Elderly Housing
Project Funding and Other Factors Delay Assistance to Needy Households Gao ID: GAO-03-807T June 17, 2003In 2001, an estimated 2 million elderly households with very low incomes (50 percent or less of area median income) did not receive housing assistance. The Department of Housing and Urban Development (HUD) considered most of these households to be "rent burdened" because they spent more than 30 percent of their incomes on rent. The Section 202 Supportive Housing for the Elderly Program provides capital advances (grants) to nonprofit organizations to develop affordable rental housing exclusively for these households. Based on a report issued in May 2003, this testimony discusses the role of the Section 202 program in addressing the need for affordable elderly housing and factors affecting the timeliness of approving and constructing new projects.
As the only federal housing program that targets all of its rental units to very low-income elderly households, HUD's Section 202 program provides a valuable housing resource for these households. Although they represent a small share of all elderly households, very low income elderly renters have acute housing affordability problems because of their limited incomes and need for supportive services. The Section 202 program offers about 260,000 rental units nationwide and ensures that residents receive rental assistance and access to services that promote independent living. However, even with the program's exclusive focus, Section 202 has only reached an estimated 8 percent of very low-income elderly households. More than 70 percent of Section 202 projects in GAO's analysis did not meet HUD's time guideline for gaining approval to start construction. These delays held up the delivery of housing assistance to needy elderly households by nearly a year compared with projects that met HUD's guideline. Several factors contributed to these delays, particularly capital advances that were not sufficient to cover development costs. Project sponsors reported that because of insufficient capital advances, they often had to spend time seeking additional funds from HUD and other sources. Although HUD's policy is to provide sufficient funding to cover the cost of constructing a modestly designed project, HUD has acknowledged that its capital advances for the Section 202 program sometimes fall short. Other factors affecting the timeliness of the approval process include inadequate training and guidance for field staff responsible for the approval process, inexperienced project sponsors, and local zoning and permit requirements.
GAO-03-807T, Elderly Housing: Project Funding and Other Factors Delay Assistance to Needy Households
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Testimony:
Before the Special Committee on Aging, U.S. Senate:
United States General Accounting Office:
GAO:
For Release on Delivery Expected at 10:00 a.m. EDT:
Tuesday, June 17, 2003:
Elderly Housing:
Project Funding and Other Factors Delay Assistance to Needy Households:
Statement of David G. Wood, Director Financial Markets and Community
Investment:
GAO-03-807T:
GAO Highlights:
Highlights of GAO-03-807T, a testimony before the Special Committee on
Aging, U.S. Senate
Why GAO Did This Study:
In 2001, an estimated 2 million elderly households with very low
incomes (50 percent or less of area median income) did not receive
housing assistance. The Department of Housing and Urban Development
(HUD) considered most of these households to be ’rent burdened“
because they spent more than 30 percent of their incomes on rent.
The Section 202 Supportive Housing for the Elderly Program provides
capital advances (grants) to nonprofit organizations to develop
affordable rental housing exclusively for these households. Based on a
report issued in May 2003, this testimony discusses the role of the
Section 202 program in addressing the need for affordable elderly
housing and factors affecting the timeliness of approving and
constructing new projects.
What GAO Found:
As the only federal housing program that targets all of its rental
units to very low income elderly households, HUD‘s Section 202 program
provides a valuable housing resource for these households. Although
they represent a small share of all elderly households, very low
income elderly renters have acute housing affordability problems
because of their limited incomes and need for supportive services. The
Section 202 program offers about 260,000 rental units nationwide and
ensures that residents receive rental assistance and access to
services that promote independent living. However, even with the
program‘s exclusive focus, Section 202 has only reached an estimated 8
percent of very low income elderly households.
More than 70 percent of Section 202 projects in GAO‘s analysis did not
meet HUD‘s time guideline for gaining approval to start construction.
These delays held up the delivery of housing assistance to needy
elderly households by nearly a year compared with projects that met
HUD‘s guideline. Several factors contributed to these delays,
particularly capital advances that were not sufficient to cover
development costs. Project sponsors reported that because of
insufficient capital advances, they often had to spend time seeking
additional funds from HUD and other sources. Although HUD‘s policy is
to provide sufficient funding to cover the cost of constructing a
modestly designed project, HUD has acknowledged that its capital
advances for the Section 202 program sometimes fall short. Other
factors affecting the timeliness of the approval process include
inadequate training and guidance for field staff responsible for the
approval process, inexperienced project sponsors, and local zoning and
permit requirements.
