Department of Housing and Urban Development (HUD): Funding Trends Since FY2002
Released: 2016-03-17T00:00:00

Introduction to HUD

The Department of Housing and Urban Development (HUD) is responsible for administering a set of programs and activities that are primarily designed to address housing problems faced by households with very low incomes or other special housing needs. These include several programs of rental assistance for persons who are poor, elderly, and/or have disabilities. Three rental assistance programs—Public Housing, Section 8 Housing Choice Vouchers, and Section 8 project-based rental assistance—account for the majority of the department's non-emergency funding (more than three-quarters of total HUD appropriations in FY2015). Two flexible block grant programs—HOME and Community Development Block Grants (CDBG)—help communities finance a variety of housing and community development activities designed to serve low-income families. Other more specialized grant programs help communities meet the needs of homeless persons, including those with AIDS. HUD's Federal Housing Administration (FHA) insures mortgages made by lenders to home buyers with low downpayments and to developers of multifamily rental buildings containing relatively affordable units. Most of the funding for HUD's programs and activities comes from discretionary appropriations provided each year in annual appropriations acts.

This report explores the trends in HUD's funding since FY2002. It begins with an explanation of the key budget concepts necessary to understand those trends. It concludes with a discussion of factors that may influence HUD's budget going forward.

Components of HUD Funding: Key Concepts

HUD's annual funding is made up of several components. The components of HUD's annual funding, or budget authority, include regular annual appropriations , emergency appropriations , rescissions , and offsets .

HUD's programs and activities are funded almost entirely through discretionary regular annual appropriations . The amount provided through annual appropriations acts generally determines how much funding can be obligated and eventually spent for each of HUD's programs and activities.

In some years, emergency appropriations are also enacted, usually in response to disasters, for one or more of HUD's programs. These funds are generally provided outside of the regular appropriations acts—often in emergency supplemental spending bills—and are provided in addition to regular annual appropriations.

Appropriations measures are generally subject to limits, or caps, on the amount of new non-emergency discretionary funding that can be provided in a fiscal year. One way to stay within these limits is to provide less in regular annual appropriations. Another way is to find offsets. A portion of the cost of HUD's regular annual appropriations acts is, in most years, offset in two ways. The first is through rescissions , or cancellations of unobligated or recaptured balances from previous years' funding. The second is through offsetting receipts and collections , which are mostly derived from fees paid by HUD partners or clients and are credited to HUD's budget.

The interaction between new appropriations and offsets provided through rescissions, receipts, and collections determines HUD's total net budget authority . Net budget authority is also the "cost" of the HUD budget, as estimated by the Congressional Budget Office (CBO) in its scorekeeping process. The total amount of net budget authority provided to HUD each year is important for federal budgeting purposes, as net budget authority is the amount that counts against discretionary spending limits.

However, net budget authority is not necessarily the best measure of the amount of funding that is being provided for HUD's programs and activities. As noted earlier, the amount provided in appropriations generally reflects the amount of new funding available for HUD's programs and activities in a year.

Because of the role of offsets, declining or increasing net budget authority does not necessarily mean declining or increasing regular appropriations available for HUD's programs and activities. For example, if $2 billion in offsetting receipts or rescissions is available in a given year, Congress can provide $30 billion in regular appropriations for HUD's programs and activities, but it will only "cost" $28 billion for budget enforcement purposes.

Recent Trends

Total Funding

Since FY2002, in terms of nominal (non-inflation adjusted) dollars, HUD's regular (non-emergency) annual net budget authority has increased by 21%. However, after adjusting for inflation, HUD's regular annual net budget authority in FY2015 was less than it was in FY2002 (a 6% decrease).

As shown in Figure 1 , the trend in HUD regular net budget authority has not been steady. HUD's budget received large year-over-year increases from FY2002 through FY2010 (in nominal dollars), with the largest taking place in FY2009 and FY2010. Between FY2002 and FY2010, HUD's nominal net budget authority increased by 57%; 32% in real terms. However, by FY2013, the year of discretionary spending sequestration, declines in regular net budget authority for HUD erased most of the growth that had been seen since FY2002 in terms of nominal dollars, and all of the growth in terms of real (or inflation-adjusted) dollars. In the two years since then, HUD's net budget authority has again increased in nominal dollars, but only to about the FY2007 level; in inflation-adjusted dollars, it has declined. Accounting for inflation, HUD's net budget authority was lower in FY2015 than it was in FY2002.

