Housing Choice Vouchers: Options Exist to Increase Program Efficiencies
Published: 2012-03-19T00:00:00

Fast Facts:

Highlights:
section_title: Why GAO Did This Study
paragraphs: The Department of Housing and Urban Developments (HUD) Housing Choice Voucher (voucher) program subsidizes private-market rents for approximately 2 million low-income households. HUD pays a subsidy that generally is equal to the difference between the units rent and 30 percent of the households income. HUD also pays an administrative fee, based on a formula, to more than 2,400 local housing agencies to manage the program. Over time, program expenditures steadily have risen, causing some to questionhow well HUD managed costs and used program resources. This report (1) discusses the key drivers of cost growth in the voucher program and the actions taken to control this growth and (2) analyzes various options to cut costs or create efficiencies. For this report, GAO analyzed HUD data; reviewed budget documents, program laws and regulations, guidance, academic and industry studies, and GAO reports; and interviewed officials from HUD, industry groups, and 93 housing agencies.
section_title: What GAO Found
paragraphs: Several factorsincluding rising rents, declining household incomes, and decisions to expand the number of assisted householdswere key drivers of the approximately 29 percent increase (before inflation) in housing agencies expenditures for the voucher program between 2003 and 2010. Congress and HUD have taken steps to limit cost increases while maintaining assistance for existing program participants. For example, Congress moved away from providing funding to housing agencies based on the number of voucher-assisted households they were authorized to subsidize and instead provided funding based on the generally lower number of voucher-assisted households housing agencies actually subsidized in the prior year. Further, HUD has proposed administrative relief and program flexibility for housing agencies, including streamlining program requirements and reducing subsidies paid.
GAO identified several additional options that, if implemented effectively, could substantially reduce the need for new appropriations, cut costs (expenditures), or increase the number of households assisted.
Reduce housing agencies subsidy reserves. Housing agencies have accumulated approximately $1.8 billion in subsidy reserves (unspent funds). They can hold the funds in reserve or spend them on authorized program expenses in future years. Over time, large sums can accumulate. Although HUD has sought the authority to offset (reduce) its future budget requests by the amount of  excess subsidy reserves, it has not provided Congress with complete or consistent information on how much of these reserve funds housing agencies should retain for contingencies. GAO has highlighted the importance of providing clear and consistent information on housing agencies reserves to Congress so it can make informed funding decisions.
Implement administrative reform. HUD officials have noted that certain requirements for administering the voucher program are burdensome and costly and could be streamlined. In addition, the formula HUD uses to pay administrative fees to housing agencies is not tied to current administrative costs or requirements. HUD has an administrative fee study underway, which intends to identify specific reforms to ease administrative burden, increase efficiencies, and suggest ways to align the administrative fee formula with the functions housing agencies perform. Without this information, Congress may not have the information necessary to make fully informed policy and funding decisions related to the voucher program.
Implement rent reform and consolidate voucher administration. Rent reform (for example, reducing subsidies by requiring households to pay more toward rent) and consolidation of program administration under fewer housing agencies could yield substantial cost savingsapproaching $2 billionor allow housing agencies to serve additional households, provided annual savings were reinvested in the program. However, while these options may have some advantages over the current program structure, they would require policymakers to consider some potential trade-offs, including increased rent burdens for low-income households, increased concentration of assisted households in high poverty areas, and more limited local control over voucher programs.
section_title: What GAO Recommends
paragraphs: GAO identifies options for increasing efficiencies and recommends that HUD (1) determine what level of reserve funding housing agencies should maintain and reduce future budget requests by the amount of excess reserves and (2) consider proposing options for simplifying program administration and changes to the administrative fee formula. HUD did not agree or disagree with the recommendations. While it noted that the draft provided an accurate assessment, it offered some clarifications and responses.

section_title: Letter
paragraphs: Annually from fiscal years 2003 through 2010, the Department of Housing  and Urban Development’s (HUD) Housing Choice Voucher (voucher)  program helped provide affordable rental housing to approximately 2  million households with very or extremely low incomes. In the same  period, program expenditures grew at an average annual rate of about 4  percent from $11.7 billion to $15.1 billion. The voucher program is unique  among HUD’s rental assistance programs in paying subsidies to landlords  to help households rent units (apartments or houses) on the private  market. The amount of subsidy HUD pays generally is equal to the  difference between the unit’s rent and 30 percent of the household’s  income. While Congress and HUD have supported and enacted changes  to the voucher program designed to limit growth in appropriations without  reducing the number of households that received assistance, they also  added new vouchers targeted at homeless veterans, nonelderly disabled  households, and others. In the current constrained economic and budget  environment, policymakers have questioned the consistent growth in  voucher program costs and whether HUD and public housing agencies  that administer the program adequately managed costs.
In response to your request, this report discusses the factors that have  affected costs in the voucher program from 2003 through 2011 and the  actions Congress and HUD took to manage these costs. The report also  identifies additional steps that could be taken to limit cost growth in the  voucher program or more efficiently provide decent, safe, and affordable  housing.
To determine the factors that have affected costs in the voucher program  from 2003 to 2011 and the actions Congress and HUD took to manage  these costs, we reviewed and analyzed appropriations legislation, budget  documents, and HUD’s annual guidance on the allocation of the  program’s appropriation to housing agencies. The start year for our  analysis reflects the year when Congress began changing the voucher  program’s funding formula. We analyzed program data that HUD  prepared using information derived from multiple HUD systems including  the Central Accounting and Program System (HUDCAPS) and Voucher  Management System (VMS) to determine how much housing agencies’  expenditures changed from 2003 through 2010. We also reviewed prior  work by GAO and others to describe what is known about the cost- effectiveness and characteristics of vouchers relative to other forms of  rental housing assistance. To identify additional steps that could be taken  to limit cost growth in the voucher program and more effectively provide  decent, safe, and affordable housing, we identified and reviewed relevant  legislation, draft legislation, and studies. We analyzed HUD’s VMS data  on the balances of Net Restricted Assets (NRA or subsidy reserves) for  housing agencies as of September 30, 2011, to determine the extent of  such reserves for housing agencies. In addition, using data from HUD’s  Public and Indian Housing Information System (PIC) on household  characteristics, income, and rents, we evaluated the cost and policy  implications of three types of programmatic reform options for the voucher  program: increasing minimum rents, changing the percent of income  tenants pay toward rent, and requiring tenants to pay a percentage of fair  market rent. In identifying and assessing these programmatic reform  options, we reviewed proposals included in draft legislation and in HUD,  Congressional Budget Office, and housing industry group reports. We  also considered reforms certain agencies have implemented. In  conducting our work, we assessed the reliability of datasets that HUD  provided, including data files derived from HUDCAPS, VMS, and PIC and  determined that the data were sufficiently reliable for the purposes of this  report. Finally, for all of our objectives, we interviewed HUD officials and  consulted with an academic and officials from various housing groups.  We also contacted or visited 62 housing agencies that administer the  voucher program and 31 of the 35 housing agencies participating in the  Moving to Work (MTW) demonstration program. See appendix I for a  more detailed discussion of our scope and methodology.
We conducted this performance audit from February 2011 through March  2012 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 voucher program is not an entitlement program. As a result, the  amount of budget authority HUD requests and Congress provides through  the annual appropriations process limits the number of households that  the program can assist. Historically, appropriations for the voucher  program (or for other federal housing programs) have not been sufficient  to assist all households that HUD has identified as having worst-case  housing needs—that is, unassisted households with very low incomes  that pay more than 50 percent of their incomes in rent, live in substandard  housing, or both. In 2009, 41 percent of the more than 17 million very  low-income renters had worst-case housing needs, according to HUD.  The primary problem affecting these renters was rent burden— approximately 97 percent paid more than 50 percent of their incomes in  rent.
To be eligible for assistance, in general, households must have very-low  incomes—not exceeding 50 percent of the area median income, as  determined by HUD. Under the Quality Housing and Work Responsibility  Act of 1998 (P.L. 105-276), at least 75 percent of new voucher program  participants must have extremely low incomes—not exceeding 30 percent  of the area median income.
