oversight

Utility Allowances Provided to Public Housing and Section 8 Households and Resulting Rent Burdens

Published by the Government Accountability Office on 1990-03-07.

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

                   United States General Accounting Office
                   Testimony
GA!!




For Release on      Utility   Allowances   Provided   to Public      Housing
Delivery            and Section    8 Households    and Resulting      Rent
Expected at
9:30 a.m. EST       Burdens
Wednesday
March 7, 1990




                    John M. Ols, Jr.,   Director
                    Housing and Community Development      Issues
                    Resources,  Community,    and Economic Development
                      Division
                    Before the Subcommittee     on Housing and Community
                      Development
                    Committee on Banking,    Finance and Urban Affairs
                    House of Representatives




                                     /40-v
GAO/T-RCED-go-41                                                   GAO Porn 120 (12,~27)
Mr. Chairman and Members    of the Subcommittee:

      We appreciate  this opportunity     to assist the Subcommittee in
considering   some of the important    issues involving    utility
allowances provided to public housing and section 8 households.
These issues include (1) the extent of utility        allowances provided
to those households,    (2) the resulting    rent burdens of households
that receive these allowances,     and (3) options available       for
changes.

      As you know, the General Accounting Office is required to
report on these issues under Public Law 100-242.        To accomplish     our
work, we completed a nationwide mail survey of public housing
agencies (PHAs) and performed detailed      audit work at six PHAs.
Even though our work is still     in progress,   we are pleased to
discuss our preliminary  results.

        In summary, our nationwide   survey of public housing agencies
showed that the use of allowances is widespread.l       However, their
importance to households varies depending on the dollar       amount of
the allowances received.      Our work at six PHAs showed that
allowances ranged from less than $10 to over $200 per month.2        Some
allowances are for appliance usage only and others are for total
utility    costs, including  heating and cooling.

      Determination of rent burdens--the     percentage of adjusted
monthly income spent on rent and utilities--showed      that about      33
percent of public housing households and 7 percent of section           8
households paid 30 percent of their adjusted incomes for rent           (the
rent standard set in law).   On the other hand, 45 percent of         the

lResponses represent    2,610 PIiAs administering  public housing and
1,717 PHAs administering     section 8 housing.   Responses showed that
81 percent of PHAs provided utility     allowance for public housing
units and 95 percent for section 8 units.
2The PHAs are Chandler, Arizona;     Cuyahoga County, Ohio; Dakota
County, Minnesota:  East Detroit,    Michigan: Phoenix, Arizona:  and
West Memphis, Arkansas.
public housing households and 70 percent of the section 8
households paid more than 30 percent.   Overall,  annual rent burdens
averaged 30.5 and 36.0 percent of adjusted monthly income for
public housing and section 8 households, respectively.    I should
note that since we reviewed only six PHAs, our results   should not
be taken to represent the rent burdens of the entire assisted
housing population.

     The current methods for administering    utility  allowances
makes it likely  that many households will have rent burdens other
than 30 percent.    Some of this is due to the imprecision    inherent
in setting  the allowances and the rest are due to other factors,
such as unseasonable weather.

       Several options exist for changing how allowances can be
provided.     However, each has trade-offs   in terms of treating
households fairly,    the ability  of PHAs to carry them out, and
federal subsidy costs.     None seem to present a clearly    preferred
alternative.

Now I would like to discuss some of our findings   on who receives
allowances and their resulting  rent burdens before I discuss
options that might be considered in order to improve the utility
allowance system.

      OUNQ


       About 3 million   low-income households receive rental
assistance   through public housing and section 8 certificate
programs administered     by the Department of Housing and Urban
Development (HUD). For the most part, PHAs operate some units
(public housing) and contract      with private owners to provide other
units (section    8 housing).
       Federal housing law requires households in public housing and
those receiving    section 8 certificates      to pay a fixed percentage of
their monthly income for rent, usually 30 percent of adjusted
income.3    HUD has interpreted     llrentVq to mean shelter  cost plus a
reasonable amount for utility       expenses.    Some assisted households
have all utilities     paid by either the PHA or the landlord      and
therefore   pay a straight    30 percent of adjusted income for rent.

         However, when a household pays its own utility          expenses to
utility      companies, the PHI4 provides the household with a utility
allowance to cover what it has determined as a reasonable amount of
utility      consumption.     The allowance is in the form of reduced rent
payments.       If everything    works as expected, the household's      utility
bills     will equal the allowance amount. That is, the utility
expenses plus the reduced rent payment will total             30 percent of
adjusted income.         In theory,   then, a household that pays its own
utilities      will have the same rent burden as a household that has
all its utilities        paid by the PHA or private    landlord.

