United States General Accounting Office

GAO Report to the Subcommittee on VA,

HUD, and Independent Agencies,

Committee on Appropriations, House of

Representatives

December 1998 WELFARE REFORM

Effect on HUD’s

Housing Subsidies Is

Difficult to Estimate

GAO/RCED-99-14

GAO United States

General Accounting Office

Washington, D.C. 20548

Resources, Community, and

Economic Development Division

280875 

December 7, 1998

The Honorable Jerry Lewis

Chairman

The Honorable Louis Stokes

Ranking Minority Member

Subcommittee on VA, HUD, and

 Independent Agencies

Committee on Appropriations

House of Representatives

The Personal Responsibility and Work Opportunity Reconciliation Act of

1996 replaced an entitlement program for poor families with a program

that establishes work requirements for recipients and limits the time they

can receive federal cash assistance. Because about one-fourth of the

residents of public and assisted housing rely on cash assistance for some

or all of their income, welfare reform could have a financial impact on the

Department of Housing and Urban Development (HUD), which subsidizes

housing agencies’ operations and tenants’ rents, as well as on the housing

agencies and private landlords that depend on HUD subsidies. As a result of

changing welfare and housing policies and the complexity of these

programs, this financial impact has not yet been estimated with any

certainty.

Because of your concern about welfare reform’s financial impact on HUD’s

budget, you asked us to determine (1) what studies have been done on

welfare reform’s financial impact on public and/or assisted housing and

(2) what methodological and data issues, if any, arise when researchers

estimate welfare reform’s financial impact on low-income housing.

Results in Brief Officials at housing agencies and researchers at government agencies,

universities, trade associations, and a consulting firm have estimated

welfare reform’s financial impact on some components of HUD’s housing

subsidy programs.1

 We identified 13 studies that estimated this impact.

These studies of welfare reform’s financial impact on HUD’s housing

subsidy programs varied in their geographic scope, focus and

assumptions, methods, and findings. For example, while several studies

indicate that welfare reform would result in modest changes in the

amounts of the HUD subsidies needed, the findings of one national study

1

Throughout this report, we use the term “studies” to describe the analyses we found of the impact of

welfare reform on HUD and housing agencies. While some of these analyses were formal studies,

others were informal estimates.

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indicate that HUD would need to increase its annual subsidies to housing

agencies by almost 42 percent to offset expected decreases in public

housing rents, and another study’s findings indicate that HUD could

decrease its annual subsidies to a particular housing agency by almost 20

percent when welfare reform fully takes effect.2

 Some studies also

estimated welfare reform’s impact under alternative scenarios and

therefore developed a range of estimates of welfare reform’s cost for HUD

and housing agencies. The estimates in the studies we reviewed generally

varied with the issues on which they focused and the assumptions on

which they were based. Some of the authors of the studies we reviewed

told us that their estimates might not hold up over time because some

federal and state welfare laws have changed since the estimates were first

developed and the economy has been more robust than anticipated. In

addition, the authors of some studies expressed uncertainty about their

findings because the studies rely heavily on factors that are difficult to

predict, such as the degree to which welfare recipients will change their

behavior when faced with new welfare policies.

Experts with whom we spoke generally agree that several issues

complicate efforts to forecast welfare reform’s financial impact on HUD’s

housing subsidy programs. These issues include not only those

encountered in predicting welfare reform’s impact on the recipients and

providers of public assistance, but also those specific to estimating

welfare reform’s financial impact on the residents of assisted housing,

providers of subsidized housing, and HUD. In general, wide variations in

state welfare plans and their implementation complicate the estimation of

welfare reform’s impact. Additionally, the employment and wage

prospects for welfare recipients—key factors affecting their

incomes—depend, in part, on future local and national economic health

and on recipients’ behavior, both of which are difficult to predict. Housing

experts generally agree that estimating welfare reform’s impact on housing

programs is more complex than estimating welfare reform’s impact overall

because of possible differences in the behavior of welfare recipients with

and without housing assistance, as well as variations in the policies

adopted by housing agencies and landlords. Finally, a lack of consistent

2

The results of the studies we reviewed were typically presented in dollar amounts—that is, how much

less (or more) rental revenue would be collected or how much more (or less) in subsidies HUD would

need to provide in thousands or millions of dollars. Because some studies have a national focus while

others examine the impact of welfare reform on housing agencies of various sizes, dollar estimates

were not readily comparable across studies. To provide more comparability for the purpose of this

review, we converted all dollar estimates to percentages reflecting the change that would occur in

HUD subsidies compared with the total relevant program subsidies in 1997. Our methodology for these

conversions is discussed later in this report.

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and reliable data further hampers researchers’ efforts to predict welfare

reform’s financial impact on HUD’s housing programs.

Background The Personal Responsibility and Work Opportunity Reconciliation Act of

1996 (P.L. 104-193) replaced the entitlement program, Aid to Families with

Dependent Children (AFDC), with Temporary Assistance for Needy

Families (TANF). TANF provides $16.5 billion annually to the states in the

form of block grants through 2002. Under TANF, recipients are required to

work and can receive federal cash assistance for only a limited period of

time. TANF’s requirements vary from state to state because the 1996 act

gave the states more control over the design of their own programs. While

TANF is generally administered at the state level, the Department of Health

and Human Services (HHS) is the primary federal agency providing

oversight of states’ welfare programs.

Through its public housing and Section 8 programs, HUD provides housing

assistance to about 4.3 million low-income households. In fiscal year 1997,

HUD’s outlays for Section 8 subsidies and for public housing modernization,

development, and operating subsidies amounted to about $22.6 billion.

