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The original documents are located in Box 65, folder "FY 1978 Director's Review - HUD
(1)" of the James M. Cannon Files at the Gerald R. Ford Presidential Library.
Copyright Notice
The copyright law of the United States (Title 17, United States Code) governs the making of
photocopies or other reproductions of copyrighted material. Gerald Ford donated to the United
States of America his copyrights in all of his unpublished writings in National Archives collections.
Works prepared by U.S. Government employees as part of their official duties are in the public
domain. The copyrights to materials written by other individuals or organizations are presumed to
remain with them. If you think any of the information displayed in the PDF is subject to a valid
copyright claim, please contact the Gerald R. Ford Presidential Library.
Digitized from Box 65 of the James M. Cannon Files at the Gerald R. Ford Presidential Library
Department of Housing and Urban Development
1978 Budget
Highlights
HUD Request
Secretary Hills has not submitted a complete set of budget estimates for either
1978 or 1979. Nor has she submitted her complete legislative program for the 95th
Congress.
The Secretary has proposed to maintain the traditional 400,000-unit program level
for subsidized rental housing, with section 8 reoriented to emphasize new construc-
tion. She also recommends continuing the elderly housing and rehabilitation loan
programs at their 1977 levels. She admits that her estimate for community develop-
ment block grants (1977 level plus an inflation offset) is preliminary; her staff
indicates that an increase of $250-750 million is likely to be recommended. She
has not come in with any proposals for changing the block grant program (which
requires authorization for 1978) or FHA mortgage insurance operations.
OMB Recommendation
HVLD recommends a major' cutback in the section 8 program (to 200,000 units), and
a change in the allocations mechanism that would make the program more like a block
grant. The Division recommendation would reduce 1978 budget authority for the
section 8 program by $34 billion. The Division also recommends terminating the
elderly housing, rehabilitation loan, and comprehensive planning programs. For
community development block grants, Division recommends no change in funding for the
basic program and elimination of the so-called Urgent Needs Fund. Finally, HVLD
recommends legislation to put all FHA mortgage insurance programs on a actuarially
sound basis.
Relationship to the Planning Ceiling
HUD request
+$883 million
FORD
OMB recommendation
+$17 million
Budget Dollars at Stake (in millions)
Outlay differences between the HUD request and OMB recommendations (excluding
estimating differences) are as follows:
1977
1978
1979
1980
1981
1982
35
866
1,094
1,434
2,139
3,020
FORD
2
Department of Housing and Urban Development
1978 Budget
TABLE OF CONTENTS
Page
Highlights
1
(Table of Contents)
3
Overview
6
Program Trends
15
Summary of Information
Summary Data
16
Summary of Issues
17
Distribution of Budget Authority
19
)
Distribution of Outlays
21
Five-year Projections
23
Program Issues
Issue #1: Section 8/Lower Income Housing Assistance
25
Subissue A: Level and Mix of Housing Programs
25
Subissue B: Use of Section 8 for FHA Projects
33
Subissue C: Fair Market Rents
41
Subissue D: Section 8/New Construction Contracts Extended to 40 Years
49
Issue #2: Section 202/Housing for the Elderly
50
Subissue A: Continuation of the Program
51
Subissue B: Budget Status
55
Issue #3: Public Housing
56
Subissue A: Operating Subsidies
56
Subissue B: Public Housing Project Note Sales to the Federal Financing Bank
66
Issue #4: Federal Housing Administration
75
Subissue A: Future Role of FHA
75
Subissue B: Single-Family Property Disposition
78
Subissue C: Residual Multifamily Inventory
82
FORDY
3
GERALD
Page
Issue #5: Homeownership Counseling
87
Issue #6: Miscellaneous Housing Issues
89
Subissue A: Urban Homesteading
89
Subissue B: Indian Housing
91
Subissue C: College Housing
94
Issue #7: Community Development Block Grants
95
Subissue A: Funding Level
96
Subissue B: Urgent Needs
98
Subissue C: Formula Changes
101
Subissue D: Other Program Changes
106
Issue #8: Section 312/Rehabilitation Loans
107
Issue #9: Categorical Planning/Management Assistance Program
110
Issue #10: Departmental Management
118
Subissue A: Staffing
118
Subissue B: Automated Data Processing
122
Issue #11: Other Issues
123
Subissue A: Bicentennial Land Heritage Act
123
Subissue B: National Institute of Building Science
124
Supplementary Materials
Supplemental and Legislative Program Items
127
Authorizing Legislation Required for 1979
131
Additional Ways to Reduce 1978 and 1979 Outlays
Asset Sales
133
FORD
RALD
4
Housing Crosscut
Page
Overview and Summary Data
Issues:
#1. Housing Assistance Block Grant
142
#2. Rationalization of FHA, FmHA, and VA Housing Programs
153
GREAT in FORD
5
1978 Budget
DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT
Overview
This overview attempts to examine the resource level and allocations contained in
the Department of Housing and Urban Development's (HUD's) 1978 budget request in the
context of the broad goals and management objectives identified by the Department in
its:
(a) Presidential Management Initiatives (PMI).
(b) Goals Management System, including the tentative FY 1977 Secretarial Management
by Objective (MBO) targets.
In many ways, such a comparison can be misleading.
First, budget outlays for HUD in any one year are largely dominated by prior-
year obligations and commitments. About 86 percent of HUD's requested level of 1978
outlays result from obligations incurred before the start of 1978.
Second, many current-year obligations have a minimal impact on outlays in the
first year or two. Section 8/new construction is the classic example.
Third, the relationship between budget authority and outlays on the one hand,
and the delivery of services to appropriate recipient groups on the other hand, also
varies among programs. In some cases, this is due to the financial instrument used--
whether loans or grants. Hence, net outlay figures can often mask the actual level
of program activity. In other cases, outlays do not correlate closely with services
provided, as the mix issue for section 8 indicates.
Despite these difficulties, this approach may prove helpful in highlighting;
(a) Conflicts between objectives in different program areas.
GOMALO FORD LIBITAL
6
(b) Inconsistencies between program objectives and internal program allocation
decisions.
(c) The relationship, or lack thereof, among the Department's Planning, Management,
and Evaluation systems and the impact of these systems on the resource allocations
reflected in the budget request.
Basic HUD Goals
Despite numerous variations reflected in specific housing legislation for the past
40 years, HUD's basic goal remains that established in the 1949 Housing Act--to provide
a decent home and a suitable living environment for every American family. Recently,
emphasis has shifted to a more specific group, the low-income families, consistent
with the 1968 Housing Act. Other Federal legislation has established numerous subgoals
or side constraints to this basic dual-purpose goal (adequate, affordable housing,
especially for low-income families, and a suitable living environment). Among the
major side constraints are:
Stimulating housing construction and local economic recovery.
Achieving equal opportunity in housing.
Reducing the cost of housing.
Improving credit market operations to ensure adequate availability of mortgage
credit for single- and multifamily dwellings.
Protecting consumer interest through improved housing standards and other actions.
Given this multiplicity of subgoals or side constraints, some of which present
obvious internal conflicts, the potential for program conflicts and inconsistencies
is substantial.
Inconsistencies Among Program Objectives
A fundamental inconsistency exists among the objectives of 1) providing adequate.
housing, especially for low-income families; 2) stimulating housing construction; and
3) the strongly expressed desire of Secretary Hills to preserve neighborhoods by
R.
CRAED
7
utilizing existing housing assets. While HUD has abandoned the old urban renewal
strategy of raze-and-build-anew for community development, Secretary Hills still
places heavy emphasis on new construction for low-income families, under both section 8
and public housing. For section 8, the Secretary proposes a 400,000-program level
in 1978 with a 57 percent/43 percent mix between new and existing housing. For
public housing, the Secretary proposes to use $140.7 million in contract authority
in 1977 ($5.6 billion of budget authority) to construct 44,000 units of traditional
public housing. She also proposes to use any unused contract authority earmarked
for public housing for new units in 1978. While congressional pressure for new
construction is intense there appears to be little programmatic justification for it.
Housing starts are projected to increase to 1.8 million in 1978, a level which exceeds
the level of annual housing starts of the last 10 years, except for the 1971-73
boom. This level is also consistent with HUD's own estimates of long-term equilibrium
in the housing market. Moreover, HUD and OMB staff agree that existing units provide
adequate housing to low-income families sooner and at a lower cost than new units.
OMB is recommending a block grant type approach to section 8 which would meet
congressional interest in satisfying local priorities in the housing assistance areas.
Under this procedure, HUD would allocate budget authority to local communities,
rather than new or existing units, and allow local communities to select the
appropriate mix, given the relative costs of new and existing units. Total budget
authority would be based on a 200,000 unit program level achieved in the most
efficient manner--all existing units. Local communities would have the option of
trading off more units for new construction.
