Housing for Special Needs: Funding for HUD's Supportive Housing Programs
Published: 2016-05-31T00:00:00

Fast Facts:

Highlights:
section_title: Why GAO Did This Study
paragraphs: Over 151,000 very low-income elderly and disabled households rely on the Section 202 and the Section 811 programs to provide affordable rents and housing with supportive services. Before fiscal year 2012, nonprofit organizations interested in developing units for these populations could apply to HUD for grants known as capital advances, which did not have to be repaid as long as the property continued to serve these populations for 40 years. Since fiscal year 2012, Congress has not appropriated any funding for capital advances for either program, although it has continued to fund rental assistance for existing developments.
The House report accompanying the Consolidated and Further Continuing Appropriations Act of 2015 contained a provision for GAO to provide information on HUD capital advances for the Section 202 and Section 811 programs from 2008–2013.
This report examines (1) how HUD determined the capital advance amounts awarded to sponsors for Section 202 and Section 811 and (2) the number of capital advance awards and amounts by state from fiscal years 2008–2011 and any changes in the distribution of capital advances over that period. GAO reviewed budget documents and funding announcements and interviewed agency officials.
GAO makes no recommendations in this report. GAO provided a draft to HUD for its review and received technical comments, which were incorporated as appropriate.
section_title: What GAO Found
paragraphs: Until program funding for new development ceased in fiscal year 2012, the Department of Housing and Urban Development (HUD) used a two-phase process to allocate and award capital advances for Section 202 Supportive Housing for the Elderly (Section 202) and Section 811 Supportive Housing for Persons with Disabilities (Section 811). First, HUD headquarters allocated the amount of appropriated funds for capital advances to each of the 18 regional offices using a funding formula, which accounted for regional housing needs and cost characteristics. Funding was further divided among 52 local offices using a set-aside formula and was also split between metropolitan and nonmetropolitan areas for Section 202. In 2010, HUD eliminated the set-aside which had guaranteed a minimum amount of funding for each local field office. The process for making capital advance awards did not change, but HUD was better able fund properties at a higher level. Second, applicants submitted applications to the applicable HUD regional office, and staff from these offices evaluated and scored applications based on various criteria, including capacity to provide housing and ability to secure funding from other sources. Applicants in each regional office were ranked highest to lowest and funded in that order. Any residual funds that were not sufficient to fund the next project in rank order were pooled nationwide and HUD headquarters used a national ranking to fund additional projects.
Most but not all states (including the District of Columbia and Puerto Rico) had applicants that received capital advances for Section 202 and Section 811 in fiscal years 2008 through 2011. GAO found that some states had applicants that received capital advances in each of the years reviewed, while other states did not. In the period reviewed, four states had no applicants that received Section 202 capital advance awards, and eight states had no applicants that received Section 811 capital advance awards. HUD officials cited several reasons applicants from some states may not have received funding during this period, including applications that were submitted may have been ineligible or higher-scoring applications from other states may have been selected instead. The capital advance amounts varied. For Section 202, total capital advance amounts for fiscal years 2008-2011 for states that received at least one award ranged from less than $24 million to more than $75 million. For Section 811, total capital advance amounts for fiscal years 2008-2011 for states that received at least one capital advance award ranged from less than $4 million to more than $15 million.

section_title: Letter
paragraphs: The Department of Housing and Urban Development (HUD) has funded  through capital advances approximately 151,000 units for very low- income elderly households and persons with disabilities through the  Section 202 Supportive Housing for the Elderly (Section 202) and the  Section 811 Supportive Housing for Persons with Disabilities (Section  811) programs. From November 1990 through November 2011, the  programs provided capital advances to nonprofit organizations to develop  affordable housing units. These programs also provide rental assistance  funding to these organizations to help ensure the affordability of rent.  Together, Section 202 and Section 811 help address unmet housing  needs among these vulnerable populations.
