Welfare Reform: Issues and Possible Implications for HUD's Programs and Tenants

Published by the Government Accountability Office on 1997-06-16.

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

1     united
JA0   General Accounting  OfTice
      Washington, D.C. 20548

      Besonrces, Commnnity,   and
      Economic Development    Division


      June 16, 1997

      The Honorable Rick Lazio
      Chairman, Subcommittee on Housing
       and Community Opportunity
      Committee on Banking and Financial Services
      House of Representatives

      Subject:   Welfare Reform: Issues and Possible Imnlications   for HUD’s
                 Promuns and Tenants

      Dear Mr. Chairman:

      As requested, we are providing you with (1) a summary of the Personal
      Responsibility and Work Opportunity Reconciliation Act of 1996 (the welfare
      reform law); (2) the views of the Department of Housing and Urban
      Development (HUD), researchers, and interest groups on the extent to which
      welfare reform will affect HUD’s programs and tenants; and (3) a list and
      descriptions of the HUD programs that may be used to provide employment
      opportunities for low-income individuals.

      In summary, the new welfare reform law takes a comprehensive approach to
      promoting self&rfticiency     for f-es    by making benefits time-limited and
      work-dependent.      As a part of this comprehensive approach, the welfare            3
      reform law eliminates the federal entitlement program of Aid to Families With
      Dependent Children (AFDC) and replaces it with Temporary Assistance for
      Needy Families 0-a            block grant for the states to provide time-limited
      cash assistance to needy families. The states have a great deal of discretion in
      determining how to utilize their block grants. Among other things, the states
      can set eligibility limits and benefit levels, deny additional assistance for any
      recipient who has another child while receiving benefits, and spend funds for
      services to families rather than for cash benefits. The new law also abolishes
      the work and training program for welfare recipients, reduces the food stamp
      program, tightens Supplemental Security Income (SSI) eligibility criteria for
      children, eliminates SSI and food stamp benefits for most legal immigrants,

                                              GAO/RCED-97-148R Welfare Reform and Housing

expands child care funding, and strengthens child support enforcement. One
area not addressed by the welfare reform law is housing. (Enc. I summarizes
the new welfare reform law.)

While it is too early to determine the extent to which welfare reform will
affect HUD’s programs and tenants, the welfare reform law will have
implications for BUD because many participants in its programs receive AFDC
(now TANF) benefits and SSI. For example, HUD estimates that in 1995,
public assistance was the primary source of income for almost half of the
families with children assisted by BUD. HUD believes that in some cases,
welfare reform will be an incentive for families to become self-sufiicient but        ’
that in other cases families may encounter increased financial hardship.
According to the agency, the incomes of families receiving assistance may
decline because SSI payments will terminate for some, and benefits and
eligibility may be reduced for others under TANF. Changes in food stamp
benefits, limitations on assistance to legal immigrants, and the way that the
states implement welfare reform are also expected to have additional impacts,
according to BUD. (Enc. II discusses welfare reform’s potential implications
for HUD’s programs and tenants.)

BUD stated that it has a strong commitment to providing employment
opportunities, along with the necessary training and supportive services, for
low-income persons. According to BUD, the Department’s economic
development programs-such as the Community Development Block Grant
program-can play a vital role in bringing jobs to communities.  (Enc. III
provides a list of the HUD programs that the Department believes wiIl assist
low-income persons in finding employment opportunities.)


We provided copies of a draft of this report to HUD for review and comment
HUD’s written comments included a cover letter summarizing the agency’s
comments and two attachments that provided (1) a more detailed response
(including technical corrections and editorial changes) and (2) a paper on the
Community Development Block Grant program. HUD’s cover letter
summarizing its overall comments appears in enclosure IV. BUD neither
agreed nor disagreed with the report but provided observations for us to
consider in this or a future report

In commenting on our report, BUD noted that it expects that welfare reform
will significantly increase the demand for the employment opportuuities,
housing, and supportive services that the Department’s programs provide.

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HUD’s primary area of concern was that the draft report did not directly
address the efforts the Department is making to shape its programs to
maximize their potential for ensuring that the residents of public and assisted
housing, as well as other welfare recipients, will have a good chance of
succeeding under welfare reform. For example, HUD noted that its core
economic development programs, such as Empowerment          Zones and Enterprise
Communities and the Community Development Block Grant program, have the
dual purpose of restoring communities and creatjng jobs. HUD noted that
some of its other programs, such as Economic Development and Supportive
Services, provide a comprehensive approach to promoting self’sufficiency.
While our report briefly describes each of these programs and notes that HUD
is undertaking efforts to promote partnerships at the state and local levels and
to expand some of its economic development programs, an in-depth discussion
of each of HUD’s current efforts was beyond the scope of this review. In one
of the attachments to its comments, HUD suggested that we include several
references to its proposed 1997 Public Housing Management Reform Bill.
Because we chose not to discuss other pending public housing reform
initiatives in this report, we did not add references to HUD’s proposal. Finally,
we incorporated BUD’s suggested editorial and technical changes where

To summarize the Personal Responsibility and Work Opportunity
Reconciliation Act of 1996, we reviewed the law and summaries of the law
produced by the departments of Agriculture, Health and Human Services, and
HUD. We gathered views on the extent to which welfare reform will affect
HUD’s programs and tenants by collecting and analyzing studies, estimates,
and position papers developed by HUD, researchers, and interest groups. We
supplemented this information through interviews with HUD and interest
group officials. However, we found that limited information currently exists
on the potential impacts of welfare reform on HUD’s programs and tenants.
We obbjned from HUD the list of its programs that can be used to provide
training and employment opportunities.    We performed this work from
February through April 1997 in accordance with generally accepted
government auditing standards.

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Please call me on (202) 512-7631 if you or your staff have any questions.
Major contributors to this report include Susan Campbell, Vondalee Hunt, and
Stephen Jones.

