Even with these provisions, HUD may not be able to provide full-year contracts for all of its currently subsidized properties. Public Housing. HUD proposes to fund the Public Housing Capital Fund at $2 billion, an increase of $125 million above FY13 and FY12 funding, and nearly level with FY11 funding. HUD’s estimated capital needs exceeded $26 billion in FY12.The request includes two set-asides within the Capital Fund, including $20 million for emergency capital needs and $15 million for a Jobs Plus Pilot expected to serve 30,000 public housing residents. HUD also requested funding for a Jobs Plus Pilot in the FY13 budget request to build on the Jobs Plus demonstration, completed in 2006. The President requests $4.6 billion for the Public Housing Operating Fund, an amount level with FY11 funding and below the FY12 allocation. In FY12, Congress appropriated $3.9 billion for the Operating Fund but required PHAs to contribute funding from their reserves that increased operating funding to approximately $4.7 billion. In FY13, with excess reserves drained, Congress continued only the $3.9 billion base operating funding and added $300 million through an anomaly in the continuing resolution. HUD includes five policy provisions related to the Operating Fund. HUD would provide full fungibility between the operating and capital funds. This would eliminate the fees that PHAs must currently pay to use operating funds for capital projects. The budget proposal does not include parameters for this flexibility beyond that the agency must be non-troubled. A similar proposal was included in the FY13 budget request. The HUD request also includes a proposal to phase-in a flat rent floor of 80% of fair market rents (FMRs) for higher income residents and another to allow PHAs to create consortia for administering public housing units. This latter provision would expand the ability of PHAs to collaborate beyond administration of vouchers. Another proposal, for which no further details are available, would change community service requirements for residents. Still another would create a “utilities conservation pilot” to reduce federal costs through energy efficiency. HUD plans to submit details of these proposals to Congress in authorizing legislation this spring. HUD also provides funding related to public housing in two additional accounts. The budget request includes $10 million in funding to continue the Rental Assistance Demonstration (RAD) and $400 million for the Choice Neighborhoods Initiative (CNI). The CNI program was funded at $120 million in FY12 and FY13, and at $65 million in the two prior fiscal years. The President is requesting increased funding in part to support the Promise Zones and would dedicate $200 million of CNI funds for this initiative. Policy Provisions Related to TBRA, PBRA, and Public Housing. In addition to the policy proposals noted above, the President’s FY14 request also recommends many other policies be enacted for FY14. Some of these were requested by HUD in previous budgets, some have been included in rental assistance reform legislation in previous sessions of Congress, and a few are new. The request itself includes suggested legislative language for some of the proposals and, for others, says that a broad legislative proposal will be delivered to Congress in the spring of 2013.The request notes that this forthcoming legislative proposal will “include a substantial expansion of the Moving to Work (MTW) program.” The request notes that “key tenant protections will continue to apply and [public housing agencies] will be subject to rigorous reporting and evaluation requirements.” While it is not clear that “key tenant protections” exist at MTW sites that would continue to apply, advocates are hopeful that HUD’s legislative proposal for MTW expansion mirrors the work of the 2012 stakeholder agreement on MTW expansion. HUD’s legislative package also allows fixed income families to recertify their incomes every three years instead of annually, establishes a voucher renewal funding formula, enables biennial and alternative inspections, makes improvements to the project-basing of vouchers, and streamlines the process for establishing annual Fair Market Rents. The request notes that HUD will also seek reforms “simplifying and improving the annual [PHA] plan requirement.” There are no details on this proposal. HUD’s legislative package will also include a proposal to “establish reasonable limits on compensation provided by PHA personnel” after more than a year of media stories about high salaries and generous compensation packages enjoyed by some PHA directors. HUD also seeks to increase the threshold used to determine deductions for unreimbursed medical expenses from 3% to 10% of family income. For many advocates, this is half of a widely agreed upon proposal, the half that saves resources. The other half of the medical deduction proposal would increase the standard deduction for elderly and disabled households, to protect them from any harmful impacts of increasing the deduction threshold so significantly.The request also seeks approval to extend the Rental Assistance Demonstration by two years, through 2015, and expand the number of public housing units that could be included in RAD from 60,000 to 150,000.Additional policy provisions focus on services in housing. HUD proposes to allow flexibility to use funding for supportive services, but does not provide details on the extent of this flexibility. The budget request also makes changes to the Family Self-Sufficiency (FSS) program consistent with the FY13 request. The Administration would move FSS from the TBRA account to a separate account, and would fund FSS services for tenants in HUD’s three main rental programs (TBRA, PBRA, and Public Housing). HUD’s funding request is $15 million over past funding levels of $60 million, for a total of $75 million to serve current and additional households. The Administration once again includes a provision to allow the sponsor-based housing model to create supportive housing as a tool to end homelessness. In its FY13 budget request, HUD proposed allowing a PHA to sponsor-base up to 5% of its vouchers. HUD plans to introduce a similar legislative proposal with “strengthened tenant protections.” The request also seeks approval for 13 “Performance Partnership Pilots” to improve outcomes for disconnected youth aged 14 to 24 who are homeless, in foster care, involved in the juvenile justice system, or are neither employed nor enrolled in an educational institution.Homeless Assistance. The Administration requests $2.38 billion for the McKinney-Vento Homeless Assistance Grants, an increase of nearly $350 million over FY13 funding pre-sequestration. Homeless Assistance is one of the few HUD programs for which Congress provided increased funding through an anomaly in the FY13 continuing resolution. The President requests $346 million for the Emergency Solutions Grant, including $60 million for rapid re-housing activities for high-needs