What GAO Recommends:
In its report, GAO made recommendations designed to reduce the time
required for projects to receive approval from HUD to start
construction. Specifically, GAO recommended that HUD assess the
effectiveness of the methods it uses to calculate the size of the
Section 202 capital advances and make any appropriate changes to them.
GAO also made other recommendations to improve HUD‘s administration
and oversight of the 202 program‘s performance.
HUD concurred with the recommendations.
www.gao.gov/cgi-bin/getrpt?GAO-03-807T.
To view the full product, including the scope and methodology, click
on the link above. For more information, contact David G. Wood at
(202) 512-8678 or WoodD@gao.gov.
[End of section]
Mr. Chairman and Members of the Committee:
I appreciate the opportunity to be here today to discuss the Department
of Housing and Urban Development's (HUD's) Section 202 Supportive
Housing for the Elderly Program. The Section 202 program provides funds
to nonprofit organizations to develop affordable rental housing
exclusively for very low income elderly households that do not receive
other forms of housing assistance. In 2001, there were an estimated 2
million such households in the nation, most of which HUD considered
"rent burdened" because their rents exceeded 30 percent of their
household incomes.
Section 202 provides two types of financial support. First, HUD
provides a project sponsor with a capital advance--essentially a grant-
-to cover land and construction costs. HUD's policy is to have the
capital advance cover the total development costs of the project, which
must be of modest design and must comply with HUD's minimum property
standards. HUD uses a competitive process to select projects for
funding and has guidelines calling for project sponsors and the
agency's field offices to accomplish project processing activities--
such as completing and approving design plans--within 18 months so that
construction may commence. (HUD's field offices may grant extensions of
up to 6 months without headquarters' approval.) Second, after the
project is completed, HUD provides the sponsor with monthly rental
assistance payments to defray some of the operating expenses. For
fiscal year 2002, Congress appropriated about $783 million for the
Section 202 program to fund the construction of over 6,000 new units,
multiyear rental assistance contracts, and other authorized activities.
My statement today is based on the report on the Section 202 program
that you requested and are releasing today.[Footnote 1] Specifically,
my statement discusses: (1) the role of the Section 202 program in
meeting the housing needs of elderly renter households with very low
incomes, (2) the extent to which Section 202 projects meet HUD's time
guideline for approving projects to start construction, and (3) the
factors that keep Section 202 projects from meeting the time guideline.
In preparing the report, we analyzed data from HUD and other sources on
the housing needs of very low income elderly households. In addition,
we reviewed HUD program and budget data, surveyed all 45 HUD field
offices that process Section 202 projects, and surveyed and interviewed
project sponsors and consultants experienced in working with the
Section 202 program. Our analysis focused on Section 202 projects
funded between fiscal years 1998 and 2000.[Footnote 2]
In summary:
* As the only federal housing program that targets all of its rental
units to very low income elderly households, Section 202 is an
important source of affordable housing for these households. Section
202 insulates tenants in housing units subsidized by the program from
increases in housing costs by limiting their rents to 30 percent of
household income. As of 2001, the program provided housing for an
estimated one-fifth of the 1.3 million elderly renter households with
very low incomes that received some form of government housing
assistance. However, nationwide about 1.7 million elderly renter
households with very low incomes did not receive government housing
assistance and had a housing affordability problem--that is, they paid
over 30 percent of their incomes for rent. Even with the program's
exclusive focus, Section 202 has only reached an estimated 8 percent of
very low income elderly renter households.
* More than 70 percent of Section 202 projects funded between 1998 and
2000 were delayed--that is, they took longer than the 18 months set out
in HUD's guidelines to proceed from the date of the funding award to
the date of HUD's approval to start construction (the project
processing period). However, a majority of projects were approved for
construction within 24 months, or 18 months plus the 6-month
discretionary extension. Projects located in metropolitan areas were
more likely than projects in nonmetropolitan areas to exceed the 18-
month guideline. Further, projects that exceeded the 18-month guideline
ultimately took an average of 11 months longer to finish than projects
that met the time guideline, and these delayed projects contributed to
the program's unexpended fund balances. At the end of fiscal year 2002,
14 percent of the Section 202 program's $5.2 billion in unexpended
appropriations was associated with projects that had not yet been
approved for start of construction after 18 months.
