By Idara Nickelson and Ed Lazere
In March 2004, DCFPI issued The Untold Story of the DC Budget, a report on local spending trends in DC government between 1990 and 2004. That analysis found that despite recent increases, the District’s local budget in 2004 was only slightly larger than it was in 1990, after adjusting for inflation. The analysis also found significant shifts in funding priorities during this period, including serious reductions in services targeted on low- and moderate-income residents ‘ such as affordable housing, employment and social services.[1]
This analysis is a follow-up report to The Untold Story that focuses on trends in funding for affordable housing and the impact of funding changes on services. This review finds that:
- Local funding for affordable housing fell more than 90 percent, after adjusting for inflation, between 1990 and 2000, as several housing programs and services targeting low- and moderate-income residents were eliminated or reduced. Local funding fell from $57 million to $4.5 million during this period.
- The funding cuts stemmed both from DC’s severe fiscal crisis of the mid-1990s and from concerns over the management of some programs. The reductions had an adverse impact on service levels, including elimination of the Tenant Assistance Program, which provided rental assistance to 3,000 low-income households. In addition, the Home Purchase Assistance Program, which helps lower-income residents buy their first home, was reduced significantly and remains much smaller today than in 1990.
- Since 2002, local support for affordable housing has significantly increased as a result of a revival of the Housing Production Trust Fund. Despite the increase, funding for housing in 2005 remains about 25 percent lower than it was in 1990.
- Looking forward to FY 2006, funding for the Housing Production Trust Fund would increase further under a formula that ties funding to 15 percent of deed recordation and transfer taxes ‘ and this would bring total funding for housing to roughly $56 million, which is close to but still modestly lower than the 1990 level.
While the return of local funding for affordable housing is significant, it is important to note that the District’s affordable housing needs are far greater than in 1990. Moreover, the enhanced funding for the Trust Fund does not compensate entirely for the program cuts made in the 1990s, because the Trust Fund does not provide the same types of assistance as the programs that were eliminated or cut.
- In 1990, there were 47,000 renter households in DC with income below $20,000, and 43,000 apartments affordable to them ($500 per month), a shortage of 4,000 units. By 2003, the number of low-income households had increased to 55,000 while the number of affordable rental units had fallen to 31,000 — widening the affordable housing shortage to 24,000 units.[2]
- While the Housing Production Trust Fund can be used in a variety of ways, it cannot be used to provide rental subsidies like those offered under the TAP program. These subsidies help make housing affordable to the lowest-income residents. In addition, the Trust Fund also cannot be used to provide the down payment and closing costs assistance that is provided under the Home Purchase Assistance Program.
Finally, the increase in local funding for affordable housing in recent years is being offset by reductions in federal funding for the DC Housing Authority ‘ which operates public housing and the Housing Choice Voucher Program. DCHA is facing a shortfall of at least $4.5 million in its budget for the Housing Choice Voucher program this year, and the voucher shortfall could reach $29 million by 2010 if the budget recently proposed by President Bush is adopted. In addition, funding to support the operation of public housing will be $5 million less than in 2005. If the funding shortfall results in a reduction in the number of families receiving housing assistance, this will offset some of the gains from added funding in the Housing Production Trust Fund.
Changes in Funding for Affordable Housing Since 1990
In 1990, local funding for affordable housing was provided through the District’s Department of Housing and Community Development and the Department of Public and Assisted Housing, now known as the DC Housing Authority.[3] Local funding for both agencies fell dramatically during the 1990s.
Funding Reductions in the Department of Public and Assisted Housing
In 1990, housing programs under the Department of Public and Assisted Housing received $39 million in local funding. (All figures are adjusted for inflation to equal 2005 dollars.) Between 1990 and 2000, the locally funded programs were eliminated entirely, resulting in a reduction in housing programs and services for low- and moderate-income residents.
The largest locally funded program under DPAH was the Tenant Assistance Program (TAP), a District-funded version of the federal Section 8 Housing Program (now called the Housing Choice Voucher program.) TAP provided monthly rental subsidies to very low-income families and, in some instances, financial support to rental buildings primarily serving low-income families.
- In 1990, TAP served 2,800 households and was funded at about $31 million (in 2005 adjusted dollars). The number of TAP households peaked at roughly 3,000 in the early 1990s.
