Housing and Urban Development: Comments on HUD's Fiscal Year 1999 Budget
Request (Statement/Record, 03/12/98, GAO/T-RCED-98-123).

GAO discussed the Department of Housing and Urban Development's (HUD)
fiscal year (FY) 1999 budget request, focusing on: (1) actions HUD has
taken or plans to take to improve its budget estimates; (2) the
reasonableness of HUD's estimate for Section 8 tenant-based assistance;
(3) HUD's justification for its Section 8 project-based amendment
request; (4) HUD's request for funding to assist the homeless; (5) HUD's
request for $100 million to fund its new Regional Connections
Initiative; and (6) the future budgetary implication of welfare reform.

GAO noted that: (1) HUD recognizes the need to improve its budget
estimating process with better oversight and documentation and has
started to improve its process by modifying its organizational structure
to increase oversight among the staff responsible for formulating budget
estimates; (2) however, many of HUD's planned improvements were not
implemented in time to affect HUD's FY 1999 budget estimate but,
according to HUD officials, will be in place to enhance the FY 2000
process; (3) HUD's request for $4.7 billion to renew Section 8
tenant-based assisted housing contracts for FY 1999 could be reduced by
$439 million; (4) this is the amount of excess budget authority in the
Section 8 moderate rehabilitation program that could be used in place of
new budget authority to renew expiring housing assistance contracts; (5)
in addition, because this excess budget authority exists, HUD may not
need the $70 million it has requested for Section 8 moderate
rehabilitation amendment funding; (6) HUD's budget request for $1.3
billion in Section 8 project-based amendment funding--funds needed to
cover shortfalls in long-term Section 8 contracts--substantially exceeds
the amounts that HUD's analyses indicated are needed; (7) to help
address the needs of the nation's homeless, HUD has requested 34,000 new
Section 8 vouchers; (8) although these new vouchers will increase the
amount of direct housing assistance for the homeless, HUD has not
developed the eligibility standards or other planning criteria for these
new vouchers that would facilitate implementing the program; (9) HUD's
budget request for $100 million for the Regional Connections Initiative
(RCI), a new set-aside within the Community Development Block Grant
program to address key regional issues, does not provide enough detail
to indicate whether this is a reasonable funding level for the program;
(10) the additional support that HUD provided, however, does not
recommend a significant federal effort to address regional problems;
(11) nevertheless, HUD officials believe the funding level is a
manageable set aside; (12) because of the work required to initiate a
new program like this, GAO questions whether the funds can be awarded in
FY 1999; (13) welfare reform may have a substantial future impact on
HUD's spending for assisted housing for low-income households; and (14)
however, estimating the impact may not be possible because the states'
differing welfare reform provisions will create varied state-by-state
and year-by-year impacts.

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

 REPORTNUM:  T-RCED-98-123
     TITLE:  Housing and Urban Development: Comments on HUD's Fiscal 
             Year 1999 Budget Request
      DATE:  03/12/98
   SUBJECT:  Future budget projections
             Housing programs
             Community development programs
             Budget cuts
             Federal aid for housing
             Low income housing
             Budget authority
             Financial management
IDENTIFIER:  HUD Section 8 Moderate Rehabilitation Program
             HUD Section 8 Housing Assistance Program
             HUD Regional Connections Initiative
             Community Development Block Grant
             HUD Homeless Assistance Grant Program
             
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Cover
================================================================ COVER


Before the Subcommittee on VA, HUD, and Independent Agencies,
Committee on Appropriations
U.S.  Senate

Not To Be
Released
Before
9:30 a.m.  EST
Thursday
March 12, 1998

HOUSING AND URBAN DEVELOPMENT -
COMMENTS ON HUD'S FISCAL YEAR 1999
BUDGET REQUEST

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

GAO/T-RCED-98-123

GAO/RCED-98-123T


(385725)


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

  HUD -
  RCI -
  FHA -
  CFO -
  CDBG -
  VA -

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

Mr.  Chairman and Members of the Subcommittee: 

