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

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