A second inconsistency among program objectives is reflected in the Secretary's
proposal to place a ceiling on the use of section 8 subsidies to assist financially
troubled FHA insured properties in the face of an increasingly serious HUD multi-
family inventory problem. THe HUD inventory of multifamily properties has increased
dramatically in the past few years and is projected to remain in excess of 200,000
units in 1978 and 1979. The Secretary's projection assumes a substantial (three-
fold) increase in 1978 mulitfamily sales above the current 1976 levels. To achieve
this, OMB believes HUD will have to abandon its past policies and adopt a tough
foreclose and sell approach to defaulting nonprofit sponsors. Current HUD management
initiatives have focused on sales targets, whereas OMB proposes establishing
inventory targets in the Goals Management and Presidential Management Initiatives
Systems. Shifting the focus to inventory control will encourage HUD to examine and
BERALD
8
emphasize alternatives for reducing assignments (especially greater use of section 8
and allowing assignments only at HUD's discretion), as well as continuing the
Department's efforts to increase sales.
A third major inconsistency between program objectives concerns HUD's strategy for
meeting elderly housing needs. Again, the conflict concerns the need for new con-
struction to meet elderly housing needs in contrast to meeting them by relying on rental
assistance for existing units. The Secretary has proposed continuing the 202 elderly
housing program at its current $750 million limit (and bringing it back on-budget),
even though this program:
Adds virtually nothing to the section 8/new construction subsidy which is both
necessary and sufficient to ensure that these units are constructed.
Is far more costly than the existing section 8 program.
Has a longer lead time to satisfy current elderly housing needs than the existing
section 8 program.
Has a minimal impact on the total supply of available housing.
Emphasizes the sponsor group with the worst management record.
OMB believes that the section 8/existing program, which is being extensively used
to meet the needs of the elderly (33 percent of subsidy recipients are elderly) is a
more effective and efficient approach. Consequently, OMB has proposed terminating
the 202 program and substituting a set-aside of 30,000 units per year under the
existing section 8 program to meet those needs.
A final major inconsistency among program objectives involves the Community
Development Block Grant (CDBG) Program, the inclusion of a seperate Urgent Needs
Fund within the program, and the status of Urban Renewal closeouts. Under the
Housing and Community Development Act of 1974, the CDBG program supersedes all
previous categorical community development programs. However, the Secretary's request
9
to continue in 1978 a $100 million seperate orgent Needs fund reduces pressures to
use CDBG funds to closeout prior categorical programs, especially Urban Renewal. Since
the promise of supplementary funding over and above CDBG allocations reduces the incentive
for local communities to pursue early project closeouts, OMB has recommended
termination of this separate fund in 1978.
Three major issues regarding the community development area are still open. First,
although the 1974 Housing and Community Development Act identified a number of
"objectives" for the CDBG program, our review of those objectives suggests that
most, if not all, could be easily met under general revenue. While not inconsistent
with general revenue sharing, the need for a separate "categorical" revenue sharing
program, such as CDBG program, is open to debate.
Second, OMB is deeply disturbed by the apparent lack of urgency in HUD's plans to
closeout the Urban Renewal Program. Indeed, there appears to be some uncertainty about
the number of remaining urban renewal projects and the extent of the Federal obligation.
HUD currently estimates that as of June 30, 1976, outstanding loan authority,
including undisbursed authority for urban renewal projects, amounted to $3.8 billion.
The Federal Government has undisbursed grant commitments of $2.4 billion to repay the
loan balance, with the remaining $1.4 billion to be paid from local property disposition
receipts or other sources. HUD's tentative estimates, however, show a $500 million
shortfall in local monies available to repay the $1.4 billion. OMB would recommend
a joint effort by OMB and HUD to develop alternative strategies for an early closeout
of these projects, possibly by the end of FY 1978, and to assess this approach relative
to the current procedures.
Finally, the Department has made no recommendations regarding reauthorization of the
CDBG program in 1978. In fact, although the Secretary's budget request mentions a
$3.4 billion funding level for 1978, indications are that she will soon be coming in
with a proposal to raise the level to perhaps as high as $4 billion.
Inconsistencies Between Objectives and Resource Allocation
There appear to be several inconsistencies in the allocation of resources for
subsidized housing and HUD's overall goal of providing adequate housing for families
especially the low-income families.
FORD
10
SCRALD
Under the section 8/existing program, HUD targets at least 30 percent of its
funds toward the "very low-income" families, those whose income is less than 50 percent
of median family income. However, the current procedure for establishing fair
market rents (FMRs) at median rent levels makes the program attractive to higher
income families and far more costly than necessary. OMB proposes reducing the FMR
standard to 80 percent of median rents to focus the program more directly on these
very low-income families.
HUD continues to allow different rent levels for low-income families residing
in public housing compared with families living in subsidized (section 8) private
housing. Since the tenant groups are substantially the same, this differential
serves no fundamental social objective and OMB has recommended establishing the same
rent standard (25 percent of adjusted incomes) for both groups.
There are also some inconsistencies between program objectives and the allocation
of resources within the FHA Fund in addition to the multifamily inventory problems
previously described.
Although the Secretary is believed to have endorsed the major recommendations
of the HUD/OMB study of the Future Role of the Federal Housing Administration, the
impact of the major recommendations has not been reflected in her 1978 budget
request. OMB recommends including the impact. The major recommendations would:
- Establish complementarity between FHA and private mortgage insurers (PMIs)
in the single-family market, and encourage PMI penetration of the multifamily
market.
- Establish actuarially sound premiums for FHA mortgage insurance.
- Eliminate subsidized insurance premium programs for low-income families,
and for homes in older, declining areas (except for section 235).
The Secretary has proposed switching the emphasis in single-family property
disposition from as-is/cash sales to repair-and-sell. Since the repair-and-sell
approach retains properties in the inventory longer than the as-is/cash approach,
11
this will slow the rate of inventory reduction. HUD should be able to meet its
iected sales objective, given the reduct
in single-family defaults now
rring. However, OMB recommends establi hg inventory targets for the single-
family inventory and has proposed a more demanding targetted inventory level to
encourage continued use of the as-is/cash sales approach.
Management, Planning and Evaluation Systems
As indicated earlier, HUD has a well developed Goals Management System (GMS) for
establishing and tracking objectives which has been actively used by the Secretary.
In FY 1976, the majority of HUD objectives were completed or on schedule as of June 30,
1976, and substantial progress was made in some major problem areas such as Title VIII
equal opportunity complaints and multifamily sales. During FY 1976, HUD also completed
institutionalization of its management system. FY 1977 objectives and resource
allocation plans were negotiated between central and field offices. Departmental
managers have agreed to these objectives and they will be evaluated on their performance
against goals in the newly established executive evaluation process.
The current GMS provides a very useful function as a monitoring and decision
implementing system. The GMS is closely linked to the HUD budget process once
budget decisions are made. However, its contribution toward developing and
assessing budget alternatives appears limited. For example, while FY 1977 objectives
have been finalized, a set of definitive 1978 objectives await the completion of the
budget cycle.
HUD appears to have a much less formalized system for establishing planning object-
ives (as distinct from the operational objectives contained in the GMS), evaluating
alternative program strategies, and determining specific resource tradeoffs. HUD has
developed a systematic process for budget issue identification, similar in many respects
to OMB's spring planning review. The results of the various PD&R evaluation studies,
and the efficiency evaluations undertaken as part of the PMI process are incorporated
in this process to assist in the HUD planning and decisionmaking process.
12
HUD's research program has improved significantly over the last few years as the
Department has strengthened its economic analysis and program evaluation capabilities.
For 1977, HUD has substantial evaluation plans. In fact, although not yet formally
requested through PMI, HUD has submitted an extensive list of program impact evalua-
tion plans. These include such major program areas as section 8, Performance
Funding System (PFS), Housing Assistance plans, revised section 235, section 202
elderly housing, GNMA countercyclical programs, equal opportunity, coinsurance, CDBG,
rehabilitation, Title VIII, mortgage interest tax deductions, and the future of
homeownership. In addition, HUD plans to undertake and implement several efficiency
evaluations such as FHA loan processing and equal opportunity enforcement programs.
Our main concern with regard to evaluation is whether such an ambitious evaluation
program can be conducted effectively in FY 1977 and provide meaningful and timely
data for future program decisions. A prioritized listing should be developed and
the progress of key evaluations carefully monitored.
HUD has already made substantial progress in many of the areas included in the
Presidential Management Initiatives. Particularly noteworthy has been HUD's efforts
to develop and implement productivity standards through its work measurement system.
This system has been expanded to include about 73 percent of the HUD staff requested
in its 1978 budget. The system has been used by both HUD and OMB to estimate the
staff impact of major program adjustments. One potential weakness in the current
system, discussed at our Department Management hearing, is the lack of any comparative
evaluations of HUD and private industry work standards. The Department has indicated
that this will be included in its evaluation efforts for next year.
