HUD Rental Assistance
Progress and Challenges in Measuring and Reducing Improper Rent Subsidies
Gao ID: GAO-05-1027T September 27, 2005
In fiscal year 2003, the Department of Housing and Urban Development (HUD) paid about $28 billion to help some 5 million low-income tenants afford decent rental housing. HUD has three major programs: the Housing Choice Voucher (voucher) and public housing programs, administered by public housing agencies, and project-based Section 8, administered by private property owners. As they are every year, some payments were too high or too low, for several reasons. To assess the magnitude and reasons for these errors, HUD established the Rental Housing Integrity Improvement Project (RHIIP). This testimony, based on a report issued in February 2005, discusses the sources and magnitude of improper rent subsidy payments HUD has identified and the steps HUD is taking to address them.
HUD has identified three sources of errors contributing to improper rent subsidy payments: (1) incorrect subsidy determinations by program administrators, (2) unreported tenant income, and (3) incorrect billing. HUD has attempted to estimate the amounts of improper subsidies attributable to each source but has developed reliable estimates for only the first--and likely the largest--source. HUD paid an estimated $1.4 billion in gross improper subsidies (consisting of $896 million in overpayments and $519 million in underpayments) in fiscal year 2003 as a result of program administrator errors--a 39 percent decline from HUD's fiscal year 2000 baseline estimate. GAO estimates that the amount of net overpayments could have subsidized another 56,000 households with vouchers in 2003. HUD has initiated several efforts under RHIIP to address improper subsidies in its public housing, voucher, and project-based Section 8 programs. Specifically, HUD has (1) stepped up monitoring of program administrators, (2) improved verification of tenants' incomes, and (3) provided guidance and training on program requirements to HUD staff and program administrators. These actions have strengthened HUD's oversight of the programs, despite some implementation problems and remaining challenges. For example, for the voucher and public housing programs, HUD field office staff completed about 1,100 Rental Integrity Monitoring reviews--that is, on-site assessments of public housing agencies' compliance with policies for determining rent subsidies--between 2002 and 2004. However, problems with a database containing information on these reviews prevented HUD from analyzing the results. According to HUD, the complexity of existing policies contributes to the difficulties program administrators have in determining rent subsidies correctly. For example, program administrators must assess tenants' eligibility for 44 different income exclusions and deductions. However, simplification of these policies, which will likely require statutory changes by Congress, could affect many tenants' rental payments, with some tenants paying more and others paying less. HUD has considered various approaches to simplifying policies for determining rent subsidies, but it has not conducted a formal study to inform policymakers on this issue.
GAO-05-1027T, HUD Rental Assistance: Progress and Challenges in Measuring and Reducing Improper Rent Subsidies
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Testimony:
Before the Subcommittee on Federal Financial Management, Government
Information, and International Security, Committee on Homeland Security
and Governmental Affairs, U.S. Senate:
United States Government Accountability Office:
GAO:
For Release on Delivery Expected at 2:30 p.m. EDT:
Tuesday, September 27, 2005:
HUD Rental Assistance:
Progress and Challenges in Measuring and Reducing Improper Rent
Subsidies:
Statement of David G. Wood, Director, Financial Markets and Community
Investment:
GAO-05-1027T:
GAO Highlights:
Highlights of GAO-05-1027T, a testimony before the Subcommittee on
Federal Financial Management, Government Information, and International
Security, Committee on Homeland Security and Governmental Affairs, U.S.
Senate:
Why GAO Did This Study:
In fiscal year 2003, the Department of Housing and Urban Development
(HUD) paid about $28 billion to help some 5 million low-income tenants
afford decent rental housing. HUD has three major programs: the Housing
Choice Voucher (voucher) and public housing programs, administered by
public housing agencies, and project-based Section 8, administered by
private property owners. As they are every year, some payments were too
high or too low, for several reasons. To assess the magnitude and
reasons for these errors, HUD established the Rental Housing Integrity
Improvement Project (RHIIP). This testimony, based on a report issued
in February 2005, discusses the sources and magnitude of improper rent
subsidy payments HUD has identified and the steps HUD is taking to
address them.