These increases and decreases in regular net budget authority tell an accurate story of HUD's funding from a federal budgeting standpoint. However, the story they tell in terms of resources available for HUD's programs and activities is more complicated. Some of the ups and downs are attributable as much or more to changes in the amount of savings available from offsets and rescissions as they are to changes in the amount of funding available for HUD's programs and activities.

The next figure helps illustrate that interplay. As shown by the line in Figure 2 , which repeats the nominal data shown by the light-colored bars in Figure 1 , regular net budget authority for HUD increased about 21% between FY2002 and FY2015, from more than $29 billion to more than $35 billion, in nominal dollars. Yet, this overall increase masks several important interactions, which are illustrated by the bars in Figure 2 .

Between FY2002 and FY2010, HUD's regular (non-emergency) net budget authority increased by 57% (shown by the dotted line in Figure 2 ). However, the amount of regular appropriations (which is the amount available for HUD's programs and activities) grew at a slower rate. During that period, regular annual appropriations—excluding emergency appropriations—grew by 37% (shown by dark blue bars in Figure 2 ). This means that from FY2002 to FY2010, funding for HUD's programs and activities (i.e., appropriations) did not grow as rapidly as it would appear from looking at the growth in HUD's regular net budget authority.

The difference between the growth in HUD's regular net budget authority and regular appropriations during this period is attributable to declines in offsets. Specifically, from FY2002 to FY2010 the amount available from offsetting receipts and collections and rescissions declined by more than 70% and 96%, respectively (shown by the green and gray bars in Figure 2 ). As explained earlier, these offsets are used to reduce the "cost" of appropriations for federal budget enforcement purposes.

That trend was completely reversed beginning in FY2011 and continuing through FY2013, when Congress cut the amount of regular appropriations relative to FY2010 and, at the same time, the amount of offsets increased. Regular appropriations were cut by about 4% in FY2011 relative to FY2010, by 4% in FY2012 relative to FY2011, and by 3% in FY2013 relative to FY2012. However, the reductions to HUD's regular net budget authority were much larger during this period. HUD's regular net budget authority was reduced by 11% in FY2011 compared to FY2010, by another 9% in FY2012 compared to FY2011, and by 16% in FY2013 relative to FY2012. The difference in the size of the cut in net budget authority compared to the size of the cut in regular appropriations is the result of a nearly 12-fold increase in available offsets during this period (largely attributable to FHA, discussed in the next section).

As a result of the increase in offsets, the "cost" (for federal budgeting purposes) of providing appropriations for HUD's programs and activities declined from FY2010 to FY2013. In other words, the increases in offsets over this period meant that federal appropriators could realize larger budget savings even with smaller cuts in appropriations for HUD's programs and activities than they could have in the absence of such offsets.

Since FY2013, net budget authority for HUD has begun to rise. In FY2014, the rise (+5%, relative to FY2013) was attributable to an increase in appropriations for HUD's programs activities (+$3 billion) that was even greater than the increase in savings from offsets and rescissions (+$1.4 billion). In FY2015, net budget authority again grew (+8.6%, relative to FY2014), but this time, the amount of appropriations for HUD's programs and activities declined (-$89 million) as did the amount of savings from offsets and rescissions (-$2.9 billion). If FHA receipts continue to decline, as predicted (discussed in the next section of this report), it will be more expensive, from a budget enforcement standpoint, to provide funding for current services than it has been in recent years.

FHA Offsetting Receipts

As discussed earlier and shown in Figure 2 , the amount of receipts available to offset the cost of the HUD budget declined by about 70% between FY2002 and FY2010. That decline was largely attributable to reductions in offsetting receipts available from the FHA mortgage insurance programs. FHA generates offsetting receipts when the loans that are insured by the program in a given year are estimated to collect more in fees paid by borrowers than will be needed to pay default claims to lenders. As shown in Figure 3 , during that period the amount available from FHA to offset the cost of new HUD appropriations declined from a high of more than $3 billion in FY2004 to $140 million in FY2010. That trend completely reversed in FY2011, when the amount of offsetting receipts from FHA increased to more than $3.4 billion, the highest level in a decade. This trend continued into FY2012, with FHA receipts reaching over $5 billion and into FY2013 and FY2014, with offsetting receipts reaching historical highs of over $10 billion and $11 billion. These increases were attributable to FHA's increased market share following the 2007-2009 economic recession and downturn in the housing market, as well as to policy changes made by FHA that increased the fees charged to new FHA-insured borrowers.

FY2015 saw the first decline in FHA receipts since FY2010. While still at near-record levels (almost $9 billion), FY2015 may be the beginning of a future decline in receipts, as the housing and credit markets continue to recover from the recent economic recession and FHA's market share is anticipated to decline.

