HOPE VI Public Housing Revitalization Program: Background, Funding, and Issues
Released: 2012-01-06T00:00:00

Introduction

HOPE VI is a public housing reform program. Through HOPE VI, the Department of Housing and Urban Development (HUD) provides funds to rehabilitate or demolish public housing and replace it with housing that serves both the poor as well as the middle class. In order to understand HOPE VI and its issues, it is important to first understand a brief history of the larger public housing program.

History of Public Housing

The Low-Rent Public Housing program was created as a part of the U.S. Housing Act of 1937 (P.L. 75-412). The Depression-era program was intended to stimulate construction activity, clear slums, and provide low-rent housing to poor families. As designed under the act, public housing is built and operated by local, quasi-governmental, public housing authorities (PHAs). Tenants who live in public housing typically pay 30% of their adjusted gross incomes toward rent, although they can opt for a market-based flat rent and PHAs can choose to institute minimum rents of up to $50 per month. PHAs are able to keep public housing rents low because local governments provide property tax reductions and the federal government provides both capital and operating subsidies to supplement the low rents paid by tenants.

From its inception, public housing has faced a number of barriers to success. Many communities were resistant to accepting public housing. This opposition, paired with strict federal rules about how much could be spent to build a unit of public housing, led to the construction of public housing developments in undesirable areas, such as near railroad tracks, highways, and industrial zones. The housing that was constructed was often high-density, high-rise structures. This form of development has often been characterized as "the projects." In addition to location and construction problems, many projects faced management problems. Although many public housing projects were run by effective and efficient PHAs, others had inexperienced PHAs, or in some cases, negligent PHAs, who were unable or unwilling to deal with problems as they arose.

Furthermore, PHA budgets were often insufficient to maintain the properties. It was thought at the time the program was created that most tenants would be working adults whose incomes would increase until their economic situation improved enough that they could move out of public housing. This was the case in the early years of the program. However, policies that adopted rent levels based on incomes rather than operating costs and gave priority to the elderly and disabled, paired with changing demographics and a growth in single-mother-headed households, resulted in a population of public housing residents that was very different than originally envisioned. Today, about half of public housing residents are elderly or disabled and about half are non-elderly, non-disabled single-adult-headed households, the majority with children. Of those non-elderly, non-disabled households, only about half have income from work, while the other half either receive some form of cash assistance, such as welfare, or report no income. Today's public housing serves the very poor, who are only required to pay a percentage of their income toward rent. Since the rent that PHAs receive from tenants is so low, public housing is dependent on congressional appropriations, and the budget has not always kept up with need. Many units of public housing fell into disrepair, and some units had to be left vacant because they were no longer habitable. Public housing, over time, became known for terrible living conditions. Research has shown that communities with high concentrations of poverty often fall victim to myriad social ills. The often dense, high-rise structures of public housing became riddled with crime, drugs, and violence.

Public housing was the primary government housing program for the poor until the late 1970s. However, out of growing concern about the problems with public housing, and other government-subsidized housing construction programs, President Nixon declared a moratorium on federal housing construction programs in 1973. In 1974, Congress authorized the Section 8 program, which provided subsidies to allow low-income families to live in private market housing. It was hoped that through partnerships with the private sector, the Section 8 program could avoid the problems faced by public housing. The Section 8 program also introduced tenant-based assistance, which subsidized tenants rather than units, giving tenants the option to move. Tenant-based assistance has grown in popularity, partially out of the hope that it can prevent concentrations of poverty in neighborhoods. Over time, Section 8 overtook public housing as the government's largest housing program for the poor; today, almost twice as many households are served by Section 8 than are housed in public housing.

Basis for HOPE VI

Although new construction of public housing had ended by the early 1970s, over 1 million units of public housing were still occupied, and many were still plagued by problems. In order to determine how to deal with the existing stock of public housing, Congress created the National Commission on Severely Distressed Public Housing ( P.L. 101-235 ) in 1989. The commission was mandated to identify those public housing projects that were in a severe state of distress; assess the most promising strategies for improvement; and develop a national action plan.

In 1992, the commission issued its findings and recommendations on the state of the nation's public housing. The commission labeled 6% of the public housing stock as severely distressed, at the time, equal to 86,000 units. It also reported finding the following:

residents afraid to move about in their own homes and communities because of the high incidence of crime; high unemployment and limited opportunities for the meaningful employment of residents; programs designed to address the conditions with too few resources, provided too late; programs designed to assist residents of public housing that provide disincentives to self-sufficiency; and families living in physical conditions that have deteriorated to a degree that renders the housing dangerous to the health and safety of residents.