A number of the specific OMB recommendations included in the issue papers suggest
incorporation of specific decisions (e.g., targets for FHA single- and multifamily
inventories) into the PMI and GMS processes to ensure adequate high-level focus.
Given the effectiveness of these systems and the Secretary's personal involvement,
this will quickly indicate to the Department the relative importance of these
recommendations.
13
GERALD
Summary of Remaining Issues
The Secretary's budget request raised several other more traditional budget issues
that are summarized below:
The Secretary has again requested a separate appropriation for planning monies
(701) of $80 million in 1978, and has also requested an additional $15 million for
community development technical assistance. OMB continues to believe that these
activities should be funded under the CDBG program.
Another traditional issue is Rehabilitation Loans (section 312). The Secretary
has requested extending the program through 1978; OMB recommends terminating the
program in 1977.
HUD has requested a 1977 supplemental of $35 million to provide changes in (a) the
formula for determining cost standards under the PFS, and (b) the current inflation
adjustment increasing it from 3 percent to 6 percent. OMB recommends that a major
HUD-OMB evaluation of the PFS approach be undertaken next year and that no changes be
made pending results of that evaluation.
HUD has included $200 million in its CDBG to achieve the President's Bicentennial
Land Heritage Program. OMB recommends against resubmitting the proposal to Congress.
CRAED
14
1978 DIRECTOR's REVIEW
DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT
Selected Program Trends
(dollars in millions)
1969
1970
1971
1972
1973
1974
1975
1976
1977
1978
1979
OMB
HUD
OMB
HUD
OMB
I. Mortgage Insurance
Rec,
Req.
Rec.
Reg.
Rec.
A. Mortgage insurance written:
Units
564,092
644,106
838,559
830,458
538,880
316,972
292,261
320,500
430,000
487,000
450,000
587,000
450,00
Amount ($)
8,022
9,394
13,037
14,017
9,307
5,638
6,182
7,384
9,900
11,200
10,400
13,500
10,40
B. Mortgage assignments and
property acquisitions:
Single family
30,775
28,073
38,052
57,785
66,889
62,647
54,427
38,000
39,600
36,700
36,700
NA
NA
Multifamily
12,596
7,468
15,711
20,450
39,396
49,127
76,436
75,369
85,800
105,700
105,700
NA
NA
Inventory on hand
98,611
97,191
117,220
155,552
202,811
238,316
272,725
304,273
280,000
338,600
286,000
NA
NA
II. Other Mortgage Credit
A. Special mortgage purchase
commitments ($)
*
---
2,873
1,773
2,381
11,410
4,676
1,900
---
B. Guarantees of mortgage-backed
securities issued ($)
441
3,200
3,500
3,607
4,125
5,905
8,998
10,000
10,000
10,000
10,000
10,00
III. Subsidized Housing
A. New approvals:
Units
178,000
417,000
420,000
453,000
120,000
38,000
170,000
320,000
401,000
500,000
301,000
500,000
301,00
Obligations ($)
10,979
15,887
16,879
17,653
5,407
2,008
11,121
24,599
24,468
26,900
6,700
27,100
1,62
B. Subsidy costs:
Housing payments ($)
374
488
704
1,054
1,312
1,614
1,704
1,952
2,429
3,116
3,068
4,099
3,97
Public housing operating
subsidies ($)
13
28
103
233
348
320
475
535
576
719
533
848
63
IV. Community Development and Other
A. Community development:
New commitments ($)
1,642
1,633
1,880
2,471
2,361
716
2,735
2,443
3,298
3,561
3,148
3,494
3,14
Outlays ($)
794
1,379
1,594
1,958
1,865
1,872
1,973
2,456
3,679
3,896
3,683
3,678
3,43
B. Comprehensive planning grant
commitments ($)
43
50
50
100
100
75
100
66
62
80
80
C. Flood Insurance outlays ($)
1
1
3
7
14
51
44
95
179
201
201
259
25
D. Research obligations ($)
11
24
43
44
60
67
59
61
55
75
55
75
55
*
Tandem programs for nonsubsidized mortgages.
i
FORD
15
GERALD
LIBRARY
Department of Housing and Urban Development
1978 Budget
Summary Data
(In millions)
Employment, EOY
Budget
Full-time
Authority
Outlays
Permanent
Total
1976 actual
29,263
7,079
14,942
16,400
1977 Budget, January 76 estimate
21,714
7,174
15,650
17,000
enacted
20,399
7,810
XXX
XXX
supplementals recommended (see attached list)
818
75
XXX
XXX
agency request
21,465
7,810
15,580
16,900
OMB recommendation
21,217
7,775
15,570
16,890
OMB employment ceiling
XXX
XXX
15,650
17,000
1978 planning target
XXX
9,145
XXX
XXX
agency request
49,053
10,028
16,870
18,170
OMB recommendation
10,997
9,162
15,564
16,899
1979 OMB estimate
10,885
9,989
15,270
16,595
&
FORD
16
SERALD
Summary of Issues
1978
1979
Agency Request
OMB Recom.
Agency Request
OMB Recom.
BA
0
BA
0
BA
0
BA
0
-
-
-
Issues:
1. Section 8/Low-Income Housing Assistance
A.
Level/Mix of Section 8
40,300
800
6,700
810
42,800
1,575
7,200
1,615
B.
Use of Section 8 for FHA
1,452
1,362
1,250
1,160
1,212
1,212
1,010
1,010
C.
Fair Market Rents
40,300
800
35,578
746
42,800
1,575
37,766
1,439
D.
Contract Terms for New Units
40,300
800
23,200
800
42,800
1,575
24,200
1,575
2. Elderly Housing (Section 202)
(750)
*
(738)
(---)
(730)
750*
778
----
212
3. Public Housing
A. Operating Subsidies
719
618
533
433
848
765
639
556
B. Public Housing Notes
131
131
---
1,659
1,659
----
---
4. Federal Housing Administration
A. Future Role of FHA
1,452
1,362
1,432
1,342
1,212
1,212
1,175
1,175
B.
Single-Family Inventory
1,452
1,362
1,368
1,279
1,212
1,212
1,194
1,194
c.
Multifamily Inventory
1,452
1,362
1,287**
1,197**
1,212
1,212
1,047**
1,047**
5. Counseling
6
6
----
6
6
----
---
6. Miscellaneous Housing Issues
A.
Urban Homesteading
15
15
15
15
15
15
15
15
B.
Indian Housing
1,056
26
176
22
1,161
29
194
5
c. College Housing
---
7.
Community Development Block Grants
A.
Funding Level
3,344
3,013***
3,148
3,001
3,344
3,177***
3,148
3,077
B.
Urgent Needs
100
100
100
100
---
----
C.
Formula Changes
---
---
---
---
---
D.
Other Changes
---
---
---
---
---
8. Rehabilitation Loans (Section 312)
---
39***
---
26
---
57***
----
---
9.
Categorical Planning Funds
80
59***
---
43
80
77***
---
13
10. Departmental Management
A. Staffing**
237
237
220
220
237
237
216
216
FORD
B. Automatic Data Processing
24
24
23
23
N/A
N/A
N/A
N/A
17
1978
1979
Agency Request
OMB Recom.
Agency Request
OMB Recom.
BA
0
BA
0
BA
o
BA
0
1.
Other Issues
A. Bicentennial Land Heritage
---
90***
---
---
----------
76***
---
----
B. National Institute of
Building Sciences
5
5
---
---
2
---
---
*
Loan Limitation
**
An annual reduction of $165 million for sales of multifamily units acquired by deed-in-lieu is addressed
in the issue, but not included in the internal OMB recommended totals.
*** OMB reestimate of HUD outlays.
**** Does not include transfers from FHA Fund and other sources.
# Individual line items reflect independent estimates for each issue.
FORD
18
Department of Housing and Urban Development
1978 Budget
Distribution of Budget Authority
(in millions of dollars)
1976
1977
1978
1979
Jan.
HUD
OMB
HUD
OMB
OMB
Actual
Budget
Req.
Rec.
Req.
Rec.
Est.
A.
Open-ended programs and fixed
costs (relatively uncontrollable
under present law)
FHA Fund
1,231
975
1,995
1,995
1,478
1,201
955
Subtotal, open-ended programs and
fixed costs
1,231
975
1,995 1,995
1,478
1,201
955
B.
Discretionary programs
(relatively controllable)
1.
Annual Contributions for
Assisted Housing
18,052
16,578
14,890 14,890
42,774
5,636
5,636
2.
Community development grants
2,802
3,248
3,248 3,248
3,444
3,148
3,148
3.
