The Personal Responsibility and Work Opportunity Reconciliation Act of 1996 (P.L. 104-193), generally known as welfare reform, imposed time limits on the receipt of welfare benefits and established work requirements to promote self-sufficiency for families on welfare. In addition, the act shifted important responsibilities for welfare from the federal government to the states. Housing programs, some of them dating back to the 1980s, and recent changes in housing policies have also encouraged work and self-sufficiency. The changes in housing policies are intended to make public housing agencies, as well as tenants, less dependent on federal subsidies. Many recipients of federal housing assistance have been or will be affected by the changes in both welfare and housing programs and policies. According to the Department of Housing and Urban Development’s (HUD) data, about 29 percent of the households that received housing assistance also received Aid to Families with Dependent Children (AFDC) as of September 1996. A majority of these households reside either in public housing or in private rental units—under HUD’s Section 8 certificate and voucher programs—that they select and that HUD subsidizes through payments by public housing agencies to landlords of a portion of each household’s rent. Because households that receive housing assistance generally pay 30 percent of their income for housing, changes in tenants’ incomes resulting from welfare reform will affect the rental revenue that public housing agencies receive and the amounts of the subsidies they need from HUD to cover their operating costs. Several federal departments, the states, and local public housing and welfare agencies have roles in efforts to move families from welfare and housing assistance to work and self-sufficiency. The Personal Responsibility and Work Opportunity Reconciliation Act of 1996 established time limits and work requirements to promote self-sufficiency for families on welfare. The act replaced the entitlement program—AFDC—with block grants to the states under Temporary Assistance for Needy Families (TANF). The fixed amounts of states’ grants under the new law are based on the amount of their grants in specified fiscal years under prior law, supplemented for population increases under certain circumstances. In total, TANF grants to the states are authorized at $16.5 billion per year. With respect to state funding, the federal welfare reform law includes a “maintenance of effort” provision requiring the states to provide 75 or 80 percent of their historic level of funding. Under the act, the states must meet statewide mandatory requirements for the percentage of families engaged in work activities or their TANF grants will be reduced. In turn, if a recipient family fails to participate as required, the state must reduce and may terminate the family’s cash assistance. The act also imposed a 60-month lifetime limit on the receipt of TANF benefits for most individuals. In addition, the federal welfare reform law increased federal funding for child care subsidies for low-income families under the Child Care and Development Fund, authorized to provide $3 billion in fiscal year 1997 and increase to $3.7 billion by 2002. The act also tightened the eligibility requirements for food stamps and Supplemental Security Income (SSI), a source of cash assistance for some children with special needs, immigrants, and others. In subsequent legislation, the Congress restored SSI benefits for many legal aliens, ensured Medicaid coverage for some children who became ineligible for SSI benefits, and authorized $3 billion in welfare-to-work grants to the states for fiscal years 1998 and 1999, to be overseen by the Department of Labor. Appendix I provides information on the welfare reform plans and benefit levels established by the states we visited. HUD and the Congress have undertaken and proposed efforts to reform the nation’s public housing industry in much the same way as welfare has been reformed. These efforts are designed to promote self-sufficiency on the part of both tenants and housing agencies. Specifically, HUD now manages a variety of self-sufficiency programs, such as the Family Self-Sufficiency (FSS) program, which provides employment-related services for tenants of public and assisted housing who volunteer for the program. The Congress, through appropriations bills, has implemented changes in public housing policies to encourage work. The revised policies eliminate requirements for public housing agencies to give preference only to the poorest of the poor in selecting tenants and allow the agencies to establish local preferences, ceiling rents, and adjustments to earned income. HUD and the Congress have also proposed permanent legislation that would, among other things, consolidate public housing programs and increase the mix of incomes among tenants. Since the mid-1980s, HUD has provided housing-based self-sufficiency and economic opportunity programs to deliver supportive services to the tenants of public and assisted housing. These programs have provided job training, counseling, and placement services; child care; and transportation. Several of these programs require coordination with other local efforts. One of the most widely used of these programs, FSS, was created under the National Affordable Housing Act of 1990 (P.L. 101-625) to help the tenants of public and assisted housing reduce their reliance on