oversight

Housing Choice Vouchers: Options Exist to Increase Program Efficiencies

Published by the Government Accountability Office on 2012-03-19.

Below is a raw (and likely hideous) rendition of the original report. (PDF)

             United States Government Accountability Office

GAO          Report to Congressional Requesters




March 2012
             HOUSING CHOICE
             VOUCHERS
             Options Exist to
             Increase Program
             Efficiencies




GAO-12-300
             A
                                               March 2012

                                               HOUSING CHOICE VOUCHERS
                                               Options Exist to Increase Program Efficiencies

Highlights of GAO-12-300, a report to
congressional requesters




Why GAO Did This Study                         What GAO Found
The Department of Housing and Urban            Several factors—including rising rents, declining household incomes, and
Development’s (HUD) Housing Choice             decisions to expand the number of assisted households—were key drivers of the
Voucher (voucher) program subsidizes           approximately 29 percent increase (before inflation) in housing agencies’
private-market rents for approximately         expenditures for the voucher program between 2003 and 2010. Congress and
2 million low-income households. HUD           HUD have taken steps to limit cost increases while maintaining assistance for
pays a subsidy that generally is equal         existing program participants. For example, Congress moved away from
to the difference between the unit’s           providing funding to housing agencies based on the number of voucher-assisted
rent and 30 percent of the household’s         households they were authorized to subsidize and instead provided funding
income. HUD also pays an                       based on the generally lower number of voucher-assisted households housing
administrative fee, based on a formula,        agencies actually subsidized in the prior year. Further, HUD has proposed
to more than 2,400 local housing               administrative relief and program flexibility for housing agencies, including
agencies to manage the program. Over           streamlining program requirements and reducing subsidies paid.
time, program expenditures steadily
have risen, causing some to question           GAO identified several additional options that, if implemented effectively, could
how well HUD managed costs and                 substantially reduce the need for new appropriations, cut costs (expenditures), or
used program resources. This report
                                               increase the number of households assisted.
(1) discusses the key drivers of cost
growth in the voucher program and the
actions taken to control this growth and       •   Reduce housing agencies subsidy reserves. Housing agencies have
(2) analyzes various options to cut                accumulated approximately $1.8 billion in subsidy reserves (unspent funds).
costs or create efficiencies. For this             They can hold the funds in reserve or spend them on authorized program
report, GAO analyzed HUD data;                     expenses in future years. Over time, large sums can accumulate. Although
reviewed budget documents, program                 HUD has sought the authority to offset (reduce) its future budget requests by
laws and regulations, guidance,                    the amount of “ excess” subsidy reserves, it has not provided Congress with
academic and industry studies, and                 complete or consistent information on how much of these reserve funds
GAO reports; and interviewed officials             housing agencies should retain for contingencies. GAO has highlighted the
from HUD, industry groups, and 93                  importance of providing clear and consistent information on housing
housing agencies.                                  agencies’ reserves to Congress so it can make informed funding decisions.
                                               •   Implement administrative reform. HUD officials have noted that certain
What GAO Recommends                                requirements for administering the voucher program are burdensome and
                                                   costly and could be streamlined. In addition, the formula HUD uses to pay
GAO identifies options for increasing              administrative fees to housing agencies is not tied to current administrative
efficiencies and recommends that HUD               costs or requirements. HUD has an administrative fee study underway, which
(1) determine what level of reserve
                                                   intends to identify specific reforms to ease administrative burden, increase
funding housing agencies should
                                                   efficiencies, and suggest ways to align the administrative fee formula with the
maintain and reduce future budget
requests by the amount of excess                   functions housing agencies perform. Without this information, Congress may
reserves and (2) consider proposing                not have the information necessary to make fully informed policy and funding
options for simplifying program                    decisions related to the voucher program.
administration and changes to the              •   Implement rent reform and consolidate voucher administration. Rent
administrative fee formula. HUD did                reform (for example, reducing subsidies by requiring households to pay more
not agree or disagree with the                     toward rent) and consolidation of program administration under fewer
recommendations. While it noted that               housing agencies could yield substantial cost savings—approaching $2
the draft provided an accurate                     billion—or allow housing agencies to serve additional households, provided
assessment, it offered some                        annual savings were reinvested in the program. However, while these
clarifications and responses.                      options may have some advantages over the current program structure, they
                                                   would require policymakers to consider some potential trade-offs, including
View GAO-12-300. For more information,             increased rent burdens for low-income households, increased concentration
contact Mathew J. Scirè at (202) 512-8678 or
sciremj@gao.gov.                                   of assisted households in high poverty areas, and more limited local control
                                                   over voucher programs.
                                                                                       United States Government Accountability Office
Contents


Letter                                                                                        1
               Background                                                                     3
               Several Factors Contributed to Cost Increases in the Voucher
                 Program from 2003 through 2010, and Congress and HUD Made
                 Efforts to Limit Them                                                       8
               Options Exist to Reduce Program Costs or Increase Efficiencies               20
               Conclusions                                                                  43
               Recommendations for Executive Action                                         45
               Agency Comments and Our Evaluation                                           45

Appendix I     Objectives, Scope, and Methodology                                           49



Appendix II    Comment from U.S. Department of Housing and Urban Development                53



Appendix III   GAO Contact and Staff Acknowledgment                                         56



Tables
               Table 1: Primary Examples of Special-Purpose Vouchers                          6
               Table 2: Annual Appropriations and HUD Outlays for the Voucher
                        Program, from Fiscal Years 2005 through 2011                          8
               Table 3: Percentage of Expenditure Increases Resulting from
                        Changes in Subsidy Costs for Existing Vouchers, Subsidy
                        Costs for New Vouchers, and Administrative Fees, 2003 to
                        2010                                                                10
               Table 4: Summary of Fiscal Year 2008 and 2009 Subsidy Reserve
                        Rescissions and Offsets                                             18
               Table 5: HUD’s Proposed Voucher Program Reforms                              19
               Table 6: Summary of Subsidy Reserve Rescissions and Offsets and
                        the Allocation of Supplemental Funding, Fiscal Years 2008
                        and 2009                                                            24
               Table 7: Administrative Streamlining Efforts Implemented or
                        Proposed at MTW Agencies                                            27
               Table 8: Estimated Annual Effect of Selected Rent Reform Options
                        on Program Costs and Number of Voucher-Assisted
                        Households Served                                                   30




               Page i                          GAO-12-300 Voucher Cost and Administration Issues
          Table 9: Estimated Number and Percentage of Voucher-Assisted
                   Households for Which Rents Would Increase and the
                   Average Monthly Increase, by Rent Reform Option                   32
          Table 10: Comparison of Two- and Three-Bedroom Monthly Rents
                   under a 35 Percent of Fair Market Rent Structure, for
                   Three Areas                                                       36


Figures
          Figure 1: Annual Expenditures of Disbursed Funds by Housing
                   Agencies for the Voucher Program, from 2003 through
                   2010                                                                9
          Figure 2: Median Gross Rents (2011 Constant Dollars) for Units
                   Leased by Voucher-Assisted Households, from 2003
                   through 2010                                                      11
          Figure 3: Median Annual Household Income (2011 Constant
                   Dollars) of Voucher-Assisted Households, from 2003
                   through 2010                                                      12
          Figure 4: Estimated Effect of Rent Reform Options on Monthly
                   Rents of All Voucher-Assisted Households, by Household
                   Type                                                              34
          Figure 5: Estimated Effect of Rent Reform Options on Monthly
                   Rents of Affected Voucher-Assisted Households, by
                   Household Type                                                    35




          Page ii                       GAO-12-300 Voucher Cost and Administration Issues
Abbreviations

GPRA              Government Performance and Results Act of 1993
GPRAMA            Government Performance and Results Modernization Act
                  of 2010
HUD               Department of Housing and Urban Development
HUDCAPS           HUD Central Accounting and Program System
MTW               Moving to Work
NRA               Net Restricted Assets
PIC               Public and Indian Housing Information System
VASH              Veteran Affairs Supportive Housing
VMS               Voucher Management System




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Page iii                               GAO-12-300 Voucher Cost and Administration Issues
United States Government Accountability Office
Washington, DC 20548




                                   March 19, 2012

                                   Congressional Requesters

                                   Annually from fiscal years 2003 through 2010, the Department of Housing
                                   and Urban Development’s (HUD) Housing Choice Voucher (voucher)
                                   program helped provide affordable rental housing to approximately 2
                                   million households with very or extremely low incomes. 1 In the same
                                   period, program expenditures grew at an average annual rate of about 4
                                   percent from $11.7 billion to $15.1 billion. The voucher program is unique
                                   among HUD’s rental assistance programs in paying subsidies to landlords
                                   to help households rent units (apartments or houses) on the private
                                   market. The amount of subsidy HUD pays generally is equal to the
                                   difference between the unit’s rent and 30 percent of the household’s
                                   income. While Congress and HUD have supported and enacted changes
                                   to the voucher program designed to limit growth in appropriations without
                                   reducing the number of households that received assistance, they also
                                   added new vouchers targeted at homeless veterans, nonelderly disabled
                                   households, and others. In the current constrained economic and budget
                                   environment, policymakers have questioned the consistent growth in
                                   voucher program costs and whether HUD and public housing agencies
                                   that administer the program adequately managed costs.

                                   In response to your request, this report discusses the factors that have
                                   affected costs in the voucher program from 2003 through 2011 and the
                                   actions Congress and HUD took to manage these costs. The report also
                                   identifies additional steps that could be taken to limit cost growth in the
                                   voucher program or more efficiently provide decent, safe, and affordable
                                   housing.

                                   To determine the factors that have affected costs in the voucher program
                                   from 2003 to 2011 and the actions Congress and HUD took to manage
                                   these costs, we reviewed and analyzed appropriations legislation, budget
                                   documents, and HUD’s annual guidance on the allocation of the
                                   program’s appropriation to housing agencies. The start year for our


                                   1
                                    The voucher program is authorized under Section 8 of the United States Housing Act of
                                   1937, as amended. Very low-income households are those with incomes at or below 50
                                   percent of the area median income; extremely low-income households are those with
                                   incomes at or below 30 percent of the area median income.




                                   Page 1                                GAO-12-300 Voucher Cost and Administration Issues
analysis reflects the year when Congress began changing the voucher
program’s funding formula. 2 We analyzed program data that HUD
prepared using information derived from multiple HUD systems including
the Central Accounting and Program System (HUDCAPS) and Voucher
Management System (VMS) to determine how much housing agencies’
expenditures changed from 2003 through 2010. 3 We also reviewed prior
work by GAO and others to describe what is known about the cost-
effectiveness and characteristics of vouchers relative to other forms of
rental housing assistance. To identify additional steps that could be taken
to limit cost growth in the voucher program and more effectively provide
decent, safe, and affordable housing, we identified and reviewed relevant
legislation, draft legislation, and studies. We analyzed HUD’s VMS data
on the balances of Net Restricted Assets (NRA or subsidy reserves) for
housing agencies as of September 30, 2011, to determine the extent of
such reserves for housing agencies. In addition, using data from HUD’s
Public and Indian Housing Information System (PIC) on household
characteristics, income, and rents, we evaluated the cost and policy
implications of three types of programmatic reform options for the voucher
program: increasing minimum rents, changing the percent of income
tenants pay toward rent, and requiring tenants to pay a percentage of fair
market rent. In identifying and assessing these programmatic reform
options, we reviewed proposals included in draft legislation and in HUD,
Congressional Budget Office, and housing industry group reports. We
also considered reforms certain agencies have implemented. In
conducting our work, we assessed the reliability of datasets that HUD
provided, including data files derived from HUDCAPS, VMS, and PIC and
determined that the data were sufficiently reliable for the purposes of this
report. Finally, for all of our objectives, we interviewed HUD officials and
consulted with an academic and officials from various housing groups.
We also contacted or visited 62 housing agencies that administer the
voucher program and 31 of the 35 housing agencies participating in the
Moving to Work (MTW) demonstration program. See appendix I for a
more detailed discussion of our scope and methodology.




2
 Funding for 2003 and 2004 was provided through the Housing Certificate Fund, which
accounted for both the project-based Section 8 and the voucher programs. As a result, we
were unable to determine the appropriated and outlay amounts for the programs for these
years.
3
Expenditure data for 2011 were not available at the time we conducted our analysis.




Page 2                                GAO-12-300 Voucher Cost and Administration Issues
             We conducted this performance audit from February 2011 through March
             2012 in accordance with generally accepted government auditing
             standards. Those standards require that we plan and perform the audit to
             obtain sufficient, appropriate evidence to provide a reasonable basis for
             our findings and conclusions based on our audit objectives. We believe
             that the evidence obtained provides a reasonable basis for our findings
             and conclusions based on our audit objectives.


             The voucher program is not an entitlement program. As a result, the
Background   amount of budget authority HUD requests and Congress provides through
             the annual appropriations process limits the number of households that
             the program can assist. 4 Historically, appropriations for the voucher
             program (or for other federal housing programs) have not been sufficient
             to assist all households that HUD has identified as having worst-case
             housing needs—that is, unassisted households with very low incomes
             that pay more than 50 percent of their incomes in rent, live in substandard
             housing, or both. 5 In 2009, 41 percent of the more than 17 million very
             low-income renters had worst-case housing needs, according to HUD.
             The primary problem affecting these renters was rent burden—
             approximately 97 percent paid more than 50 percent of their incomes in
             rent. 6

             To be eligible for assistance, in general, households must have very-low
             incomes—not exceeding 50 percent of the area median income, as
             determined by HUD. Under the Quality Housing and Work Responsibility
             Act of 1998 (P.L. 105-276), at least 75 percent of new voucher program




             4
              Budget authority is the authority federal law provides to enter into financial obligations
             that will result in immediate or future outlays involving federal government funds.
             5
              HUD has standards for housing quality. For example, the voucher program regulations
             set basic housing quality standards that all units must meet (1) before assistance can be
             paid on behalf of a household, and (2) at least annually during the assisted tenancy. HUD
             housing quality standards include requirements for all unit types, including those in single-
             family and multifamily dwellings. See 24 C.F.R. § 982.401.
             6
              See HUD, Office of Policy Development and Research, Worst Case Housing Needs
             2009: Report to Congress (Washington, D.C.: February 2011). In 2009, more than 7
             million renters had worst case housing needs, up 20 percent from 2007 levels and almost
             42 percent from 2001 levels.




