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Subsidized Housing and LIHEAP440 Compiled by the LIHEAP Clearinghouse Whether individuals whose housing and utility costs are subsidized by other programs should be eligible for LIHEAP is a troublesome question for some LIHEAP coordinators. A related issue is how to handle subsidized tenants whose utility cost is included in their rent. In light of LIHEAP funding cuts and statutory requirements regarding targeting of benefits, some states feel that LIHEAP benefits should be targeted to households that do not already receive assistance through reduced rents and utility allowances, or to those who are most vulnerable to increases in energy costs because they pay their energy costs directly. In some states, this policy has effectively excluded or adversely affected renters, subsidized and non-subsidized, whose heat is included in their rent. As a result of the 1994 LIHEAP reauthorization legislation, targeting has become even more critical to LIHEAP coordinators in that states must provide that the "highest level of assistance will be furnished to those households which have the lowest incomes and the highest energy costs or needs in relation to income." This essentially means that states should base benefits on actual heating costs, and many are doing so. On the other hand, those who advocate LIHEAP payments to subsidized households argue that subsidized housing is not different from welfare benefits or energy supplements provided by local charities or utility programs. Because these funds are not taken into account when determining LIHEAP eligibility, they question why housing subsidies should be considered in the calculation. They also note that housing subsidy programs vary, and subsidized households should not be seen as one homogeneous category that is "in need" or "not in need" of LIHEAP benefits. This memorandum provides information on policies of states before and after two pieces of legislation affected these policies during FY 1993 and 1994. It also provides background on federal policy and summarizes a government report on subsidized housing. Background of Recent Legislation During the period from December 1992 to December 1993, states' policies on subsidized housing were in constant flux because of changing and conflicting legislation. It began with the passage of Section 927 (Public Law # 102-550) of the Housing and Community Development Reauthorization Act of 1992, effective October 28, 1992. This measure prohibited LIHEAP grantees from denying eligibility to or reducing or eliminating LIHEAP benefits for residents of subsidized housing who are responsible for making out-of-pocket payments for utility bills and receive energy assistance through utility allowances. The law also required that these tenants be treated identically with other households eligible for LIHEAP and other energy assistance included in the determination of home energy costs for which they are individually responsible and in the determination of their incomes. Because the section as passed was not what its advocates had intended, legislation in December 1993 amended Section 927. House Bill 3321 provided state and tribal grantees greater flexibility in handling subsidized housing clients who pay their energy costs directly. That flexibility had been virtually taken away with passage of Section 927. The change to Section 927 restates that tenants paying heating and cooling costs must not have LIHEAP eligibility automatically denied. However, it says a state may consider the amount of the heating or cooling component of utility allowances received by tenants when setting benefit levels under the LIHEAP. The proposal states that the size of any reduction in LIHEAP benefits must be reasonably related to the amount of the heating or cooling component of the utility allowance received and must ensure that the highest level of assistance will be provided to those households with the highest energy burdens. According to a summary of the House Bill 3321 by the National Consumer Law Center (NCLC), it was intended to remedy situations where states interpreted Section 927 to mean they had to provide large LIHEAP grants to subsidized housing tenants whose utility allowances are adequate or nearly adequate to cover their out-of-pocket energy costs. "Because LIHEAP funding has been so limited in recent years, this diversion of funds can result in seriously inadequate grants to families in non-subsidized housing who are in danger of utility terminations," NCLC wrote. Prior to enactment of Section 927, a number of states (at least eighteen, based on Clearinghouse surveys) reduced or eliminated these "direct pay" tenants' benefits by their methods of calculating benefits. (No states actually denied them eligibility). The methods included the following: 1) taking tenants' utility allowances into account in determining benefits; 2) giving these tenants a reduced percentage of the regular benefit; 3) using a point matrix system with these tenants getting fewer points and thus, lower benefits; or, 4) providing a reduced benefit to all subsidized housing clients, regardless of how they paid their energy costs. At least half of these states changed their policies for FY 1994 to provide these clients with full benefits; one changed its policy effective FY 1993. Section 927 applies only to subsidized housing tenants who pay their energy costs out-of-pocket, whether or not they receive total reimbursement for the energy costs from the Department of Housing and Urban Development or other federal agencies. It does not apply to subsidized housing tenants whose energy costs are included in their rent. Current Policies State policies based on FY 2007 and FY 2008 LIHEAP plans and manuals can be summarized as follows:
For more information on specific state policies, view a table of subsidized and rental household eligibility and benefits, or contact the Clearinghouse. How Subsidized Housing Programs Work and Interrelate with LIHEAP According to a 1991 report by the General Accounting Office (GAO), the Department of Housing and Urban Development's (HUD) public housing and section 8 certificate programs are the two largest federal rental assistance programs, providing housing to over 23 million low-income households. In the former, public housing authorities (PHAs) own and operate the housing, under section 8, PHAs enter into contracts with private landlords. Federal housing law requires that assisted households pay 30 percent of their adjusted monthly income for rent. While the law does not define "rent," HUD policy defines it to include both shelter costs and a reasonable amount for the utilities that would be consumed by an energy-conserving household of modest circumstances, the GAO report says. This 30-percent share is referred to as a household's rent burden. When a PHA or private owner pays for utilities directly, the assisted household pays the 30-percent amount. When a household pays a utility company directly, the household receives a reduction in rent (the utility allowance) to cover the expected costs of consuming a reasonable amount of utilities. In general, and although approaches vary widely, the allowances are estimates of costs associated with the type of utilities (e.g., gas, electricity, water and sewer) and their use (heating, cooking, water heating and general appliance use). The allowances may also take into account the number of bedrooms and structure type. For both public housing and section 8 certificates, HUD requires that PHAs review allowances at least annually and revise them as needed so they provide reasonable consumption amounts. However, the 1991 GAO study found that energy allowances provided to tenants in subsidized housing rarely cover the cost of utilities because of infrequent cost of living adjustments and regional differences in housing costs, and because PHAs rarely review allowances to see whether they accurately reflect energy costs. GAO also found that many subsidized housing tenants pay more than 30 percent of their income on shelter. GAO found that 61 percent of public housing households and 79 percent of section 8 households receive utility allowances. Thirty-three percent of those in public housing and 7 percent of those in section 8 paid 30 percent of their income for rent and utilities. "Some paid less, but most paid more than 30 percent, some substantially," according to GAO. About 22 percent of public housing and 23 percent of section 8 households had rent burdens that were less than 30 percent of their income, leading GAO to point out that in cases where allowances were substantially higher than utility expenses, the government was over-subsidizing the household. GAO suggested that Congress reduce the burden of high utility costs on the poor by modifying federal law so that subsidized housing tenants are not required to pay more than 30 percent of their income for rent and utilities. Under existing statutes, utility costs are not included in setting the rent threshold. Households that could end up paying more than 30 percent of their income on rent include those in the voucher programs under Section 8. The voucher program is similar to the certificate program in that the local housing authority determines a payment standard for rental units of varying sizes, using the same figures as those set for fair market rent. HUD then subsidizes the rental cost above 30 percent of the family's income and up to the payment standard for the unit. Voucher program utility allowances are determined much like certificate allowances. Unlike the certificate program, the voucher program allows clients to choose units with rents above the payment standard, but HUD does not provide assistance for excess rental costs above the payment standard. Some families may pay more than 30 percent of their income to rent, even with a rent subsidy and utility allowance. For example, if the local payment standard for a two-bedroom unit is $300/month but the actual rental cost of that unit is $500/month, the family must pay the $200 above the payment standard, in addition to 30 percent of their income. The housing subsidy only covers the difference between the 30 percent income contribution and the $300 payment standard. Thus, if 30 percent of the family's income is $200/month, they would pay a total of $400 or 60 percent of their income in rent, and receive a $100 rent subsidy. Massachusetts is one state whose LIHEAP program has addressed voucher subsidy programs separately from other subsidized housing programs. Massachusetts decided to specifically address renters with housing vouchers because it recognized that vouchers may result in subsidized renters paying substantially more than a fixed, low percentage of income for rent. Under the Massachusetts LIHEAP, voucher tenants whose rents are higher than the payment standard are eligible for full LIHEAP benefits according to their income level. LIHEAP will pay rent-in-heat tenants on the voucher program 30 percent of the excess rent above the payment standard. If voucher tenants' rent is less than or equal to the payment standard, they are still eligible for up to one-third of their LIHEAP benefit level by income. Heat-in-rent tenants whose rent does not exceed the payment standard do not receive LIHEAP benefits, as their heating costs have already been subsidized. The GAO results merely corroborate the problems with subsidized housing energy subsidies cited by those who favor LIHEAP benefits to subsidized housing recipients and those who oppose them. Copies of the report or relevant portions of it are available from the Clearinghouse. RELATED RESOURCES AVAILABLE FROM THE CLEARINGHOUSE: -- Assisted Housing: Utility Allowances Often Fall Short of Actual Utility Expenses (Vol 1 and Vol II), General Accounting Office, March 1991, GAO/RCED-91-40A and 40B) -- Copies of subsidized housing court decisions in Wisconsin, New York, Kentucky -- Copies of various state subsidized housing policies from state plans TO ORDER ANY OF THE ABOVE RESOURCES, CALL 1-406-494-8662 Page Last Updated: December 18, 2007 |