What GAO Found:
HUD has identified three sources of errors contributing to improper
rent subsidy payments: (1) incorrect subsidy determinations by program
administrators, (2) unreported tenant income, and (3) incorrect
billing. HUD has attempted to estimate the amounts of improper
subsidies attributable to each source but has developed reliable
estimates for only the first”and likely the largest”source. HUD paid an
estimated $1.4 billion in gross improper subsidies (consisting of $896
million in overpayments and $519 million in underpayments) in fiscal
year 2003 as a result of program administrator errors”a 39 percent
decline from HUD‘s fiscal year 2000 baseline estimate. GAO estimates
that the amount of net overpayments could have subsidized another
56,000 households with vouchers in 2003.
HUD has initiated several efforts under RHIIP to address improper
subsidies in its public housing, voucher, and project-based Section 8
programs. Specifically, HUD has (1) stepped up monitoring of program
administrators, (2) improved verification of tenants‘ incomes, and (3)
provided guidance and training on program requirements to HUD staff and
program administrators. These actions have strengthened HUD‘s oversight
of the programs, despite some implementation problems and remaining
challenges. For example, for the voucher and public housing programs,
HUD field office staff completed about 1,100 Rental Integrity
Monitoring reviews”that is, on-site assessments of public housing
agencies‘ compliance with policies for determining rent
subsidies”between 2002 and 2004. However, problems with a database
containing information on these reviews prevented HUD from analyzing
the results.
According to HUD, the complexity of existing policies contributes to
the difficulties program administrators have in determining rent
subsidies correctly. For example, program administrators must assess
tenants‘ eligibility for 44 different income exclusions and deductions.
However, simplification of these policies, which will likely require
statutory changes by Congress, could affect many tenants‘ rental
payments, with some tenants paying more and others paying less. HUD has
considered various approaches to simplifying policies for determining
rent subsidies, but it has not conducted a formal study to inform
policymakers on this issue.
What GAO Recommends:
In its report, GAO made recommendations designed to improve HUD‘s
oversight of the process for determining rental subsidies in its
housing assistance programs. GAO also recommended that HUD study the
potential impacts of alternatives for simplifying the rent
determination process. HUD agreed with GAO‘s recommendations to improve
its program oversight but said that the report did not fully present
the significance and impact of HUD‘s efforts under RHIIP.
www.gao.gov/cgi-bin/getrpt?GAO-05-1027T.
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 Subcommittee:
I appreciate the opportunity to be here today to discuss our work on
improper subsidy payments in the Department of Housing and Urban
Development's (HUD) rental assistance programs: Housing Choice Voucher
(voucher), public housing, and project-based Section 8. Payments made
under these programs, which help keep rents affordable for about 5
million low-income tenants, account for the majority of HUD's
expenditures. For example, in fiscal year 2003, these payments
accounted for about $28 billion, or almost 75 percent of the
department's total expenditures. HUD's payments cover the difference
between a unit's monthly rental cost--or, for public housing, the
operating cost--and the tenant's payment, which is generally equal to
30 percent of the tenant's adjusted monthly income. I will refer to
these payments as rent subsidies. Public housing agencies (PHA)
administer the voucher and public housing programs, and private
property owners administer the project-based Section 8 programs. These
program administrators are responsible for ensuring that tenants meet
HUD's eligibility criteria and for accurately calculating rent
subsidies.
Each year HUD makes improper payments--that is, payments that are too
high or too low--under these programs primarily because it cannot
ensure that rent subsidies are determined correctly. Because of their
vulnerability to waste, fraud, and abuse, GAO has designated HUD's
rental assistance programs as high risk since early 2001.[Footnote 1]
In addition, the President's Management Agenda for Fiscal Year 2002
identified HUD's rental assistance programs as one of nine program
areas that have severe management challenges and that are in need of
immediate reform.[Footnote 2] In response to these assessments, HUD
established the Rental Housing Integrity Improvement Project (RHIIP) in
2001 to increase accountability and reduce improper subsidy payments.