About $7.5 billion of this amount was allocated through the tenant-based

Section 8 certificate and voucher programs, under which housing agencies

provide rent subsidies to private landlords. About $7.9 billion went directly

to private landlords as part of the project-based Section 8 program, and

about $7.2 billion went for the modernization, development, and operation

of Public and Indian Housing. Included in this latter amount is $2.6 billion

in appropriations that was distributed through HUD’s formula-based

performance funding system to state, county, and local housing agencies

for the operation of public housing.

In 1996, approximately a quarter of the households receiving HUD subsidies

also received cash assistance.3

 In general, families receiving housing

assistance are required to pay 30 percent of their cash income (adjusted

for certain items, such as child care and medical expenses) in rent, while

HUD provides subsidies to housing agencies and private landlords to make

up the difference between tenants’ rental payments and the cost of

operating public housing units or the rents charged by the landlords.

Because rental payments are linked to household income, rental revenues

will fall if families receiving assistance are unable to replace lost welfare

benefits with wage income, and additional HUD subsidies will then be

3

In addition, about half of the families with children residing in public and assisted housing also

received cash assistance in 1996.

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needed. But if assisted families’ employment and earnings increase under

welfare reform, then the amount of the required rental payments may rise,

reducing the need for subsidies. For subsidy needs to decline, residents

would have to earn more than they formerly received in cash assistance,

and working residents would need to either remain in public and assisted

housing after gaining employment or be replaced with employed residents.

These conditions are less likely to hold in areas where cash benefit levels

are high and nonsubsidized housing is available and affordable.

HUD has established policies that can influence the impact of welfare

reform on housing programs. For example, housing agencies and HUD can

set minimum rents of up to $50 for tenants who live in public housing or

have Section 8 certificates or vouchers, while owners of project-based

Section 8 properties are required to charge minimum rents of $25.4

 In

addition, recent legislation has expanded housing agencies’ authority to

exclude some wage earnings from rental payment calculations in an effort

to retain working families in public housing units. Similarly, while housing

agencies and subsidized private landlords were formerly required to give

preference in admission to very poor families, they are now allowed to

give some preference to working families with wage income. In addition to

these rent and admission policies, HUD provides programs, some of which

originated in the mid-1980s, to deliver employment-related services to the

tenants of public and assisted housing. These programs have provided job

training, counseling, and placement services; child care; and

transportation.

Studies of Welfare

Reform’s Financial

Impact on HUD’s

Housing Subsidy

Programs Varied

Widely

We identified five studies estimating welfare reform’s financial impact on

housing programs nationally, one estimating the impact for eight housing

agencies, and another seven estimating the impact for a single housing

agency. While some of the studies suggest that welfare reform will likely

cause only modest changes in the amounts of the HUD subsidies needed,

some of the studies indicate more substantial effects. For example, one

national study indicated that HUD would need to increase its annual

subsidies to housing agencies by almost 42 percent to offset expected

decreases in public housing rents, while another study indicated that HUD

4

Until recently, housing agencies were encouraged to grant exceptions to the minimum rent

requirements for public housing residents and recipients of certificates and vouchers because of

hardship. However, the Quality Housing and Work Responsibility Act of 1998 (P.L. 105-276), enacted in

Oct. 1998, now requires housing agencies to grant hardship exceptions for, among other things, the

loss of federal cash assistance. Exceptions to the project-based minimum rents are provided for the

elderly, the handicapped or disabled, and working families with an adjusted monthly income below

$75. These exceptions to the minimum rent requirements limit the ability of housing authorities to use

minimum rents to offset the impact of welfare reform.

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could decrease its annual subsidies to a particular housing agency by

almost 20 percent. Differences in the studies’ focus and assumptions help

explain the widely varying estimates. While some researchers focused on a

single feature of a state’s welfare reform plan, others examined the

national impact of a broad range of state plans; while some studies used

“worst-case” assumptions about the employment and earnings prospects

of welfare recipients, others used “best-guess” assumptions. Moreover,

because certain welfare and housing policies have changed since the

estimates were developed, the economy has been stronger than

anticipated, and the effects of welfare reform on welfare recipients’

behavior are difficult to predict, some of the authors of the studies we

reviewed expressed uncertainty about their estimates.

Estimates Varied Widely

Across and Within Studies

Five studies we identified estimated the financial impact of welfare reform

nationally (see table 1). Three of these five studies suggest that welfare

reform will have a relatively modest effect on the need for HUD subsidies,

ranging from a 0.4-percent annual decrease to a 3.3-percent increase in the

amount needed. The two remaining studies anticipate a greater effect. For

example, the Council of Large Public Housing Authorities indicated, in the

fall of 1996, that the annual amount needed for HUD subsidies could

increase by 19 percent.

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Table 1: National Estimates of Welfare Reform’s Financial Impact on HUD’s Housing Subsidy Programs

Estimate by/for Scope Scenario

Estimate of percentage

change in HUD subsidy

HUD Public housing and Section 8

programs

Impact of welfare reform,

best-guess scenario

0.7% increase in 1997

3.3% increase in 2002

The Johns Hopkins University All assisted housing programsa Impact of welfare reform on

AFDC recipients under

alternative welfare plans

Results ranged from a

2.4% increase to a

0.4% decrease

Congressional

Budget Office

Section 8

programs

Impact of welfare reform,

best-guess scenario

0.1% increase in 1998

0.7% increase in 2008

Council of Large Public Housing

Authorities

Public housing Impact of time limits,

worst-case scenario

19% increase

David M. Griffiths & Associates,

Ltd.b/Public Housing Authorities

Directors Association

Public housing Impact of welfare reform with

and without proactive housing

agency managementc

Results ranged from a 41.8%

increase to a

2.8% increase

aAs reported in the AFDC-Quality Control database.

bSince this study was completed, David M. Griffiths & Associates, Ltd., was purchased by

Maximus, Inc., to become DMG-Maximus, Inc.

cThe author of this study defined proactive housing agency management as taking an active role

in mitigating the impact of welfare reform on the housing agency’s residents and the housing

agency.