Under the voucher program, an assisted household pays 30 percent of its  monthly adjusted income in rent; the remainder of the rent is paid through  a HUD-subsidized “voucher,” which generally is equal to the difference  between (1) the lesser of the unit’s gross rent (generally, rent plus  utilities) or a local “payment standard” and (2) the household’s payment.  The payment standard is based on the HUD-determined fair market rent  for the locality, which generally equals the 40th percentile of market rents  (including utilities) recent movers paid for standard-quality units. HUD  annually estimates fair market rents for metropolitan and nonmetropolitan  areas. Housing agencies—the state and local agencies that administer  the voucher program on HUD’s behalf—can set payment standards (that  is, pay subsidies) between 90 percent and 110 percent of the fair market  rent for their areas. By determining fair market rents and setting payment  standards at a rate sufficient to provide acceptable choices for voucher  program participants, HUD and housing agencies essentially set the  upper and lower bounds on the cost of typical, standard-quality units that  voucher holders rent. Participants in the voucher program can choose to  live in units with gross rents that are higher than the payment standard,  but they must pay the full difference between the unit’s gross rent and the  payment standard, plus 30 percent of their income.
In 2011, more than 2,400 housing agencies administered more than 2.2  million vouchers—their programs ranged in size from more than 96,000  vouchers to fewer than 5. Housing agencies are responsible for  inspecting units, ensuring that rents are reasonable, determining  households’ eligibility, calculating and periodically re-determining  households’ incomes and rental payments, and making subsidy payments  to landlords.functions, such as establishing and maintaining a waiting list, processing  tenant moves, conducting landlord and tenant outreach, and reporting to  HUD. HUD disburses appropriated funds to housing agencies for subsidy  payments to landlords and administrative expenses.
In addition, housing agencies perform basic program  Each year, Congress appropriates funding for subsidies for renewal  (existing) and incremental (new) vouchers and administrative expenses.  As part of the appropriations process, Congress outlines a formula that  determines the amount of renewal funding for which housing agencies  are eligible (“eligible amount”). However, the amount Congress  appropriates to the voucher program may not equal the total amount for  which housing agencies are eligible under the formula. HUD is  responsible for allocating program funding (“appropriated amount”)  among housing agencies based on their eligible amounts. To the extent  that the appropriated amount does not fully fund housing agencies at their  eligible amounts, HUD reduces the funding housing agencies receive to  fit within the appropriated amount. Housing agencies are expected to use  all the subsidy funding HUD allocates for authorized program expenses  (including subsidy and utility payments). However, if housing agencies’  allocated amounts exceed the total cost of their program expenses in a  given year, they must maintain their unused subsidy funds in NRA  (reserve) accounts. Housing agencies may use their NRA balances  (subsidy reserves) to pay for authorized program activities in subsequent  years.
Incremental vouchers include various special-purpose vouchers.  Congress appropriates funding for these vouchers in separate line items  in the budget, which distinguish them from renewal vouchers. Housing  agencies must apply to HUD to receive allocations of and funding for the  special-purpose vouchers, which, as described in table 1, include  Enhanced, Tenant Protection, Family Unification Program, Mainstream,  Nonelderly Disabled, and Veteran Affairs Supportive Housing vouchers.  These vouchers may have different or additional eligibility and operational  requirements than renewal vouchers. After the first year, special-purpose  vouchers generally become renewal vouchers for purposes of  determining funding eligibility in the next year, but HUD may require that  housing agencies separately track them as special-purpose vouchers.
Congress appropriates funding for administrative fees, and the formula  used to calculate the administrative fee generally is based on fair market  rents, adjusted annually to reflect changes in wage rates. HUD pays fees  to housing agencies based on the number of units leased (vouchers  used) as of the first of each month. HUD pays one (higher) rate for the  first 600 units under lease and a second (lower) rate for the remaining  units. As with subsidy funding, if the appropriated amount does not fully  cover housing agencies’ fees as determined by the formula, HUD will  reduce the amount of funding each housing agency receives to fit within  the appropriated amount. Since fiscal year 2006, administrative fees have  accounted for less than 10 percent of total voucher program funding.
Some housing agencies that administer vouchers can participate in and  receive funding under MTW, a demonstration program authorized by  Congress in 1996 and implemented by HUD in 1999. MTW allows  participating housing agencies to test locally designed housing and self- sufficiency initiatives in the voucher and other federal housing programs.  Housing agencies may waive certain statutes and HUD regulations to  achieve three objectives: (1) reduce cost and achieve cost-effectiveness  in federal expenditures; (2) give incentives to families with children whose  heads of household are working, seeking work, or in job training,  educational or other programs that assist in obtaining employment and  becoming economically self-sufficient; and (3) increase housing choices  for low-income families. MTW agencies also have “funding flexibility”— they may use their program-related funding (including voucher subsidy  funding) and administrative fees for any purpose (programmatic or  administrative). Currently, 35 housing agencies participate in MTW— according to HUD, they administer about 15 percent of all vouchers and  account for approximately 16 percent of all subsidy and administrative fee  funding on an annual basis. Congress and HUD fund MTW agencies  pursuant to their MTW agreements; however, the agencies could have  subsidies and administrative fees reduced if the amounts Congress  appropriated were less than the housing agencies’ eligible amounts under  the formulas.
section_title: Several Factors Contributed to Cost Increases in the Voucher Program from 2003 through 2010, and Congress and HUD Made Efforts to Limit Them
paragraphs: Several factors affected voucher program costs (as measured through  congressional appropriations, HUD outlays, and housing agencies’  expenditures) and in some cases contributed to cost increases from 2003  through 2010, including: (1) increases in subsidy costs for existing  vouchers, (2) subsidy costs for new vouchers, and (3) administrative fees  paid to housing agencies. In addition to these factors, the design and  goals of the voucher program, such as requirements to target assistance  to certain households, contributed to overall program costs. Despite  increases in the cost of the program from 2003 through 2010, our work  and other published studies have found that vouchers generally have  been more cost-effective in providing housing assistance than federal  housing production programs designed to add to or rehabilitate the low- income housing stock. In addition, Congress and HUD have taken several  steps to manage cost increases over the period.
subsections: section_title: Subsidies for Existing and New Vouchers and Increases in Administrative Fees Contributed to Cost Increases in the Voucher Program from 2003 through 2010
paragraphs: Several factors affected increases in congressional appropriations, HUD  outlays, and housing agencies’ expenditures in the voucher program from  2003 through 2010. As shown in table 2, from fiscal years 2005 through  2011, voucher program appropriations increased from approximately  $14.8 billion to $18.4 billion (approximately 4 percent annually). Over the  same period, outlays—funding HUD disburses to housing agencies for  program expenses—increased from $10 billion to $18.6 billion  (approximately 11 percent annually). Information on appropriations and  outlays for the voucher program were not available for 2003 and 2004  because HUD did not report this information separately from other rental  assistance programs.
Once disbursed, housing agencies expend program funds on activities  such as making subsidy payments to landlords and for administrative  expenses. As shown in figure 1, from 2003 through 2010, housing  agencies’ expenditures increased from approximately $11.7 billion to  $15.1 billion (about 4 percent annually). Expenditure data for 2011 were  not available at the time we were conducting our review. HUD’s outlays  and housing agencies’ expenditures can differ somewhat in any given  year because of differences in the timing of payments and fluctuations in  the rate of funding utilization—that is, some housing agencies may not  use all of their apportioned funds and may build reserves. Later in this  report we discuss the extent to which housing agencies have  accumulated subsidy reserves and steps Congress and HUD could take  to reduce future budget requests or reallocate the reserve funds.
As shown in table 3, housing agencies’ expenditures increased by a total  of about 28.9 percent in nominal dollars from 2003 through 2010. Once  adjusted for inflation, housing agencies’ expenditures increased by a  smaller rate, approximately 8.8 percent. (We evaluated expenditure after  adjusting for the general effects of inflation using a broad base index of  price changes for all goods and services. We expressed expenditures in  2011 constant dollars, the latest year for which complete data on price  changes are available.) In the sections below, we discuss how (1)  increases in subsidy costs for existing vouchers, (2) subsidy costs for new  vouchers, and (3) administrative fees paid each contributed to the  nominal and constant dollar increases in voucher program costs from  2003 through 2010.
As shown in table 3 above, in nominal terms, subsidy costs for existing  vouchers grew by of 19.5 percent, accounting for a majority of the  increase in housing agencies’ expenditures from 2003 through 2010.  After adjusting for inflation, subsidy costs for existing vouchers grew by a  small amount (2.4 percent) and were a smaller contributor to the total  increase in expenditures. Two factors generally explain the remaining  increase in expenditures for existing vouchers after adjusting for  inflation—changes in market rents and household incomes. As previously  discussed, the subsidies HUD and housing agencies pay to landlords on  behalf of assisted households are based on market rents and household  incomes. As a result, changes in market rents and household incomes  affect subsidy cost. As shown in figure 2, in 2011 constant dollars,  median gross rents for voucher-assisted households increased from  about $850 to $880 (or 4 percent) over the period. Growth in rents  outpaced the rate of general inflation. As rents increase, HUD and  housing agencies must pay larger subsidies to cover the increases,  assuming no changes to household incomes or contributions to rent.