We are pleased to have the opportunity to comment on the Department
of Housing and Urban Development's (HUD) fiscal year 1999 budget
request.  HUD has proposed a fiscal year 1999 appropriation of
approximately $25 billion to support a variety of housing and
community development programs.  As you requested, we reviewed the
reasonableness of selected aspects of HUD's fiscal year 1999 budget
request.  Our statement today is based on our recently completed and
ongoing work and will discuss (1) actions HUD has taken or plans to
take to improve its budget estimates, (2) the reasonableness of HUD's
estimate for Section 8 tenant-based assistance,\1 (3) HUD's
justification for its Section 8 project-based amendment request, (4)
HUD's request for funding to assist the homeless, (5) HUD's request
for $100 million to fund its new Regional Connections Initiative, and
(6) the future budgetary implication of welfare reform.  Appendix I
contains the scope and methodology of our review. 

In summary, we found the following: 

ï¿½ Recognizing the need to improve its budget estimating process with
better oversight and documentation, HUD has started to improve its
process by modifying its organizational structure to increase
oversight among the staff responsible for formulating budget
estimates.  However, many of HUD's planned improvements--such as
Office of Budget's analysis of program office submissions--were not
implemented in time to affect the Department's fiscal year 1999
budget estimate but, according to HUD officials, will be in place to
enhance the fiscal year 2000 process. 

ï¿½HUD's request for $4.7 billion to renew Section 8 tenant-based
assisted housing contracts for fiscal year 1999 could be reduced by
$439 million.  This is the amount of excess budget authority in the
Section 8 moderate rehabilitation program that could be used in place
of new budget authority to renew expiring housing assistance
contracts.  In addition, because this excess budget authority exists,
HUD may not need the $70 million it has requested for Section 8
moderate rehabilitation amendment funding. 

ï¿½HUD's budget request for $1.3 billion in Section 8 project-based
amendment funding--funds needed to cover shortfalls in long-term
Section 8 contracts--substantially exceeds the amounts that HUD's
analyses indicated are needed.  According to HUD officials, the
excessive amount reflects a policy decision by the Office of
Management and Budget and HUD to augment the request due to the
long-term need for amendment funding. 

ï¿½To help address the needs of the nation's homeless, HUD has
requested 34,000 new Section 8 vouchers.  Congressional concern
exists over the high proportion of funding for assistance for the
homeless that was spent on supportive services instead of on direct
housing.  Although these new vouchers will increase the amount of
direct housing assistance for the homeless, HUD has not developed the
eligibility standards or other planning criteria for these new
vouchers that would facilitate implementing the program. 

ï¿½HUD's budget request for $100 million for the Regional Connections
Initiative (RCI), a new set-aside within the Community Development
Block Grant program to address key regional issues, does not provide
enough detail to indicate whether this is a reasonable funding level
for the program.  The additional support that HUD provided, however,
does not recommend a significant federal effort to address regional
problems.  Nevertheless, HUD officials believe the funding level is a
manageable set- aside.  Because of the work required to initiate a
new program like this, we question whether the funds can be awarded
in fiscal year 1999. 

ï¿½Welfare reform may have a substantial future impact on HUD's
spending for assisted housing for low-income households.  However,
estimating the impact may not be possible because the states'
differing welfare reform provisions will create varied state-by-state
and year-by-year impacts. 


--------------------
\1 The Section 8 housing assistance program, named for the revised
section 8 of the U.S.  Housing Act of 1937, was originally
established by the Housing and Community Development Act of 1974
(P.L.  93-383).  It includes tenant-based assistance for specific
households and project-based assistance for specific properties. 


   HUD'S FISCAL YEAR 1999 BUDGET
   AND PROGRAMS
---------------------------------------------------------- Chapter 0:1

Established in 1965, HUD is the principal federal agency responsible
for programs in four areas--housing assistance, community
development, housing finance, and regulatory issues related to areas
such as lead-based paint abatement and fair housing.  To carry out
its many responsibilities, HUD was staffed by 9,885 employees as of
January 1998. 

