Remarks by:
Raymond K. James, Esq.
CARH Lobbyist
Coan and Lyons
Washington, D.C.
202.728.1070
Addressing CARH:
Money’s Almost Everything
Without Chuck Edson to give me incentive, I just don’t feel like telling
jokes any more.
You know the refrain “Show me the money?” Money may not be everything,
but in Housing programs, it’s almost everything. What we have today going on
in Washington is not finding the money, but finding the program.
We’re spending time looking at programs, arguing over the terms of the
programs and what they should look like, but we don’t have the money. Nor are
we wasting our time. This year we’ve had the most activity looking at new
programs in quite a long time. We have the Millennial Housing Commission,
which just issued a report recommending a couple of new programs. We have a
Housing Bill in the House that contains a new housing production program. We
have a proposal called the National Housing Trust that the low-income housing
advocates around the country have been pushing and have gotten a couple
hundred signatures in Congress. We have at least three or four new production
programs under consideration in Washington this year.
Money? What Money?
Where’s the money? No one is talking about the money. The money comes
from, number one, the President’s Budget. The President and his
Administration determine the priorities and they put those priorities in the
Budget. Not much money for Housing in the President’s Budget. Congress also
has a Budget, and it reflects the Congress’s priorities, and that Budget has
been going through the process right now. The Congress also is not giving
Housing a priority for money.
So right now, there is no money. Is it possible that programs can be
designed in so brilliant and attractive a fashion that just to look at them
will bring forth money? I don’t think so. Our big problem is not designing
the programs, but finding the money.
Still No Money
Both the Millennial Housing Commission and the House Housing Bill pretty
much punt on the issue of money. How much money should we put into Housing
neither one said. They have no numbers. The Millennial Housing Commission
said 100,000 units is good, 250,000 units a year is better, and 500,000 units
a year is best. But that’s not the issue when providing money. There are no
numbers.
The reason there are no numbers is because it won’t work. The
President’s Budget and the Congressional Budget have no room for these new
programs. We really have to solve the money problem first. Sure, there’s a
need and the Millennial Housing Commission did a pretty good job in
describing and analyzing the need for housing assistance. But a lot of the
time you fall into a trap when you do that. You say the need is greatest at
the bottom of the income scale.
Extremely Low Income
You have the new category of the Extremely Low Income. You have Low
Income, that wasn’t low enough; Very Low Income, that’s not low enough; now
we have Extremely Low Income: people below 30% of the median income. Of
course you can make a better case the lower you go down the income scale for
housing need. These people generally pay a higher percentage of their income
for rent and they live in substandard housing to a greater extent than higher
income people.
The problem with too much focus on the Very-Low or Extremely Low Income
people at the bottom of the scale — and we’ve had experience in the past — is
that you lose some of the support for putting money into these programs. Back
in the early 80’s there was a very conservative Republican Senator from
Colorado named Armstrong who said, “There’s enough housing in existence and we
don’t need any more, it’s just going to the wrong people.” He was joined by
liberal low income housing advocates to go together to lower the income
limits in Section 8 and Public Housing programs.
Broader Eligibility Builds Support
Of course, that was the beginning of the end of Congressional support for
housing production in the urban areas. That is just my theory, I’m not saying it’s
what everyone believes. Some people think that if you do focus on the
Extremely Low Income you have a better case for getting money. It is my
opinion, and I’ve practiced this my whole life, that you get better support
for Housing programs if you have high income limits. It’s not that the higher
range will be assisted, in fact when Section 8 was initiated the income limit
was 80% of median with a small set aside for 50% of median. We didn’t have a
procession of people at 60, 70, 80% of median who lived in Section 8 housing,
but we had a program that looked like it was very broad and not designed for
a very small segment of the population, but much broader to include teachers,
policemen, other people — even though most of the people that actually got
Section 8 were in the Very Low Income category. So I think it is a mistake to
focus solely on the Extremely Low Income, which is what we’re getting now in
the Millennial Housing Commission recommendation and which is also the trend reflected in the House’s Housing Bill.
Cost of Section 8 Renewals
Another aspect to the money — and this is something I’ve been hearing
for eight years — is that the cost of Section 8 renewals is eating up all the housing
money, and something has to be done. I’ve been hearing that from people on
the Hill and in the Administration every few years. They’ve predicted
calamity by now in program funding. That hasn’t happened, and I don’t think
it is going to happen. It’s an excuse for how programs are designed and the
adoption of new policies. The reason it’s not going to happen is that the
Congress in its budget takes care of the cost of Section 8 renewals; “How
much is it going to cost? $16 Billion? Here’s $16 Billion, now we’ll take care
of the rest of the programs.”
Section 8 Is Absorbed
Six years ago Section 8 renewals cost $3.5 Billion; last year, it cost
over $16 Billion. Has it crowded out the rest of the Housing budget? No. The
rest of the Housing budget grew in that six-year period, as you would expect,
at about the level of inflation. That has been the policy of the government
over the last several years with respect to low priority domestic spending.