* Several factors impeded the timely processing of projects, according
to project sponsors, consultants, and HUD field office staff. First,
despite HUD's intent, capital advances have not always covered the cost
of developing projects, and the resulting shortfalls often prolonged
processing times, in part because sponsors needed to seek additional
funding. Second, field office staff's inconsistent implementation of
procedures intended to streamline processing, as well as limited
training and out-of-date guidance on processing policies and
procedures, impeded timely processing. Third, HUD's project monitoring
system has limitations that may have hindered HUD's ability to oversee
project timeliness. Finally, other factors--including inexperienced
sponsors and local permit and zoning requirements--prolonged processing
time for some projects.
Based on our findings, we recommended that HUD evaluate the
effectiveness of the current methods for calculating capital advances
and make any changes necessary to ensure that capital advances
adequately cover development costs. We made three additional
recommendations--concerning HUD's training of field office staff,
handbook guidance, and data systems--directed at more timely processing
of projects. In commenting on the report, HUD agreed with the
recommendations.
Background:
HUD defines elderly households as those in which the householder--the
person whose name is on the lease, mortgage, or deed--or the
householder's spouse is at least 62 years old. Elderly households
occupied about one-quarter (26 million) of the approximately 106
million housing units in the United States in 2001, according to the
American Housing Survey.[Footnote 3] A large majority of these elderly
households were homeowners. A small share of elderly households, about
19 percent or 5 million, rented their homes (compared to about 36
percent of nonelderly households), and about 3.3 million of these
elderly households were renters with very low incomes--that is, 50
percent or less of area median income.
The Housing Act of 1959 (P.L. 86-372) established the Section 202
program, which began as a direct loan program that provided below-
market interest rate loans to private nonprofit developers, among
others, to build rental housing for the elderly and people with
disabilities. In 1990, the Cranston-Gonzalez National Affordable
Housing Act (P.L. 101-625) modified Section 202 by converting it from a
direct loan program to a capital advance program.
In its current form, Section 202 provides capital advances--effectively
grants--to private nonprofit organizations (usually referred to as
sponsors or owners) to pay for the costs of developing elderly rental
housing. As long as rents on the units remain within the program's
guidelines for at least 40 years, the sponsor does not have to pay back
the capital advance. HUD calculates capital advances in accordance with
development cost limits that it determines annually, and HUD's policy
is that these limits should cover the reasonable and necessary costs of
developing a project of modest design that complies with HUD's project
design and cost standards as well as meets applicable state and local
housing and building codes.
To be eligible to receive Section 202 housing assistance, households
must have very low income and one member who is at least 62 years old.
Section 202 tenants generally pay 30 percent of their income for rent.
Because their rental payments are not sufficient to cover the
property's operating costs, the project sponsor receives rental
assistance payments from HUD to cover the difference between the
property's operating expenses (as approved by HUD) and total tenant
rental receipts.[Footnote 4] In addition, the project sponsor can make
appropriate supportive services, such as housekeeping and
transportation, available to these elderly households.
From year to year, Section 202 has carried significant balances of
unexpended appropriated dollars for capital advances and rental
assistance payments. In fiscal year 2002, the unexpended balance for
Section 202 was approximately $5.2 billion. About 41 percent of this
balance was in capital advance funds and 59 percent was in rental
assistance funds. Some of these unexpended funds have not yet been
awarded to projects, and others are for projects that have not begun
construction. Once construction begins, funds are expended over several
years during the construction phase and during the term of the rental
assistance contracts.
Other federal programs can provide housing assistance to needy elderly
households, albeit not exclusively. For example, low income housing tax
credits and tax-exempt multifamily housing bonds provide federal tax
incentives for private investment and are often used in conjunction
with other federal and state subsidies in the production of new and
rehabilitated rental housing. The Housing Choice Voucher Program
supplements tenants' rental payments in privately owned, moderately
priced apartments chosen by the tenants. Currently, about 260,000 of
the approximately 1.5 million voucher households are elderly. Other
programs are discussed in an appendix to the report.