Sincerely yours,

Judy k England-Joseph
Director, Housing and Communi~
  Development Issues

Enclosures - 4

                                        GAOIECED-97148R   Welfare Reform and Housing
ENCLOSURE      I                                                                 ENCLOSURE         I

                             A SUMMARY        OF WELFARE REFORM

      On August 22, 1996, President Clinton signed into law (P.L. 104193) the Personal
Responsibility and Work Opportunity Reconciliation Act of 1996. The new law reshapes
cash and food welfare programs and imposes a citizenship requirement for many benefits,
among other things. The major components of the law will

     -   replace the 61-year-old Aid to Families With Dependent Children (AFDC) program
         with a block grant fund to states called Temporary Assistance for Needy Families

     -   reduce food stamp benefits and expand the states’ authority       over food stamp

     -   tighten Supplemental    Security Income (SSI) eligibility criteria for disabled

     -   end benefits for most legal immigrants,

     -   reduce subsidies for some child nutrition    programs,

     -   expand child care funding,     and

     -   strengthen   child support   enforcement.

     The welfare reform law did not address housing.


       The law abolishes AFDC, the primary cash aid program for families with children, as
tiell as the Job Opportunities   and Basic Skills Training program (JOBS) (the work and
training program for AFDC recipients) and Emergency Assistance to Families with
Children {a program that provided emergency help to families with children for a
maximum of 1 month per year). These programs are replaced by TANF, a block grant of
federal funds given to the states. The states can use the block grant to provide vouchers
or services rather than cash benefits because the law contains no explicit requirement
that families get cash aid. While the states must operate a welfare program in all political
subdivisions, the programs need not be uniform across the state (although families must
get fair and equitable treatment).

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Effective   Date

      Generally, the states must adopt their TANF plans by July 1, 1997. The states may
choose to begin their program earlier by submitting a state plan to the Secretary of
Health and Human Services (HHS). As of January 31, 1997,40 states had filed their TANF
plans with HHS, and 35 of those plans had been certified as complete. In addition, some
states were granted waivers from the AFDC rules before the enactment of the new law.
If the new law is inconsistent with these waivers, the states may continue administering
their programs under the waivers if they choose to do so.


       AFDC required the federal government to share the program’s costs with the states;
the federal share was at least 50 percent of the benefits provided to each family.
Therefore, if the number of families receiving benefits increased during an economic
slowdown, so did federal spending. Under TANF, the states will receive a “capped” block
grant that is set at $16.4 billion annually through fiscal year 2002. Each state will receive
a fixed level of resources for income support and work programs on the basis of the
state’s past spending levels on these programs; if the number of families meeting
eligibility standards changes, there will be no automatic adjustment in federal funds.
However, the law establishes a $2 billion “contingency fund” that the states can quaMy for
 on the basis of high rates of unemployment or sharp increases in food stamp
participation.   In addition, the states can receive additional funding if they are among the
highest performing states in achieving the objectives of the act or reducing illegitimacy.
 The law also includes (1) an $800 million grant fund for states with above-average
 population growth or below- average benefits and (2) a $1.7 billion loan fund.

State Discretion

       The states have a great deal of discretion in determining how they plan to use the
TANF block grant funds. The new legislation allows the states to set eligibility limits and
benefit levels. The states implicitly have complete flexibility to deny assistance to
recipients who have additional children while receiving assistance (i.e., the family cap)
and to limit benefits for a recipient who moves into the state to the same level of benefits
as the recipient would have received in his or her former state. The states can also spend
funds on services to families or to operate employment placement programs. The funds
do not have to be spent entirely on cash benefits.

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Time Limits

       Federal funds can be used to provide a total of no more than 5 years of aid in a
lifetime to a family. The states may give hardship exemptions to up to 20 percent of their
average caseload. The states may also adopt shorter time tits,     at their option.

Work Reauirements

      The new law establishes increasing work participation goals for the states’ welfare
programs. Individuals must participate in work activities within 2 years of receiving aid.
Those individuals who have received aid for more than 2 months, are not exempt Tom
work requirements, and are not engaged in work must participate in community service,
unless the state opts out of this requirement.   Each year, the states must involve an
increasing percentage of TANF families in work activities, beginning at one-fourth in 1997
and rising to one-half in 2002. The minimum amount of time for a single parent-except
those with a child under the age of 6 years--to spend in work activities rises from 20
hours per week in 1997 to 30 hours per week in 2000. At least one adult in 75 percent of
two-parent families must be working in 1997 and 1998, as under previous law, but the rate
rises so that adults in at least 90 percent of two-parent families on welfare must be
working in 1999 and thereafter.     Those states not meeting these work participation rates
for single-parent and two-parent families face a reduction in TANF block grant funds.

      Adults cannot be penalized for a failure to meet work requirements if their failure is
based on the inability to find or afford child care for a child under 6 years of age. If the
adult recipient refuses to participate, the state is to reduce the family’s assistance (the
penalty can include terminating help to the entire family). Adults can lose Medicaid and
food stamps as well as cash aid.

Maintenance     of Effort

      The law has a “maintenance of effort” requirement on state funding. The states that
do not meet mandatory work requirements must spend 80 percent of the amount they
previously allocated from their own revenues for AFDC and related programs as their
“maintenance requirement.”    For states that meet the mandatory work requirements, the
maintenance requirement is reduced to 75 percent. To qualify for contingency funds, the
states must meet a fOO-percent maintenance requirement.

Minor Parents

      The new law requires the states to deny cash aid to unmarried mothers under age 18
and their children unless they live with an adult relative or in an adult-supervised
arrangement (unless the state determines thatthey might suffer harm in the home). To

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ENCLOSURE     I                                                               ENCLOSURE        I

receive assistance, the mother must attend high school or an alternative training program
as soon as her child is at least 12 weeks old.


       The new law imposes a special time limit on benefits for nondisabled, childless
persons aged 18 to 50. These individuals can receive a maximum of 3 months of benefits
in each 36-month period without working or engaging in a work-training program
(individuals can regain eligibility for an additional 3 months of assistance during this
period under certain conditions).     The law also reduces the basic food stamp benefits;
limits the degree to which households with very high shelter expenses are given extra
food stamp benefits; and makes other changes in deductions Tom income.