- Funding for TAP was reduced starting in the early 1990s. Beginning in 1998, the program no longer accepted new clients. Since then, all current TAP clients were slowly transferred to the federal Housing Choice Voucher Program (HCVP).
- The loss of the TAP program was significant. The District currently administers roughly 9,000 Housing Choice Vouchers. This means that if the TAP program had been maintained, it would enhance existing vouchers by one-third. This is significant because demand for housing assistance far exceeds the supply and this would be true even if TAP had not been eliminated. As of January 2005, some 43,000 households were on the waiting list for a voucher.
The TAP program was reduced in the mid-1990s in part due to the District’s severe fiscal crisis. TAP also was targeted for reductions because it faced management problems. Program costs rose substantially, in part because of rising payments to landlords and in part due to poor management of the number of enrolled households. Furthermore, the appropriation for TAP did not include funding to cover administrative costs. This also contributed to program overspending. In some instances, DPAH used federal funds from the Low-Rent Housing program to cover TAP’s overhead costs, a violation of HUD guidelines. DPAH was required to end this practice but did not subsequently receive local funding to address administrative expenses.
Outside of TAP, the Department of Public and Assisted Housing received $8 million in local funding in 1990. This included funding to address a shortfall in federal funds for the operation of public housing, support for a resident management program, and the Private Unit Leasing Program, which covered the costs of placing public housing clients in private units while the agency modernized existing public housing units. These programs were eliminated by 2000 as well.
Funding Cuts in the Department of Housing and Community Development
Local funding for Department of Housing and Community Development has fallen sharply since 1990. Between 1990 and 2000, local funding fell from $18 million to $4.5 million. Local funding has fallen further since then, to $2.3 million in the FY 2005 budget.
DHCD also relies heavily on federal revenues to support both housing and community development programs. Like its local funding, federal support for DHCD declined significantly since 1990. Federal funding for housing and community development services nearly 31 percent, between 1990 and 2005, from $70.2 million to $48 million in 2005. This means that the decline in local funding has not been offset by any increase in federal support for housing and community development.
Budget documents do not provide complete information on the impact of the funding cuts on the services provided by DHCD. The available data show, however, that some programs have been scaled back.
- The Home Purchase Assistance Program (HPAP) provides low- and no-interest loans to help low- and moderate income residents buy their first home. In 1990, DHCD disbursed 651 loans through HPAP. Of this total, 284 were financed with local funds and 367 were financed with federal funding.
- In 2004, the agency disbursed a total of only 231 HPAP loans ‘ a decline of 65 percent ‘ financed by both local and federal dollars.[4]
- In 1990, DHCD transferred 150 units to new homeowners through the Homestead Housing Preservation program, a program that enables first-time homebuyers to purchase tax delinquent real properties and DHCD foreclosures.
- The number of Homestead units transferred steadily declined since 1990, falling to 36 in 2000 and zero since 2001.
Recent Increases in Funding for the Housing Production Trust Fund
In 2003, local funding for housing began to increase notably for the first time in over a decade. This resulted from housing legislation passed in 2002 that dedicated 15 percent of deed recordation and transfer taxes to the Housing Production Trust Fund. Funding for the Trust Fund rose from $5 million in FY 2003 to $40.5 million in FY 2005. As noted, even with this substantial increase, funding for affordable housing in FY 2005 ‘ $43.1 million ‘ is nearly 25 percent lower than in 1990.
Nevertheless, new funding for the Trust Fund does not compensate fully for the loss of funding in DPAH and DHCD, because the Trust Fund does not support all of the types of housing assistance that had been provided by programs that were eliminated or reduced.
The Housing Production Trust Fund is a flexible fund that can be used to provide grants or loans to support the production or rehabilitation of affordable housing. Funds are awarded on a competitive basis to non-profit and for-profit developers who access the Trust Fund to supplement private financing sources.
The focus on production of new affordable housing is important given the city’s rapidly dwindling supply of affordable housing. The fact that the Trust Fund leverages private financing also is important, because it helps produce more housing than if projects were funded entirely by the Trust Fund. Every dollar spent from the Trust Fund leverages as many as $7 in other funding sources. Given this structure, the number of housing units developed each year by the Trust Fund varies. Each $10 million awarded through the Trust Fund results in the development of as many as 1,000 units of affordable housing.