The House report accompanying the Consolidated and Further  Continuing Appropriations Act of 2015 includes a provision for GAO to  provide information on HUD capital advances for the Section 202 and  Section 811 programs by state for fiscal years 2008 through 2013. This  report examines (1) how HUD determined the capital advance amounts  for Section 202 and Section 811 and (2) the Section 202 and Section 811  capital advance amounts by state from fiscal years 2008 through 2011  and any changes in the distribution of capital advances over that period.
To obtain information on how HUD determined capital advance amounts  for Section 202 and Section 811, we reviewed the funding allocation and  application processes described in HUD’s Notices of Funding Availability  for fiscal years 2008 through 2013, the years addressed in our mandate.  We also reviewed budget justifications and committee reports. We  reviewed relevant studies from GAO, HUD, the HUD Office of Inspector  General, and housing advocacy groups on the Section 202 and Section  811 programs. We interviewed officials in HUD’s Office of Multifamily  Housing and housing groups that represent low-income older adults and  individuals with disabilities.
To obtain information on the capital advance amounts awarded from  fiscal years 2008 through 2011, we obtained and analyzed capital  advance award decisions for both the Section 202 and Section 811  programs for these years. While these award determinations generally  were made at the HUD regional office level, we report the awards by state  to respond to the mandate. We were not able to review individual  applications for capital advances to understand the score each  application received because HUD only retains these records for a period  of 3 years and records from the period under our review have been  destroyed. Our analysis allowed us to identify the number of awards and  the total award amount each state received in the years under our review.  To determine the reliability of these data, we reviewed information about  the system used to collect the data and agency statements on the data.  We determined that the data were sufficiently reliable for our purposes.
We also interviewed officials at HUD to better understand funding trends  and funding decisions.
We conducted this performance audit from April 2015 to May 2016 in  accordance with generally accepted government auditing standards.  Those standards require that we plan and perform the audit to obtain  sufficient, appropriate evidence to provide a reasonable basis for our  findings and conclusions based on our audit objectives. We believe that  the evidence obtained provides a reasonable basis for our findings and  conclusions based on our audit objectives.
subsections: section_title: Background
paragraphs: The Section 202 and Section 811 programs are two federally funded  programs intended to expand the supply of affordable housing for very  low-income elderly persons and individuals with disabilities, respectively.  The Housing Act of 1959, as amended, established the Section 202  Direct Loan Program to provide direct loans to nonprofit organizations to  develop housing and provide supportive services for low-income older  adults and individuals with disabilities. Under this loan program, over  278,000 units were funded from 1959 through 1990. In 1990, the  Cranston-Gonzalez National Affordable Housing Act amended the  Housing Act of 1959 and created separate programs: (1) the Section 202  Supportive Housing for the Elderly program to support affordable housing  for very low-income elderly persons and (2) the Section 811 program for  very low-income persons with disabilities. Section 202 households must  be very low income (at or below 50 percent of area median income) and  must include at least one member who is at least 62 years old. Section  811 households must also be very low income with at least one adult  member with a disability (such as a physical or developmental disability or  chronic mental illness). Since 1990, the Section 202 program has  provided approximately 120,000 affordable housing units for older adults.  As of fiscal year 2011, Section 811 has provided approximately 31,000  units for individuals with disabilities.
Since 1990, the Section 202 and Section 811 programs have provided  financing to nonprofit organizations known as sponsors through capital  advances for the construction, acquisition, or rehabilitation of new  affordable housing units. Section 202 and Section 811 sponsors are not  required to repay the capital advance as long as they continue to make  supportive housing affordable to eligible households for 40 years. HUD  also provides rental assistance payments to Section 202 and Section 811  sponsors to cover the difference between the unit’s rent and the  household’s rental contribution, which is typically equal to 30 percent of  the household income. For Section 202, sponsors can also use rental  assistance payments to help pay for activities of daily living and  instrumental activities of daily living, such as eating, dressing, managing  finances, and managing medications.