Section 202 Is an Important Source of Housing for Elderly Households
with Very Low Incomes:
Section 202 is the only federal housing program that targets all of its
rental units to very low income elderly households. Because these
households often have difficulty affording market rents, program
funding is directed to localities based in part on their proportions of
elderly renter households that have a housing affordability problem.
Section 202 insulates tenants in housing units subsidized by the
program from increases in housing costs by limiting rents to a fixed
percentage of household income. The program is a significant source of
new and affordable housing for very low income elderly households. Even
with the program's exclusive focus on the very low income elderly,
Section 202 has reached only a small share of eligible households.
Section 202 Targets Very Low Income Elderly Households and Makes
Supportive Services Available:
Congress specifically intended the Section 202 program to serve very
low income elderly households and to expand the supply of affordable
housing that can accommodate the special needs of this group.[Footnote
5] HUD takes into account the need for the kind of housing Section 202
provides when allocating program funds to the field offices. The
criteria for allocating funds to the field offices include, among other
things, the total number of very low income elderly renters in the area
and the number in this group that pay more than 30 percent of their
incomes for rent. According to the American Housing Survey, in 2001
about 1.7 of the 3.3 million elderly renters with very low incomes paid
over 30 percent of their incomes for rent.
The rent that tenants in Section 202 housing pay equals a percentage of
their household incomes--generally 30 percent. This percentage remains
constant, so the amount of rent tenants pay increases only when
household income rises, protecting them from rent increases that might
be imposed by the private housing market when market conditions change.
In contrast, very low income elderly renter households that do not
receive this type of assistance are vulnerable to high rent burdens and
increases in market rents. Most of these households have few or no
financial resources, such as cash savings and other investments, and
rely primarily on fixed incomes that may not increase at the same rate
as market rents.
Section 202 serves another important function, potentially allowing
elderly households to live independently longer by offering tenants a
range of services that support independent living--for example, meal
services, housekeeping, personal assistance, and transportation. HUD
ensures that sponsors have the managerial capacity to assess tenants'
needs, coordinate the provision of supportive services, and seek new
sources of assistance. HUD pays a small portion of the costs of
providing these services through its rental assistance payments.
Section 202 Provides an Estimated One-Fifth of All Government-
Subsidized Housing for Very Low Income Elderly Renters:
According to the American Housing Survey, in 2001 about 1.3 million, or
40 percent, of elderly renter households with very low incomes received
some form of rental assistance from a government housing program,
including Section 202. According to our analysis of HUD program data,
about 260,000 Section 202 units with rental assistance generally served
very low income elderly households in 2001. Taken together, these two
sources of data suggest that Section 202 served around one-fifth of the
1.3 million assisted elderly households identified in the American
Housing Survey.[Footnote 6]
While Section 202 is an important source of affordable elderly housing,
the program has reached a relatively small fraction of very low income
elderly renter households. Between 1985 and 2001, Section 202 reached
no more than about 8 percent of elderly households eligible for
assistance under the program. Also, during this period, many of the
elderly renter households with very low incomes--ranging from about 45
to 50 percent--had housing affordability problems. Other federal
programs that develop rental housing generally target different income
levels, serve other populations in addition to the elderly (including
families with children and people with disabilities) and do not require
housing providers to offer supportive services for the elderly.
Section 202 Projects Generally Did Not Meet Guidelines for Timeliness:
Most of the Section 202 projects funded between fiscal years 1998 and
2000 did not meet HUD's guideline for approving the start of
construction within 18 months. However, a slight majority of the
projects were processed and approved to start construction within 24
months. Timeliness varied both across HUD's field offices and by
project location (metropolitan versus nonmetropolitan areas). As well
as taking longer to complete than other projects and thus delaying
benefits to very low income elderly households, projects that were not
approved for construction after the 18-month time frame increased the
Section 202 program's year-end balances of unexpended appropriations.
HUD Took Longer Than 18 Months to Approve Most Projects for
Construction:
HUD's guidelines state that within 18 months of the funding award date,
field offices and project sponsors must complete various task before
construction can commence (fig.1). Altogether, 73 percent of the
Section 202 projects funded from fiscal years 1998 through 2000 did not
meet this 18-month processing time guideline. These projects accounted
for 79 percent of the nearly $1.9 billion in funding awarded to
projects during this period. Also during this period, 78 percent of
projects located in metropolitan areas exceeded the 18-month guideline
as opposed to 61 percent of projects located in nonmetropolitan areas.