Trust Fund Does Not Fully Compensate for Loss of Other Programs
While the enhanced funding for the Trust Fund supports the production of a substantial amount of affordable housing, it does not compensate entirely for the loss of the Tenant Assistance Program in the 1990s or the Home Purchase Assistance Program because the Trust Fund does not provide the same type of assistance.
- The Tenant Assistance Program, like the Housing Choice Voucher program, provided subsidies to cover the difference between 30 percent of household income and the apartment’s full rent. This allowed TAP to serve families with very low incomes.
- The Housing Production Trust Fund, by contrast, cannot be used for rental subsidies. Instead, the Trust Fund provides grants or loans to finance the production of new housing or rehabilitation of existing housing. This allows the Trust Fund to support housing that is affordable to many low-income households ‘ such as those with incomes close to 30 percent of area median income, or $25,000 for a family of four. But it is generally understood that assisting the poorest families ‘ such as a family living on minimum wage income of roughly $13,000 per year ‘ requires an ongoing monthly rental subsidy.
- The Home Purchase Assistance Program provides assistance to first-time low-income home buyers. While the Housing Production Trust Fund also promotes homeownership by supporting the production of low-cost homes, the Trust Fund does not provide down payment or closing cost assistance as HPAP does. Thus, HPAP helps some families who would not be able to purchase a home produced under the Housing Production Trust Fund.
Housing Funding in FY 2006
The FY 2006 budget for affordable housing will not be known until May 2005, when the FY 2006 budget will be adopted. Nevertheless, it is likely that funding for affordable housing will grow, because revenues from the deed recordation and transfer taxes that support the Housing Production Trust Fund are projected to rise.
- Under current revenue projections, the deed transfer and recordation taxes dedicated to the Housing Production Trust Fund will be $53.6 million in FY 2006. This is the full funding level for the Trust Fund.
- If funding for the Department of Housing and Community Development is maintained in 2006 at the 2005 funding level plus inflation, total funding for housing in 2006 will be about $56 million.
- This is still modestly lower than the $57 million in local funds devoted to housing in 1990.
While support for housing through the Trust Fund is likely to rise, federal funding for other housing programs is expected to decline.
The DC Housing Authority is facing a $4.5 million shortfall in its budget for the Housing Choice Voucher program in FY 2005, and some shortfall is expected to continue in 2006.
In addition, funding to support the operation of public housing will be $5 million less than in 2005. It is not clear how DCHA ‘ which does not currently received any local funding ‘ will absorb the loss of federal funds. Without additional assistance from other sources, DCHA would have to take steps such as reducing rental payments to landlords, increasing rental payments for some voucher holders, or reduce the number of vouchers available. These steps could offset some of the gains from added funding in the Housing Production Trust Fund.
Funding cuts could grow even larger in future years. If proposals included in the federal budget submitted by President Bush are adopted, ample federal funding for DC’s voucher program in FY 2010 would fall an estimated $29 million below the level needed to maintain the program at its current size.
Conclusion
These findings indicate that support for affordable housing initiatives in the District remains somewhat lower today than in 1990, despite tremendous increases in funding for the Housing Production Trust Fund. This review also shows that while the Trust Fund has greatly expanded the District’s capacity to support development of affordable housing, it is not able to meet the same needs as the programs that were eliminated in the 1990s, particularly the Tenant Assistant Program and the Home Purchase Assistance Program. Together, these findings suggest that additional support for affordable housing is warranted, and that additional funding could be used to provide housing assistance that is not available through the Housing Production Trust Fund.
End Notes:
[1] DC Fiscal Policy Institute, The Untold Story of the DC Budget: Overall Spending Has Grown Only Modestly Since 1990, But Support for Services to Low-Income Residents Has Fallen Sharply, March 16, 2004 (https://www.dcfpi.org/?p=51).
[2] DC Fiscal Policy Institute, Squeezed Out: The Worsening Shortage of Affordable Housing for Low-Income DC Households, January 2005 (https://www.dcfpi.org/?p=54).
[3] The Department of Housing and Community Development also supports some community development activities other than housing. This analysis includes the entire budget for DHCD and does not exclude the community development functions.
[4] In 1990 through 1993, DHCD and DPAH both reported performance based on source of funding. Therefore, it was clear how individual services were funded. However, subsequent budgets and annual performance reports combine local, federal, and private performance data, making it difficult to link programs to specific funding sources.