      The states’ flexibility in implementing the food stamp program is increased through
the provisions for a “simplified” food stamp program for the recipients of TANF; the
removal of a number -of federal directives as to how the states implement the program;
allowing the states to reduce benefits by up to 25 percent for those recipients who fail to
perform an activity required under the TANF program.; and easing limits on the extent to
which waivers from the federal rules can be granted. In addition, the states’ simplified
programs may not increase federal food stamp costs.

      The definition of a food stamp “household” is also changed under the law. Persons
less than 21 years old who are parents or are married but are living with their parents no
longer qualify as an independent household. Their parents’ incomes will count against
their benefits.


      Under the previous legislation, children were eligible for disability payments if they
suffered from an impairment comparable to one that would keep an adult from working.
The Social Security Administration,     in regulations, defined this as an impairment which
substantially limited a child’s ability to perform activities that are considered normal for
his or her age. The new law establishes a more stringent standard for eligibility. Under
the law, a child is found disabled only if his or her impairment results in marked and
severe limitations in his or her ability to function. Children already on the rolls who do
not meet this new criterion will have their benefits terminated.


     Under the new ,law, most legal immigrants will lose their eligibility for SSI and food
stamp benefits between April and August 1997. The law ends SSI benefits for legal
immigrants, including children, unless they are veterans or active-duty members of the

 8                                                  GAOfRCED-97-148R Welfare &form   and Housing
ENCLOSURE     I                                                                ENCLOSURE         I

U.S. military, and their families, or have worked 40 qualifying quarters under Social
Security. The work-related exception may take into account qualifying quarters of work
performed by (1) the immigrant (22) the immigrant’s spouse (but only if the immigrant
remains married to the spouse or the spouse is deceased); or (3) the immigrant’s parent
before the immigrant reached age 18. Also exempt, but only for 5 years, are refugees and
people seeking asylum. The states have the option to make legal immigrants ineligible for
TANF and Medicaid.


       The law reduces federal subsidies for meals and snacks served in family day care
homes by creating two tiers of income-based reimbursement rates. In addition, the law
reduces reimbursement rates for the Summer Food Service Program. It also makes the
individuals who are eligible to receive public education in a state eligible for school meal
benefits regardless of their citizenship or immigration status. Finally, the law eliminates
school breakfast star-i-up and expansion programs and makes nutrition education and
training discretionary.


       The new welfare law adds mandatory funding for states and provides additional
discretionary funds under an amended Child Care and Development Block Grant for child
care for low-income families. Under the amended block grant, individual states are
entitled to receive the amount they received for AFDC programs for work-related child
care, transitional child care, and at-risk child care in 1994, 1995, or the average of the
amounts for 1992-94, whichever is highest. The states that maintain the higher of their
1994 or 1995 spending on those programs also will be able to draw down an additional
amount at a matching rate from Medicaid.

       The law provides the states with budget authority of $2.0 billion in 1997 and $13.9
billion for 1997 through 2002. In addition, the law provides another $7 billion in
discretionary funding under the block grant

      The previous law guaranteed child care help to families on welfare that needed child
care to participate in work or training and up to 1 year of transitional child care help if
they left welfare as a result of their earnings. The new law eliminates these guarantees.
The new law does require the states to use at least 70 percent of the funds made
available for child care on families who are either receiving TANF, transitioning   off TANF,
or at risk of becoming dependent on TANF.

                                                   GAOAZCED-97-148B Welfare Reform and Housing
ENCLOSURE I                                                                 ENCLOSURE      I


      The law makes a number of child support changes that require the states to adopt
new enforcement tools and processes that facilitate new national efforts to enforce the
collection of child support payments ii-om delinquent parents. The federal government
and the states are required to establish automated registries of child support orders and a
directory of new employees throughout the state so as to quickly track and locate absent
parents. These efforts also include the expedited seizure of assets and the denial of
certain licenses.

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ENCLOSURE     II                                                              ENCLOSURE II

                          BUD’S PROGRAMS AND TENANTS

      Many of the participants in HUD’s programs will be tiected      by the welfare reform
law. For example, HUD estimates that there are 1.5 million recipients of AFDC and SSI
assistance among the 4.5 million tenants receiving HUD rental assistance from the
Department.’       Of the HUD-assisted families with children, almost half relied on public
assistance as their primary source of income in 1995. At least in the short run, HUD
believes that these families will lose income, since SSI payments to many children and
most legal immigrants will end, and benefits and eligibility under TANF may be reduced
by the states. HUD expects additional impacts because of the changes in food stamp          ’
benefits, limitations on assistance to legal immigrants, and TANF implementation
decisions made by the states. In addition to the expected impact on those served by
HUD’s rental assistance programs, other programs in the areas of selfsufkiency,
assistance to the homeless, and communi~ development wiII also be affected as HUD
attempts to meet the multiple needs of its clients. For example, HUD is encouraging
public housing authorities (PHA) to determine how many residents obtain welfare and
what. types of social services they have. Plus, HUD is promoting partnerships with private
and community service providers who can aid residents and has proposed an expansion
of economic development initiatives, such as empowerment zones, to help communities
create more job opportunities.

       While housing providers and researchers agree that there is little information to
determine the impact of welfare reform on assisted housing, the states’ welfare reform
efforts raise many questions worthy of exploration.  The following is a discussion of how
welfare reform may affect HUD, its programs, and the people whom it assists.

The Effect on HUD’s Budget

      The Congressional Budget Office (CBO) estimates that the new law will reduce
federal outlays by a total of about $54 billion over the 6 tical years 1997 through 2002.
Most of these estimated savings come from reductions in the food stamp program, SSI,
and assistance to legal immigrants. However, CBO’s est&nate did not take into account
the law’s implications for the budget. In HUD’s draft report, the preliminary estimate by
HUD’s Office of Policy Development is that in 1997 through 2002, the new reform will
raise HUD’s budget requirements by $2.3 billion. The draft report noted that the
reductions in cash benefit patients   to families with children are responsible for most of
the projected increase in HUD’s funding. HUD cautioned, in the draft report, that any

‘The Impacts of Federal Welfare Reform on HUD Public and Assisted Housing:          An Initial
Assessment (Draft), HUD, Office of Policy Development (Jan. 21, 1997).