The national action plan presented by the commission included proposals for change in five major categories:

Addressing the needs of residents : recommendations included increasing funding for social services, increasing coordination among federal agencies that provide social services, and promoting economic development opportunities for residents. Addressing the physical conditions : recommendations included increasing funding for capital improvements, providing national leadership to PHAs in planning and design, establishing a model process to eliminate the causes of severe distress, and increasing coordination among government programs that support the rehabilitation of severely distressed housing. Addressing management needs : recommendations included providing funding for security, further tying PHA funding to performance, and promoting income-mixing in public housing. Other strategies : recommendations included encouraging PHAs to pursue private and non-profit management opportunities, increasing and improving available data on public housing, creating a new office on severely distressed public housing at HUD, and encouraging Congress to authorize a new partnership program between PHAs, non-profits, the private sector, and residents to attract additional resources to public housing.

History of HOPE VI

HOPE VI began as a demonstration program, created in reaction to the findings of the National Commission on Severely Distressed Public Housing. The commission's National Action Plan was presented in August 1992; in October 1992 the final version of the FY1993 HUD appropriations bill ( P.L. 102-389 ) passed Congress, including $300 million for an Urban Revitalization Demonstration program. Under the demonstration, the Secretary of HUD was to choose 15 cities, based on need, to receive up to $50 million each to revitalize distressed public housing. Each city was required to spend 80% of its funds toward the capital costs of major reconstruction, rehabilitation and other physical improvements, the capital costs of replacement units and/or Section 8 certificates, management improvements for the reconstructed project, and for planning and technical assistance purposes. The remaining 20% was to be used for community and supportive services. PHAs were required to match 15% of all funds provided.

From 1993 until 1998, the Urban Revitalization Demonstration, now commonly referred to as HOPE VI, continued to receive funding through annual appropriations bills; however, the program remained unauthorized. The law governing the program was contained within annual appropriations bills and the requirements for eligibility and funding changed from year to year. HUD administered the law not through regulation, but in the directions it issued along with each annual Notice of Funding Availability (NOFA), to which communities would apply for HOPE VI funding. Changes to the program, in addition to those mandated by annual appropriations laws, were included in these NOFAs.

The FY1999 HUD appropriations bill ( P.L. 105-276 ) included a major public housing reform initiative, the Quality Housing and Work Opportunity Reconciliation Act (QHWRA), that authorized the HOPE VI program. QHWRA codified four purposes for the program:

improving the living environment for public housing residents of severely distressed public housing projects through the demolition, rehabilitation, reconfiguration, or replacement of obsolete public housing projects (or portions thereof); revitalizing sites (including remaining public housing dwelling units) on which such public housing projects are located and contributing to the improvement of the surrounding neighborhood; providing housing that will avoid or decrease the concentration of very low-income families; and building sustainable communities.

In the law, severely distressed public housing was defined as public housing that

requires major redesign, reconstruction or redevelopment, or partial or total demolition; is a significant contributing factor to the physical decline of and disinvestment by public and private entities in the surrounding neighborhood; is occupied predominantly by families that are very low-income families with children, unemployed, and dependent on various forms of public assistance; or has high rates of vandalism and criminal activity (including drug-related criminal activity) in comparison to other housing in the area; cannot be revitalized through assistance under other programs because of cost constraints and inadequacy of available amounts; and is lacking in sufficient appropriate transportation, supportive services, economic opportunity, schools, civic and religious institutions, and public services, resulting in severe social distress in the project.

QHWRA authorized funding for HOPE VI through the end of FY2002 and included a sunset clause which stated that no assistance could be provided to the program after September 30, 2002. The FY2003 HUD appropriations bill ( P.L. 108-7 ) extended authorization for the HOPE VI program through the end of FY2004 and P.L. 108-186 reauthorized the program, with some changes, through FY2006. Each year since, Congress has extended the program's authorization in the annual appropriations acts. The program lacks formal regulation; guidance is set out for each cohort of grantees in the annual Notice of Funding Availability to which they apply for funds.

The Program

The purpose of the HOPE VI program is to revitalize severely distressed public housing developments and transform them into safe, liveable environments. As described by HUD, this includes

changing the physical characteristics of public housing from high-rise tenements to attractive, marketable units that blend in with the surrounding neighborhoods; lessening concentrations of poverty by reducing density and promoting mixed-income communities; encouraging partnerships with other agencies and local governments for support and resources; achieving high-quality management in public housing and enforcing strict eviction rules; and helping residents to attain self-sufficiency by providing services and educational opportunities, and by encouraging economic development in the area surrounding public housing.