Funding for Section 202 and Section 811 capital advances and rental  assistance has decreased in recent years (see table 1). The combined  fiscal years 2010 and 2011 Notice of Funding Availability was the last  capital advance competition for new units in both programs. Beginning  with fiscal year 2012, appropriations have not been made for the  production of new units. In the combined fiscal years 2010 and 2011  capital advance competition cycle, HUD awarded 99 Section 202 capital  advances in 33 states and 86 Section 811 capital advances in 34 states.  With the suspension of funding for new construction or rehabilitation,  housing developers must now rely on other funding sources, such as Low  Income Housing Tax Credits, if they wish to build housing for these  populations. Although Congress continues to appropriate funds for  rental assistance for existing Section 202 and Section 811 units, these  appropriations also declined from 2011 to 2013. According to HUD, most  Section 202 and Section 811 projects that received funding in fiscal year  2008, fiscal year 2009, or the combined fiscal year 2010/ 2011 funding  cycle have been completed but some are still in the process of being  completed.
section_title: HUD Allocated Capital Advances to Its Regional Offices Based on Relative Regional Housing Needs
paragraphs: Until fiscal year 2012, when funding for new units ceased, HUD used a  two-phase process to allocate and award Section 202 and Section 811  capital advances (see fig. 1). First, HUD headquarters allocated the total  amount of appropriated funds for capital advances to each of the 18 Hubs  (which in this report we refer to as regional offices) based on a funding  formula, which accounted for regional housing needs and cost  characteristics. Second, applicants submitted applications online and  staff from the applicable regional office evaluated applications using a  technical review and a point system and awarded capital advances to the  highest-scoring applicants. While our discussion of funding below  analyzes the number of capital advances and the amount by state, award  determinations were based on applications received in each regional  office.
subsections: section_title: Process for Allocating Section 202 and Section 811 Capital Advances Considered Regions’ Housing and Cost Characteristics
paragraphs: For the Section 202 program, HUD used a needs-based funding  allocation formula that reflected the relevant characteristics of prospective  program beneficiaries in each regional office. Under the Section 202  program, HUD allocated 85 percent of the total capital advance amount to  metropolitan areas and 15 percent to nonmetropolitan areas within each  regional office. HUD then applied a “fair share” factor for each  metropolitan and nonmetropolitan portion of each of the 18 regional  offices, which allowed it to adjust the allocated funds per region based on  the number of elderly very low-income adults with housing conditions and  geographic costs of providing housing in each region.
According to HUD officials, in fiscal year 2010, HUD implemented  changes in the way it distributed capital advances among the regional  offices to better target resources for the Section 202 program. Prior to  2010, HUD allocated funds to each of the 18 regional offices and then  further subdivided the funds among 52 local program offices associated  with each regional office. At that time, each local program office received  a minimum set-aside for metropolitan and nonmetropolitan areas. The  set-aside was intended to provide enough funding to support the  development of at least 20 units in metropolitan areas and 5 units in  nonmetropolitan areas. However, in the combined fiscal year 2010/2011  capital advance competition, HUD did not subdivide the funds to local  offices and discontinued the minimum set-aside of 20 units in  metropolitan and 5 units in nonmetropolitan areas in order to fund  properties at a higher level. According to HUD headquarters officials, by  eliminating the field office set-aside, HUD could develop affordable  housing in a more cost-effective manner. HUD officials said that while the  2010 Notice of Funding Availability no longer had a minimum set-aside,  the process for reviewing applications and making award determinations  remained the same.
Prior to 2010/2011, under the Section 811 program, each local office  received capital advance funds for a minimum of 10 units. Similar to  Section 202, the Section 811 program applied a “fair share” factor to  distribute capital advances. The Section 811 funding formula for fiscal  years 2010/2011 used the number of institutionalized persons age 16 to  64 with a disability, as well as geographic costs of providing housing, to  allocate funding to each region. Unlike for Section 202, for Section 811  HUD did not require that a portion of the funding be allocated to  metropolitan and nonmetropolitan areas.