My statement today is based on our February 2005 report to the
Subcommittee on Housing and Community Opportunity, House Committee on
Financial Services, which requested that we examine HUD's efforts to
measure and reduce improper rent subsidy payments.[Footnote 3]
Specifically, my statement discusses (1) the sources and magnitude of
improper payments that HUD has identified; (2) the actions HUD is
taking under RHIIP to reduce improper payments in the voucher, public
housing, and project-based Section 8 programs; and (3) the status and
potential impact of HUD's efforts to reduce the risk of improper
payments by simplifying the process for determining rent subsidies. In
preparing the report, we obtained and analyzed data on improper
payments that HUD collected for fiscal years 2000 and 2003. We also
interviewed officials from HUD's headquarters and field offices, PHAs,
and contract administrators; examined laws, regulations, policies, and
guidance related to subsidy determinations; and reviewed relevant HUD
reports and studies.[Footnote 4]
In summary:
* HUD has identified three sources of errors that contribute to
improper rent subsidy payments: (1) incorrect subsidy determinations by
program administrators, (2) unreported tenant income, and (3) incorrect
billing. HUD has attempted to estimate the amounts of improper
subsidies attributable to each source but has developed reliable
estimates for only the first--and likely the largest--source. HUD paid
an estimated $1.4 billion in gross improper subsidies (consisting of
$896 million in overpayments and $519 million in underpayments) in
fiscal year 2003 as a result of program administrator errors--a 39
percent decline from HUD's fiscal year 2000 baseline estimate. We
estimate that the amount of net overpayments could have provided
another 56,000 low-income households with vouchers in fiscal year 2003.
* HUD has initiated several efforts under RHIIP to address improper
subsidies in its public housing, voucher, and project-based Section 8
programs. Specifically, HUD has (1) stepped up its monitoring of
program administrators, (2) improved verification of tenants' incomes,
and (3) provided additional guidance and training on program
requirements to HUD staff and program administrators. These actions
have strengthened HUD's oversight of the programs, despite some
implementation problems and remaining challenges. For example, for the
voucher and public housing programs, HUD field office staff completed
about 1,100 Rental Integrity Monitoring (RIM) reviews--that is, on-site
assessments of PHAs' compliance with policies for determining rent
subsidies--between 2002 and 2004. However, problems with a database
containing information on RIM reviews prevented HUD from analyzing the
results of the reviews.
* According to HUD, the complexity of existing policies contributes to
the difficulties program administrators have in determining rent
subsidies correctly. For example, program administrators must assess
tenants' eligibility for 44 different income exclusions and deductions.
However, simplification of these policies, which will likely require
statutory changes by Congress, could affect the rental payments of many
tenants. HUD has considered various approaches to simplifying policies
for determining rent subsidies but has not conducted a formal study to
inform policymakers on this issue.
On the basis of our findings, we recommended that HUD:
* make regular monitoring of PHAs' compliance with its policies for
determining rent subsidies a permanent part of its oversight activities,
* collect complete and consistent information from these monitoring
efforts and use it to help focus corrective actions where needed, and:
* study the potential impact of alternative strategies for simplifying
program policies on tenant rental payments and program costs.
HUD has taken steps to address the first two recommendations but, as
noted, has not done a formal study of simplification and its likely
effects.
Background:
HUD's voucher, public housing, and project-based assistance programs
share the common mission of making housing affordable to low-income
households. The subsidies these programs provide are not an
entitlement, and the number of low-income households eligible for
assistance exceeds the number of subsidized units or vouchers that are
available. These programs are administered differently and vary in the
number of households they assist and the amount of funding they
receive.