HUD seeks to meet the goals of the HOPE VI program by providing grants to PHAs for revitalization, or if this is not economically feasible, for demolition of distressed public housing. The majority of funds are awarded through revitalization grants; funds have also been awarded through demolition grants (until FY2004) and planning grants (until FY1995). A 2003 HOPE VI reauthorization law ( P.L. 108-186 ) created a fourth type of HOPE VI grant, designed to promote "main street" revitalization in small communities, which is unrelated to public housing.

HOPE VI Funding and Grants

Funding for the HOPE VI program increased in the beginning, but remained relatively steady over many years. However, in the face of mounting budget pressures and a desire from the Bush Administration to eliminate funding for the program (discussed later in this report), Congress enacted a major decrease in funding in FY2004 that has been continued each year since. Table 1 presents HOPE VI appropriations from FY1993 to FY2012.

This funding has been used to provide 587 grants. Table 2 shows the amount and number of grants awarded, by type, from FY1993 to FY2009.

Planning Grants

Thirty-five planning grants were awarded to PHAs between 1993 and 1995. They were used to pay for studies of the area to be revitalized; to develop a plan for revitalization; for economic development; and for technical support. Planning grants were suspended after 1995, because HUD believed that there were enough examples of PHAs that had begun the revitalizing process that the technical assistance was no longer necessary.

Demolition-Only Grants

In 1996, HUD established a goal of demolishing 100,000 units by the year 2003. Since then, the department has awarded 284 demolition-only grants. PHAs are awarded these grants when it is not economically feasible to redesign or reconstruct the existing units of a project. They are used to demolish existing units and to relocate the affected tenants in replacement housing, which could include providing them with tenant-based vouchers. Often, demolition-only grants are used as precursors to future HOPE VI revitalization grant initiatives. Since FY2004, when funding for HOPE VI was significantly reduced, HUD has not made any demolition-only grants available.

Main Street Revitalization Grants

The American Dream Downpayment Act ( P.L. 108-186 ) added a new category of HOPE VI grants. Main Street Revitalization grants are awarded to units of local government (rather than PHAs) in small communities (with a population under 50,000) that are not currently served by a PHA, or are served by a small PHA (administer 100 or less units) and that have an active main street rejuvenation effort. Historically, the majority of HOPE VI grants have gone to large cities, arguably where the most blighted public housing is found. Funds can be used to develop affordable housing that is located in a community area that is undergoing a historic main street revitalization; there is no requirement that the use of funds be at all related to public housing. Main Street grants are statutorily capped at $1 million each (although HUD capped grants at $500,000 each in FY2005), and grantees must match at least 5% of the grant award. The grants are funded through a 5% set-aside in the HOPE VI annual appropriation. The first round of grants was made available in FY2004, but awarded in FY2005.

Revitalization Grants

The bulk of funding provided for the HOPE VI program has been awarded through revitalization grants, which is the most well-known component of the program. HUD has awarded 246 revitalization grants since the inception of the HOPE VI program. They can be used for the development of new public housing, rehabilitation of existing public housing, demolition and/or disposition of existing public housing, the creation of homeownership replacement units, the acquisition of new property, the relocation of displaced residents, community and supportive services for residents, and administrative fees and costs. Up to 20% of grant funds may be used for community and supportive services programs. Grantees must match grant funds, and they are generally used to leverage other resources.

Over the history of the HOPE VI program, over $6 billion worth of revitalization grants have been awarded to PHAs in 36 states and territories. In addition, $10 million in Main Street Revitalization grants have been awarded, including to five states which had never received HOPE VI Revitalization grants. Table 3 shows the breakdown of revitalization grants and awards by state.

The Application and Awards Process

Each year, HUD publishes a NOFA in the Federal Register inviting PHAs to apply for HOPE VI grants. The NOFA includes application procedures and requirements, which change somewhat every year. PHAs submit applications requesting a specified amount of money to be used to implement a plan that they have detailed to HUD.

Demolition-Only Grants

Demolition-only grants were awarded on a first-come, first-served basis. Once the NOFA was published, eligible PHAs could apply. In order to be eligible, a PHA had to fall into one of four priority groups that involve the mandatory or voluntary demolition of public housing or prior approval for a revitalization grant. HUD screened applications as they arrived to ensure that they were in a priority group and that they met minimum requirements. For example, in 2003, minimum requirements included a cap of 2,500 units to be demolished per applicant, a plan to relocate residents, and proof that the units are in severe distress. HUD funded eligible applicants on a first-come, first-served basis, by priority group, until the HOPE VI funds were exhausted. No demolition-only grants have been awarded since FY2003.

