HUD Rental Assistance: Progress and Challenges in Measuring and  
Reducing Improper Rent Subsidies (27-SEP-05, GAO-05-1027T).	 
                                                                 
In fiscal year 2003, the Department of Housing and Urban	 
Development (HUD) paid about $28 billion to help some 5 million  
low-income tenants afford decent rental housing. HUD has three	 
major programs: the Housing Choice Voucher (voucher) and public  
housing programs, administered by public housing agencies, and	 
project-based Section 8, administered by private property owners.
As they are every year, some payments were too high or too low,  
for several reasons. To assess the magnitude and reasons for	 
these errors, HUD established the Rental Housing Integrity	 
Improvement Project (RHIIP). This testimony, based on a report	 
issued in February 2005, discusses the sources and magnitude of  
improper rent subsidy payments HUD has identified and the steps  
HUD is taking to address them.					 
-------------------------Indexing Terms------------------------- 
REPORTNUM:   GAO-05-1027T					        
    ACCNO:   A38457						        
  TITLE:     HUD Rental Assistance: Progress and Challenges in	      
Measuring and Reducing Improper Rent Subsidies			 
     DATE:   09/27/2005 
  SUBJECT:   Erroneous payments 				 
	     Housing programs					 
	     Internal controls					 
	     Low income housing 				 
	     Program evaluation 				 
	     Program management 				 
	     Public assistance programs 			 
	     Public housing					 
	     Rent subsidies					 
	     Rental housing					 
	     HUD Housing Choice Voucher Program 		 
	     HUD Public Housing Program 			 
	     HUD Rental Housing Integrity Improvement		 
	     Project						 
                                                                 
	     HUD Section 8 Housing Assistance Program		 

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GAO-05-1027T

United States Government Accountability Office

GAO Testimony

Before the Subcommittee on Federal Financial Management, Government
Information, and International Security, Committee on Homeland Security
and Governmental Affairs, U.S. Senate

For Release on Delivery

Expected at 2:30 p.m. EDT HUD RENTAL

Tuesday, September 27, 2005

ASSISTANCE

Progress and Challenges in Measuring and Reducing Improper Rent Subsidies

Statement of David G. Wood, Director Financial Markets and Community Investment

GAO-05-1027T

[IMG]

September 27, 2005

HUD RENTAL ASSISTANCE

Progress and Challenges in Measuring and Reducing Improper Rent Subsidies

  What GAO Found

HUD has identified three sources of errors contributing to improper rent
subsidy payments: (1) incorrect subsidy determinations by program
administrators, (2) unreported tenant income, and (3) incorrect billing.
HUD has attempted to estimate the amounts of improper subsidies
attributable to each source but has developed reliable estimates for only
the first-and likely the largest-source. HUD paid an estimated $1.4
billion in gross improper subsidies (consisting of $896 million in
overpayments and $519 million in underpayments) in fiscal year 2003 as a
result of program administrator errors-a 39 percent decline from HUD's
fiscal year 2000 baseline estimate. GAO estimates that the amount of net
overpayments could have subsidized another 56,000 households with vouchers
in 2003.

HUD has initiated several efforts under RHIIP to address improper
subsidies in its public housing, voucher, and project-based Section 8
programs. Specifically, HUD has (1) stepped up monitoring of program
administrators, (2) improved verification of tenants' incomes, and (3)
provided guidance and training on program requirements to HUD staff and
program administrators. These actions have strengthened HUD's oversight of
the programs, despite some implementation problems and remaining
challenges. For example, for the voucher and public housing programs, HUD
field office staff completed about 1,100 Rental Integrity Monitoring
reviews-that is, on-site assessments of public housing agencies'
compliance with policies for determining rent subsidies-between 2002 and
2004. However, problems with a database containing information on these
reviews prevented HUD from analyzing the results.

According to HUD, the complexity of existing policies contributes to the
difficulties program administrators have in determining rent subsidies
correctly. For example, program administrators must assess tenants'
eligibility for 44 different income exclusions and deductions. However,
simplification of these policies, which will likely require statutory
changes by Congress, could affect many tenants' rental payments, with some
tenants paying more and others paying less. HUD has considered various
approaches to simplifying policies for determining rent subsidies, but it
has not conducted a formal study to inform policymakers on this issue.