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ENCLOSURE II                                                                 ENCLOSURE II

specific outlay estimates of the impacts of welfare reform are extremely speculative at
this lime because the states will have a great deal of flexibility in implementing the new
law, and variations are impossible to model in advance. HUD’s estimate is based on the
analyses of the law by the Urban Institute and CBO. However, the draft states that the
adm.ir&tration believes that the Urban Institute’s analysis may be too pessimistic in
estimating the likely response of those welfare recipients moving from welfare to work.
Therefore, the administration  believes that the Jnstitute’s cost estimates may be

All Who Need Housing Assistance    Do Not Receive It

       Because of the high cost of housing in many areas, housing assistance may be a
necessary component in helping families work toward self-sufficiency. In addition,
shelter and supportive service needs will have to be met for the homeless before that
group’s employment expectations can be realized. Currently, HUD’s housing assistance
programs are limited by budgetary constraints to only about 4.5 million units; of these,
about 29 percent are public housing, 31 percent are units obtained with tenant-based
section 8 certificates or vouchers, and 40 percent are project-based unit&. The ceiling
income for housing assistance is 80 percent of an area’s median income. However, since
 1981, mandatory quotas have directed assistance to households with incomes below 50
percent of the median; preferences were given to those who were involuntarily displaced,
living in substandard housing, or paying more than half their income for rent? According
to a HUD study in 1993,3 5.35 million households-representing     12.8 million individuals-
that did not receive housing assistance had incomes of less than 50 percent of their areas’
median incomes and paid more than half of their income for housing or lived in poor-
 quality housing, meaning that they had “worst-case” housing needs. Almost 2 million of
 the households with worst-case housing needs were already working at least half tie.
 Furthermore, a majority of the households with worst-case needs also had incomes below
 30 percent of their areas’ medians. According to BUD, from 1978 through 1993, the
 number of households with worst-case needs increased by 1.5 million

?he preferences were suspended by the January 1996 cont@uing resolution and again by
the fiscal year 1997 VA/HUD and Independent Agencies Appropriations Act.

3Rental Housing Assistance at a Crossroads: A Report to Congress on Worst-Case
Housing Needs, HUD, Office of Policy Development and Research (Mar. 1996).

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ENCLOSURE        II                                                                 ENCLOSURE      II

Attainina   Self-Sufficiencv   From Housing Assistance Will Be Difficult     for Manv Recinients

      In our 1993 report: we found that families may achieve economic independence
from AFDC and food stamps through increased earnings; however, economic
independence from rental assistance is beyond the means of many housing assistance
recipients. Thus, it appears unhkely that many families will be able to move “up and out”
of assisted housing, freeing up units for other eligible families. According to HUD, the
diminishing supply of public housing and other affordable housing stock and the necessity
of higher rents in public housing to cover costs may make movements out of assisted
housing even more difficult in the future. Using 1992 data, we found that the recipients
of HUD’s Section 8 rental assistance in fiscal year 1992 would have needed annual
incomes between about $18,000 and $36,000 (depending on the location) to become
economically independent of the program (i.e., to be no longer eligible for the program on
the basis of income). These amounts are much higher than the median income of $7,320
reported for all HUD-assisted households in 1989, even when adjusted for i.nflation.5
However, HUD believes that for a number of reasons the incomes may be understated
and that these results should be used with caution

      The source of these incomes also provides an indicator of the assisted households’
potential for moving toward or achieving self-sufficiency. Only 40 percent of the HUD-
assisted households reported income from wages or salaries, compared with 53 percent of
renter households that were eligible but did not receive housing assistance. In addition,
the bulk of the income reported came from social securi@/pensions, welf&re/SSI, and food
stamps. The lack of income from wages and salaries and the reliance on other forms of
income is partially explained by the number of the HUD-assisted households headed by
elderly or disabled individuals.    Table II.1 shows the monthly earnings that a three-
member family renting a two-bedroom         aparunent would need to be independent of the
Section 8 program in the states with the highest and the lowest break-even levels, as well
as for the median state in each quintile when the states are ranked in the order of their
average fair market rent (F’MR). HUD establishes FMRs for each metropolitan and
nonmetropolitan    area in a state, which currently reflect rents at the 40th percentiIe for a
given number of bedrooms.

*Se&S&iciencv:  Onnortunities        and Disincentives   on the Road to Economic
Indenendence (GAOJIRD-9323,          Aug. 6 1993).

5HUD-Assisted Renters (GAO/RCED-95167R,           May 18, 1995).

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Table 11.1: Section 8 Certificate Housina Break-Even Amounts for Families Rentina Two-Bedroom
Units (Fiscal Year 1992)

                                                            Monthly break-even amounts per family

                                            Average fair        Earnings per
 State category        State                market rent”               month      Hourly wage mteb
  Lowest               Alabama                     $384               $1,533                $10.22

  1st quintile         Oklahoma                    $421               $1,658                $11.06

  2nd quintile         Indiana                     $458               $1,780                $11.87

  3rd quintile         Michigan                    $510               $1,955          _     $13.03

  4th quintile         Illinois                    $577               $2,178                 $14.52

  5th quintile         New Hampshire               $712               $2,627                 $17.51

  Highest              District of
                       Columbia                    $830               $3,022                 $20.14

“The average FMR is the average of the highest and lowest FMRs in the metropolitan        areas of a
state. .
bFull-time employment of 150 hours of work a month.

Source: Self-Sufficiencv: Oonottunities and Disincentives   on the Road to Economic
Independence (GAORIRD-93-23, Aug. 6,1993).

