President Barack Obama’s budget for FY 2012, released on February 14, 2011, presents both challenges and opportunities for housing authorities.

The language in the budget describing the funding of the public housing operating fund and housing choice voucher account indicates that the U.S. Department of Housing and Urban Development would likely cut funding to housing authorities, including Moving to Work agencies, that have excess reserves (or, in the case of voucher accounts, excess net restricted assets).

In contrast, the budget also presents opportunities for new voucher funding, $250 million in Choice Neighborhoods Initiative funding, and the participation of three new agencies in MTW.

This legal alert compares proposed budget amounts to the funding levels for FY 2010 and FY 2011 under the current continuing resolution, which expires March 4, 2011. The funding levels for FY 2011 have not been finalized and continue to be debated in Congress.

Capital Fund

In FY 2010, the public housing Capital Fund was $2.5 billion. The President’s budget proposes funding at $2.405 billion, a decrease of $95 million, or 3.8 percent.

Operating Fund

In FY 2010, the public housing Operating Fund was $4.775 billion. The President’s budget proposes to fund it at $3.962 billion, and to increase the total funding to $4.962 billion with an offset from housing authorities’ excess reserves, which HUD estimates at more than $1 billion. HUD would decrease allocations to agencies (including MTW agencies) by the amount of excess operating reserves they currently hold, accumulated through prior years’ appropriations. In the HUD briefing on the budget, Secretary Shaun Donovan stated that four to six months is the appropriate range for reserves. In the event that limiting funding to individual agencies would not result in full funding for all agencies, the Operating Fund would be pro-rated for all housing authorities.

Transforming Rental Assistance

The FY 2012 budget includes a proposal for “Transforming Rental Assistance” (TRA), which was originally introduced in the President’s FY 2011 budget. TRA was followed by the HUD-proposed legislation “Preservation, Enhancement, and Transformation of Rental Assistance” (PETRA), and most recently by a legislative proposal, the “Rental Housing Revitalization Act” (RHRA). TRA proposes project-based rental assistance that would apply to both public housing and multifamily housing, and would allow property owners to leverage private sector resources to make capital improvements to housing stock. HUD proposed a $200 million allocation to TRA for FY 2012. In FY 2011, neither the House nor the Senate funded this program.

HOPE VI and Choice Neighborhoods Initiative

The President’s budget proposes to fund the Choice Neighborhoods Initiative (CNI) at $250 million and to provide no additional funding for HOPE VI in FY 2012. Based on the language of the budget, HUD intends to fund five to seven implementation grants of approximately $35 to $45 million each, and 50 to 75 planning grants.

CNI will be directed to neighborhoods with (1) a concentration of poverty, (2) severely distressed public and/or assisted housing, and (3) a potential for long-term viability once key problems are addressed. Characteristics of such neighborhoods would include proximity to educational institutions, medical centers, central business districts, major employers, and effective transportation, and adjacency to low-poverty neighborhoods.

Of the $250 million allocation, $5 million would go to an interagency initiative called “Neighborhood Revitalization Grants.” The administration intends to award five to seven grants of $3 to $5 million to high-needs neighborhoods. These grants are intended to complement CNI grants and other existing federal investments in distressed neighborhoods. The intent is to fill funding gaps that would otherwise hamper revitalization, build organizational capacity for data utilization and evidence-based planning, and target and leverage funding from state, local, and federal sources.

Housing Choice Vouchers

The total funding proposed for Housing Choice Voucher Program renewals by the President’s FY 2012 budget is $17.143 billion, an increase of $804 million from the FY 2010 appropriation of $16.339 billion.

The budget states that HUD may offset allocations to individual housing authorities by the excess amount of an agency’s net restricted assets. The numerical value of “excess” will be set by HUD in a Federal Register notice. MTW agencies may also be subject to an offset.

The President’s budget includes language, as in prior years’ budgets, that MTW agencies will be funded pursuant to their MTW agreements, and will be subject to any pro rata adjustments applied to other agencies, in the event that the appropriated amount does not fully fund the renewal of all vouchers as described by the appropriations language.