Main Street Grants

The application process for Main Street grants largely mirrors that for revitalization grants. A NOFA for Main Street grants is published in the Federal Register, laying out the application requirements and deadlines. Once HUD receives applications, it screens them to determine whether they meet threshold requirements. In the FY2009/FY2010 NOFA, the thresholds included requirements that the applicant had matching funding in place and leveraged funding available; that, if the applicant had received a prior award, adequate progress had been made; and that the applicant have a Main Street, among other requirements. Once applications have been screened, they are scored. Scoring categories in the FY2009/FY2010 NOFA included the capacity of the community, including prior experience, the need for affordable housing, the readiness of the plan for implementation, and the appropriateness of the plan. While Main Street grants are capped in law at $1 million, in some years HUD has limited the maximum to $500,000, presumably to serve more communities.

Revitalization Grants

PHAs that wish to receive a revitalization grant must apply by the deadline published in the NOFA. Once the deadline has passed, HUD screens the applications to ensure that they meet threshold requirements. If they do not, then they are disqualified. For example, in order to meet the threshold requirements in 2009, applicants had to prove, among other factors, that they had secured site control for the proposed site, had issued a Request for Qualifications (RFQ) to secure a developer, that they had prepared a plan in advance for relocating residents impacted by the revitalization, and that affected residents had been involved at the beginning and during the planning process. The NOFA also explains deadlines for spending funds and penalties for slow expenditure.

Once HUD screens the applications, the agency scores them on a variety of factors. For example, in the 2009 NOFA, applications received scores in categories including capacity to undertake development, need, the amount of outside resources brought in (leveraging), resident and community involvement, community and supportive services, commitment to early education, and the relocation plan. HUD then ranks the scored applications and funds them, in order, until the HOPE VI funds are exhausted. In the early years of the HOPE VI program, there was no cap on the amount a HOPE VI grantee could be awarded. However, since 1996, when HUD began allowing PHAs to use HOPE VI dollars to leverage outside resources, the average grant amount per project has dropped significantly. In recent years, HUD has generally capped revitalization grants at $20 million each, although in FY2009 several grants exceeded $20 million.

Once grantees are selected, they are notified and are required to sign a grant agreement with HUD. The grant agreement includes time-lines for progress. For example, under the terms of the 2009 NOFA, HOPE VI revitalization grantees are expected to complete their developments within 48-54 months. However, as the NOFAs change every year, different cohorts of grantees have had different time-lines for spending their funds. PHAs must agree to meet all requirements of the program, including match requirements. For example, PHAs must match 5% of their HOPE VI grant award with other resources and must match, dollar-for-dollar, any amount over 5% of the grant amount that is used for community and supportive services for residents. If a PHA is not successfully meeting its deadlines or requirements, HUD has the authority to penalize the PHA either by appointing some form of receiver or by rescinding grant funds. To date, HUD has not rescinded HOPE VI funds from delinquent grantees, although performance on a HOPE VI grant has contributed to HUD's finding of substantial default and appointment of a receiver for several PHAs.

Leveraging

One of the key components of the HOPE VI program is the leveraging of outside resources. Beginning in 1996, revitalization grantees were encouraged to seek outside sources of funding to undertake their redevelopment, in addition to meeting their match requirement. Since that time, grantees have partnered with private non-profit and for-profit organizations and local and state governmental entities who have contributed both expertise and resources to HOPE VI projects. In aggregate, PHAs have budgeted $2.16 in leveraged (meaning non-HOPE VI) funds for each HOPE VI revitalization grant dollar awarded. Figure 1 demonstrates the generally increasing trend in the amount of funds leveraged by HOPE VI grantees.

Despite general satisfaction with the amount of non-HOPE VI funds grantees are bringing into projects, concern has been raised that HOPE VI redevelopments may be raising only limited private investment and may be more expensive than they appear. According to HUD's FY2006 HOPE VI Report to Congress, about 60% of funds spent on revitalization projects had come from leveraged funds, and 73% of those leveraged funds were from non -federal sources. However, that estimate includes private equity raised from the sale of Low-Income Housing Tax Credits (LIHTC) as a non-federal source, although some might consider it a form of federal funding. A study conducted by General Accounting Office (now the Government Accountability Office) in 2002 found that, after excluding LIHTC funds, only 12% of leveraged funds had come from private sources; LIHTC funding had accounted for 27% of all leveraged funds in the projects studied.

Successes and Concerns

HOPE VI has been credited with a number of successes. In terms of addressing severely distressed public housing, the program has largely met its original goal: to eliminate the worst severely distressed public housing. Grantees have been provided sufficient funding to demolish over 100,000 units of public housing. The homes that are built in place of the demolished units are typically lower-density, safer, and more attractive. The new designs also generally connect the public housing developments with their surrounding communities, both functionally and aesthetically. Despite the HOPE VI program's successes, there are several issues in the program that have led some to call for reforms to the program. They include the slow expenditure of HOPE VI funds, the impact of HOPE VI on the original public housing residents, the cost-effectiveness of the program, and the loss of assisted housing stock.