The Effect on the Residents of Public and Assisted Housing

     In general, the rent obligation of assisted tenants is 30 percent of adjusted income.6
As tenants’ incomes rise or fall, their rent also rises or falls. Ren@l assistance recipients
who are unsuccessful at finding employment and lose their TANF or SSI assistance may

 ‘Certain allowances, such as those for dependents under the age of 18 and medical
 expenses for the handicapped or elderly, can be excluded from annual income.

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  ENCLOSURE      II                                                              ENCLOSURE II

  not lose their housing assistance since usually, as income decreases, their share of the
  rent decreases as well. Rental assistance recipients who are successful at finding
  employment would continue to pay 30 percent of their adjusted income for rent. Usually,
  as their incomes increase, one-third of each dollar would be spent on rent. As discussed
  below, welfare reform may have positive or negative effects on the tenants of public and
  assisted housing.

  Minimum and ceiling rents for nublic housing. Minimum and ceiling rents were
  authorized for fiscal year 1997 by the fiscal year 1997 VA/HUD and Independent Agencies
  Appropriations    Act (P.L. 104-204) and remain in effect until the end of fiscal year 1997
  unless additional legislation is enacted. Under the act, if residents lose their income from       ’
  welfare and have no other income, the residents could be charged a minimum rent of up
  to $50 per month that would be established by the housing authority.       If a resident is
  charged a minimum rent and cannot pay, the resident could be evicted. The ceiling rent
  language allows the public housing authority @WA) to cap rents at a level reflective of
_ the unit’s market value, but not below the operating costs of the unit. This way, as
  residents’ incomes increase, rent would not increase above the ceiling so that families
  could keep more of their income. Yet if the family stayed, there would be one fewer unit
  avajlitble for a family with a need for affordable housing.

  Housing voucher navments. In the Section 8 tenant-based rental voucher program,
  families may pay more or less than 30 percent of their income for rent, depending on
  whether the units they select rent for more or less than a “payment standard” that is set
  by the housing authority.   If a resident is paying more than 30 percent of his or her
  income for rent, and the income falls, HUD may not assume the dTEEerence since the
  maximum rental assistance that a resident can receive is the difference between the
  payment standard and 30 percent of income. Thus, tenants may be forced to move to less
  expensive units.

  Food start-m reductions. Although HUD does not count food stamps as part of residents’
  income in the calculation of residents’ rent, a change in the amount of food stamps that a
  resident receives may affect the amount of rent they can afford. HUD has no authority to
  allow rents to fall in response to food stamp cuts. If a resident loses food stamps, he or
  she will be likely to have to use other income to pay for food, which will result in less
  money available for other items, such as rent. As a consequence, HUD believes that rent
  defaults and evictions could increase.

  The Effect on the F’undinn Provided to PHAs
  and Other Rental Assistance Providers

        Since HUD pays funds to housing providers (PKAS and project-based assistance
  providers) to cover the costs in excess of rental payments made by the recipients of

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HUD’s housing subsidies, the changes in residents’ incomes and thus rental payments that
result from welfare reform will affect the amount of money that housing providers need
to cover costs. However, the direction of that change is uncertain. If residents’ incomes
and rent payments increase, housing providers will need less federal funds to cover costs,
but if residents’ incomes and rent payments decrease, housing providers will need more
funds to cover their costs. As mentioned previously, HUD’s preliminary estimate is that
Tom 1997 through 2002, welfare reform will raise HUD’s budget requirements by $2.3

     In the public housing program, the federal government pays PHAs an operating
subsidy to cover a percentage of the difference between the PHAs’ expenses and their      ’
sources of income, including residents rent payments. The more money that residents
pay for rent, the less operating subsidy the PHAs may need. Conversely, if rent payments
decrease, the PHAs may need more operatig       subsidy. However, for several years in a
row now, budgetary pressures and reduced appropriations     have meant that HUD could
not fully fund the difference between the tenants’ rents and the PII.& operating costs.
The Council of Large Public Housing Authorities (CLPHA) estimates that after the &year
time limits expire, if PHAs are funded at 85 percent of HUD’s estimated need for
operating subsidy, the portion of lost rental revenues not covered by operating subsidies
will be about $74 million annually. According to HUD, the prorations for k-xl years 1996
and 1997 were 89 percent and 95 percent, respectively.

      Under Section 8 tenant-based and project-based programs, HUD or the PHAs, on
behalf of HUD, pay the di.fference between the contract rent agreed to and the residents’
rental payments-which    fluctuate with changes in incomes. Thus, if the residents’
incomes increase, they wiIl pay a larger portion of the contract rent, and HUD or the
PHAs will pay less. Conversely, if the residents’ incomes decrease, HUD or PHAs will pay
a larger portion of the contract rent to the Section 8 housing provider. Thus, the annual
federal cost of Section 8 programs will vary inversely with residents’ incomes.

The Effect on Legal Immigrants Who Live in HUD-Assisted
Housing or Who ADD~V for Housing Assistance

       According to HUD, about 98,500 adult noncitizens receive both SSI benefits and
HUD’s housing assistance. HUD reported that the Social Security Administration
estimates that roughly three-fourths of the noncitizens currently receiving SSI benefits are
ineligible under the new law.7. Generally, according to HUD, current HUD-assisted legal
immigrants will not lose their housing assistance, and legal immi@ants who entered the

7See footnote 1.

 16                                                GAO/NED-97-14%    Welfare Reform and Housing
ENCLOSURE     II                                                             ENCLOSURE      II

United States before August 1996 will remain eligible for housing aid in the future, even if
they do not receive it now.

      However, HUD believes the law is unclear on whether it limits HUD housing
assistance for legal immigrants who entered the United States after Au,aut 22, 1996,
because the law’s description of the types of programs affected is unclear. According to
HUD, the law prohibits most legal immigrants from receiving assistance fkom “federal
means-tested” programs for 5 years if they enter the United States after August 22, 1996,
but it does not define which programs are “federal means-tested.” The administration   will
make an initial determination as to whether the law applies to HUD-assisted housing,
according to HUD.

