. 9 '1“ 3“ kw ""'7"\m ‘ , L L)‘ ,-,»,-?'‘__;_’.f.. :1 o, 1 :.’.I‘._ V“_,' $4 I v "T"“9$‘ 1: F71 .-W'- - F ' :7’ i. ' ' 1.1...-’ ("3 V ’ - . Issue Brlef * ‘Vt-v-un ‘ " ‘ “.«w< raw’, 31 0'" : ': ,- *0, , 1- ' h ' V ' ‘ ..-5: If‘; H‘: ,- 3 T 4'4 y ., Washington University CONGRESSIONAL %RESEARCH SERVICE A UniversitwofMissouri-Cgiimbia ;'g3f§g;g HIINIllwfllflmmllmlmlwmyflfllwllIHHIN 3 HOUSING BLOCK GRANTS ISSUE BRIEF NUMBER IB8lO47 AUTHOR: Vanhorenbeck, Susan Economics Division THE LIBRARY OF CONGRESS CONGRESSIONAL RESEARCH SERVICE MAJOR ISSUES SYSTEM DATE ORIGINATED O3/26/81 DATE UPDATED O7/Ol/81 FOR ADDITIONAL INFORMATION CALL 287-5700 0702 CRS- l IB8lO47 UPDATE-O7/Ol/81 ISSUE DEFINITION Block grants are made by the Federal Government for broad purposes, allowing spending decisions to be made at the recipient level. These grants have been proposed as one alternative to the current system of delivering Federal housing subsidy programs. Such block grants are envisioned as a means of allowing greater flexibility in meeting local housing needs and offering an opportunity to reduce overlaps and costs of current programs. On the other side of the issue, there is no guarantee that greater local control would do a better job of providing housing and there is considerable doubt that many of the myriad housing-related goals, such as fair housing, would be addressed at all if Federal direction were to be eliminated. BACKGROUND AND POLICY ANALYSIS The idea of housing block grants is not new. In a speech at Williamsburg, Virginia, in 1957, and in subsequent messages to Congress, President Eisenhower proposed a program of progressive reductions in the Federal share of grant-supported programs. Specifically, he proposed establishing a commission to identify Federal functions which, along with supporting revenues, could be transferred to the‘ states. These proposals were not accepted. In 1973, on the recommendation of the Domestic Council, President Nixon proposed merging several categorical grant programs, and transferring decision-making power in connection with these programs, from Federal officials to elected officials at various levels of government. That year, several Congressmen introduced legislation designed to replace housing subsidy programs with one block grant program. In 1974, a number of categorical programs related to urban development were combined into the Community Development Block Grant program. Housing programs, however, were not included. Support for housing block grants had diminished, mainly because there was no budgeting device to provide the kind of long—term commitment necessary to support many types of assisted housing. In 1976, the housing block grant concept was proposed once again, this time by then HUD Secretary Carla Hills, but once again, it was not adopted. Under the Hills proposal, housing block grants would have replaced all housing assistance programs under the Housing Act of 1937, as well as Section 235 and Section 236 of the National Housing Act, Section 312 of the Housing Act of 1964, Section 202 of the Housing Act of l959, and possibly some programs of the Farmers Home Administration (FmHA). Public housing operating subsidies would also have been eliminated, or at least reduced. Most recently, the 96th Congress, in the Housing and Community Development Act of l98O (P.L. 96-399), directed HUD to provide a comprehensive study of the feasibility of a housing assistance block grant program. A report is due to be submitted to Congress by March 3l, 1981. PROGRAM FUNDING There are problems in funding a block grant program in a way that is both workable and politically acceptable- The difficulty arises from the fact that housing programs directed to new construction, or other improvements in the housing stock, as they_are currently arranged, require assured funding CRS- 2 IB8lO47 UPDATE-O7/O1/81 over a considerable period of time to be effective. Without ymulti-year funding, instead of subsidizing part or all of the interest payment over the life of the mortgage, a subsidy for new construction would have to take the form of a relatively large lump sum payment to "write down" the mortgage at the outset (up front). This would reduce the number of units able to be assisted in any one year. Alternatively, rental assistance payments to low-income tenants in existing housing could not be assured for more than -a short period of time. Since the housing block grant program would be a new endeavor, many, if not most, localities receiving funds would have start—up costs that can be quite large. Localities would not be apt to hire people and establish offices, nor would qualified persons —- knowledgeable in housing, ‘mortgage finance, and program administration —- likely apply for positions which were only guaranteed funding for a short period of time. It would also be difficult to interest developers in new construction or rehabilitation projects unless the funding for such projects were long term. They would be unlikely to undertake lengthy amortizations and operating costs if they were not guaranteed multi-year funding. Therefore, while Congress might want to limit total funding and the time period over which it could be used, it may also find that a program will be feasible only if it is established as a multi-year program -— long enough to provide States, localities, and private developers and owners with some confidence in the program's continuity. Congress, however, enacts funding on a yearly basis through the appropriations acts. ' Government agencies are permitted to enter into obligations requiring either immediate or future payment of money only when they have been granted authority to do so. The amount of budget authority to cover payments is usually determined by the nature of the programs or projects being funded. Under current funding, annual contract authority to cover the new obligations expected to be incurred during the year must be accompanied by long-term budget authority to cover the implied future budget expenditures for the current year's contract obligations. If local agencies, dependent on Federal funding, are to plan and initiate anything other than "one—shot" programs, some similar allocation of both current year's contract authority and multi-year budget authority would be necessary. This problem was addressed in the Carla Hills proposal, which envisioned an allocation of multi-year budget authority with an annual spending limit such that no more than lO% of the allocated authority could be liquidated in