Housing agencies we contacted reported that this increase in rental  prices can be explained, in part, by increased demand and competition  for affordable housing—for example, some noted that the number of  renters has increased as a result of an increase in the number of  foreclosures in recent years. National vacancy rates—an indicator of the  relative tightness of the rental market—decreased from 2009 to 2010.
Further, as figure 3 shows, in 2011 constant dollars, the median annual  income of voucher-assisted households contracted from about $11,000 to  $10,700 (a decrease of about 3 percent) from 2003 through 2010. Over  the period, incomes of assisted households did not keep pace with the  rate of general inflation. As incomes decline, voucher-assisted  households are paying less towards rent, requiring larger subsidies to  cover the difference between the rents and tenant payments.
More than half of the housing agencies we contacted reported that job  loss and wage reductions contributed to in their subsidy costs over the  period of our analysis. One housing agency in California we contacted  also reported that state cuts to social welfare programs, including those  that provide direct cash assistance, lowered incomes for some  households and therefore have increased subsidy costs. HUD estimated  that reductions in federal welfare and disability income payments have  resulted in monthly subsidy payment increases of $17 and $5,  respectively, for households that receive those forms of assistance.
The increase in the number of households assisted with vouchers (that is,  subsidy costs for new vouchers) from 2003 through 2010 was another  important contributor to the program’s rising costs. As table 3 shows, in  nominal dollars, subsidy costs for new vouchers grew by 5.3 percent over  the period. After adjusting for inflation, the addition of new vouchers grew  by 4.4 percent, accounting for half of the overall increase in housing  agencies’ expenditures over the period. Congress increased the size of  the program through the addition of special-purpose vouchers such as  Enhanced, Tenant Protection, Family Unification Program, Mainstream,  Nonelderly Disabled, and Veteran Affairs Supportive Housing (see table 1  for a description of each of these types of vouchers). HUD was unable to  provide the data necessary to determine the extent to which each type of  voucher contributed to the growth in program expenditures during this  period.
Finally, growth in the fees paid to housing agencies to administer the  voucher program grew about 4.1 percent in nominal dollars from 2003  through 2010 (see table 3). In constant dollar terms, administrative fees  grew by 2 percent over the period. The formula HUD uses to pay  administrative fees to housing agencies is not directly tied to the cost of  performing the administrative tasks the program requires. Moreover, the  fees HUD has paid housing agencies in recent years have been less than  the amount for which they were eligible under the formula because of  reductions in appropriations. Housing agencies we contacted noted that  the cost of doing business increased over the period of our analysis. For  example, several noted that inspection costs have increased with the  growing cost of gasoline, especially for housing agencies that administer  vouchers over large geographic areas. Others noted that policies such as  portability—the ability of voucher holders to use their vouchers outside of  the jurisdiction of the housing agency that issued the voucher—increased  staff costs because they have been increasingly complex and difficult to  implement and monitor. Representatives of housing agencies with whom  we spoke said that they have frozen salaries and hiring and increased  staff hours, among other things, to cope with reductions in administrative  fees.
section_title: Program Design and Goals Also Influence Program Costs
paragraphs: The design and goals of the voucher program contribute to the overall  expense of the voucher program, although it is difficult to quantify how  much of the cost increase from 2003 through 2010 was due to design  issues. Specifically, the voucher program has various features that are  intended to target or give priority to the poorest households, and serving  these households requires greater subsidies. Long-standing federal policy  generally has required household contributions to rent to be based on a  fixed percentage of household income, which can be reduced through  income exclusions and deductions for certain expenses, such as child  care and health services. Further, housing agencies are required to  lease 75 percent of their new vouchers to extremely low-income  households. In addition, housing agencies also may establish local  preferences for selecting applicants from their waiting lists. Like the  income standards and targeting requirements, these preferences have a  direct impact on subsidy costs—for example, the Boston Housing  Authority has established preferences designed to assist “hard-to-house”  individuals and families, including those experiencing homelessness.  According to housing agency officials, because these individuals and  families have little to no income, the agency’s annual per-unit subsidy  costs are higher than they would be absent the preferences. While these  types of requirements help address Congress’s and HUD’s goal of  serving the neediest households, HUD officials noted that such  requirements make the program more expensive than it would otherwise  be if housing agencies had more flexibility to serve households with a  range of incomes.
Similarly, program goals, such as HUD’s deconcentration policy also can  affect program costs. Specifically, this policy encourages assisted  households to rent units in low-poverty neighborhoods, which typically are  more expensive. According to HUD officials, the deconcentration goal  increases subsidy costs for housing agencies and overall costs for the  department because, as previously discussed, if rents increase, but  household contributions to rent remain constant, HUD and housing  agencies must make up for the increased rent burden in the form of  higher subsidy payments.
section_title: Although Costs Have Risen, the Voucher Program Generally Has Been More Cost-Effective Than Other Types of Housing Assistance
paragraphs: Despite increases in the cost of the voucher program from 2003 through  2010, our work and other published studies consistently have found that  vouchers generally have been more cost-effective in providing housing  assistance than federal housing production programs designed to add to  or rehabilitate the low-income housing stock. Our 2002 report provides  the most recent original estimates of the cost differences between the  voucher program and certain existing production programs. We  estimated that, for units with the same number of bedrooms in the same  general location, the production programs cost more than housing  vouchers. In metropolitan areas, the average total 30-year costs of the  production programs ranged from 8 to 19 percent greater for one- bedroom units. For two-bedroom units, the average total 30-year costs  ranged from 6 percent to 14 percent greater. The cost advantage of the  voucher over the production programs was likely understated because  other subsidies—such as property tax abatements—and potential  underfunding of reserves to cover expected capital improvements over  the 30-year cost period were not reflected in the cost estimates for the  production programs.
Much of the research over the past several decades reached similar  conclusions. For example, in 2000, HUD found that average ongoing  costs per occupied unit of public housing were 8 to 19 percent higher than  voucher subsidy costs. In 1982, the President’s Commission on Housing  found that subsidy costs for new construction were almost twice as much  as subsidy costs for existing housing.  The commission’s finding set the stage for the eventual shift from production programs to vouchers as the  primary means through which the federal government provides rental  housing assistance.
Notwithstanding the cost-effectiveness of vouchers relative to other forms  of rental housing assistance, many of these studies noted the benefits  that production programs can and have conferred on low-income  households and communities such as supportive services for the elderly  and persons with disabilities. The voucher program typically does not  confer such benefits. In addition, research has indicated that some  markets may have structural issues. For example, regulatory restrictions  that reduce the supply of housing (and thus, opportunities for households  to use vouchers) make production programs more effective tools for  providing affordable housing than vouchers in those locations. And our  work found that voucher holders sometimes are unsuccessful in using  their vouchers, either because they cannot find units that meet their  needs or because landlords are unwilling to accept their vouchers. These  households may benefit more from production programs, which can better  guarantee access to affordable housing, than vouchers.
section_title: Congress and HUD Have Taken Steps to Limit Cost Increases in the Voucher Program
paragraphs: In light of increasing program costs, Congress and HUD have taken  several steps to limit the extent of increases from fiscal years 2003  through 2011, while maintaining assistance for existing program  participants. These steps include legislative changes to the formula HUD  uses to calculate and distribute subsidy funding to housing agencies, as  well as continued efforts to reduce improper rental assistance payments.
Before fiscal year 2003, Congress and HUD funded housing agencies’  renewal needs based on their average per-voucher costs from the  previous year, adjusted for inflation, and multiplied by the number of  authorized vouchers. Meaning, housing agencies received funding for  all of their authorized vouchers, regardless of whether they leased all of  those vouchers. In addition, prior to 2003, HUD provided each housing  agency with reserve funding equal to one month of its subsidy funding— housing agencies could use their reserves to fund new vouchers (a  practiced called “maximized leasing”).
Beginning in fiscal year 2003, Congress changed the voucher program’s  funding formula so that it would provide housing agencies with renewal  funding that was tied to housing agencies’ actual costs and leasing rates  rather than the number of authorized vouchers (whether used or unused).
Starting in fiscal year 2003, Congress stopped providing funding for  vouchers that housing agencies issued in excess of their authorized  levels, thus prohibiting over- (or maximized) leasing.