Neighborhood Improvements

Success in the HOPE VI program can be measured, in part, by the amount of revitalization it has sparked in surrounding communities. Although this kind of change is hard to measure, studies have shown that HOPE VI has had some success. A study of eight HOPE VI sites undertaken by the Housing Research Foundation found that in communities surrounding recent HOPE VI revitalization projects

per capita incomes increased more than for the cities as a whole; neighborhood unemployment rates had fallen; receipt of public assistance had declined; fewer households qualified as low-income; commercial and residential lending rates increased at a faster rate than overall city increases; and overall and violent crime had declined at a more rapid rate than in the overall city.

The author concluded that "although there are many non-HOPE VI factors contributing to change in these communities, the nature of HOPE VI development has helped determine the extent and pace of that change."

A 2003 GAO report looking at the neighborhoods surrounding several HOPE VI sites also attempted to assess the impact of HOPE VI on neighborhoods. Using decennial Census and Home Mortgage Disclosure Act data, GAO found that the neighborhoods surrounding the HOPE VI developments generally experienced positive changes in education, income, and housing indicators. However, further analysis found mixed results in some neighborhoods compared to comparable neighborhoods that had not undergone a HOPE VI redevelopment. In summary, GAO's report stated:

We cannot attribute these changes solely to the HOPE VI program. To the extent that they do reflect the program's influence, however, they suggest that demolition of old, deteriorated public housing alone may influence surrounding neighborhoods. For example, average housing value and average household income increased even though no new units had been constructed. It is possible that the HOPE VI program influenced these indicators by removing blight from the neighborhoods and temporarily relocating large numbers of low-income households during demolition.

Regardless of whether HOPE VI redevelopments actually spur new neighborhood improvement—or if such improvements would have happened without a HOPE VI grant—the award of a HOPE VI grant has often brought positive press to areas of towns that were plagued by negative perceptions. Many news stories have been written about community transformations linked to HOPE VI. Arguably, HOPE VI might help to change the public's generally negative perceptions of public housing.

Mixed Finance

HOPE VI has encouraged PHAs to build relationships with outside partners, including non-profits and the business community. These partnerships bring new resources into communities undergoing revitalization. Examples include the creation of community centers, charter schools, and new commercial activity in redeveloped HOPE VI sites and the provision of capital to help public housing residents start small businesses and social services to help public housing residents further their educations or overcome personal barriers.

PHAs have also gained new knowledge about private capital markets partly as a result of HOPE VI. This new knowledge has allowed a number of PHAs, outside of the HOPE VI program, to participate in mixed-finance deals and secure private loans. As of the end of FY2009, HUD has approved 116 transactions in which 200 PHAs secured a total of approximately $3.65 billion in loan and bond financing to address the capital needs of public housing. These extra funds supplement federal funds and rents used to modernize public housing. It is hoped that, with the use of outside funding, PHAs can begin to address the large backlog of modernization needs in existing public housing and prevent further disrepair.

Residents

The majority of HOPE VI revitalization plans require at least the temporary displacement of residents. Grantees can relocate residents, either temporarily or permanently, to other public housing sites or by providing them with vouchers to be used in the private market. According to HUD program summary data, as of March 2006, 63,885 households had been relocated by HOPE VI revitalization grantees. Of those households, 49% had been moved to other public housing, 32% had been given Section 8 vouchers, 6% had been evicted, and 13% had made other arrangements or left the program. Of the 63,885 that were relocated, 22% are now living in revitalized units.

Although the intention of many grantees is to return as many displaced residents as possible to redeveloped sites, often fewer residents return than planned. GAO found that, in 1999, grantees estimated that 61% of original residents would return to redeveloped sites; by 2003, their estimate of resident returns had dropped to 44%. Some families choose not to return, opting instead to stay where they were relocated and avoid the hassle of another move. In other cases, families are ineligible to move back because they do not meet additional screening requirements—sometimes related to criminal background or financial background (such as a history of unpaid rent)—adopted by the PHA for the project. According to March 2006 HUD data, grantees estimated that only 38% of original residents would return to redeveloped sites.

Given that many residents who are displaced from public housing projects undergoing HOPE VI renovation do not return or are not permitted to return when the revitalization is complete, low-income housing advocates have raised questions about what has happened to them. Since HUD has not always required PHAs to follow residents during the revitalization process, some PHAs have lost track of residents after their initial relocation. To learn more about what has happened to displaced residents, the Urban Institute conducted a study that looked at the living conditions of former residents of eight HOPE VI sites that had been relocated either with vouchers or to other public housing units, several years after their initial relocation. Their study found that, overall, relocated tenants lived in safer, healthier communities and better housing after relocation. Although both groups have seen some gains, families relocated with vouchers have generally fared better than families relocated to other public housing. Particularly, the study found that children in voucher households have done better than children relocated to other public housing, for whom behavior problems have increased. One way in which voucher holders have done worse includes financial hardship. Voucher holders are more likely than public housing residents to report difficulty in paying for utilities and food—indicating that they are having to make tradeoffs to pay their rent. The Urban Institute also found that the most vulnerable and "hard to house" families struggled the most following a HOPE VI relocation, especially if they were relocated with vouchers.