      Allowances range from $10 to over $200 per month, depending on
the expected cost of the utilities.       If the allowances are below
the actual cost of utilities     to the tenant,    the household's    rent
burden will be higher than the statutory       amount. As a result,
households will have to pay out-of-pocket       to cover the shortfall.
If the allowances are above the actual cost of utilities,          the
reverse is true and the federal subsidies       are higher than
intended.



3More strictly,    households must pay the highest of:     (1) 10 percent
of gross monthly income, (2) 30 percent of adjusted monthly income,
or (3) an amount established      by local welfare agencies based on
their determination     of rental costs.   "Adjustments,"  or reductions
to gross income for calculating      rent, include certain  dollar
amounts for each dependent, medical and child care expenses, as
well as reductions    if the head of household is elderly    and/or
handicapped.
                                      3
      While   the   utility  allowance concept is relatively
straightforward,      implementation    is much more difficult.        PHAS
administer     anywhere from a few to tens of thousands of units, which
are different      in size and energy-usage characteristics          (e.g.,
exposure to weather, insulation,          exterior  construction,     and kind
and energy efficiency       of appliances installed).        HUD guidance does
not require PHAs to tailor        allowances to each individual        unit
because it would be impractical         to do so. Rather, allowances
reflect    overall   expected utility     consumption for (1) use (cooking,
heating,    appliance use, and, sometimes, cooling),           (2) number of
bedrooms (as a proxy for unit size),           and (3) structure    type (e.g.,
garden apartment or high-rise).

WHORRCeIvRS J&L0 ANCES ANQ
THE
      Generally,  only anecdotal information     has been available   on
the extent to which utility     allowances are provided to assisted
households and their total rent burdens.        HUD does not collect
this kind of information,    nor does it require PHAs to collect      or
report it.    We hope to shed some light on these topics from our (1)
nationwide survey of utility      allowance practices  and (2) detailed
review of over 1,900 statistically       sampled households at six PHAs.
The sampling procedure allowed us to estimate the rent burdens for
about 9,500 households at these PHAs. (See attachment I.)

        We sent 1,594 questionnaires    to a sample of PHAs identified  by
HUD as administering      public housing and section 8 certificate
programs.      The purpose was to provide a nationwide estimate of PHA
utility    allowance practices.l     We received an 83-percent response
rate, which allowed us to project       our results to 2,610 of 3,217


4Some PHAs administer  section 8 subprograms in which an entity
other than the PHA sets allowance amounts. We excluded these
subprograms from our review since our focus was on PHA practices.
Section 8 vouchers are also excluded.
                                      4
PHAS administering      public housing programs and 1,717 of 2,205 PHAs
administering    section 8 programs (see attachment II).

       In brief,  on the basis of our nationwide survey, 81 percent of
the PHAs administering    public housing units responded that some or
all of their units received utility     allowances.     Further,   95
percent of the PHAs administering     section 8 certificate      units
indicated    that some or all of their units received allowances.

      Our work at six PHAs showed that the average monthly
allowance amounts were $52 for public housing households and $64
for section 8 households and monthly adjusted income averaged in
the $400-$450 range.    These numbers certainly suggest that
allowances are important   to many assisted households.




      We gathered income and allowance information     directly  from PHA
files  and utility expense information from utility     companies
serving the households (see attachment II).5

       Overall,   annual rent burdens averaged 30.5 percent of adjusted
income for public housing households.       About 22 percent of these
households paid less than 30 percent of their adjusted income for
shelter   and utilities.     On the other hand, about 45 percent of the
public housing households paid more than 30 .percent.       (See fig. I.1
in attachment I.)

     For  section 8 households,  overall, the annual rent burdens
averaged 36.0 percent of adjusted income.    As shown in figure I.2
in attachment I, about 23 percent of these households paid less


5We did not obtain independent information, such as verifying
income with employers, as it would have been too time consuming and
costly.
                                   5
than 30 percent of their   adjusted income for shelter         and utilities
and about 70 percent  paid more than 30 percent.

