Low Income Housing Tax Credit

Income Tax

What are the pro's and con's of the Bush Administration's proposal to convert the Section 8 voucher program into an aggregated block grant to the state?"

This is a paper that outlines the arguments of why Bush Administration's proposal to convert Section 8 voucher program to block grant is not feasible.

The Section 8 voucher program, which was started in 1976, helps approximately 2 million low-income families and people with special needs, such as the elderly and disabled, pay for rented housing. The program can also be used by these people to save up for down payments when purchasing housing. The program is administered by the Department of Housing and Urban Development, which currently distributes the funds to low-income families through public housing agencies.

Typically, citizens contribute a maximum of 30% of their monthly income in rent, and the Government pays the rest. Families who make less than 50% of an area's median income can apply for vouchers. ("About the federal Section 8 housing voucher program," 2003)

The 2004 budget proposals suggest a major change in the way the Section 8 disbursements are handled. Until now, the money passes from the Department of Housing and Urban Development to several thousand public housing agencies, who then administer the program. Under the proposed scheme, central Government will transfer the grant en-bloc to the states, which will then disburse the funds and also take over the administrative aspects of the program.

The existing program has often come under criticism for being, in some cases, poorly operated and plagued with bureaucratic problems resulting in delays in both vouchers and subsidies reaching the people they were aimed at ("Two Demanding Jobs To Fill," 2003). Furthermore, applications for the vouchers regularly far exceed those available, a situation that can only be rectified through making greater funding available to the programs.

The existing program has also been criticized for its inflexibility, and this is one area where the proposed block grant scores well. Under the proposals, states would have some flexibility in the application of the grants in to the areas they feel are the most worthy of attention in their particular area, thus allowing states to prioritize the problems specific to their part of the country.

Also, by transferring the administration, and the associated costs, to the states, the central Government will free-up resources that can than be ploughed back into providing housing support for more people, thus relieving some of the pressure on the support scheme by servicing greater numbers of eligible citizens (Fiscal Year 2004 HUD Budget Executive Summary, 2003). This would therefore address one of the major shortcomings of the program in its current form, namely that it does not provide support for an acceptable number of people.

Although the major selling point of the reforms proposed is to provide more money and thus make more vouchers available, critics of the proposal argue that the budgeted figure for Section 8 grants may, despite their increase in monetary terms, be inadequate even for the approximately 2 million vouchers now in use due to the rising costs of housing. According to an estimate issued by the Center on Budget and Policy Priorities, the Government might have to phase out about 60,000 vouchers because the House wasn't providing enough money, although this is disputed by those behind the reforms. (Koff, 2003)

However, this inadequacy is not a fault of the reforms, but of the acute housing shortage facing the United States. In a situation where funding for housing support is lagging far behind demand, it could be argued that any measures which increase the amount of funds available would be welcome.

The major fear of critics of the reform concerning the amount of flexibility afforded to the states through the block grants is that it may actually worsen the housing shortage. States which are in financial difficulties may choose to change the eligibility criteria for the grants in order to use the grants as deficit financing. With so many states in dire financial straits, that worry could prove to be well-founded. ("Out In the Cold," 2003)

Since a major selling point of the proposal is that cost savings would enable the Government to provide more grants to people having difficulties finding safe, affordable housing, arguably the most damaging criticism is that the reform may reduce the amount of money available for distribution to needy families. As local agencies would be forced to relinquish control of the funds to state entities, the states would have to replace an existing network with their own, which is never an inexpensive process. The increased administrative oversight and organizational costs for the State would inevitably cut into the amount of funds available to assist needy families. Therefore, the states may be spending more in new administrative costs than is saved by the central Government by passing these duties down to the state level. (Koff, 2003)