Low-income housing advocates argue that HUD should put a greater priority on the needs of public housing residents when selecting HOPE VI grantees. Advocates contend that more units of public housing should be built through HOPE VI and that displaced tenants should have a right to return. They also argue that PHAs should be responsible for providing sufficient support to displaced residents, especially residents that leave public housing and those that are most vulnerable, to ensure that their relocation is successful. The Urban Institute findings have also led to calls for the greater use of vouchers when relocating families.

Mentoring Demonstration Grants

In FY2005, HUD awarded more than $500,000 of prior years' funds for Mentoring Demonstration grants. They were awarded to prior revitalization grantees to partner with community and faith-based organizations who provide community and supportive services to families. HUD will use these grantees to see whether a "mentoring" model improves self-sufficiency outcomes for families affected by HOPE VI redevelopments. The grants were funded with previous years' appropriations funding, presumably recaptured from grantees who were unable to use them.

Expenditure

One of the major criticisms of the HOPE VI program in recent years has been the slow expenditure of HOPE VI funds. In FY2003, unspent balances reached a peak of over $3.3 billion (over half of the $6 billion appropriated for the program).

A number of reasons have been cited for PHAs' slow expenditure of HOPE VI funds. One is the changing nature of the program. In the beginning, grantees were chosen almost solely on the basis of need. Often, the PHAs with the most need had the weakest management capacity. As a result, the poorest-performing PHAs were awarded large grants. It is not surprising that they had difficulty in implementing their redevelopment plans. This was especially true in 1996, when Congress set aside grants for a set of PHAs outside of any competitive process. A 2003 GAO report found that the majority of revitalization grantees had missed at least one of the deadlines established in their grant agreements.

HUD has worked to address several of these problems. Over time, the process for selecting grantees has become more competitive, and HUD now uses a number of criteria to judge applicants' capacity for undertaking these complicated development projects. For example, recent revitalization NOFAs have included rating factors that reward applicant and developer capacity and deduct points from applicants with previous HOPE VI grants that are behind in development.

There is reason to believe that more recent HOPE VI grantees have performed better than earlier grantees. HUD's FY2006 2 nd Quarter HOPE VI Progress Report to Congress included information demonstrating the improved performance of more recent cohorts of grantees on a number of administrative performance measures. For example, the number of days it took more recent grantees (those from FY2002 through FY2004) from the execution of their grant agreement to the approval of their revitalization plan averaged 177 days, compared to an average of over 600 days for older grantees (those from FY1993 through FY2001). Pre-2002 grantees took an average of over 1,100 days to get approval of their mixed finance proposals, compared to an average of about 356 days for FY2002 and later grantees. These improvements may be due, in part, to more robust selection criteria used by HUD in choosing grantees, greater PHA experience and familiarity with HOPE VI-like mixed finance developments, and more focus by HUD on interim performance measures.

Another important change has come in the way that Congress provides funding to the HOPE VI program. Prior to FY2002, HOPE VI was provided with no-year funding, meaning that the funds provided by Congress remained available to the grantee until they were spent. Beginning in FY2002, Congress adopted a one-year obligation and a five-year expenditure deadline for HOPE VI funds. Any HOPE VI funds remaining unspent at the end of that period will expire and revert back to the Treasury. This change in funding should effectively solve the problem of future accumulations of unspent balances. The FY2002 cohort of grantees were the first to experience an expiration of funds; $13 million of FY2002 grant funds expired at the end of FY2008 before they could be used by grantees. FY2003 grantees had about $10 million expire in FY2009 and FY2004 grantees had less than $1 million expire in FY2010.

At the end of FY2010, unspent balances in the HOPE VI fund had been reduced from their peak of $3.3 billion in FY2003 to under $700 million. As illustrated in Figure 2 , just about one-third of that amount (33%) is funding that will not expire. The remaining 67% of those funds will expire if not spent within six years of their award.