ï¿½Housing Assistance:  HUD provides (1) public housing assistance
through allocations to public housing authorities and (2)
private-market housing assistance through rental subsidies for
properties, referred to as project-based assistance, or for tenants,
known as tenant-based assistance.  In contrast to entitlement
programs, which provide benefits to all who qualify, the benefits of
HUD's housing assistance programs are limited by budgetary
constraints to only about one-fourth of those who are eligible. 

ï¿½Community Development:  Primarily through grants to states, large
metropolitan areas called entitlement areas, small cities, towns, and
counties, HUD provides funds for local economic development, housing
development, and assistance to the homeless.  The funding for some
programs, such as those for the homeless, may also be distributed
directly to nonprofit groups and organizations. 

ï¿½Housing Finance:  The Federal Housing Administration (FHA) insures
lenders--including mortgage banks, commercial banks, savings banks,
and savings and loan associations--against losses on mortgages for
single-family properties, multifamily properties, and other
facilities.  The Government National Mortgage Association, a
government-owned corporation within HUD, guarantees investors the
timely payment of principal and interest on securities issued by
lenders of FHA-insured and VA- and Rural Housing Service-guaranteed
loans. 

ï¿½Regulatory Issues:  HUD is responsible for regulating interstate
land sales, home mortgage settlement services, manufactured housing,
lead-based paint abatement, and home mortgage disclosures.  HUD also
supports fair housing programs and is partially responsible for
enforcing federal fair housing laws. 

HUD's programs are supported through annual appropriations
(discretionary budget authority) that are subject to discretionary
spending limits under the Budget Enforcement Act, as amended.  For
fiscal year 1999, HUD requested about $25 billion in discretionary
budget authority, which, in combination with available budget
authority from prior years, will help support about $33.2 billion in
outlays.\2 This request represents a 4-percent increase in budget
authority and a negligible increase in estimated outlays over fiscal
year 1998. 


--------------------
\2 Budget authority is the authority provided by federal law to incur
obligations that will result in outlays.  Appropriations are the most
common means of providing budget authority.  Outlays are the measure
of federal spending and are payments to liquidate obligations. 


   HUD PLANS MANAGEMENT REFORMS TO
   IMPROVE BUDGET ESTIMATES
---------------------------------------------------------- Chapter 0:2

As we reported in February 1998, accurate budget estimates are
essential for federal agencies to meet their fiscal responsibilities
because such estimates facilitate sound policy decisions and
effective funding trade-offs.\3 Unfortunately, for years HUD had
difficulty submitting accurate budget estimates.  Recognizing the
need to improve its budget process with better oversight and
documentation, HUD has developed and begun implementing corrective
actions. 

HUD recently placed all departmental budget operations under the
Office of the Chief Financial Officer (CFO) to ensure that budgeting
is integrated with financial management oversight.  In the past,
HUD's budget operations have been fragmented and disjointed,
preventing clear accountability and necessary coordination.  This
problem was the result of the CFO's inability to link budgeting with
strategic planning and financial management, according to HUD's
Management Reform Plan.  As another improvement, HUD is hiring a
chief financial officer for all program divisions to mirror the
operations of the Department's Office of the CFO.  Previously, the
program division's budget director and comptroller reported to a
deputy assistant secretary.  Under the new structure, the division's
budget director and comptroller will report to the division's CFO,
who will coordinate with the agency's CFO and the division's program
staff to ensure adequate oversight. 

In addition to organizational changes, the Office of the CFO plans to
develop budget estimating policies and procedures that build in
enough time for adequate coordination, oversight, and communication. 
However, HUD did not implement many of the changes in time to affect
the Department's fiscal year 1999 budget estimate.  According to
HUD's Director of the Office of Budget, time constraints prevented
his office from performing analytical reviews of program office
submissions.  He said that his Office was limited to reviewing the
fiscal year 1999 budget estimates for numerical accuracy and that
this Office could not always question the estimates' reasonableness
or underlying basis.  He believes that the planned improvements
should be operational in time for HUD's fiscal year 2000 budget
submission. 