The voucher program, which approximately 2,500 PHAs administer on HUD's
behalf, is HUD's largest rental assistance program. The program,
authorized under Section 8 of the United States Housing Act of 1937, as
amended, provides housing vouchers that eligible individuals and
families can use to rent houses or apartments in the private housing
market from property owners participating in the program. In fiscal
year 2003, the program assisted about 2 million households (42 percent
of all HUD-assisted households) and had outlays of about $13 billion.
In general, only households with very low incomes--less than or equal
to 50 percent of area median income--are eligible for vouchers.
Under the public housing program authorized by the United States
Housing Act of 1937, as amended, HUD has subsidized the development,
operation, and modernization of government-owned properties, which are
currently managed by some 3,300 PHAs. In fiscal year 2003, HUD's public
housing program assisted 1.2 million households (one-quarter of all
households receiving housing assistance) and had outlays of about $7
billion.[Footnote 5] To be eligible for public housing, a household
must be low income--that is, have an income that is less than or equal
to 80 percent of area median income.
Under a variety of project-based Section 8 programs authorized by the
Housing and Community Development Act of 1974, as amended, HUD
subsidizes rents at certain multifamily housing developments, which had
often received construction subsidies from other HUD programs, with
rental assistance payments disbursed under multiyear contracts.
Property owners and managers for about 22,000 subsidized properties
currently participate in these programs. In fiscal year 2003, HUD's
project-based programs assisted 1.6 million households (one-third of
all HUD-assisted households) and had outlays of roughly $8 billion. In
general, only households with low incomes are eligible for HUD project-
based Section 8 assistance.
HUD's oversight of the program administrators varies, depending on the
program. For vouchers and public housing, HUD field offices provide
oversight of PHAs that administer the programs. Field office staff
conduct on-site reviews and analysis of PHAs' operations. For HUD's
Section 8 project-based programs, contract administrators--which
include both private contractors and HUD field offices--are responsible
for overseeing and ensuring that Section 8 properties are in compliance
with HUD's policies.
HUD created RHIIP in the spring of 2001 to assess the magnitude of and
reasons for improper payments in its rental housing assistance
programs. RHIIP was set up as a direct result of HUD's analysis of data
it collected on improper subsidy payments in fiscal year 2000. The
analysis, which HUD issued in a June 2001 report, focused on subsidy
errors made by program administrators but did not attempt to determine
if the tenants had supplied accurate and complete income
information.[Footnote 6] In 2002, HUD completed a separate evaluation
to determine the magnitude of rental assistance errors caused by
unreported tenant income. The study matched tenants' reported incomes
with income data from the Internal Revenue Service and the Social
Security Administration.
RHIIP's goal is to reduce the incidence and dollar amount of improper
rent subsidies by 50 percent in fiscal year 2005 compared with fiscal
year 2000, with interim goals of a 15 percent reduction by fiscal year
2003 and a 30 percent reduction by fiscal year 2004. To meet this goal,
HUD has initiated several program-specific and overarching efforts.
HUD Has Identified the Sources of Payment Errors but Lacks Complete and
Reliable Estimates for Each One:
HUD has identified three basic sources of errors that have resulted in
improper rent subsidy payments and has conducted separate studies for
each of these sources to assess the magnitude of the problem and the
progress that has been made in meeting RHIIP's goal of reducing
improper subsidies. However, these studies have not provided reliable
estimates of the amount of improper subsidies from each source.
Errors during the Subsidy Determination Process Can Result in Improper
Subsidy Payments:
As part of RHIIP, HUD identified three basic sources of errors that
resulted in improper rent subsidy payments: (1) program administrator
errors, (2) unreported tenant income, and (3) billing errors. Program
administrator errors are the broadest category of errors because, as
figure 1 shows, they can affect nearly all of the critical dimensions
of the process for determining rent subsidies. In performing their
work, program administrators may incorrectly determine rent subsidies
by, for example, making calculation and transcription errors or by
misapplying income exclusions and deductions required by HUD policies.