Rent Burden Differs     Retween
   liC HousinU and    Section     8 Unite

      Our work is not complete        at this time and we have not
determined why average rent burdens in the public housing units
were lower than those in section 8 and why a much greater
percentage of public housing households had rent burdens at 30
percent of adjusted income (33 percent versus 7 percent).              However,
one possible explanation       for the differences     may be in the
underlying    housing stock of the two programs.          Public housing units
are often clustered      in a number of projects      while section 8 units
are typically    more diverse,     since they consist     of private  rental
units scattered     throughout    an area.    It is possible that the
greater uniformity      of the public housing units makes it easier to
determine an allowance that will provide for reasonable
consumption.     However, it is also possible that other reasons
caused the rent burden to differ         from the 300percent standard.

  v Rent &dens    Differ
From the 30-Percent Stan&.zd

       Several reasons exist for rent burdens to differ      from the
statutory    amount and some caution is required before concluding
that utility    allowances were inadequate for many and overgenerous
for others.     Significant variations  between the legislated    rent
burden and what we observed also may have occurred because of the
following:

     -- Allowances are generalized    estimates that do not reflect
        energy consumption differences     based on variations   in
        quality   of construction,  energy use characteristics     of
        appliances,   number of persons in the unit,    or whether the


                                       6
          unit has a sheltered      southern   exposure    or an exposed
          northern exposure.

      -- Some households may be more energy-conscious  than assumed
         when the allowance was established  and some households may
         be less energy-conscious.

      -- Households may use major appliances whose use was not
         considered necessary when the allowance was derived,  such
         as food freezers or air conditioners.

      -- variations     in normal weather temperature patterns           can
         affect    heating and air conditioning   costs.6

      -- The way in which units are metered (individually  or
         checked) and consumption is measured against allowances                     can
         affect  the overall rent burden.

Q)divj,&&j&v-Metered. . . And
Check-Metered Utilitreg

        Regarding this last point,        for units individually-metered       by
the utility         company, the household pays the utility       company
directly      for utility    consumption.    The household receives      a certain
dollar    allowance per month.        If the allowance is less than the
utility     bill,     the household must pay the difference.        On the other
hand, if th8 utility         expense for the period is less than the
allowance,        the household keeps the difference.

     Ch8Ck-m8ter8d allowances are treated somewhat differently.
For a check-metered utility,     the utility company measures
consumption for utility    use for the whole building  and bills               the

%or the Mar. 1988 through Feb. 1989 period of our review,
temperatures  were warmer than average both in winter and in summer
at each of the six locations.
                                        7
PHA directly.        The utility    company does not allocate       consumption to
individual    units.     The PHA, however, measures consumption of
individual    units by using "check meters."             In these cases,
households are provided an allocation              expressed in terms of energy
units (e.g.,    kilowatt       hours of electricity      consumed).

         In the case of check-metered utilities,        if the household
consumes more than the allocation,           it must pay the PHA for the
excess.      However, if it consumes less than the allocation,          it is
typically      treated as if it consumed exactly the allocation         amount.
In this situation,        the household faces an up-side risk, but no
compensating down-side benefit.           Consequently,    for check-metered
utilities,       rent burden is never less than 30 percent of adjusted
income but could be more. As a result,            two otherwise identical
hous8holds could incur different          rent burdens b8CaUS8 on8 was
individually-metered         and the other was check-metered.

OBSERVATIONSON USING ACTUAL DA=
INDERfVINGwANcu

      I would now like to turn to the question of the data that
could be used in establishing   allowance amounts.  This is an
important  question because data availability  could drive decisions
on the allowance standards.

        An approach that was considered in past congressional
deliberations      is to use actual utility    consumption data in setting
allowanc&.       However, it has some pitfalls.       For example,      many
housing agencies may not be able to dedicate sufficient              staff time
to perform this very time- consuming process.           I should mention
that we took considerable      time and effort     to gather utility
consumption information,      and it is not a task that is lightly
undertaken.      It was a major undertaking     to build a data base
because family composition,       income, and other factors      that affect
allowances change throughout       the year.    PRAs would also have to
collect    and maintain this information.       Also, once the information
                                       8
is received,    it must be verified   and analyzed. We spent
considerable    time trying to obtain Mclean" data that we could
report on.     We found many instances of missing and inconsistent
data.

       Aside from actual consumption data, respondents to our
questionnaire     told us they used a variety      of Other methods to
gather the data necessary to make utility          allowance determinations.
These included the us8 of (1) formal engineering            studies of utility
consumption,     (2) utility  company data for the community as a whole,
and (3) amounts provided by HUD area offices.            The method of data
collection    is influenced   by staff availability,       cost, accessibility
of the data, and other factors.        Requiring one source of data over
another could b8, in our opinion,       counterproductive.




