Senate Bill Restores Some Public Housing Funds, but Still Makes Damaging Cuts

September 23, 2011 at 4:51 pm

As I have written, a House subcommittee this month passed deep cuts to public housing that would expose low-income residents to deteriorating living conditions and raise federal costs in the long run by putting off energy efficiency improvements and other cost-effective investments.  The people who would be harmed are some of the nation’s most vulnerable. Most public housing residents have incomes below the poverty line, and close to two-thirds of public housing units house someone who is elderly or has a disability.

Fortunately, the Senate Appropriations Committee has since passed legislation that would ameliorate the worst of these consequences by restoring $560 million of the $1.4 billion the House bill cut.  It also includes important policy improvements that would let agencies use reserves accumulated by managing public housing efficiently to renovate developments, and test a HUD proposal — the Rental Assistance Demonstration (RAD) — to switch some developments to more reliable, sustainable subsidies.   As we’ve written, RAD (previously called Transforming Rental Assistance, or TRA), is an important innovation that would make it easier for local agencies to leverage private investment to rehabilitate public housing.  (We have some concerns about the specifics of the Senate bill’s RAD provision, which we’ll explain in a future post.)

But the Senate bill still deeply underfunds public housing.  Its $1.88 billion in public housing capital funding is $165 million below last year’s level and would not cover the annual increase in the renovation and repairs needed in developments.  And the bill only provides 80 percent of the operating subsidies for which local housing agencies are expected to be eligible in 2012.  This level of funding will ultimately lead to crumbling buildings, unsafe conditions for residents, and higher federal costs down the road.

This year’s Budget Control Act requires an overall cut of about 5 percent in fiscal 2012 non-security discretionary funding.  But appropriators could allocate it in a way that reflects the principle (laid out by the Bowles-Simpson fiscal commission and other groups) that the burden of deficit reduction should not fall on vulnerable low-income people.  The Senate bill’s 12 percent cut to public housing — though far less harsh than the House bill’s 20 percent cut  — does not meet this standard and instead puts a disproportionate burden on the people who rely on public housing for their homes.

Deep Poverty on the Rise

September 22, 2011 at 4:01 pm

Deep poverty — that is, the share of the population with incomes below half the poverty line — rose by a statistically significant amount in 40 states (including the District of Columbia) from 2007 to 2010 and fell in none, Census Bureau data released today show.

Deep Poverty Rose in 40 States Between 2007 and 2010

Half of the poverty line corresponds to an income of $5,570 for an individual and $11,157 for a family of four.

The number of people in deep poverty rose to 20.4 million in 2010, up 4 million (25 percent) since 2007.  The national poverty data that Census released last week, based on a different survey (see our analysis) showed that the deep poverty rate hit a record 6.7 percent in 2010, with data going back to 1975.

The states with the highest deep poverty rates in 2010 were Mississippi and New Mexico, at 9.7 percent and 8.7 percent, respectively.  (The District of Columbia, which — unlike a state — consists entirely of a central city, had a deep poverty rate of 10.7 percent.)  The largest increase in deep poverty since the start of the recession occurred in Nevada, where the rate rose from 4.6 percent in 2007 to 7.0 percent in 2010 — an increase of more than half.

Studies have found that deep poverty has a particularly strong negative effect on the education and development of young children.  Even relatively small changes in incomes among low-income young children have been found to trigger significant changes in school achievement.

The new deep poverty figures, based on the Census Bureau’s official poverty definition, are for pre-tax cash income.  They don’t include the value of tax credits or non-cash benefits such as SNAP (food stamps), which have increased in value since 1975.  Alternative poverty data that Census will release next month will account for these benefits, as well as work expenses; we expect them to show a substantially smaller increase in deep poverty during the downturn, thanks in large measure to SNAP’s effective response to the increase in need.

But even if one accounts for tax credits and non-cash benefits, economists have found an increase in deep poverty over the last two decades, as we have noted.  A major reason, they find, is that public safety-net expenditures have shifted away from those with the lowest incomes over the past two decades.  For example, average safety-net benefits for out-of-work low-income families fell by 41 percent in inflation-adjusted terms between 1984 and 2004.

Deep Poverty Rose in 40 States Between 2007 and 2010

President’s Budget Plan Would, Indeed, Stabilize the Debt

September 21, 2011 at 7:15 pm

We’ve noted that the budget plan President Obama released on Monday would produce a substantial accomplishment:  stabilizing the federal debt as a share of the economy in the second half of this decade.  We were surprised, therefore, to see Maya MacGuineas of the Committee for a Responsible Federal Budget quoted in the Washington Post (a quote that Thomas L. Friedman cited in his New York Times column) as stating that “They don’t even stabilize the debt.”