Figure 1: Section 202 Project Processing:
[See PDF for image]
[End of figure]
HUD field offices may grant an extension of up to 6 months after the
18-month guideline for projects needing more time to gain approval to
start construction, and many projects were approved within that 6-month
time frame. Of the projects funded from fiscal years 1998 through 2000,
HUD approved 55 percent for construction within 24 months of the
funding award--27 percent within 18 months and 28 percent within 19 to
24 months. The remaining 45 percent of projects took longer than 24
months to be approved.
We looked at the performance of HUD's 45 field offices that process
Section 202 projects and found that they had varying degrees of success
in meeting the 18-month guideline. We evaluated their performance by
estimating the percentage of projects approved for construction within
18 months for each field office. Among these offices, the median
project approval rate for construction within 18 months was 22 percent,
but their performance varied widely. Eight field offices had no
projects that met the 18-month guideline, while at one office more than
90 percent of projects met the guideline. Field offices' performance
varied by region, with those located in the northeast and west being
least likely to approve projects within 18 months of the funding award.
Delayed Projects Affected the Program's Production Times and
Expenditures:
Meeting processing time guidelines is important because most of the
delays in total production time--that is, the time between funding
award and construction completion--stem from the project processing
phase. When we compared the average total production times for
completed projects that did not meet HUD's 18-month processing
guideline and those that did, the delayed projects took 11 months
longer than other projects to proceed from funding award to
construction completion. Since the average time taken for the
construction phase was very similar for all projects, most of the 11-
month difference in total production time was attributable to the extra
10 months that delayed projects took to complete the processing phase.
Delayed processing of Section 202 projects also affected the Section
202 program's overall balances of unexpended appropriations. At the end
of fiscal year 2002, for example, HUD had a total of $5.2 billion in
unexpended Section 202 funds. A relatively small part of these
unexpended funds--about 14 percent--was attributable to projects that
had not yet been approved to start construction and had exceeded HUD's
18-month processing time guideline. Consequently, none of the funds
reserved for these projects had been expended. By contrast, the
remaining 86 percent of unexpended funds were associated with projects
for which HUD was in the process of expending funds for construction or
rental assistance. For example, almost half of the unexpended balances-
-about 48 percent--resulted from projects that had already been
completed but were still drawing down their rental assistance funds as
intended under the multiyear project rental assistance contract between
HUD and the project sponsor.
Various Factors Can Delay the Approval of Projects for Construction:
Our review of projects funded from fiscal years 1998 through 2000 shows
that several factors impeded Section 202 projects from meeting the 18-
month processing time guideline, including insufficient capital
advances, limited training and guidance for HUD field office staff on
processing policies and procedures, and limitations in HUD's project
monitoring system. Factors external to HUD, such as sponsors' level of
development experience and requirements established by local
governments, also hindered processing.
Insufficient Capital Advances Caused Some Sponsors to Seek Other
Funding:
Although HUD policy intends for capital advances to fund the cost of
constructing a modestly designed project, capital advances have not
always been sufficient to cover these expenses.[Footnote 7] HUD field
office staff, project sponsors, and consultants reported that program
limits on capital advances often kept projects from meeting HUD's time
guideline for approving projects for construction. Most field offices,
and every sponsor and consultant that we surveyed, reported that
insufficient capital advances negatively affected project processing
time, and a substantial majority of respondents indicated that this
problem occurred frequently. Many respondents also reported that
securing secondary financing to supplement the capital advance amount
often added to processing time. According to nearly all sponsors and
consultants, the capital advance amounts set by HUD were frequently
inadequate to cover land, labor, and construction costs as well as fees
imposed by local governments. As a result, sponsors had to seek
secondary financing from other federal, state, and local sources--
including other HUD programs--or redesign projects to cut costs, or
both. According to a HUD official, the agency is currently initiating
steps to study the sufficiency of capital advances in covering project
development costs.