Congress generally based voucher program appropriations for fiscal  year 2003 and thereafter on the number of leased vouchers (not to  exceed authorized levels) and actual cost data that housing agencies  reported to HUD.
Congress discontinued the practice of providing reserve funding for  housing agencies and instead started reserving a portion of renewal  funding to make adjustments to housing agencies’ allocations for  contingencies such as increased leasing rates or certain unforeseen  costs.
In more recent years, Congress has provided HUD appropriations that  did not fully fund housing agencies at their eligible amounts under the  funding formula.
In every year since 2004, Congress has provided administrative fees  that were at least 6 percent lower than the 2003 rate.
Finally, as shown in table 4, in fiscal years 2008 and 2009, Congress  rescinded a portion of housing agencies’ subsidy reserves and  directed HUD, in total, to offset almost $1.5 billion from 1,605 housing  agencies).
HUD has taken steps to reduce improper payments in the voucher  program. According to HUD reports, the department has reduced gross  improper payments (subsidy over- and underpayments) resulting from  program administrator errors (that is, a housing agency’s failure to  properly apply income exclusions and deductions and correctly determine  income, rent, and subsidy levels) by almost 60 percent, from $1.1 billion  in fiscal year 2000 to $440 million in fiscal year 2009.
In addition, HUD has provided housing agencies with fraud detection  tools—such as the Enterprise Income Verification system, which makes  income and wage data available to housing agencies—and realized  continued reductions in improper payments as a result of these tools.  According to HUD, from fiscal year 2006 through 2009, the department  reduced gross improper payments resulting from errors in reported tenant  income—including the tenant’s failure to properly disclose all income  sources—by approximately 37 percent, from $193 million to $121 million.  These efforts do not necessarily reduce the cost of assisting households,  but they help increase the program’s efficiency by helping ensure that an  appropriate level of assistance is provided and potentially serving more  households with appropriated funds.
HUD has requested the authority to implement program reforms that  could have had the potential to decrease voucher program subsidy costs,  administrative costs, or both. For example, as shown in table 5, in its  fiscal year 2012 budget request, HUD proposed implementing a rent  demonstration to test alternatives to the current rent structure that could  result in assisted households paying more in rent. As we discuss later in  this report, changes to the way assisted household contributions to rent  are calculated could result in cost savings to the program.
Although Congress did not grant HUD the authority to implement these  voucher-related initiatives, HUD recently initiated administrative changes  to its housing agency consortium rule, a first step in the effort to  encourage housing agencies to consolidate as envisioned by the  department’s 2011 Transforming Rental Assistance proposal. The revised  rule would treat participating housing agencies in a consortium as one  entity. HUD’s current regulation requires that consortium members be  treated separately for oversight, reporting—as a result, few housing  agencies have formed consortiums since 1998.
Finally, in 2010, HUD began reviewing the administrative fee structure for  the voucher program. The study aims to ascertain how much it costs a  housing agency to run an efficient voucher program. HUD plans to use  the results to help develop a new formula for allocating administrative  fees. Although not enough time has passed to determine whether HUD’s  findings will positively or negatively affect costs in the voucher program,  this study represents a positive effort on HUD’s part to more clearly  understand administrative costs in the voucher program and identify ways  to improve efficiency. According to HUD officials, HUD intends to use this  study as a basis for future legislative proposals, which could have  implications for the cost of administering the program.
Finally, in 2009, HUD developed a tool designed to help HUD staff and  housing agencies forecast voucher and budget utilization (that is, the  percentage of budget allocation and percentage of authorized vouchers  they are using) for up to 3 years. Department officials credit the tool with  increasing voucher program efficiency; however, HUD and housing  agencies’ use of the forecasting tool has not reduced overall costs in the  voucher program.
section_title: Options Exist to Reduce Program Costs or Increase Efficiencies
paragraphs: We identified several options that if implemented effectively, could reduce  voucher program costs (by approximately of $2 billion annually, based on  our estimates) or allow housing agencies to assist additional households  if Congress chose to reinvest the costs savings in the program. First,  improved information on the level of subsidy reserve funding housing  agencies should maintain could aid budget decisions and reduce the  need for new appropriations. ; Second, agency officials have noted that  the voucher program’s requirements are complex and burdensome and  streamlining these requirements could reduce costs. Finally, changes to  the calculation of voucher-assisted households’ payments toward rent— known as rent reform—and consolidating voucher administration under  fewer housing agencies’ could also reduce program costs Each of these  options would require congressional action to implement, and we discuss  below possible steps that HUD could take to facilitate the implementation  of some of them. Rent reform and administrative consolidation also  involve difficult policy decisions that will affect some of the most  vulnerable members of the population and alter long-standing program  priorities and practices.
subsections: section_title: Improved Information on Subsidy Reserves Could Aid Budget Decisions
paragraphs: Housing agencies have accumulated subsidy reserves (unspent funds)  that Congress could use to (1) reduce program appropriations (through a  rescission and offset) and potentially meet other federal needs or (2)  direct HUD to assist additional households. As previously discussed,  HUD allocates subsidy funding to housing agencies based on the formula  Congress establishes in annual appropriations legislation. In recent years,  the formula has specified that HUD allocate funds based on housing  agencies’ leasing rates and subsidy costs from the prior year. In any  given year, housing agencies may under-lease or receive more funding  than they can spend. Unless these funds are rescinded and offset,  housing agencies can keep their unused subsidy funding in reserve  accounts and spend these funds on authorized program expenses  (including rent subsidies and utility allowance payments) in future years.  Over time, large sums of money can accumulate. As of September 30,  2011, 2,200 housing agencies had more than $1.5 billion in subsidy  reserves, which includes unspent subsidy funding from prior years and  certain set-aside funding and funding for new vouchers where insufficient  time has passed for expenditure.
In addition, beginning in 2012, HUD implemented changes to how it  disburses subsidy funds to housing agencies. As a result of these  changes, although housing agencies may continue to accumulate subsidy  reserves, HUD, rather than the housing agencies, holds these reserves.
This change also will allow HUD to better determine the extent of the  reserves housing agencies have accumulated.
HUD officials told us that the department believes that it requires specific  authority from Congress to reduce (offset) future voucher program budget  requests by all or a portion of housing agencies’ subsidy reserves. Although HUD provides quarterly reports to the Congressional Budget  Office on the extent of housing agencies’ reserves and has requested the  authority to offset and in some cases, redistribute “excess” reserves (that  is, reserves beyond what is needed to fund contingencies, such as cost  increases from rising rental rates or falling tenant incomes, as defined by  HUD), the department has not developed specific or consistent criteria  defining what constitutes excess reserves or how it would redistribute  funding among housing agencies. For example, in its fiscal year 2012  voucher program budget proposal, HUD requested the authority to offset  excess reserves. According to the proposal, if given this authority, the  department first would reallocate the funds to housing agencies to make  up any difference between the appropriated amount and the total funding  for which housing agencies were eligible based on the renewal formula  and then redistribute any remaining funds to housing agencies based on  “need and performance.” However, the proposal did not specify how HUD  would calculate excess subsidy reserves or a detailed methodology for  redistributing the funds, and HUD officials acknowledged that  redistributing excess funds among housing agencies will increase the size  and the cost of the program over time because if housing agencies are  able to lease more vouchers with these funds, Congress will have to  appropriate more funding for renewal vouchers in subsequent years.
Because housing agencies’ reserves are resources that HUD has disbursed and  expended, HUD effectively recaptures any excess reserves by reducing or offsetting the  housing agencies’ funding allocation in another year. percent, respectively, of housing agencies’ allocated amounts.HUD generally has excluded housing agencies with 250 and fewer  vouchers from its proposed offsets. HUD officials told us that they have  been considering lowering this threshold or developing a sliding scale  methodology (generally based on size) to determine the amount of  reserves housing agencies should maintain and the amount of excess  reserves that HUD would propose offsetting and redistributing.
In past work, we highlighted the importance of HUD’s clearly identifying  the existence and amount of unexpended subsidy funds (reserves) so  that Congress could have confidence in the department’s capacity to  effectively manage the funding appropriated for the voucher program. We  concluded that HUD should take steps to ensure that reserves did not  reach unreasonable levels—that is, in excess of what is prudently needed  to address contingencies. More recently, we stated that agency  reporting about key areas such as financial management or program  reforms should competently inform congressional decision making, and  agencies should engage Congress about how to present this  information.