Source: GAO’s analysis of the national studies listed in app. I.

Of the other eight studies we reviewed, seven estimated welfare reform’s

impact on individual housing agencies in different parts of the country,

and one, by HUD’s Office of Policy Development and Research, covered

eight individual housing agencies.5

 The estimates for these eight studies,

which are summarized in table 2, varied widely, both from one housing

agency to another and from one scenario to another for a single housing

agency. In particular, under assumptions that the authors characterize as

unlikely—that the state would adopt a harsh welfare reform plan and the

housing authority would not provide employment assistance to affected

residents—the Seattle housing authority’s findings indicate that the agency

could need an annual increase of as much as 37 percent of its fiscal year

1997 HUD subsidy to offset welfare reform’s impact. Conversely, using

optimistic assumptions, HUD predicted that rental revenues at the Dallas

housing authority could rise by enough to warrant as much as a 20-percent

reduction in the amount of the HUD subsidy needed.

5

Welfare Reform Impacts on the Public Housing Program: A Preliminary Forecast, HUD, Office of

Policy Development and Research, Division of Policy Studies (Mar. 1998).

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Table 2: State and Local Housing Agencies’ Estimates of Welfare Reform’s Financial Impact on HUD’s Housing Subsidy

Programs

Estimate by/for Scope Scenario

Estimate of percentage

change in HUD subsidy

Los Angeles Public housing and Section 8

certificates and vouchers

Impact of welfare reform,

different labor market

scenarios with and without

exclusions of earned income

from rental payment

calculations

Results ranged from a 0.8%

increase to a 0.9% decrease

Seattle Public housing Impact of welfare reform with

focus on reductions in benefits

for unqualified legal

immigrantsa

Results ranged from a 36.5%

increase to a 1.9% increase

Miami-Dade Public housing Impact of welfare reform

assuming a $50 to $100 loss in

each recipient’s rental payment

18.5% increase

David M. Griffiths & Associates,

Ltd./District of Columbia

Public housing Impact of welfare reform with

and without proactive agency

managementb

Results ranged from a 7.2%

increase to a 8.2% decrease

Minneapolis Public housing and Section 8

certificates and vouchers

Impact of local provision

reducing each recipient’s

TANF benefits by $100,

worst-case scenario

2.8% increase

St. Paul Public housing and Section 8

certificates and vouchers

Impact of local provision

reducing each recipient’s

TANF benefits by $100,

worst-case scenario

4% increase

New Jersey Section 8 certificates Impact of losing TANF income

for those whose sole source of

income is TANF, worst-case

scenario

1.8% increase

HUD/Eight housing agenciesc Public housing Impact of welfare reform;

optimistic and conservative

scenarios and a worst-case

scenario with and without

minimum rents

Results ranged from a 21.8%d

increase to a 19.6% decrease

aThe original provisions of welfare reform that affected immigrants have been significantly

modified, and this study was completed shortly after the passage of the original reforms.

bThe author of this study defined proactive housing agency management as taking an active role

in mitigating the impact of welfare reform on the housing agency’s residents and the housing

agency.

cThe eight housing agencies are in Dallas, Texas; Richmond and Norfolk, Virginia; Los Angeles

and San Francisco, California; and Cleveland, Columbus, and Toledo, Ohio.

dBased on a preliminary California welfare plan introduced by the governor in Jan. 1997. This plan

is more restrictive than the one adopted in Aug. 1997.

Source: GAO’s analysis of the state and local studies listed in app. I.

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Differing Focus Leads to

Use of Different Key

Assumptions

In addition to differences in geographic scope, the studies we reviewed

differed in other key aspects of their focus, and these differences often

dictated the assumptions used in the studies. Some of these studies took a

worst-case approach to welfare reform, imposing very conservative

assumptions about the employment and earnings prospects of welfare

recipients with housing assistance. Generally, these analyses were

designed to heighten the awareness of the welfare and housing assistance

communities to the worst possible implications of some aspects of welfare

reform and to prompt these communities to take appropriate action. For

example, at the national level, the Council of Large Public Housing

Authorities used a worst-case approach in the summer and early fall of

1996 to look at what would happen if all residents receiving cash

assistance lost that assistance 5 years after the implementation of welfare

reform (the federally mandated time limit) and if none of the affected

families were able to replace any of these benefits with wage earnings.

This analysis, which was designed to motivate the public housing

community to take action, estimated that required rental payments could

fall by 30 percent (the percentage of income that residents generally pay in

rent) of the total amount of cash assistance lost. At the local level, the

Minneapolis and St. Paul housing authorities designed studies to show the

maximum potential effect of Minnesota’s decision to reduce by $100 the

monthly cash benefits for TANF recipients with housing assistance. To

estimate the maximum impact of the $100 reduction on the housing

agency and HUD, these studies ignored any possibility that residents

receiving TANF benefits might have additional earnings to offset some of

the $100 loss in benefits. Thus, the monthly rental payments of subsidized

households would be $30 ($100 times 30 percent) less than they otherwise

would have been. Under this scenario, the rental payments of public

housing residents and Section 8 certificate and voucher holders would

decline annually by $817,000 for Minneapolis and over $1 million for St.

Paul.6

Other studies, designed to forecast HUD’s actual budget needs, attempted

to make best-guess estimates of the financial impact of welfare reform on

HUD and housing agencies. HUD’s national study and one by the

Congressional Budget Office (CBO) used more elaborate methods to

predict the employment and earnings prospects of welfare recipients. For

example, relying on various studies of the earnings of former welfare

6

The Minnesota legislature has postponed the imposition of the $100 reduction in benefits until

July 1999.