             Page 3                                   GAO-12-300 Voucher Cost and Administration Issues
participants must have extremely low incomes—not exceeding 30 percent
of the area median income. 7

Under the voucher program, an assisted household pays 30 percent of its
monthly adjusted income in rent; the remainder of the rent is paid through
a HUD-subsidized “voucher,” which generally is equal to the difference
between (1) the lesser of the unit’s gross rent (generally, rent plus
utilities) or a local “payment standard” and (2) the household’s payment.
The payment standard is based on the HUD-determined fair market rent
for the locality, which generally equals the 40th percentile of market rents
(including utilities) recent movers paid for standard-quality units. HUD
annually estimates fair market rents for metropolitan and nonmetropolitan
areas. 8 Housing agencies—the state and local agencies that administer
the voucher program on HUD’s behalf—can set payment standards (that
is, pay subsidies) between 90 percent and 110 percent of the fair market
rent for their areas. By determining fair market rents and setting payment
standards at a rate sufficient to provide acceptable choices for voucher
program participants, HUD and housing agencies essentially set the
upper and lower bounds on the cost of typical, standard-quality units that
voucher holders rent. Participants in the voucher program can choose to
live in units with gross rents that are higher than the payment standard,
but they must pay the full difference between the unit’s gross rent and the
payment standard, plus 30 percent of their income. 9

In 2011, more than 2,400 housing agencies administered more than 2.2
million vouchers—their programs ranged in size from more than 96,000
vouchers to fewer than 5. Housing agencies are responsible for
inspecting units, ensuring that rents are reasonable, determining
households’ eligibility, calculating and periodically re-determining
households’ incomes and rental payments, and making subsidy payments




7
See 42 U.S.C. 1437n (b)(1).
8
 Under 42 U.S.C. 1437f(c)(1), HUD annually must publish fair market rents for the voucher
program. See related regulations at 24 C.F.R. Part 888.
9
 By law, whenever a household moves to a new unit where the gross rent exceeds the
payment standard, the household may not pay more than 40 percent of its adjusted
monthly income for rent.




Page 4                                GAO-12-300 Voucher Cost and Administration Issues
to landlords. 10 In addition, housing agencies perform basic program
functions, such as establishing and maintaining a waiting list, processing
tenant moves, conducting landlord and tenant outreach, and reporting to
HUD. HUD disburses appropriated funds to housing agencies for subsidy
payments to landlords and administrative expenses.

Each year, Congress appropriates funding for subsidies for renewal
(existing) and incremental (new) vouchers and administrative expenses.
As part of the appropriations process, Congress outlines a formula that
determines the amount of renewal funding for which housing agencies
are eligible (“eligible amount”). However, the amount Congress
appropriates to the voucher program may not equal the total amount for
which housing agencies are eligible under the formula. HUD is
responsible for allocating program funding (“appropriated amount”)
among housing agencies based on their eligible amounts. To the extent
that the appropriated amount does not fully fund housing agencies at their
eligible amounts, HUD reduces the funding housing agencies receive to
fit within the appropriated amount. Housing agencies are expected to use
all the subsidy funding HUD allocates for authorized program expenses
(including subsidy and utility payments). However, if housing agencies’
allocated amounts exceed the total cost of their program expenses in a
given year, they must maintain their unused subsidy funds in NRA
(reserve) accounts. Housing agencies may use their NRA balances
(subsidy reserves) to pay for authorized program activities in subsequent
years. 11




10
  Laws and HUD regulations provide 44 different income exclusions and deductions: (1)
HUD regulations cite 20 income sources to be excluded when determining households’
eligibility for assistance and calculating tenant rents. See 24 C.F.R. § 5.609. (2) Under
various statutes, 19 other income sources qualify as exclusions. (3) In addition, program
administrators (housing agencies) must apply 5 income deductions, which reduce the
amount of income that can be considered in calculating tenant rents. See 24 C.F.R. §
5.611. Once program administrators have collected information from households on
income and applicable exclusions and deductions, HUD policy requires that they
independently verify this information (“third-party” verification). After verifying households’
income information, program administrators must compute the amounts the households
will pay in rent. See 24 C.F.R. § 5.628.
11
  Housing agencies report NRA (or subsidy reserves) under Housing Assistance Payment
(HAP) Equity on their income statements. NRA is the amount of HAP Equity (subsidy) for
the voucher program through the end of the housing agency’s fiscal year and equals total
HAP revenues minus total HAP expenses for eligible unit months (or vouchers) leased on
a calendar-year basis.




Page 5                                   GAO-12-300 Voucher Cost and Administration Issues
                                        Incremental vouchers include various special-purpose vouchers.
                                        Congress appropriates funding for these vouchers in separate line items
                                        in the budget, which distinguish them from renewal vouchers. Housing
                                        agencies must apply to HUD to receive allocations of and funding for the
                                        special-purpose vouchers, which, as described in table 1, include
                                        Enhanced, Tenant Protection, Family Unification Program, Mainstream,
                                        Nonelderly Disabled, and Veteran Affairs Supportive Housing vouchers.
                                        These vouchers may have different or additional eligibility and operational
                                        requirements than renewal vouchers. After the first year, special-purpose
                                        vouchers generally become renewal vouchers for purposes of
                                        determining funding eligibility in the next year, but HUD may require that
                                        housing agencies separately track them as special-purpose vouchers.

Table 1: Primary Examples of Special-Purpose Vouchers

Type of special-purpose voucher      Description
Enhanced                             Enhanced vouchers are available to tenants facing a housing conversion action, including
                                     owner opt-outs of Section 8 project-based contracts, mortgage prepayments, or voluntary
                                     terminations of the mortgage insurance associated with the preservation-eligible property.
                                     By statute, HUD must offer enhanced vouchers to families affected by housing conversions.
Tenant Protection                    Tenant protection vouchers subsidize rents for tenants facing a housing conversion action
                                     or HUD enforcement actions against owners not covered by enhanced vouchers, including
                                     terminations or non-renewals of Section 8 project-based contracts, sales or foreclosures of
                                     HUD-subsidized mortgages, or demolitions/dispositions of public housing.
Family Unification Program           These vouchers are available to families for whom the lack of adequate housing is a primary
                                     factor in the separation, or threat of imminent separation of their children, or in the delay of
                                     the discharge of children to the family from out-of-home care. The vouchers also are
                                     available to youths aged 18 to 21 who left foster care at age 16 or older and who lack
                                     adequate housing.
Mainstream                           Mainstream vouchers assist families that include a person with disabilities who faces
                                     difficulties in locating suitable and accessible housing in the private market.
Nonelderly Disabled                  These vouchers are designed to provide choices to nonelderly disabled residents in their
                                     transition out of elderly-designated public housing or care-giving institutions or
                                     developments with preferences for elderly tenants.
Veteran Affairs Supportive Housing   The VASH program combines HUD voucher rental assistance for homeless veterans with
(VASH)                               case management and clinical services from the Department of Veterans Affairs.
                                        Source: HUD.



                                        Congress appropriates funding for administrative fees, and the formula
                                        used to calculate the administrative fee generally is based on fair market
                                        rents, adjusted annually to reflect changes in wage rates. HUD pays fees
                                        to housing agencies based on the number of units leased (vouchers
                                        used) as of the first of each month. HUD pays one (higher) rate for the
                                        first 600 units under lease and a second (lower) rate for the remaining
                                        units. As with subsidy funding, if the appropriated amount does not fully



                                        Page 6                                   GAO-12-300 Voucher Cost and Administration Issues
cover housing agencies’ fees as determined by the formula, HUD will
reduce the amount of funding each housing agency receives to fit within
the appropriated amount. Since fiscal year 2006, administrative fees have
accounted for less than 10 percent of total voucher program funding.

Some housing agencies that administer vouchers can participate in and
receive funding under MTW, a demonstration program authorized by
Congress in 1996 and implemented by HUD in 1999. 12 MTW allows
participating housing agencies to test locally designed housing and self-
sufficiency initiatives in the voucher and other federal housing programs.
Housing agencies may waive certain statutes and HUD regulations to
achieve three objectives: (1) reduce cost and achieve cost-effectiveness
in federal expenditures; (2) give incentives to families with children whose
heads of household are working, seeking work, or in job training,
educational or other programs that assist in obtaining employment and
becoming economically self-sufficient; and (3) increase housing choices
for low-income families. MTW agencies also have “funding flexibility”—
they may use their program-related funding (including voucher subsidy
funding) and administrative fees for any purpose (programmatic or
administrative). 13 Currently, 35 housing agencies participate in MTW—
according to HUD, they administer about 15 percent of all vouchers and
account for approximately 16 percent of all subsidy and administrative fee
funding on an annual basis. Congress and HUD fund MTW agencies
pursuant to their MTW agreements; however, the agencies could have
subsidies and administrative fees reduced if the amounts Congress
appropriated were less than the housing agencies’ eligible amounts under
the formulas.




12
  See Omnibus Consolidated Rescissions and Appropriations Act of 1996 (P.L. 104-134,
110 Stat. 1321), April 26, 1996. In addition, GAO is reviewing the effectiveness of MTW,
including assessing the steps HUD has taken to help ensure that participating agencies
address statutory purposes and meet statutory requirements, and the potential benefits of
and concerns about expanding the number of MTW agencies.
13
  This funding flexibility (“fungibility”) only applies to MTW agencies’ regular vouchers.
Like regular housing agencies, MTW agencies separately must maintain allocated
amounts that exceed the cost of their authorized special-purpose voucher program
activities in reserve accounts and only may use those balances to pay for authorized
program activities in subsequent years.




Page 7                                  GAO-12-300 Voucher Cost and Administration Issues
                             Several factors affected voucher program costs (as measured through
Several Factors              congressional appropriations, HUD outlays, and housing agencies’
Contributed to Cost          expenditures) and in some cases contributed to cost increases from 2003
                             through 2010, including: (1) increases in subsidy costs for existing
Increases in the             vouchers, (2) subsidy costs for new vouchers, and (3) administrative fees
Voucher Program              paid to housing agencies. In addition to these factors, the design and
from 2003 through            goals of the voucher program, such as requirements to target assistance
                             to certain households, contributed to overall program costs. Despite
2010, and Congress           increases in the cost of the program from 2003 through 2010, our work
and HUD Made                 and other published studies have found that vouchers generally have
                             been more cost-effective in providing housing assistance than federal
Efforts to Limit Them        housing production programs designed to add to or rehabilitate the low-
                             income housing stock. In addition, Congress and HUD have taken several
                             steps to manage cost increases over the period.


Subsidies for Existing and   Several factors affected increases in congressional appropriations, HUD
New Vouchers and             outlays, and housing agencies’ expenditures in the voucher program from
Increases in                 2003 through 2010. As shown in table 2, from fiscal years 2005 through
                             2011, voucher program appropriations increased from approximately
Administrative Fees          $14.8 billion to $18.4 billion (approximately 4 percent annually). Over the
Contributed to Cost          same period, outlays—funding HUD disburses to housing agencies for
Increases in the Voucher     program expenses—increased from $10 billion to $18.6 billion
Program from 2003            (approximately 11 percent annually). Information on appropriations and
through 2010                 outlays for the voucher program were not available for 2003 and 2004
                             because HUD did not report this information separately from other rental
                             assistance programs.

                             Table 2: Annual Appropriations and HUD Outlays for the Voucher Program, from
                             Fiscal Years 2005 through 2011

                              Fiscal yeara                          Appropriationb                       HUD Outlay
                              2005                                     $14.8 billion                     $10.0 billion
                              2006                                      15.4 billion                      13.0 billion
                              2007                                      15.9 billion                      16.0 billion
                              2008                                      16.4 billion                      15.7 billion
                              2009                                      16.8 billion                      16.0 billion
                              2010                                      18.2 billion                      18.0 billion
                              2011                                      18.4 billion                      18.6 billion
                             Source: GAO analysis of budget data.




                             Page 8                                   GAO-12-300 Voucher Cost and Administration Issues
a
 In 2005 Congress created a specific budget account (Tenant-based Rental Assistance) for the
voucher program. Prior to this, Congress provided a combined appropriation for both the voucher and
Project-based Section 8 programs through the Housing Certificate Fund. As a result, it is not possible
to distinguish the voucher program’s appropriations and outlays from those of the Project-based
Section 8 programs prior to 2005.

b
Appropriations include supplemental funding, carryovers, and rescissions.


Once disbursed, housing agencies expend program funds on activities
such as making subsidy payments to landlords and for administrative
expenses. As shown in figure 1, from 2003 through 2010, housing
agencies’ expenditures increased from approximately $11.7 billion to
$15.1 billion (about 4 percent annually). Expenditure data for 2011 were
not available at the time we were conducting our review. HUD’s outlays
and housing agencies’ expenditures can differ somewhat in any given
year because of differences in the timing of payments and fluctuations in
the rate of funding utilization—that is, some housing agencies may not
use all of their apportioned funds and may build reserves. Later in this
report we discuss the extent to which housing agencies have
accumulated subsidy reserves and steps Congress and HUD could take
to reduce future budget requests or reallocate the reserve funds.

Figure 1: Annual Expenditures of Disbursed Funds by Housing Agencies for the
Voucher Program, from 2003 through 2010




Note: Expenditure data were not available for 2011.




Page 9                                      GAO-12-300 Voucher Cost and Administration Issues
                                 As shown in table 3, housing agencies’ expenditures increased by a total
                                 of about 28.9 percent in nominal dollars from 2003 through 2010. Once
                                 adjusted for inflation, housing agencies’ expenditures increased by a
                                 smaller rate, approximately 8.8 percent. (We evaluated expenditure after
                                 adjusting for the general effects of inflation using a broad base index of
                                 price changes for all goods and services. We expressed expenditures in
                                 2011 constant dollars, the latest year for which complete data on price
                                 changes are available.) In the sections below, we discuss how (1)
                                 increases in subsidy costs for existing vouchers, (2) subsidy costs for new
                                 vouchers, and (3) administrative fees paid each contributed to the
                                 nominal and constant dollar increases in voucher program costs from
                                 2003 through 2010.