GNMA Special Assistance
Functions
4,757
8
8
8
8
8
8
4. Payments for Operation of Low-
Income Housing Projects
535
464
611
576
719
533
639
5.
Salaries and Expenses
177
201
203
203
237
220
216
6.
New Communities Fund
8
25
113
113
82
82
75
7.
Housing for the Elderly or
Handicapped 1/
(612)
(356)
(731)
(731)
(722)
(---)
---
8.
Planning and Management
Assistance 3/
75
25
62
62
95
9.
Flood Insurance
70
100
75
75
108
108
139
TORD
19
1976
1977
1978
1979
Jan.
HUD
OMB
HUD
OMB
OMB
Actual
Budget
Req.
Rec.
Req.
Rec.
Est.
10. Research and Technology
53
2
71
67
55
87
55
55
11. Other
1,503
/
19
+193
-8
21
6
14
Subtotal, discretionary programs.
28,032
20,739
19,470
19,222
47,575
9,796
9,930
Total, budget authority
29,263
21,714
21,465
21,217
49,053
10,997
10,885
Funds Appropriated to the
President for Disaster
150
100
250
100
100
150
150
Relief
1/
HUD proposes placing Housing for the Elderly or Handicapped on-budget in 1978.
2/
Includes $800 million for rent supplement program and $600 million for State Housing Finance
and Development Agencies.
3/
Includes Comprehensive Planning Grants and CDBG Technical Assistance.
Numbers in parentheses indicate off-budget items.
FORD
20
Department of Housing
a
Urban Development
1978 Budget
Distribution of Outlays
(in millions of dollars)
1976
1977
1978
1979
Jan.
HUD
OMB
HUD
OMB
OMB
Actual
Budget
Req.
Rec.
Req.
Rec.
Est.
A.
Open-ended programs and fixed
costs (relatively uncontrol-
lable under present law) :
1.
Housing Payments (from
prior years)
1,952
2,570
2,369
2,369
3,050
3,002
3,979
2. Federal Housing Admin-
istration Fund
1,191
830
1,042
1,042
1,362
1,111
955
Subtotal, open-ended programs
and fixed costs
3,143
3,400
3,411
3,411
4,412
4,113
4,934
B.
Discretionary programs
(relatively controllable) :
1.
Community Development
Grants
983
1,600
2,482*
2,482
3,113*
3,001
3,077
2.
Urban Renewal
1,188
975
975
975
650*
650
491
3.
GNMA Special Assistance
Functions
658
186
-550
-550
299
299
269
4.
Payments for Operation of
Low-Income Housing
Projects
508
462
542
527
618
433
556
5.
Salaries and Expenses
177
201
203
203
237
220
216
6.
Flood Insurance
95
201
179
179
201
201
259
7.
Housing for the Elderly
or the Handicapped
(-15)
(111)
(265)
(265)
(738)
(730)
212
FORD
*
OMB revised estimate of HUD request.
SALD
21
1976
1977
1978
1979
Jan.
HUD
OMB
HUD
OMB
OMB
Actual
Budget
Req.
Rec.
Req.
Rec.
Est.
8.
Planning and Management
Assistance*
94
75
100
100
69**
43
13
9.
Housing Payments (from CY
and BY)
60
60
66
66
10.
Research and Technology
54
67
67
59
79
55
55
11.
New Communities
14
30
116
116
87
87
80
12.
Expiring community
development programs
263
19
196
196
66**
44
-135
13.
Other HUD programs
-98
-42
29
17
131
-50
-38
Subtotal, discretionary programs
3,936
3,774
4,399
4,364
5,616
5,049
5,055
Total, outlays
7,079
7,174
7,810
7,775
10,028
9,162
9,989
Funds Appropriated to the
President for Disaster
Relief
291
250
358
300
200
150
150
*
Includes Comprehensive Planning Grants and CDBG Technical Assistance.
** OMB revised estimate of HUD request.
NOTE: Numbers in parentheses indicate off-budget items.
22
FORD
GERALD
Department of Housing and Urban Development
1978 Budget
Long-range Estimates
(OMB estimate in millions of dollars)
1978
1979
1980
1981
1982
A.
Annual Contributions for Assisted
BA
7,179
5,636
5,636
5,636
5,636
Housing
0
B.
Housing Payments
BA
----
0
3,068
3,979
4,472
5,109
5,568
C.
Community Development Grants
BA
3,148
3,148
3,148
3,148
3,148
0
3,001
3,077
3,148
3,148
3,148
D. Urban Renewal
BA
0
650
491
200
-------------------------
E.
FHA Fund
BA
1,201
955
965
982
0
1,013
1,111
955
965
982
1,013
F.
Payments for Operation of Low-
BA
533
639
755
855
940
Income Housing Projects
0
433
556
667
755
867
G.
GNMA Special Assistance
BA
8
8
8
8
7
0
299
269
142
72
50
H.
Flood Insurance
BA
108
139
146
145
115
0
201
259
314
368
394
I. Salaries and Expenses
BA
220
216
216
216
216
0
220
216
216
216
216
J. Housing for the Elderly or
Handicapped
BA
(---)
0
(730)
212
-90
-119
-119
FORD
23
2709
III
1978
1979
1980
1981
1982
K.
Comprehensive Planning
BA
----
----
---
0
43
13
---
---
----
L.
Research and Technology
BA
55
55
55
55
55
0
55
55
55
55
55
M.
Other HUD
BA
88
89
49
52
56
0
81
-93
-137
-182
-147
Total
BA
10,997
10,885
10,978
11,097
11,186
0
9,162
9,989
9,952
10,424
11,045
Summary Comparison of Outlay Projections
1977 Budget,
January 1976 estimates
8,796
9,806
10,506
12,265
NA
1977 Budget, Mid-Session Review
estimates
8,531
9,230
9,810 - 11,415
NA
24
FORD
Issue Paper
Department of Housing and Urban Development
1978 Budget
Issue #1: Lower Income Housing Assistance
SUBISSUE A: Level and Mix of Housing Programs
Statement of Issue
What should be the level of assisted section 8 housing planned for 1978 and 1979?
How should that level be distributed between new/existing units?
Background
The section 8 program has grown rapidly and has become HUD's principal vehicle for
providing direct housing assistance to consumers.
Unit Reservation
1976/TQ
1976/TQ
1975
Budget
Actual
1977
Section 8
New Construction
NA
125,000
NA
119,310
Substantial Rehab.
2,825
NA
26,700
Existing
55,000
165,000
NA
108,946
Loan Management
------
110,000
NA
-----
Total, Section 8
57,825
400,000
489,000
242,266
In FY 1976 and the transition quarter, HUD made, commitments to subsidize 489,000
units under the section 8 program. This represents a significant increase above the
400,000 units provided for in the FY 1976 and transition quarter budget. The current
budget program for FY 1977 reflects a sharp decline in section 8 activity from the
400,000-unit budget program. This is a result of three factors: (1) higher-than-
expected activity in 1976 which reduced the amount of contract authority carried into
FY 1977; (2) a $2 billion cut in 1977 budget authority below the President's request;
25
FORD & GERALD LIBRARY
and (3) congressional actions to shift the mix toward the more expensive new and
substantially rehabilitated units. Because the Housing Authorization Act of 1976
directed the Secretary to "provide assistance for new, substantially rehabilitated,
and existing units, to the maximum extent practicable and consistent with" the local
housing goals established by communities in their housing assistance plans (HAP's)
HUD has planned a 57 percent/43 percent new/existing mix for 1977, 1978, and 1979
based on the simple average distribution of new/existing units obtained from 1976
local HAP plans.
Alternatives
#1.
Provide for 394,000 section 8 annual reservations in FY 1978 and FY 1979
with a 57 percent/43 percent mix of new/existing units (HUD request.)
#2. Provide for 394,000 section 8 annual reservations in FY 1978 and FY 1979,
but limit to existing units only.
#3. Provide for 294,000 section 8 annual reservations in 1978 and 1979, but
limit to existing units.
#4. Provide for 200,000 section 8 annual reservations in 1978 and 1979, but
limit to existing units (OMB recommendation.)
Analysis
Budget Authority/Outlays
1976
1977
1978
1979
1980
1981
1982
($ in Billions)
BA
0
BA
0
BA
0
BA
0
BA
0
BA
0
BA
0
Current policy:
29.8
.03
9.3
.35
26.9
.80
27.1
1.58
29.4
2.15
32.2
3.40
34.8
4.70
Change from current
policy:
Alt. #1 (HUD request)
+13.4
+15.7
+17.0
+18.3
+19.7
Alt. #2
-13.8
+.11
-12.9
+.38
-14.0
+.57
-14.5
+.51
-15.2
+.47
Alt. #3
-17.1 +.06
-16.5
+.20
-17.9
+.25
-19.0
+.04
-20.2
-.18
Alt. #4 (OMB recom.)
