The Section 8 Housing Voucher Program: Reform Proposals in the 108th and 109th Congresses
Released: 2007-05-16T00:00:00

Current Program Features

The Section 8 Housing Choice Voucher program has come under increasing criticism from the Administration and Congress for its cost and its complexity. Recent changes in the way the program is funded have largely addressed concerns at the federal level about "spiraling costs"; however, the new funding structure has not reduced budget pressures for the local public housing authorities (PHAs) that administer the program. Noting these concerns, the Administration has argued in each of the past several years that the existing Section 8 voucher program should be dismantled and replaced with a new, broader-purpose grant program. Thus far, low-income housing advocates and PHA groups have generally opposed the Administration's reform initiatives, although both have begun to call for some type of reform to lessen the administrative burdens on PHAs and to help them better administer their voucher programs in a budget-constrained environment. The Administration's reform proposals have changed over the years, and they have differed substantially from the reform proposals supported by PHA groups and low-income housing advocates. Despite their differences, each proposal would alter several key features of the current program, which are discussed below.

Administration

The current Section 8 Housing Choice Voucher program, and its approximately 2 million vouchers, are administered by more than 2,500 local PHAs across the country. PHAs vary greatly both in their size and their capacity. Some administer as few as 10 vouchers, while one PHA, the New York City Housing Authority, administers almost 90,000. Half of all PHAs administer 250 or fewer vouchers. Some PHAs have a full-time director and a large staff; others have one person serving part-time as director and staff.

This heterogeneity has been criticized by some researchers, housing advocates, and the Administration. They argue that housing markets are regional, and thus that housing programs should be administered on a regional level. They point out that most other social service programs serving the low-income population—such as Temporary Assistance for Needy Families, Child Care Assistance, and Food Stamps—are administered at the state level. If the voucher program were administered at the state level, they contend, it might be easier to coordinate it with other services.

The organizations representing PHAs have disagreed, arguing in favor of the current locally driven and focused system. PHAs have important local connections with entities ranging from landlords to local zoning boards, connections that states, they contend, would not have. Furthermore, they have expertise in administering federal housing assistance for the poor both through the voucher program and the federal public housing program.

Eligible Uses of Funds

Today's voucher program provides a defined subsidy, called a voucher, that a family can use to help pay its housing costs in the private market. That voucher pays roughly the difference between rent and the tenant's contribution. In some cases, families can use their vouchers to help pay for a mortgage, but only if their local PHA chooses to run a homeownership voucher program. The bulk of PHA funding, which comes from HUD, is used to renew vouchers. No funds have been provided for new vouchers since 2002. PHAs earn administrative fees, which they can use for other purposes, such as providing supportive services, downpayment or security deposit assistance, or housing search assistance. This system is governed by hundreds of pages of regulations and guidance that make the program, some argue, overly prescriptive and difficult to administer. The Administration and PHAs agree that the current structure limits the ability to undertake innovative initiatives.

Reflecting this concern, the Bush administration has proposed redefining the concept of a voucher by instead providing funds that could be used for rental assistance, homeownership assistance, and supportive services, as defined by the grantee. A "voucher" would no longer have uniform meaning, and PHAs could provide more or less generous assistance to families at their discretion, outside of most current federal rules (i.e., quality standards, portability, income targeting, income-based rent, etc.). Such a reform would be consistent with the 1996 welfare reform law that abolished the Aid to Families with Dependent Children (AFDC) program and replaced it with a broader-purpose Temporary Assistance for Needy Families (TANF) block grant.

Critics of this type of administrative flexibility at the PHA level contend that many of the current rules governing the voucher program are designed to protect voucher recipients. They worry that the needs of low-income families could go unmet if federal rules are abandoned, especially if funding is constrained and PHAs are forced to make difficult tradeoffs. Some further contend that without strong oversight, broad block grants could be open to waste, fraud and abuse.

Tenant Rents

Under the current rules of the voucher program, families are required to pay roughly 30% of their adjusted incomes toward rent. It is generally accepted that housing is affordable for low-income families if it costs no more than 30% of their adjusted gross income, on the assumption that low-income families need the full remaining 70% to meet their other needs. However, this figure is somewhat arbitrary. For some families with little work, transportation, medical, child care, or other outside costs, 40% or even 50% of income might be a reasonable contribution toward housing costs. In fact, the current voucher program allows families to choose to pay up to 40% of their incomes toward housing costs initially, and even greater amounts upon renewal of a lease. For other families, with high expenses for work, transportation, medical, child care, or other outside costs, some percentage lower than 30% might be the most reasonable contribution.

