State Roles in Housing: State Responses to Portfolio Reengineering of Section 8 Project Based Assistance
Testimony to the Minnesota House of Representatives
Committee on Housing and Housing Finance
July 31, 1997
Cathy Atkins, J.D.
Policy Specialist, National Conference of State Legislatures
Good morning. My name is Cathy Atkins. I am a Policy Specialist with the Lead Hazard Project of the National Conference of State Legislatures (NCSL) located in Denver, Colorado. As a natural outgrowth of that work, I also handle overall housing issues for NCSL. NCSL is a bipartisan organization serving the state legislatures in all 50 states, the District of Columbia and the territories. NCSL does not take positions on issues except federal issues affecting the states (i.e., unfunded mandates). Thank you for the opportunity and invitation to testify before you today.
When I mentioned to a friend that I was going to be at this hearing and asked for suggestions on making the presentation more interesting, she suggested two topics: Rocky Mountain Flats: a New Era in Housing or Housing: Who Needs It? She then laughed and said that probably was not much help. At first I thought she was right but then I reconsidered. Granted, Rocky Mountain Flats is probably a bit too localized to have much impact in Minnesota; however, Housing: Who Needs It? provides an interesting place to begin.
The answer, of course, is everyone. In the past, housing issues, especially those directly concerning lower income individuals and families, have traditionally been a matter that was dealt with by the federal government and local communities. Of course, there may have been a state role in enacting legislation to authorize a community or region to address specific issues or provide state tax incentives for a specific endeavor. But, overall, the states roles were rather limited. This has changed over the past 10 to 15 years as the U.S. Department of Housing and Urban Development (HUD) has faced Legislative and Executive Branch efforts to drastically reduce its budget, roles and, even, existence.
States have taken various approaches to housing issues including, among others:
- including affordable housing strategies in their comprehensive housing strategies;
- issuing bonds to assist low and moderate income individuals in purchasing housing;
- giving incentives to non-profit organizations that provide housing for low-income individuals and families.
Of course, as "devolution" has occurred at the federal level, these efforts have met with increased competition for funds. State budgets, like others, have limited resources.
HUD's proposed changes to project based Section 8 assistance has come in response to various factors, which HUD's representatives will (or have) discussed already this morning. This raises questions for states:
- What does this mean for both the tenants and property owners who are currently participating in the program?
- What effects will these changes have on states and communities?
- What roles should a state play in attempting to alleviate any negative effects?
- What can states do, if anything, to accomplish these roles?
The purpose of this hearing today is to begin developing answers to these questions for the people and state of Minnesota. The first two questions have been addressed by others in attendance here today. I want to focus on the state efforts.
State Roles
Should states have or take a role in alleviating negative effects of federal housing policy decisions? This, of course, is up to the specific needs of an individual state. In some areas, the housing market may be such that there is little or no need for a state to take any action. In other states, however, housing market conditions may mandate that the state become involved in filling gaps left by federal actions.
In the current situation regarding Section 8, federal program changes to project based assistance via portfolio reengineering stand to resolve some problems while creating new or exacerbating existing ones. For example, a major element of the proposed changes is the switch to tenant based assistance in the form of vouchers. While vouchers are beneficial, primarily in that they allow tenants the opportunity to choose where they live and pay more for housing if they so desire, they also present an increasing number of problems particularly in that property owners are becoming increasingly more unwilling to accept Section 8 vouchers. This is due to several factors:
- better open rental market conditions including low vacancy rates and higher rents especially as the economy in general has improved.
- changes in the Section 8 program such as payments for property damages caused by tenants, increased responsibilities of property owners in maintenance (e.g., lead based paint management) that add to the cost of the unit. HUD no longer covers payments for tenant-caused damages - the owner must recoup the money from the tenant. But recovering money from a tenant who qualifies for Section 8 assistance can be difficult if not impossible. Unfortunately, here as elsewhere, one bad experience can result in far reaching policies.
- rents capped by HUD at amounts less than open market rents. For example, in Denver, the average 2 bedroom apartment rents for over $650 per month, no utilities included. Yet, in one unit where tenants receiving Section 8 assistance reside, the rent is capped at $585 with heat paid!
Given these difficulties, should a state take steps to provide incentives to property owners if they continue to accept tenants who receive Section 8 assistance? If so, what steps?
The answer, like the entire housing issue, is a complex one. Perhaps few other issues polarize the population so. Owners point to tenants and government as the problem. Tenants point to owners and government. Government, increasingly told by constituents to "get off our backs," "cut budgets," "do more with less" are left to make unpopular decisions. The bottom line is that changes are inevitable if the program is to survive in this day of shrinking government budgets.
Some argue that states should not step in but, rather, should simply let market forces take over. "Government got us here so get out" is the attitude. Others argue that government must have a role or the resulting social disruption will overwhelm the tenants, the owners and other government services.
Assuming that states want to provide incentives, what can they do? The 1997 legislative session provides some insight. In Washington State, legislation was enacted to create a task force on financing housing for low income senior citizens and persons with disabilities to explore alternative financing technique for the development and renovation of housing developments. Virginia passed legislation to provide a tax credit for individuals or corporations engaged in the business of renting dwelling units to low-income tenants. Oklahoma and New York are considering such legislation. Legislation in Texas makes the Texas Department of Housing and Community Affairs responsible for cooperation in the preservation of government assisted housing. Oregon enacted legislation providing for the financing of low income housing through the passing of bonds and allows the Housing and Community Service Department to finance mixed commercial or residential facilities. As with other issues, though, a lot of states will await the final decisions from HUD and Congress prior to focusing on the issue.
Other state options might include directing some housing funds to meet the differences between HUD's rental cap and a true market rental; tax benefits for restructuring debts; using such funds to help cover the costs of repairing tenant caused damages where tenants do not have the resources to do so; exploring additional non-Section 8 based low-income housing options. Like the federal actions of the past, however, these may only delay the inevitable day such as the federal Section 8 program is now facing. States can learn from federal mistakes. That is the advantage of not going first. States can also learn from each other. As yet, no state has the answer - each is in the same situation as Minnesota.
Thank you for the opportunity to be here today. I look forward to the remainder of the hearing to provide other states and NCSL more information on state efforts to address this important housing issue.
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