-20.2 +.01
-19.9
+.04
-21.6
-.05
-23.2
-.42
-24.9
-.79
HUD's BA request also reflects a proposed increase in contract term for new units to 40 years from the
current 20 years. This issue is addressed in subissue D.
FORD
26
Both HUD and OMB staffs agree that if our principal objective is to maximize the
number of low-income families residing in affordable, decent housing, reserving existing
units under section 8 is more efficient than using new or substantially rehabilitated
units. Not only is the marginal cost of using new or rehabilitated units substantially
higher, but the lag time between reservation and occupancy for new or substantially
rehabilitated units is more than two-and-one-half times what it is for existing units.
The average lag time for existing units is 9 months, while the lag time for new and
substantially rehabilitated units covers from 24 to 30 months. Table 1 below compares
HUD's current 1978 estimates of average unit cost, excluding rental receipts, and the
maximum government liability for new, substantially rehabilitated, and existing units.
Average Unit Cost
Contract Term
Maximum Liability Per Unit
New Private
4,300
20
86,000
New (HFDA)
4,800
40
192,000
Rehabilitation
4,600
20
92,000
Existing
2,400
15
36,000
Need for New Construction
HUD would maintain that new or substantially rehabilitated units are needed because:
-- The multifamily sector of the housing market had been severely depressed for
some time and needs a continuing stimulus.
-- A June 26 PD&R evaluation of section 8 indicated that large families looking
for three and four bedroom houses were having difficulty finding suitable units.
1974 Annual Housing Survey data indicate about 976,000 large low-income renter families
were overcrowded and these families require different housing from that currently
occupied.
-- Local communities in their 1976 HAP's expressed a strong preference for new
units, and Congress, through the language in the 1976 Housing Authorization Act
and related Committee reports, was quite explicit in directing HUD to follow these
local preferences to the maximum extent practicable.
FORD
27
OMB staff contend that a new construction program is not needed now because:
-- Multifamily starts have shown a dramatic improvement in September 1976 and
current forecasts of housing starts project a relatively healthly level of activity.
-- The PD&R evaluation indicated that difficulties of large families could be
due not to a supply shortage but to inadequate fair market rents under section 8, to
landlord reluctance to rent to large, poor families, or to the limitation of juris-
dictional boundaries for local communities. The evaluation also noted that demo-
graphic and economic factors were combining to reduce the incidence of crowded
housing for large, poor families - a 12 percent decline was recorded between 1973
and 1974, a recession year - and, thus, the study concluded "a new construction program
might be useful for a few years, although it is likely that the dimensions of the
problem will be reduced still further before such a program could be put underway."
-- Given the considerable evidence of unit upgrading revealed by the PD&R evalua-
tion, the existing program can be targeted to meet the needs of inadequately housed,
smaller families or large, poor families currently living in physically deficient
units.
--- The congressional language only directs that the section 8 program be administered
as consistently as practicable with local HAP's. HUD can therefore develop a resource
(dollar) level based on existing units, allocate the resources rather than units to
local communities, and allow the communities to determine the number and type of units
they wish to support given that resource constraint.
-- Any realistic level of new construction (HUD proposes 225,000 units) would have
little impact oneither the stock of housing (currently 76 million units) or market
rents.
Other Considerations
Although the major policy issue concerns the need for a new construction stimulus,
there are some additional programmatic and political issues that must be addressed.
From a political standpoint, the significant increase in HUD BA, caused by the shift
toward new construction, raises two potential problems:
FORD
28
-- First, it affords Congress the opportunity to make small housing program cuts
but announce major BA savings.
-- Second, it provides Congress the chance to increase substantially the programs
with more immediate outlay impact while not exceeding the President's total BA ceiling.
From a program standpoint, OMB agrees with the Secretary's statement that "we must
change our emphasis from 'reserving' assisted housing units to getting them built and
occupied." However, OMB would emphasize "occupied" and thereby focus on the number of
families receiving improved housing services within a given year. As the table below
indicates, HUD's proposal would achieve the lowest number of occupied units in FY 1978
and FY 1979, from the 1978 and 1979 housing assistance program, and is one of the
most costly programs over the next 5 years.
Families Assisted from 1978 and 1979 Section 8 Programs
(000's)
Total
Total Cost 78-82
1978
1979
1980
1981
1982
72-82
(outlays in B$)
Alt. #1
71
243
406
642
788
788
3.30
Alt. #2
161.5
555.5
788
788
788
788
3.96
Alt. #3
120.5
414.5
588
588
588
588
2.98
Alt. #4
82
282
400
400
400
400
2.03
It should also be noted that the 1976 HAP plans are a particularly poor basis for
determining an aggregate subsidized unit mix because:
They were developed without any resource restraint which, given the higher
marginal cost of new units, would result in a new unit bias; and
The demand for housing was estimated 'using populations expected to reside in
the local area and this significantly overstated demand among all local jurisdictions
within an area, further biasing the HAPs toward new construction.
Finally, OMB staff believe HUD can best administer the section 8 program
consistent with local priorities by allocating dollar resources (e.g. BA) to local
communities and letting them decide the specific mix of units to be achieved. The
overall resource level need not assume the same mix local communities ultimately
realize. This approach differs significantly from the HUD approach, which first
FORD
establishes the aggregate resource level by assuming a mix of units based on local
HAPS and then allocates the derived new and existing units to the local communities.
29
Pros and Cons for Alternatives
Alternative #1 (394,000 units, 57/43 mix for new/existing)
Pros
-- Minimizes congressional confrontation.
-- Provides new construction stimulus.
-- Reflects increase from 1977 program level.
Cons
-- Very costly alternative with outlays increasing substantially in outyears.
-- Minimizes families served in 1978 and 1979.
-- Makes it easier for the Congress to use section 8 budget authority for other
purposes.
Alternative #2 (394,000 units, all existing)
Pros
-- Maintains requested program increase.
-- Maximum number of families served in 1978 and 1979.
-- Resource limits rather than unit limits would force local communities to make
explicit trade-offs between local desires and relative costs of different housing
within a feasible budget restraint.
30
Cons
--
Largest outlay impact over next 5 years.
--
Inconsistent with current or adjusted HAP's, thereby increasing potential
congressional confrontation.
-- No direct new construction impact.
Alternative #3 (294,000 units, all existing)
Pros
-- Provides 21 percent unit increase above 1977 section 8 program level.
--
Serves 41 percent more families in 1978 and 1979 than HUD alternative.
--
Encourages local communities to make trade-offs.
--
Five-year cost about $320 million less than HUD recommendation.
Cons
:
Potential congressional conflict.
-- 1978 and 1979 outlays greater than current policy.
--- No direct new construction impact.
Alternative #4 (200,000 units, all existing)
Pros
--- Serves more families in 1978 and 1979 than the HUD recommendation.
-- Lowest 5-year budget impact.
-- Encourages local communities to make trade-offs.
31
-- Limits the ease with which Congress can reallocate section 8 budget authority
to other accounts.
Cons
-- Potential congressional conflict.
-- No direct new construction impact,
-- Reduction from 1977 program level.
HUD Request: Alternative #1. HUD requests this alternative to avoid congressional
confrontation, to provide an increase in program level as measured by reserved units,
and to provide needed new construction, especially for overcroweded large, poor
families and for the elderly.
OMB Recommendation: Alternative #4. OMB sees no need for a new construction program
at this time. In addition, this alternative will serve 39,000 more families by 1979
than HUD's recommendation. Finally, OMB believes HUD should allocate budget authority,
rather than units, to local communities and allow the local communities to determine
the alternate mix of new/existing units within that overall budget authority constraint.
In that way, HUD would administer the section 8 program consistent with the preferences
of local communities,
32
SUBISSUE B: Use of Section 8 for FHA Projects
Statement of Issue
Should section 8 authority be earmarked to bail out financially troubled FHA-insured
multifamily projects, and how much FHA savings should be shown in the 1978 budget?
Background
Last fall, Secretary Hills appealed the initial Presidential decision to provide for
245,000 units of section 8 in FY 1977 and instead proposed a 400,000-unit level which,
she maintained, would permit sizeable outlay reductions in 1976 and 1977. She argued
that, by using section 8 authority to prevent default of 110,000 FHA-insured units,
outlays from the FHA Fund could be cut $880 million in the 1976-TQ period and $1,061
million in 1977. The average FHA savings per unit of section 8 was assumed to be
over $13,100 for the 220,000 units approved in the 1976-1977 period.