                 United States Government Accountability Office

Mr. Chairman and Members of the Subcommittee:

I appreciate the opportunity to be here today to discuss our work on
improper subsidy payments in the Department of Housing and Urban
Development's (HUD) rental assistance programs: Housing Choice Voucher
(voucher), public housing, and project-based Section 8. Payments made
under these programs, which help keep rents affordable for about 5 million
low-income tenants, account for the majority of HUD's expenditures. For
example, in fiscal year 2003, these payments accounted for about $28
billion, or almost 75 percent of the department's total expenditures.
HUD's payments cover the difference between a unit's monthly rental
cost-or, for public housing, the operating cost-and the tenant's payment,
which is generally equal to 30 percent of the tenant's adjusted monthly
income. I will refer to these payments as rent subsidies. Public housing
agencies (PHA) administer the voucher and public housing programs, and
private property owners administer the project-based Section 8 programs.
These program administrators are responsible for ensuring that tenants
meet HUD's eligibility criteria and for accurately calculating rent
subsidies.

Each year HUD makes improper payments-that is, payments that are too high
or too low-under these programs primarily because it cannot ensure that
rent subsidies are determined correctly. Because of their vulnerability to
waste, fraud, and abuse, GAO has designated HUD's rental assistance
programs as high risk since early 2001.1 In addition, the President's
Management Agenda for Fiscal Year 2002 identified HUD's rental assistance
programs as one of nine program areas that have severe management
challenges and that are in need of immediate reform.2 In response to these
assessments, HUD established the Rental Housing Integrity Improvement
Project (RHIIP) in 2001 to increase accountability and reduce improper
subsidy payments.

My statement today is based on our February 2005 report to the
Subcommittee on Housing and Community Opportunity, House Committee on
Financial Services, which requested that we examine HUD's

1GAO, Major Management Challenges and Program Risks: Department of Housing
and Urban Development, GAO-01-248 (Washington, D.C.: Jan. 1, 2001).

2Office of Management and Budget, The President's Management Agenda,
Fiscal Year 2002 (Washington, D.C.: July 2001).

efforts to measure and reduce improper rent subsidy payments.3
Specifically, my statement discusses (1) the sources and magnitude of
improper payments that HUD has identified; (2) the actions HUD is taking
under RHIIP to reduce improper payments in the voucher, public housing,
and project-based Section 8 programs; and (3) the status and potential
impact of HUD's efforts to reduce the risk of improper payments by
simplifying the process for determining rent subsidies. In preparing the
report, we obtained and analyzed data on improper payments that HUD
collected for fiscal years 2000 and 2003. We also interviewed officials
from HUD's headquarters and field offices, PHAs, and contract
administrators; examined laws, regulations, policies, and guidance related
to subsidy determinations; and reviewed relevant HUD reports and studies.4

In summary:

o  	HUD has identified three sources of errors that contribute to improper
rent subsidy payments: (1) incorrect subsidy determinations by program
administrators, (2) unreported tenant income, and (3) incorrect billing.
HUD has attempted to estimate the amounts of improper subsidies
attributable to each source but has developed reliable estimates for only
the first-and likely the largest-source. HUD paid an estimated $1.4
billion in gross improper subsidies (consisting of $896 million in
overpayments and $519 million in underpayments) in fiscal year 2003 as a
result of program administrator errors-a 39 percent decline from HUD's
fiscal year 2000 baseline estimate. We estimate that the amount of net
overpayments could have provided another 56,000 low-income households with
vouchers in fiscal year 2003.

o  	HUD has initiated several efforts under RHIIP to address improper
subsidies in its public housing, voucher, and project-based Section 8
programs. Specifically, HUD has (1) stepped up its monitoring of program
administrators, (2) improved verification of tenants' incomes, and (3)
provided additional guidance and training on program requirements to HUD
staff and program administrators. These actions have strengthened HUD's
oversight of the programs, despite some implementation problems

3GAO, HUD Rental Assistance: Progress and Challenges in Measuring and
Reducing Improper Rent Subsidies, GAO-05-224 (Washington D.C.: Feb. 18,
2005).