Page 8 GAO/RCED-99-14 Estimating Welfare Reform’s Financial Impact
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recipients,7 CBO assumed that households with Section 8 assistance would

be able to replace two-thirds of their lost welfare benefits with earnings

when time limits take effect. These studies generally found that welfare

reform would have a more modest impact than studies designed to look at

the worst-case outcomes of imposing time limits. Still other studies,

including the Johns Hopkins study, HUD’s multisite study, and the Los

Angeles study, were designed to determine a range of likely effects of

welfare reform on HUD and housing agencies and to identify the factors

that might influence the extent of these effects. Most of these studies

focused on the potential impact of a broad range of factors—including

welfare policies (e.g., time limits and employment sanctions), housing

policies (e.g., minimum rents and exclusions of earned income from rental

payment calculations), and local and national economic conditions—to

determine which factors would have the largest impact on the subsidies

needed. The studies used varying assumptions and models to estimate

welfare reform’s impact under different scenarios. For example, HUD’s

multisite study and the Los Angeles study estimated the impact of welfare

reform under both optimistic and conservative assumptions about the

employment and earnings prospects of welfare recipients with housing

assistance. Additionally, both HUD’s multisite study and the Johns Hopkins

study varied their assumptions about welfare reform’s rules by examining

the potential effects of different state welfare programs.

Some of the studies discussed above focused on the impact of certain

housing policies. For example, HUD’s multisite study found that because

rental payments do not fall to zero when tenants lose their cash income

but are required to pay minimum rents, the imposition of such minimum

rents could offset much of the potential decline in rental revenues

resulting from welfare reform.8

 The Los Angeles study attempted to

measure how much of the potential increases in rental payments the

housing agencies would forgo because of policies excluding new income

7

See, for example, Alberto Martini, “Potential Effects of Congressional Welfare Reform Legislation on

Family Income,” The Urban Institute (July 26, 1996); Sandra K. Danziger and Sherrie A. Kossoudji,

“When Welfare Ends: Subsistence Strategies of Former GA Recipients: Final Report of the General

Assistance Project,” University of Michigan (Feb. 1995); and Thomas M. Fraker et al., “Iowa’s Limited

Benefit Plan,” Mathematica Policy Research, Inc., and the Institute of Social and Economic

Development (May 1997).

8

See footnote 4 for information on recent legislative changes establishing exceptions to the minimum

rent requirements.

Page 9 GAO/RCED-99-14 Estimating Welfare Reform’s Financial Impact
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from rental payment calculations.9 Finally, studies designed by David

Griffiths & Associates, Ltd. (DMG), focused on the impact of significant

involvement by housing agency managers in helping tenants move into the

labor market. DMG assumed, in its studies for both the District of Columbia

and the Public Housing Authorities Directors Association, that a high level

of involvement by housing agency managers would significantly improve

the income prospects of welfare recipients.

Studies’ Authors

Expressed Uncertainty

The varied assumptions underlying the studies we reviewed reflect

researchers’ uncertainties about changes in welfare and housing policies

over time, the future of the economy, and the behavioral responses of

welfare recipients. The authors of several of the studies described their

estimates as outdated because events (such as the final version of a state’s

welfare reform law or the condition of the national economy) had not

played out as the authors had anticipated when they conducted their

studies. For example, the representative of DMG who developed the

estimates for the Public Housing Authorities Directors Association and the

District of Columbia told us that if he were developing the estimates today,

he would revise the results of his pessimistic scenario significantly to take

account of (1) modifications to the welfare reform law that have reduced

the cuts in Supplemental Security Income he initially anticipated, (2) the

significant emphasis HUD has placed on programs to help move people

from welfare to work, and (3) the surprisingly strong economy. Similarly,

the authors of HUD’s multisite study told us that their estimates for Los

Angeles are probably too pessimistic because they assumed a more

restrictive welfare program than the one California actually adopted in

August 1997.10 Other authors were also concerned about the general

difficulty of predicting the future behavior of TANF recipients. For example,

officials at CBO stated that because of uncertainties about how welfare

reform would be implemented and how recipients would respond, they

recognized that their estimates could be substantially different from actual

outcomes. And, as we reported in January 1998, HUD is no longer standing

behind its initial assessment of welfare reform’s nationwide impact, in

9

A study by the Atlanta housing authority also examined the effects of excluding former welfare

households’ income from rent calculations. This study found that such exclusions could wipe out the

potential for significant reductions in the Atlanta housing agency’s need for HUD subsidies. Without

exclusions, the need for subsidies would decline if the earnings of former welfare households

exceeded the welfare payments they once received.

10HUD researchers said that they used the provisions of an early version of California’s welfare reform

plan (Jan. 1997), proposed by the governor, which would have reduced benefits for whole families

when time limits were met or sanctions were imposed. However, the California welfare reform law

that was adopted in Aug. 1997 continues to pay benefits to children out of state funds regardless of

time limits or sanctions.

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part, because of difficulties it identified in predicting how states will

implement welfare reform plans and how welfare recipients will respond

to welfare reform.

Multiple Issues

Complicate Efforts to

Forecast Welfare

Reform’s Financial

Impact on HUD’s

Housing Subsidy

Programs

The experts with whom we spoke generally agree that several

methodological and data issues complicate efforts to forecast welfare

reform’s financial impact on HUD’s housing subsidy programs. Some issues,

such as differences in state welfare policies and plans for implementing

welfare reform and uncertainty about the strength of the economy and the

behavior of welfare recipients, make it difficult to predict the impact of

welfare reform itself. Housing researchers generally agree, however, that

estimating welfare reform’s financial impact on housing programs is more

complex than estimating welfare reform’s impact overall because the

characteristics of welfare recipients with housing assistance may be

different from those of other welfare recipients, and housing agencies and

landlords may adopt a broad range of housing philosophies and policies.

Finally, the lack of consistent and reliable data further hampers

researchers’ efforts to predict welfare reform’s financial impact on HUD’s

housing programs with any certainty.