Her claim seems to hinge on the fact that under one set of assumptions, there is a tiny uptick in the debt-to-GDP ratio between 2019 to 2021.  Yet those same assumptions show that the ratio would be the same in 2021 as in 2017 — and much lower in both years than in 2013.  It is hard to see how a fair observer could conclude that the debt would not be stabilized.

Every major budget commission of recent years has concluded that arresting the rise in the debt as a share of the economy, and then keeping it stable, is the core fiscal policy goal for the decade ahead.  The Office of Management and Budget (OMB) estimates that under the President’s plan, debt would hit 76.9 percent of GDP in 2013 but then decline to 73 percent of GDP in 2021.  In the second half of the decade — 2017 through 2021 — the debt-to-GDP ratio would be stable, declining slightly from 74.8 percent of GDP to 74.2 percent, 73.8 percent, 73.4 percent, and 73.0 percent.

President's Budget Proposal Stabilizes Debt-to-GDP Ratio
OMB also provided estimates of the debt-to-GDP ratio under its plan using Congressional Budget Office assumptions, and the results are similar.  Under CBO assumptions, the debt-to-GDP ratio would hit 77.5 percent of GDP in 2013 and then decline to 74 percent in 2021.  From 2017 through 2021 the ratio would essentially be flat: 74.0 percent, 73.6 percent, 73.6 percent, 73.7 percent, and 74.0 percent (see chart).

To be sure, without further policy changes — particularly changes that will slow the growth in health care costs throughout the U.S. health care system — the debt-to-GDP ratio would start to grow again in years and decades after 2021, and further action would be needed.  But stabilizing the debt-to-GDP ratio through the end of this decade would be a very large accomplishment.  And under either the OMB or CBO assumptions, it seems clear that the President’s plan would meet that goal, effectively stabilizing the debt-to-GDP ratio in 2017 through 2021.

To understand Ms. MacGuineas’ claim that the plan would not stabilize the debt, we looked at the analysis of the plan issued by the Committee for a Responsible Federal Budget, which she heads.  It ignores the estimates under OMB assumptions and says, “Measured against CBO assumptions, the President’s submission would nearly, but not quite, stabilize the debt as a share of the economy.”  It bases this claim on the fact that these estimates show the debt ticking up estimates show debt rising from 73.6 percent of GDP in 2019 to 74.0 percent in 2021.

For starters, one wouldn’t know from MacGuineas’ highly critical quote that her own organization has concluded that the President’s plan “would nearly, but not quite, stabilize the debt.”

More important, it is a stretch to suggest that the very slight increase in the debt-to-GDP ratio from 2019 to 2021 under CBO’s assumptions signifies in any meaningful sense that the President’s plan wouldn’t stabilize the debt through 2021.  Anyone who has ever done multi-year budget projections knows that changes of a few tenths of a percentage point in the debt-to-GDP ratio projected from 2017 through 2021 are not meaningful — the range of uncertainty in budget projections five to ten years out vastly exceeds these small variations.

In any case, no economist would say that a slight reduction in the debt-to-GDP ratio one year followed by a slight increase of the same magnitude over the next couple of years represents an unsustainable budget.

Getting the debt-to-GDP ratio down to 74 percent in 2017 and having it fluctuate slightly between 73.6 percent and 74.0 percent over the second half of the decade (as would occur under the CBO assumptions) clearly qualifies as stabilizing the debt.  And under the OMB assumptions, the debt continues to edge down as a share of GDP over this period.

There are aspects of the President’s plan that budget analysts can reasonably criticize.  But it isn’t reasonable to use tiny variations in the debt projections for the 2019-2021 period to attack the plan for not stabilizing the debt, especially when the five-year path from 2017- 2021 is essentially flat.

Doing so may make a great soundbite, but it doesn’t constitute sound fiscal analysis.

Congress Shouldn’t Delay Action on Housing Voucher Reform

September 21, 2011 at 4:35 pm

CBPP, with a broad coalition of 45 national organizations and over 750 groups in all 50 states, today urged the leadership of the Senate Banking Committee to take swift action on legislation to reform the “Section 8” Housing Choice Voucher program, the largest federal low-income housing assistance program.

More than a decade has passed since Congress last updated the rental assistance programs.  The House Financial Services subcommittee held a hearing in June on a draft of the Section 8 Savings Act.  The Senate Banking Committee has yet to act on a similar bill.

The state and local housing agencies that administer the voucher program need the savings and efficiencies that this bill would create as soon as possible.  The bill would help agencies stretch limited funds and minimize the risk of harsh cuts in assistance to needy families.

