Section 8 Project-Based Rental Assistance

The Department of Housing and Urban Development's (HUD) Section 8 program provided more than $16 billion in rental assistance payments to low-income households in fiscal year 1997. Because of concerns about HUD's budgeting and accounting practices for Section 8 funds, GAO is required to determine whether HUD's systems ensure that unexpended Section 8 funds do not reach unreasonable levels and that obligations are spent in a timely manner. HUD administers its Section 8 program in two parts. In general, HUD's Office of Public and Indian Housing manages the tenant-based portion of the program, while HUD's Office of Housing manages the project-based portion. GAO reported on the tenant-based program in February 1998. (See GAO/RCED-98-47.) This report examines the Section 8 project-based rental assistance program, particularly (1) the categories and amounts of unexpended rental assistance funds and (2) the effectiveness of HUD's processes to evaluate unexpended Section 8 project-based balances, ensure that they do not reach unreasonable levels and are spent in a timely way, and take unexpended balances into account when determining funding needs as part of HUD's budget process.

GAO noted that: (1) as of September 30, 1997, HUD's Section 8 project-based rental assistance program had about $59.1 billion in unexpended balances in three major categories: (a) undisbursed obligations--funds obligated to Section 8 contracts but not yet disbursed; (b) unobligated but reserved funds--balances reserved for specific rental assistance contracts but not yet obligated; and (c) unobligated and unreserved funds--funds that are neither obligated nor reserved for any specific contracts; (2) most of the unexpended balances--$55.4 billion--represent undisbursed obligations associated with approximately 31,000 rental assistance contracts; (3) in addition, at the end of fiscal year (FY) 1997, HUD had about $3 billion in unobligated funds that were reserved for but not yet obligated to specific contracts and about $.7 billion in unobligated and unreserved funds that were carried over for use in 1998; (4) while most of the unexpended balances are needed for HUD to fulfill its commitments to the Section 8 contracts for which the funds have been obligated or reserved, GAO found at least $517 million in unexpended balances that are no longer needed for such purposes and thus could be recaptured by HUD and used to help fund other Section 8 contracts; (5) HUD's procedures for identifying and deobligating funds that are no longer needed to meet its Section 8 contractual obligations are not effective; (6) specifically, the procedures do not ensure that all Section 8 project-based balances are evaluated each year and that any excess balances are identified and deobligated in a timely manner; (7) while HUD's program offices are responsible for reviewing unexpended balances each year to determine whether they are still needed or can be deobligated, GAO found that some offices did not perform annual reviews in 1997 and that some funds identified as being available for deobligation in earlier reviews were not deobligated; (8) in addition, GAO found errors in the process HUD used to identify and take into account unexpended balances when formulating its budget request for FY 1999; (9) as a result, HUD's FY 1999 request for $1.3 billion in amendment funding to cover shortfalls in existing Section 8 contracts was significantly overstated; and (10) more recent analyses that correct most of these errors and update the economic assumptions used indicate that HUD already has sufficient funding available to meet its amendment needs for FY 1999.

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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