The PHAs’ Role in Helning Residents Find Emnlovment

       Programs such as the Family Self Sufficiency (FSS) Program promote coordinated
housing assistance with supportive services to promote self-sufficiency.    Through section
3 of the Housing and Urban Development Act of 1968 (amended in 1992), which requires
PHAs to ensure that residents can benefit from employment through the expenditure of
federal housing assistance, PHAs obtain services, jobs, or training for residents. Yet these
and other programs geared toward self-sufiiciency or employment serve only a &action of
the total number of residents. HUD believes that FSS has been expanding over time but
that less than 2 percent of public housing and certiIicate/voucher  households combined
participate in FSS. The program places new duties on housing providers, such as
arranging for services that will be supplied by others and monitoring residents’ progress.
The act creating FSS did not authorize additional funds for these services. Thus, PHAs
would need to create close worldng relationships with state and local agencies and
private supportive service providers to best ensure that services are available. Some
Phase and housing interest groups are concerned that housing agencies may be unable to
operate effective Section 8 programs without adequate funding to cover the costs of FSS

      According to a November 1996 HUD-funded study: the use of the section 3 jobs
program (see description in enc. III) is an inherently limited mechanism for employing
large numbers of residents. The jobs that residents receive through section 3 are mainly
related to construction and therefore provide periodic and short-term employment.
Also, the number of jobs resulting from federal funding to any single PHA is small
compared to the need for jobs among residents. However, HUD believes the section 3

‘Lessons From the Field on the Imnlementation of Section 3, Prepared for the HUD Office
of Policy Development and Research by the Manpower Demonstration Research
Corporation (Nov. 1996).

17                                                GAO/RCED-97-148R Welfare Reform and Housing
ENCLOSURE     II                                                             ENCLOSURE      II

requirements can be useful in finding work for residents in instances where housing
authorities are undertaking considerable rehabilitation.

       The success of welfare reform depends, in part, on the availability of employment
training and job development opportunities for low-income people. HUD believes that it
is committed to providing employment opportunities, training, and supportive services for
low-income persons. According to HUD, many of its economic development programs,
such as the Community Development Block Grant program, generate large numbers of
new job opportunities that should not be lost for low-income residents. (Enc. lII
provides a list of HTJD programs that may be used to provide employment opportunities
for low-income persons.)

The Effect on Homelessness

       Homelessness is expected to remain a serious problem in the future because
affordable housing is still scarce, some local economies are stagnant, and the current
resources available to address homelessness are deemed insufficient, according to
homelessness advocates, local officials, and program administrators.   HUD and the
National Coalition for the Homeless believe that welfare reform may increase
homelessness. As we determined in 1995, most experts agree that the mainstream public
social programs, such as Section 8 and AFDC (now TANF’), are the key to reducing the
number of homeless persons on any large scale and ensuring that those once homeless do
not return to the streets. Some of the mainstream programs deemed necessary to reduce
homelessness have been eliminated or severely restricted. While providers for the
homeless are serving some of the homeless, prevention programs are needed to keep
those who have been assisted from returning to homelessness and those with homes from
falling into homelessness. ’

      Advocates for the homeless fear that the new welfare legislation will destroy the
federal safety net and dramatically contribute to homelessness. The National Coalition
for the Homeless asserts that without increased resources for jobs (that pay livable
wages), affordable housing, health care, education, and child care, welfare reform will
move people from welfare into deeper poverty and homelessness. The homeless
population’s access to jobs and training is often hampered by the lack of a tied address.
As a result, the work requirements will be especially difficult for this population.  The
new work requirements wilI also eliminate many homeless persons’ eligibility to obtain
food&amps-which      are often one of the last resources that homeless individuals can count
 on. The Coalition also believes that changes to SSI disability provisions for children and

Howard   Another   Decade of Homelessness?    An Issue Paner (GAO, Sept. 15, 1995).

 18                                                GAO/RCED-97-14SR Welfare Reform and Housing
ENCLOSURE       II                                                                 ENCLOSURE          II

to eligibility for most programs for poor and disabled immigrants         will eliminate scarce
resources that often stand between families and homelessnessl*

      HUD agrees that the new legislation may result in increased homelessness.
According to HUD, because more than 5 million families are paying more than 50              percent
of their incomes for rent, reductions in cash benefits and in food stamps are likely         to
make it impossible for some families to continue to make monthly rent payments.              The
families that are most at risk will be those who reach the 5-year limit for receiving
assistance under TANF. As a result, some families could be evicted Tom their
apartments and become part of the homeless population.      In some states, families        may
feel the impact of time limits under TANF in less than 5 years and the impact of
sanctions immediate1y.l’

The Effect on Economic      Activitv   in High-Povertv   Areas

      According to HUD,12 public benefits, such as AFDC (now TANF), SSI, and food
stamps, together represent a large component of the total purchasing power in many high-
poverty central-city neighborhoods   and in some high-poverty rural areas. In 1990, the
percentage of households receiving public assistance ranged from 26 percent in Detroit,
Michigan, to 10 percent in San Francisco, California. Because many families who receive
assistance are concentrated in distressed neighborhoods, businesses in these
neighborhoods could see reduced sales as families lose their welfare assistance or have
their food stamps reduced. Businesses will reduce their payrolls and may be forced to
close, leaving communities with even fewer jobs and services, according to HUD. The
effect could also have an impact on the owners of rental housing, who may have difficulty
collecting enough rent to sustain their buildings, thus further contributing to the
deterioration of the housing and the neighborhood.

       On the other hand, the     welfare reform changes may stim~ate residents to move to
‘areas where employment is        available. According to one background paper, families who
 receive Section 8 certificates     or vouchers will be advantaged under welfare reform
 because they will be able to      use their assistance in a new location.13 The net result may

“‘Welfare Repeal: Moving Americans Off Welfare. Into Homelessness. The hnnact of H-R.
3734 on Homelessness in America, National Coalition for the Homeless.

%ee footnote     1.

12Seefootnote    1.