Critics of the current rent calculation, including the Bush Administration and some PHA groups, have argued that PHAs should have the flexibility to modify the existing income-based rent system or adopt new systems partially or fully decoupled from income, such as flat or tiered rents. Under flat rents, families pay a PHA-determined, fixed below-market rent, based on unit size, regardless of their incomes. As incomes change, rent would stay the same. Current law permits PHAs to set flat rents for public housing. Families are permitted to choose to pay flat rents, but must be permitted to switch back to income-based rents. Under tiered rents, PHAs set different flat rents for broad tiers of income. Families pay the rent charged for their income tier, and only fluctuations in income that move them from one tier to another would change their rent. Unless flat or tiered rents were set low, the change would generally result in shallower subsidies paid to families. Shallower subsidies would allow PHAs either to save money or serve more people with the same amount of money, depending on the authority provided by HUD and Congress.

Another argument in favor of moving from an income-based rent to a flat rent concerns administrative ease. The current complicated rent calculation, paired with the difficulty of verifying the incomes of tenants, has led to high levels of error in the subsidy calculation. According to a HUD 2001 Quality Control study, 60% of all rent and subsidy calculations contained some type of error. HUD has estimated an annual $2 billion in subsidy over- and under-payments in the Section 8 voucher program. These errors have led the Government Accountability Office (GAO) to designate the Section 8 program a "high risk" program, meaning that it is particularly susceptible to waste, fraud, and abuse. Beginning with the FY2003 Consolidated Appropriations Act ( P.L. 108-7 ), HUD was given access to the National Directory of New Hires, a database that may allow PHAs to better verify income data. There has been some improvement. A 2003 Quality Control study released in 2004 found a 37% reduction in erroneous payments from 2001, although 40% of subsidies were still erroneously calculated. Adopting flat or tiered rents could substantially reduce—if not eliminate—errors in rent calculations.

Another argument in favor of a flat rent structure involves the work disincentives inherent in the current calculation. Since rent goes up as income goes up, families have a disincentive to increase earnings and/or an incentive to hide income. Families, therefore, face an effective 30% tax on any increase in earnings. To get around this problem in the Public Housing program, Congress has instituted a mandatory income disregard; however, no such mandatory disregard exists in the voucher program, except in the case of certain disabled recipients. If PHAs choose to disregard increased earnings, they must pay the difference out of their own budgets or face sanctions from HUD for not accurately calculating subsidies. Under flat or tiered rents, families can generally increase their earnings without facing changes in their rents.

Low-income housing advocates generally support income-based rents over flat rents. Flat rents are not as responsive to changes in family income as income-based rents, and their adoption could result in some families paying much more toward rent than is generally considered affordable (30% of income).

Calculation of Income

Under the current voucher program, rent is based on a family's annual adjusted income. The current system for calculating income has been criticized as cumbersome and prone to errors.

Annual income, for the purpose of rent determination, is all amounts that are anticipated to be received by all members of a household during the subsequent 12 months, with some exclusions (such as foster care payments). Anticipating low-income families' future incomes can be very difficult, as their employment is often variable. The composition of a family may also be variable, with members joining or leaving the household over the course of a year. Further, PHAs are expected to verify families' incomes using third-party sources, which can be a time-consuming process. Once the total amount of income has been determined, the family may qualify to have certain amounts deducted from total income, such as $480 per dependent, $400 for elderly and disabled households, and reasonable child care expenses, disability expenses, and certain medical expenses of the elderly or disabled.

The complexity of the income determination system is a major factor behind the high rates of error in rent determination. Many of the current requirements are regulatory, rather than statutory, and PHA groups have called on HUD to simplify the process. HUD has stated that it is looking at ways to improve the income calculation process, although no major administrative changes have been made.

Eligibility

The current voucher program sets initial eligibility for assistance at the very low-income level (50% or below of area median income (AMI)), with a requirement that 75% of all vouchers be targeted to extremely low-income families (30%, or below AMI). The Administration has advocated raising eligibility levels and loosening targeting requirements. They argue that both penalize working families by limiting their eligibility for assistance. Further, serving higher income families could result either in cost savings or the ability to serve more families with the same amount of money. Low-income housing advocates generally support retaining current income eligibility and targeting requirements. They argue that the lowest-income households face the heaviest rent burdens and are the most in need of assistance.

Work Requirements and Time Limits

The voucher program does not currently have time limits or work requirements. Families that receive voucher assistance can retain that assistance until either they choose to leave the program; they are forced to leave the program (due to non-compliance with program rules or insufficient funding); or their income rises to the point that 30% of their income equals their housing costs, at which point their subsidy is zero. The Public Housing program does have a mandatory eight-hour work or community service requirement for non-elderly, non-disabled tenants; however, most public housing residents are exempted, and it is unclear how thoroughly the provision has been implemented.