                                 Table 3: Percentage of Expenditure Increases Resulting from Changes in Subsidy
                                 Costs for Existing Vouchers, Subsidy Costs for New Vouchers, and Administrative
                                 Fees, 2003 to 2010

                                  Percentage change in expenditures                  Nominal dollar             Constant dollar
                                  due to:                                                  change                      change
                                  Total                                                        28.9%                         8.8%
                                  Increases in subsidy costs for existing                        19.5                          2.4
                                  vouchers
                                  Subsidy costs for new vouchers                                   5.3                         4.4
                                  Administrative fees paid                                         4.1                         2.0
                                 Source: GAO analysis of HUD data.


                                 Note: Nominal 2003 and 2010 dollars were converted to 2011 constant dollars using the Bureau of
                                 Labor Statistics’ Consumer Price Index—All Urban Consumers series.


Increases in Subsidy Costs for   As shown in table 3 above, in nominal terms, subsidy costs for existing
Existing Vouchers                vouchers grew by of 19.5 percent, accounting for a majority of the
                                 increase in housing agencies’ expenditures from 2003 through 2010.
                                 After adjusting for inflation, subsidy costs for existing vouchers grew by a
                                 small amount (2.4 percent) and were a smaller contributor to the total
                                 increase in expenditures. Two factors generally explain the remaining
                                 increase in expenditures for existing vouchers after adjusting for
                                 inflation—changes in market rents and household incomes. As previously
                                 discussed, the subsidies HUD and housing agencies pay to landlords on
                                 behalf of assisted households are based on market rents and household
                                 incomes. As a result, changes in market rents and household incomes
                                 affect subsidy cost. As shown in figure 2, in 2011 constant dollars,
                                 median gross rents for voucher-assisted households increased from
                                 about $850 to $880 (or 4 percent) over the period. Growth in rents



                                 Page 10                                    GAO-12-300 Voucher Cost and Administration Issues
outpaced the rate of general inflation. As rents increase, HUD and
housing agencies must pay larger subsidies to cover the increases,
assuming no changes to household incomes or contributions to rent.

Figure 2: Median Gross Rents (2011 Constant Dollars) for Units Leased by Voucher-
Assisted Households, from 2003 through 2010




Note: Nominal dollars were converted to 2011 constant dollars using the Bureau of Labor Statistics’
Consumer Price Index—All Urban Consumers series.


Housing agencies we contacted reported that this increase in rental
prices can be explained, in part, by increased demand and competition
for affordable housing—for example, some noted that the number of
renters has increased as a result of an increase in the number of
foreclosures in recent years. National vacancy rates—an indicator of the
relative tightness of the rental market—decreased from 2009 to 2010.

Further, as figure 3 shows, in 2011 constant dollars, the median annual
income of voucher-assisted households contracted from about $11,000 to
$10,700 (a decrease of about 3 percent) from 2003 through 2010. Over
the period, incomes of assisted households did not keep pace with the
rate of general inflation. As incomes decline, voucher-assisted
households are paying less towards rent, requiring larger subsidies to
cover the difference between the rents and tenant payments.



Page 11                                    GAO-12-300 Voucher Cost and Administration Issues
                        Figure 3: Median Annual Household Income (2011 Constant Dollars) of Voucher-
                        Assisted Households, from 2003 through 2010




                        Note: Nominal dollars were converted to 2011 constant dollars using the Bureau of Labor Statistics’
                        Consumer Price Index—All Urban Consumers series.


                        More than half of the housing agencies we contacted reported that job
                        loss and wage reductions contributed to in their subsidy costs over the
                        period of our analysis. One housing agency in California we contacted
                        also reported that state cuts to social welfare programs, including those
                        that provide direct cash assistance, lowered incomes for some
                        households and therefore have increased subsidy costs. HUD estimated
                        that reductions in federal welfare and disability income payments have
                        resulted in monthly subsidy payment increases of $17 and $5,
                        respectively, for households that receive those forms of assistance.

Subsidy Costs for New   The increase in the number of households assisted with vouchers (that is,
Vouchers                subsidy costs for new vouchers) from 2003 through 2010 was another
                        important contributor to the program’s rising costs. As table 3 shows, in
                        nominal dollars, subsidy costs for new vouchers grew by 5.3 percent over
                        the period. After adjusting for inflation, the addition of new vouchers grew
                        by 4.4 percent, accounting for half of the overall increase in housing
                        agencies’ expenditures over the period. Congress increased the size of
                        the program through the addition of special-purpose vouchers such as
                        Enhanced, Tenant Protection, Family Unification Program, Mainstream,


                        Page 12                                    GAO-12-300 Voucher Cost and Administration Issues
                                 Nonelderly Disabled, and Veteran Affairs Supportive Housing (see table 1
                                 for a description of each of these types of vouchers). HUD was unable to
                                 provide the data necessary to determine the extent to which each type of
                                 voucher contributed to the growth in program expenditures during this
                                 period.

Changes in Administrative Fees   Finally, growth in the fees paid to housing agencies to administer the
Paid to Housing Agencies         voucher program grew about 4.1 percent in nominal dollars from 2003
                                 through 2010 (see table 3). In constant dollar terms, administrative fees
                                 grew by 2 percent over the period. The formula HUD uses to pay
                                 administrative fees to housing agencies is not directly tied to the cost of
                                 performing the administrative tasks the program requires. Moreover, the
                                 fees HUD has paid housing agencies in recent years have been less than
                                 the amount for which they were eligible under the formula because of
                                 reductions in appropriations. Housing agencies we contacted noted that
                                 the cost of doing business increased over the period of our analysis. For
                                 example, several noted that inspection costs have increased with the
                                 growing cost of gasoline, especially for housing agencies that administer
                                 vouchers over large geographic areas. Others noted that policies such as
                                 portability—the ability of voucher holders to use their vouchers outside of
                                 the jurisdiction of the housing agency that issued the voucher—increased
                                 staff costs because they have been increasingly complex and difficult to
                                 implement and monitor. Representatives of housing agencies with whom
                                 we spoke said that they have frozen salaries and hiring and increased
                                 staff hours, among other things, to cope with reductions in administrative
                                 fees.


Program Design and Goals         The design and goals of the voucher program contribute to the overall
Also Influence Program           expense of the voucher program, although it is difficult to quantify how
Costs                            much of the cost increase from 2003 through 2010 was due to design
                                 issues. Specifically, the voucher program has various features that are
                                 intended to target or give priority to the poorest households, and serving
                                 these households requires greater subsidies. Long-standing federal policy
                                 generally has required household contributions to rent to be based on a
                                 fixed percentage of household income, which can be reduced through
                                 income exclusions and deductions for certain expenses, such as child




                                 Page 13                         GAO-12-300 Voucher Cost and Administration Issues
care and health services. 14 Further, housing agencies are required to
lease 75 percent of their new vouchers to extremely low-income
households. In addition, housing agencies also may establish local
preferences for selecting applicants from their waiting lists. 15 Like the
income standards and targeting requirements, these preferences have a
direct impact on subsidy costs—for example, the Boston Housing
Authority has established preferences designed to assist “hard-to-house”
individuals and families, including those experiencing homelessness.
According to housing agency officials, because these individuals and
families have little to no income, the agency’s annual per-unit subsidy
costs are higher than they would be absent the preferences. While these
types of requirements help address Congress’s and HUD’s goal of
serving the neediest households, HUD officials noted that such
requirements make the program more expensive than it would otherwise
be if housing agencies had more flexibility to serve households with a
range of incomes.

Similarly, program goals, such as HUD’s deconcentration policy also can
affect program costs. Specifically, this policy encourages assisted
households to rent units in low-poverty neighborhoods, which typically are
more expensive. According to HUD officials, the deconcentration goal
increases subsidy costs for housing agencies and overall costs for the
department because, as previously discussed, if rents increase, but
household contributions to rent remain constant, HUD and housing
agencies must make up for the increased rent burden in the form of
higher subsidy payments.




14
  This “30-percent rule” has its origins in the “Brooke Amendment”—in 1969, then-Senator
Edward Brooke of Massachusetts offered, and Congress passed, an amendment to the
United States Housing Act of 1937, as amended, that mandated that no family would have
to pay more than 25 percent of its income toward rent in federally assisted housing. In
1981, Congress increased the maximum to 30 percent.
15
  Housing agencies must establish an application and selection process that treats
applicants for voucher assistance fairly and consistently and provides an effective method
for determining eligibility. However, voucher program regulations provide flexibility for
each housing agency to develop an application and selection process tailored to its
particular circumstances, including the ability to establish local preferences for assistance.
See 24 C.F.R. § 982.207.




Page 14                                 GAO-12-300 Voucher Cost and Administration Issues
Although Costs Have        Despite increases in the cost of the voucher program from 2003 through
Risen, the Voucher         2010, our work and other published studies consistently have found that
Program Generally Has      vouchers generally have been more cost-effective in providing housing
                           assistance than federal housing production programs designed to add to
Been More Cost-Effective   or rehabilitate the low-income housing stock. 16 Our 2002 report provides
Than Other Types of        the most recent original estimates of the cost differences between the
Housing Assistance         voucher program and certain existing production programs. 17 We
                           estimated that, for units with the same number of bedrooms in the same
                           general location, the production programs cost more than housing
                           vouchers. In metropolitan areas, the average total 30-year costs of the
                           production programs ranged from 8 to 19 percent greater for one-
                           bedroom units. For two-bedroom units, the average total 30-year costs
                           ranged from 6 percent to 14 percent greater. 18 The cost advantage of the
                           voucher over the production programs was likely understated because
                           other subsidies—such as property tax abatements—and potential
                           underfunding of reserves to cover expected capital improvements over
                           the 30-year cost period were not reflected in the cost estimates for the
                           production programs.

                           Much of the research over the past several decades reached similar
                           conclusions. For example, in 2000, HUD found that average ongoing
                           costs per occupied unit of public housing were 8 to 19 percent higher than
                           voucher subsidy costs. In 1982, the President’s Commission on Housing
                           found that subsidy costs for new construction were almost twice as much
                           as subsidy costs for existing housing. 19 The commission’s finding set the


                           16
                             For a detailed discussion of the relevant literature, see Edgar O. Olsen, “The Cost-
                           Effectiveness of Alternative Methods of Delivering Housing Subsidies,” presentation at the
                           thirty-first annual APPAM research conference (Charlottesville, Virginia: Oct. 30, 2009).
                           17
                             See GAO, Federal Housing Assistance: Comparing the Costs and Characteristics of
                           Housing Programs, GAO-02-76 (Washington, D.C.: Jan. 31. 2002). We analyzed the
                           characteristics and costs of the housing under six federal housing programs that continue
                           to increase the number of assisted households: the voucher program, Low-income
                           Housing Tax Credits, HOPE VI, Section 202, Section 811, and Section 515. With the
                           exception of the voucher program, each of these programs is a production program.
                           18
                             Because of data limitations, we used a different methodology to present total costs for
                           the HOPE VI program—a HUD program to revitalize distressed public housing. We found
                           that the total 30-year cost of a HOPE VI unit with an average size of 2.4 bedrooms was
                           about 27 percent more expensive than vouchers.
                           19
                            See HUD, Office of Policy Development and Research, Economic Cost Analysis of
                           Different Forms of Assisted Housing (Washington, D.C.: December 2000) and The
                           President’s Commission on Housing, The Report of the President’s Commission on
                           Housing (Washington, D.C.: April 1982).




                           Page 15                                GAO-12-300 Voucher Cost and Administration Issues
                            stage for the eventual shift from production programs to vouchers as the
                            primary means through which the federal government provides rental
                            housing assistance.

                            Notwithstanding the cost-effectiveness of vouchers relative to other forms
                            of rental housing assistance, many of these studies noted the benefits
                            that production programs can and have conferred on low-income
                            households and communities such as supportive services for the elderly
                            and persons with disabilities. The voucher program typically does not
                            confer such benefits. In addition, research has indicated that some
                            markets may have structural issues. For example, regulatory restrictions
                            that reduce the supply of housing (and thus, opportunities for households
                            to use vouchers) make production programs more effective tools for
                            providing affordable housing than vouchers in those locations. 20 And our
                            work found that voucher holders sometimes are unsuccessful in using
                            their vouchers, either because they cannot find units that meet their
                            needs or because landlords are unwilling to accept their vouchers. These
                            households may benefit more from production programs, which can better
                            guarantee access to affordable housing, than vouchers.


Congress and HUD Have       In light of increasing program costs, Congress and HUD have taken
Taken Steps to Limit Cost   several steps to limit the extent of increases from fiscal years 2003
Increases in the Voucher    through 2011, while maintaining assistance for existing program
                            participants. These steps include legislative changes to the formula HUD
Program                     uses to calculate and distribute subsidy funding to housing agencies, as
                            well as continued efforts to reduce improper rental assistance payments.

Congressional Actions       Before fiscal year 2003, Congress and HUD funded housing agencies’
                            renewal needs based on their average per-voucher costs from the
                            previous year, adjusted for inflation, and multiplied by the number of
                            authorized vouchers. 21 Meaning, housing agencies received funding for
                            all of their authorized vouchers, regardless of whether they leased all of
                            those vouchers. In addition, prior to 2003, HUD provided each housing
                            agency with reserve funding equal to one month of its subsidy funding—



                            20
                             See HUD, Office of Policy Development and Research, Targeting Housing Production
                            Subsidies: Literature Review (Washington, D.C.: December 2003).
                            21
                             Authorized voucher leasing levels for housing agencies are outlined in their Annual
                            Contributions Contracts with HUD.




                            Page 16                               GAO-12-300 Voucher Cost and Administration Issues
housing agencies could use their reserves to fund new vouchers (a
practiced called “maximized leasing”). 22

Beginning in fiscal year 2003, Congress changed the voucher program’s
funding formula so that it would provide housing agencies with renewal
funding that was tied to housing agencies’ actual costs and leasing rates
rather than the number of authorized vouchers (whether used or unused).

•    Starting in fiscal year 2003, Congress stopped providing funding for
     vouchers that housing agencies issued in excess of their authorized
     levels, thus prohibiting over- (or maximized) leasing. 23

•    Congress generally based voucher program appropriations for fiscal
     year 2003 and thereafter on the number of leased vouchers (not to
     exceed authorized levels) and actual cost data that housing agencies
     reported to HUD.