4For HUD's project-based Section 8 programs, contract administrators-which
include private contractors and HUD field offices-are responsible for
overseeing individual Section 8 properties and ensuring that the
properties are in compliance with HUD's policies.

and remaining challenges. For example, for the voucher and public housing
programs, HUD field office staff completed about 1,100 Rental Integrity
Monitoring (RIM) reviews-that is, on-site assessments of PHAs' compliance
with policies for determining rent subsidies-between 2002 and 2004.
However, problems with a database containing information on RIM reviews
prevented HUD from analyzing the results of the reviews.

o  	According to HUD, the complexity of existing policies contributes to
the difficulties program administrators have in determining rent subsidies
correctly. For example, program administrators must assess tenants'
eligibility for 44 different income exclusions and deductions. However,
simplification of these policies, which will likely require statutory
changes by Congress, could affect the rental payments of many tenants. HUD
has considered various approaches to simplifying policies for determining
rent subsidies but has not conducted a formal study to inform policymakers
on this issue.

On the basis of our findings, we recommended that HUD:

o  	make regular monitoring of PHAs' compliance with its policies for
determining rent subsidies a permanent part of its oversight activities,

o  	collect complete and consistent information from these monitoring
efforts and use it to help focus corrective actions where needed, and

o  study the potential impact of alternative strategies for simplifying
program

Background

policies on tenant rental payments and program costs.

HUD has taken steps to address the first two recommendations but, as
noted, has not done a formal study of simplification and its likely
effects.

HUD's voucher, public housing, and project-based assistance programs share
the common mission of making housing affordable to low-income households.
The subsidies these programs provide are not an entitlement, and the
number of low-income households eligible for assistance exceeds the number
of subsidized units or vouchers that are available. These programs are
administered differently and vary in the number of households they assist
and the amount of funding they receive.

The voucher program, which approximately 2,500 PHAs administer on HUD's
behalf, is HUD's largest rental assistance program. The program,

authorized under Section 8 of the United States Housing Act of 1937, as
amended, provides housing vouchers that eligible individuals and families
can use to rent houses or apartments in the private housing market from
property owners participating in the program. In fiscal year 2003, the
program assisted about 2 million households (42 percent of all HUDassisted
households) and had outlays of about $13 billion. In general, only
households with very low incomes-less than or equal to 50 percent of area
median income-are eligible for vouchers.

Under the public housing program authorized by the United States Housing
Act of 1937, as amended, HUD has subsidized the development, operation,
and modernization of government-owned properties, which are currently
managed by some 3,300 PHAs. In fiscal year 2003, HUD's public housing
program assisted 1.2 million households (one-quarter of all households
receiving housing assistance) and had outlays of about $7 billion.5 To be
eligible for public housing, a household must be low income-that is, have
an income that is less than or equal to 80 percent of area median income.

Under a variety of project-based Section 8 programs authorized by the
Housing and Community Development Act of 1974, as amended, HUD subsidizes
rents at certain multifamily housing developments, which had often
received construction subsidies from other HUD programs, with rental
assistance payments disbursed under multiyear contracts. Property owners
and managers for about 22,000 subsidized properties currently participate
in these programs. In fiscal year 2003, HUD's project-based programs
assisted 1.6 million households (one-third of all HUD-assisted households)
and had outlays of roughly $8 billion. In general, only households with
low incomes are eligible for HUD project-based Section 8 assistance.

HUD's oversight of the program administrators varies, depending on the
program. For vouchers and public housing, HUD field offices provide
oversight of PHAs that administer the programs. Field office staff conduct
on-site reviews and analysis of PHAs' operations. For HUD's Section 8
project-based programs, contract administrators-which include both private
contractors and HUD field offices-are responsible for overseeing and
ensuring that Section 8 properties are in compliance with HUD's policies.

5This figure includes both operating and capital subsidies.

