HUD's FY 1998 Budget Request: Some Requests for Funding May Be
Unnecessary (Stmnt. for the Rec., 03/18/97, GAO/T-RCED-97-108).

GAO discussed the Department of Housing and Urban Development's (HUD)
fiscal year (FY) 1998 budget request, focusing on: (1) the estimates HUD
used to develop its budget request for renewing Section 8 assisted
housing contracts; (2) HUD's justification for 50,000 additional Section
8 certificates; (3) HUD's success in reducing the level of uncommitted
public housing modernization funds held by housing authorities; and (4)
HUD's request for $100 million to fund the second round of the
Empowerment Zone/Enterprise Community (EZ/EC) program.

GAO noted that: (1) HUD's FY 1998 budget request for $9.2 billion in
budget authority to renew expiring Section 8 contracts for assisted
housing includes amounts that may not be required or could be offset;
(2) HUD's request contains allowances for contingencies, costs that may
or may not accrue or that cannot be precisely estimated, with an
estimated value of $531 million; (3) however, because HUD also allows
housing agencies that administer the tenant-based program to retain a
large portion of their unspent reserves for contingencies, HUD may not
need funding for the contingencies noted above; (4) in developing this
budget request, HUD may be able to offset (reduce) some of its current
renewal needs after it has identified all unspent budget authority
accumulated over prior years, an effort it plans to complete by March
31, 1997; (5) since its budget was released, HUD has found that two
housing programs that provide project-based assistance do not need to be
renewed in FY 1998, and therefore the programs do not require the $90
million that HUD budgeted for them; (6) HUD also has requested $305
million in budget authority for FY 1998 to fund 50,000 new Section 8
certificates; (7) according to HUD, the certificates will accommodate
family relocation caused by HUD's Welfare-to-Work initiative, but it is
unclear how HUD estimated the number of units or justified their need;
(8) for example, HUD has neither given a basis for choosing 50,000 as
its request nor provided a plan for distributing these certificates to
states or urban centers according to their need; (9) in addition, HUD
plans to request an additional 50,000 units over the next 4 years,
adding approximately $2.4 billion in renewal costs through FY 2002 for
the additional 100,000 certificates; (10) over the past 3 years, public
housing authorities have decreased the amount of uncommitted public
housing modernization funding that they have available for major
modernization projects by approximately 30 percent; (11) despite this
progress, approximately $925 million remains uncommitted; (12) in
addition, several large troubled housing authorities have larger
uncommitted balances than they did 3 years ago; (13) despite the
pressure on HUD's budget because of the increasing need to renew Section
8 contracts, these housing authorities will continue to be granted
additional funding in accordance with HUD's formula for awarding modern*

--------------------------- Indexing Terms -----------------------------

 REPORTNUM:  T-RCED-97-108
     TITLE:  HUD's FY 1998 Budget Request: Some Requests for Funding May 
             Be Unnecessary
      DATE:  03/18/97
   SUBJECT:  Presidential budgets
             Housing programs
             Low income housing
             Budgetary reserves
             Unobligated budget balances
             Community development programs
             Federal aid for housing
             Housing repairs
             Rent subsidies
             Future budget projections
IDENTIFIER:  HUD Section 8 Certificate Program
             HUD Empowerment Zones and Enterprise Communities Program
             HUD Welfare to Work Initiative
             HUD Section 8 Housing Assistance Program
             HUD Tenant Rental Assistance Certification System
             HUD Section 8 Voucher Program
             HUD Central Accounting and Program System
             HUD Section 8 Portfolio Reengineering Program
             
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Cover
================================================================ COVER


Before the Subcommittee on VA, HUD, and Independent Agencies,
Committee on Appropriations, House of Representatives

For Release
on Delivery
Expected at
10:00 p.m.  EST
Tuesday
April 15, 1997

HUD'S FY 1998 BUDGET REQUEST -
SOME REQUESTS FOR FUNDING MAY BE
UNNECESSARY

Statement for the Record by Judy A.  England-Joseph
Director, Housing and Community Development Issues,
Resources, Community, and Economic
Development Division

GAO/T-RCED-97-108

GAO/RCED-97-108T


(385661)


Abbreviations
=============================================================== ABBREV

  HUD -
  VA -
  EZ/EC -
  PHA -

============================================================ Chapter 0

Mr.  Chairman and Members of the Subcommittee: 

