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Affordable Housing Magazine - February 2003

PHAs face severe budget cuts from HUD
by Donna Kimura

Public housing authorities (PHAs) across the nation face major layoffs and service cuts after the Department of Housing and Urban Development (HUD) announced that it would slash subsidies by 30%.

From Boston to San Francisco, PHAs were attempting to comprehend the impact of the reduction, the largest in recent memory, days after the news broke in January.

For most, if not all, the cuts would mean drastic cuts in maintenance, security and social service programs that directly affect residents.

HUD said the 30% reduction would affect PHAs with fiscal years beginning Jan. 1, 2003. Funding levels for others would be determined later. PHA leaders, however, expect all housing authorities to be hit.

The Boston Housing Authority (BHA) alone could lose about $13 million from its $42 million operating subsidy.

?We?re looking at the potential for over 100 layoffs if this cut is implemented,? said Bill McGonagle, deputy administrator at BHA, which has 10,500 federally funded public housing units.

A 20-year veteran of the industry, McGonagle has never seen a cut as severe as this one. The largest previous cut that officials could remember was about 11%. ?There?s no way to avoid cutting to the bone,? he said.

BHA?s workforce of 870 employees is already down 100 people from a year ago. That reduction included a number of people who were fired after the federal government discontinued the Public Housing Drug Elimination Program.

BHA Administrator Sandra Henriquez has asked department heads to prepare a worst-case-scenario budget.

HUD?s budget troubles surfaced at the end of last year. After ceasing payment to some 25% of the nation?s PHAs, the agency renewed its funding to the local housing authorities using emergency funding.

Still, HUD has a $250 million shortfall in its $3.5 billion operating budget, a gap that did not become apparent until PHAs with fiscal years beginning Oct. 1 failed to receive their funds last year, according to Tim Kaiser, executive director of the Public Housing Authorities Directors Association (PHADA).

Industry groups said that the problem stems from HUD?s implementation of a revised operating fund formula that took effect in fiscal year 2001. HUD learned only recently that its computer systems could not accommodate the new funding system, and that provisions in the formula that were supposed to be budget-neutral were, in fact, resulting in cost increases.

Industry groups have urged HUD to seek additional funding from Congress, but the agency has refused. ?Given overall budget restraints, HUD will not request additional funding in fiscal year 2003 for operating subsidy, but the department is working with Congress to secure necessary funding to solve the problem,? said the agency in a statement, without elaborating on any specific plans.

HUD is now cutting 2003 subsidies to make up for the shortfall, according to PHA leaders, who have strongly opposed the move.

Despite the recent troubles, local housing officials were stunned by the news that they would lose 30% of their funding.

?I thought it was a bad April Fool?s joke four months early,? said Gregg Fortner, executive director of the San Francisco Housing Authority.

His agency, which operates about 6,400 public housing units throughout the city, stands to lose about $8 million from its $27 million subsidy.

Like other housing officials, he said the cuts would affect resident services and staffing.
San Francisco, which starts its fiscal year in October, usually submits its budget to federal officials at the end of June. HUD is now asking for it on May 1, according to Fortner.
?We have to prepare now,? he said.

PHAs have staggered fiscal years so HUD does not have to handle the budgets of all 3,200 housing authorities at one time.

The New York City Housing Authority, the largest PHA in the nation, has 181,000 units of public housing, serving 420,000 residents. That?s 9% of the rental market in the city.

Spokesman Howard Marder said the housing authority?s federal operating subsidy was approximately $745 million last year for public housing.

?We are developing contingency plans for reductions at various levels,? Marder said. Short-term measures may include a hiring freeze as well as cuts in contracts and supplies.

Across the country, at the Housing Authority of the City of Los Angeles, a 30% reduction would eliminate about $7.5 million from its $28 million operating subsidy. That means the agency would have to look at potential reductions in all types of services, including security, maintenance and a graffiti-abatement program, said Ed Griffin, director of intergovernmental relations.

Another concern is whether the cut would have an impact on HOPE VI projects, he said.
HOPE VI, which aims to revitalize the nation?s most severely distressed public housing, calls for a partnership of public and private sources. The concern is that private sources may be wary about entering into partnerships if the housing authorities are dealing with serious reductions.

Griffin is hopeful that housing authorities can successfully make their case to federal leaders that funding for PHAs is critical.

In Portland, Ore., the housing authority has been one of the safety nets in a community with a struggling economy.

Now, the Portland Housing Authority faces losing about $2.4 million from its $8.2 million annual operating subsidy. The agency has 2,800 units of public housing.

?My disappointment is that it doesn?t seem to be a priority for the federal government,? said Executive Director Steven Rudman. ?We need affordable housing. It continues to be a problem.?

Shortly after hearing the news, Rudman and his staff were going through their budget as well as contacting their congressional representatives.

The Tacoma Housing Authority has more than 5,000 assisted units in the city, serving nearly 12,000 people, about 6% of the city population. That?s one out of 18 people, said Executive Director Peter Ansara.

?The result of any cut is that housing for poor people will be imperiled because of someone?s mistake in a calculation,? he said. ?It is clear services and operations will suffer tremendously. It is difficult to quantify someone?s life and human dignity.?
Ansara said the HUD cuts come on top of other significant increases.

?Our medical premiums for employees have increased by 45%, or nearly $200,000; our workers compensation insurance another 35%, or nearly $50,000; and refuse costs another $40,000,? he said. ?Pretty simple math so far ? now add any cut and what do you get? A sad day in public housing.?

Jon Gresley, executive director of the Oakland Housing Authority in California, called the cuts ?incomprehensible.? It looks as though his agency would lose $3.2 million out of its $10.7 million subsidy.

Finding any room to make cuts will be tough. About $3.7 million of the agency?s public housing expenditures are fixed costs such as utilities and insurance that can?t be reduced, he said. The housing authority operates 3,308 units of public housing. The average rent is about $220 per month.

Gresley said he is still assessing the potential effects of the funding cut and how to deal with it. One possibility is to stop rehabbing units that become vacant. That, however, means a loss of rent revenue.

?We need to concentrate on occupied units,? he said.

Public housing in many cities was just starting to blossom as a result of HOPE VI and other efforts, Gresley said. Now, it faces a bigger blow than anyone has ever seen, he said.
Lobbying efforts to restore funding are underway from individual authorities and industry organizations like the Council of Large Public Housing Authorities (CLPHA), which represents 60 of the largest housing authorities in the nation.

?We are calling upon the administration to ensure there is adequate funding so residents are not put in jeopardy,? said Sunia Zaterman, executive director.

This isn?t a hypothetical problem, she said, explaining that there are a million children living in public housing. About 45% of the residents are elderly or disabled.

?This is an emergency,? Zaterman said.