Keep it steady or let it grow with inflation; that’s exactly what has
happened to the Housing budget to accommodate the substantial increase in
Section 8 renewal costs; it has not affected the remainder of the budget.
But people are designing new programs to take away from the Section 8
account and put it in some other account. For example, both the Millennial Housing
Commission and the House Housing Bill advocate full capital subsidies
for production — financing the entire capital cost of the project. That
shifts money away from, for example, using Section 8 Vouchers to cover most
of the cost of housing, which is what might be done in a HOME project or Low
Income Housing Tax Credit project: shifting from the Section 8 account to a
new capital account.
Capital Isn’t Cheap
Where’s the money for the new capital account? To do a full capital
subsidy costs ten times as much in the initial year as using a Section 8
Voucher with a thin capital subsidy. This doesn’t make too much sense to me
because where’s that ten-times amount going to come from? We can barely get
one tenth of the amount right now. Nonetheless, this notion that we cannot
load up on the Section 8 renewal account any more is leading policy makers to
design programs where the money will be front-ended in new programs and
require even more of an increase in the budget for the initial year.
If I were designing the program, I’d put as much as I could in the
Section 8 budget because the renewal (which will be a one year cost, the way
things work now) will be pretty much guaranteed. The renewal becomes part of
the Congressional Budget; it’s not something you have to fight for every year
after. Get the first year in, and the rest will fall into place. Instead, some of
the policy makers are going the other way: reduce the use of Section 8 and
increase the capital subsidies.
Thrifty Housing Production Voucher
That’s reflected in the notion called the “Thrifty Housing Production
Voucher,” which is discussed in the Millennial Housing Commission report and is
contained in the House Housing Bill. It’s a voucher that subsidizes only the
operating costs of the unit. Which means something else has to fund the
capital costs. It shifts money from the Section 8 account to some capital
subsidy account.
I think part of the reasoning for that is to reduce
the Section 8 renewal funding. But I think that’s malarkey. It’s going in absolutely the wrong direction.
Sources For Funding?
To be fair, some of the proponents of the new production programs have
been thinking about the source of funding. Unfortunately, the thinking has
not been successful. The proponents of the National Housing Trust Fund said, “Let’s use the FHA surplus as our source of money.” At least that’s a good
try. It’s just not going over with anyone. First of all, the FHA surplus is
not a pot of money: FHA surpluses are just an accounting term that
reflects the present value of the insurance in force over the life of the
insurance. For example, what is the expected surplus of premiums over
expenses over, say, the next 20 years? It’s not actual money. Second, the use
of those surpluses would have a budget impact just as an Appropriation would
have an impact. It’s not free money. It just looks like it’s free money
because it appears to be already there.
For that reason, the Appropriators in Congress have stressed opposition
to the concept. Even more important, the last Administration had a large
meeting of Housing interest groups and persons because the Administration had
a proposal to use similar surplus funds for Housing production. They brought
us all together and asked for advice on how to divvy up the $5 Billion they
proposed. The Administration expected us to be very supportive. We had a few
fights in how to divvy it up, but the attitude of the group was
overwhelmingly that this is an FHA insurance program with premiums that are
supposed to keep the program self sufficient. That is, this is not an income producing
program — we should not be diverting premium income for other purposes. If the premiums are too high, lower them to help more people afford homes,
but don’t make this into either a budget gain to the government or a source
of money for other funds.
The Administration was quite surprised that so many Housing professionals
took this attitude, and dropped its proposal.
A lot of Members are signing on to the Housing Trust Bill. Why? Because
they’re being asked to do it by the advocates. But the Bill won’t be going
anywhere this year or any year.
No Free Money
The program in the House Housing Bill also provides a source of funding
that looked like free money, but wasn’t. The House Bill says let’s fund the
program from recaptured Section 8 money — Section 8 owners opting out,
Voucher moneys not used — that becomes available. Congress has traditionally
taken that money back and, when they rescind money, that’s an offset to other
spending. So if they take back $1 Billion in Section 8, recapture it, that would
match another Billion in Appropriations. They do that every year. In the
Supplemental Appropriations Bill for 2002 that is going through Congress
right now, the Congress is taking $300 million of current recaptured Section
8 money and rescinding it to apply to other spending in a Bill that is not
even related to Housing. They’ve done this in other Supplemental Appropriations
Bills in the past.
What’s left is generally rescinded by the HUD Appropriators to help pay
for other expenditures in their Budget. The Trust Fund looks free, but isn’t
free. If you use it for the new housing production programs, it can’t be used
to help balance the remainder of the Budget, so it’s not free at all, and
probably wouldn’t be available. I believe the House staff are considering
dropping that proposal; everybody heaped scorn on it during the Hearings.
That’s where we are on the money. It is interesting to talk about program
design, what the program should have, but unless you solve the problem of the money, I think
you’re wasting your time.
Thank you.
Next: Running Out of Juice