--------------------
\3 Section 8 Tenant-Based Assistance:  Opportunities to Improve HUD's
Financial Management (GAO/RCED-98-47, Feb.  20, 1998). 


   HUD'S REQUEST FOR SECTION 8
   TENANT-BASED ASSISTANCE COULD
   BE REDUCED
---------------------------------------------------------- Chapter 0:3

HUD has significantly improved its budgeting for tenant-based
contract renewals by omitting duplicative contingency allowances and
accounting for excess budget authority in the Section 8 certificate
and voucher programs.  However, HUD's request for $4.7 billion to
renew Section 8 tenant-based contracts could still be reduced by the
amount of excess budget authority in HUD's moderate rehabilitation
program, or $439 million.\4 In addition, because excess budget
authority exists in the moderate rehabilitation program, HUD may not
need the $70 million it has requested for moderate rehabilitation
amendments. 

In contrast to the Department's Section 8 tenant-based contract
renewal request for fiscal year 1998, HUD's request for fiscal year
1999 does not appear to contain any duplicative contingency factors. 
Instead, HUD's improved budget estimate for fiscal year 1999 is based
on actual expenditure data adjusted for inflation.  In addition, HUD
used $3.7 billion of excess budget authority recaptured from the
Section 8 tenant-based program to offset the cost of contract
renewals in fiscal year 1999. 

Although HUD has improved its budget-estimating process, we believe
that the Department is still overestimating its need for contract
renewal funding because $439 million in excess budget authority in
the moderate rehabilitation program could be used to renew expiring
contracts in lieu of requesting new budget authority.  As shown in
table 1, HUD determined in January 1998, that the gross excess budget
authority in the Section 8 moderate rehabilitation program was about
$814 million.  Of that amount, the Department estimates that it will
need $191 million to meet funding shortfalls in the program and $184
million to cover contingencies, such as decreases in tenants' incomes
or unexpected rent increases.  (HUD believes, however, that it needs
statutory authority from the Congress to use excess budget authority
to cover some of these funding shortfalls.) The remaining $439
million is the budget authority that HUD considers to be in excess of
the Section 8 program's needs. 



                                Table 1
                
                Excess Budget Authority in the Section 8
                Moderate Rehabilitation Program Dollars
                              in millions

--------------------------------------------------------------  ------
Gross excess budget authority as of 1/15/98                       $814
Less: excess budget authority needed to fund shortfalls          (191)
Less: reserve for contingencies                                  (184)
Excess budget authority                                           $439
----------------------------------------------------------------------
Source:  HUD's Office of Public and Indian Housing. 

According to HUD officials, the Department has not decided yet
whether to recapture this budget authority or how much it would
recapture.  Although HUD did not complete its analysis of excess
budget authority in the moderate rehabilitation program in time to
include this amount in its initial budget submission for fiscal year
1999, we believe sufficient time remains before conference for HUD to
revise its fiscal year 1999 request to reflect the $439 million in
excess budget authority available to reduce the cost of renewing
contracts. 

HUD's January 1998 analysis also shows that a request for $70 million
to amend Section 8 moderate rehabilitation contracts may not be
needed.  Generally, amending contracts refers to changing specific
housing assistance contracts to add more funding.  According to HUD
officials, the $70 million was included in the budget as a
placeholder until the Department completed its analysis of excess
budget authority in the moderate rehabilitation program.  As noted
above, HUD's analysis shows that sufficient excess funding exists in
the program to make the request for $70 million unnecessary.  If the
Congress grants HUD the authority it believes it needs to use excess
budget authority to cover funding shortfalls in the program,
Department officials told us that they would not need this $70
million in amendment funding. 