During the 1976-TQ period, HUD approved section 8 subsidies for 114,000 units
insured by FHA. Congress limited the Secretary's flexibility to use section 8 in
this way during 1977. The language of the 1976 Authorization Act requires that
Housing Assistance Plan (HAP) distributions be followed "to the maximum extent
practicable" in allocating the 1977 program level. The conference report is quite
explicit about HUD setting national targets that discourage new construction: "The
practice by HUD of establishing national targets for the number of assisted new,
rehabilitated, and existing units is inconsistent with local determination of housing
mix The conferees expect that in the future HUD will not discourage the development
of new and rehabilitated section 8 projects because market or other conditions make
unassisted apartment development unattractive."
HUD has undertaken a major reconnaissance effort to determine how this section 8
authority has been used and what savings have accrued to the FHA Fund from this program.
At the current time, the only data available which might indicate the impact of using
section 8 authority for FHA projects are that assignments have declined from around
50 projects per month in 1975 to around 25 projects in recent months. HUD and OMB
budget projections before the section 8 decision was made did not call for this decline
in defaults: a comparison of HUD's 1977 Budget request with actual data on assignments
and acquisitions also yields a 25-project-per-month difference.
FORD
33
GERALD
If all of this decline were due to the use of section 8 in FHA projects, the annual
average savings from section 8 would be around $625 million, based on an average
claim of over $2 million per project. These estimates of savings from the 1976-TQ
section 8 program for FHA projects are discussed later in this paper and are used
in the following budget estimates. Since 1977 authority has been limited by
legislation, these future savings cannot be assumed to continue unless a legislative
proposal for use of section 8 contract authority for FHA projects is enacted.
Alternatives
#1. Propose permanent legislation to set aside 25 percent of the annual section 8
authority for FHA projects.
#2. Propose permanent legislation to set aside 15 percent of the annual section 8
authority for FHA projects (OMB recommendation).
#3. Propose permanent legislation to set aside 10 percent of the annual section 8
authority for FHA projects.
#4. Propose legislation to set a maximum limit of 10 percent on the use of section 8
authority for FHA projects and let communities decide on the actual use
(HUD request).
Analysis
Budget Authority/Outlays
1976
1977
1978
1979
1980
1981
1981
($ in millions)
BA
O
BA
O
BA
O
BA
O
BA
o
BA
O
BA
O
Current policy:
1231
1191
1404
1315
1452
1362
1212
1212
1247
1247
1281
1281
1315
1315
Change from current
policy:
Alt. #1--25% set aside
---
----
-337
-337
-337
-337
-337
-337
-337
-337
-337
-337
Alt. #2--15% set aside
---
---
-202
-202
-202
-202
-202
-202
-202
-202
-202
-202
Alt. #3--10% set aside
---
---
-135
-135
-135
-135
-135
-135
-135
-135
-135
-135
Alt. #4-10% set maximum:
HUD estimate
---
---
(-531) (-531) (-531) (-531) (-531) (-531) (-531) (-531) (-531) (-531)
OMB estimate
--
* HUD estimates that communities will choose to use 55,000 units of existing authority in FHA projects.
However, HUD has not included any savings in this FHA Fund estimates or revised their per-unit savings
estimates: at their previous estimate of $1.061 million savings for 110,000 units in 1977, savings from
these 55,000 units would be $531 million.
34
FHA Savings from Alternative Uses of Section 8 Authority
(Dollars in millions--units in thousands)
Set Asides
Maximum Limit
Alt. #1
Alt. #2
Alt. #3
Alt. #4
HUD Est.
OMB est.
1978 Section 8 authority (as
recommended by OMB)
6,700
6,700
6,700
42,800
6,700
Set aside for FHA projects (%)
25
15
10
10
10
Set-aside budget authority
1,675
1,005
670
4,280
670
Contract authority (15 year term)
112
67
45
285
45
Units set aside (at $1,815/unit)
61.5
36.9
24.6
55.0*
---
Savings realized ($5,482 ($652M
114,000 units) X units set aside)
337
202
135
(531) *
----
*
(See footnote on previous page.)
The alternative set-aside levels correspond to the following actual levels of
activity:
- Alt. #1
25 Percent set aside is close to the actual percentage of
section 8 units used in FHA projects in the 1976-TQ period
(114,000 units/486,000 units).
- Alt. #2
15 Percent set aside is close to the percentage of section 8
budget authority used in FHA projects in the 1976-TQ period
($2.4 billion/$18.1 billion).
- Alt. #3
10 Percent set aside accepts the 10 percent level proposed by
the Secretary for a maximum limit but converts it into a set
aside.
35
HUD believes that the per-unit cost differential between the section 8/existing
program ($2,415 per unit) and the section 8/loan management program ($1,815 per unit)
will cause communities to invest in FHA projects. No other incentive would be built
into the program to entice communities to use section 8 authority in FHA.
There is a basic inconsistency in the Secretary's proposals to provide:
Freedom for local communities to use section 8 authority for their choice of
new and existing (including loan management) units as shown in their revised HAPs,
A limit of 10 percent on loan management units in case communities favor the
loan management use of section 8 too much.
HUD staff have indicated that the 10 percent limit was chosen as a signal to the field
that HUD officials should not push local communities too hard toward using section 8
in FHA projects. Early informal results from the reconnaissance indicate that HUD
staff and even LHA staff fully support this program. The need for this ceiling is
unclear since the Federal interest is best served by achieving maximum use of
section 8 to prevent FHA assignments and if local authorities choose not to use
section 8 for this purpose the ceiling is irrelevant.
Since FHA will pay claims for insured units that default, there is little incentive
for local communities to use their section 8 allocations to assist these projects.
Projects that have been assigned to HUD or foreclosed into acquired property provide
even less incentive for communities to "waste" their section 8 resources. OMB staff
believe that HUD has overestimated the potential use of section 8 for projects.
The OMB estimates included in the table above assume no units will be used in this way.
If no section 8 units are available for FHA loan management, then rent supplement
projects would need additional rent supplement authority or defaults would increase. HUD
staff have estimated that without section 8 subsidies or new rent supplement authority,
up to 50 additional projects per year could be expected to default. These claims would
add up to $100 million to HUD's current estimates. This maximum estimate was not
included in HUD's request since its budget estimates assume that communities will use
discretionary section 8 authority in rent supplement projects, thereby avoiding the
$100 million in claims.
FORD
36
BALO
We believe a system of set asides is necessary to obtain use of section 8 authority
in FHA projects. The pros and cons of set-asides are presented below:
Pros
Each unit of section 8 authority used to bail out an FHA-insured project is
estimated to save almost $5,500 in FHA outlays. Set-asides are the only realistic
way to obtain this savings because using section 8 authority for FHA projects does
not seem to be in the community's self interest. (HUD maintains that local communi-
ties will act to provide these FHA savings.)
Use of section 8 authority is the most significant tool that the Administration
has to reduce the growing inventory of over 300,000 units in assigned and acquired
projects. Over 1,200,000 units of insured multifamily housing that have not defaulted
would be eligible for this assistance (see attached table).
Set-asides for FHA-insured projects would reduce budget authority requirements
for a given number of section 8 units, since section 8/new requires $4,375 per unit
in annual contributions authority for 20 years, and regular existing units require
$2,400 for 15 years, compared to loan management at $1,815 for 15 years. Budget
authority savings per 100,000 units of loan management will be $877 million versus
regular existing units and $6 billion, compared to new units. The relative costs of
new, existing, and loan management units would thereby be made an issue in the budget
authority requested of the Congress.
Use of a large set-aside of section 8 authority for FHA projects is feasible as
proven by HUD's 1976 program (114,000 units).
The problem with the rent supplement projects would be taken care of as a high
priority use of the set-aside.
Cons
Congressional intent is to move toward local government priorities as reflected
in their HAPs and to restrict use of Executive Branch set-asides, especially for FHA
loan management units. This could provoke Congress to eliminate any section 8 for
FHA loan management.
FORD
37
This Administration's major thrust is toward local government decisionmaking and
a set-aside policy could be interpreted as inconsistent with this thrust (a set-aside
policy also could be argued as consistent with Administration policy by splitting local
discretion authority clearly away from a targetted Federal program).
Using section 8 for FHA subsidized project residents increases horizontal inequity
among families with similar income and social characteristics.
Since the savings from use of section 8 authority for FHA projects have not been
accurately identified, a significant outlay adjustment may be premature.
Additional rent supplement authority could be requested to prevent defaults
when this need is identified.
HUD Request: Alternative #3. The Secretary recommends setting a maximum limit of 10
percent on the use of section 8 authority for FHA loan management purposes and letting
communities determine actual use. She wants to portray "the numbers in the " budget
quite clearly as estimates rather than goals to be reached in these areas."
OMB Recommendation: Alternative #2. We recommend proposing a set-aside of 15 percent
of section 8 authority for FHA loan management in 1978. Without a set-aside proposal,
the use of section for FHA projects will be effectively terminated. Since the
Secretary has advertised a plan for use of 1977 authority that does not include FHA
loan management, we recommend that she use the maximum amount of carryforward authority
that can be used for loan management.