HUD created RHIIP in the spring of 2001 to assess the magnitude of and
reasons for improper payments in its rental housing assistance programs.
RHIIP was set up as a direct result of HUD's analysis of data it collected
on improper subsidy payments in fiscal year 2000. The analysis, which HUD
issued in a June 2001 report, focused on subsidy errors made by program
administrators but did not attempt to determine if the tenants had
supplied accurate and complete income information.6 In 2002, HUD completed
a separate evaluation to determine the magnitude of rental assistance
errors caused by unreported tenant income. The study matched tenants'
reported incomes with income data from the Internal Revenue Service and
the Social Security Administration.

RHIIP's goal is to reduce the incidence and dollar amount of improper rent
subsidies by 50 percent in fiscal year 2005 compared with fiscal year
2000, with interim goals of a 15 percent reduction by fiscal year 2003 and
a 30 percent reduction by fiscal year 2004. To meet this goal, HUD has
initiated several program-specific and overarching efforts.

HUD has identified three basic sources of errors that have resulted in
improper rent subsidy payments and has conducted separate studies for each
of these sources to assess the magnitude of the problem and the progress
that has been made in meeting RHIIP's goal of reducing improper subsidies.
However, these studies have not provided reliable estimates of the amount
of improper subsidies from each source.

  HUD Has Identified the Sources of Payment Errors but Lacks Complete and
  Reliable Estimates for Each One

Errors during the Subsidy Determination Process Can Result in Improper
Subsidy Payments

As part of RHIIP, HUD identified three basic sources of errors that
resulted in improper rent subsidy payments: (1) program administrator
errors, (2) unreported tenant income, and (3) billing errors. Program
administrator errors are the broadest category of errors because, as
figure 1 shows, they can affect nearly all of the critical dimensions of
the process for determining rent subsidies. In performing their work,
program administrators may incorrectly determine rent subsidies by, for
example, making calculation and transcription errors or by misapplying
income exclusions and deductions required by HUD policies.

6Department of Housing and Urban Development, Quality Control for Rental
Assistance Subsidies Determinations (Washington, D.C.: June 2001).

Errors that result from unreported tenant income occur when tenants do not
report an income source, either their own or another household member's,
to program administrators. These errors generally occur early in the
process when the tenant first submits income information to program
administrators (see fig. 1). Although some tenants may not disclose all
income sources in order to qualify for assistance and to increase the rent
subsidies they receive, tenants may also fail to report income sources
unintentionally if program administrators provide unclear instructions
about the sources of income they must disclose.

Finally, billing errors occur at the very end of the process (see fig. 1).
The procedures program administrators use to bill HUD for subsidy payments
vary for each of the three rental assistance programs, and, as a result,
the specific types of mistakes that lead to billing errors can also vary.
However, in general, billing errors arise when discrepancies exist between
the amount of rent subsidy the program administrator determines and the
amount billed to and paid by HUD. Billing errors can also include
accounting discrepancies between amounts paid by HUD and a property's bank
statements and accounting records.

                  Figure 1: Rent Subsidy Determination Process

HUD Has Reliable Estimates of Improper Payments Due Only to Program
Administrator Errors

To determine the amounts of improper rent subsidies resulting from program
administrator errors, HUD collected data on more than 2,400 randomly
selected households participating in the voucher, public housing, and
project-based Section 8 programs for fiscal years 2000 and 2003. Our
analysis of the documentation and data collected indicated that these
studies provided a reasonably accurate estimate of subsidy determination
errors made by program administrators. Data from the fiscal year 2003
study show that the department paid an estimated $1.4 billion in gross
improper rent subsidies (representing $896 million in overpayments and
$519 million in underpayments) as a result of program administrator errors
in fiscal year 2003-a 39 percent decrease from fiscal year 2000.7 The
voucher program accounted for about one-half of the total reduction, while
public housing and project-based Section 8 each accounted for roughly
one-quarter. Because the overpayments exceeded the underpayments, HUD was
not able to use an estimated $377 million of its funding to assist needy
low-income households. On the basis of the average national subsidy cost
of a voucher in 2003-about $6,720, including administrative costs-we
estimated that HUD could have provided an additional 56,000 households
nationwide with vouchers in fiscal year 2003, nearly the same number of
households that currently receive vouchers in the Los Angeles, California,
area.