State Welfare Reform Plans

and Implementation Differ

Considerably

Differences in state welfare policies have always been important in

evaluating the federal welfare program. Under AFDC, states paid different

levels of benefits to entitled recipients, and HHS researchers reported that

recipients were more likely to leave the welfare rolls in states with lower

benefits than in states with higher benefits. Because welfare reform gave

the states greater discretion in setting welfare policy, state policies now

differ across a multitude of dimensions. For example, the states can now

determine who is eligible for cash assistance and for how long. In addition,

they can set specific work requirements and establish sanctions for

recipients who violate their state welfare policies.

Differences in the implementation of welfare plans at the state and local

levels may exacerbate interstate differences in the impact of welfare

reform. In particular, the manner in which caseworkers relay information

to and interact with recipients affects outcomes under welfare reform. For

example, in evaluating welfare reform in several states, the Manpower

Demonstration Research Corporation (MDRC) found that differences in

what caseworkers told clients in Florida and Minnesota help to explain

differences in the timing of caseload reductions in those states. MDRC

found that in Florida, where recipients could receive cash benefits for a

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maximum of 2 years, recipients tended to exhaust their benefits before

getting jobs and therefore caseloads did not decline quickly, while in

Minnesota, where recipients could receive federal cash benefits for 5

years, caseloads dropped quickly. MDRC told us that this difference in

behavior seemed to occur, at least in part, because Florida caseworkers

encouraged recipients to remain on TANF and spend their 2 years investing

in job skills, while Minnesota caseworkers advised their clients to become

employed as soon as possible and save their limited benefits for possible

future needs.

Assumptions About

Economic Health and

Recipients’ Responses Are

Key

The studies we identified varied widely in the assumptions they used to

predict welfare recipients’ potential employment prospects and earnings.

Experts with whom we spoke generally agree that welfare recipients’

employment prospects and earnings depend on the market for low-skilled

workers. The demand for these workers generally depends on the overall

health of the national and local economy, while the supply depends on

recipients’ responses to the level of wages they could earn and the level of

welfare benefits they could receive.

In general, some issues make it difficult to predict the demand for

low-skilled workers. First, because welfare reform has thus far occurred

during a period of strong national job growth, researchers have little sense

of how the demand for low-skilled labor will hold up during an economic

slowdown. For example, experts have been unable to agree on how much

of the recent decline in the number of families receiving cash assistance is

the result of the very robust economy in recent years and how much is the

result of welfare reform.11 In order to shed light on the degree to which

economic conditions affect the impact of welfare reform, HUD researchers,

in their multisite analysis, studied at least two cities with different

economic conditions in each of three states. Welfare recipients in the same

state were generally subject to the same welfare laws. While HUD found

that welfare recipients in all three states had more success in entering

11Two recent national studies of the period from 1993 through 1996 point to economic expansion as a

key factor in explaining the decline in the number of families receiving cash assistance. However, both

studies also conclude that in states such as Oregon and Wisconsin, which implemented stringent

welfare reform provisions during this period, these provisions also contributed significantly to declines

in the number of families receiving cash assistance. See Council of Economic Advisers, Explaining the

Decline in Welfare Receipt, 1993-1996 (Washington, D.C.: Council of Economic Advisers, May 9,

1997) and James Ziliak et al., Accounting for the Decline in AFDC Caseloads: Welfare Reform or

Economic Growth? (Ann Arbor, Mich.: University of Michigan, Sept. 1997). A critique of the Council of

Economic Advisers’ study disputes the Council’s claim to have explained the decline in the number of

people receiving cash assistance. See Alberto Martini and Michael Wiseman, Explaining the Recent

Decline in Welfare Caseloads: Is the Council of Economic Advisers Right? (Washington, D.C.: Income

and Benefits Policy Center, The Urban Institute, July 1997).

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labor markets in cities with more robust local economies, the difference

was not consistent across the states. Second, some researchers have noted

that while it may be possible to measure the number of low-skilled jobs

available at a given point in time, this type of analysis will not necessarily

reveal how many people can find employment over a period of time

because of constant turnover in employment and other changes in labor

market conditions over time.

The supply of low-skilled workers will depend, in part, on how welfare

recipients respond to changes in their state’s welfare program. While some

researchers believe that past studies of the impact of changing wages and

benefit levels on welfare recipients’ desire to work could help answer this

question, other researchers believe that the 1996 welfare reforms

constitute such a dramatic shift from earlier welfare policies that past

behavior may not be a good predictor of future behavior. Thus, there is

little consensus among experts about the future behavior of welfare

recipients.

Tenants’ Characteristics

and Housing Policies

Further Complicate

Estimation

Housing experts with whom we spoke generally agree that estimates of

the effect of welfare reform on the general welfare population may not

apply to the subset of welfare recipients in public and assisted housing. As

we reported in June 1998, welfare recipients living in public housing are

more likely to have been on welfare longer than those without housing

assistance, and longer spells on welfare have been associated with less

success in obtaining employment.12 In addition, experts suggest that

welfare recipients with housing assistance may be less likely to go to work

for several reasons:

• Welfare recipients with housing assistance will be able to retain a smaller

portion of their new earnings because they will generally be required to

pay 30 percent of those earnings in rent.

• Because housing assistance provides a “cushion,” welfare recipients with

public or assisted housing may have less incentive to work than other

welfare recipients with the same job prospects but no housing assistance.

• Recent evidence suggests that job growth is occurring in the suburbs while

welfare recipients are likely to live in urban centers or rural areas. In

particular, welfare recipients with project-based housing assistance

(including both public housing and project-based Section 8 assistance)

may face higher relocation costs than other welfare recipients because

12Welfare Reform: Changes Will Further Shape the Roles of Housing Agencies and HUD,

(GAO/RCED-98-148, June 25, 1998).