--------------------
\4 For the tenant-based program, HUD contracts with state and local
housing agencies to manage the program's certificates and vouchers,
which assist 1.4 million households.  These agencies make payments to
private-sector landlords to subsidize the rents of certificate and
voucher holders. 


   HUD'S PROJECT-BASED AMENDMENT
   REQUEST MAY BE OVERSTATED
---------------------------------------------------------- Chapter 0:4

According to HUD, the total amount of Section 8 project-based
amendment funding needed for fiscal year 1999 is $1.7 billion.  These
total amendment needs are then reduced by a $463 million offset
coming from estimated "recapture amounts"--that is, balances
remaining on expiring contracts that may be recaptured and used to
fund contract amendments.\5 As a result, HUD's fiscal year 1999
budget requests $1.3 billion for Section 8 project-based amendments. 
We do not believe that HUD's request for Section 8 project-based
amendment needs is adequately supported.  Furthermore, HUD's budget
request for Section 8 project-based amendment funding substantially
exceeds the amounts that HUD's analyses indicated are needed. 

The support HUD provided to us for its amendment budget request was
an analysis dated April 1997.  The analysis was formulated using a
methodology that HUD refers to as "leveling," under which funding
shortfalls are spread over the remaining term of the contract rather
than beginning in the year the contract is projected to run out of
money.  For example, for a contract costing $1 million a year with 10
years remaining and $9 million available, the $1 million shortfall
would be spread in $100,000 increments over the next 10 years, rather
than being identified as a shortfall of $1 million in the 10th year. 
HUD officials told us the goal of the leveling methodology is to
enable the Department to request a consistent annual amount to fund
amendments and to avoid requesting large amounts in later years. 

The April 1997 analysis, derived from the Budget Forecast System,
which the Department uses to estimate its Section 8 amendment needs
for budgeting purposes, indicates a total amendment need of $1.2
billion in fiscal year 1999, or about $500 million less than the
total amount identified in HUD's budget request for fiscal year 1999. 
HUD officials said that this additional $500 million reflects a
policy decision by the Office of Management and Budget and HUD to
augment the request because of the long-term funding need for
amendments. 

In addition, an analysis of Section 8 project-based amendment needs
that we obtained from HUD in February 1998 shows that substantially
higher amounts of recapture funds are projected to become available
in the next several years than those that are reflected in the
budget.  HUD prepared this analysis at our request to address
problems that we identified in HUD's previous analyses of its Section
8 amendment needs.  Among other things, we found the previous
analyses did not include Section 8 project-based funding that HUD
received in its fiscal year 1997 appropriation and erroneously
excluded about 1,800 Section 8 contracts.  The February 1998 analysis
indicates that $2.6 billion in recaptures are projected to become
available in fiscal year 1998, compared with the $463 million
recapture amount used to offset the 1999 budget request.  We are
currently reviewing this analysis as part of the work we have
underway examining HUD's unexpended Section 8 project-based
balances.\6 We plan to issue our report in July 1998. 


--------------------
\5 The project-based contracts were entered into beginning in the
1970s and 1980s, typically for 15-, 20-, or 40-year periods.  While
the funds provided for these long-term contracts have exceeded actual
needs in some instances, they have been insufficient in other
instances to make rental assistance payments through the terms of the
contracts.  Beginning in the early 1990s, the Department started
requesting amendment funding for the contracts with insufficient
funding. 

\6 This review is required by the emergency supplemental
appropriations law enacted in June 1997 (P.L.  105-18). 


   HUD'S NEWEST HOMELESS
   INITIATIVE INCREASES DIRECT
   HOUSING ASSISTANCE FOR THE
   HOMELESS
---------------------------------------------------------- Chapter 0:5

For fiscal year 1999, HUD is requesting $958 million to fund its
ongoing programs for the homeless and $192 million for 34,000 new
Section 8 vouchers for homeless individuals or families.  Although
congressional concern exists about the proportion of homeless funding
spent on supportive services as compared to the amount spent on
direct housing assistance, HUD's request for 34,000 new vouchers for
the homeless would increase housing assistance for the homeless. 
However, HUD has not developed the eligibility standards or other
planning criteria for these vouchers that would facilitate program
delivery. 