While a reserve for contingencies is prudent, without clear and consistent  criteria for determining what constitutes an appropriate level for housing  agency reserves, it is difficult to judge how well HUD managed the  funding Congress has provided for the voucher program. For example, as  previously discussed, in fiscal years 2008 and 2009 Congress rescinded  and directed HUD to offset excess subsidy reserves. However, as shown  in table 6, the 2009 rescission and offset were too large for 288 (about 18  percent) of the 1,605 housing agencies that were subject to the 2008 and  2009 rescissions and offsets to absorb. Congress had to provide these  288 and an additional 152 housing agencies with supplemental funding to  prevent the termination of voucher assistance.
Similarly, in the fiscal year 2012 budget, Congress rescinded and directed  HUD to offset housing agencies’ subsidy reserves by $650 million. Based  on our analysis, as of September 30, 2011, housing agencies had  approximately $606 million in excess reserves, approximately $44 million  short of the $650 million rescission amount. Our analysis assumed that  housing agencies retained in reserves the equivalent of one month or  about 8.5 percent of their annual funding allocations—HUD’s current  thinking on the appropriate level of reserves—and also excluded certain  set-aside funding and funding for new vouchers. As a result, to meet the  $650 million rescission goal, HUD would have to offset more funds from  housing agencies’ reserves than would be required under a one-month  reserve criterion, potentially resulting in some housing agencies holding  less than a one month reserve for contingencies.
section_title: Administrative Reforms Could Streamline Burdensome Requirements and Reduce Costs
paragraphs: HUD officials have noted that certain requirements for administering the  voucher program have grown burdensome and costly and could be  streamlined. In May 2010, the Secretary of HUD testified that the  department’s rental assistance programs “desperately need  simplification.” He further stated that HUD must streamline and simplify its  programs so that they are easier for families to access, less costly to  operate, and easier to administer at the local level. For example, under  current rules, housing agencies must re-examine household income and  composition at least annually and adopt policies describing when interim  re-examinations will be conducted. HUD has expressed support for  extending the time between re-examination of income for households on  fixed incomes from 1 to 3 years and the time between unit inspections  from 1 to 2 years—according to one program administrator that  manages voucher programs for five housing agencies, annual re- examinations and inspections account for more than 50 percent of  administrative costs in the voucher programs the agency administers.
However, overall data are not available on the actual costs of specific  administrative activities, such as annual income re-examinations and  inspections, and how they vary across housing agencies. To help address  this lack of information, HUD has initiated a study to determine (1) what  constitutes an efficient voucher program, (2) what a realistic expectation  would be for what a housing agency should be doing to run an efficient  program, (3) how much it costs to run an efficient program, and (4) what  an appropriate formula would be for allocating administrative fees to  housing agencies operating voucher programs. According HUD, the  study will allow the department to analyze all aspects of voucher program  administration to reduce and simplify housing agencies’ administrative  responsibilities. Such information will be important as congressional  decision makers consider potential reforms of administrative  requirements.
Although some of the changes needed to simplify and streamline the  voucher program would require Congress to amend existing statutes,  HUD’s administrative fee study and the experiences of housing agencies  participating in MTW may provide insight into specific reforms to ease  housing agencies’ reported administrative burden, as well as any  potential cost savings resulting from these reforms. For example,  according to a HUD report, while conclusive effects of many MTW  reforms, particularly as they relate to assisted households, are not known,  some of the demonstration’s most compelling results to date are those   As shown in table 7, many of the  related to housing agency operations. housing agencies that participate in the demonstration have implemented  reforms that Congress has been considering through draft legislation,  HUD has proposed in its fiscal year 2012 budget request, or both.  According to the MTW agencies, many of these initiatives have resulted  in both time and cost savings in their programs.
In addition, and as previously discussed, the existing administrative fee  formula generally is linked to fair market rents that are adjusted annually  to reflect changes in wage rates, and HUD pays fees to housing agencies  based on the number of units leased (vouchers used) as of the first of  each month. This formula is not tied to the program’s current  administrative costs or requirements. Further, housing agencies we  contacted reported that the cost of administering the voucher program  has been on the rise, with contributing factors including higher postage,  fuel, and employee health care costs, as well as increased reporting and  other requirements.
Without more specific information about potential reform options,  policymakers will not be able to make an informed decision about how to  reform the administrative fee formula and the activities required to  administer an efficient voucher program. These efforts—using the  administrative fee study to identify specific reforms and leveraging the  experiences of MTW agencies—are in line with the goals of the  Government Performance and Results Act of 1993 (GPRA), which  Congress enacted, in part, to inform its decision making by helping to  ensure that agencies provide objective information on the relative  effectiveness and efficiency of their programs and spending. Whether  HUD’s study will yield findings that eventually will result in measureable  cost or time savings is not clear. While reforming administrative  requirements for the voucher programs could lead to increased  efficiencies and cost savings, the administrative fee paid to housing  agencies is a relatively modest share of the program’s overall annual  appropriations—approximately 9 percent in recent years. Nevertheless,  such efforts will provide Congress with timely and meaningful information,  which will enhance its ability to make decisions about funding for and  requirements of the voucher program.
section_title: Rent Reform and Consolidation Could Result in Reduced Costs or More Households Served, but Both Involve Trade- offs
paragraphs: If implemented, rent reform (that is, changes to the calculation of  households’ payment toward rent) and the consolidation of voucher  administration under fewer housing agencies could yield substantial cost  savings, allow housing agencies to serve additional households if  Congress were to reinvest annual cost savings in the voucher program, or  both.cost savings or additional households served could be greater if both  options were implemented. Further, implementation of these options may  involve some trade-offs, including increased rent burdens for assisted  households.
Further, these reform options are not mutually exclusive; that is,  As previously discussed, under current program rules, an assisted  household generally must contribute the greater of 30 percent of its  monthly adjusted income or the housing-agency established minimum  rent—up to $50—toward its monthly rent. HUD’s subsidy is the difference  between (1) the lesser of the unit’s gross rent or the applicable payment  standard and (2) the household’s rental payment. Therefore, as an  assisted household’s income increases, HUD’s subsidy payment  decreases, and vice versa. Under existing program rules, a household  could pay no rent—if the household has no monthly income after  adjustments, the housing agency from which the household receives  assistance does not have a minimum rent, or the household obtained a  hardship exemption. However, such households make up a small share  of all voucher-assisted households, with more than 99 percent making  some dollar contributions to their rent.
Because about 90 percent of voucher program funds are used to pay  subsidies, decreasing the level of subsidy for which households are  eligible (or, alternatively stated, increasing the amount households must  contribute toward rent) necessarily will yield the greatest costs savings for  the program. We estimated the effect, both in terms of cost savings and  additional households that could be served with those savings if  Congress chose to reinvest the savings in the program, of several options  including requiring assisted households to pay higher minimum rents;
35 percent of their adjusted income in rent;
30 percent of their gross income in rent (with no adjustments); a percentage of the applicable fair market rent.
Using HUD data, we determined that each of these options could reduce  the federal cost burden—in some cases, quite considerably—or if  Congress chose to reinvest cost savings in the program, allow housing  agencies to serve more households without additional funding. For  example, as shown in table 8, increasing minimum rents to $300 would  yield the greatest cost savings on an annual basis—an estimated $1.8  billion—or allow housing agencies to serve the greatest number of  additional households—an estimated 287,000. Requiring assisted  households to pay 30 percent of their gross income in rent would yield the  least savings for the voucher program and serve the fewest additional  households. Further, HUD operates a number of other rental assistance  programs where household subsidies are based on the same calculations  as those for the voucher program. Implementation of these rent reform  options in its other rental assistance programs has the potential to create  additional cost savings.
These reform options could be implemented individually and some could  be implemented together, depending on the objective policymakers were  trying to achieve—such as maximizing cost savings, minimizing the  impact on assisted households, or promoting work and self sufficiency  among families with children (that is, nonelderly, nondisabled  households). To illustrate, one housing agency in the MTW program put  in place a rent structure that gradually increases household rents—from  27 percent of gross income in years 1 and 2, to the greater of $100 or 29  percent of gross income in years 3 and 4, and to the greater or $200 or  31 percent of gross income in all subsequent years—to promote self- sufficiency among all assisted households. Under this approach, our  analysis showed that households receive more subsidy in the first 2  years, but pay more rent over time than under the current rent structure.
In addition to estimating the cost savings that could result from each of  these rent reform options, we evaluated each option in terms of its effect  on (1) changes in the rent paid by assisted households, (2) household  attrition rates, (3) HUD’s goals of encouraging households to move to the  neighborhoods of their choice (mobility) and discouraging households  from choosing communities that have higher levels of poverty  (deconcentration), (4) incentives to seek work, (5) program  administration, and (6) housing agency and industry support. While each  of these options has advantages over the current rent structure—they  could reduce costs or create administrative efficiencies—each also  involves trade-offs.