communities. The request includes $2.03 billion for the Continuum of Care program. HOME Investment Partnerships. The President’s budget request includes $950 million for the HOME program, a decrease of $50 million below the FY13 pre-sequestration levels. Congress has continually cut the HOME program since FY10 from a level of $1.83 billion to $1 billion in Fy13. HUD cites the limited budget resources remaining after funding programs serving current tenants as the reason for curtailing the request for new production funding through the HOME program. HUD estimates that $950 million for the HOME program will fund 15,200 new and rehabilitated rental units, 9,400 households with tenant-based rental assistance, and 24,500 new and rehabilitated homeownership units.The budget request includes a provision to establish a single qualification threshold of $500,000 and would make participating jurisdictions that fall below the threshold for three out of five years, in ineligible for direct formula funds. HUD also includes a provision to waive the 30-day waiting period to evict a HOME rental unit tenant if he or she “poses an imminent threat” to other tenants, development employees, or the property. The Administration’s budget also includes a set-aside of $10 million for the Self-Help and Assisted Homeownership Opportunity Program (SHOP), eliminating separate funding for the SHOP account and instead relying upon the HOME account to fund these activities. Community Development Block Grants (CDBG). The request would decrease funding for CDBG formula grants from $2.95 billion to $2.8 billion. The request also seeks several policy proposals to “better target funds based on community need and ensure that communities receive grants large enough to be more effective in advancing the goals of the program.” The details of this “ better targeting” are not included in the request, which does say that “HUD will seek input from stakeholders over the coming months regarding further program changes that t0 improve the targeting of formula funds, and strengthen accountability and performance” in the CDBG program. The President’s budget request includes $3.14 billion for the Community Development Fund (CDF), a more than $150 million decrease below FY13 pre-sequestration funding, $350 million below FY11, and $1.3 billion below FY10 funding. (This account includes CDBG.) HUD proposes contributing funds from CDF to the President’s Promise Zones initiative. Supportive Housing. The President’s request includes $400 million for the Section 202 Housing for the Elderly program, restoring funding to the FY11 funding level, which was more than 50% below FY10 funding level. The FY14 budget request would restore funding for creating new Section 202 units, approximately $20 million according to HUD. The President proposes funding the Section 811 Housing for Persons with Disabilities program at $126 million in FY14, approximately $40 million below the FY13 pre-sequestration funding level. HUD expects these funds to renew all Project Rental Assistance Contracts (PRACs) and provide $20 million for new units. The budget request includes $332 million for the Housing Opportunities for Persons With AIDS (HOPWA) program, roughly level funding for the past several fiscal years. Other HUD Programs. The Administration would fund Native American Housing Block Grants and Native Hawaiian Housing Block Grants at the FY13 pre-sequestration and FY12 levels of $650 million and $13 million, respectively. The President’s request would fund the Fair Housing and Equal Opportunity Program at $71 million, level with the last several fiscal years. The Healthy Homes and Lead Hazard Control program would be funded at $120 million, level with FY13 pre-sequestration and FY12 funding. The Housing Counseling program would be funded at $55 million, a $10 million increase over FY13 pre-sequestration levels but $30 million less than the FY10 funding level.HUD’s Policy Development and Research program would be funded at $50 million, a slight increase over the funding levels of FY10 through FY13. Rural Rental Housing. The President requests roughly level FY13 pre-sequestration funding for the USDA Rural Housing Service affordable rental programs. The Administration requests $24 million for the Section 514 Farm Labor Housing Program, which was funded at $23 million pre-sequestration in FY13. The request is below the FY11 funding of $26 million and the FY10 funding of $27 million. The USDA budget proposal includes $14 million for the 516 Farm Labor Program in the FY14 request, a $6 million increase over FY13 pre-sequestration funding, and $4 million above the FY11 and FY10 levels. The Section 515 Rental Housing Direct program would be funded at only $28 million in FY14, a slight $3 million decrease below the FY13 pre-sequestration level, more than $35 million below the FY12 level, and $40 million below FY11 and FY10 funding levels.The Administration requests a slight increase for the Section 521 Rental Assistance program of $18 million, for a total request of $1.02 billion. RHS claims this funding is sufficient to renew all rental assistance contracts; however, it has not provided data to confirm this assertion. Low Income Housing Tax Credit. The Department of the Treasury is seeking changes to the Low Income Housing Tax Credit (LIHTC) program as part of its FY14 request to Congress. Among the changes sought is authorization to allow states to convert some private activity bond volume cap into authority to allocate additional LIHTCs. Treasury is also requesting, again, its income averaging proposal. Here, LIHTC owners would have a third option to meet the program’s income targeting requirements: at least 40% of the units would have to be occupied by tenants with incomes that average no more than 60% of area median. Today, to qualify for the LIHTC program, owners must comply with one of the two existing income targeting requirements: at least 20% of units must be rent-restricted and occupied by tenants with income at or below 50% of area median; or, at least 40% of units must be rent-restricted and occupied by tenants with income at or below 60% of area median income. Treasury’s FY14 request would also add preservation of federally assisted affordable housing as a mandatory selection criterion for LIHTC allocations. State housing agencies must include certain selection criteria in the qualified allocation plans they follow in deciding which applications receive LIHTCs.Congress will now consider the President’s FY14 budget request and continue its FY14 appropriations work for the Transportation, Housing and Urban Development, and Related Agencies and Agriculture, Rural Development, Food and Drug Administration, and Related Agencies appropriations subcommittees. Click here to view NLIHC’s budget chart.Click here to view the HUD budget request.Click here to view the USDA budget request.Click here for more information on rural housing programs; view the Housing Assistance Council’s analysis of the USDA budget.