Over time, the remaining balance of unspent, no-year funds (awarded pre-FY2002) has been declining. As shown in Figure 2 , of the $4.9 billion in no-year funding awarded to grantees prior to FY2002, just under $255 million remained at the end of FY2010. That balance has been reduced significantly in recent years; at the beginning of FY2002, the unspent balance of no-year funds was over $3 billion. Outlays among the pre-FY2002 grantees have been relatively constant in recent years, with pre-2002 grantees spending between 20%-30% of their remaining funding each year for the past five years. HUD has taken a number of steps to encourage these earlier grantees to spend their funds, including hiring grant expediters to provide technical assistance to grantees. Also, as noted earlier, HUD has also used poor performance on a HOPE VI grant as a factor in deciding to place a PHA in receivership.

Cost-Effectiveness

Over the history of federal housing programs, priorities have shifted from providing publicly constructed and owned housing for low-income families to providing subsidies, either to the private market to build low-cost, private housing, or to residents for use in the private market. One of the main reasons for this shift was the finding that it was more expensive to build and maintain publicly owned housing than it was to provide subsidies to the private market. As a result, the government has not funded the development of new public housing units for many years. Grantees can use HOPE VI funds, in conjunction with other public and private funds, to build replacement units of public housing. Given what is known about the past cost-effectiveness of the construction of public housing, questions can be raised as to whether this is an effective use of limited government dollars. HUD testified before Congress in 2003 that it is not an efficient method. According to the Assistant Secretary for Public and Indian Housing, the division that oversees the HOPE VI program:

Moreover, it is evident to us that HOPE VI is not an efficient method for meeting the current and future capital needs of the public housing program. The average cost of building a unit under HOPE VI is $120,000, more than 33% greater than the average cost of building a similar unit using the HOME block grant program. Given overall budget constraints, it just doesn't make sense for us to continue funding for this program at the expense of more cost effective programs to serve the same ends.

Taking a different look at the costs of HOPE VI, researchers at the Urban Institute attempted to undertake a cost-benefit analysis of HOPE VI redevelopment compared to maintaining the status quo in distressed public housing. Their study contrasted the up-front costs of undertaking a HOPE VI development (including HOPE VI and other government funding, but excluding equity generated by LIHTCs) to the savings to the government that could result from undertaking the redevelopment. They estimate savings from reduced housing subsidy needs (since new buildings require lower subsidies and are likely to be more energy efficient), improved family well-being (lower welfare, unemployment insurance, Medicaid, and criminal justice system costs), and improved neighborhoods (increased property tax revenue). The Urban Institute study estimates that a prototypical distressed public housing project, undergoing a HOPE VI mixed income redevelopment, could save the government more than $20 million over 20 years.

One-for-One Replacement

The loss of the nation's stock of publicly assisted housing, affordable to low-income families, has been a concern for a number of years. The congressionally mandated, bipartisan Millennial Housing Commission found "a critical shortage of affordable apartments for extremely low-income households." As noted earlier, most HOPE VI developments do not replace every unit of public housing demolished, and most include a number of market rate units that are too expensive for public housing residents to afford. As of March 2006, HOPE VI revitalization grantees planned to demolish 88,469 units of public housing, rehabilitate 10,993 units of existing public housing, and build 92,644 units of new housing—only about half of which would be public housing units, a net loss of 41,000 public housing units. As of March 2006, 88% of the units planned for demolition had been demolished, and 54% of the public housing units slated for construction had been built, an interim net loss of over 50,000 units.

Low-income housing advocates have expressed concern that HOPE VI is eroding the nation's stock of affordable housing, and many have argued that HUD should reinstate the one-for-one replacement requirement. They argue that, in many communities, there is simply a shortage of lower-cost housing and that the federal government has some responsibility to help increase, or at least maintain, the supply.

The requirement that each unit of public housing destroyed be replaced with a new unit of public housing, called "one-for-one replacement," was suspended in 1994 and fully repealed in 1996. Much of the impetus behind the suspension of the requirement was the argument put forward by PHAs that they were unable to deal with troubled public housing because the one-for-one replacement requirement, coupled with site standards, deconcentration requirements, limited funding, and other rules, made the demolition and revitalization process unworkable. At Congress's request, GAO investigated these issues and reported that PHAs were concerned that one-for-one replacement was resulting in developments becoming decrepit. In addition to development concerns, critics of one-for-one replacement argued that it promoted concentrations of poverty, did not appeal to investors, and that the low rents paid by public housing residents would not allow projects to remain financially viable.

PHA groups have contended that reinstating traditional one-for-one replacement will again hamper their ability to undertake housing rehabilitation. Further, there are questions about how one-for-one replacement could affect efforts to deconcentrate poverty. Some compromise strategies, such as requiring some minimum threshold of hard unit replacement, or greater replacement with project-based subsidies, have been considered.