We are pleased to have this opportunity to comment on the Department
of Housing and Urban Development's (HUD) fiscal year 1998 budget
request.  In our statement last year,\1 we focused on HUD's progress
in addressing the management deficiencies that led us to designate
the Department as one of our ï¿½high riskï¿½ areas.  We also focused on
various assumptions that HUD made in developing its budget request
and on the impact of those assumptions on the Department's cost
estimates for multifamily reengineering and for renewing Section 8
contracts for low-income rental assistance.  This year, our primary
focus is on HUD's request for over $9 billion to renew rental
assistance contracts, as well as on some of the assumptions that
underlie HUD's estimate. 

Our statement discusses (1) the estimates HUD used to develop its
budget request for renewing Section 8 assisted housing contracts, (2)
HUD's justification for 50,000 additional Section 8 certificates, (3)
HUD's success in reducing the level of uncommitted public housing
modernization funds held by housing authorities, and (4) HUD's
request for $100 million to fund the second round of the Empowerment
Zone/Enterprise Community (EZ/EC) program.  Our work is based on our
review of HUD's fiscal year 1998 budget justification materials, our
discussions of those materials with HUD officials, and an analysis
that we and HUD performed of Section 8 budget authority reserves at
HUD state offices in Georgia and Texas. 

In summary, we found the following: 

  -- HUD's fiscal year 1998 budget request for $9.2 billion in budget
     authority to renew expiring Section 8 contracts for assisted
     housing includes amounts that may not be required or could be
     offset.  First, HUD's request contains allowances for
     contingencies--costs that may or may not accrue or that cannot
     be precisely estimated--with an estimated value of $531 million. 
     However, because HUD also allows housing agencies that
     administer the tenant-based program to retain a large portion of
     their unspent reserves for contingencies, HUD may not need
     funding for the contingencies noted above.  Second, in
     developing this budget request, HUD may be able to offset
     (reduce) some of its current renewal needs after it has
     identified all unspent budget authority accumulated over prior
     years--an effort it plans to complete by March 31, 1997. 
     Finally, since its budget was released, HUD has found that two
     housing programs that provide project-based\2 assistance do not
     need to be renewed in fiscal year 1998, and therefore the
     programs do not require the $90 million that HUD budgeted for
     them. 

  -- HUD also has requested $305 million in budget authority for
     fiscal year 1998 to fund 50,000 new Section 8 certificates. 
     According to HUD, the certificates will accommodate family
     relocation caused by the Department's Welfare-to-Work
     initiative, but it is unclear how HUD estimated the number of
     units or justified their need.  For example, HUD has neither
     given a basis for choosing 50,000 as its request nor provided a
     plan for distributing these certificates to states or urban
     centers according to their need.  In addition, HUD plans to
     request an additional 50,000 units over the next 4 years, adding
     approximately $2.4 billion in renewal costs through fiscal year
     2002 for the additional 100,000 certificates. 

  -- Over the past 3 years, public housing authorities (PHA) have
     decreased the amount of uncommitted public housing modernization
     funding that they have available for major modernization
     projects by approximately 30 percent.  Despite this progress,
     approximately $925 million remains uncommitted.  In addition,
     several large troubled housing authorities have larger
     uncommitted balances than they did 3 years ago.  Despite the
     pressure on HUD's budget because of the increasing need to renew
     Section 8 contracts, these housing authorities will continue to
     be granted additional funding in accordance with HUD's formula
     for awarding modernization grants. 

  -- HUD's request for $100 million to fully fund a second round of
     the Empowerment Zone/Enterprise Community program appears
     premature as it is unlikely that HUD can commit this amount
     during fiscal year 1998. 


--------------------
\1 Housing and Urban Development:  Comments on HUD's FY 1997 Budget
Request (GAO/T-RCED-96-205, June 17, 1996). 

\2 HUD's Section 8 program provides rental subsidies for low-income
families.  These subsidies are linked to either the apartment
(project-based) or the resident (tenant-based). 


   HUD'S FISCAL YEAR 1998 BUDGET
   AND PROGRAMS
---------------------------------------------------------- Chapter 0:1

Through its programs, HUD provides rental assistance to more than 4
million low-income tenants, has insured mortgages for about 23
million homeowners, has provided funding to help revitalize over
4,000 communities, and helps ensure equal access to housing.  In
recent years, approximately three-quarters of HUD's budget outlays
have been for public and assisted housing programs.  These programs
are supported through annual appropriations (i.e., discretionary
authority) that are subject to discretionary spending limits under
the Budget Enforcement Act, as amended. 

