Housing and Urban Development:

Potential Implications of Legislation Proposing to Dismantle HUD

RCED-97-36: Published: Feb 21, 1997. Publicly Released: Feb 21, 1997.

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Pursuant to a congressional request, GAO examined the implications of one of the proposals to dismantle the Department of Housing and Urban Development (HUD), the Housing Opportunities and Empowerment Act, focusing on the: (1) bill's proposed changes in housing assistance, community development, and housing finance and the potential impact of these changes on the customers of these programs; and (2) capacity of the states and other federal agencies to assume HUD's functions and the tasks to be accomplished in dismantling HUD within the 5 years specified in the bill.

GAO found that: (1) the recent proposal to dismantle HUD, S. 1145, couples reduced federal funding with fundamental changes to the federal role in housing and community development; (2) if enacted, such a bill could have far-reaching effects on renters, communities, and would-be home buyers; (3) while the bill's plan to institute a voucher system to allow tenants to choose their residence could expand housing choices for renters in some areas, its phaseout of assistance for specific projects could reduce the supply of affordable housing and housing choices in other areas, according to HUD and state officials; (4) nonetheless, rising costs make current levels of housing assistance increasingly difficult for the nation to afford in an era of declining federal discretionary budgets; (5) accordingly, budgetary constraints may well reduce federal housing programs and services, whether these programs are reformed or not; (6) the bill's creation of a block grant for community development would give the states and localities more choice in spending federal funds, but the total federal funding for community development programs would be cut by about 40 percent; (7) the current beneficiaries of federal programs targeted to their needs might receive less assistance in an open competition for funds at the local level; (8) also, small cities would see a significant reduction in the federal funding for their projects; (9) although some of the bill's other provisions are designed to reduce the federal government's risk in insuring loans and guaranteeing mortgage-backed securities, these same provisions would make purchasing a home more difficult, especially for low-income and first-time buyers; (10) both the states and the federal agencies that would receive HUD's functions generally believed that they could assume additional programmatic and administrative responsibilities if they also received additional resources; (11) however, several of the federal agencies cautioned that they did not seek to assume HUD's functions; (12) HUD maintained that transferring its functions to other agencies would break up the network it has developed to implement its programs, would adversely affect the delivery of services to its clients, and would eliminate the focus on housing and community development it has provided as a cabinet-level department; and (13) the bill's implementation would depend on the resolution agency's ability to transfer functions and administer, and in some cases resolve, complex financial commitments within the required 5-year period.

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