OMB Recommended Savings Estimates:
Based on the 1977 Budget estimate of savings per unit ($13,100), 1978 savings of $356
million could be built into OMB's internal scorekeeping for the recommended alternative #2.
The most recent months tend to support a higher estimate than the $5,482 per unit/
38
25 project estimate used in the analysis. However, an average based on more 1976 data
(see attachment) supports the $5,482 per unit estimate as does the TQ shortfall. Having
no allowance for FHA savings in OMB's totals would reflect the uncertainty of the
estimates. Given the presence of some data to the contrary, we recommend including
$200 million of annual FHA savings for the recommended set-aside (alternative #2) in
OMB's internal totals and updating these later when HUD's reconnaisance results are
available.
39
give
Status of Multifamily Insurance Programs, August 1976
Insurance
Insured Mortgages
Insured Mortgages
Percent
Mortgages
Assigned
Acquired
Programs with more than
in Force
Current in Payments
in Trouble *
in Trouble
in Default
Mortgages
Property
25,000 units insured
Units
Amount
Units
Amount
Units
Amount
Units
Amount
Units
Amount
Units
Amount
Units
Amount
(Dollars in Millions and Units in Thousands)
Subsidized Mortgages:
Interest subsidy - Section 236,
105
including RS
397,026
6,659
325,130
5,402
71,896
1,257
18
19
22,568
409
42,794
743
6,534
Low- and moderate-income -
Section 221 (d) (3) market rate/RS
91,045
1,132
75,756
936
15,289
196
17
17
3,270
43
9,470
119
2,549
34
136
34,996
525
9,371
137
Section 221 (d) (3) BMIR
127,604
1,884
75,094
1,086
52,510
798
41
42
8,143
(Rent Supplement)
(288,016)
(4,597)
(261,941)
(4,130)
(26,075)
(467)
9
10
(17,156)
(329)
N/A
N/A
(8,919)
(138)
142,600
2,298
23
24
34,678
599
88,981
1,414
18,941
285
Total Subsidized
626,696
9,775
484,096
7,477
Unsubsidized Mortgages:
Basic multifamily - Section 207
rental
139,527
1,769
111,392
1,323
28,135
446
20
25
7,765
124
16,259
263
4,111
59
110
18,363
52
19,215
58
51
53
3,719
11
11,117
34
4,379
13
Mobile home - Section 207
37,578
68,500
732
65,172
670
3,328
62
5
9
462
19
2,866
43
Cooperatives Section 213
Urban Renewal - Section 220
47,499
838
29,461
514
18,038
324
38,
39
2,593
53
13,522
246
1,923
25
Low- and moderate-
48,539
740
3,849
49
income - Section 221 (d) (4)
169,220
2,338
105,299
1,369
63,921
5,709
38
41
11,533
180
Elderly Section 231
26,542
328
5,709
66
22
20
164
2
5,406
62
139
2
20,833
262
109
13
13
2,815
29
6,765
60
2,092
20
Nursing homes - Section 232
93,233
817
81,561
708
11,672
War veterans Section 608
98,160
248
79,213
141
18,947
107
19
43
5,226
15
10,690
62
3,031
30
Armed Services - Section 803
187,408
1,130
528
2
48
480
2
186,880
1,128
118,641
1,571
21,991
228
Total Unsubsidized
925,773
9,599
748,480
7,344
176,655
2,255
19
24
36,023
456
Purchase Money Mortgages
50,416
411
50,416
411
1,602,885
19,785
1,282,992
15,232
319,893
4,553
23
24
71,339
1,057
258,038
2,984
40,932
512
Grand Total, August, 1976
Insured mortgages in trouble includes mortgages in default, assigned and acquired.
40
SUBISSUE C: Fair Market Rents
Background
Section 8 of the U.S. Housing Act of 1937 sets a monthly rent ceiling for low-
income housing based on "the fair market rental (FMR) established by the Secretary
periodically but not less than annually for existing or newly constructed rental
dwelling units of various sizes and types in the market area suitable for acceptance
by persons assisted under this section" (emphasis added). The maximum rent cannot
exceed 10 percent of the established FMR, except where the Secretary determines
special circumstances warrant higher rents, in which case the ceiling is 20 percent
of the FMR. The Secretary has considerable latitude in determining FMRs.
Under current HUD procedures, FMRs are established for each market area (defined
as an SMSA). For existing units, the FMRs are based on the median rent paid by
movers during a base period, adjusted for inflation. FMRs for new construction are
based on rents in comparable projects (actually, they are set equal to the rent
closest to the 75th percentile in a sample of comparable projects), again adjusted
for inflation. FMRs vary by size of units (number of bedrooms) and by type of unit
(e.g., garden apartment, high-rise).
41
&
FORD
ALD
2
Subissue C-1
Statement of Issue
Should the basis for establishing FMRs be changed from the SMSA to individual
counties?
Analysis
HUD has not been able to quantify the impact narrower market areas would have on
the average FMR in 1977. Its 1978 budget submission reflects FMRs established on
the current SMSA basis. It is also unclear what impact the change would have on
the total supply of housing available in the SMSA since there would be an increase
in the number of units available in the "high cost" submarkets and a decrease in the
number of units in the "low cost" markets. If supply in the "low cost" markets is
larger and more concentrated around the median rental than it is in the high-cost
markets, the total supply of housing in the SMSA eligible under section 8 could be
reduced.
Pro
Separate FMRs for counties would promote greater economic integration by allow-
ing section 8 recipients to move to high-cost areas.
Cons
Could greatly increase program costs, since recipients would move to higher
cost areas in droves, given the attraction of better public services and neighborhoods.
Horizontal inequities would increase, since participants would get more amenities
as well as adequate housing and lower rent-income ratios.
The program would become more complex to administer, as a result of the increase
in the number of FMRs.
HUD Request: Narrow the geographic basis for FMRs.
OMB Recommendation: Maintain FMRs at the SMSA level.
FORD
42
Bubissue C-2
Statement of Issue
Should the basis for determining FMRs on existing units be changed?
Alternatives
#1. Continue using the median rent paid by recent movers and allow the Secretary
to exceed these levels by 20 percent (HUD request).
#2. Reduce the basis to 80 percent of the rent paid by recent movers (or the 40th
percentile) but continue to allow for discretionary increases (OMB recommendation)
#3. Reduce the basis to the 30th percentile but continue to allow discretionary
increases.
Analysis
Budget Authority/Outlays
1976
1977
1978
1979
1980
1981
1982
($ in millions)
BA
0
BA
o
BA
0
BA
0
BA
0
BA
O
BA
0
Current policy (Alt. #1
HUD req.)
29,800
360 9,336 350 40,300 800 42,800 1,575 46,400 2,150 50,500 3,400 54,500 4,700
Change from current
policy:
Alt. #2 (OMB rec.)
-692
-16
-754
-51
-840
-64
-926
-61 -1,009
-67
Alt. #3
---
-1,383 -92 -1,515 -101 -1,677 -111 -1,846 -123 -2,021 -135
Although the section 8 program serves families whose income is less than 80 percent
of median income and is focused particularly at very low-income families (those with
incomes below 50 percent of median income), FMR rates within a market area are established
at the median level paid by movers in a base period. While this may increase the supply
of housing available to low- and very low-income families, it also provides a "hidden"
income transfer to these families by providing better housing than necessary to provide
decent shelter.
A recent HUD evaluation concluded that FMRs may be too low because large families
are having difficulty securing adequate (four bedroom) rental units. Since there
appeared to be no shortage of small units, the differential FMR between small and
large units may be inadequate, and this can be corrected directly by increasing the
FORD
differential rather than the entire schedule.
43
Alternative #1 - Status Quo
Pros
There is enormous pressure to raise FMRs; maintaining the status quo will help
to resist this pressure.
FMRs established under the current system provide recipients a greater range of
choice.
Cons
Current FMRs provide a hidden income transfer by offering section 8 tenants
not only adequate housing, but as a HUD study found, housing that ranges all the way
up to luxury.
The present system greatly increases program costs.
Increases horizontal inequity among participants and nonparticipants.
Alternative #2 - Cut the basis for FMRs to the 40th percentile
Pros
Would reduce program costs significantly.
Would reduce horizontal inequities between participants and nonparticipants.
Would reduce the real demand for section 8 assistance.
Cons
Would prompt a confrontation with Congress that could lead to higher, rather
than lower, rent ceilings.
If successfully implemented, would hinder the program's operations by making
it more difficult for participants to find acceptable units.
44
give
Alternative #3 - Cut the basis for FMRs to the 30th percentile
Pros and cons are the same as for Alternative #2, but to an even greater extent.
HUD Request: Alternative #1.
OMB Recommendation: Alternative #2.