Page 13 GAO/RCED-99-14 Estimating Welfare Reform’s Financial Impact
280875 

they may have to give up their housing assistance to move to locations

with better job prospects.

The combination of longer periods on welfare and less incentive to work

may help explain why some researchers have found that welfare recipients

with housing assistance are less successful in moving from

government-sponsored job training programs into long-term private sector

employment. A recent study by MDRC researchers in Atlanta showed that of

the participants in certain federal job training programs, those with no

housing assistance were most likely, those with certificates and vouchers

slightly less likely, and those in public housing least likely, to find

employment after completing their training.13

Because of recent housing policy changes and uncertainty about the

degree to which housing agencies will adopt these changes, researchers

will have difficulty separating the effects of welfare reform from those of

changes in housing policy, just as they have had difficulty separating the

effects of welfare reform from those of overall economic conditions. Many

of the studies we reviewed, as well as experts we consulted, recognized

the importance of recent changes in rent and admission policies and

programs to move welfare recipients to work. For example, the director of

the housing authority in Athens, Georgia, told us that the types of

admission preferences, the effect of management’s involvement in helping

tenants obtain employment, and the level of minimum rents could

determine whether his agency’s rental revenues rise or fall with welfare

reform. However, recent legislation may limit the degree to which housing

agencies will be able to use minimum rents to offset potential declines in

rental payments under welfare reform.

Data Availability and

Reliability Pose Additional

Obstacles

Welfare and housing researchers have used a combination of government

administrative data—data collected by federal, state, or local officials on a

host of factors associated with the recipients of welfare and housing

assistance—and survey data to study the behavior of those who receive

welfare and housing assistance. Administrative databases generally

provide information over time on the participants in a program, while

survey data generally conform more closely to research objectives but

13Alternatively, one expert argues on the basis of preliminary data from Minnesota that welfare

recipients with housing assistance are more likely than other welfare recipients to find and retain jobs

because, with housing assistance, they are more stable and less likely to be forced to move. The

Minnesota data also suggest that those with housing assistance are receiving higher earnings. In

addition, a study in Los Angeles has shown that welfare recipients with Section 8 certificates and

vouchers are more likely to be employed than those in public housing or those without housing

assistance.

Page 14 GAO/RCED-99-14 Estimating Welfare Reform’s Financial Impact
280875 

cover a smaller number of households. Because the states have more

flexibility to design their own systems under welfare reform, data

elements in administrative and survey databases may be less consistently

defined than in the past. Although state welfare agencies have reported

administrative data under HHS’ emergency rules, which were phased in

over a period of 9 months beginning in July 1997, some states have

submitted data that are not fully consistent with HHS’ specifications. HHS

will be issuing final TANF reporting rules that better define terms, but

according to an HHS official, the states will continue to have significant

flexibility in how they define their programs, making data assessment

more difficult. Similarly, according to an official in the Census Bureau’s

Housing and Household Economic Statistics Division, the increased

interstate variation promoted by the 1996 welfare reforms has placed a

significant burden on national organizations that collect survey data. For

example, obtaining consistent data across states about the level of cash

benefits may be difficult because the states have given their TANF benefits

a variety of names. For example, Minnesota calls TANF the Minnesota

Family Investment Plan, while California refers to TANF as CalWORKS. In

addition, questioners and respondents may not know how to classify the

increasingly common “one-time diversion” payments, which states use to

provide one-time assistance to families in lieu of placing them on the

welfare rolls.

We and others have questioned the reliability of the existing national

administrative and survey data on the residents of public and assisted

housing. HUD collects administrative data on the residents of public and

tenant-based assisted housing in its Multifamily Tenant Characteristics

System database. Housing agencies are supposed to provide information

for this database to HUD electronically in a specified format, but some

agencies, especially the larger ones, do not report data for all of their

residents, and the data contain errors as well. A HUD official told us that in

recent years, HUD has concentrated on improving the response rate for

these data, but the greater response has been accompanied by an increase

in the number of data entry errors. HUD collects similar data on the

residents of properties with project-based Section 8 assistance in the

Tenant Rental Assistance Certification System database. According to HUD

officials, this database suffers, on a smaller scale, from reporting problems

and data errors such as those affecting the multifamily database. The

reliability of survey data on housing assistance is also questionable

because respondents to surveys with questions about this assistance often

misreport their status. HUD has documented probable misreporting in the

Current Population Survey and the American Housing Survey. For

Page 15 GAO/RCED-99-14 Estimating Welfare Reform’s Financial Impact
280875 

example, in a paper presented in May 1996, HUD economists reported that

the majority of those receiving housing assistance who said they lived in

public housing actually do not.14 Furthermore, they reported that the

majority of the families receiving other housing assistance do not

accurately identify the way they are assisted, and perhaps one-fifth of

those who report receiving a housing subsidy do not actually receive one.

In addition, the interim director of the Johns Hopkins University’s Center

for Policy Studies has noted similar reporting discrepancies in survey

responses and administrative data and has suggested methods for

improving the reliability of the survey responses. Although the Census

Bureau and others are developing and testing questions to improve survey

responses on welfare benefits and housing subsidies and HUD has worked

to improve its data as well, it is still too early to obtain adequate data to

test assumptions about the outcomes of recent welfare and housing

reforms.

Agency Comments We provided a draft of this report to HUD for review and comment. HUD

stated that the report is fair and straightforward and provided some

technical corrections. HUD’s comments appear in appendix III. In addition,

we provided excerpts of a draft of this report to the authors of each of the

studies we reviewed. Several of the researchers and housing agencies

provided us with comments that we incorporated as appropriate.