         Another important    topic is the standard under which a
household is deemed to haV8 Consumed either a reasonable amount of
utilities      or too much. HUD's policy is that public     housing
households should have allowances large enough to satisfy           the
reasonable needs of an energy-conserving         family of modest means.
In contrast,      HUD requires    that section 8 households be provided
allowances that reflect         average COnSUELptiOnfor the community as a
Whole. However, average means that about half of the households
will have expenses greater than their allowances even though many
may not b8 less energy conscious.

      Setting a standard for energy consumption is difficult.      At
this time, no on8 standard seems to provide clear-cut     advantages
to tenants,   PHAs, and HUD. Let me briefly  discuss several options
that we have considered.

     One option is to do away with allowances and have all
households'  utility bills paid by the F%A. This is attractive            in
                                 9
that it ensures that all households pay exactly 30 percent of
their adjusted income for rent.    However, to the extent that this
arrangement lacks incentives   for energy conservation,  PHAs, and
ultimately  the federal government, end UP paying more in rent
subsidy payments.

      A second option is to set the standard so that some high
percentage of households would be expected to have utility              bills
within the standard.    This alternative       produces lower costs to PHAS
and the government than the first        option because only a small
percentage of the tenants pay for excess consumption.             Also,
because tenants would have some price signals to respond to, there
may be some incentive   for them to reduce utility          consumption.
However, this option still   might result       in higher than desired
federal subsidy costs if households perceive that they have little
chance of paying for w8tiefM     utility      consuaaptibn.

        A third option is to set the allowance at some central       level
such as the mean or median consumption.         This approach sounds
attractive     because average often connotes "typical."      However, a
central     measure will likely    penalize some households who are
energy-conscious.       Also, as our results   at six PHAs showed, the
curves are not "b8ll-Shap8d,"        which suggests that a decision rule
such as "average" or "median" may be too simplistic.          However, the
use Of Central tendency m8asures are more likely         t0 send energy
conservation     signals to households and result     in lower subsidy
costs than the first       two options.




      Regardless of the data used or the standard applied,      periodic
monitoring     must be perform8d.   HUD requires housing agencies to
review utility     allowances annually and update them if required.
Almost one-third      of the PHAs in our nationwide survey indicated
that they had not reviewed public housing allowances in over 1
                                     10
year.    Further,  about 40 percent of the PHAs indicated     they had not
reviewed section 8 allowances in the past year.        All of the PHAs
we visited    told us that they had reviewed their allowances in the
last two years, although they could not always supply
documentation.     However, these reviews often amounted to little
more than ensuring that utility     rates had not increased or
decreased.     Generally,  the PHAs did not revalidate    the underlying
data and assumptions used in deriving     the allowances.


       In conclusion, each option that I have discussed has trade-
offs in terms of (1) the proportion      of households that could be
expected to pay 30 percent of their income for rent and utilities,
(2) the feasibility   and cost of data collection      and analysis,   and
(3) the subsidy costs paid by the federal government.          At this
point,   none appears to offer a clearly    preferable   choice.




      Mr. Chairman, this concludes my prepared statement.  I
welcome the opportunity  to answer any questions that you or Members
of the Subcommittee may have.




                                    11
ATTACHMENTI                                                         ATTACHMENTI
                   BURDENSAND ALLOWANCEAMOUNTSAT SIX PHAg

      Figures I.1 and I.2 present the rent burden distributions   for
households in public housing and section 8 housing, respectively,
of the six PHAs in our review.    Sampling errors associated with
these estimates will be included in our final reports.

                                  tribution      oC




Note:     Distribution    based on an estimated       4,471 households
receiving     allowances.

      Four cat8gories    are displayed        in figure 1.1.   If we had
expanded tha number of categories,            then we may have understated  the
sampling errors    of theS8 additional          categories.  This is because we
did not obs8rv8 any occurrences        in     one oq;more sampled locations
for the additional    categories    that      we would have created.




                                       12
ATTACHMENTI                                                     ATTACHMENTI
Fiaure 1.~ . Rent Burden Distribution
gf section 8 Households at Six PHqg




Note:     Distribution    based on an estimated   5,015 households
receiving     allowances.


        Figures I.3 and I.4 show the distribution   of monthly
differences     in rent burdens for two PHA programs.    We use these as
illustrations,     only, to show how households'  monthly outlays may
vary from the allowances provided.