FORD
45
There is no way to recapture unneeded budget authority short of deferral, should
the estimate of inflation prove to be too high.
Increases outlays over the planning period.
Contrary to A-11, which prohibits allowances for anticipated inflation.
Alternative #2 - Assume a 5 percent increase in FMRs per year
Pros
Would reduce budget authority and outlay estimates associated with a given unit
level.
5 Percent is consistent with current aggregate inflation forecasts and the
behavior of CPI rent index relative to the aggregate index since 1970.
Cons
Would jeopardize achieving the unit target shown in the budget if inflation
exceeds expectations.
Contrary to A-11.
Alternative #3 - No allowance for inflation
Pros
Consistent with A-11.
Would allow a reduction in budget authority and outlays for any given unit level.
Con
Providing no allowance for inflation would take all credibility away from any
unit target set for the program.
is
FORD
46
GEBALD
HUD Request: Alternative #1.
OMB Recommendation: Alternative #3. A zero inflation rate need not imply unrealistic
budget if participants are encouraged to secure units with rents below the 40th
percentile.
R. FORD
47
Bubissue C-3
Statement of Issue
What inflation rate should be assumed in developing the budget request?
Alternatives
#1. Assume a 10 percent increase in FMRs per year (HUD request).
#2. Assume a 5 percent increase in FMRs per year.
#3. Assume no inflation beyond current costs (OMB recommendation)
Analysis
Budget Authority/Outlays
1976
1977
1978
1979
1980
1981
1982
($ in millions)
BA
0
BA
O
BA
O
BA
O
BA
O
BA
o
BA
O
Current policy (Alt. #1
HUD req.)
----
---
9,336 40,038 800 44,135 1,575 48,545 2,150 53,375 3,400 58,725 4,700
Change from current
policy:
Alt. #2
-2,002
-19
-2,207
-39
-2,427
-102
-2,669
-435
-2,936
-734
Alt. #3 (OMB rec.)
---
-4,003
-38
....
-4,413
-85 -4,854
-173 -5,337
-510
-5,872
-1,002
Alternative #1 - Assume a 10 percent increase in FMRs per year
Pros
Provides the greatest margin of safety, thereby increasing the likelihood of
achieving the budget target.
Consistent with past inflation rates for new housing.
Cons
Neither HUD nor OMB have any basis for projecting FMRs, as the 1976 experience
clearly shows. (In 1976, the average rent for new section 8 approvals was $3,464
versus a budget estimate of $3,900).
GENALE 8. FORD
48
SUBISSUE D: Section 8 New Construction Contracts Extended to 40 Years
Statement of Issue
Should the contract term for private new construction be extended from 20 to
40 years?
Analysis
Secretary Hills has proposed legislation that would authorize all new section 8
construction contracts for up to 40 years. Currently, only public developers (e.g.,
State housing authorities) can receive a 40-year subsidy commitment; private
projects are limited to 20 years. Secretary Hills feels that the extended term
will provide a good incentive for private developers to do more section 8 construction.
Pros
- Would make the program more consistent with mortgage terms, and thus allow
more projects to meet underwriting requirements.
Cons
- HUD has not demonstrated that current 20-year contract term has restricted
private developers participation; in FY 1976-TQ, private developers received
subsidy commitments for 46,000 new units.
- Significantly increases potential government costs in order to provide an
incentive of limited value.
Per Unit Costs
Term Years
Maximum Liability Per Unit
Private/New
3,534
20
70,680
Construction
3,534
35
123,690
3,534
40
141,360
HUD Request: Extend private developers' new construction contracts to up to 40 years.
OMB Recommendation: Continue section 8 new construction level at 20 years.
SERALD R. FORD
49
Issue Paper
Department of Housing and Urban Development
1978 Budget
Issue # 2: Section 202 Housing for the Elderly and Handicapped
Background
The section 202/Housing for the Elderly or Handicapped Program provides direct loans
to private nonprofit sponsors to finance the development of housing and related activities
for elderly or handicapped persons. The Housing and Community Development Act of 1974
placed the program off-budget, despite Administration objections. The Administration,
to date, has been singularly unsuccessful in controlling or limiting congressional
actions to enrich this program.
Subissue A: Continuation of the Program
Subissue B: Budget Status
50
GERALD R. FORD LIBRA,
SUBISSUE A: Continuation of the Program
Statement of Issue
Should the section 202 program be continued and, if so, at what level?
Alternatives
#1. Continue at current $750 million program level (HUD request).
#2. Maintain current loan level, but provide no section 8/new unit financing.
#3. Suspend the program, and substitute a 30,000-unit set-aside in section 8/
existing for meeting elderly and handicapped housing needs in FY 1978 and
FY 1979 (OMB recommendation).
Analysis
Loan Limitation/Outlays*
1976
1977
1978
1979
1980
1981
1982
($ in millions)
LL
O
LL
0
LL
O
LL
o
LL
O
LL
O
LL
O
Current policy Alt. #1
HUD request
612
-15
731
265
750
738
750
778
750
660
750
608
750
591
Change from current
policy:
Alt. #2
---
----
-8
---
-566
---
-750
-----
-727
---
-710
Alt. #3 (OMB recom.)
----
-8
-750
-566
-566
-750
-750
-727
-750
-710
*
Assumes the program to be off-budget.
HUD and OMB staff agree that there is little programmatic justification for
providing subsidized direct loans to nonprofit sponsors to construct new elderly
housing.
-
The section 202 program has a minimal impact on housing supply, since all units
receive section 8/new assistance. HUD estimates that only a handful of the section 202
projects would be undertaken without that additional section 8 assistance.
FORD
51
- Even if all 202 units were net additions to the elderly housing supply, the effect
would be small since the 202 program is expected to reserve only 28,100 units in 1977
and 25,600 units in 1978.
- Finally, Federal inducements for this particular group of sponsors are suspect,
given evidence from other HUD programs, especially 236, indicating this group is one
of the least efficient managers of housing programs.
In terms of providing direct housing assistance for the elderly, the section 8/existing
program is far more effective from both a cost and an occupancy time standpoint.
- The average section 8/existing unit approved in 1978 is estimated to cost $2,400
per year whereas new units are expected to cost $4,300 per year plus the 202 subsidy.
- Section 8/existing units are occupied an average 9 months after reservations, whereas
section 8/new units take 24-30 months to achieve occupancy.
- HUD studies indicate that about 33 percent of current section 8 recipients are elderly.
Past attempts to control or limit this program have often resulted in congressional
actions to increase the program and deepen the advantage to nonprofit sponsors. Given
this congressional sensitivity, there is little advantage to nibbling at the program.
The pain is apparently the same for any proposed program reduction.
Alternative #1 - Current policy ($750 million)
Pros
- Avoids congressional confrontation.
- Shows President's continued support for programs aimed at the elderly.
Con
impact on Treasury borrowing needs.
- Continues program with little positive programmatic justification, but a major
52
GERALD R. FORD
Alternative #2 - ($750 million, but separate from section 8)
Pros
- Consistent with OMB recommendation to budget only for existing units under section 8.
1. Restrains program indirectly by eliminating section 8/new piggyback subsidy.
- President does not directly terminate elderly housing program.
Cons
- Very likely to produce deeper 202 subsidy.
Alternative #3 - (Terminate program)
Pros
- Offers explicit trade-off between more efficient and less efficient elderly
housing programs.
- Eliminates program of questionable merit.
- Substantially reduces Treasury borrowing needs or required outlays if 202 brought
back on-budget.
Cons
- Direct congressional confrontation assured.
1
- Given marginal chance of success, raises argument about unrealistic budgeting.
- Housing offered is not specifically geared to the aged and handicapped, although
it could be.
HUD Request: Alternative #1. HUD proposes to leave the program level alone to minimize
congressional reaction, since any attempted program adjustments are likely to produce
adverse results and thwart the on-budget move as well. Once on-budget, continued budget
pressures may encourage program reforms in 1979.
53
GEBALD FORD LIBKARY
OMB Recommendation: Alternative #3. OMB staff agree with the need to bring the program
back on-budget; however, given congressional sensitivity to any change in the status of
the 202 program, and given the severe budget outlay impact, OMB recommends that the
Administration oppose this inefficient program and offer to "guarantee" some level of
support for elderly housing through section 8.
54
LEALD 8. FORD
SUBISSUE B: Budget Status
Statement of Issue
Should the section 202 program be brought back on-budget in 1978?
Analysis
Pros
- Provides a more accurate measure of Federal Government fiscal impact.
- Will provide some fiscal discipline by making the program level visible.
Con
- Increases budget outlays, though not Treasury borrowing needs, thereby
increasing difficulty of showing a balanced budget in 1979.
Recommendation
HUD and OMB agree that the section 202 program should be brought back on-budget.
GERALD R. FORD
55