HUD's fiscal year 1998 budget proposal requests about $24.8 billion
in discretionary budget authority and plans about $34 billion in
outlays.\3 This request represents a 28-percent increase in budget
authority and a 2-percent increase in outlays compared with HUD's
estimated outlay for fiscal year 1997.  The significant increase in
budget authority reflects the considerable growth from 1997 to 1998
in the number of multiyear contracts that need to be renewed under
the Section 8 assisted housing program, including both the
tenant-based and project-based programs.\4 In 1997, HUD needed $3.6
billion in budget authority to renew contracts.  HUD estimates that
it will need $9.2 billion in budget authority in fiscal year 1998 to
renew contracts for over half of all units assisted under Section 8. 
HUD's current policy is to renew expiring Section 8 contracts for 1
year at a time. 


--------------------
\3 Budget authority is given to federal agencies to incur obligations
and to make payments from the Treasury for a specified purpose. 
Outlays represent the issuance of checks, disbursements of cash, or
electronic transfers of funds made to liquidate a federal obligation. 

\4 For tenant-based certificates and vouchers, HUD contracts with
local housing agencies, such as PHAs, to operate the program.  The
local housing agencies pay the rental subsidies to owners of private
rental housing on behalf of the assisted households.  For the
project-based program, HUD contracts directly with and provides
rental subsidies to the owners of private rental housing and state
housing finance agencies, rather than contracting with local housing
agencies.  For both programs, assisted households generally pay 30
percent of their income for rent. 


   HUD'S REQUEST FOR SECTION 8
   CONTRACT RENEWAL FUNDING
   INCLUDES DUPLICATIVE
   CONTINGENCY FACTORS AND
   UNNECESSARY LINE ITEMS
---------------------------------------------------------- Chapter 0:2

HUD's $9.2 billion estimate to renew Section 8 contracts in fiscal
year 1998 includes about $531 million in allowances for
contingencies.  Moreover, HUD's estimate does not identify or account
for a potentially larger amount of excess budget authority--called
contract reserves--that exists in individual housing authorities'
accounts and is also available to address contingencies.  HUD is
currently identifying the amount of these other reserves; however,
instead of using them to offset its fiscal year 1998 budget needs,
the Department plans to allow housing authorities to retain much of
their reserves to cover contingencies.  HUD's estimated renewal costs
also include about $90 million for programs that do not need to be
renewed in fiscal year 1998. 


      TENANT-BASED CONTRACT
      RENEWAL REQUEST INCLUDES
      SEVERAL CONTINGENCY FACTORS
-------------------------------------------------------- Chapter 0:2.1

HUD's tenant-based contract renewal estimate includes allowances for
contingencies and assumptions that increase the budget request by
about $531 million.  These include (1) $162 million allowance for
contingencies to cover uncertainties in the number of units to be
renewed; (2) $253 million to provide a 2-week funding allowance per
housing unit to account for changes in economic conditions; (3) $116
million to account for the anticipated effects of welfare reform on
tenants' incomes and, in turn, on the rent that housing authorities
can collect from these tenants.  Neither HUD's budget justification
materials nor our discussions with HUD officials provided specific
justification or support for these allowances. 

According to HUD officials, the contingency allowance of $162 million
is for possible errors in the estimated number of units that need to
be renewed.  Although HUD obtained the estimated number of units from
its Central Accounting and Program System (HUDCAPS),\5 in commenting
on a draft of this testimony, HUD's Deputy Secretary said that not
all contracts are included in HUDCAPS.  For example, the accounting
system does not include contracts in process from prior year funding,
contracts not yet awarded for funded units, and housing units that
have been converted from project-based to tenant-based assistance. 
Accordingly, HUD officials believe that they need a 2-percent
contingency in the budget to address these unknown costs. 

Second, the average unit cost of $6,386 that HUD used to develop its
total fiscal year 1998 estimate of tenant-based renewal needs
includes a contingency factor to account for unexpected program
costs.  According to HUD officials, unexpected program costs occur
when, for example, rents increase or tenants' incomes decrease.  We
estimate that this contingency factor provides 2 additional weeks of
funding for each unit and increases the total request for contract
renewal funding by $253 million. 