•    Congress discontinued the practice of providing reserve funding for
     housing agencies and instead started reserving a portion of renewal
     funding to make adjustments to housing agencies’ allocations for
     contingencies such as increased leasing rates or certain unforeseen
     costs.

•    In more recent years, Congress has provided HUD appropriations that
     did not fully fund housing agencies at their eligible amounts under the
     funding formula.

•    In every year since 2004, Congress has provided administrative fees
     that were at least 6 percent lower than the 2003 rate.

•    Finally, as shown in table 4, in fiscal years 2008 and 2009, Congress
     rescinded a portion of housing agencies’ subsidy reserves and
     directed HUD, in total, to offset almost $1.5 billion from 1,605 housing
     agencies). 24


22
 HUD provided this reserve funding separately to the funding reserves (NRA) housing
agencies can accumulate and to which we refer throughout this report.
23
 Beginning in 2003, housing agencies were prohibited from leasing more vouchers than
were authorized in their contracts.
24
  Later in this report, we discuss how continued monitoring and reduction of housing
agencies subsidy reserves could reduce the need for new appropriations for or increase
the number of households assisted under the voucher program.




Page 17                               GAO-12-300 Voucher Cost and Administration Issues
                               Table 4: Summary of Fiscal Year 2008 and 2009 Subsidy Reserve Rescissions and
                               Offsets

                                   Rescission and offset of             Number of affected
                                   excess subsidy reserves               housing agencies                            Dollar total
                                   2008                                                  1197                    $723,167,604
                                   2009                                                   975                    $750,000,000
                                   Total                                                1605a                  $1,473,167,604
                               Source: GAO analysis of HUD data.

                               a
                               Of these, 567 housing agencies faced rescissions and offsets in both 2008 and 2009.


HUD Actions on Improper        HUD has taken steps to reduce improper payments in the voucher
Payments                       program. According to HUD reports, the department has reduced gross
                               improper payments (subsidy over- and underpayments) resulting from
                               program administrator errors (that is, a housing agency’s failure to
                               properly apply income exclusions and deductions and correctly determine
                               income, rent, and subsidy levels) by almost 60 percent, from $1.1 billion
                               in fiscal year 2000 to $440 million in fiscal year 2009. 25

                               In addition, HUD has provided housing agencies with fraud detection
                               tools—such as the Enterprise Income Verification system, which makes
                               income and wage data available to housing agencies—and realized
                               continued reductions in improper payments as a result of these tools.
                               According to HUD, from fiscal year 2006 through 2009, the department
                               reduced gross improper payments resulting from errors in reported tenant
                               income—including the tenant’s failure to properly disclose all income
                               sources—by approximately 37 percent, from $193 million to $121 million.
                               These efforts do not necessarily reduce the cost of assisting households,
                               but they help increase the program’s efficiency by helping ensure that an
                               appropriate level of assistance is provided and potentially serving more
                               households with appropriated funds.

HUD-Proposed Reforms and       HUD has requested the authority to implement program reforms that
Additional Actions to Manage   could have had the potential to decrease voucher program subsidy costs,
Costs                          administrative costs, or both. For example, as shown in table 5, in its



                               25
                                See GAO, HUD Rental Assistance: Progress and Challenges in Measuring and
                               Reducing Improper Rent Subsidies, GAO-05-244 (Washington, D.C.: Feb. 18, 2005).




                               Page 18                                   GAO-12-300 Voucher Cost and Administration Issues
                                           fiscal year 2012 budget request, HUD proposed implementing a rent
                                           demonstration to test alternatives to the current rent structure that could
                                           result in assisted households paying more in rent. As we discuss later in
                                           this report, changes to the way assisted household contributions to rent
                                           are calculated could result in cost savings to the program.

Table 5: HUD’s Proposed Voucher Program Reforms

Reform                                              Budget year(s)             Description
Rent demonstrationa                                 2012                       HUD sought the authority to test alternatives to the current
                                                                               rent structure with non-MTW agencies.
Increased time between re-certifications of tenant 2012                        HUD proposed extending the time between re-certifications of
income                                                                         tenants with fixed incomes from 1 to 3 years.
Transforming Rental Assistanceb                     2011                       HUD proposed streamlining and improving the delivery and
                                                                               oversight of rental assistance across all relevant HUD
                                                                               programs through the introduction of more efficient forms of
                                                                               administration such as consortiums, consolidation, and other
                                                                               locally designed structures. For example, a consortium of
                                                                               housing agencies could centralize administrative functions for
                                                                               a large area or for a state.
Flexible Voucher Program                            2005, 2006,                HUD proposed allowing state and local housing agencies to
                                                    2007                       administer the voucher program and encouraging housing
                                                                               agencies with overlapping jurisdictions and those with small
                                                                               voucher programs to consolidate or enter cooperative
                                                                               agreements to promote administrative efficiencies and cut
                                                                               costs.
Housing Assistance for Needy Families               2004                       Under this block grant, HUD proposed making state housing
                                                                               agencies responsible for the financial management and
                                                                               administration of the voucher program and giving states the
                                                                               option to directly administer the program or contract with local
                                                                               housing agencies or other public, nonprofit, or private entities
                                                                               to administer voucher assistance at the local level.
                                           Source: GAO analysis of HUD budget documents.

                                           a
                                            On December 6, 2011, HUD’s Policy Development and Research issued a request for proposal for a
                                           separate rent demonstration. According to the request, the demonstration will test alternatives to the
                                           current rent structure using a random assignment experimental model and most likely would be
                                           undertaken at select MTW agencies because these agencies already have the authority to request
                                           waivers of voucher program laws and regulations. HUD is funding the demonstration under its
                                           Transformation Initiative.
                                           b
                                            Subsequent versions of the Transforming Rental Assistance proposal did not include the
                                           administrative efficiencies discussed in the table.

                                           Although Congress did not grant HUD the authority to implement these
                                           voucher-related initiatives, HUD recently initiated administrative changes
                                           to its housing agency consortium rule, a first step in the effort to
                                           encourage housing agencies to consolidate as envisioned by the
                                           department’s 2011 Transforming Rental Assistance proposal. The revised



                                           Page 19                                         GAO-12-300 Voucher Cost and Administration Issues
                    rule would treat participating housing agencies in a consortium as one
                    entity. HUD’s current regulation requires that consortium members be
                    treated separately for oversight, reporting—as a result, few housing
                    agencies have formed consortiums since 1998.

                    Finally, in 2010, HUD began reviewing the administrative fee structure for
                    the voucher program. 26 The study aims to ascertain how much it costs a
                    housing agency to run an efficient voucher program. HUD plans to use
                    the results to help develop a new formula for allocating administrative
                    fees. Although not enough time has passed to determine whether HUD’s
                    findings will positively or negatively affect costs in the voucher program,
                    this study represents a positive effort on HUD’s part to more clearly
                    understand administrative costs in the voucher program and identify ways
                    to improve efficiency. According to HUD officials, HUD intends to use this
                    study as a basis for future legislative proposals, which could have
                    implications for the cost of administering the program.

                    Finally, in 2009, HUD developed a tool designed to help HUD staff and
                    housing agencies forecast voucher and budget utilization (that is, the
                    percentage of budget allocation and percentage of authorized vouchers
                    they are using) for up to 3 years. Department officials credit the tool with
                    increasing voucher program efficiency; however, HUD and housing
                    agencies’ use of the forecasting tool has not reduced overall costs in the
                    voucher program.


                    We identified several options that if implemented effectively, could reduce
Options Exist to    voucher program costs (by approximately of $2 billion annually, based on
Reduce Program      our estimates) or allow housing agencies to assist additional households
                    if Congress chose to reinvest the costs savings in the program. First,
Costs or Increase   improved information on the level of subsidy reserve funding housing
Efficiencies        agencies should maintain could aid budget decisions and reduce the
                    need for new appropriations. ; Second, agency officials have noted that
                    the voucher program’s requirements are complex and burdensome and
                    streamlining these requirements could reduce costs. Finally, changes to
                    the calculation of voucher-assisted households’ payments toward rent—
                    known as rent reform—and consolidating voucher administration under



                    26
                      Later in this report, we discuss how HUD’s administrative fee study could be used to
                    streamline administrative requirements and reduce administrative costs.




                    Page 20                                GAO-12-300 Voucher Cost and Administration Issues
                          fewer housing agencies’ could also reduce program costs Each of these
                          options would require congressional action to implement, and we discuss
                          below possible steps that HUD could take to facilitate the implementation
                          of some of them. Rent reform and administrative consolidation also
                          involve difficult policy decisions that will affect some of the most
                          vulnerable members of the population and alter long-standing program
                          priorities and practices.


Improved Information on   Housing agencies have accumulated subsidy reserves (unspent funds)
Subsidy Reserves Could    that Congress could use to (1) reduce program appropriations (through a
Aid Budget Decisions      rescission and offset) and potentially meet other federal needs or (2)
                          direct HUD to assist additional households. 27 As previously discussed,
                          HUD allocates subsidy funding to housing agencies based on the formula
                          Congress establishes in annual appropriations legislation. In recent years,
                          the formula has specified that HUD allocate funds based on housing
                          agencies’ leasing rates and subsidy costs from the prior year. In any
                          given year, housing agencies may under-lease or receive more funding
                          than they can spend. Unless these funds are rescinded and offset,
                          housing agencies can keep their unused subsidy funding in reserve
                          accounts and spend these funds on authorized program expenses
                          (including rent subsidies and utility allowance payments) in future years.
                          Over time, large sums of money can accumulate. As of September 30,
                          2011, 2,200 housing agencies had more than $1.5 billion in subsidy
                          reserves, which includes unspent subsidy funding from prior years and
                          certain set-aside funding and funding for new vouchers where insufficient
                          time has passed for expenditure.

                          In addition, beginning in 2012, HUD implemented changes to how it
                          disburses subsidy funds to housing agencies. As a result of these
                          changes, although housing agencies may continue to accumulate subsidy
                          reserves, HUD, rather than the housing agencies, holds these reserves.




                          27
                            Because HUD has allocated subsidy reserve funds to housing agencies, congressional
                          rescissions must be implemented through an offset, whereby Congress requires housing
                          agencies to spend down their reserve funds in order to make up for reductions in the
                          appropriated amount.




                          Page 21                              GAO-12-300 Voucher Cost and Administration Issues
This change also will allow HUD to better determine the extent of the
reserves housing agencies have accumulated. 28

HUD officials told us that the department believes that it requires specific
authority from Congress to reduce (offset) future voucher program budget
requests by all or a portion of housing agencies’ subsidy reserves. 29
Although HUD provides quarterly reports to the Congressional Budget
Office on the extent of housing agencies’ reserves and has requested the
authority to offset and in some cases, redistribute “excess” reserves (that
is, reserves beyond what is needed to fund contingencies, such as cost
increases from rising rental rates or falling tenant incomes, as defined by
HUD), the department has not developed specific or consistent criteria
defining what constitutes excess reserves or how it would redistribute
funding among housing agencies. For example, in its fiscal year 2012
voucher program budget proposal, HUD requested the authority to offset
excess reserves. According to the proposal, if given this authority, the
department first would reallocate the funds to housing agencies to make
up any difference between the appropriated amount and the total funding
for which housing agencies were eligible based on the renewal formula
and then redistribute any remaining funds to housing agencies based on
“need and performance.” However, the proposal did not specify how HUD
would calculate excess subsidy reserves or a detailed methodology for
redistributing the funds, and HUD officials acknowledged that
redistributing excess funds among housing agencies will increase the size
and the cost of the program over time because if housing agencies are
able to lease more vouchers with these funds, Congress will have to
appropriate more funding for renewal vouchers in subsequent years.

Furthermore, HUD’s definition for what constitutes excess reserves has
varied. For example, HUD officials told us that housing agencies should
retain one month (approximately 8.5 percent) of their annual funding
allocations in reserves. However, in its fiscal year 2010 and 2011 budget
proposals, HUD defined excess reserves as those in excess of 4 and 6




28
  See HUD, Notice PIH 2011-67, Implementation of New Cash Management
Requirements for the Housing Choice Voucher Program (Dec. 9, 2011).
29
  Because housing agencies’ reserves are resources that HUD has disbursed and
expended, HUD effectively recaptures any excess reserves by reducing or offsetting the
housing agencies’ funding allocation in another year.




Page 22                               GAO-12-300 Voucher Cost and Administration Issues
percent, respectively, of housing agencies’ allocated amounts. 30 Further,
HUD generally has excluded housing agencies with 250 and fewer
vouchers from its proposed offsets. HUD officials told us that they have
been considering lowering this threshold or developing a sliding scale
methodology (generally based on size) to determine the amount of
reserves housing agencies should maintain and the amount of excess
reserves that HUD would propose offsetting and redistributing.

In past work, we highlighted the importance of HUD’s clearly identifying
the existence and amount of unexpended subsidy funds (reserves) so
that Congress could have confidence in the department’s capacity to
effectively manage the funding appropriated for the voucher program. We
concluded that HUD should take steps to ensure that reserves did not
reach unreasonable levels—that is, in excess of what is prudently needed
to address contingencies. 31 More recently, we stated that agency
reporting about key areas such as financial management or program
reforms should competently inform congressional decision making, and
agencies should engage Congress about how to present this
information. 32

While a reserve for contingencies is prudent, without clear and consistent
criteria for determining what constitutes an appropriate level for housing
agency reserves, it is difficult to judge how well HUD managed the


30
  As previously discussed, Congress rescinded $750 million from HUD’s 2009
appropriation for the voucher program, and HUD offset this amount from housing
agencies’ reserve accounts. Similarly, in 2008, Congress rescinded the amount in the
housing agencies’ reserves accounts that exceeded 7 percent of the amount of the
program’s 2007 renewal funding (about $723 million), and HUD offset this amount from
housing agencies’ reserve accounts. In 2005, Congress directed HUD to reduce the
housing agencies’ reserves account to no more than 1 week (approximately 2 percent) of
subsidy funding. The Affordable Housing and Self-Sufficiency Improvement Act of 2012
(January 31, 2012, draft) would permit housing agencies to retain subsidy reserves in an
amount equal to no less than 6 percent of their current year’s annual budget authority.
This amount would be exempt from any offsets imposed by HUD.
31
  GAO, Section 8 Tenant-Based Housing Assistance: Opportunities to Improve HUD’s
Financial Management, GAO/RCED-98-47 (Washington, D.C.: Feb. 20, 1998). In this
report we highlighted that the Office of Management and Budget guidance on budget
formation instructs agencies to consider available funding on hand before requesting new
funding.
32
 GAO, Government Performance: GPRA Modernization Act Provides Opportunities to
Help Address Fiscal, Performance, and Management Challenges, GAO-11-466T
(Washington D.C., Mar. 16, 2011).