section_title: HUD Regional Offices Scored Applicants for Section 202 and Section 811 Capital Advances in a Competitive Process
paragraphs: Both Section 202 and Section 811 followed a similar competitive process  for awarding capital advances. After HUD announced the availability of  funds, applicants submitted applications online and were then routed on  to the applicable regional office. The review process involved a  technical review followed by a rating process. During the technical review,  regional office staff examined each application to determine adherence to  eligibility requirements, such as responsiveness to local housing needs,  project size, and development cost limits. They also assessed each  application to identify deficiencies that are curable—for example,  incomplete information submitted by the applicant that is not part of the  scored application. If an application included curable deficiencies, the  regional office notified the applicant and provided a time frame for  resolving the deficiencies. Applications that did not pass the technical  review were rejected. HUD provided a written notice to rejected  applicants, which included the rationale for rejection and an opportunity  for appeal. According to HUD headquarters officials, common reasons for  rejection were noncompliance with environmental requirements and site  control. Rejected applicants could file an appeal with HUD.
Applications that passed the technical review proceeded to the rating  process. During the rating process, the regional office evaluated each  application in several categories using a point system. These categories  were (1) capacity of the applicant and relevant organizational staff; (2)  need, or the extent of the problem; (3) soundness of approach; (4)  leveraging resources; and (5) achieving results and program evaluation.  Each application was scored on a number of criteria within each of these  categories, and applications were required to meet a minimum point  threshold in order to be considered for funding. According to HUD, once  scores were compiled, HUD awarded capital advances through a  competitive process to applicants selected in each region with the  greatest number of points in each regional office. Because the regional  offices received separate funding allocations for metropolitan and  nonmetropolitan areas for Section 202, they were required to first split the  applications into metropolitan and nonmetropolitan developments and  then rank each application within these areas. The funding levels  provided did not allow them to fund all eligible applicants. Each regional  office selected eligible applications from highest to lowest scores until no  more funding from the metropolitan and nonmetropolitan allocations  remained. If an applicant were next in rank order but needed more funds  than remained, regional offices were not permitted to skip over that  applicant in order to select another lower scoring applicant whose project  required less funds. Instead, according to HUD headquarters officials,  once each regional office had awarded all the funds it could based on the  stated criteria in the Notice Of Funding Availability (NOFA), HUD  headquarters combined any remaining metropolitan and nonmetropolitan  funds to select the next highest ranked application from either a  metropolitan or nonmetropolitan area.
Once each regional office finished selecting applicants, any remaining  funds were returned to HUD headquarters, where the remaining eligible  applicants were entered into a nationwide competitive pool. Then HUD  headquarters awarded the remaining capital advance funds starting with  the highest rated application nationwide that had not already received  funding. HUD headquarters first selected the next highest ranked  nonmetropolitan applications in order to satisfy its statutory requirement  of 15 percent of the dollars going to nonmetropolitan areas. Any  remaining funds were then used to fund qualified metropolitan  applications. The allocation process continued until HUD headquarters  allocated all available funds to eligible applicants. During this process,  HUD headquarters was allowed to skip over a higher-rated applicant if  selecting a lower-rated applicant meant all the remaining funds would be  exhausted.
section_title: Most but Not All States Had Applicants That Received Capital Advances during Fiscal Years 2008 through 2011
paragraphs: From fiscal years 2008 through 2011, most states had at least one  Section 202 applicant that received capital advance award dollars. See  appendix I for a full list of all Section 202 and Section 811 awards and  award amounts from fiscal years 2008 through 2011. As shown in figure  2, for fiscal years 2008 through 2011, applicants in 9 states received 10  or more awards, 15 states received between 5 and 9 awards, 19 states  received between 2 and 4 awards, and 5 states received 1 award.
Total capital advance amounts awarded varied across states for the  Section 202 program (see fig. 3). From fiscal years 2008 through 2011,  three states received total capital advances of $75 million or more. All  three of these states (California, Florida, and New York) have large  metropolitan areas, and all three received 10 or more awards during the  period under review. Eight states received between $50 million and  $74,999,999, while 6 states received between $25 million and  $49,999,999. Thirty-one states received between $1,085,400 and  $24,999,999.