Each of the rental assistance programs experienced substantial reductions
in gross program administrator error between fiscal years 2000 and 2003-
50 percent for public housing, 35 percent for vouchers, and 32 percent for
project-based Section 8 (see fig. 2). These reductions exceeded HUD's
interim RHIIP goal of reducing improper rent subsidies by 15 percent by
fiscal year 2003 for this source of error.8 Many of the initiatives under
RHIIP were too recent to have had any direct impact on the reductions.
However, HUD officials stated that its communications with program
administrators about the importance of addressing improper rent subsidies
and program administrators' anticipation of increased monitoring by HUD
had probably led to voluntary improvements in internal control activities
and likely contributed to these reductions.

7The margin of error at the 95 percent level of confidence for the
estimated $1.4 billion in gross improper subsidies is +-$185 million. The
margins of error for the estimated $896 million in overpayments and $519
million in underpayments are +-$132 million and +-$96 million,
respectively.

8RHIIP's quantitative goal for reducing improper rent subsidies also
applies to the other sources of errors.

Future estimates of improper subsidies may show whether further reductions
can be made and sustained as the RHIIP initiative matures.

Figure 2: Estimated Gross Improper Rent Subsidies Due to Program
Administrator Error, Fiscal Years 2000 and 2003

For the other two sources of errors-unreported tenant income and billing
errors-HUD did not produce complete or reliable estimates for all three
programs for fiscal years 2000 and 2003. HUD estimated that the department
paid $191 million in fiscal year 2003 in gross improper rent subsidies due
to unreported tenant income. However, the small number of files that
formed the basis for the estimate and the large variances in the amounts
of income tenants did not report resulted in a margin of error so large
that the estimate is not meaningful. As a result, the actual amount of
improper rent subsidies for this source of error could be as low as zero
or many times higher than HUD's estimate. Despite problems with the
estimate, HUD reported that gross improper rent subsidies due to
unreported income decreased by 80 percent from fiscal years 2000 to 2003.
However, we believe that any comparison between the two estimates is not
valid because of the limitations of the fiscal year 2003 estimate and
significant differences in the methodology used for each year.

  HUD Has Taken Steps to Reduce Improper Subsidies in All Three Programs, but
  Challenges Remain

HUD also did not produce a complete and reliable estimate of the amount of
billing error in fiscal year 2000 for any of the three programs. For
fiscal year 2003, HUD has begun to implement a methodology for estimating
billing error for vouchers and public housing. For project-based Section
8, HUD estimated approximately $100 million in billing errors for fiscal
year 2003, although the small sample size and the concentration of errors
in a small number of properties resulted in a large margin of error.

HUD has undertaken three separate efforts under RHIIP to address improper
rent subsidies for its public housing, voucher, and project-based Section
8 programs. Specifically, HUD is (1) stepped up its monitoring of program
administrators, (2) improving verification of tenants' incomes, and (3)
providing HUD staff and program administrators with guidance and training
to help them understand program requirements. Despite some implementation
problems and remaining challenges, these actions have strengthened HUD's
oversight of the programs.

To increase monitoring of program administrators, HUD has taken the
following actions:

o  	For the voucher and public housing programs, HUD field office staff
completed about 1,100 RIM reviews-that is, on-site assessments of PHAs'
compliance with policies for determining rent subsidies-between 2002 and
2004. According to HUD officials, these reviews were the first
comprehensive reviews of PHAs' tenant information files in more than 20
years. While important, the reviews were hampered by implementation
problems. For example, officials from most of the HUD field offices we met
with said that they did not have enough staff to conduct all of their
reviews within the required time frames and still fulfill their other
oversight responsibilities. As a result of resource constraints, some
field offices had to use staff with little or no experience in monitoring
PHAs for RIM reviews; issued their RIM review reports late; or postponed
other monitoring activities such as inspections of troubled properties.
Additionally, problems with a database containing information on RIM
reviews prevented HUD from analyzing the results of the reviews to assess
improvements in PHAs' calculations of tenant subsidies and provide
technical assistance to PHAs.

