Housing Cuts in the 2011 Federal Budget

In April, the federal government narrowly avoided a shutdown after Congress and President Obama reached a last-minute deal that cut $38 billion from federal spending for the rest of fiscal year (FY) 2011. Many of these cuts affect the multifamily housing industry, and property owners and managers have reason for concern.

Under the compromise, $2.8 billion was taken from the U.S. Housing and Urban Development (HUD) budget, leaving it 6.5 percent below the spending levels from FY 2010. Still, the deal did not go as far as the House Republican proposal, HR 1, would have gone in cutting housing and community development programs. It spared Section 8 vouchers, which at least two million low-income households receive, as well as housing for people with AIDS and for the formerly homeless. The main source of federal funding for the homeless programs—the McKinney-Vento Homeless Assistance Grants program—saw its funding increase by $40 million.

But, reductions were significant. The Community Development Block Grant (CDBG) program, which funds local community development projects, was funded at $3.5 billion—a 16 percent cut from FY 2010. The Public Housing Capital Fund, which provides money for capital and management activities by public housing agencies, saw its finances lowered by 18 percent, while spending on the HOME Investment Partnerships Program, which helps pay for affordable housing projects, was cut by 12 percent, to $1.61 billion. HOPE VI and the Choice Neighborhoods Initiative, which aim to revitalize distressed public housing by transforming it into mixed-income developments, were slashed by 50 percent, to $99.8 million.

How bad is the news for the housing community? “It could have been worse,” says Denise Muha, executive director of the National Leased Housing Association (NLHA), which represents groups involved with federally assisted rental housing. “The whole thing could have been a train wreck, but it wasn’t—the HUD budget didn’t fare as bad as some other agencies did.”

Indeed, reductions do not look so bad when compared to what the Republican proposal sought. HR 1 would have reduced the total HUD budget by 12 percent, for example, cutting $1.8 billion from CDBG grants and $1.07 billion from public housing capital funding. And despite the drastic cuts in HOPE VI and Choice Neighborhoods, the deal preserved the programs, along with Sustainable Communities. The Republican proposal, by contrast, would have rescinded all of these programs.

Of the programs that were cut, “the government decided to fund programs that are housing people now, as opposed to those that could provide housing for them in the future,” Muha notes.

Community development block grants, for example, do not necessarily fund housing, as they can be spent to build a new park or community center. As for the HOME program, it is often combined with other funding to create, for example, gap financing for housing—programs that are housing-related but do not directly subsidize housing.

“I think the thinking was, ‘If we have to make cuts, let’s focus on programs that won’t put grandma on the street,’” Muha says. “It may be that not enough housing will be produced in the future, but with these numbers, no low-income person will be kicked out of their home.”

A serious defeat

But not everyone in the multi-housing community is as sanguine about the new budget and what it bodes for the future.

“We have a great deal of concern about the funding levels going forward,” says Jenna Hamilton, assistant vice president of government affairs for the National Association of Home Builders. Partly as a result of a backlash against the home-mortgage crisis, she notes, a broader conversation is taking place on Capitol Hill about whether the government should play any role in providing housing and whether it should be subsidized by taxpayers.

“We’re worried that the government is stepping away from its traditional role of ensuring that everyone has safe and affordable housing,” she says.

Sheila Crowley, president of the National Low Income Housing Coalition, agrees. “Taking cuts from HUD is ruthless,” she says. “These programs are already grossly underfunded—they don’t come close to serving everyone eligible for them. This compromise represents a serious defeat for Senate Democrats and shows an unwillingness by the President to defend programs he knows are vital.”

Get ready for 2012

The proposed 2012 budget would reverse some of the reductions made under the compromise. The budget request for HUD is $48 billion, up about $7 billion from the final budget for this year. The President also seeks $3.7 billion in funding for the CDBG program, a $200 million increase over the enacted funding for 2011, and $1.7 billion for the HOME Investment Partnership Program, an increase of $90 million.

But whether or not any of this will be enacted is far from certain. House Republicans have already shown themselves to be less-than-compliant, and now the President faces a re-election campaign. By July at the latest, Congress will have to vote to raise the federal debt limit so that the Treasury Department can continue borrowing to meet its obligations. But Republicans in both the House and the Senate have said they will not vote to raise the debt ceiling unless additional spending cuts are included.

In the meantime, housing groups are gearing up for another fight. The NAHB and other associations have already begun approaching lawmakers to educate them about the importance of federal programs and the negative impact of further cuts.

“Nobody likes to be in the position of looking down the road and seeing more cuts coming,” Hamilton says. “Who knows who will be the winners and losers in the upcoming battles, but it’s safe to assume we’ll all be playing defense—trying to ensure that the programs we support aren’t cut too dramatically.”

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