A third contingency factor accounts for the impact of welfare reform
on tenants' rent contributions.  HUD estimates this impact to be
about $92 per unit, per year and includes it in the average annual
cost of tenant-based units, thus increasing HUD's contract renewal
request by about $116 million.  HUD officials told us that this
amount compensates for the reductions in tenants' contributions to
rents anticipated when tenants lose their welfare benefits.  These
reductions increase HUD's contribution to the rental payment. 


--------------------
\5 HUDCAPS is the agency's new tenant-based program management and
accounting information system implemented in Sept.  1995. 


      UNSPENT BUDGET AUTHORITY
      ALSO IS AVAILABLE TO COVER
      CONTINGENCIES
-------------------------------------------------------- Chapter 0:2.2

In recent years, HUD has been reconciling PHAs' Section 8 contract
accounts to determine how much unspent budget authority is available
to renew expiring contracts.  The Department expects to complete this
process by March 31, 1997.  By the end of fiscal year 1996, HUD had
identified approximately $1.6 billion in unspent budget authority--or
excess contract reserves--which it used to extend the funding for
expiring Section 8 tenant-based contracts.  This action, which took
place too late in the budget process to be reflected in the fiscal
year 1997 budget, shows up for the first time in the fiscal year 1998
budget.  In the meantime, HUD has identified additional reserves, a
portion of which it believes can be used to further reduce the amount
of budget authority needed to renew contracts in fiscal year 1998. 
HUD plans to calculate this reduction and provide this information to
the Congress after completing the reconciliation process. 

HUD officials told us that the Department will use the following
process to determine the amount by which it can reduce its fiscal
year 1998 budget request.  After HUD finalizes the amount of the
reserves, it will continue its policy of allowing housing authorities
to limit the portion of their reserves that can be used to extend
expiring contracts.  This policy limits HUD's ability to offset its
budget request for contract renewals with accumulated unspent budget
authority and raises the amount of budget authority that HUD must
request.  Specifically, HUD has determined that a housing authority
can use its reserves to extend contracts only if the housing
authority first retains a minimum of 50 percent of the funding needed
to fully fund all of the housing authority's Section 8 units for 1
fiscal year.  Although not all housing authorities have sufficient
excess contract reserves to do this, HUD officials believe that this
policy ensures that in most cases reserve funds will be available to
cover increased program costs or other contingencies such as
potential increases in rents or the loss of tenants' income. 

HUD officials could not explain whether these contingencies could be
addressed by the various allowances for contingencies that we
described earlier, and they did not have a basis for specifying that
the 50-percent level was an appropriate amount for housing
authorities to retain.  While these costs may occur and establishing
some contingency amount for them may be reasonable, the 50-percent
reserve is in itself a contingency allowance and apparently
duplicates the other contingency factors that HUD has built into its
budget request.  In commenting on a draft of this testimony, the
Deputy Secretary agreed that housing authorities' reserves are a
source of contingency funding.  He said that the size of the reserve
depends on the nature of an authority's portfolio of tenant-based
assistance and that these reserves are an area that is under review
by the Department. 


      PREMATURE FUNDING REQUESTS
      INCREASE HUD'S PROJECT-BASED
      CONTRACT RENEWAL ESTIMATE
-------------------------------------------------------- Chapter 0:2.3

HUD's budget request for Section 8 contract renewal funding includes
two line items for project-based housing assistance that HUD has
since determined do not require renewal in fiscal year 1998.  These
two line items total almost $90 million in requested budget
authority.  The first item is a request for $54 million and is part
of HUD's portfolio reengineering program to restructure some
project-based contracts.\6 The $54 million provides new Section 8
budget authority for projects that HUD's budget assumes will be
reengineered before their current Section 8 contracts expire. 
However, because these contracts provide below-market rents, HUD
officials told us that reengineering these projects is highly
unlikely until the contracts expire in fiscal year 2000, if then.  As
a result, this line item does not need to be included in the fiscal
year 1998 request.  The second item is a request for $35 million to
renew expiring vouchers set aside for disabled persons.  HUD
officials stated that this money is not needed because the contracts
were fully funded in fiscal year 1995 and do not expire until fiscal
year 2000; consequently, funds are not needed in fiscal year 1998. 