Under each rent reform option, some households would have to pay more  in rent than they currently pay. For example, as shown in table 9, if all  households were required to pay at least $50 in rent per month, an  estimated 36,000 households (2 percent) would experience an average  increase of $31 in their monthly rent. HUD’s fiscal year 2013 budget  request proposes increasing the minimum rent to $75 per month for all  assisted household. Under this option, 207,000 households (11 percent)  would experience an average increase of $27. Table 9 also shows options  that change the formula for calculating the households’ payment toward  rent. For example, setting the households rental payment to 30 percent of  gross income (that is, without any deductions) would affect about 1,662,000  households (86 percent) and increase mean household rent by $27.
Increasing minimum rents primarily would affect families with children that  tend to report little or no income. Conversely, assisted elderly and  disabled households almost always report income (most likely because  they are on fixed incomes, like Social Security) and a large percentage of  them already pay close to $200 in rent. On a programwide level,  imposing minimum rents of $200 or less does not change the amount  these households pay in rent, when considering all assisted households.  Figure 4 shows the mean change in all households’ monthly rent resulting  from each of these rent reform options. Increases in monthly rental  payments for elderly and disabled households begin to increase more  significantly with a $200 minimum rent and under each of the rent formula  changes. As a result, higher minimum rents or increases to the  percentage of their incomes paid in rent will yield the greatest cost  savings. For the rent formula change to 35 percent of adjusted income,  the mean change in monthly rent generally would be similar across each  household type.
Figure 5 shows the mean change in monthly rent only for those  households whose payments toward rent have changed as a result of  each reform option. Among these affected households, changes in rental  payments would be similar across household types for some of the rent  structure options. For example, if households were required to pay a $75  minimum rent, mean rental payments would increase by $30 for disabled  households (on the high end) and $24 for elderly, disabled households  (on the low end). However, if households were required to pay a $200 or  higher minimum rent, families with children again would experience  higher mean changes in rent than disabled and elderly households.
Also as shown in figure 5, under the option where the rental payments are  based on 35 percent of the fair market rent, some households will have to  pay more in monthly rent, while others will pay less. Further, a higher  proportion of affected households will see an increase in their rental  payments. Specifically, of the approximately 1.9 million total households  whose monthly rental payments would change under this option, about 61  percent (approximately 1.2 million households) would experience an  increase in their monthly payments and about 39 percent (755,000  households) would experience a decrease.
Requiring households’ rental payments to be based on a percentage of  the applicable fair market rent rather than 30 percent of adjusted income  primarily would affect households living in high-cost (mostly urban) areas  and large families, as well as those at the lower end of the income scale.  HUD’s fair market rents reflect market prices and unit sizes—thus,  household rent shares will increase if they live in a more expensive fair  market area or rent larger units in the same fair market rent area under a  rent option based on percentage of fair market rents. Table 10 illustrates  how fair market rents and household payments based on a percentage of  the fair market rent can vary by location and unit size.
In addition, under an option where households’ rental payments are  based on a percentage of the fair market rent, lower-income households  would pay a larger percentage of their income toward rent than higher- income households. And while many of the lowest-income households  would experience rent increases ($116 per month, on average for families  with children), many of the highest-income households would experience  rent decreases ($97 per month).
Under each of these rent reform options, a small number of households  might lose their subsidies—that is, their subsidy payments would be  reduced to zero because their new, higher rental payments would fully  cover the gross rent. For example, under the option where households  pay 35 percent of their adjusted income in rent, we estimated that  approximately 1.8 percent of households would lose their subsidies.   Further, other affected households might leave the program because they  would have to pay more in rent and no longer choose to participate in the  program. However, because the demand for rental assistance by low- income households generally exceeds the number of available vouchers,  eligible household likely would replace the one that left because similar  unassisted households have much higher rent burdens than assisted  households. Consequently, these rent reform options likely would not  result in a sharp decline in program participation rates.
Rent structures that decrease the amount of subsidy households receive  may discourage HUD’s deconcentration efforts, as well as household  mobility. With less subsidy, households (especially those with lower  incomes) may not have the means to move from neighborhoods of  concentrated poverty to those with a diversity of people and opportunities.  But HUD’s deconcentration goal presents its own trade-offs—chief among  them that fewer households ultimately would be served, albeit with more  generous subsidies. Among the rent reform structures we evaluated, all  but one would decrease household subsidies. A rent structure under  which households would pay 30 percent or less of the applicable fair  market rent would increase subsidies for almost all households and thus  could further HUD’s deconcentration and mobility goals.
Two of the rent structures we evaluated—higher minimum rents and rents  based on a percentage of the fair market rent—could create work  incentives for households with little to no income. Under the current rent  structure, and as previously discussed, a household with no income  generally does not pay rent—HUD’s subsidy covers the gross rent.  Consequently, some have argued that these households have little  incentive to seek employment because, for every $1 they earn, their  subsidies are reduced by 30 cents (for every $100 they earn on a monthly  basis, they will pay $30 in rent). Rent structures that do not take into  account household income may do more to encourage assisted  households to find and retain employment.MTW program that have implemented these types of rent structures  simultaneously have offered self-sufficiency training and services to  assisted households. Additionally, rent structures that eliminate  household income from the rent equation may allow Congress and HUD  to more accurately forecast funding needs. As we previously discussed,  market rents and tenant incomes are two of the primary drivers of  program costs, and predicting changes in market rents and incomes  when developing budget proposals for future years is difficult. These  types of rent structures also would encourage assisted households to  make choices about housing consumption similar to unassisted  households. For example, households would not have an incentive to  over-consume housing because their share of the rent would increases  with the size of the unit they rented.
See GAO, HUD Rental Assistance: Progress and Challenges in Measuring and  Reducing Improper Rent Subsidies, GAO-05-224 (Washington, D.C.: Feb. 18, 2005). approaches for statutory, regulatory, and administrative streamlining and  simplification of its policies for determining subsidies.
Finally, nearly all of the housing agencies we contacted said that they  supported some type of rent reform—among the most popular options  were increasing minimum rents and increasing tenant rental payments to  35 percent of adjusted income. Some housing agencies have suggested  that they have been successful in implementing rent reform under the  MTW program with community support. Despite this, some industry  groups have voiced concern about rent reform. For example, in  commenting on a provision included in the draft Section 8 Savings Act of  2011 that would permit HUD to pursue a rent demonstration, the National  Low Income Housing Coalition stated that the demonstration would put  HUD-assisted households at risk of having significant rent burdens. The  Coalition also said that any demonstration should include parameters that  require HUD to monitor these burdens and stop or change the  demonstration if it were found to harm assisted households.
Based on our literature review and interviews with HUD and housing  industry officials, consolidation of voucher program administration under  fewer housing agencies (administrative consolidation) could yield a more  efficient oversight and administrative structure for the voucher program  and cost savings for HUD and housing agencies; however, current  information on the magnitude of these savings was not available.
HUD spends considerable resources in overseeing housing agencies.  More than 2,400 local housing agencies administer the voucher program  on HUD’s behalf. According to a 2008 HUD study, the department  dedicated from more than half to two-thirds of its level of oversight to 10  percent of its units (generally those housing agencies that administer 400  or fewer vouchers), and an even lower level of risk in relation to the  amount of subsidy funds they administered (about 5 percent of total  program funds). According to agency officials, consolidating the  administration of vouchers under fewer agencies would decrease HUD’s  oversight responsibilities.
According officials from HUD and some housing agencies with whom we  spoke, administering the voucher program through small local housing  agencies may be less cost effective, in part because of the differences in  the economies of scale. For example, larger housing agencies can realize  cost efficiencies in conducting large numbers of voucher unit inspections  that smaller agencies cannot. Also, larger housing authorities collect  sufficient fees to support fraud detection units to ensure that households  report all of their income sources. Although there are no current data on  the comparative costs of administering the voucher program though small  and large housing agencies, the current administrative fee structure  recognizes that economies of scale exist in larger housing agencies. As  previously discussed, HUD pays housing agencies a higher rate for the  first 600 vouchers a housing agency has under lease and a lower rate for  the remaining units under lease. Congress passed this two-tiered fee  structure based in part on a 1994 HUD study that found that flat fee rates  were leading to administrative fee deficits in small housing agencies and  large administrative fee reserves at larger housing agencies.