Page 23                               GAO-12-300 Voucher Cost and Administration Issues
funding Congress has provided for the voucher program. For example, as
previously discussed, in fiscal years 2008 and 2009 Congress rescinded
and directed HUD to offset excess subsidy reserves. However, as shown
in table 6, the 2009 rescission and offset were too large for 288 (about 18
percent) of the 1,605 housing agencies that were subject to the 2008 and
2009 rescissions and offsets to absorb. Congress had to provide these
288 and an additional 152 housing agencies with supplemental funding to
prevent the termination of voucher assistance.



Table 6: Summary of Subsidy Reserve Rescissions and Offsets and the Allocation
of Supplemental Funding, Fiscal Years 2008 and 2009

                                                        Number of affected
                                                         housing agencies            Dollar total
 Housing agencies that had reserves                                     1,605 $1,473,167,604
 rescinded and offset in 2008, 2009, or
 both years
 Housing agencies that received                                           440     $122,280,516
 supplemental funding in 2009
       Housing agencies that had reserves                                 288       $96,684,883
       rescinded and offset in 2008, 2009, or
       both years
       Housing agencies that did not have                                 152       $25,595,633
       reserves rescinded and offset in either
       2008 or 2009
Source: GAO analysis of HUD data.


Note: Of the 1,605 housing agencies that had reserves rescinded and offset, 567 housing agencies
were had reserves rescinded and offset in both 2008 and 2009.


Similarly, in the fiscal year 2012 budget, Congress rescinded and directed
HUD to offset housing agencies’ subsidy reserves by $650 million. Based
on our analysis, as of September 30, 2011, housing agencies had
approximately $606 million in excess reserves, approximately $44 million
short of the $650 million rescission amount. Our analysis assumed that
housing agencies retained in reserves the equivalent of one month or
about 8.5 percent of their annual funding allocations—HUD’s current
thinking on the appropriate level of reserves—and also excluded certain
set-aside funding and funding for new vouchers. 33 As a result, to meet the



33
  Based on our analysis, MTW agencies had no excess (nonfungible) subsidy reserves.




Page 24                                   GAO-12-300 Voucher Cost and Administration Issues
                          $650 million rescission goal, HUD would have to offset more funds from
                          housing agencies’ reserves than would be required under a one-month
                          reserve criterion, potentially resulting in some housing agencies holding
                          less than a one month reserve for contingencies. 34


Administrative Reforms    HUD officials have noted that certain requirements for administering the
Could Streamline          voucher program have grown burdensome and costly and could be
Burdensome Requirements   streamlined. In May 2010, the Secretary of HUD testified that the
                          department’s rental assistance programs “desperately need
and Reduce Costs          simplification.” He further stated that HUD must streamline and simplify its
                          programs so that they are easier for families to access, less costly to
                          operate, and easier to administer at the local level. 35 For example, under
                          current rules, housing agencies must re-examine household income and
                          composition at least annually and adopt policies describing when interim
                          re-examinations will be conducted. 36 HUD has expressed support for
                          extending the time between re-examination of income for households on
                          fixed incomes from 1 to 3 years and the time between unit inspections
                          from 1 to 2 years 37—according to one program administrator that
                          manages voucher programs for five housing agencies, annual re-
                          examinations and inspections account for more than 50 percent of
                          administrative costs in the voucher programs the agency administers.




                          34
                            According to HUD, to fund the rescission, the department will offset reserve balances
                          that exceed approximately one month of housing agencies’ 2012 eligible amounts. See
                          HUD, Notice PIH 2012-9, Implementation of the Federal Fiscal Year 2012 Funding
                          Provisions for the Housing Choice Voucher Program( Feb. 8, 2012). For housing agencies
                          that administer 50 or fewer vouchers, the offset will equal that portion of the reserve
                          balance that exceeds approximately 6 months of housing agencies’ 2012 eligible
                          amounts.
                          35
                           House Financial Services Committee, Transforming Rental Assistance, Testimony of
                          Shaun Donovan Secretary of the Department of Housing and Urban Development, 111th
                          Cong., 2nd sess., 2010.
                          36
                               See 24 C.F.R. §982.516.
                          37
                           Insurance, Housing, and Community Opportunity Subcommittee, House Financial
                          Services Committee, Legislative Proposals to Reform the Housing Choice Voucher
                          Program, Testimony of Sandra B. Henriquez, Assistant Secretary of the Department of
                          Housing and Urban Development, 112th Cong., 1st sess., 2011. HUD’s fiscal year 2012
                          budget request also proposed extending the time between re-certifications for households
                          on fixed incomes.




                          Page 25                               GAO-12-300 Voucher Cost and Administration Issues
However, overall data are not available on the actual costs of specific
administrative activities, such as annual income re-examinations and
inspections, and how they vary across housing agencies. To help address
this lack of information, HUD has initiated a study to determine (1) what
constitutes an efficient voucher program, (2) what a realistic expectation
would be for what a housing agency should be doing to run an efficient
program, (3) how much it costs to run an efficient program, and (4) what
an appropriate formula would be for allocating administrative fees to
housing agencies operating voucher programs. 38 According HUD, the
study will allow the department to analyze all aspects of voucher program
administration to reduce and simplify housing agencies’ administrative
responsibilities. 39 Such information will be important as congressional
decision makers consider potential reforms of administrative
requirements.

Although some of the changes needed to simplify and streamline the
voucher program would require Congress to amend existing statutes,
HUD’s administrative fee study and the experiences of housing agencies
participating in MTW may provide insight into specific reforms to ease
housing agencies’ reported administrative burden, as well as any
potential cost savings resulting from these reforms. For example,
according to a HUD report, while conclusive effects of many MTW
reforms, particularly as they relate to assisted households, are not known,
some of the demonstration’s most compelling results to date are those
related to housing agency operations. 40 As shown in table 7, many of the
housing agencies that participate in the demonstration have implemented
reforms that Congress has been considering through draft legislation,
HUD has proposed in its fiscal year 2012 budget request, or both. 41
According to the MTW agencies, many of these initiatives have resulted
in both time and cost savings in their programs.



38
 HUD, Statement of Work: Housing Choice Voucher Program Administrative Fee Study,
Solicitation Number RCHI00992, (Washington, D.C.: Feb. 8, 2010).
39
 Testimony of Sandra B. Henriquez, Assistant Secretary of the Department of Housing
and Urban Development, 112th Cong., 1st sess., 2011.
40
 HUD, Office of Public and Indian Housing and Office of Policy Research and
Development, Report to Congress Moving to Work: Interim Policy Applications and the
Future of the Demonstration (Washington, D.C.: August 2010).
41
  See Affordable Housing and Self-Sufficiency Improvement Act of 2012, discussion draft
dated Jan. 31, 2012.




Page 26                               GAO-12-300 Voucher Cost and Administration Issues
Table 7: Administrative Streamlining Efforts Implemented or Proposed at MTW Agencies

                                                                                                         Number of MTW agencies that implemented
Administrative efficiency                                                                                              the (or a similar) efficiency
Allow housing agencies to make subsidy payments to landlords as they correct                                                                      5a
non-life-threatening conditions identified as part of an inspection.
Conduct biennial inspections                                                                                                                     18b
Allow inspections from alternate sources, including those conducted for other                                                                         2
federal, state, and local housing assistance programs.
Conduct triennial re-examinations for households with fixed incomes.                                                                             26c
Allow fixed-income households’ incomes to be adjusted by applying an inflationary                                                                     5
factor established by the Secretary in any year the housing agency does not
conduct a review of income.
Allow housing agencies to conduct interim re-examinations only when a                                                                             6d
household’s income or deductions change by an amount that is estimated to result
in an increase of 10 percent or more in annual adjusted income.
Allow housing agencies to use households’ prior-year income in determining                                                                            0
income for annual reviews.
Allow housing agencies to rely on income determinations made for other federal,                                                                       2
means-tested, public assistance programs.
Exclude from incomes imputed returns on net assets that do not exceed $50,000.                                                                   20e
                                            Source: GAO analysis of draft legislation and interviews with MTW agencies.

                                            a
                                             All housing agencies allow either the tenant or owner, or both to self-certify correction of non-life-
                                            threatening conditions.
                                            b
                                             Most of these housing agencies set criteria that need to be meet before changing the inspection
                                            schedule of a unit. For example, some agencies specify that units must have passed one inspection
                                            before placing them on a biennial schedule.
                                            c
                                             The majority of these housing agencies conduct biennial re-examinations of fixed-income
                                            households rather than triennial. In addition, 12 have an alternate re-examination schedule for other
                                            types of households.
                                            d
                                             These housing agencies have made changes to their interim re-examination policies. For example,
                                            one of these agencies limits interim re-examinations based on a criteria that includes a decrease in
                                            adjusted income of 10 percent or more (elderly/disabled families are exempt).
                                            e
                                             The amount of asset income excluded from income varies. For example, some set this amount at
                                            $5,000 and others exclude asset income.


                                            In addition, and as previously discussed, the existing administrative fee
                                            formula generally is linked to fair market rents that are adjusted annually
                                            to reflect changes in wage rates, and HUD pays fees to housing agencies
                                            based on the number of units leased (vouchers used) as of the first of
                                            each month. This formula is not tied to the program’s current
                                            administrative costs or requirements. Further, housing agencies we
                                            contacted reported that the cost of administering the voucher program
                                            has been on the rise, with contributing factors including higher postage,
                                            fuel, and employee health care costs, as well as increased reporting and
                                            other requirements.


                                            Page 27                                                  GAO-12-300 Voucher Cost and Administration Issues
                             Without more specific information about potential reform options,
                             policymakers will not be able to make an informed decision about how to
                             reform the administrative fee formula and the activities required to
                             administer an efficient voucher program. These efforts—using the
                             administrative fee study to identify specific reforms and leveraging the
                             experiences of MTW agencies—are in line with the goals of the
                             Government Performance and Results Act of 1993 (GPRA), which
                             Congress enacted, in part, to inform its decision making by helping to
                             ensure that agencies provide objective information on the relative
                             effectiveness and efficiency of their programs and spending. 42 Whether
                             HUD’s study will yield findings that eventually will result in measureable
                             cost or time savings is not clear. While reforming administrative
                             requirements for the voucher programs could lead to increased
                             efficiencies and cost savings, the administrative fee paid to housing
                             agencies is a relatively modest share of the program’s overall annual
                             appropriations—approximately 9 percent in recent years. Nevertheless,
                             such efforts will provide Congress with timely and meaningful information,
                             which will enhance its ability to make decisions about funding for and
                             requirements of the voucher program.


Rent Reform and              If implemented, rent reform (that is, changes to the calculation of
Consolidation Could          households’ payment toward rent) and the consolidation of voucher
Result in Reduced Costs or   administration under fewer housing agencies could yield substantial cost
                             savings, allow housing agencies to serve additional households if
More Households Served,      Congress were to reinvest annual cost savings in the voucher program, or
but Both Involve Trade-      both. 43 Further, these reform options are not mutually exclusive; that is,
offs                         cost savings or additional households served could be greater if both
                             options were implemented. Further, implementation of these options may
                             involve some trade-offs, including increased rent burdens for assisted
                             households.




                             42
                               GPRA, §§ 2(a)(1), 2(b)(5). The GPRA Modernization Act of 2010 (GPRAMA) updated
                             the federal government’s performance measurement framework established in GPRA.
                             43
                               For a detailed discussion of how we selected which rent reform options to include in our
                             analysis, see the detailed scope and methodology in appendix I. Academics have
                             advanced other rent reform options that we did not include in this report. For example, see
                             Amy Crews Cutts and Edgar O. Olsen, “Are Section 8 Housing Subsidies Too High?”
                             Journal of Housing Economics, vol.11 (2002): 214-243.




                             Page 28                                GAO-12-300 Voucher Cost and Administration Issues
Rent Reform   As previously discussed, under current program rules, an assisted
              household generally must contribute the greater of 30 percent of its
              monthly adjusted income or the housing-agency established minimum
              rent—up to $50—toward its monthly rent. HUD’s subsidy is the difference
              between (1) the lesser of the unit’s gross rent or the applicable payment
              standard and (2) the household’s rental payment. Therefore, as an
              assisted household’s income increases, HUD’s subsidy payment
              decreases, and vice versa. Under existing program rules, a household
              could pay no rent—if the household has no monthly income after
              adjustments, the housing agency from which the household receives
              assistance does not have a minimum rent, or the household obtained a
              hardship exemption. 44 However, such households make up a small share
              of all voucher-assisted households, with more than 99 percent making
              some dollar contributions to their rent. 45

              Because about 90 percent of voucher program funds are used to pay
              subsidies, decreasing the level of subsidy for which households are
              eligible (or, alternatively stated, increasing the amount households must
              contribute toward rent) necessarily will yield the greatest costs savings for
              the program. We estimated the effect, both in terms of cost savings and
              additional households that could be served with those savings if
              Congress chose to reinvest the savings in the program, of several options
              including requiring assisted households to pay

              •    higher minimum rents;

              •    35 percent of their adjusted income in rent;

              •    30 percent of their gross income in rent (with no adjustments); 46 or

              •    a percentage of the applicable fair market rent. 47



              44
               If a housing agency adopts a minimum rent policy, the housing agency must grant
              exemptions from the requirement to any household that the housing agency determines is
              unable to pay the amount because of financial hardship, unless the hardship is temporary.
              See 24 CFR §5.630.
              45
               Our analysis showed that 0.5 percent of all assisted households pay no rent and 1.3
              percent pay from $0 to $50.
              46
                A rent structure based on gross income would eliminate the deductions and exclusions
              to income that households currently may claim.