--------------------
\6 Portfolio reengineering is HUD's program to restructure the
Federal Housing Administration's insured debt on multifamily
property. 


   JUSTIFICATION FOR INCREASING
   SIZE OF SECTION 8 PROGRAM IS
   UNCLEAR
---------------------------------------------------------- Chapter 0:3

For fiscal year 1998, HUD has requested $305 million in budget
authority to fund 50,000 incremental (new) certificates to help
families required to move because of the Department's Welfare-to-Work
initiative.  However, it is unclear how HUD determined that 50,000
vouchers would be needed to help families relocate or how HUD would
distribute the new certificates to states and urban centers where
this need is likely to be felt.  HUD officials told us that the
Department has not analyzed the potential need for this new kind of
assistance, but on the basis of studies by HUD and others of the
general need for affordable housing, they believe that the overall
need nationwide for more assisted housing justifies these incremental
certificates. 

Furthermore, the 50,000 units are part of a larger, 5-year plan to
increase the tenant-based program by 100,000 units.  HUD officials
told us that this plan is part of the administration's continued
commitment to expand the availability of tenant-based rental
assistance, within the context of a budget that reaches balance in
fiscal year 2002.  The cumulative effect of adding these new units
would be to increase renewal costs by approximately $2.4 billion
through fiscal year 2002. 


   BALANCES OF UNCOMMITTED
   MODERNIZATION FUNDING HAVE
   DECREASED, BUT SOME HOUSING
   AUTHORITIES' BALANCES HAVE
   INCREASED
---------------------------------------------------------- Chapter 0:4

For fiscal year 1998, HUD is requesting $2.5 billion for public
housing capital activities, the same amount it received in fiscal
year 1997.  These funds are distributed to public housing
authorities, which are then responsible for committing and spending
these funds to modernize their public housing units.  In 1994, we
reported that housing authorities had an aggregate backlog of $1.4
billion in modernization funds.\7 The backlog comprises funds that
have been available to the housing authorities for more than 2 years
but have not been committed for use--HUD officials believe that 2
years is an adequate period within which to spend funds for capital
purposes.  Currently, housing authorities have approximately $925
million in backlogged funding. 

Failing to commit modernization funds in a timely manner means that
vacant and deteriorated public housing remains unsuitable for
habitation and that the programs are not serving the needs of
low-income families.  We reported in 1994 that 22 large housing
authorities had been granted $4.8 billion in fiscal year 1991 and
prior years' approved funds and that of that amount, $808 million, or
17 percent, remained uncommitted as of September 30, 1993.  Since we
issued that report, HUD has worked with housing authorities to reduce
their backlogs.  As of September 30, 1996, the same 22 large housing
authorities we reported on almost 3 years ago had been granted a
total of $8 billion in fiscal year 1994 and prior years' funds.  Of
that amount, $785 million, or about 10 percent, was in the combined
backlogs of these 22 authorities.  While these housing authorities'
approved funds increased 68 percent during this time, their total
backlog decreased 3 percent.  HUD officials told us that they have
been successful in helping housing authorities reduce their backlogs
by providing greater flexibility, by streamlining regulations, and
providing technical assistance, particularly to the troubled or
near-troubled housing authorities. 

Notwithstanding HUD's overall success in reducing the modernization
backlog, the sizes of the backlogs at several large housing
authorities have actually increased since we reported in 1994.  For
example, the Washington, D.C., Housing Authority, as of the end of
September 30, 1996, had a backlog of $115 million, or 39 percent of
its fiscal year 1994 and prior years' approved funds.  For the same
period, the New Orleans Housing Authority had a backlog of $72
million, or 32 percent of its total approved funds, and the San
Francisco Housing Authority had a backlog of $31 million, or 15
percent of its approved balance.  Of the 22 PHAs reviewed, 6 have
larger backlogs than they did 3 years ago, including the 3 PHAs noted
above.  Of these six PHAs, four had a backlog that was higher as a
percentage of their total than they had in 1994.  In commenting on a
draft of this testimony, the Deputy Secretary said that he expects
HUD to rectify the backlog of those four PHAs by fiscal year 1998. 
Moreover, he said that HUD is holding new modernization funding for
these four PHAs until they have adequate capacity to administer the
funding effectively. 

