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2013-04-24 (Report) HOUSING AUTHORITY � RITY OF THE CITY OF ENCINITAS AGENDA REPORT Meeting Date: April 24, 2013 TO: Chairperson and Board of Commissioners VIA: Gus Vina, Executive Di r ctor Tim Nash, Treasurer FROM: Ron Barefield, Housing Administrator SUBJECT: Impacts of Federal Funding Reductions on the Section 8 Housing Choice Voucher Program. BACKGROUND: The purpose of this report is to outline to the Housing Authority of the City of Encinitas (EHA) Board the potential impacts of the recent federal funding reduction on its Section 8 Housing Choice Voucher(HCV)program. The EHA operates a federally-funded HCV program, which currently provides a rental subsidy to 114 very-low income households. Critical to the HCV's success is the nearly $1 million in rental subsidy (Housing Assistance Payment, or HAP) paid annually to the private landlords that provide much needed housing to the EHA clients. The program is 100 percent federally funded, so any shortfall in federal funding has a direct and immediate impact on sustaining the HCV program at current levels. ANALYSIS: The HCV program is funded on a calendar year through a federal budget approved by the U.S. Congress and the President. The federal budget is to be approved by October 1 of each year but typically is not approved until later (sometimes several months into the federal fiscal year, which is October 1St through September 30th of each year). Typically, Congress and the President address the lack of an approved budget by passing a Continuing Resolution (CR) that funds federal programs and activities at the previous year's funding level until a budget is approved. For the federal fiscal year 2013 budget, a CR was approved on March 26, 2013. The CR funds domestic programs, such as the HCV program, at 2012 levels. However, since Congress and the President were unable to pass a deficit reduction package by March 1, 2013, a series of automatic, across the board cuts, immediately went into effect, commonly referred to as "sequestration". It is estimated that sequestration will reduce funding for domestic programs by approximately five Last printed 4/11/2013 12:43:00 PM 04/24/2013 Item #H2 Page 1 percent from the 2012 funding level. The federal fiscal 2013 budget provides funding for the calendar year 2013 HCV program. The U.S. Department of Housing and Urban Development.(HUD), which is the administering federal agency for the HCV program,provides funding for the HAP and also provides funding for the administrative costs of the HCV program through an Administrative Fee (AF). The AF is based.on an earned fee calculation for each HCV leased unit on the first of each month. For 2012, HUD only funded 75 to 80 percent of the earned AF because of insufficient federal appropriations. HUD has estimated the 2013 funding reduction will be approximately six percent or 94 percent of the HAP and 31 percent or 69 percent of the AF. This HAP proration will most likely be the lowest in the 38-year history of the HCV program. The reason for the greater funding percentage reduction to the HCV program (instead of the sequestered approximate five percent reduction) is that the funding reduction occurs four months into the HCV program year. That is, the HCV program was funded at 2012 levels for the first three months and now must reduce the funding percentage over the next nine months to achieve the overall funding reduction. Currently, the EHA provides HCV program assistance to 114 participants. HUD has allocated 136 rental vouchers to the EHA but based on current appropriations the EHA can only fund approximately 84 percent of the voucher allocation. Over time, HUD has moved from fully funding a housing authority's voucher allocation to a budget-based allocation. That is, HUD provides funding based on the previous year's expenditure with a small annual inflation adjustment factor. Unfortunately, this funding methodology tends to create a downward spiral of the available funds for maintaining level voucher utilization. There are many variables in attempting to sustain the highest voucher funding, such as local fair market rents, local rent levels, quantity of affordable rental units, participant income fluctuations, landlord participation, and rent subsidy and occupancy standards. HCV Program Variables As noted above, depending on variables, a housing authority can use available HCV program mechanisms that may increase or decrease participants. Essentially, staff manages the HAP costs to assist the most participants based on federal appropriations. As an example, two impactful variables on the HAP costs are the payment standard and the occupancy standard that a housing authority determines. HCV program regulations require that a housing authority adopt a payment standard (PS), which determines the rent subsidy level. The PS establishes the maximum rent for calculation purposes for the tenant and housing authority portions .of the rent. Generally, the participant pays 30-40 percent of their income toward the