welfare and gain employment through education, training, and supportive services. Since fiscal year 1993, HUD has required housing agencies that receive additional public housing units or Section 8 certificates and vouchers to participate in FSS. The Anti-Drug Abuse Act of 1988 (42 U.S.C. 11901 et seq. ), as amended, authorized the Public and Assisted Housing Drug Elimination program, whose goal is to provide alternative approaches to reducing crime and drug activity in public and assisted housing. Under this program, HUD awards grants to housing agencies and owners of assisted housing for activities such as protective services, drug prevention programs, and youth sports programs. Other self-sufficiency programs include the Economic Development and Supportive Services grant program and Jobs Plus, both of which provide housing agencies with additional resources and incentives to encourage tenants to achieve self-sufficiency. Appendix II describes HUD’s self-sufficiency and economic development programs identified by selected housing agencies as facilitating welfare reform. The Congress has authorized some changes for public housing agencies through recent appropriations laws, beginning in 1996 with the Balanced Budget Downpayment Act, I (P.L. 104-99, also known as the Continuing Resolution). These changes eliminated the requirement that housing agencies select families from their waiting lists on the basis of federal preferences and allowed the agencies to establish local preferences, ceiling rents, and adjustments to earned income. Local preferences enable housing agencies to select working families, those in employment and training programs, veterans, and persons living in the immediate vicinity to fill vacant units. The agencies may determine which preference(s) to implement as long as they do not change the makeup of their developments in a way that would displace elderly or disabled tenants. Ceiling rents—levels above which rents no longer rise with increases in tenants’ incomes—are designed to attract, retain, and support working families, who are generally thought to provide leadership to housing developments and serve as role models for other tenants. A ceiling rent must reflect the reasonable market value of the housing unit and cannot be less than the monthly per-unit operating costs. HUD considers ceiling rents useful in easing the rent burden on working families residing in public housing. In addition, ceiling rents can create incentives for tenants to save money and purchase their own homes. The Continuing Resolution provided a transition rule allowing housing agencies to establish ceiling rents until HUD issues final regulations. HUD proposed a regulation on ceiling rents for public housing in November 1997. Like ceiling rents, adjustments to earned income can be used to attract working families, increase the mix of incomes among public housing tenants, and help tenants save money and become homeowners. Adjustments to earned income allow housing agencies to exclude certain types of income in calculating rents. As a result, tenants may retain more of the income they earn if they have participated in certain types of training and work activities. Housing agencies electing to use adjustments may recoup potential losses by attracting tenants with higher incomes. In addition to the rent policies discussed above, HUD and the Congress have proposed more sweeping housing reforms that would further transform public housing. Under HUD’s proposal, public housing programs would be consolidated, and the tenant-based certificate and voucher programs would be merged. HUD has also proposed the deregulation of well-performing housing agencies and acknowledges the need for more predictable and effective actions to address problems at failing housing agencies. In addition, HUD has proposed to strengthen the Department’s policy on coordination with welfare agencies, consolidate the Economic Development and Supportive Services grant program with another program for tenants, and create a welfare-to-work voucher program. Both the House and the Senate have proposed legislation that would modify the U.S. Housing Act of 1937. The House bill would repeal the act, replacing it with new legislation, while the Senate bill would revise the act. Both the House and Senate bills would combine the Section 8 certificate and voucher programs into a single tenant-based assistance program, to be called choice-based under the House bill. The proposed legislation would also allow local governments to receive federal funds for public housing directly, alter income-targeting rules, and increase funding for tenant organizations. H.R. 2 passed the House in May 1997. S. 462 passed the Senate in September 1997. As of April 1998, permanent housing reform legislation had not been enacted. Among federal agencies, the departments of Health and Human Services (HHS) and Labor have the greatest responsibilities for welfare reform. The states play a larger role under welfare reform than they did in the past. HUD subsidizes public housing and provides rental assistance and grants for supportive services. Local public housing agencies own and operate public housing and administer the subsidies, rental assistance, and grants that they receive from HUD. While welfare reform shifted responsibility to the states for designing and implementing TANF programs, HHS remains the federal agency with primary responsibility for welfare programs.