Errors that result from unreported tenant income occur when tenants do
not report an income source, either their own or another household
member's, to program administrators. These errors generally occur early
in the process when the tenant first submits income information to
program administrators (see fig. 1). Although some tenants may not
disclose all income sources in order to qualify for assistance and to
increase the rent subsidies they receive, tenants may also fail to
report income sources unintentionally if program administrators provide
unclear instructions about the sources of income they must disclose.
Finally, billing errors occur at the very end of the process (see fig.
1). The procedures program administrators use to bill HUD for subsidy
payments vary for each of the three rental assistance programs, and, as
a result, the specific types of mistakes that lead to billing errors
can also vary. However, in general, billing errors arise when
discrepancies exist between the amount of rent subsidy the program
administrator determines and the amount billed to and paid by HUD.
Billing errors can also include accounting discrepancies between
amounts paid by HUD and a property's bank statements and accounting
records.
Figure 1: Rent Subsidy Determination Process:
[See PDF for image]
[End of figure]
HUD Has Reliable Estimates of Improper Payments Due Only to Program
Administrator Errors:
To determine the amounts of improper rent subsidies resulting from
program administrator errors, HUD collected data on more than 2,400
randomly selected households participating in the voucher, public
housing, and project-based Section 8 programs for fiscal years 2000 and
2003. Our analysis of the documentation and data collected indicated
that these studies provided a reasonably accurate estimate of subsidy
determination errors made by program administrators. Data from the
fiscal year 2003 study show that the department paid an estimated $1.4
billion in gross improper rent subsidies (representing $896 million in
overpayments and $519 million in underpayments) as a result of program
administrator errors in fiscal year 2003--a 39 percent decrease from
fiscal year 2000.[Footnote 7] The voucher program accounted for about
one-half of the total reduction, while public housing and project-based
Section 8 each accounted for roughly one-quarter. Because the
overpayments exceeded the underpayments, HUD was not able to use an
estimated $377 million of its funding to assist needy low-income
households. On the basis of the average national subsidy cost of a
voucher in 2003--about $6,720, including administrative costs--we
estimated that HUD could have provided an additional 56,000 households
nationwide with vouchers in fiscal year 2003, nearly the same number of
households that currently receive vouchers in the Los Angeles,
California, area.
Each of the rental assistance programs experienced substantial
reductions in gross program administrator error between fiscal years
2000 and 2003--50 percent for public housing, 35 percent for vouchers,
and 32 percent for project-based Section 8 (see fig. 2). These
reductions exceeded HUD's interim RHIIP goal of reducing improper rent
subsidies by 15 percent by fiscal year 2003 for this source of
error.[Footnote 8] Many of the initiatives under RHIIP were too recent
to have had any direct impact on the reductions. However, HUD officials
stated that its communications with program administrators about the
importance of addressing improper rent subsidies and program
administrators' anticipation of increased monitoring by HUD had
probably led to voluntary improvements in internal control activities
and likely contributed to these reductions. Future estimates of
improper subsidies may show whether further reductions can be made and
sustained as the RHIIP initiative matures.
Figure 2: Estimated Gross Improper Rent Subsidies Due to Program
Administrator Error, Fiscal Years 2000 and 2003:
[See PDF for image]
[End of figure]
For the other two sources of errors--unreported tenant income and
billing errors--HUD did not produce complete or reliable estimates for
all three programs for fiscal years 2000 and 2003. HUD estimated that
the department paid $191 million in fiscal year 2003 in gross improper
rent subsidies due to unreported tenant income. However, the small
number of files that formed the basis for the estimate and the large
variances in the amounts of income tenants did not report resulted in a
margin of error so large that the estimate is not meaningful. As a
result, the actual amount of improper rent subsidies for this source of
error could be as low as zero or many times higher than HUD's estimate.
