Public Housing Subsidies

In fiscal year 1998, Congress appropriated $2.9 billion to subsidize the operating costs of nearly 3,200 public housing agencies. Almost all housing agencies receive subsidies because the rent that they collect from their residents does not cover the agencies' operating costs. Under its performance funding system, the Department of Housing and Urban Development (HUD) determines the reasonable expenses that it will allow each housing agency to expend in managing its assets and serving its tenants and provides an annual subsidy to cover the difference between these expenses and the housing agency's projected income. This report answers the following four questions: How does the performance funding system allocate the congressionally appropriated subsidy among public housing agencies? How well does the system meet the subsidy needs of individual housing agencies? How does HUD develop budget estimates of housing agencies' annual need for operating subsidies and are these estimates appropriate? What are some of HUD's options for changing the system to make it a more effective tool for subsidizing housing agencies?

GAO noted that: (1) PFS allocates the congressional appropriation by providing an operating subsidy to each housing agency based on that agency's HUD-approved operating expenses during the base year 1975, less its income, plus certain annual adjustments; (2) the adjusted base year cost is known as the allowable expense level; (3) HUD did not develop its allocation method on the basis of standards of housing needs because it believed that reaching a consensus on these standards would have been too difficult; (4) however, twice over the last 23 years, HUD developed and used cost models based on specific factors directly related to the operating costs of well-managed housing agencies, including the age and height of buildings and the prevailing government wage rates; (5) the operating subsidies that the PFS provides to housing agencies may not be adequate for agencies with base year expenditures that were low or agencies with operating circumstances or costs that have undergone significant change since 1975; (6) although the PFS provides for annual adjustments to account for inflation and the aging of public housing stock, these increases might not have been enough for the agencies with base year spending that did not adequately reflect their needs or those with expenses that have increased more rapidly than HUD's allowed adjustments; (7) GAO found that agencies have experienced significant operational changes since 1975 that have affected their costs; (8) to develop its budget estimate for the operating subsidies housing agencies will need in a coming fiscal year, HUD estimates the needs of a representative sample of housing agencies and projects this estimate to the population of nearly 3,200 housing agencies; (9) inadequate subsidies can be a serious problem for housing agencies that are highly dependent on subsidies and need them to meet current obligations; (10) HUD has several options for making PFS a more accurate and effective funding tool; (11) in the past, information on physical housing conditions, comparative costs, or other data needed to implement a cost model has not been readily obtainable, and the cost of developing such information for all agencies was believed to be high; and (12) data that HUD is currently developing on housing agencies' financial and physical conditions should be useful to HUD as it considers new ways of allocating operating subsidies.

Recommendations

Our recommendations from this work are listed below with a Contact for more information. Status will change from "In process" to "Open," "Closed - implemented," or "Closed - not implemented" based on our follow up work.

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