rent and the housing authority pays the difference. The PS is based on the Fair Market Rent (FMR)published annually by HUD, which is effective October 1 sc of each year. The FMR is determined regionally (e.g., for Encinitas, it's the San Diego County region). A housing authority is allowed to set its PS at 90 to 110 percent of the FMR. A housing authority may request a PS for more or less of the allowed range to HUD for its consideration. Most often,housing authorities in high cost areas ask for a higher PS of 120 percent. Last printed 4/11/2013 12:43:00 PM 04/24/2013 Item #H2 Page 2 The PS directly relates to the number of vouchers that can be funded (e.g., a lower PS allows for more voucher funding). Typically, the PS percentage varies based on bedroom size of the unit. There is a direct relationship with the payment standard percentage, availability of units (landlord participation), and participant demand for appropriate bedroom sized units. For the EHA, the current payment standard is: Payment Standard Bedrooms Studio One Two Three Four FMR $959 $1,054 $1,382 $2,009 $2,448 PS $1,024 $1,168 $1,370 $1,860 $2,260 PS % 106% 110% 99% 92% 92% Currently, 51 landlords participate in the HCV program. Of the participating landlords, 40 are single unit complexes, with the other 11 landlords being multi-unit complexes. Another factor in the rent subsidy levels are rent increases during a program year. Staff has been notified of rent increases in two multi-tenant complexes and anticipates an approximately two and a half percent increase in the HAP cost during the program year. The other impactful standard is the occupancy standard (OS). A housing authority can determine the number of persons per bedroom that a voucher will be used. For example, a housing authority could require two persons per bedroom regardless of head of household, gender or age or could allow that the head of household have their own bedroom (even if single) and the rest of household be housed at two persons per bedroom. For a single parent and a child, in the example above, the housing authority could be issuing a one bedroom voucher or a two bedroom voucher. The OS standard in use by the EHA allows a bedroom for the head of household and two per bedroom for the rest of the household. 2013 Funding Impacts As noted in this report, HUD has estimated a six percent reduction in HAP and AF funding from 2012 appropriations for the 2013 program year. Based on variable assumptions, staff believes that there is no need for an immediate consideration of HCV program reduction for the balance of the EHA fiscal year 2012-13 and first six months of the EHA fiscal year 2013-14. This belief is based on the following assumptions: HUD's funding estimate is correct; there will be no significant rent increases by participating landlords; participants will continue to receive stable income; and, normal participant attrition will continue. However, the EHA should consider programmatic changes in sustaining the HCV program in the future. Staff will continue to analyze the HCV program and the EHA Administrative Plan governing the HCV program operations to discern beneficial enhancements. Since the HCV program is funded on a calendar year, the EHA's fiscal year is split. Therefore, the HCV program funding is known for the last six months of the current fiscal year and the first six months of the next fiscal year. The President has released the proposed HUD budget for 2014, which requests increases for the HAP and AF over the 2013 budget. Congress will release its proposed budget later and then 2014 budget discussion will occur between the President and Congress over the coming summer and fall. Staff will continue to monitor the 2014 budget Last printed 4/11/2013 12:43:00 PM 04/24/2013 Item #H2 Page 3 discussion over the next few months to determine if significant program changes need to be considered by the EHA. The EHA should be able to continue funding at or near current participant level because over the years it has accumulated reserves for both the HAP and AF. With the reduction in funding, the reserves will be used to sustain at or near current levels. Staff will balance normal attrition with potentially adding new participants. The reduced funding will increase the time applicants will wait to receive a voucher. The most recent participants waited approximately seven years and with the reductions, waiting list applicants could wait for more than seven years. FISCAL AND STAFF IMPACTS: As noted in this report, it is anticipated that HAP cost and the administrative staff cost can be sustained at or near current HCV program levels through federal funding and reserves for the balance of FY2012-13 and the first six months of FY2013-14. Programmatic changes and staff costs reallocation may need to be considered, if federal fiscal year 2014 funds do not sustain current HCV program levels. RECOMMENDATION: Staff recommends that the Housing Authority Board: Receive and consider this report. i I I I Last printed 4/11/2013 12:43:00 PM 04/24/2013 Item #H2 Page 4