Regardless of the size of its backlog or its capacity to effectively
commit funds, a housing authority still receives an annual
modernization grant under the program's allocation formula.  Although
HUD can, under the regulations, recapture modernization funding that
has gone uncommitted for more than several years, officials told us
that this seldom occurs.  Thus, the effect of formula funding is to
increase the backlog of modernization funding--notwithstanding HUD's
hold on the funds--for those PHAs that continue to be unsuccessful in
committing their modernization grants.  This, in turn, increases
HUD's need for new budget authority. 


--------------------
\7 Public Housing:  Information on Backlogged Modernization Funds
(GAO/RCED-94-217FS, July 15, 1994). 


   THE EMPOWERMENT ZONE/ENTERPRISE
   COMMUNITY PROGRAM MAY NOT NEED
   FULL FUNDING IN FISCAL YEAR
   1998
---------------------------------------------------------- Chapter 0:5

HUD's fiscal year 1998 budget proposal includes $100 million for a
second round of the Empowerment Zone/Enterprise Community (EZ/EC)
program.  According to HUD's budget request, the Department
anticipates fully committing these funds during fiscal year 1998. 
However, many steps must be taken before HUD can grant these funds. 
For example, legislation must be passed to authorize the second round
of designations.\8

Subsequently, HUD must write related regulations, invite communities
to apply for program grants, allow time for communities to prepare
and submit their applications, evaluate the applications, and select
the communities that would receive these funds.  During the first
round of this program, HUD required 16 months after the Congress
passed the legislation to designate the EZs and ECs. 

Unless the Congress passes authorizing legislation soon, HUD is not
likely to be ready to use the majority of these funds during fiscal
year 1998.  This means that HUD's request of $100 million in fiscal
year 1998 could be premature.  HUD's director and deputy director of
economic development told us that although they have not prepared a
schedule for the second round, they anticipate that they can draw
from experiences in the first round to accelerate the community
designation process.  In addition, these officials said that they
would prefer to have the funding available at the same time that they
are revising the regulations and program guidance so that HUD and the
potential program participants can be assured that the program will
receive the funds they need. 

In commenting on a draft of this testimony, the Deputy Secretary
strongly disagreed with our conclusion that funding the EZ/EC
proposal is premature.  He said that it is not credible for HUD to
conduct a demanding competition without funds in hand to reward
winners.  Nevertheless, we continue to believe that HUD likely will
not need most of these funds until fiscal year 1999. 


--------------------
\8 Legislation was proposed by the administration during the 104th
Congress, but it was not enacted.  In January and February 1997,
authorizing legislation was introduced in the Senate and the House of
Representatives, respectively, but has not yet been enacted. 


   CONCLUSIONS
---------------------------------------------------------- Chapter 0:6

HUD may not need all the budget authority that it has requested for
the Section 8 program in fiscal year 1998 because it has built in
several allowances to cover unexpected costs, while at the same time
it has access to unspent budget authority from prior years that also
can be used to address unexpected costs.  Because Section 8 contract
renewals are such a large proportion of HUD's budget request this
year and in the foreseeable future and because we have questions
about the need for the several contingency factors that HUD has
included in its budget request for contract renewal authority, we
believe that this request bears close scrutiny. 

HUD's request for $100 million to fund the EZ/EC program appears
premature because the time required to pass legislation, write
regulations, and select program participants is likely to extend into
fiscal year 1999. 


   MATTERS FOR CONGRESSIONAL
   CONSIDERATION
---------------------------------------------------------- Chapter 0:7

The Congress may wish to consider not funding the various contingency
allowances that HUD has proposed in its fiscal year 1998 budget
request for tenant-based Section 8 contract renewals until HUD
provides the Congress a more complete justification of the need for
each contingency allowance, including HUD's policy that allows
housing authorities to retain large excess contract reserves.  As
part of that justification, HUD should advise the Congress to what
extent, if any, each of the allowances or reserves duplicates other
allowances or reserves. 

Because HUD has determined that $90 million in project-based contract
renewals is not needed in fiscal year 1998, we recommend that the
Congress consider not appropriating this amount for such contract
renewals. 

The Congress may also wish to review HUD's need for budget authority
in fiscal year 1998 of $100 million for the second round of the EZ/EC
program and to seek assurances from HUD that the program will be
ready to commit funds. 