              Page 29                               GAO-12-300 Voucher Cost and Administration Issues
Using HUD data, we determined that each of these options could reduce
the federal cost burden—in some cases, quite considerably—or if
Congress chose to reinvest cost savings in the program, allow housing
agencies to serve more households without additional funding. For
example, as shown in table 8, increasing minimum rents to $300 would
yield the greatest cost savings on an annual basis—an estimated $1.8
billion—or allow housing agencies to serve the greatest number of
additional households—an estimated 287,000. Requiring assisted
households to pay 30 percent of their gross income in rent would yield the
least savings for the voucher program and serve the fewest additional
households. Further, HUD operates a number of other rental assistance
programs where household subsidies are based on the same calculations
as those for the voucher program. Implementation of these rent reform
options in its other rental assistance programs has the potential to create
additional cost savings.

Table 8: Estimated Annual Effect of Selected Rent Reform Options on Program
Costs and Number of Voucher-Assisted Households Served

                                                                                 Estimated
                                                                                 additional
                                                      Estimated annual          households
 Reform option                                            cost savingsa             served
 Increase minimum rents to:b, c
 $50d                                                         $11 million             1,400
 75                                                            67 million             8,600
 100                                                          124 million            16,000
 150                                                          318 million            43,000
 200                                                          602 million            85,000
 250                                                           1.1 billion          167,000
 300                                                           1.8 billion          287,000
 Require households to pay:e
       35 percent of adjusted income in rent                  $1.1 billion          164,000
       30 percent of gross income in rent                     513 million            76,000
       35 percent of the fair market rentf                    927 million           136,000
Source: GAO analysis of HUD data.




47
  In past work we highlighted some of the limitations of HUD’s process for estimating fair
market rents and ways to improve the accuracy of these estimates. See GAO, Rental
Housing: HUD Can Improve Its Process for Estimating Fair Market Rents, GAO-05-342
(Washington, D.C.: Mar. 31, 2005).




Page 30                                      GAO-12-300 Voucher Cost and Administration Issues
a
 To estimate the effect of these options on program costs and households assisted, we analyzed
household characteristic and rent data as of December 2010. These estimates illustrate the relative
effects of the options if fully implemented in one year. Actual implementation of such options likely
would be done gradually and not all of the savings or efficiencies would be realized in the first year.
b
 We assumed that all households paid the greater of the minimum rent or 30 percent of adjusted
income. Our minimum rent calculations did not take into account any payment households received
for utility assistance.
c
 On January 31, 2012, the House Subcommittee on Insurance, Housing, and Community Opportunity
released a revised draft of the Section 8 Savings Act entitled the Affordable Housing and Self-
Sufficiency Improvement Act of 2012. The draft bill proposes implementing a minimum rent of at least
$69.45 (adjusted annually). We estimated that this increase would save approximately $56 million
annually or could be used to serve an additional 7,100 households if Congress chose to reinvest the
savings.
d
 We assumed all applicable households paid $50 in rent. As previously discussed, although housing
agencies are permitted to set a minimum rent of up to $50, not all do and many offer hardship
exemptions from the requirement.
e
    For the adjusted and gross income options, we did not impose a minimum rent requirement.
f
For this option, we evaluated the effect of requiring households to pay 12, 15, 20, 30, and 35 percent
of the fair market rent and no minimum rent. Only the 35 percent option resulted in cost savings or
additional households served on an annual basis—all other percentages resulted in cost increases
and fewer households served.

These reform options could be implemented individually and some could
be implemented together, depending on the objective policymakers were
trying to achieve—such as maximizing cost savings, minimizing the
impact on assisted households, or promoting work and self sufficiency
among families with children (that is, nonelderly, nondisabled
households). 48 To illustrate, one housing agency in the MTW program put
in place a rent structure that gradually increases household rents—from
27 percent of gross income in years 1 and 2, to the greater of $100 or 29
percent of gross income in years 3 and 4, and to the greater or $200 or
31 percent of gross income in all subsequent years—to promote self-
sufficiency among all assisted households. Under this approach, our
analysis showed that households receive more subsidy in the first 2
years, but pay more rent over time than under the current rent structure. 49

In addition to estimating the cost savings that could result from each of
these rent reform options, we evaluated each option in terms of its effect


48
 Our analysis of current household characteristics showed that 81 percent of nonelderly,
nondisabled households are comprised of at least one parent and one child. As a result,
we refer to these households as “families with children” throughout this report.
49
 Our analysis of current household characteristics and incomes showed that this
approach would save approximately $691 million annually.




Page 31                                      GAO-12-300 Voucher Cost and Administration Issues
                                        on (1) changes in the rent paid by assisted households, (2) household
                                        attrition rates, (3) HUD’s goals of encouraging households to move to the
                                        neighborhoods of their choice (mobility) and discouraging households
                                        from choosing communities that have higher levels of poverty
                                        (deconcentration), (4) incentives to seek work, (5) program
                                        administration, and (6) housing agency and industry support. While each
                                        of these options has advantages over the current rent structure—they
                                        could reduce costs or create administrative efficiencies—each also
                                        involves trade-offs.

                                        Under each rent reform option, some households would have to pay more
                                        in rent than they currently pay. For example, as shown in table 9, if all
                                        households were required to pay at least $50 in rent per month, an
                                        estimated 36,000 households (2 percent) would experience an average
                                        increase of $31 in their monthly rent. HUD’s fiscal year 2013 budget
                                        request proposes increasing the minimum rent to $75 per month for all
                                        assisted household. Under this option, 207,000 households (11 percent)
                                        would experience an average increase of $27. Table 9 also shows options
                                        that change the formula for calculating the households’ payment toward
                                        rent. For example, setting the households rental payment to 30 percent of
                                        gross income (that is, without any deductions) would affect about 1,662,000
                                        households (86 percent) and increase mean household rent by $27.

Table 9: Estimated Number and Percentage of Voucher-Assisted Households for Which Rents Would Increase and the
Average Monthly Increase, by Rent Reform Option

                                   Number of households                    Percentage of households        Mean change in monthly
                              experiencing an increase in            experiencing an increase in their        payment of affected
                                                        a
                                  their monthly payment                            monthly payment                   households
Minimum rentb
$50                                                    36,000                                     2%                            $31
75c                                                  207,000                                       11                            27
100                                                  256,000                                       13                            45
150                                                  358,000                                       19                            75
200                                                  698,000                                       36                            71
250                                                1,012,000                                       52                            92
300                                                1,225,000                                       63                           122
Household Rent Formula
35% of adjusted income                             1,751,000                                       92                           $50
30% of gross income                                1,662,000                                       86                            27
                          d
35% of fair market rent                            1,172,000                                       61                           155
                                        Source: GAO analysis of HUD data.




                                        Page 32                                      GAO-12-300 Voucher Cost and Administration Issues
a
To estimate the effect of each rent reform options on the number of households affected and their
monthly payments, we analyzed household characteristic and rent data as of December 2010.
b
 The Affordable Housing and Self-Sufficiency Improvement Act of 2012proposes implementing a
minimum rent of at least $69.45 (adjusted annually). We estimated that, if implemented,
approximately 198,000 households would experience an average increase of $23 in their monthly
payment.
c
 HUD’s fiscal year 2013 proposed budget proposes increasing the minimum rent to $75 per month for
all assisted households.
d
 Under this option, approximately 755,000 households would experience an average decrease of
$139 in their monthly payment.

Increasing minimum rents primarily would affect families with children that
tend to report little or no income. Conversely, assisted elderly and
disabled households almost always report income (most likely because
they are on fixed incomes, like Social Security) and a large percentage of
them already pay close to $200 in rent. 50 On a programwide level,
imposing minimum rents of $200 or less does not change the amount
these households pay in rent, when considering all assisted households.
Figure 4 shows the mean change in all households’ monthly rent resulting
from each of these rent reform options. Increases in monthly rental
payments for elderly and disabled households begin to increase more
significantly with a $200 minimum rent and under each of the rent formula
changes. As a result, higher minimum rents or increases to the
percentage of their incomes paid in rent will yield the greatest cost
savings. For the rent formula change to 35 percent of adjusted income,
the mean change in monthly rent generally would be similar across each
household type.




50
    We considered a household disabled if any member of the household had a disability.




Page 33                                    GAO-12-300 Voucher Cost and Administration Issues
Figure 4: Estimated Effect of Rent Reform Options on Monthly Rents of All Voucher-Assisted Households, by Household
Type




                                       Note: To estimate the effect each rent reform option on monthly household payments, we analyzed
                                       household characteristic and rent data as of December 2010. The Affordable Housing and Self-
                                       Sufficiency Improvement Act of 2012 proposes implementing a minimum rent of at least $69.45
                                       (adjusted annually). Under this change, only families with children would experience a change in rent
                                       ($5 on average).


                                       Figure 5 shows the mean change in monthly rent only for those
                                       households whose payments toward rent have changed as a result of
                                       each reform option. Among these affected households, changes in rental
                                       payments would be similar across household types for some of the rent
                                       structure options. For example, if households were required to pay a $75
                                       minimum rent, mean rental payments would increase by $30 for disabled
                                       households (on the high end) and $24 for elderly, disabled households
                                       (on the low end). However, if households were required to pay a $200 or
                                       higher minimum rent, families with children again would experience
                                       higher mean changes in rent than disabled and elderly households.




                                       Page 34                                     GAO-12-300 Voucher Cost and Administration Issues
Figure 5: Estimated Effect of Rent Reform Options on Monthly Rents of Affected Voucher-Assisted Households, by
Household Type




                                        Note: To estimate the effect each rent reform option on monthly household payments, we analyzed
                                        household characteristic and rent data as of December 2010. The Affordable Housing and Self-
                                        Sufficiency Improvement Act of 2012proposes implementing a minimum rent of at least $69.45
                                        (adjusted annually). We estimated that, if implemented, mean rental payments would increase by $23
                                        for families with children; $26 for disabled households; and $21 for both elderly and elderly, disabled
                                        households.


                                        Also as shown in figure 5, under the option where the rental payments are
                                        based on 35 percent of the fair market rent, some households will have to
                                        pay more in monthly rent, while others will pay less. Further, a higher
                                        proportion of affected households will see an increase in their rental
                                        payments. Specifically, of the approximately 1.9 million total households
                                        whose monthly rental payments would change under this option, about 61
                                        percent (approximately 1.2 million households) would experience an
                                        increase in their monthly payments and about 39 percent (755,000
                                        households) would experience a decrease.

                                        Requiring households’ rental payments to be based on a percentage of
                                        the applicable fair market rent rather than 30 percent of adjusted income
                                        primarily would affect households living in high-cost (mostly urban) areas


                                        Page 35                                     GAO-12-300 Voucher Cost and Administration Issues
                                        and large families, as well as those at the lower end of the income scale.
                                        HUD’s fair market rents reflect market prices and unit sizes—thus,
                                        household rent shares will increase if they live in a more expensive fair
                                        market area or rent larger units in the same fair market rent area under a
                                        rent option based on percentage of fair market rents. Table 10 illustrates
                                        how fair market rents and household payments based on a percentage of
                                        the fair market rent can vary by location and unit size.

Table 10: Comparison of Two- and Three-Bedroom Monthly Rents under a 35 Percent of Fair Market Rent Structure, for Three
Areas

                         Boston, Massachusetts                         Concord, New Hampshire                Farmington, Maine
                        Fair market   Monthly tenant                  Fair market   Monthly tenant     Fair market     Monthly tenant
                               rent        payment                           rent        payment              rent          payment
2 bedroom unit               $1,357                 $475                    $993             $348            $687                  $240
3 bedroom unit                1,623                   568                   1,226               429            820                  287
                                        Source: GAO analysis of HUD data.


                                        In addition, under an option where households’ rental payments are
                                        based on a percentage of the fair market rent, lower-income households
                                        would pay a larger percentage of their income toward rent than higher-
                                        income households. And while many of the lowest-income households
                                        would experience rent increases ($116 per month, on average for families
                                        with children), many of the highest-income households would experience
                                        rent decreases ($97 per month). 51

                                        Under each of these rent reform options, a small number of households
                                        might lose their subsidies—that is, their subsidy payments would be
                                        reduced to zero because their new, higher rental payments would fully
                                        cover the gross rent. For example, under the option where households
                                        pay 35 percent of their adjusted income in rent, we estimated that
                                        approximately 1.8 percent of households would lose their subsidies. 52
                                        Further, other affected households might leave the program because they
                                        would have to pay more in rent and no longer choose to participate in the
                                        program. However, because the demand for rental assistance by low-


                                        51
                                         We segmented the incomes of assisted household into 10 equal groups. We considered
                                        assisted households in the lowest tenth as the lowest-income households and assisted
                                        households in the highest tenth as the highest-income households.
                                        52
                                         In addition, under all other rent reform scenarios, less than 0.5 percent of households
                                        would lose their subsidies.




                                        Page 36                                     GAO-12-300 Voucher Cost and Administration Issues
income households generally exceeds the number of available vouchers,
eligible household likely would replace the one that left because similar
unassisted households have much higher rent burdens than assisted
households. Consequently, these rent reform options likely would not
result in a sharp decline in program participation rates.

Rent structures that decrease the amount of subsidy households receive
may discourage HUD’s deconcentration efforts, as well as household
mobility. With less subsidy, households (especially those with lower
incomes) may not have the means to move from neighborhoods of
concentrated poverty to those with a diversity of people and opportunities.
But HUD’s deconcentration goal presents its own trade-offs—chief among
them that fewer households ultimately would be served, albeit with more
generous subsidies. Among the rent reform structures we evaluated, all
but one would decrease household subsidies. A rent structure under
which households would pay 30 percent or less of the applicable fair
market rent would increase subsidies for almost all households and thus
could further HUD’s deconcentration and mobility goals. 53

Two of the rent structures we evaluated—higher minimum rents and rents
based on a percentage of the fair market rent—could create work
incentives for households with little to no income. Under the current rent
structure, and as previously discussed, a household with no income
generally does not pay rent—HUD’s subsidy covers the gross rent.
Consequently, some have argued that these households have little
incentive to seek employment because, for every $1 they earn, their
subsidies are reduced by 30 cents (for every $100 they earn on a monthly
basis, they will pay $30 in rent). Rent structures that do not take into
account household income may do more to encourage assisted




53
  We evaluated the effect (in terms of costs and households served) of requiring assisted
households to pay 12, 15, 20, 30, and 35 percent of the fair market rent. (The October 5,
2011, draft Section 8 Savings Act includes a provision that would require certain
households to pay the greater of $75 or 12 percent of the fair market rent.) Our analysis
showed that requiring households to pay 12, 15, 20, or 30 percent of the fair market rent
would increase program costs and reduce the number of households served. For
example, requiring households to pay 12 percent of the fair market rent would increase
program costs by approximately $4.1 billion and reduce the number of households served
by approximately 451,000; requiring households to pay 30 percent of the fair market rent
would increase program costs by approximately $165 million and reduce the number of
households served by approximately 27,000.