13Michael Wiseman, Welfare Reform in the United States: A Background             Paner, Housing
Policy Debate, vol. 7, issue 4. (Date?)

19                                                       GAO/BCED-97-14SR Welfare Reform and Housing
ENCLOSURE II                                                                ENCLOSURE II

be a further diminished demand for inner-city housing, according to this paper. However,
HUD believes it is premature to predict that these moves would happen in numbers great
enough to have a signifkant impact on the overall demand for housing in the inner city.

 20                                                GAO/RCED-97-148R Welfare Reform and Housing
ENCLOSURE III                                                                 ENCLOSURE     III

                   HUD’S EMPLOYMENT         AND TRAINING      PROGRAMS

     HUD currently operates employment training programs, job development programs,
and demonstration programs that it believes wiIl be involved in implementing the states’
welfare reform initiatives. Following are HUD’s description of these programs.


The Familv Self-Suffkiencv Pro&m helps the residents of public housing and the
recipients of tenant-based Section 8 assistance to become self-sufkient      through
education, training, and the provision of supportive services, including case management.
The PHAs receiving public housing or Section 8 funding commitments for incremental
units have a legal responsibility to operate a family self-sufficiency program. Although
family participation is voluntary, participating families sign a contract with the PHA
specifying (1) what steps both the family and the PHA will take to help them to &xncial
independence and (2) the penalties for failure to comply with the contract

Funding: No funds are provided for services. However, $9.3 million was available in
fiscal year (FY) 1996 and, according to HUD, $15 miJlion in FY 1997 for Section 8 FSS
Service Coordinators.

The Economic Develonment and Suunortive Services Grant Program provides grants to
P&Is, Indian housing authorities, and cooperaking nonprofit organizations for social
services designed to enhance the selfkufficiency of residents of public and assisted
housing. Economic development activities include entrepreneurship      training and
development, micro-loan funds, and credit union development activities. Supportive
services may include child care, employment training and counseling, computer trainmg,
education, and transportation.

Funding: $30.8 rnXon of the $53 million available in FY 1996 WilI be used for these
grants. The balance has been used for other related efforts. In FY 1997, $42.25 is

The Campus of Learners Program provides public housing residents with an opportunity
to live in a college campus-like setting that is focused on learning. As a condition of
living on campus, residents agree to enroll in an education program involving computer
technology, job trainmg, and comprehensive education and support services. A signifkant
component will be the physical reconfiguration     of public housing’developments   to foster
a campus/learning environment and the establishment of community-based partnerships.

21                                                 GAO/RCED-97-148R Welfare Reform and Homing
ENCLOSURE III                                                                 ENCLOSURE        III

Funding: No additional funds are provided for Campus of Learners, but HOPE VI (see
description below) and public housing comprehensive grant funds may be used for this

The Neighborhood Networks Program is a community-based, voluntary, and
comprehensive approach to establishing computer learning centers in FHA-msured and
assisted multifamily developments. The Neighborhood Networks computer learning
centers will give residents access to job skills training, formal education, and community
services leading to opportunities for employment, telecommuting,      and micro-enterprise

Funding: Because this is not a grant program, no specific funding is provided. Owners,
however, are permitted to use project resources and get third-party resources, loans, or
donations to pay for the costs of setting up a Computer Learning Center.

The YouthBuild Program provides opportunities to economically disadvantaged young
adults (aged 16 to 24) by providing education and employment training and skills to
achieve self-suf&iency.

Funding:   FY 1996 funding was $20 million; FY 1997 funding is $30 million.

The Tenant O~~ortunitv Program provides grants to public housing Resident Councils and
Resident Management Corporations to fund training and other tenant opportunities,    such
as business’ development, education, job training and development, and social services.

l3mding: FY 1996 funding was $15 million; FY 1997 funding is $5 million.       HUD said
these funds would be combined for a total of $20 million.

The HOPE VI Progmm provides grants to PHAs for revitalizing severely distressed
properties. The funds may also be used for community service programs and for
supportive services, including, but not limited to, literacy training, job training, and day

Funding: For FY 1996, up to 20 percent of a grantee’s amount was available for self-
sufficiency programs. For FY 1997, grantees may spend the higher of up to $5,000 per
replacement unit or the number of originally occupied units for self-sufkiency programs.


Under section 3 of the Housing and Urban Develonment Act of 1968, priority for training
and employment is provided to low-income persons who are residents of public and
assisted housing, residents of the neighborhood where the programs are being operated,

 22                                                 GAO/RCED-97-14SR We’re    Reform and Housing
ENCLOSURE      III                                                                ENCLOSURE       IU

lxrticipants in YouthBuild, and homeless persons. Priority in contracting is also given to
businesses that offer opportunities to these classes of low-income persons.

Funding:   There is no funding for section 3.

The Sten-Up Program provides career-oriented jobs and training through use of registered
apprenticeships and comprehensive support services for participants. Most programs
focus on construction and modernization work, but other occupations, including child
care, are being developed as well.

Funding:   There is no funding for Step-Up.

The Emnowerment Zones/Enterniise Communities Program encourages comprehensive
planning and investment aimed at job creation and the economic, physical, and social
development of needy urban and rural regions of the country.

Funding: Each Empowerment Zone received $100 million in Social Services Block Grants,
and each Enterprise Community received $3 million for the life of the lO-year program.
The program received a total of $1 billion in grants and over $2.5 billion in tax incentives.
Several sites also received support from HUD’s Economic Development Initiative.

The Economic Develonment Initiative (EDD supports job creation projects through its
financing of community and economic development initiatives.  ED1 supplements the
section 108 Loan Guarantee and Community Development Block Grant program by
putting additional equity into community and economic development programs.

Funding:   FY 1996 funding was $50 million.     There is no funding     for F’Y 1997.

The Communitv Develonment Block Grants CCDBG)               help cities and counties develop
viable communities by providing decent housing and          by expanding economic
opportunities.  In addition to generating jobs through       projects such as housing
rehabilitation and the construction of public facilities,     CDBG funds are used for job
training and supportive services to allow low-income         persons to seek and retain

Funding: Generally, up to 15 percent of an annual CDBG grant may be used for public
services, and much of that is spent on job training and related services. In FY 1997, a
total of $4.6 billion was provided.