Growth in Section 8 Costs

The growth in regular appropriations since FY2002 (shown by the dark blue bars in Figure 2 ) is largely attributable to growth in HUD's Section 8 tenant-based and project-based rental assistance accounts, which combined are the largest component of the HUD budget. The tenant-based rental assistance account funds the Section 8 Housing Choice Voucher program, and the project-based rental assistance account funds the Section 8 project-based rental assistance program. The vast majority of the funding provided to these accounts is used to maintain rental housing assistance for the roughly 3.5 million low-income families they serve.

As can be seen in Figure 4 , from FY2002 to FY2015 appropriations for the combined Section 8 programs grew by 86%, while combined funding for all other HUD programs and activities declined by about 13%. During this period, the Section 8 programs went from accounting for about 46% of HUD's regular appropriations to accounting for about 64% of HUD's regular appropriations.

As noted earlier, there are two Section 8 programs: tenant-based rental assistance (vouchers) and project-based rental assistance. These two programs were funded in the same account for many years, but since FY2005 they have been funded separately. As stated above and shown in Figure 4 , appropriations for the Section 8 programs combined have grown by about 86% from FY2002 to FY2015. However, it is important to note that the rates of growth have not been the same across the two Section 8 programs. As shown in Figure 5 , appropriations for the Section 8 project-based rental assistance (PBRA) account grew by 84% from FY2005 to FY2015; appropriations for the Section 8 tenant-based rental assistance (TBRA) account also grew, but by less than half the rate of the PBRA account, about 31%. The growth in appropriations for PBRA is largely attributable to the renewal of old rental assistance contracts. PBRA contracts were originally created and funded in the 1970s and 1980s with long-term appropriations. When the contracts expire, 20-40 years later, they require new annual appropriations in order to be renewed so that they continue to be available to subsidize the housing of low-income families. The vast majority of PBRA contracts are now renewed and funded with annual appropriations, but some contracts continue to expire and require new first-time renewal funding.

Decline in Funding for Block Grant Programs

As illustrated in Figure 4 , while funding for Section 8 has grown by about 86% since FY2002, funding for all other HUD programs combined has declined by about 13%. HUD's two largest block grant programs—the HOME Investment Partnerships program and the Community Development Block Grant (CDBG) program —have seen some of the largest declines in funding over this period.

Of the two programs, formula grants under the HOME program have had the steepest decline in funding (-48% since FY2002, compared to -39% for CDBG). However, in terms of dollars, funding for CDBG formula grants has declined by the largest amount (about -$1.3 billion, compared to -$850 million for HOME).

Combined, the formula grants under the HOME and the CDBG programs have seen a 36% decline in funding from FY2002 to FY2015 (see Figure 6 ). While they accounted for nearly a fifth of HUD's total regular appropriations in FY2002, as shown in Figure 6 , their combined share of HUD's total regular appropriations declined to 8.6% in FY2015.

Supplemental Funding for CDBG

While funding for regular CDBG formula grants has declined over this period, it is important to note that Congress has also provided the Community Development Fund account (which funds CDBG) with supplemental funding over this period on several occasions for special purposes, including to provide aid to communities in response to disasters, to respond to foreclosures, and to promote economic stimulus. Most of the nearly $60 billion in emergency funding provided to HUD from FY2002 through FY2015 (shown in Figure 2 ) was provided through the Community Development Fund account for these special purposes.

Program Terminations

The decline in appropriations for all other HUD programs (excluding the two Section 8 programs) does not appear to be primarily attributable to program eliminations. Looking at the accounts funded in FY2002, only three have been zeroed out and were not funded in FY2015, as shown in Table 1 . Combined, they accounted for less than $100 million in FY2002.

While not included in the table below, it is important to note that some programs and activities that were funded as set-asides within HUD accounts have been eliminated or consolidated. When set-asides within accounts are no longer funded, it is not always clear whether their elimination reduced or otherwise changed the total amount of funding provided to the account.

Looking Ahead

The same factors that have driven the trends in funding for HUD and its programs and activities over the last decade are likely to continue to influence future trends. Further, new factors that may influence HUD's funding going forward have emerged, such as the budget enforcement provisions in the Budget Control Act.

The Budget Control Act and Budget Enforcement

Among the factors that may influence HUD's future funding levels, the Budget Control Act of 2011 (BCA, P.L. 112-25 ), as amended, may be one of the most important. In addition to other provisions, the BCA established enforceable discretionary spending limits. It also resulted in a sequestration in FY2013. The sequestration process required automatic, largely across-the-board, spending cuts at the account and program level to achieve specified deficit reduction targets. It took place on March 1, 2013, and resulted in a reduction of approximately $3 billion in funding for HUD in FY2013.