Page 37                               GAO-12-300 Voucher Cost and Administration Issues
households to find and retain employment. 54 Housing agencies in the
MTW program that have implemented these types of rent structures
simultaneously have offered self-sufficiency training and services to
assisted households. Additionally, rent structures that eliminate
household income from the rent equation may allow Congress and HUD
to more accurately forecast funding needs. As we previously discussed,
market rents and tenant incomes are two of the primary drivers of
program costs, and predicting changes in market rents and incomes
when developing budget proposals for future years is difficult. These
types of rent structures also would encourage assisted households to
make choices about housing consumption similar to unassisted
households. For example, households would not have an incentive to
over-consume housing because their share of the rent would increases
with the size of the unit they rented.

Moving toward a rent structure either based on fair market rents or gross
income would introduce significant administrative efficiencies into the
program and could allow housing agencies to further reduce improper
payments from administrator (housing agency) error or tenants’
underreporting of income. Some housing agencies we contacted noted
the complexity of the current income and rent determination process and
their frustrations with tracking the existence of and changes to tenant
incomes. HUD noted that requiring assisted households to pay higher
minimum rents or 35 percent of their adjust income in rent would not
create administrative efficiencies in the voucher program. Our 2005 report
on improper subsidy payments in HUD’s rental assistance programs
made similar observations, finding that the complexity of HUD’s income
and rent determination policies were of major concern to HUD field
offices, program administrators, and industry groups. 55 HUD officials
noted at the time that the department was considering various




54
  In the early stages of the MTW demonstration, several housing agencies experimented
with time limits on assistance as a means of encouraging self sufficiency among assisted
households. All of these housing agencies largely abandoned time limits. However, some
were in favor of mandatory minimum rents or subsidies that decreased over time,
regardless of a household’s income. Applied Real Estate Analysis, Inc. and The Urban
Institute, The Experiences of Public Housing Agencies That Established Time Limits
Policies under the MTW Demonstration (Washington, D.C.: May 2007).
55
 See GAO, HUD Rental Assistance: Progress and Challenges in Measuring and
Reducing Improper Rent Subsidies, GAO-05-224 (Washington, D.C.: Feb. 18, 2005).




Page 38                               GAO-12-300 Voucher Cost and Administration Issues
                           approaches for statutory, regulatory, and administrative streamlining and
                           simplification of its policies for determining subsidies.

                           Finally, nearly all of the housing agencies we contacted said that they
                           supported some type of rent reform—among the most popular options
                           were increasing minimum rents and increasing tenant rental payments to
                           35 percent of adjusted income. Some housing agencies have suggested
                           that they have been successful in implementing rent reform under the
                           MTW program with community support. 56 Despite this, some industry
                           groups have voiced concern about rent reform. For example, in
                           commenting on a provision included in the draft Section 8 Savings Act of
                           2011 that would permit HUD to pursue a rent demonstration, the National
                           Low Income Housing Coalition stated that the demonstration would put
                           HUD-assisted households at risk of having significant rent burdens. 57 The
                           Coalition also said that any demonstration should include parameters that
                           require HUD to monitor these burdens and stop or change the
                           demonstration if it were found to harm assisted households. 58

Consolidation of Voucher   Based on our literature review and interviews with HUD and housing
Administration             industry officials, consolidation of voucher program administration under
                           fewer housing agencies (administrative consolidation) could yield a more
                           efficient oversight and administrative structure for the voucher program
                           and cost savings for HUD and housing agencies; however, current
                           information on the magnitude of these savings was not available.

                           HUD spends considerable resources in overseeing housing agencies.
                           More than 2,400 local housing agencies administer the voucher program
                           on HUD’s behalf. According to a 2008 HUD study, the department



                           56
                             The MTW statute requires that “an application to participate in the demonstration shall
                           include a plan that… includes criteria for establishing a reasonable rent policy, which shall
                           be designed to encourage employment and self-sufficiency by participating families,
                           consistent with the purpose of this demonstration, such as by excluding some or all of a
                           family’s earned income for purposes of determining rent.” See HUD, Policy Development
                           and Research, Report to Congress, Moving to Work: Interim Policy Applications and the
                           Future of the Demonstration (Washington, D.C.: August 2010).
                           57
                             The National Low Income Housing Coalition advocates for the affordable housing needs
                           of low-income people.
                           58
                            Subcommittee on Insurance, Housing, and Community Opportunity, House Committee
                           on Financial Services, testimony of Linda Couch, Senior Vice President for Policy,
                           National Low Income Housing Coalition,112th Cong., 1st sess., 2011.




                           Page 39                                 GAO-12-300 Voucher Cost and Administration Issues
dedicated from more than half to two-thirds of its level of oversight to 10
percent of its units (generally those housing agencies that administer 400
or fewer vouchers), and an even lower level of risk in relation to the
amount of subsidy funds they administered (about 5 percent of total
program funds). 59 According to agency officials, consolidating the
administration of vouchers under fewer agencies would decrease HUD’s
oversight responsibilities.

According officials from HUD and some housing agencies with whom we
spoke, administering the voucher program through small local housing
agencies may be less cost effective, in part because of the differences in
the economies of scale. For example, larger housing agencies can realize
cost efficiencies in conducting large numbers of voucher unit inspections
that smaller agencies cannot. Also, larger housing authorities collect
sufficient fees to support fraud detection units to ensure that households
report all of their income sources. Although there are no current data on
the comparative costs of administering the voucher program though small
and large housing agencies, the current administrative fee structure
recognizes that economies of scale exist in larger housing agencies. As
previously discussed, HUD pays housing agencies a higher rate for the
first 600 vouchers a housing agency has under lease and a lower rate for
the remaining units under lease. Congress passed this two-tiered fee
structure based in part on a 1994 HUD study that found that flat fee rates
were leading to administrative fee deficits in small housing agencies and
large administrative fee reserves at larger housing agencies. 60

HUD has acknowledged that oversight and administrative efficiencies
could be realized. As previously discussed, in recent years, the
department has advanced several proposals aimed at streamlining and
simplifying administration of the voucher program. Several of these
proposals have advocated administrative consolidation as a means of
creating administrative efficiencies. For example, HUD’s 2011 version of
the Transforming Rental Assistance initiative was intended to streamline
and improve the delivery and oversight of rental assistance across all of



59
  See HUD, Office of Policy, Program, and Legislative Initiatives, Rebalancing HUD’s
Oversight and Small PHAs’ Regulatory Burdens (Washington, D.C.: 2008). About 58
percent of housing agencies administer 400 or fewer vouchers.
60
 See HUD, Office of Policy Development and Research, Section 8 Administrative Fees: A
Report to Congress (Washington, D.C.: June 1994).




Page 40                               GAO-12-300 Voucher Cost and Administration Issues
the department’s rental assistance programs by means such as
promoting consortiums, consolidation, and other locally designed
structures for administrative functions.

In addition, HUD recently initiated changes to its housing agency
consortium rule. The revised rule would treat all housing agencies in a
consortium as one entity—HUD’s current regulation requires that
consortium members be treated separately for oversight, reporting, and
other purposes. Some have argued that the current rule does not allow
HUD or housing agencies to realize the full benefits of consolidation—
less oversight (one versus multiple agencies) and shared and thus
reduced administrative responsibilities—and therefore discourages the
formation of consortiums. Since 1998, nine housing agencies that
administer vouchers have formed four consortiums.

We evaluated the administrative consolidation in terms of its effect on
assisted households and selected voucher program goals. More
specifically, we looked at implications for, or likelihood of achieving (1)
HUD’s mobility and deconcentration goals, (2) program administration,
and (3) housing agency and industry support. Like the rent reform options
we evaluated using similar criteria, consolidation has advantages over the
current administrative structure, but also involves some trade-offs.

Consolidation might help HUD more readily achieve deconcentration
goals. Although vouchers theoretically allow recipients to use them
anywhere in the United States, the current system of program
administration creates numerous hurdles for households to move out of
high-poverty, central city jurisdictions in which they typically live. Most
housing agencies originally were established to construct and manage
public housing developments. 61 As a result, program administration does
not always align with housing markets. In urban areas within the same
market, several housing agencies may operate voucher programs with
different admissions criteria and subsidy levels. A paper by researchers at
the Brookings Institution argued that this “fragmentation of local program
administration undermines the potential of the [voucher] program as a
mechanism for deconcentrating urban poverty.” 62 Extending the


61
 Approximately 850 housing agencies only administer vouchers.
62
 See Bruce Katz and Margery Austin Turner, Who Should Run the Housing Voucher
Program? A Reform Proposal. Working paper prepared for the Brookings Institution,
Center on Urban and Metropolitan Policy (Washington, D.C.: November 2000).




Page 41                              GAO-12-300 Voucher Cost and Administration Issues
jurisdiction of housing agencies (through consolidation, for example) likely
would give assisted households access to more housing options,
particularly in surrounding suburbs. On the other hand, regionalized
administration of the voucher program may make it harder for households
to make or maintain contact with program administrators when
necessary—for example, assisted households may not have access to
transportation or may have to travel long distances to meet with housing
agency officials.

Several states offer examples of regional or statewide administration.
Thirty-one states have programs in which one housing agency
administers a voucher program throughout a state. These housing
agencies administer from less than one percent to all of their respective
state’s total voucher allocation. In addition, as part of our work, we visited
a number of housing agencies in the Boston, Massachusetts,
metropolitan area. As a result of litigation in the mid-1990s, local housing
agencies in the state are permitted to lease vouchers throughout the state
(that is, outside their original jurisdictions, which typically align with city
limits). 63 Although all of the housing agencies with which we spoke
suggested that it was important that housing agencies maintain local
control of their programs, each leased at least one voucher outside their
original jurisdiction. In Brookline—a city with relatively high housing costs
compared with the surrounding area and the nation—more than half of
voucher holders rent apartments outside the city limits.

Although consolidation will not alleviate housing agencies’ current
administrative burden, it may begin to address some of the issues
housing agencies and industry groups have raised about a particular
policy—portability. Although portability is one of the hallmark objectives of
the voucher program, almost all the housing agencies we contacted said
that HUD’s portability polices should be revised or eliminated, noting that
they are complicated and costly to administer. Under HUD’s portability
rules, an assisted household may move to the jurisdiction of a different
housing agency—the receiving agency either may bill the sending agency
for assistance for the transferring household or absorb the household into
its own program. According to the 2000 Brookings Institution report,
because of the complexity of the portability process—for example,


63
  Williams v. Hanover Housing Authority, 871 F. Supp. 527 (D. Mass. 1994); see also
Williams v. Hanover Housing Authority, 926 F. Supp. 10 (D. Mass. 1996), rev’d and
                                             st
remanded on other grounds, 113 F.3d 1294 (1 . Cir. 1997).




Page 42                               GAO-12-300 Voucher Cost and Administration Issues
              receiving agencies may calculate subsidy levels differently than sending
              agencies, or apply more rigorous screening criteria—many housing
              agencies do not fully explain portability to households and do not
              encourage them to consider moving. 64

              In addition, consolidated waiting lists and single points of contact for
              housing assistance within a single housing market, region, or state may
              make the process of applying for and obtaining rental assistance less
              confusing and more transparent for households seeking assistance. For
              example, a large number of housing agencies in Massachusetts
              participate in a consolidated waiting list—households seeking assistance
              in the state need only put their name on one list and receive
              communications from one agency. HUD officials said that the department
              has been considering taking steps to maintain the waiting lists of each
              housing agency in a centralized system.

              Finally, housing agencies we contacted were split on the idea of
              consolidation—about one quarter supported it as a way to cut costs and
              introduce administrative efficiencies in the voucher program, while almost
              half were against it. Some housing industry groups and an academic with
              which we spoke argued that consolidation would not save money—one
              noted that the administrative fees that small housing agencies receive are
              relatively insignificant in terms of total program dollars—and would
              sacrifice local discretion and control of voucher programs. Others noted
              that administrative costs savings could result from the consolidation and
              single-source management of waiting lists and elimination or substantial
              reformation of the portability process; however, no data currently are
              available to assess this point.



              Over the past decade, Congress has responded to the increasing cost of
Conclusions   vouchers by changing the way the program is funded. Specifically, rather
              than providing funding based on the number of vouchers housing
              agencies are permitted to lease, Congress currently provides funding
              based on housing agencies’ prior-year subsidy expenses. Congress also
              has capped appropriations so that housing agencies do not always
              receive the amount of subsidy or administrative funding for which they are



              64
               See Who Should Run the Housing Voucher Program? A Reform Proposal.




              Page 43                           GAO-12-300 Voucher Cost and Administration Issues
eligible based on the funding formulas Congress annually establishes.
While this approach gives Congress some control over cost increases, it
does not directly address the market and policy factors we identified as
contributing to increases in program costs.

Although policy makers can do little to alter or control market changes
such as changes in rents and tenant incomes, our analysis suggests that
savings could continue to be realized (or, in some cases, more
households could be served without additional program funding if
Congress chooses to reinvest the funds in the program) if HUD provided
Congress better information on housing agencies’ subsidy reserves.
Enhanced information would include the extent of housing agencies’
subsidy reserves, clear and consistent criteria for determining how much
housing agencies would need to retain to help ensure effective program
management, and how much could be rescinded in future appropriations.
Without such information, HUD faces difficulties in effectively manage the
funding Congress provides for the voucher program, including ensuring
that funds disbursed to housing agencies are used to assist households
rather than remaining unused in reserve accounts.