      HALF OF HUD'S FUNDING FOR
      COMPETITIVE HOMELESS GRANTS
      IN FISCAL YEAR 1996 WAS
      SPENT ON SUPPORTIVE SERVICES
-------------------------------------------------------- Chapter 0:5.1

Congressional concern has been expressed about the proportion of
HUD's homeless funding that is used for supportive services compared
to housing assistance.  Moreover, a House bill introduced in 1997
proposed placing a cap on the percentage of total funding that
grantees can use for services for the homeless.  In fiscal year 1996,
the latest year for which HUD has detailed information on the
allocation of its homeless assistance funds, 51 percent of the
competitive funding HUD awarded to grantees was spent on supportive
services as opposed to direct housing assistance.  Table 2 shows the
breakdown between services and housing for three of HUD's competitive
homeless assistance programs.\7



                                Table 2
                
                 Proportion of Homeless Grants Spent on
                  Supportive Services Versus Assisted
                      Housing in Fiscal Year 1996

                         (Dollars in millions)

                                                      Percentage spent
                                       Total funds       on supportive
Program                                    awarded            services
------------------------------  ------------------  ------------------
Single Room Occupancy                        $47.8                   0
Shelter Plus Care                             88.7                   0
Supportive Housing                           576.6                  63
Total                                       $713.1                  51
----------------------------------------------------------------------
Source:  HUD's Office of Community Planning and Development. 

HUD officials explained that they award the grants on the basis of
the level of demand from grant applicants, and grantees' requests for
services are high compared to requests for housing.  They also
speculated that it is difficult for organizations to obtain needed
services through other agencies, which is why they may be using HUD
resources to fill the gap.  HUD officials further commented that
funding this need is consistent with the agency's Continuum of Care
approach that seeks to end homelessness by bringing together all
parts of the community to provide a coordinated system of care for
homeless men, women, and children.  In commenting on a draft of this
testimony, the Department said that in all instances it encourages
housing as the end result. 


--------------------
\7 HUD's Homeless Assistance Grants program consolidates the
activities of HUD's six McKinney homeless assistance programs
(Supportive Housing, Single Room Occupancy, Shelter Plus Care,
Emergency Shelter Grants, Safe Haven, and Rural Homeless Housing
Assistance) and the Innovative Homeless Initiatives Demonstration
program.  Table 2 only includes competitive-based grants that were
funded in fiscal year 1996. 


      NEW INITIATIVE WOULD PROVIDE
      ADDITIONAL HOUSING BUT MIGHT
      BENEFIT FROM MORE DETAILED
      PLANNING
-------------------------------------------------------- Chapter 0:5.2

With its fiscal year 1999 budget request for $192 million to fund
34,000 new Section 8 vouchers for homeless individuals or families,
HUD proposes to increase the amount of funding for direct housing
assistance.  These vouchers will be used to assist families that have
achieved a sufficient level of independence to move to permanent
housing that is linked to services.  The vouchers are intended for
homeless individuals and families who would otherwise have the
greatest difficulty securing permanent housing resources, as
determined through the approved Continuum of Care approach. 

However, unlike the Department's fiscal year 1999 budget request for
50,000 new welfare-to-work vouchers, HUD's request for new vouchers
for the homeless does not describe the criteria that would be used to
distribute the vouchers.  For example, under HUD's welfare-to-work
voucher proposal, any housing agency requesting permission to
distribute vouchers must (1) prepare a plan that includes the
criteria to be used to select the recipients and (2) describe the
proposed strategy for counseling tenants, providing assistance in
seeking housing, and reaching out to landlords.  Furthermore, the
agency must determine that obtaining tenant-based housing assistance
is critical for the applicant to obtain or retain employment and that
the applicant is not already receiving tenant-based assistance.  If
HUD developed similar requirements for the recipients of vouchers for
the homeless, the program's implementation could likely begin shortly
after the funding is received, strengthening the program's
efficiency. 