Scope and

Methodology

To identify studies that estimated welfare reform’s financial impact on

housing assistance programs, we contacted known experts and officials

from a variety of organizations and government agencies. In particular, we

spoke with experts in housing and welfare research, representatives of

major trade associations and advocacy groups, officials at 30 of the largest

local housing authorities and 10 of the largest state housing agencies, and

officials from 10 private management companies of various sizes that are

managing properties with Section 8 subsidies.15 Although we attempted to

identify as many studies as possible, we recognize that the 13 studies we

identified (see app. I) may not include all such studies that were

performed. It should also be noted that it was beyond the scope of this

review to assess the quality of the research underlying the individual

estimates we reviewed. To consistently present the different studies’

14Mark Shroder and Marge Martin, New Results From Administrative Data: Housing the Poor, or, What

They Don’t Know Might Hurt Somebody (May 1996).

15The names of these private companies were provided to us by the acting executive director of the

National Affordable Housing Management Association.

Page 16 GAO/RCED-99-14 Estimating Welfare Reform’s Financial Impact
280875 

estimates of dollar changes in rental revenues, costs, and subsidies, we

presented each study’s findings as the percentage change in the subsidy

relative to the total performance fund and/or housing assistance payments

HUD says the agency received in 1997. We ignored the facts that HUD does

not always provide 100 percent of the subsidy needed for public housing,

as calculated under the performance funding system formula, and that

HUD’s outlays may lag behind changes in rental revenues by 2 to 3 years. In

addition, although the results presented here are based on the assumption

that HUD will provide 100 percent of the needed subsidy, the studies we

reviewed made different assumptions about the percentage of the needed

subsidy that HUD would be likely to provide. These assumptions ranged

from 85 percent to 100 percent. To the extent that the subsidy is funded at

less than 100 percent, more of the cost of welfare reform will be borne by

local housing agencies and less will be borne by HUD. See appendix I for a

list of the individual studies we reviewed.

To better understand the methodological and data issues that arise when

estimating welfare reform’s financial impact on HUD’s housing programs,

we also contacted known experts in welfare and housing who represented

a broad range of views. We questioned them about the importance of

specific methodological and data concerns using a semistructured

questionnaire. We also gathered their research and analyzed the

information collected from the interviews and research documents to

develop common themes. Appendix II lists the experts with whom we

spoke about methodological and data issues.

We conducted our work from May 1998 through November 1998 in

accordance with generally accepted government auditing standards.

If you or your staff have any questions about this report, please contact me

at (202) 512-7631. Major contributors to this report were Amy Abramowitz,

Nancy Barry, DuEwa Kamara, and Lara Landeck.

Judy A. England-Joseph

Director, Housing and Community

 Development Issues

Page 17 GAO/RCED-99-14 Estimating Welfare Reform’s Financial Impact
Contents

Letter 1

Appendix I 

Identified Studies

20

National Studies 20

State and Local Studies 20

Appendix II 

Methodological and

Data Experts GAO

Interviewed

22

Government Experts 22

Academic Experts 23

Public Policy Analysts 23

Other Public and Assisted Housing Experts 24

Appendix III 

Comments From the

Department of

Housing and Urban

Development

25

GAO Comments 27

Tables Table 1: National Estimates of Welfare Reform’s Financial Impact

on HUD’s Housing Subsidy Programs

6

 Table 2: State and Local Housing Agencies’ Estimates of Welfare

Reform’s Financial Impact on HUD’s Housing Subsidy Programs

7

Abbreviations

AFDC Aid to Families with Dependent Children

CBO Congressional Budget Office

DMG David M. Griffiths & Associates, Ltd.

HHS Department of Health and Human Services

HUD Department of Housing and Urban Development

MDRC Manpower Demonstration Research Corporation

OMB Office of Management and Budget

TANF Temporary Assistance for Needy Families

Page 18 GAO/RCED-99-14 Estimating Welfare Reform’s Financial Impact
Page 19 GAO/RCED-99-14 Estimating Welfare Reform’s Financial Impact
Appendix I 

Identified Studies

National Studies “Background Materials for Baseline Projections of Spending Under

Current Law.” Congressional Budget Office, Washington, D.C.: Mar. 1998.

“The Fiscal Impacts of Welfare Reform: An Early Assessment.” Council of

Large Public Housing Authorities. Issue brief. Fall 1996.

“Impact of Welfare Reform in Public Housing.” David M. Griffith &

Associates, Ltd. Sponsored by the Public Housing Authorities Directors

Association. Unpublished. Spring 1997.

Newman, Sandra and Joseph Harkness. “The Effects of Welfare Reform on

Housing: A National Analysis.” Presented at the Policy Research

Roundtable on the Implications of Welfare Reform for Housing, sponsored

by the Fannie Mae Foundation in collaboration with the Institute for

Policy Studies at The Johns Hopkins University (work in progress).

July 22, 1997. For updated information, see “The Effects of Welfare Reform

on Housing: A National Analysis” in Newman, Sandra J. (ed.) The Home

Front: Implications of Welfare Reform for Housing Policy, Washington,

D.C.: The Urban Institute Press, forthcoming.

“Technical Paper: Welfare Reform Budgeting.” U.S. Department of Housing

and Urban Development (HUD). Washington, D.C.: Oct. 4, 1996.

State and Local

Studies

“Estimated PHA Income Loss Due to Proposed AFDC Cuts.” St. Paul Public

Housing Agency, Unpublished. Feb. 28, 1997.

“Impact of Welfare Reform on Program Costs.” New Jersey Department of

Community Affairs’ Section 8 Housing Program. Unpublished. Jan. 1998.

Nguyen, Mai, Charles Kastner, and Ashley Lommers-Johnson. “Welfare

Reform: Status of Washington State’s Welfare Reform Plan; Effects on

Residents, the Seattle Housing Authority, and Neighborhoods; and

Prospects for Employment and Rent Income.” Presented at HUD

headquarters, Washington, D.C. Dec. 17, 1996.