Recent Developments

Funding

The Bush Administration requested no new funding for the HOPE VI program in each of his FY2004-FY2008 budget requests to Congress. Citing the slow expenditure of funds, concerns about cost-effectiveness, and that the program had effectively reached its goal of demolishing 100,000 units of distressed public housing, the former Administration stated it was time to rethink whether HOPE VI is still necessary or effective. The Bush Administration argued that even without new funding, the program would not end any time soon because so many projects are still in the pipeline, but that by not funding the program, HUD would have time to throughly evaluate the program and consider alternatives.

Each year, Congress rejected the Bush Administration's request to eliminate funding for the program, but it contined funding at a level significantly less than the amout provided prior to FY2004. (See Table 1 for historical appropriations levels.)

President Obama's first budget in FY2010 requested no new funding for HOPE VI, and instead, requested $250 million for a new Choice Neighborhoods Initiative (discussed later in this report). The final FY2010 funding law, P.L. 111-117 , included $200 million for HOPE VI, but of that amount, $65 million was set aside to fund a demonstration of the Choice Neighborhoods Initiative. President Obama's FY2011 budgets again requested funding for Choice Neighborhoods, but not for HOPE VI. Congress responded by providing $100 million ( P.L. 112-10 ), of which $65 million was set aside for Choice Neighborhoods.

In FY2012, for the first time since the program's inception, Congress provided no new funding for HOPE VI ( P.L. 112-55 ), as requested by the President in his FY2012 budget. Instead, Congress provided $120 million for Choice Neighborhoods.

HOPE VI Reauthorization

The HOPE VI program was originally authorized through the end of FY2002. The 108 th Congress initially extended the program through the end of FY2004 ( P.L. 108-7 ) but later extended the HOPE VI program through the end of FY2006, as a part of a larger bill designed to make changes to a number of housing programs, including HOPE VI. The American Dream Downpayment Act ( P.L. 108-186 ) amended the program to change the selection criteria, broaden the definition of severe distress, require GAO to conduct a study, and add a new category of grant (Main Street Revitalization grants). Several bills to reauthorize the HOPE VI program were introduced in the 109 th Congress, although none were enacted. Several reauthorization bills were also considered in the 110 th , and one version ( H.R. 3524 ) passed the House. No reauthorization legislation was introduced in the 111 th Congress. The program's authorization has been maintained through extensions included in the annual appropriations bills. It is unclear if reauthorization legislation will be considered in the 112 th Congress.

Choice Neighborhoods

The Choice Neighborhoods Initiative (CNI) was originally proposed by the Obama Administration as a replacement for the HOPE VI program. The initiative is designed to "transform neighborhoods of poverty into viable mixed income neighborhoods with access to economic opportunity by revitalizing severely distressed public housing and assisted housing and investing and leveraging investment in well-functioning services, effective schools and education programs, public assets, public transportation and improved access to jobs." As described by the Administration, CNI is similar to HOPE VI in that it is a competitive grant program aimed at improving distressed communities. However, it is broader in scope than HOPE VI in that it targets distressed neighborhoods with HUD-assisted housing, not just distressed public housing communities. Key differences between Choice Neighborhoods and HOPE VI, as outlined by the Administration, include the following:

Eligible Choice Neighborhood grantees may include local governments, nonprofit entities, and for-profit entities partnered with local governments, in addition to PHAs. PHAs are the only eligible grantees in the HOPE VI program. While Choice Neighborhood grant funding is to be primarily focused on the transformation of distressed housing, the funding could also be used, on a limited basis, for improvements to the surrounding community. HOPE VI funding can only be used for public housing demolition and development and related supportive services (including relocation). Choice Neighborhood grants are targeted to distressed neighborhoods with assisted housing and severely distressed public housing developments. HOPE VI grants are limited to severely distressed public housing developments. While the Choice Neighborhoods initiative has received some support for its concept of broadening the focus beyond public housing, it has also been met with concerns. Those concerns include whether the program will have the same displacement and loss of affordable housing stock effects as HOPE VI, and whether in a limited funding environment CNI, with its broader pool of eligible applicants, will lead to more entities competing for a limited pot of funds, resulting in less funding available for public housing.

Legislation to authorize the Choice Neighborhoods Initiative was approved by the House Financial Services Committee in the 111 th Congress but was not enacted before the end of the 111 th Congress ( H.R. 5814 ). Choice Neighborhoods authorizing legislation has been introduced in the 112 th Congress ( H.R. 762 and S. 624 ), but no further action has been taken.

While the program is not formally authorized, a Choice Neighborhoods demonstration was funded in FY2010 and FY2011 at $65 million and in FY2012 at $120 million. The first round of Choice Neighborhoods implementation grants was announced in August 2011. Five grants worth a total of $122 million were awarded to grantees in Boston, MA; Chicago, IL; New Orleans, LA; San Francisco, CA; and Seattle, WA.