HUD has acknowledged that oversight and administrative efficiencies  could be realized. As previously discussed, in recent years, the  department has advanced several proposals aimed at streamlining and  simplifying administration of the voucher program. Several of these  proposals have advocated administrative consolidation as a means of  creating administrative efficiencies. For example, HUD’s 2011 version of  the Transforming Rental Assistance initiative was intended to streamline  and improve the delivery and oversight of rental assistance across all of  the department’s rental assistance programs by means such as  promoting consortiums, consolidation, and other locally designed  structures for administrative functions.
In addition, HUD recently initiated changes to its housing agency  consortium rule. The revised rule would treat all housing agencies in a  consortium as one entity—HUD’s current regulation requires that  consortium members be treated separately for oversight, reporting, and  other purposes. Some have argued that the current rule does not allow  HUD or housing agencies to realize the full benefits of consolidation— less oversight (one versus multiple agencies) and shared and thus  reduced administrative responsibilities—and therefore discourages the  formation of consortiums. Since 1998, nine housing agencies that  administer vouchers have formed four consortiums.
We evaluated the administrative consolidation in terms of its effect on  assisted households and selected voucher program goals. More  specifically, we looked at implications for, or likelihood of achieving (1)  HUD’s mobility and deconcentration goals, (2) program administration,  and (3) housing agency and industry support. Like the rent reform options  we evaluated using similar criteria, consolidation has advantages over the  current administrative structure, but also involves some trade-offs.
Consolidation might help HUD more readily achieve deconcentration  goals. Although vouchers theoretically allow recipients to use them  anywhere in the United States, the current system of program  administration creates numerous hurdles for households to move out of  high-poverty, central city jurisdictions in which they typically live. Most  housing agencies originally were established to construct and manage  public housing developments. As a result, program administration does  not always align with housing markets. In urban areas within the same  market, several housing agencies may operate voucher programs with  different admissions criteria and subsidy levels. A paper by researchers at  the Brookings Institution argued that this “fragmentation of local program  administration undermines the potential of the  program as a  mechanism for deconcentrating urban poverty.” Extending the  jurisdiction of housing agencies (through consolidation, for example) likely  would give assisted households access to more housing options,  particularly in surrounding suburbs. On the other hand, regionalized  administration of the voucher program may make it harder for households  to make or maintain contact with program administrators when  necessary—for example, assisted households may not have access to  transportation or may have to travel long distances to meet with housing  agency officials.
Several states offer examples of regional or statewide administration.  Thirty-one states have programs in which one housing agency  administers a voucher program throughout a state. These housing  agencies administer from less than one percent to all of their respective  state’s total voucher allocation. In addition, as part of our work, we visited  a number of housing agencies in the Boston, Massachusetts,  metropolitan area. As a result of litigation in the mid-1990s, local housing  agencies in the state are permitted to lease vouchers throughout the state  (that is, outside their original jurisdictions, which typically align with city  limits). Although all of the housing agencies with which we spoke  suggested that it was important that housing agencies maintain local  control of their programs, each leased at least one voucher outside their  original jurisdiction. In Brookline—a city with relatively high housing costs  compared with the surrounding area and the nation—more than half of  voucher holders rent apartments outside the city limits.
Although consolidation will not alleviate housing agencies’ current  administrative burden, it may begin to address some of the issues  housing agencies and industry groups have raised about a particular  policy—portability. Although portability is one of the hallmark objectives of  the voucher program, almost all the housing agencies we contacted said  that HUD’s portability polices should be revised or eliminated, noting that  they are complicated and costly to administer. Under HUD’s portability  rules, an assisted household may move to the jurisdiction of a different  housing agency—the receiving agency either may bill the sending agency  for assistance for the transferring household or absorb the household into  its own program. According to the 2000 Brookings Institution report,  because of the complexity of the portability process—for example,  receiving agencies may calculate subsidy levels differently than sending  agencies, or apply more rigorous screening criteria—many housing  agencies do not fully explain portability to households and do not  encourage them to consider moving.
In addition, consolidated waiting lists and single points of contact for  housing assistance within a single housing market, region, or state may  make the process of applying for and obtaining rental assistance less  confusing and more transparent for households seeking assistance. For  example, a large number of housing agencies in Massachusetts  participate in a consolidated waiting list—households seeking assistance  in the state need only put their name on one list and receive  communications from one agency. HUD officials said that the department  has been considering taking steps to maintain the waiting lists of each  housing agency in a centralized system.
Finally, housing agencies we contacted were split on the idea of  consolidation—about one quarter supported it as a way to cut costs and  introduce administrative efficiencies in the voucher program, while almost  half were against it. Some housing industry groups and an academic with  which we spoke argued that consolidation would not save money—one  noted that the administrative fees that small housing agencies receive are  relatively insignificant in terms of total program dollars—and would  sacrifice local discretion and control of voucher programs. Others noted  that administrative costs savings could result from the consolidation and  single-source management of waiting lists and elimination or substantial  reformation of the portability process; however, no data currently are  available to assess this point.
section_title: Conclusions
paragraphs: Over the past decade, Congress has responded to the increasing cost of  vouchers by changing the way the program is funded. Specifically, rather  than providing funding based on the number of vouchers housing  agencies are permitted to lease, Congress currently provides funding  based on housing agencies’ prior-year subsidy expenses. Congress also  has capped appropriations so that housing agencies do not always  receive the amount of subsidy or administrative funding for which they are  eligible based on the funding formulas Congress annually establishes.  While this approach gives Congress some control over cost increases, it  does not directly address the market and policy factors we identified as  contributing to increases in program costs.
Although policy makers can do little to alter or control market changes  such as changes in rents and tenant incomes, our analysis suggests that  savings could continue to be realized (or, in some cases, more  households could be served without additional program funding if  Congress chooses to reinvest the funds in the program) if HUD provided  Congress better information on housing agencies’ subsidy reserves.  Enhanced information would include the extent of housing agencies’  subsidy reserves, clear and consistent criteria for determining how much  housing agencies would need to retain to help ensure effective program  management, and how much could be rescinded in future appropriations.  Without such information, HUD faces difficulties in effectively manage the  funding Congress provides for the voucher program, including ensuring  that funds disbursed to housing agencies are used to assist households  rather than remaining unused in reserve accounts.
In tandem with providing information about the use of program funds,  HUD also has an opportunity to advance proposals that would help  increase the efficiency of program administration. In particular, HUD now  has or will have richer, relevant experience and data from which to draw.  In addition to previous reforms HUD has proposed, examples from the  MTW program and HUD’s study on administrative fees can offer options  to Congress for streamlining and simplifying administrative activities and  aligning the administrative fee structure with actual administrative  expenses. For example, information and analyses from these sources  could help identify all current administrative requirements, determine  which of those actions are necessary and which could be eliminated or  streamlined, and determine the cost of performing these activities—which  could help reduce program costs in the future.
Although Congress and HUD have taken several steps to control rising  costs in the voucher program, we have identified a range of options that  offer the additional promise of managing program costs or increasing  efficiency in the long term. These options would also be applicable to  HUD’s other rental assistance programs and would have the potential to  generate even greater savings. Implementing rent reform and  administrative consolidation would require policymakers to consider some  potential trade-offs—in the balance are issues such as the rent burden of  assisted households, concentration of poverty, and the extent of local  control over voucher programs. Nevertheless, these options have certain  advantages over the current program structure. For example, these  options could save money or streamline program administration—both of  which are important objectives in a time of fiscal constraint. Currently  Congress is considering a variety of measures to address some of these  issues.
section_title: Recommendations for Executive Action
paragraphs: To help reduce voucher program costs or better ensure the efficient use  of voucher program funds, we recommend that the HUD Secretary  provide information to Congress on (1) housing agencies’ estimated  amount of excess subsidy reserves and (2) its criteria for how it will  redistribute excess reserves among housing agencies so that they can  serve more households. In taking these steps, the Secretary should  determine a level of subsidy reserves housing agencies should retain on  an ongoing basis to effectively manage their voucher programs.
Further, the Secretary should consider proposing to Congress options for  streamlining and simplifying the administration of the voucher program  and making corresponding changes to the administrative fee formula to  reflect any new or revised administrative requirements. Such proposals  should be informed by results of HUD’s ongoing administrative fee study  and the experience of the MTW program.
section_title: Agency Comments and Our Evaluation
paragraphs: We provided a draft of this report to HUD for comment. In its written  response, reproduced in appendix II, HUD neither agreed nor disagreed  with our recommendations, but provided technical comments that we  have incorporated where appropriate. While the response noted that the  draft report provided an accurate assessment of the program and its  current outcomes, HUD identified several points for clarification and  emphasis, including:
HUD commented that the stated purpose of our report of  identifying options for increasing efficiencies and simplifying  program administration was inconsistent with our  recommendations for agency action because some of the options  do not result in both efficiencies and simplification. We clarified,  where appropriate, that the focus of our report was to identify  reform options that could reduce costs or create efficiencies.