In tandem with providing information about the use of program funds,
HUD also has an opportunity to advance proposals that would help
increase the efficiency of program administration. In particular, HUD now
has or will have richer, relevant experience and data from which to draw.
In addition to previous reforms HUD has proposed, examples from the
MTW program and HUD’s study on administrative fees can offer options
to Congress for streamlining and simplifying administrative activities and
aligning the administrative fee structure with actual administrative
expenses. For example, information and analyses from these sources
could help identify all current administrative requirements, determine
which of those actions are necessary and which could be eliminated or
streamlined, and determine the cost of performing these activities—which
could help reduce program costs in the future.

Although Congress and HUD have taken several steps to control rising
costs in the voucher program, we have identified a range of options that
offer the additional promise of managing program costs or increasing
efficiency in the long term. These options would also be applicable to
HUD’s other rental assistance programs and would have the potential to
generate even greater savings. Implementing rent reform and
administrative consolidation would require policymakers to consider some
potential trade-offs—in the balance are issues such as the rent burden of
assisted households, concentration of poverty, and the extent of local


Page 44                         GAO-12-300 Voucher Cost and Administration Issues
                      control over voucher programs. Nevertheless, these options have certain
                      advantages over the current program structure. For example, these
                      options could save money or streamline program administration—both of
                      which are important objectives in a time of fiscal constraint. Currently
                      Congress is considering a variety of measures to address some of these
                      issues.


                      To help reduce voucher program costs or better ensure the efficient use
Recommendations for   of voucher program funds, we recommend that the HUD Secretary
Executive Action      provide information to Congress on (1) housing agencies’ estimated
                      amount of excess subsidy reserves and (2) its criteria for how it will
                      redistribute excess reserves among housing agencies so that they can
                      serve more households. In taking these steps, the Secretary should
                      determine a level of subsidy reserves housing agencies should retain on
                      an ongoing basis to effectively manage their voucher programs.

                      Further, the Secretary should consider proposing to Congress options for
                      streamlining and simplifying the administration of the voucher program
                      and making corresponding changes to the administrative fee formula to
                      reflect any new or revised administrative requirements. Such proposals
                      should be informed by results of HUD’s ongoing administrative fee study
                      and the experience of the MTW program.


                      We provided a draft of this report to HUD for comment. In its written
Agency Comments       response, reproduced in appendix II, HUD neither agreed nor disagreed
and Our Evaluation    with our recommendations, but provided technical comments that we
                      have incorporated where appropriate. While the response noted that the
                      draft report provided an accurate assessment of the program and its
                      current outcomes, HUD identified several points for clarification and
                      emphasis, including:

                          •     HUD commented that the stated purpose of our report of
                                identifying options for increasing efficiencies and simplifying
                                program administration was inconsistent with our
                                recommendations for agency action because some of the options
                                do not result in both efficiencies and simplification. We clarified,
                                where appropriate, that the focus of our report was to identify
                                reform options that could reduce costs or create efficiencies.

                          •     HUD also commented that the draft report’s discussion of growth
                                in HUD’s outlays could be misleading because this growth reflects


                      Page 45                            GAO-12-300 Voucher Cost and Administration Issues
          only a change in HUD’s disbursement policy and does not relate
          at all to changes in program costs. Specifically, HUD stated that
          starting in 2006, the program was required to disburse all eligible
          funds, instead of the department’s maintaining those reserves.
          HUD did not provide any support that outlays reflect only a change
          in HUD’s disbursement policy and do not relate at all to changes
          in program costs. While we recognize that disbursement policies
          may affect outlays, changes in program size and other factors
          would also affect outlays. Further, although the draft provides
          information on the trends in actual HUD outlays, it focuses on
          housing agencies’ expenditures because they are a better
          measure of what housing agencies are paying in subsidies to
          assisted households with vouchers. Therefore, we made no
          changes in response to this comment.

    •     HUD also commented that the draft report did not address HUD’s
          ongoing efforts to limit the accumulation of subsidy reserves. We
          added additional language to the report on these efforts, such as
          the assistance HUD provides to housing agencies in ensuring that
          all available voucher funds are utilized.

    •     HUD noted that it currently provides quarterly reports to the
          Congressional Budget Office on subsidy reserve levels. However,
          these quarterly reports do not include information on the estimated
          amount of housing agencies’ subsidy reserves that exceed
          prudent levels, as we are recommending. By providing the
          estimated amount of excess subsidy reserves, Congress will be
          better positioned to make informed funding decisions, as we
          illustrated in our draft report.




Page 46                           GAO-12-300 Voucher Cost and Administration Issues
As agreed with your offices, unless you publicly announce the contents of
this report earlier, we plan no further distribution until 30 days from the
report date. At that time, we will send copies to the Secretary of Housing
and Urban Development and other interested committees. In addition, the
report will be available at no charge on the GAO Web site at
http://www.gao.gov.

If you or your staff have any questions concerning this report, please
contact me at (202) 512-8678 or sciremj@gao.gov. Contact points for our
Office of Congressional Relations and Public Affairs may be found on the
last page of this report. Key contributors to this report are listed in
appendix III.




Mathew J. Scirè
Director, Financial Markets
   and Community Investment




Page 47                         GAO-12-300 Voucher Cost and Administration Issues
List of Congressional Requesters

The Honorable Charles E. Grassley
Ranking Member
Committee on the Judiciary
United States Senate

The Honorable Shelley Moore Capito
Chairwoman
Subcommittee on Financial Institutions
  and Consumer Credit
Committee on Financial Services
United States House of Representatives

The Honorable Judy Biggert
Chairman
Subcommittee on Insurance,
Housing and Community Opportunity
Committee on Financial Services
United States House of Representatives




Page 48                       GAO-12-300 Voucher Cost and Administration Issues
Appendix I: Objectives, Scope, and
              Appendix I: Objectives, Scope, and
              Methodology



Methodology

              The objectives of our review were to (1) determine the factors that have
              affected costs in the Housing Choice Voucher (voucher) program from
              2003 through 2011 and the actions Congress and the Housing and Urban
              Department (HUD) took to manage these costs and (2) identify additional
              steps HUD, housing agencies, or policy makers can take to limit cost
              growth in the voucher program and more effectively provide decent, safe,
              and affordable housing.

              To determine the factors that have affected costs in the voucher program
              from 2003 through 2011 and the actions Congress and HUD took to
              manage these costs, we reviewed and analyzed appropriations
              legislation, budget documents—including HUD budget proposals,
              Congressional Research Service reports, monthly statements from the
              Department of the Treasury, and the Office of Management and Budget
              SF-133 reports on budget execution and budget resources. We also
              reviewed HUD’s annual guidance on the allocation of the program’s
              appropriation to housing agencies. We used these sources to determine
              the annual appropriations and outlays over the period. The starting year
              for our analysis reflects the year when Congress began changing the
              voucher program’s funding formula. 1

              We analyzed program data that HUD prepared using information derived
              from multiple HUD systems including the Central Accounting and
              Program System (HUDCAPS) and Voucher Management System (VMS)
              to determine how much housing agencies’ expenditures changed from
              2003 through 2010. Specifically, we assessed the extent to which certain
              factors, such as subsidy paid to a landlord, program size (that is, the
              number of assisted households), and administrative expenses,
              contributed to the change in program expenditures over this period. We
              identified these factors by reviewing GAO, HUD, and stakeholder studies.
              We also reviewed prior work by GAO and others to describe what is




              1
               Funding for 2003 and 2004 was provided through the Housing Certificate Fund, which
              accounted for both Section 8 programs—the project-based and tenant-based programs.
              As a result, we were unable to determine the appropriated and outlay amounts for the
              programs for these years. In addition, in 2005 the Housing Certificate Fund was split into
              two accounts, one of which was the tenant-based rental assistance account. Because of
              the split, about $4.2 billion from the advance appropriation enacted in fiscal year 2004 and
              available in 2005 does not appear in this account. Instead, it appears in the Housing
              Certificate Fund where it was appropriated. Total available resources for tenant-based
              rental assistance in fiscal year 2005 were $14.8 billion.




              Page 49                                GAO-12-300 Voucher Cost and Administration Issues
Appendix I: Objectives, Scope, and
Methodology




known about the cost-effectiveness and characteristics of vouchers
relative to other forms of rental housing assistance.

To identify additional steps HUD, housing agencies, or policy makers can
take to limit cost growth in the voucher program and more effectively
provide decent, safe, and affordable housing, we identified and reviewed
relevant legislation, draft legislation, and studies. We analyzed HUD’s
VMS data on the Net Restricted Assets (NRA) balances (or subsidy
reserves) of housing agencies as of September 30, 2011, to determine
the extent of housing agencies’ “excess” subsidy reserves. To derive our
estimates of the potential “excess” balances, we used HUD’s 8.5 percent
(about a month) threshold to estimate the excess NRA balance. Also, we
analyzed HUD data to determine the number of housing agencies and
amount of funding that Congress offset in fiscal years 2008 and 2009 and
the additional funding Congress appropriated for and HUD provided to
certain housing agencies in 2009. Further, we visited nine housing
agencies in Massachusetts. We selected these housing agencies based
on Massachusetts’ use of both local and regional housing agencies to
provide voucher assistance and the housing agencies’ proximity to one
another. In addition, we interviewed 31 of the 35 housing agencies
participating in the Moving to Work (MTW) demonstration program to
identify the activities the agencies had implemented in their voucher
programs to reduce program costs and introduce efficiencies in the
program. 2 For example, as part of these interviews, we identified alternate
rent structures these agencies had implemented or proposed.

We also evaluated the cost and policy implications of three types of
programmatic reforms to the voucher program: increasing minimum rents,
changing the percent of income tenants pay toward rent, and requiring
tenants to pay a percentage of fair market rent. In identifying and
assessing these programmatic reforms, we reviewed proposals included
in draft legislation and HUD, Congressional Budget Office, and housing
industry group reports. We also considered reforms certain agencies
have implemented. To estimate the effects of these alternative



2
 We did not contact the Philadelphia Housing Authority because the agency currently is
under administrative receivership. We did not contact the Boulder Housing Partners, and
Lexington-Fayette Urban County Housing Authority because they had not yet entered into
MTW agreements with HUD at the time of our analysis. In addition, the Housing Authority
of the County of Santa Clara administers its own MTW program as well as the Housing
Authority of the City of San Jose’s MTW program.




Page 50                              GAO-12-300 Voucher Cost and Administration Issues
Appendix I: Objectives, Scope, and
Methodology




approaches to calculating tenant payments on the subsidy levels that
result, we analyzed a December 2010 extract of tenant records from
HUD’s Public and Indian Housing Information Center (PIC). These
records contain information about participating households, as of
December 2010, including information on gross and adjusted income
levels, housing unit size and rent, tenant contributions and housing
assistance payments, as well as information on age, sex, and disability
status of each household member. To focus on the core of the assisted
household population, we examined only those households with five or
fewer members, and living in units with one, two or three bedrooms. We
determined the elderly and disability status of each household.
Specifically, we defined a household as an elderly household if either of
the first two household members (the head of household and possibly a
spouse or co-head) were age 62 or over, and we placed a household in
disability status if any of the five members were identified as having a
disability. For the identified subsidy alternatives, we calculated an
alternative tenant contribution using information on income and applicable
fair market rent in the PIC file as appropriate, and calculated the resulting
assistance payment. (The assistance payment is the difference between
the lesser of the payment standard and gross rent, and the tenant
payment, subject to any existing minimum tenant payments.) We did not
consider the possible effects of any change in household behavior, either
in terms of continued participation in the voucher program or in choice of
housing unit or rent level that could be induced by changes in tenant
contributions.

In conducting our work, we assessed the reliability of datasets provided
by HUD, including data files derived from HUDCAPS, VMS, and PIC.
Specifically, we performed basic electronic testing of relevant data
elements, such as housing assistance payment amounts, total tenant
payment, and unit months leased. We reviewed HUD’s data dictionaries,
instructions, and other relevant documentations. We also interviewed
HUD officials knowledgeable about the data to obtain clarifications about
key variables and calculation rules. Where possible, we compared our
results with other sources to ensure the reasonableness of the
information. We determined that the data were sufficiently reliable for the
purpose of this report.

Finally, for all of our objectives, we interviewed HUD officials and
consulted with one academic and officials from various housing groups
including the Center on Budget and Policy Priorities, Council of Large
Public Housing Authorities, National Low-Income Housing Coalition,
National Association of Housing Redevelopment Officials, Public Housing


Page 51                              GAO-12-300 Voucher Cost and Administration Issues
Appendix I: Objectives, Scope, and
Methodology




Authorities Directors Association, Quadel Consulting, and the Urban
Institute. Further, we contacted 53 housing agencies that administer the
voucher program. In selecting these housing agencies, we considered the
number of authorized vouchers, location (that is, HUD-defined regions),
and leasing and spending rates for the voucher program as of March
2011.

We conducted this performance audit from February 2011 through March
2012 in accordance with generally accepted government auditing
standards. Those standards require that we plan and perform the audit to
obtain sufficient, appropriate evidence to provide a reasonable basis for
our findings and conclusions based on our audit objectives. We believe
that the evidence obtained provides a reasonable basis for our findings
and conclusions based on our audit objectives.




Page 52                              GAO-12-300 Voucher Cost and Administration Issues
Appendix II: Comment from U.S. Department
             Appendix II: Comment from U.S. Department of
             Housing and Urban Development



of Housing and Urban Development




             Page 53                               GAO-12-300 Voucher Cost and Administration Issues
Appendix II: Comment from U.S. Department of
Housing and Urban Development




Page 54                               GAO-12-300 Voucher Cost and Administration Issues
Appendix II: Comment from U.S. Department of
Housing and Urban Development




Page 55                               GAO-12-300 Voucher Cost and Administration Issues
Appendix III: GAO Contact and Staff
                  Appendix III: GAO Contact and Staff
                  Acknowledgment



Acknowledgment

                  Mathew J. Scirè, (202) 512-8678, sciremj@gao.gov
GAO Contact
                  In addition to the contact named above, Daniel Garcia-Diaz, Acting
Staff             Director; Stephen Brown, William Chatlos, Karen Jarzynka-Hernandez,
Acknowledgments   Cory Marzullo, John McGrail, Josephine Perez, and Barbara Roesmann
                  made key contributions to this report.




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                  Page 56                               GAO-12-300 Voucher Cost and Administration Issues
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