o  	For the project-based Section 8 programs, HUD plans to rely on
performance-based contract administrators (PBCA) to monitor property

owners' compliance with HUD's policies for determining rent subsidies.9
For the past several years, HUD has been transferring responsibility for
overseeing property owners to PBCAs from other types of contract
administrators, including HUD field offices. As of October 2004, HUD's
project-based Section 8 programs consisted of about 21,900 properties, and
HUD had transferred contracts for about 11,800 of these properties to
PBCAs. HUD requires PBCAs to perform extensive annual reviews of
properties' operations, including reviewing owners' rent subsidy
calculations. To ensure that PBCAs meet HUD's performance standards, HUD
has developed a comprehensive oversight program. However, because HUD has
often not provided adequate oversight of contractors-a factor that in 2003
led us to designate acquisitions management as one of HUD's major
management challenges-implementing these oversight measures could pose
challenges to HUD.10

In our February 2005 report, we recommended that HUD make regular
monitoring of PHAs' compliance with HUD's policies for determining rent
subsidies a permanent part of its oversight activities. We also
recommended that HUD collect complete and consistent information from
these monitoring efforts. In August 2005, HUD officials told us that they
planned to conduct 275 RIM reviews each year starting in 2006, and that
they were developing software to better track the results of RIM reviews.

To improve verification of tenants' incomes, HUD has done the following:

o  	For the voucher and public housing programs, HUD has implemented an
Internet-based income verification system that allows PHAs to compare
income information they receive from tenants with income information
employers report to government agencies. According to HUD officials, the
system is intended not only to help PHAs detect unreported income, but
also to provide them with a more convenient and accurate way to verify
tenant-reported information. HUD obtained the data currently in the system
through agreements with state wage and income collection agencies. HUD is
replacing these data with data from a single source-the National Directory
of New Hires-and intends to make it available to all PHAs by the end of
this month. Congress passed legislation in 2004 that grants HUD the
authority to request and obtain data from this directory-a

9PBCAs receive an incentive fee if they perform above a minimum quality
level as determined by HUD, and their fees are reduced if they perform
below this level.

10GAO, Major Management Challenges and Program Risks: Department of
Housing and Urban Development, GAO-03-103 (Washington, D.C.: January
2003).

database containing quarterly federal and state wage data, quarterly
unemployment data, and monthly new hire data reported by employers to
state agencies and compiled by the Department of Health and Human
Services.11

o  	For project-based Section 8 programs, HUD plans to implement a similar
Internet-based system for property owners after it addresses data security
concerns. When Congress granted HUD access to the National Directory of
New Hires database, it required that HUD demonstrate to the Department of
Health and Human Services that all necessary steps had been taken to
prevent the inappropriate disclosure of information from the database
before property owners were given access. To alleviate concerns about
releasing sensitive information to private property owners, HUD is
initially making the data available only to PHAs to confirm that the
system is secure. If the Department of Health and Human Services is
satisfied with HUD's security precautions, HUD plans to make the
information available to property owners by the end of fiscal year 2006.
Once the system is implemented, property owners will be able to access
earned income data from a secure Web site.

To improve HUD staff and program administrators' understanding of the
complex requirements for determining rent subsidies, HUD has taken the
following steps:

o  	For vouchers and public housing, HUD has provided training and
guidance to PHAs on various topics, such as how to calculate subsidies,
improve quality control procedures, and comply with income verification
requirements. The training addresses program basics, including how to
interview prospective tenants and verify tenant income information. HUD
also has provided guidance to PHAs on developing policies and procedures
that would prevent future subsidy calculation errors and provided
technical assistance to PHAs that were deemed high risk on the basis of
their performance in RIM reviews. Finally, HUD has updated or developed
guidance for PHAs on how to correctly calculate rent subsidies.

o  	For project-based Section 8 programs, HUD has improved its guidance
and training for property owners, contract administrators, and HUD field
staff. For example, in 2003, HUD revised its handbook for project-based
Section 8 programs, which sets forth the requirements and procedures that
property owners must follow in administering these programs, including

11Consolidated Appropriations Act, 2004, Pub. L. No. 108-199, Jan. 23,
2004.