23                                                    GAOEKXD-97-1&R      Welfare Reform and Housing
ENCLOSURE III                                                                  ENCLOSURE       III


The Moving-to-Work Program will give up to 30 public housing authorities the flexibility
to provide housing assistance that gives incentives to families with children in which the
head of the household is working, is seeking work, or is preparing for work by
participating in job training, educational programs, or programs that assist people to
obtajn employment and become economically selfsufticient.

Funding:   $5 million for technical   assistance in FY 1997.

Jobs Plus, an element of the Moving-to-Work Demonstration, focuses Moving-to-Work’s
flexibility on one targeted public housing site in each of 6 to 10 communities in order to
saturate that site with services, dramatically increase the share of residents who are
employed, and retain them as community residents once they are employed.

Funding: $5 million was provided for technical assistance and evaluation       in FY 1996.
Additional support is being provided by the Rockefeller Foundation.

Bridges to Work is a five-site demonstration to connect inner-city residents with suburban
employment opportunities by providing job placement, transportation,     and support
services, including child care and counseling.

Funding: $17 million over 4 years, including $8 million from HUD, $3 million IYom local
public and private contributions, and $6 million from HUD and from the Ford,
Rockefeller, and MacArthur Foundations for monitoring, research, and evaluation.

24                                                    GAOIRCED-97-1&R   Welfare Reform ani Housing
ENCLOSURE        IV                                                                          ENCLOSURE     IV


                                                 THE SECRETARY
                                             WASHINGTON,   D.C. 20410-0001

                                               June 11,        1997

       Ms. Judy A. England-Joseph
       Director,   Housing and Community
          Development   Issues
       Resources,    Community, and
          Economic Development    Division
       U.S. General Accounting     Office
       Washington,    DC 20548
       Dear Ms. England-Joseph:
               Thank you for the opportunity          to review and comment on the
       draft    response to Congressman Lazio's            request for information    on
       welfare     reform and its potential         implications   for HUD.
       Representatives        from the Offices      of Community Planning     and
       Development,       Housing,    Policy   Development and Research, and Public‘
       and Indian       Housing have all reviewed the document, and their
       detailed      responses     are enclosed   for your consideration.        It was a
       pleasure     to hear from you.
              In addition,    I would like to take the opportunity          to offer
       more general      comments,   In offering      these comments, I do
       understand    that it may be premature         for you to describe     in great
       detail   the impact that welfare        reform is likely   to have on HUD
       and its programs.       We experienced       some of this same difficulty       in
       the preparation      of our own paper , which you cite extensively.
               It is also important              to note that we expect welfare            reform
       will    significantly         increase       the demand for employment
       opportunities,          housing,       and supportive         services  that HUD programs
       provide.        The Department          is making great efforts           to shape its
       programs to maximize             their      potential      for assuring     that residents
       of public       and assisted        housing , as well as other welfare
       recipients,        will   have a good chance of succeeding                  in this new
       welfare     environment.           Your draft         report does not address this
       issue directly,          and I believe          that it should.
                In order to be successful,         States,      local governments,    and
       the private      sector  will     need to work together          to provide  work
       activities      and employment      opportunities        for participants    in the
       Temporary Assistance          for Needy Families          (T%NF) program.    HUD will
       play its part by pursuing           several     strategies     to make welfare

25                                                                   GAO/RCED-97-148RWelfareReformandHousing
ENCLOSUREN                                                                                     ENCLOSUREN

       reform      work:      (1)   creating  jobs     for   welfare       recipients;     (2) using
       housing      assistance        and community     facilities         strategically       to link
       welfare    recipients    to jobs and to help                  assure that work      will   pay;
       and (3) providing       and leveraging services                  to link welfare
       recipients      to jobs and to help them stay                   employed.
                 HUD's core      economic  development       programs,      such as
       Empowerment         Zones/Enterprise       Communities       (EZ/EC), Economic
       Development      Initiative       (EDI), Section        108, and the Community           x
       Development     Block Grant (CDBG) program,                have the dual purpose
       of restoring       communities      and creating        jobs.     Targeted to
       neighborhoods        with high concentrations             of poor families,
       including     families      on welfare,      these programs generate         jobs that
       are available        to welfare     recipients       entering     the work force.    For
       example,    between 1993 and 1996, we estimate                  Section   108 and ED1
       funded projects          to create    300,000 jobs.         HUD's Bridges to Work
       Demonstration        also provides       transportation        and other supportive
       semices     to help link central            city residents        to suburban jobs.
               While some welfare            recipients     may move directly       into paying
       jobs in the private             sector,      others will    need job training     and
       public      service    or workfare         jobs.    Programs like Economic
       Development         and Supportive         Services    (EDSS) or Family Self-
       Sufficiency         (FSS) provide        a comprehensive      approach to promoting        -
       self-sufficiency.             Section 3 offers         another vehicle     for assuring
       that low-income           persons can benefit          from employment opportunities
       created      by HUD funds.          The Community Development Block Grant
       program supports            many of these programs by funding            the training
       and services         necessary      to help people succeed at the jobs that
       become available.             In fact,       all of the HUD programs described          in
       your Enclosure          III   can contribute        to this effort.
               I hope that these observations             combined with the more
       detailed     comments in the enclosure           will   be of help to you.     I
       understand      that the current       report    is the precursor     to a longer
       assignment      on this    issue and I assume that these issues will             be
       considered      in that follow-up        effort.      My staff  and I stand ready
       to work with you to assure that your second effort                   will be as
       accurate     and comprehensive.         Please call on Paul Leonard,         Deputy
       Assistant      Secretary     for Policy Development,         to selve as my
       representative        in this matter.

                                                      #indreW Cuomo


26                                                               GAO/RCED-97-148R Welfare Reform and Housing
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