We believe that the lack of planning raises concerns about how
quickly and effectively this program can be implemented.  HUD, on the
other hand, stated that it has a structure in place through its
continuum of care grant process as well as public housing authorities
that are experienced in administering the Section 8 voucher program. 
Nevertheless, further details by HUD on how such a program will work
would be useful in any debate on expanding the housing assistance
provided to the homeless. 


   KEY REPORT UNDERLYING HUD'S
   REGIONAL CONNECTIONS INITIATIVE
   DOES NOT RECOMMEND A
   SIGNIFICANT FEDERAL EFFORT
---------------------------------------------------------- Chapter 0:6

HUD's fiscal year 1999 budget proposal includes $100 million for a
new Community Development Block Grant (CDBG) set-aside--the Regional
Connections Initiative (RCI).  RCI is intended to help states and
localities develop and implement strategic plans that address key
regional issues facing the nation's metropolitan and rural
communities.  HUD is planning to award grants under the program to
states and localities on a competitive basis.  HUD's interest in
developing a program designed to encourage and facilitate efforts to
address regional issues seems justified in light of the Department's
mission. 

However, given that RCI is a new initiative, HUD's budget
justification does not provide enough detail to determine whether
$100 million is a reasonable funding level.  Moreover, the key study
(still in draft form) underlying this new initiative does not
recommend a significant federal effort to address regional problems
because little consensus exists at the local and state levels for
such an effort.  In addition, the study concluded that in the future,
emerging regional efforts could raise questions about the appropriate
federal role.  According to HUD officials, the RCI funding level was
a judgment call and was considered a manageable set-aside under the
CDBG program. 

In addition, HUD officials believe that the $100 million requested
for RCI will be awarded in fiscal year 1999.  However, several tasks
need to be accomplished before these funds are committed, including
selecting an RCI advisory board of community development experts,
writing program regulations, developing a notice of funding
availability, allowing applicants time to prepare their proposals,
reviewing submitted applications, and deciding which applicants will
receive RCI funds.  To accomplish these tasks, HUD expects to use
expertise from outside the Department to help design and review the
RCI grant program in time to allow funds to be awarded in fiscal year
1999.  Because of the tasks and coordination necessary, however, we
question whether such an ambitious schedule is workable for this new
initiative. 


   WHILE POTENTIALLY SIGNIFICANT,
   PREDICTING THE IMPACT OF
   WELFARE REFORM ON HUD'S
   FUTURE-YEAR BUDGETS MAY NOT BE
   POSSIBLE
---------------------------------------------------------- Chapter 0:7

As welfare reform is implemented throughout the nation, it could have
implications for HUD's future year budgets.  HUD estimates that
one-third of the households receiving rental assistance from HUD
depend on cash welfare assistance for some or all of their income. 
Under welfare reform, cash assistance programs became time-limited,
work-dependent, and generally less available.  Because residents pay
a portion of their income for rent, any reduction in cash assistance
without a commensurate increase in wage income would result in
reduced rental payments from tenants.  Managers at most of the 18
housing agencies we visited while conducting our ongoing work
expressed concern about barriers their residents face in finding
employment within their states' time limits.  Under existing program
regulations, reductions in tenant rental payments would increase the
size of the payments that HUD makes to housing agencies and private
landlords on behalf of low-income tenants to make up the difference
between the tenants' rental payments and the housing units' operating
cost or rent. 