Varying Field Office Practices and Inadequate Staff Training and
Guidance Affected Timely Processing:
In 1996, to help ensure that field office staff and project sponsors
could complete project processing requirements within the 18-month time
guideline, HUD adopted changes that were intended to streamline
processing procedures.[Footnote 8] One of the key changes included
requiring field office staff to accept sponsor-provided certifications
of architectural plans, cost estimates, and land appraisals.
Previously, field office staff performed detailed technical reviews of
these items.
According to our survey, differences in the procedures field offices
used to approve projects for construction and the lack of staff
training and experience affected project processing time. For example,
most consultants and sponsors in our survey responded that inconsistent
implementation of streamlined processing procedures by field offices
caused delays, as did insufficient training for and inexperience of
field office staff. Some consultants and sponsors whom we interviewed
told us that some field offices continued to conduct much more detailed
and time-consuming technical reviews of project plans than HUD's
current policies require.
HUD has provided limited guidance for field office staff on the current
processing policies and procedures. At the time of our review, most
field office staff had not received any formal training on Section 202
project processing. According to HUD, in 2002, the agency required
representatives from each field office to attend the first formal
training on project processing for field office staff since at least
1992. Although HUD headquarters expected those who attended to relay
what they had learned to other staff members in their own offices, our
survey showed that by November 2002 no on-site training had occurred at
about a quarter of the field offices. We also found that HUD's field
office staff was relying on out-of-date program handbooks that did not
reflect the streamlined processing procedures.
Administrative and Oversight Weaknesses at HUD Headquarters Contributed
to Delays:
HUD's project monitoring system was not as effective as it could have
been and may have impeded HUD's oversight of project processing. HUD
officials told us that headquarters periodically uses its Development
Application Processing (DAP) system to identify projects that have
exceeded the 18-month processing time guideline. In addition,
headquarters contacts field offices on a quarterly basis to discuss the
status of these delayed projects. Nevertheless, HUD officials have
acknowledged that there are data inaccuracies in the DAP system. The
lack of reliable, centralized data on the processing of Section 202
projects has limited HUD headquarters' ability to oversee projects'
status, determine problematic processing stages, and identify field
offices that may need additional assistance. HUD officials indicated
that enhancing the DAP system is a priority, but that a lack of funding
has hindered such efforts.
Finally, other factors outside of HUD's direct control kept some
projects from meeting the time guideline, according to field office
representatives and sponsors and consultants responding to our survey.
Almost all survey respondents agreed that project processing time was
negatively affected when sponsors were inexperienced in project
development. Nearly 60 percent of field offices, and almost 40 percent
of sponsors and consultants, indicated that this problem occurred
frequently. A majority of survey respondents reported that local
government permitting and zoning requirements prolonged project
processing, although we found differences of opinion on whether these
problems occurred frequently. Community opposition and environmental
issues were also reported to negatively affect project processing time,
but not frequently.
Mr. Chairman, this concludes my prepared statement. I would be happy to
answer any questions at this time.
Contacts and Acknowledgments:
For further information on this testimony, please contact David G. Wood
at (202) 512-8678 or Paul Schmidt at (312) 220-7681. Individuals making
key contributions to this testimony included Emily Chalmers, Mark
Egger, Daniel Garcia-Diaz, William Sparling, and Julianne Stephens.
FOOTNOTES
[1] Elderly Housing: Project Funding and Other Factors Delay Assistance
to Needy Households, May 30, 2003 (GAO-03-512).
[2] Lack of reliable program data prevented us from reviewing all
Section 202 projects funded before fiscal year 1998.
[3] As in other surveys, estimates from the American Housing Survey are
subject to both sampling and nonsampling errors. All numerical
estimates derived from the survey have sampling errors of ±10 percent
or less of the value of those numerical estimates, unless otherwise
noted. All percentage estimates have sampling errors of ±6 percentage
points or less, unless otherwise noted.
[4] The term on rental assistance contracts is 5 years, although HUD
has authorized these contracts for as long as 20 years. After these
contracts expire, HUD renews them for 5 years, subject to the
availability of funds.
[5] 12 U.S.C. 1701q(a).
[6] Because this estimate is derived from two different sources, we
cannot give a precise percentage; thus, this estimate is intended to be
illustrative.
[7] See 66 Fed. Reg. 6647 (Jan. 22, 2001).
[8] HUD Notice H 96-102.