The President’s budget proposes $75 million for tenant protection vouchers, $45 million less than the $120 million enacted in FY 2010.

The President’s budget proposes $1.598 billion for administrative fees, to be covered in accordance with the funding system in place immediately before enactment of the Quality Housing and Work Responsibility Act of 1998 (QHWRA). As in FY 2010, $50 million above this total would be available to HUD to allocate to agencies that need additional funding to administer their voucher programs, including agencies with Veterans Affairs vouchers, other incremental vouchers, tenant-protection vouchers, or disaster vouchers.

The President’s budget sets aside $135 million, down $15 million from the FY 2010 appropriation of $150 million, to adjust funding amounts for agencies that have seen costs rise due to (1) portability, (2) an increase in voucher costs related to the use of project-based set-aside in the prior fiscal year, (3) self-sufficiency accounts, (4) avoiding termination of families receiving assistance under the Disaster Voucher Program, and (5) cost adjustments associated with Veterans Affairs vouchers. New eligibility criteria for this funding in FY 2012 would include (1) increases in utilization above the level used to set the voucher funding amount, and (2) adjustments for costs incurred from participating in the Small Area Fair Market Rent Demonstration.

The President’s budget allocates $60 million for FSS coordinators, as it did in FY 2010.

The President’s budget includes funding for several different types of incremental vouchers: $50 million for disaster assistance vouchers for victims of Hurricanes Ike and Gustav; $57 million for two competitive initiatives to address family and individual homelessness, which together will serve 7,500 households; and $75 million for Veterans Affairs vouchers, which should serve 10,000 veterans households.

Housing Trust Fund

The President’s budget proposes $1 billion to capitalize the Housing Trust Fund (HTF). Although the funding source is not identified in the budget, Secretary Donovan stated at the budget briefing that HUD is actively searching for a funding source.

Moving to Work

The President’s proposal also suggests language for an “Administrative Provision” to add three agencies to MTW, with the criteria to be included in a Federal Register notice. “Administrative Provisions” are essentially small pieces of legislative language included at the end of an appropriations bill.

Changes in Family Eligibility/Recertification

Other changes covered in Administrative Provisions include the following, which would apply to housing choice vouchers and public housing:

  • Broadening the definition of extremely low-income by including families with the higher of 30 percent of Area Median Income (AMI) or the federal poverty level
  • Increasing the standard deduction for elderly and disabled households from $400 to $675, and raising the deduction for excess medical expenses from 3 percent to 10 percent of income
  • Permitting three-year annual recertification for fixed-income families
  • Giving housing authorities the power to approve exception rents for disabled voucher households


The administration also proposes two changes to the Low Income Housing Tax Credit program (LIHTC) that could assist housing authorities in financing certain mixed-finance projects. The first proposal would benefit rehabilitation transactions by providing states the option to grant a basis boost of 30 percent for the preservation, recapitalization, and rehabilitation of existing housing that was originally financed with federal funds. The second proposal is to average incomes, rather than enforcing a strict income cap, in LIHTC units. Properties may serve households up to 80 percent of AMI, as long as the average income is no greater than 60 percent of AMI.

Ballard Spahr will continue to monitor and report on developments.


In the area of housing law, Ballard Spahr has a nationally recognized practice marked by a history of leadership in the development and financing of housing and community development projects. The firm represents numerous state and local housing finance agencies and public housing authorities, as well as developers, mortgage and investment bankers, commercial lenders, and low-income housing tax credit investors in housing and community development transactions. The firm also advises clients on the programs and requirements of HUD, FHA, Fannie Mae, Freddie Mac, and GNMA. For a full description of our practice, click here.




Copyright © 2011 by Ballard Spahr LLP.
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This alert is a periodic publication of Ballard Spahr LLP and is intended to notify recipients of new developments in the law. It should not be construed as legal advice or legal opinion on any specific facts or circumstances. The contents are intended for general informational purposes only, and you are urged to consult your own attorney concerning your situation and specific legal questions you have.

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