Some have advocated setting time limits for receipt of voucher assistance and making work a requirement for ongoing eligibility. They argue that under the current system, families have no incentive to increase their incomes or work efforts and leave the program. This concern is exacerbated by the fact that many communities have long waiting lists for assistance, and since new vouchers have not been funded for several years, turnover in the current program is the only way to bring in new families.

Adopting a work requirement in the voucher program may help encourage non-elderly, non-disabled households that are not currently working to go to work, although it may not increase their incomes. Research based on the 1996 welfare reform changes ( P.L. 104-193 ) indicates that for many poor families, increases in work do not necessarily translate into greater total income, and most households need work supports (such as child care and transportation assistance) in order to make them successful in becoming financially self-sufficient. Such supportive services are not currently part of the voucher program, and would require additional funding.

Furthermore, there is evidence that families with children, those most likely to be affected by work requirements and time limits, leave the program relatively quickly. According to HUD research from 2003, the median length of stay for families with children is two and a half years. Further, it is unclear how low-income families would meet their housing costs after leaving the program if their incomes had not risen significantly. HUD conducted research looking at families with children who left the voucher program over a five-year period, and found that less than 1% of them had incomes sufficient to afford an apartment at the fair market rent in their community.

Another option would give incentives to families to increase their work efforts and therefore their incomes. Non-elderly, non-disabled families could be encouraged to find and increase work through expansions in the Family Self-Sufficiency program, which provides work supports and deposits tenant rent increases resulting from work into escrow accounts on their behalf. Low-income housing advocates generally support expanding the FSS program, which encourages work and increases in earnings. However, expanding FSS would not result in cost savings, since as families' incomes rise, their rent increases are deposited in an escrow account.

Funding Allocation

Prior to FY2003, HUD reimbursed PHAs for the actual cost of their vouchers. The cost of a voucher is equal to roughly the difference between the rent (capped by a maximum set by the PHA and called the payment standard) and the tenant's contribution toward the rent (30% of the tenant's income). PHAs' costs fluctuate as tenants' incomes and market rents increased or decreased, and each year, HUD would ask Congress for funding sufficient to cover what HUD anticipated it would take to fund PHAs' costs.

Due partly to changes in the rental market and partly to changes in the rules of the voucher program (such as increases in the payment standard), PHAs' actual costs began rising rapidly in 2002 and 2003. This raised concerns for both the Administration and Congress. Partly in response to these cost increases, the Administration proposed potentially cost-saving changes in both the way that PHAs received funds and in the underlying factors that led to the cost growth, including the amount tenants were asked to contribute toward rent and the maximum payment standard as a part of each of their reform proposals.

Congress reacted by changing only the way that PHAs receive their funding. Rather than being reimbursed for their actual costs, PHAs in recent years have received a budget based on what they received in the previous year. This new funding formula has led to problems for many PHAs, whose actual costs are still driven by the difference between rents and incomes in their communities while their funding is capped. As a result, some PHA groups have called for either a change back to an actual cost funding formula or changes to the structure of the voucher program that would allow them to better control their costs.

Reform Proposals

Every year since 2003, the President has proposed eliminating the Section 8 voucher program and replacing it with a new initiative. Bills to enact the President's reform have been introduced in Congress, although no further action has been taken. In 2006, a bipartisan voucher reform bill, which would have modified the voucher program but largely retained its current structure, was approved by the House Financial Services Committee, but no further action was taken before the close of the 109 th Congress. Proposals from the 108 th and 109 th Congresses are discussed briefly below; a comparison of bills from the 109 th Congress to current law can be found in Table 1 .

Proposals from the 108th Congress

Housing Assistance for Needy Families (HANF)

The 2003 HANF program ( H.R. 1841 and S. 947 , 108 th Congress) was a Bush Administration initiative that would have replaced the existing tenant-based voucher program that is administered by local PHAs with a formula grant to states. Rather than receiving funding for a fixed number of units, states would have received a fixed budget, proportional to the amount of funds the state was receiving under the Housing Choice Voucher program. States would have had broad discretion in how they used their funds, including for homeownership purposes. The Secretary of HUD would have been permitted to lower the 75% targeting requirement to 55%, impose minimum rents, increase eligibility to 80% of area median income, and reduce the frequency of housing quality inspections from annually to every three years.

Low-income housing advocates opposed HANF out of concern that it could lead to an erosion of funding and that it would not serve low-income families adequately. PHA groups opposed the proposal to transfer administration to states and also voiced concerns about erosion in funding levels. Although multiple hearings were held, no further action was taken, and HANF was not enacted in the 108 th Congress.

The FY2005 Flexible Voucher Program

The President's Flexible Voucher Program (FVP), was first recommended in the second session of the 108 th Congress in the Administrative Provisions section of the FY2005 HUD budget request. The HUD Secretary testified that the Department did not plan to pursue authorizing legislation. Rather, officials stated during a hearing before the VA, HUD and Independent Agencies Appropriations Subcommittee on March 4, 2004, that they appreciated the leadership of the Appropriations Committees and were asking them to include the provision in the FY2005 appropriations bill.