“Potential Impact of CalWORKS.” Housing Authority of the City of Los

Angeles. Unpublished. Nov. 1997.

“Welfare Act Impact Analysis: District of Columbia Housing Authority

(DCHA)—Final Report.” David M. Griffith & Associates, Ltd. Apr. 1997.

Page 20 GAO/RCED-99-14 Estimating Welfare Reform’s Financial Impact
Appendix I 

Identified Studies

“Welfare Reform Impact Study.” Minneapolis Public Housing Authority.

Unpublished. Spring 1997.

Welfare Reform Impacts on the Public Housing Program: A Preliminary

Forecast. U.S. Department of Housing and Urban Development. Office of

Policy Studies and Research. Rockville, MD., Mar. 1998.

“Welfare Reform Program and Financial Analysis.” Miami-Dade Housing

Agency. Unpublished. Oct. 1997.

Page 21 GAO/RCED-99-14 Estimating Welfare Reform’s Financial Impact
Appendix II 

Methodological and Data Experts GAO

Interviewed

Government Experts Paul Cullinan, Chief, Human Resources Cost Estimate Unit, Congressional

Budget Office (CBO)

Shelia Dacey, Analyst, CBO

Debra Devine, Social Science Analyst, Office of Policy Development and

Research, U. S. Department of Housing and Urban Development (HUD)

Katherine L. Meredith, Program Examiner, Housing Branch, Executive

Office of the President, Office of Management and Budget (OMB)

Charles Nelson, Assistant Division Chief for Income and Poverty, Housing

and Economic Household Statistics Division, Bureau of the Census, U. S.

Department of Commerce

Don Oellerich, Acting Deputy Chief Economist, Office of the Assistant

Secretary of Planning and Evaluation, U. S. Department of Health and

Human Services (HHS)

Carla Pedone, Analyst, CBO

F. Stevens Redburn, Chief of the Housing Branch, Executive Office of the

President, OMB

Les Rubin, Social Science Analyst, Office of Policy Development and

Research, HUD

Ron Sepanik, Director, Housing and Demographic Analysis Division,

Office of Policy Development and Research, HUD

Mark Shroder, Economist, Policy Development Division, Office of Policy

Development and Research, HUD

Rueben Snipper, Analyst, Office of the Assistant Secretary of Planning and

Evaluation, HHS

Christopher Snow, Analyst, Office of the Assistant Secretary of Planning

and Evaluation, HHS

Page 22 GAO/RCED-99-14 Estimating Welfare Reform’s Financial Impact
Appendix II 

Methodological and Data Experts GAO

Interviewed

Academic Experts Neil Bania, Associate Director, The Center for Urban Poverty and Social

Change, Mandel School of Applied Social Science, Case Western Reserve

University

Claudia Coulton, Lillian F. Harris Professor and Co-Director, The Center

for Urban Poverty and Social Change, Case Western Reserve University

Joseph Harkness, Research Statistician, Institute for Policy Studies, The

Johns Hopkins University

Jon Jacobson, Senior Research Analyst, Mathematica Policy Associates

Laura Leete, Research Associate, The Center for Urban Poverty and Social

Change, and Assistant Professor of Economics, Case Western Reserve

University

Sandra Newman, Interim Director, Institute for Policy Studies, The Johns

Hopkins University

LaDonna Pavetti, Senior Research Analyst, Mathematica Policy Associates

Public Policy Analysts Marty Abravenel, Senior Research Associate, The Urban Institute

Anna Kondratas, Senior Associate, The Urban Institute

Cynthia Miller, Research Associate, Manpower Demonstration Research

Corporation

James Riccio, Senior Research Associate, Manpower Demonstration

Research Corporation

Barbara Sard, Director of Housing Policy, Center on Budget and Policy

Priorities

John Weicher, Senior Fellow, Hudson Institute

Sheila Zedlewski, Director, Income and Benefits Center, The Urban

Institute

Page 23 GAO/RCED-99-14 Estimating Welfare Reform’s Financial Impact
Appendix II 

Methodological and Data Experts GAO

Interviewed

Other Public and

Assisted Housing

Experts

Jim Brigle, Director of Government Affairs, Public Housing Authorities

Directors Association

George C. Caruso, Acting Executive Director, National Affordable Housing

Mangement Association

Connie Campos, Policy Analyst for Housing, National Association of

Housing and Redevelopment Officials

Major Galloway, Policy Analyst for Housing, National Association of

Housing and Redevelopment Officials

Debra Gross, Research Director, Council of Large Public Housing

Authorities

John Hiscox, Executive Director, Macon Housing Authority

Walter Huelsman, Vice President and National Director of Housing

Consulting, DMG-Maximus, Inc.

Will Jones, Housing and Community Development Research Officer,

National Association of Housing and Redevelopment Officials

Rich Parker, Executive Director, Athens Housing Authority

Page 24 GAO/RCED-99-14 Estimating Welfare Reform’s Financial Impact
Appendix III 

Comments From the Department of Housing

and Urban Development

Note: GAO comments

supplementing those in the

report text appear at the

end of this appendix.

See comment 1.

Now on p. 3.

See comment 2.

Page 25 GAO/RCED-99-14 Estimating Welfare Reform’s Financial Impact
Appendix III 

Comments From the Department of Housing

and Urban Development

See comment 3.

Now on p. 16.

Page 26 GAO/RCED-99-14 Estimating Welfare Reform’s Financial Impact
Appendix III 

Comments From the Department of Housing

and Urban Development

GAO Comments 1. After additional discussions with HUD to clarify the information provided

in comment 1, we included the data from HUD’s suggested paragraph with

certain appropriate modifications.

2. We deleted the footnote as suggested.

3. We changed the reference as requested.

(385742) Page 27 GAO/RCED-99-14 Estimating Welfare Reform’s Financial Impact
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