     Figure     I.3 shows average monthly rent burdens for Chandler,
Arizona,   section 8 households.       Overall,  the allowances covered
utility   coats for h8ating,    cooling,   cooking, heating water, lights
and appliances,     water and sewer, trash pick-up,      and/or tenant-
supplied appliances.      The larger rent burdens during the winter and
summer months were due to the higher costs of heating and cooling
during these months.




                                      13
ATTACHMENTI                                                    ATTACHMENTI
Eiaure. I-3. . Rent Burden nist&z,&j,m     fw
Sectron 8 Hoaolds      at the Chandler    pm




Note:     The average annual rent burden was 36.8 percent.      We
reviewed all usable cases at this location       (144 households):
therefore,    no confidence  level8 Wer8 calculated.

        Figure I.4 shows average monthly rent burdens for public
housing households in East D8troit,        Michigan.  All Units W8r8 On8
bedroom,- single-occupant      units for the elderly.    They received an
allowance for electric       appliance USO of about $10 per month.     Since
th8 allowance8 were designed to cover the small costs of minimal
utility     wage,  it would be expect8d that rent burdens would cluster
around tha 300parcent      level for each month.




                                    14
ATTACHMENTI                                                   ATTACHMENTI
PiauLB 1.4. . Rent Burden Distribution fox
Public HO-U     Hweholds   at the East Detroit      pm




48




30

28

80




Note:    The average annual rent burden was 30.0 percent.        We
reviewed all usable cases at this location      (95 households);
therefore,   no confidence levels were calculated.




                                   15
ATTACHMENTII                                                   ATTACHMENTII
               SUMIQRY OF HOWGAO GATHEREDOUESTIONNAI~
                        D RENT BURDENINFORMATION



        We consolidated     three separate BUD data bases and supplemented
missing information       from records maintained by the National
Association     of Housing and Redevelopment Officials.         The results
of this effort      consisted of 3,217 PHAs identified       as administering
public housing units and 2,205 PHAs identified          as administering
section 8 certificate        units.  Using 500 units as a cut-off,       we
divided th8 public housing data ba88 into large and small PHAs.
For section     8, we used 100 units as the dividing       line since our
pretests    showed that larger PHAs were less likely         to maintain
detailed    records on information      that we r8qU8Sted.     We drew
stratified     random samples based on these groupings.

       We mailed 1,594 questionnaires    in May 1989 and collected data
from May Until NOV8mb8r     1989. For those agencies that did not
respond, we sent a follow-up     mailing and called larger PHAs to
encourage responses.      We examined all questionnaires  for
consistency    and contacted agencies to resolve ambiguous response
patterns.     We received 1,277 usable responses and 44 responses from
PHAs that did not administer     either program (83 percent response
rate).

     All  sample surveys are subject to Sampling error.          The
sampling 8rror is the maximum amount by which results          obtained
from a statistical      sample can be expected to differ   from the true
universe characteristic       (value) we are estimating.   All   sampling
errors derived from th8 questionnaire       estimates were calculated     at
the 950percent confidence level.        These sampling errors will be
included in our final report.


                                      16
ATTACHMENT II                                                              ATTACHMENTII
PENTBURDEN
         CALCUATIONS

      We collected    12 months of income and utility       allowance
information    from PHA files at 6 PHAs for 1,907 public housing and
section 8 households.       We collected   utility   consumption
information    for these households from utility        companies.    We drew
random samples that allowed us to make estimates           for 4,471 public
housing and 5,015 section 8 households that received allowances and
met other criteria     discussed   b8low.7     The period covered by our
work was generally     March 1988 to February      1989.

      Not all   households    that received     allowances   are included    in
our results.     For example, some households         had too much missing
utility   expense data to compute rent burdens with confidence.                As a
result,   the households     reported   on here are those public       housing
and section    8 certificate     households   that

      -0
           occupied  a single      unit during the period             and received
           utility  allowances      during  that period;
      -0
           had no more than 3 months data missing               for     a data     element,
           such as missing utility  bills: and
      -0
           had their    rents computed under         the   300percent       rent     burden
           standard    for  the entire year.

      We performed        extensive      file    verification     of income
calculations,        allowance      amounts, and rent calculations            performed       by
the PHA8. Where errors              occurred,      we corrected     them.    We did not
obtain     ind8p8ndent      information,        such as verifying       income with
employ8r8,       since this would have b88n too time consuming and
costly.       All sampling       errors     deriv8d     from the rent burden results
were calculated         at the 930percent          confidence    level.

7This represents  about 750percent  usable data for samples that                          we
dr8W for public  housing and about 500percent    usable data for
samples that we drew for section   8 households.

                                            17