Four states had no Section 202 awards during this period: the District of  Columbia, New Mexico, South Dakota, and West Virginia. As shown in  table 2, HUD’s regional offices received applications from sponsors to  develop properties in all four of these states in at least one of the funding  years. Since applications were only maintained for 3 years, HUD officials  were not able to tell us why a specific application did not receive funding,  but they identified possible reasons why applicants may not have  received funding during this period. Specifically, HUD officials noted that  applications that were submitted may have been ineligible; applications  may have failed to meet the minimum point threshold for selection; or  higher-scoring applications from other states may have been selected  instead.
Similarly, from fiscal years 2008 through 2011, Section 811 applicants in  most states received funding for Section 811 projects. As shown in figure  4, applicants in 8 states received 10 or more awards, 12 states received  between 5 and 9 awards, 19 states received between 2 and 4 awards,  and 5 states received 1 award.
Total amount of capital advances awarded varied across states for the  Section 811 program (see fig. 5). From fiscal years 2008 through 2011, 6  states received capital advances of $15 million or more. Five of these  were states that received 10 or more capital advances during the period  under review, while the sixth state, California, received 7 during this  period. Six states received between $10 million and $14,999,999, while  11 states received between $5 million and $9,999,999. Twenty-one states  received between $652,100 and $4,999,999.
Eight states did not have any Section 811 awards during this period: the  District of Columbia, Montana, New Hampshire, New Mexico, Puerto  Rico, Utah, Vermont, and Wyoming. As shown in table 3, HUD’s regional  offices received applications to develop Section 811 properties in six of  these states in at least 1 of the 3 funding years. Sponsors did not submit  applications to develop properties in the District of Columbia and  Wyoming in any of these years. HUD officials said that sponsors in these  states did not receive capital advances for reasons similar to those for the  Section 202 program.
section_title: Agency Comments and Our Evaluation
paragraphs: We provided a copy of this report to HUD for its review. HUD provided us  technical comments which we incorporated where appropriate.
We are sending copies of this report to the Secretary of Housing and  Urban Development and interested congressional committees. In  addition, the report will be available at no charge on the GAO website at  http://www.gao.gov.
If you or your staff have any questions about this report, please contact  me at (202) 512-8678 or garciadiazd@gao.gov. Contact points for our  Offices of Congressional Relations and Public Affairs are listed on the last  page of this report. GAO staff who made key contributions to this report  are listed in appendix III.
section_title: Appendix I: Number and Amount of Section 202 and Section 811 Capital Advance Awards, Fiscal Years 2008 through 2011
paragraphs: Tables 4 through 7 show the number of Section 202 and Section 811  capital advance awards and the total dollar amounts by state (including  the District of Columbia and Puerto Rico) from fiscal years 2008 through  2011. Tables 5 and 7 also include the percentage of the total  appropriated capital advance amount that each state received as well as  the total percentage for fiscal years 2008 through 2011. As noted in the  report, capital advance award decisions were made at the Housing and  Urban Development (HUD) regional office and were not made by state,  but rather across all states within a region. The fair share factor that HUD  applied to the appropriated amount each year to determine the funding  available to each region accounted for the number of elderly (or disabled  for Section 811) renter households in each metropolitan and  nonmetropolitan portion of the United States. That number was then  adjusted to reflect the relative cost of providing housing in each HUD  region and then multiplied by the respective total remaining capital  advance funds nationwide to ensure that each HUD region received its  fair share of the funding. The amount of funding and awards across  individual states within each region could vary from year to year.
section_title: Appendix II: GAO Contact and Staff Acknowledgments
subsections: section_title: GAO Contact
section_title: Staff Acknowledgments
paragraphs: In addition to the contact named above, Paul Schmidt, Assistant Director;  Rachel Siegel, Analyst-in-Charge; John McGrail; Ruben Montes de Oca;  Jennifer Schwartz; Jena Sinkfield; and Nina Thomas-Diggs made key  contributions to this report.