House and Senate stakeholders reached broad agreement on voucher reform legislation last December that would:

  • save more than $700 million over the next five years;
  • sharply reduce administrative burdens for state and local housing agencies and private owners;
  • establish a stable, efficient voucher funding system that would allow agencies to help more needy families with the funds they receive, control program costs, and reduce the risk that agencies will be forced to cut assistance in response to funding shortfalls;
  • simplify rules for setting tenant rent payments in the Section 8 and public housing programs; and
  • help develop and preserve affordable housing through broader use of “project-based” vouchers (which, unlike more widely used “tenant-based” vouchers, can be tied to a particular housing development).

The effort to enact these common-sense reforms began under the Republican-led House in 2006 and is now supported by the Democratic President.  A similar bill passed the House with a large, bipartisan majority in 2007.  A few of these changes are in the Senate version of the 2012 appropriations bill for the Department of Housing and Urban Development released today, which is a positive step, but action by the Senate Banking Committee is still needed without further delay.

Capping War Costs Would Lock in Real Savings, Prevent Future Mischief

September 21, 2011 at 1:31 pm

The recent debt-ceiling deal limited the Pentagon’s non-war funding — but not its funding for the wars in Iraq and Afghanistan.  The President has now proposed to cap funding for the wars as well, and he counts $1 trillion in savings over ten years from doing so as part of his $4 trillion in total proposed budget savings.  Some maintain that the $1 trillion in war savings are “phony” or a “gimmick.” We ourselves previously suggested that the savings should be reflected in the budget “baseline” rather than counted as part of the total savings a deficit-reduction plan achieves.  Nevertheless, the President’s proposal itself is sound.

President Obama's Proposed Caps Would Substantially Cut War FundingLet’s take a closer look.

For starters, it’s worth noting that, in his controversial budget plan last spring, House Budget Committee Chairman Paul Ryan claimed as deficit reduction the very same $1 trillion in war savings and cited an estimate by the Congressional Budget Office (CBO) to back him up.  CBO says that the proposed cap on war costs produces savings of this size, relative to its official budget baseline.

To be sure, the plan to substantially reduce war expenditures does not represent a new Obama policy.  That’s why some argue that shrinking war costs should be built into the spending “baseline” instead of counted as savings from the baseline.

Rather than debate whether such savings should be built into the baseline, we should keep the following important points about capping war costs in mind:

  • Arguing about baselines is far less important than agreeing on policies to achieve the goal of stabilizing the debt as a share of the economy — a goal that the President’s proposal appears to achieve by 2014.  Whether the savings from limiting war funding are built into the baseline or counted as deficit reduction from a baseline that does not include them makes no difference to the bottom line — the spending, deficits, and debt resulting from the plan are the same in either case.  Whether one achieves, say, $4 trillion in savings from the official CBO baseline or $3 trillion in savings from a baseline that already assumes these savings and hence shows lower deficits, the end result is identical.  Moreover, the proposed cap on war spending will help to lock in planned war savings and increase prospects that those savings will materialize.
  • War spending is now lower than in 2008, but the proposed cap would reduce it further, as the graph below shows.  Spending substantially less than in the past is a spending reduction, even if not a new policy.
  • Locking in the war savings now, as the President proposes, prevents a later congressional proposal to enact $1 trillion in new tax cuts or new spending increases and “pay for” them by capping war costs, validated by a CBO cost estimate.  Better to dedicate the war savings to deficit reduction now, as the President proposes, even if you don’t consider them new savings.  His proposal thus prevents a future budget gimmick that would worsen our fiscal picture.
  • The President’s proposal advances the goal of fiscal responsibility in another important respect, as well.  As long as war costs remain uncapped, the Pentagon can classify various ongoing expenditures as “war costs” — and thereby increase its budget by more than the caps on “security” funding enacted in last month’s Budget Control Act would otherwise allow.  It is widely thought that the Pentagon did just that during the Bush years, when Congress did not look closely at “emergency” defense funding.  And National Journal Daily reported on September 20 that “Senate appropriators moved nearly $10 billion — more than a third of the cuts mandated by the Budget Control Act approved by Congress in August — from the Pentagon’s base budget to the separate accounts that pay for operations in Iraq and Afghanistan.”  Capping war costs now would help close this loophole; if it’s not done, Congress could well use the loophole to further shrink the savings that the Budget Control Act is supposed to produce.  Here, as well, the President’s proposal would forestall a gimmick that could otherwise be employed to make the fiscal picture worse.

The bottom line is that this is a sound proposal that advances the cause of fiscal responsibility and helps prevent future budget gimmicks that would set us backward.  That is far more important than a fruitless debate over which budget baseline to use and whether to “count” the reduced war expenditures as savings — especially since the President’s plan appears to reach the goal of stabilizing the debt regardless of which baseline one uses and whether one counts these as savings.