While welfare reform may have a significant impact on HUD's future
year budgets, measuring the potential impact may not be possible. 
One reason is that the impact of welfare reform will vary from state
to state and from year to year because states have differing welfare
reform provisions, making the development of national estimates of
the impact of welfare reform on HUD nearly impossible.  In
Massachusetts, for example, recipients will begin to hit the state's
time limits for cash assistance in December 1998, while in Minnesota,
recipients will not reach the time limits until July 2002.  A second
reason is that conclusions drawn about welfare reform's impact on
recipients generally may not apply to those who also receive housing
assistance because evidence suggests that welfare recipients
receiving housing assistance may have greater difficulty finding and
retaining employment than other welfare recipients.  Furthermore, HUD
does not collect the detailed data on recipients' education, work,
and welfare histories needed to assess likely outcomes for its
tenants.  Finally, while the general health of the economy is a major
factor in the recent decline in welfare caseloads, the future course
of the economy cannot be predicted with any certainty. 


   CONCLUSION
---------------------------------------------------------- Chapter 0:8

We believe that HUD is generally moving toward more supportable
budget estimates.  For example, HUD recently prepared a new analysis
of the Section 8 moderate rehabilitation program showing that
sufficient excess budget authority exists to cover both program
shortfalls and unexpected costs and still have $439 million remaining
in excess budget authority.  This means that a separate funding
request for amendments may not be necessary.  In the Section 8
project-based program, however, HUD's budget estimate is not
consistent with its analysis of amendment needs.  As HUD continues to
refine its analyses in these areas, the Department will have the
opportunity to amend its budget estimate before the Congress votes on
HUD's appropriation bill in the fall.  In addition, we found that for
some new initiatives--such as vouchers for the homeless and the
Regional Connections Initiative--to be effective in fiscal year 1999,
HUD may need to complete appropriate and perhaps ambitious planning. 


   MATTERS FOR CONGRESSIONAL
   CONSIDERATION
---------------------------------------------------------- Chapter 0:9

The Congress may wish to consider reducing HUD's request for Section
8 contract renewals to account for the $439 million in excess budget
authority in the Section 8 moderate rehabilitation program.  Because
HUD has set aside excess budget authority in the moderate
rehabilitation program, the Congress may also wish to consider not
funding HUD's request for $70 million to amend moderate
rehabilitation contracts.  Finally, the Congress may wish to seek
assurances from HUD that these programs will be ready to effectively
commit funds and review HUD's $192 million request for vouchers for
the homeless and its $100 million request for the Regional
Connections Initiative. 


   AGENCY COMMENTS
--------------------------------------------------------- Chapter 0:10

We provided a draft of this statement to HUD for its review and
comment.  The Department provided comments on several issues,
including its request for new Section 8 vouchers for the homeless and
its Regional Connections Initiative.  In response to our concerns
about the planning accomplished for these two programs, HUD said that
it expects housing authorities to compete for and administer the
vouchers for the homeless.  For the Regional Connections Initiative,
HUD said that it recognizes that a limited number of localities and
states are ready and willing to participate in this effort, but that
the $100 million proposed funding will still accommodate a meaningful
initiative.  We made appropriate changes in the statement to reflect
HUD's concern; however, we continue to believe that the quality of
planning for these new efforts will be critical to their
effectiveness in fiscal year 1999. 


OBJECTIVE, SCOPE, AND METHODOLOGY
=========================================================== Appendix I

The Chairman and Ranking Minority Member of the Subcommittee on VA,
HUD, and Independent Agencies, Senate Committee on Appropriations,
requested that we assess the reasonableness of selected aspects of
HUD's fiscal year 1999 budget request.  To accomplish this task, we
reviewed HUD's February 1998 Congressional Justifications for 1999
Estimates.  We also interviewed appropriate officials in HUD's
Offices of the Chief Financial Officer, Public and Indian Housing,
Housing, and Community Planning and Development to obtain more
information on planned uses for funding requested.  When available,
we reviewed this additional information.  Finally, we based portions
of this statement on our recently issued report on HUD's financial
management of its Section 8 tenant-based program as well as on our
current work focusing on HUD's financial management of the Section 8
moderate rehabilitation and project-based programs and the impact of
welfare reform on public and assisted housing. 

We conducted our work in February and March 1998 in accordance with
generally accepted government auditing standards. 


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