any one year, with a time limit on exhausting the authority of 55 years. This would have given local governments both planning time and assured funding continuity. A collateral point to the structure of the funding question concerns any limits placed on either the amount of funding or, if multi-year, of the time period allowed to draw funds. whenever Congress sets a limit on the budget authority or time period of funding, obviously, it influences (whether intentionally or not) the housing options or areas receiving the funds. The shorter the time period, the more likely one—shot assistance; the fewer the funds, the more likely existing housing will be used rather than more expensive new construction. THE FUTURE OF CURRENT PROGRAMS CRS- 3 IB8lO47 UPDATE-O7/Ol/81 It would have to be decided whether or not to eliminate some or all current Federal subsidy programs, or to fold them into the block grant with their procedures and eligibility requirements remaining as they are. Since the major purpose of the block grant program is promotion of flexibility in housing programs, it might be considered preferable to allow State and local agencies receiving funds to work out their own programs, instead of, using current Federal programs. This, however, iwould require considerable expertise within each local agency. To the extent that new construction is desired, a multiplicity of different procedures in neighboring localities might serve to deter developers from becoming involved in the process.i If it is decided to permit localities to develop their own housing programs, permissible use of the block grant funds could include payment of part or all of the debt services on obligations issued to finance. assisted housing projects, interest reduction payments for single or multifamily housing, housing allowances, loans or grants for construction, acquisition, rehabilitation, or repair of eligible projects, or to provide other related forms of subsidies. If the Federal categorical programs are to be eliminated, it must be decided whether to do so at the outset of the block grant program or to phase them out over a certain period of time. Obviously, any preliminary commitments, which encompass private activity to be undertaken in advance of final contracts, might have to be met, as well as fulfilling existing contracts. ELIGIBILITY REQUIREMENTS AND LOCAL FLEXIBILITY some people fear that without federally set eligibility requirements a redistribution of housing assistance away from those needing it most might occur. Greater flexibility and control on the local level could lead to assistance for those who need it less (such as use of funds in connection with mortgage revenue bonds for middle-income homeowners). Concern has been expressed that, without Federal requirements, politically unpopular assistance for low-income families and some other groups may be hindered by a housing block grant program. To further national policy (helping those with lowest income or substandard housing) in the use of Federal funds, a federally set income restriction might be placed on eligibility for assistance. Some of the income limits proposed are 65% to 80% of area median, adjusted for family size. Priorities might be called for in allowing assistance payments for large families or families of elderly and handicapped persons. RURAL VS. URBAN There are precedents which can be cited in \determining which localities would receive block grant funds, and whether grants would go to rural as well as urban areas. One possibility would be to follow the same criteria used to determine which areas receive Community Development Block Grants. Another possibility would be to follow a procedure similar to HUD's fair-share» formula for housing subsidies. Because housing development, unlike activities financed by the Community ’Development Block Grant program, is generally outside the scope of current local governmental endeavors, criteria might have to be added to assure that the localities receiving grant funds would have the administrative capability to use them properly. The funding ,/-'=~.. T CRS- 4% IB8l047 procedure referred to earlier would also affect the ability or desire of local governments to develop this capability. over the that an concern They yfear Officials of some smaller communities have expressed implementation of a housing block grant program. entitlement housing assistance block grant program would provide little funding to smaller communities so that they could not develop new housing unless they could get several years’ entitlement at one time. One ‘proposal suggests that the program be maintained in suburban or non-metropolitan areas through grants to the States, which could allocate sufficient funds for a feasible development to communities in successive years, as the HUD field offices now do with Section 8 funds. s FEDERAL REQUIREMENTS The current housing programs require compliance with a number of social policies, such as environmental goals, efforts to promote racial and economic desegregation, and minimum physical standards. Should Federal requirements be continued or left to localities to continue or disregard? some people would argue that Federal assistance to local areas is not warranted and should not be given if it contributes to segregated living patterns or degredation of the environment. Others would argue that local ShO1lld be able t0 make their OWI1 d€CiSiOl'1S. communities at REPORTS AND CONGRESSIONAL DOCUMENTS House Report H.R. 27l9, Report No. 96-1420, September 26, l980. CHRONOLOGY OF EVENTS 04/24/8l -- Senate Subcommittee on Housing held one day of hearings on housing block grants. ADDITIONAL REFERENCE SOURCES Block grants, tax incentives, rent vouchers seen as basis for Reagan's housing policies. Housing and Development Reports, v. 8, no. 28, Bureau of National Affairs, Inc., Washington. December 8, 1980, p. 558-59. Frantz, John M. housing assistance. U.S. The use of block grants as a vehicle for Federal Congress. House of Representatives. Committee on Appropriations. 95th Congress, lst session. Subcommittee on HUD-Independent Agencies. Washington, U.s. Govt. Print. Off., March l7, 1977. Committee print: Subsidized Housing, Part 8, p. 71-123. The Reagan housing block grant program: now it might work. Housing and Developement Reporter, v. 8, no. 28, Bureau of National Affairs, Inc., Washington. l980, p. 565-568. UPDATE-O7/O1/81, _._._,., ..~ C1=-F-' Vt? N GTON Ui*fl§‘\:"ER3ETY ST. E_0U!S - MO. 4” .q.;__; ‘.«4_..~_,.-..‘ . - . . wr u.v.\n..‘..v .