Looking ahead, the lower discretionary spending limits contained in the BCA, as amended, are meant to reduce the growth of discretionary spending over time. As a result, in order to meet these lower discretionary spending limits, congressional appropriators will be required to provide less in appropriations, more in offsets, or both, across the federal budget and, presumably, also in HUD's budget.

Growth in Section 8 Costs

Future cost growth in the Section 8 project-based rental assistance account should begin to slow now that most of the old rental assistance contracts are on an annual renewal cycle, although inflation costs built into renewal contracts may result in the need for increased funding in the future. Cost growth in the Section 8 Housing Choice Voucher program is not expected to slow. The cost of individual vouchers is largely driven by market factors. The subsidies the program provides make up the difference between the low, income-based rents paid by tenants and the cost of housing in the private market. If the gap between tenant incomes and private market rents grows, the cost of each individual subsidy also grows. The Government Accountability Office (GAO) released a report citing these market factors as being the primary driver of recent cost growth in the Section 8 voucher program. Additionally, the Section 8 voucher program has seen growth in the number of people it serves, as policy changes have transferred families from other housing assistance programs (such as public housing, Section 8 project-based rental assistance, and Section 811 Housing for Persons with Disabilities), into the voucher program. However, it is important to note that, even as more people are served by the program, far more families are eligible for assistance than are served, which means there are waiting lists for assistance in most communities.

Congress has heretofore demonstrated a commitment to providing sufficient funding so that all Section 8 project-based rental assistance contracts are renewed and every family that is receiving a voucher—roughly 3 million families, including individuals who are elderly or have disabilities and families with children—can continue to receive assistance. As the cost of the programs has risen in recent years, due to the expiration of old PBRA contracts and growth in the cost and number of vouchers, questions about the future of that commitment have arisen and interest has grown in reforms that could lead to cost savings. However, to the extent that commitment remains, and assuming market trends continue and significant cost-saving reforms are not enacted, it is unlikely that the cost of the PBRA and voucher programs will decline, and they may continue to increase.

Funding for Other HUD Programs

As noted earlier, as funding for Section 8 has increased, funding for all other HUD programs has decreased, particularly, but not limited to, funding for HUD's two largest block grant programs: HOME and CDBG. This dynamic may be attributable, in part, to the way the different programs are perceived by funders. Unlike the Section 8 voucher program, where a potential cut in funding can easily translate into a specified number of families losing their assistance, the implications of cutting funding for many of the other HUD programs—particularly broad-purpose block grant programs—may be less clear to congressional appropriators. This perception, to the extent it continues, may make the remaining HUD programs more vulnerable to future funding reductions in a limited funding environment.

If the pressure to reduce funding continues, federal policymakers may re-evaluate HUD's programs and activities and consider cost-saving program reforms. Such reforms may include program eliminations; as noted in Table 1 , some such eliminations have already occurred. Reforms may also include program consolidations. Program consolidations may include proposals to merge programs considered duplicative or proposals to expand the role or purposes of block grant programs to absorb existing or new programs or activities.

Future of FHA

As noted earlier, increases in the amount of offsets available from FHA receipts may have served to shield appropriations for HUD programs from deeper cuts. However, the future of FHA is uncertain. Part of the reason FHA has generated such large surplus receipts in recent years is because its business has grown as credit availability has tightened. If housing credit markets fully recover, FHA loans may become less desirable, which means less business and less offsetting receipts. Similarly, due in part to tightened credit availability, FHA is insuring loans made to borrowers with higher credit profiles, setting stronger underwriting standards and requiring some borrowers to provide higher downpayments. This means the loans that are being insured today are considered less risky than those FHA has backed in the past. To the extent that FHA returns to serving a higher share of borrowers with lower credit scores in the future, as markets recover and those with higher credit profiles can more easily qualify for other types of loans, estimates of future loan performance might not be as strong and FHA offsetting receipts could consequently decrease.

Also, both Congress and the Obama Administration have expressed interest in revisiting the role of the federal government in U.S. mortgage markets. Future reforms could serve to shrink the role of FHA, thus shrinking its offsetting receipts. Finally, some budget experts and policymakers have proposed requiring the Congressional Budget Office (CBO) to change the way that it accounts for FHA in the budget. While the details of the accounting change are complicated, it is generally understood that this change would mean that FHA would generate fewer offsetting receipts, and it may end up needing regular appropriations. Any of these changes to FHA and any resulting reduction in offsetting receipts could increase pressure to further reduce appropriations for HUD's programs and activities.

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