Despite problems with the estimate, HUD reported that gross improper
rent subsidies due to unreported income decreased by 80 percent from
fiscal years 2000 to 2003. However, we believe that any comparison
between the two estimates is not valid because of the limitations of
the fiscal year 2003 estimate and significant differences in the
methodology used for each year.
HUD also did not produce a complete and reliable estimate of the amount
of billing error in fiscal year 2000 for any of the three programs. For
fiscal year 2003, HUD has begun to implement a methodology for
estimating billing error for vouchers and public housing. For project-
based Section 8, HUD estimated approximately $100 million in billing
errors for fiscal year 2003, although the small sample size and the
concentration of errors in a small number of properties resulted in a
large margin of error.
HUD Has Taken Steps to Reduce Improper Subsidies in All Three Programs,
but Challenges Remain:
HUD has undertaken three separate efforts under RHIIP to address
improper rent subsidies for its public housing, voucher, and project-
based Section 8 programs. Specifically, HUD is (1) stepped up its
monitoring of program administrators, (2) improving verification of
tenants' incomes, and (3) providing HUD staff and program
administrators with guidance and training to help them understand
program requirements. Despite some implementation problems and
remaining challenges, these actions have strengthened HUD's oversight
of the programs.
To increase monitoring of program administrators, HUD has taken the
following actions:
* For the voucher and public housing programs, HUD field office staff
completed about 1,100 RIM reviews--that is, on-site assessments of
PHAs' compliance with policies for determining rent subsidies--between
2002 and 2004. According to HUD officials, these reviews were the first
comprehensive reviews of PHAs' tenant information files in more than 20
years. While important, the reviews were hampered by implementation
problems. For example, officials from most of the HUD field offices we
met with said that they did not have enough staff to conduct all of
their reviews within the required time frames and still fulfill their
other oversight responsibilities. As a result of resource constraints,
some field offices had to use staff with little or no experience in
monitoring PHAs for RIM reviews; issued their RIM review reports late;
or postponed other monitoring activities such as inspections of
troubled properties. Additionally, problems with a database containing
information on RIM reviews prevented HUD from analyzing the results of
the reviews to assess improvements in PHAs' calculations of tenant
subsidies and provide technical assistance to PHAs.
* For the project-based Section 8 programs, HUD plans to rely on
performance-based contract administrators (PBCA) to monitor property
owners' compliance with HUD's policies for determining rent
subsidies.[Footnote 9] For the past several years, HUD has been
transferring responsibility for overseeing property owners to PBCAs
from other types of contract administrators, including HUD field
offices. As of October 2004, HUD's project-based Section 8 programs
consisted of about 21,900 properties, and HUD had transferred contracts
for about 11,800 of these properties to PBCAs. HUD requires PBCAs to
perform extensive annual reviews of properties' operations, including
reviewing owners' rent subsidy calculations. To ensure that PBCAs meet
HUD's performance standards, HUD has developed a comprehensive
oversight program. However, because HUD has often not provided adequate
oversight of contractors--a factor that in 2003 led us to designate
acquisitions management as one of HUD's major management challenges--
implementing these oversight measures could pose challenges to
HUD.[Footnote 10]
In our February 2005 report, we recommended that HUD make regular
monitoring of PHAs' compliance with HUD's policies for determining rent
subsidies a permanent part of its oversight activities. We also
recommended that HUD collect complete and consistent information from
these monitoring efforts. In August 2005, HUD officials told us that
they planned to conduct 275 RIM reviews each year starting in 2006, and
that they were developing software to better track the results of RIM
reviews.