  HUD Has Considered Simplifying Policies for Determining Rent Subsidies but Has
  Not Done a Formal Review of the Potential Effects

determining rent subsides. Also in 2003, HUD issued a new monitoring guide
to help contract administrators improve their oversight of property
owners' subsidy determinations. HUD accompanied these efforts with
training for property owners, contract administrators, and HUD field
offices on the updated handbook and new monitoring guide.

As one of its efforts under RHIIP and as mandated by The President's
Management Agenda for Fiscal Year 2002, HUD has considered various
approaches-statutory, regulatory, and administrative-to streamlining and
simplifying its policies for determining rent subsidies. According to HUD,
the complexity of the existing policies contributes to errors in
determining subsidies. For example, program administrators currently must
determine tenants' eligibility for 44 different income exclusions and
deductions in order to calculate rent payments and subsidies. The purpose
of some of these income exclusions and deductions is to provide additional
relief to certain tenants, such as elderly and disabled households with
large medical expenses, by reducing the amount they contribute toward
rent. Other income exclusions are designed to counteract potential work
disincentives-for example, tenants' rental payments are raised as their
income increases.

The process for determining rent subsidies is further complicated by the
difficulty some program administrators may have in understanding and
implementing HUD's program requirements. According to multiple field
office staff, program administrators, and industry groups we met with,
staff responsible for calculating rent subsidies are often poorly paid and
have large caseloads and limited education. These factors can contribute
to the misapplication of program policies and to subsequent errors in
subsidy calculations. In addition, these same groups commented that these
types of positions have a high turnover rate, and, as a result, it is
difficult for program administrators to retain knowledgeable and
experienced staff.

HUD has considered several approaches to simplifying rent subsidy
policies, including:

o  	an income-based approach that would establish tenants' rents as a
percentage of their income, possibly with a limited number of exclusions
and deductions or none at all;

o  	a tiered flat-rent system that would establish tenants' rents for
several income bands and eliminate the need to readjust rents because of
income changes, provided the changes were within the band; and

o  	a mixed approach that would give program administrators various rent
structures to choose from, including income-based and tiered flat rents.

Adopting any simplification approach represents a change from current
policies. Because most of HUD's policies have a basis in statute, major
changes are likely to require congressional action. Under any
simplification approach, many tenants' rental payments could be affected,
with some tenants paying higher rents and others paying lower rents. For
example, elderly and disabled households, as well as large families, that
currently benefit the most from HUD's exclusions and deductions would be
hit hardest by the elimination of current income adjustments. In addition,
the transition to simplified policies could create confusion among program
administrators and tenants in the short term. Depending on the magnitude
of program changes, program administrators-the approximately 22,000
property owners and 3,000 PHAs across the country-would have to retrain
staff, update written procedures and administrative plans, and make
potentially costly modifications to their software applications. Program
administrators would also have to undertake outreach efforts to explain
the changes to tenants.

HUD staff have conducted a preliminary analysis of the impact of some
simplification approaches on tenants' rental payments and program costs.
However, the department has not conducted a formal study on the impact of
policy changes to inform policymakers on this issue. To ensure that
policymakers have sufficient information with which to consider potential
simplification approaches, our February 2005 report recommended that HUD
study the possible impact of alternative strategies for simplifying
program policies on subsidy errors, tenant rental payments, program
administrators' workload, and program costs.

In its fiscal year 2006 budget submission, HUD proposed, among other
things, to simplify program requirements for the voucher program and
provide PHAs with greater administrative flexibility. The proposal
recommends a mixed approached and allows PHAs to choose from several
alternative rent structures, including income-based and tiered flat rents.

Mr. Chairman, this concludes my prepared statement. I would be happy to
answer any questions at this time.

  Contacts and Acknowledgments

(250260)

For further information on this testimony, please contact David G. Wood at
(202) 512-8678. Contact points for our Offices of Congressional Relations
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