The proposal, like HANF, would have replaced the voucher program with a broader-purpose grant program. Unlike HANF, PHAs would be asked to administer the FVP. They would have received a fixed number of dollars that they could have used to serve as many families as they chose, providing a broad range of assistance ranging from cash grants to ongoing rental assistance. Adoption of FVP would have eliminated caps on how much families could be required to contribute towards rent, increased income eligibility to 80% or below of AMI, and eliminated any targeting requirements.

The House Financial Services Committee, in their Views and Estimates of the President's FY2005 Budget, was critical of the President's FVP proposal. The Chairman of the Senate VA, HUD and Independent Agencies Appropriations Subcommittee stated in a hearing on April 1, 2004, that the Flexible Voucher proposal was "a poor substitute for flaws in the program" and that the Committee would not have the "luxury of time to consider fully" the proposal. The FVP was not enacted before the end of the 108 th Congress.

Proposals from the 109th Congress

The State and Local Housing Flexibility Act of 2005

The Administration's State and Local Housing Flexibility Act of 2005 (SLHFA) was introduced in the first session of the 109 th Congress by Senator Allard on April 13, 2005, and by Representative Gary Miller on April 28, 2005, as S. 771 and H.R. 1999 , respectively. The bill consisted of three titles. Title I, The Flexible Voucher Act, is discussed further below. Title II, Public Housing Rent Flexibility and Simplification, would have permitted PHAs to alter income and rent calculations for public housing in the same ways as under Title I. Title III, the Moving To Work Program, would have made the current Moving to Work demonstration a permanent program with expanded eligibility for PHAs, and expanded waiver authority for the Secretary of HUD.

Title I of SLHFA was similar to the Flexible Voucher Program proposed by the Administration as part of the FY2005 budget request. It would have replaced the current voucher program with a broader-purpose grant program. PHAs would have continued to administer the program, although if they were not meeting the Secretary's performance standards, their funds could be awarded to other entities selected by the Secretary.

Under the bill, Flexible Voucher Program funds could be used for six eligible activities: tenant-based rental assistance; project-based rental assistance; tenant-based homeownership assistance for first-time homebuyers; self-sufficiency activities, including escrow savings accounts; other activities, as specified by the Secretary, in support of tenant-based, project-based, or homeownership assistance; and administrative costs. Income eligibility, targeting, subsidy determination, and quality inspection rules would all have been loosened, while portability and enhanced voucher features would have been restricted. The changes in the bill would have been phased in. The Secretary was directed to develop temporary implementing regulations within 90 days of passage, and final regulations, not including funding formulas, within 18 months. The Secretary was also directed to undertake negotiated rulemaking to develop grant and administrative fee allocation formulas, to be published within 24 months.

Hearings were held on the SLHFA in the House on May 11, 2005; hearings were not held in the Senate. The President's FY2007 budget request, introduced on February 6, 2006, reiterated HUD's support for the bill. No further action was taken on SLHFA before the close of the 109 th Congress.

The Section 8 Voucher Reform Act of 2006

On May 22, 2006, the Chairman of the Housing and Community Opportunity Subcommittee of the House Financial Services Committee introduced the Section 8 Voucher Reform Act of 2006 ( H.R. 5443 ), a bipartisan Section 8 reform bill cosponsored by the subcommittee's ranking member. It was approved by the subcommittee on June 8, 2006, and by the full committee on June 14, 2006, although no further action was taken before the close of the 109 th Congress.

Unlike the Bush Administration proposals, which sought to eliminate the voucher program and replace it with a new program, H.R. 5443 would have retained the basic structure of the current voucher program while implementing changes primarily designed to make the program easier to administer. Specifically, the bill proposed to

modify the current definition of income to exclude imputed income from assets; eliminate or replace many of the deductions and allowances from income; provide PHAs with several methods for calculating income; change the targeting threshold to the greater of 30% of AMI or the poverty level; eliminate the gross income calculation for rent; modify income reexamination requirements; and modify the process and timing for conducting housing inspections.

Several of these administrative changes would also have affected the public housing and project-based Section 8 programs.

H.R. 5443 would have adopted a new renewal funding formula, authorized the use of vouchers to provide downpayment assistance, required the Secretary to develop performance standards, and expanded and made permanent the Moving to Work demonstration. Amendments added during full committee consideration would have authorized a Manufactured Housing pilot, altered the treatment of certain military pay for purposes of several housing programs, and increased the rent levels for certain project-based vouchers in low-income housing tax credit properties.

H.R. 5443 received endorsements from PHA groups and low-income housing advocates. As noted earlier, the bill was not enacted before the close of the 109 th Congress.