To improve verification of tenants' incomes, HUD has done the
following:
* For the voucher and public housing programs, HUD has implemented an
Internet-based income verification system that allows PHAs to compare
income information they receive from tenants with income information
employers report to government agencies. According to HUD officials,
the system is intended not only to help PHAs detect unreported income,
but also to provide them with a more convenient and accurate way to
verify tenant-reported information. HUD obtained the data currently in
the system through agreements with state wage and income collection
agencies. HUD is replacing these data with data from a single source--
the National Directory of New Hires--and intends to make it available
to all PHAs by the end of this month. Congress passed legislation in
2004 that grants HUD the authority to request and obtain data from this
directory--a database containing quarterly federal and state wage data,
quarterly unemployment data, and monthly new hire data reported by
employers to state agencies and compiled by the Department of Health
and Human Services.[Footnote 11]
* For project-based Section 8 programs, HUD plans to implement a
similar Internet-based system for property owners after it addresses
data security concerns. When Congress granted HUD access to the
National Directory of New Hires database, it required that HUD
demonstrate to the Department of Health and Human Services that all
necessary steps had been taken to prevent the inappropriate disclosure
of information from the database before property owners were given
access. To alleviate concerns about releasing sensitive information to
private property owners, HUD is initially making the data available
only to PHAs to confirm that the system is secure. If the Department of
Health and Human Services is satisfied with HUD's security precautions,
HUD plans to make the information available to property owners by the
end of fiscal year 2006. Once the system is implemented, property
owners will be able to access earned income data from a secure Web
site.
To improve HUD staff and program administrators' understanding of the
complex requirements for determining rent subsidies, HUD has taken the
following steps:
* For vouchers and public housing, HUD has provided training and
guidance to PHAs on various topics, such as how to calculate subsidies,
improve quality control procedures, and comply with income verification
requirements. The training addresses program basics, including how to
interview prospective tenants and verify tenant income information. HUD
also has provided guidance to PHAs on developing policies and
procedures that would prevent future subsidy calculation errors and
provided technical assistance to PHAs that were deemed high risk on the
basis of their performance in RIM reviews. Finally, HUD has updated or
developed guidance for PHAs on how to correctly calculate rent
subsidies.
* For project-based Section 8 programs, HUD has improved its guidance
and training for property owners, contract administrators, and HUD
field staff. For example, in 2003, HUD revised its handbook for project-
based Section 8 programs, which sets forth the requirements and
procedures that property owners must follow in administering these
programs, including determining rent subsides. Also in 2003, HUD issued
a new monitoring guide to help contract administrators improve their
oversight of property owners' subsidy determinations. HUD accompanied
these efforts with training for property owners, contract
administrators, and HUD field offices on the updated handbook and new
monitoring guide.
HUD Has Considered Simplifying Policies for Determining Rent Subsidies
but Has Not Done a Formal Review of the Potential Effects:
As one of its efforts under RHIIP and as mandated by The President's
Management Agenda for Fiscal Year 2002, HUD has considered various
approaches--statutory, regulatory, and administrative--to streamlining
and simplifying its policies for determining rent subsidies. According
to HUD, the complexity of the existing policies contributes to errors
in determining subsidies. For example, program administrators currently
must determine tenants' eligibility for 44 different income exclusions
and deductions in order to calculate rent payments and subsidies. The
purpose of some of these income exclusions and deductions is to provide
additional relief to certain tenants, such as elderly and disabled
households with large medical expenses, by reducing the amount they
contribute toward rent. Other income exclusions are designed to
counteract potential work disincentives--for example, tenants' rental
payments are raised as their income increases.
The process for determining rent subsidies is further complicated by
the difficulty some program administrators may have in understanding
and implementing HUD's program requirements. According to multiple
field office staff, program administrators, and industry groups we met
with, staff responsible for calculating rent subsidies are often poorly
paid and have large caseloads and limited education. These factors can
contribute to the misapplication of program policies and to subsequent
errors in subsidy calculations. In addition, these same groups
commented that these types of positions have a high turnover rate, and,
as a result, it is difficult for program administrators to retain
knowledgeable and experienced staff.