HUD also commented that the draft report’s discussion of growth  in HUD’s outlays could be misleading because this growth reflects  only a change in HUD’s disbursement policy and does not relate  at all to changes in program costs. Specifically, HUD stated that  starting in 2006, the program was required to disburse all eligible  funds, instead of the department’s maintaining those reserves.  HUD did not provide any support that outlays reflect only a change  in HUD’s disbursement policy and do not relate at all to changes  in program costs. While we recognize that disbursement policies  may affect outlays, changes in program size and other factors  would also affect outlays. Further, although the draft provides  information on the trends in actual HUD outlays, it focuses on  housing agencies’ expenditures because they are a better  measure of what housing agencies are paying in subsidies to  assisted households with vouchers. Therefore, we made no  changes in response to this comment.
HUD also commented that the draft report did not address HUD’s  ongoing efforts to limit the accumulation of subsidy reserves. We  added additional language to the report on these efforts, such as  the assistance HUD provides to housing agencies in ensuring that  all available voucher funds are utilized.
HUD noted that it currently provides quarterly reports to the  Congressional Budget Office on subsidy reserve levels. However,  these quarterly reports do not include information on the estimated  amount of housing agencies’ subsidy reserves that exceed  prudent levels, as we are recommending. By providing the  estimated amount of excess subsidy reserves, Congress will be  better positioned to make informed funding decisions, as we  illustrated in our draft report.
As agreed with your offices, unless you publicly announce the contents of  this report earlier, we plan no further distribution until 30 days from the  report date. At that time, we will send copies to the Secretary of Housing  and Urban Development and other interested committees. In addition, the  report will be available at no charge on the GAO Web site at  http://www.gao.gov.
If you or your staff have any questions concerning this report, please  contact me at (202) 512-8678 or sciremj@gao.gov. Contact points for our  Office of Congressional Relations and Public Affairs may be found on the  last page of this report. Key contributors to this report are listed in  appendix III.
section_title: Appendix I: Objectives, Scope, and Methodology
paragraphs: The objectives of our review were to (1) determine the factors that have  affected costs in the Housing Choice Voucher (voucher) program from  2003 through 2011 and the actions Congress and the Housing and Urban  Department (HUD) took to manage these costs and (2) identify additional  steps HUD, housing agencies, or policy makers can take to limit cost  growth in the voucher program and more effectively provide decent, safe,  and affordable housing.
To determine the factors that have affected costs in the voucher program  from 2003 through 2011 and the actions Congress and HUD took to  manage these costs, we reviewed and analyzed appropriations  legislation, budget documents—including HUD budget proposals,  Congressional Research Service reports, monthly statements from the  Department of the Treasury, and the Office of Management and Budget  SF-133 reports on budget execution and budget resources. We also  reviewed HUD’s annual guidance on the allocation of the program’s  appropriation to housing agencies. We used these sources to determine  the annual appropriations and outlays over the period. The starting year  for our analysis reflects the year when Congress began changing the  voucher program’s funding formula.
We analyzed program data that HUD prepared using information derived  from multiple HUD systems including the Central Accounting and  Program System (HUDCAPS) and Voucher Management System (VMS)  to determine how much housing agencies’ expenditures changed from  2003 through 2010. Specifically, we assessed the extent to which certain  factors, such as subsidy paid to a landlord, program size (that is, the  number of assisted households), and administrative expenses,  contributed to the change in program expenditures over this period. We  identified these factors by reviewing GAO, HUD, and stakeholder studies.  We also reviewed prior work by GAO and others to describe what is  known about the cost-effectiveness and characteristics of vouchers  relative to other forms of rental housing assistance.
To identify additional steps HUD, housing agencies, or policy makers can  take to limit cost growth in the voucher program and more effectively  provide decent, safe, and affordable housing, we identified and reviewed  relevant legislation, draft legislation, and studies. We analyzed HUD’s  VMS data on the Net Restricted Assets (NRA) balances (or subsidy  reserves) of housing agencies as of September 30, 2011, to determine  the extent of housing agencies’ “excess” subsidy reserves. To derive our  estimates of the potential “excess” balances, we used HUD’s 8.5 percent  (about a month) threshold to estimate the excess NRA balance. Also, we  analyzed HUD data to determine the number of housing agencies and  amount of funding that Congress offset in fiscal years 2008 and 2009 and  the additional funding Congress appropriated for and HUD provided to  certain housing agencies in 2009. Further, we visited nine housing  agencies in Massachusetts. We selected these housing agencies based  on Massachusetts’ use of both local and regional housing agencies to  provide voucher assistance and the housing agencies’ proximity to one  another. In addition, we interviewed 31 of the 35 housing agencies  participating in the Moving to Work (MTW) demonstration program to  identify the activities the agencies had implemented in their voucher  programs to reduce program costs and introduce efficiencies in the  program. For example, as part of these interviews, we identified alternate  rent structures these agencies had implemented or proposed.
We also evaluated the cost and policy implications of three types of  programmatic reforms to the voucher program: increasing minimum rents,  changing the percent of income tenants pay toward rent, and requiring  tenants to pay a percentage of fair market rent. In identifying and  assessing these programmatic reforms, we reviewed proposals included  in draft legislation and HUD, Congressional Budget Office, and housing  industry group reports. We also considered reforms certain agencies  have implemented. To estimate the effects of these alternative  approaches to calculating tenant payments on the subsidy levels that  result, we analyzed a December 2010 extract of tenant records from  HUD’s Public and Indian Housing Information Center (PIC). These  records contain information about participating households, as of  December 2010, including information on gross and adjusted income  levels, housing unit size and rent, tenant contributions and housing  assistance payments, as well as information on age, sex, and disability  status of each household member. To focus on the core of the assisted  household population, we examined only those households with five or  fewer members, and living in units with one, two or three bedrooms. We  determined the elderly and disability status of each household.  Specifically, we defined a household as an elderly household if either of  the first two household members (the head of household and possibly a  spouse or co-head) were age 62 or over, and we placed a household in  disability status if any of the five members were identified as having a  disability. For the identified subsidy alternatives, we calculated an  alternative tenant contribution using information on income and applicable  fair market rent in the PIC file as appropriate, and calculated the resulting  assistance payment. (The assistance payment is the difference between  the lesser of the payment standard and gross rent, and the tenant  payment, subject to any existing minimum tenant payments.) We did not  consider the possible effects of any change in household behavior, either  in terms of continued participation in the voucher program or in choice of  housing unit or rent level that could be induced by changes in tenant  contributions.
In conducting our work, we assessed the reliability of datasets provided  by HUD, including data files derived from HUDCAPS, VMS, and PIC.  Specifically, we performed basic electronic testing of relevant data  elements, such as housing assistance payment amounts, total tenant  payment, and unit months leased. We reviewed HUD’s data dictionaries,  instructions, and other relevant documentations. We also interviewed  HUD officials knowledgeable about the data to obtain clarifications about  key variables and calculation rules. Where possible, we compared our  results with other sources to ensure the reasonableness of the  information. We determined that the data were sufficiently reliable for the  purpose of this report.
Finally, for all of our objectives, we interviewed HUD officials and  consulted with one academic and officials from various housing groups  including the Center on Budget and Policy Priorities, Council of Large  Public Housing Authorities, National Low-Income Housing Coalition,  National Association of Housing Redevelopment Officials, Public Housing  Authorities Directors Association, Quadel Consulting, and the Urban  Institute. Further, we contacted 53 housing agencies that administer the  voucher program. In selecting these housing agencies, we considered the  number of authorized vouchers, location (that is, HUD-defined regions),  and leasing and spending rates for the voucher program as of March  2011.
We conducted this performance audit from February 2011 through March  2012 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.
section_title: Appendix II: Comment from U.S. Department of Housing and Urban Development
section_title: Appendix III: GAO Contact and Staff Acknowledgment
subsections: section_title: GAO Contact
section_title: Staff Acknowledgments
paragraphs: In addition to the contact named above, Daniel Garcia-Diaz, Acting  Director; Stephen Brown, William Chatlos, Karen Jarzynka-Hernandez,  Cory Marzullo, John McGrail, Josephine Perez, and Barbara Roesmann  made key contributions to this report.