   AGENCY COMMENTS
---------------------------------------------------------- Chapter 0:8

We provided a draft of this testimony to HUD for its review and
comment.  In commenting on the draft, HUD's Deputy Secretary said
that he was very concerned that we may have made misinterpretations
that portray the Department in an unnecessarily negative way.  For
example, he said that our characterizing several categories of
funding as contingencies is not totally accurate.  He believes that
these budget categories represent legitimate budgeting techniques or
that they should not be categorized as contingencies.  He did agree,
however, that PHAs' excess contract reserves are a source of
contingency funding, and he said that HUD will report the final
balances in PHAs' reserve accounts to the Appropriations Committees
when they are known. 

We disagree with the Deputy Secretary that our testimony
misinterprets agency actions.  During our work, we requested
justification and support for various budget items included in HUD's
budget request.  We also met with HUD officials to obtain a better
understanding of their justification for the specific budget items we
questioned.  HUD officials were unable to provide adequate
justification, and until they can provide it we believe that the
Congress should continue to question the areas we identified in our
testimony. 

Where appropriate in our testimony, we have recognized the Deputy
Secretary's concerns or we have added information to clarify our
remarks.  Where we and HUD disagreed regarding an estimated figure,
we have used HUD's figures which show a lower contingency allowance
in each case. 

RELATED GAO PRODUCTS

Housing and Urban Development:  HUD's Management Deficiencies,
Progress on Reforms, and Issues for Its Future (GAO/T-RCED-97-89,
March 6, 1997). 

Public Housing:  Status of the HOPE VI Demonstration Program
(GAO/RCED-97-44, Feb.  25, 1997). 

Housing and Urban Development:  Potential Implications of Legislation
Proposing to Dismantle HUD (GAO/RCED-97-36, Feb.  21, 1997). 

Managing for Results:  Using GPRA to Assist Congressional and
Executive Branch Decision-Making (GAO/T-GGD-97-43, Feb.  12, 1997). 

HUD:  Field Directors' Views on Recent Management Initiatives
(GAO/RCED-97-34, Feb.  12, 1997). 

GAO High-Risk Series (GAO/HR-97-1, Feb.  1997). 

High-Risk Series:  Department of Housing and Urban Development
(GAO/HR-97-12, Feb.  1997). 

Public Housing:  HUD Should Improve the Usefulness and Accuracy of
Its Management Assessment Program (GAO/RCED-97-27, Jan.  29, 1997). 

Multifamily Housing:  Effects of HUD's Portfolio Reengineering
Proposal (GAO/RCED-97-7, Nov.  1, 1996). 

Public Housing:  Partnerships Can Result in Cost Savings and Other
Benefits (GAO/RCED-97-11, Oct.  17, 1996). 

Housing and Community Development Products 1995 (GAO/RCED-96-248W,
Aug.  1996). 

Multifamily Housing:  HUD's Portfolio Reengineering Proposal:  Cost
and Management Issues (GAO/T-RCED-96-232, July 30, 1996). 

Multifamily Housing:  Issues Facing the Congress in Assessing HUD's
Portfolio Reengineering Proposal (GAO/T-RCED-96-231, July 26, 1996). 

Executive Guide:  Effectively Implementing the Government Performance
and Results Act (GAO/GGD-96-118, June 20, 1996). 

Housing and Urban Development:  Comments on HUD's FY 1997 Budget
Request (GAO/T-RCED-96-205, June 17, 1996). 

Housing and Urban Development:  Limited Progress Made on HUD Reforms
(GAO/T-RCED-96-112, Mar.  27, 1996). 

Housing and Urban Development:  Public and Assisted Housing Reform
(GAO/T-RCED-96-22 and GAO/T-RCED-96-25, Oct.  13, 1995). 

Public Housing:  Converting to Housing Certificates Raises Major
Questions About Cost (GAO/RCED-95-195, June 20, 1995). 

Public Housing:  Funding and Other Constraints Limit Housing
Authorities' Ability to Comply With One-for-One Rule (GAO/RCED-95-78,
Mar.  3, 1995). 

Housing and Urban Development:  Reforms at HUD and Issues for Its
Future (GAO/T-RCED-95-108, Feb.  22, 1995). 

High-Risk Series:  Department of Housing and Urban Development
(GAO/HR/95-11, Feb.  1995). 


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