HUD has considered several approaches to simplifying rent subsidy
policies, including:
* an income-based approach that would establish tenants' rents as a
percentage of their income, possibly with a limited number of
exclusions and deductions or none at all;
* a tiered flat-rent system that would establish tenants' rents for
several income bands and eliminate the need to readjust rents because
of income changes, provided the changes were within the band; and:
* a mixed approach that would give program administrators various rent
structures to choose from, including income-based and tiered flat
rents.
Adopting any simplification approach represents a change from current
policies. Because most of HUD's policies have a basis in statute, major
changes are likely to require congressional action. Under any
simplification approach, many tenants' rental payments could be
affected, with some tenants paying higher rents and others paying lower
rents. For example, elderly and disabled households, as well as large
families, that currently benefit the most from HUD's exclusions and
deductions would be hit hardest by the elimination of current income
adjustments. In addition, the transition to simplified policies could
create confusion among program administrators and tenants in the short
term. Depending on the magnitude of program changes, program
administrators--the approximately 22,000 property owners and 3,000 PHAs
across the country--would have to retrain staff, update written
procedures and administrative plans, and make potentially costly
modifications to their software applications. Program administrators
would also have to undertake outreach efforts to explain the changes to
tenants.
HUD staff have conducted a preliminary analysis of the impact of some
simplification approaches on tenants' rental payments and program
costs. However, the department has not conducted a formal study on the
impact of policy changes to inform policymakers on this issue. To
ensure that policymakers have sufficient information with which to
consider potential simplification approaches, our February 2005 report
recommended that HUD study the possible impact of alternative
strategies for simplifying program policies on subsidy errors, tenant
rental payments, program administrators' workload, and program costs.
In its fiscal year 2006 budget submission, HUD proposed, among other
things, to simplify program requirements for the voucher program and
provide PHAs with greater administrative flexibility. The proposal
recommends a mixed approached and allows PHAs to choose from several
alternative rent structures, including income-based and tiered flat
rents.
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. Contact points for our Offices of Congressional
Relations and Public Affairs may be found on the last page of this
statement. Individuals making key contributions to this testimony
included Daniel Garcia-Diaz, Rose Schuville, Cory Roman, Steve Westley,
Emily Chalmers, Carl Barden, Jerry Sandau, Marc Molino, and John
McGrail.
FOOTNOTES
[1] GAO, Major Management Challenges and Program Risks: Department of
Housing and Urban Development, GAO-01-248 (Washington, D.C.: Jan. 1,
2001).
[2] Office of Management and Budget, The President's Management Agenda,
Fiscal Year 2002 (Washington, D.C.: July 2001).
[3] GAO, HUD Rental Assistance: Progress and Challenges in Measuring
and Reducing Improper Rent Subsidies, GAO-05-224 (Washington D.C.: Feb.
18, 2005).
[4] For HUD's project-based Section 8 programs, contract
administrators--which include private contractors and HUD field
offices--are responsible for overseeing individual Section 8 properties
and ensuring that the properties are in compliance with HUD's policies.
[5] This figure includes both operating and capital subsidies.
[6] Department of Housing and Urban Development, Quality Control for
Rental Assistance Subsidies Determinations (Washington, D.C.: June
2001).
[7] The margin of error at the 95 percent level of confidence for the
estimated $1.4 billion in gross improper subsidies is ±$185 million.
The margins of error for the estimated $896 million in overpayments and
$519 million in underpayments are ±$132 million and ±$96 million,
respectively.
[8] RHIIP's quantitative goal for reducing improper rent subsidies also
applies to the other sources of errors.
[9] PBCAs receive an incentive fee if they perform above a minimum
quality level as determined by HUD, and their fees are reduced if they
perform below this level.
[10] GAO, Major Management Challenges and Program Risks: Department of
Housing and Urban Development, GAO-03-103 (Washington, D.C.: January
2003).
[11] Consolidated Appropriations Act, 2004, Pub. L. No. 108-199, Jan.
23, 2004.