May 18, 2016 | Issue Brief on Appropriations
The Senate will soon consider the Transportation, Housing and Urban Development (THUD) appropriations bill. The THUD bill provides funding for the Departments of Transportation and Housing and Urban Development.
The 2017 bill provides a total of $56.5 billion in discretionary budget authority. This represents an $827 million decrease below the current funding level and $2.9 billion below the President’s 2017 budget request. This is only half the story. When other budget resources that are not subject to the discretionary spending caps are taken into account, the total budget authority doubles to nearly $114 billion.
The THUD bill provides funding for many wasteful, inefficient, and duplicative programs, and it fails to address unsustainable spending on highway programs. This Issue Brief identifies programs that should be eliminated, places where spending cuts can be made, and other ways in which the THUD bill can be improved.
THUD follows the fiscally irresponsible lead of the Fixing America’s Surface Transportation (FAST) Act, the most recent surface transportation reauthorization, passed in December 2015. The five-year FAST Act increased chronic deficit spending out of the Highway Trust Fund (HTF). The HTF is supposed to fund federal highway and transit projects with revenues from gas taxes and other related fees. Instead, the FAST Act transferred $70 billion to the HTF to paper over yet another revenue shortfall, “paid for” with unrelated provisions. This bailout came on top of $70 billion in previous bailouts, bringing the total transfers into the trust fund to $140 billion since 2008.
The higher spending levels in the FAST Act put the trust fund on a course to spend $188 billion more than will take in over the next 10 years. This cash infusion will go in part to maintaining wasteful spending on mass transit and other local projects that should not be funded by the federal government in the first place. Because the authorization increased spending without pursuing any reforms to improve the solvency of the HTF, it sets the trust fund up to require an even larger bailout after it is projected to begin incurring shortfalls again in 2021.
Despite the bleak fiscal outlook for the Highway Trust Fund, the THUD bill blindly follows the FAST Act’s recommendation and increases spending out of the trust fund. The bill allows for a total of roughly $54 billion in spending for 2017, divided between $44 billion out of the Highway Account and $9.7 billion out of the Mass Transit Account. The Congressional Budget Office projects highway trust fund revenues to total only $42 billion for 2017, which would result in a $12 billion deficit.
Although the FAST Act provides contract authority that enables deficits through 2020, Congress should be proactive this year in addressing the chronic spending problem plaguing the trust fund. It should leverage every legislative opportunity to end the irresponsible and unsustainable practice of trust-fund bailouts.
The THUD bill is rife with programs that are wasteful or that fund projects outside the federal government’s responsibility. The following programs should be eliminated from the Department of Transportation:
The bill includes a total of $39.2 billion for the Department of Housing and Urban Development (HUD). This amount represents an increase of $891 million over the 2016 level and $446 million less than the figure the Administration requested. This total is somewhat misleading, however, because the Federal Housing Administration (FHA) is part of HUD, and the bill stipulates that the FHA can guarantee up to $400 billion in single family home loans. Congress should eliminate the following HUD programs:
The Federal Housing Administration. The Federal Housing Administration’s (FHA) main function is to provide lenders with mortgage insurance. The FHA charges fees to provide lenders with full loan-loss coverage when a borrower defaults on a loan. The FHA has a history of not charging high enough fees to cover all of its losses, and taxpayers are liable for the difference. Furthermore, the FHA’s operation crowds private firms out of the market because they cannot easily compete with underpriced government insurance. The FHA has consistently had trouble meeting safety and soundness guidelines, has undermined the stability of the housing market, and in recent years has needed several billion dollars to cover its losses. In return for the substantial costs to taxpayers, the FHA’s mortgage insurance programs have had minimal impact on homeownership rates.
History suggests that additional reforms to the various FHA insurance programs will, at best, merely provide temporary financial improvements to the agency, without appreciable benefits to the housing market. Congress should therefore eliminate the FHA and get the federal government out of the home financing business.
Financial Responsibility for Subsidized Housing. The bill provides $10.9 billion for project-based rental assistance and $20.4 billion for tenant-based rental programs for FY 2016. The spending levels are about $1.1 billion more than current funding. The Department of Housing and Urban Development (HUD) provides rental assistance to low-income individuals in various ways, including both project-based and tenant-based programs. While project-based vouchers provide subsidies to housing project owners, tenant-based vouchers provide subsidies to private landlords. The Housing Choice Vouchers program, commonly referred to as Section 8 vouchers, is the main tenant-based subsidy. HUD distributes nearly twice as much in Section 8 vouchers compared to project-based rental assistance.
More than $18.3 billion of this latter amount is budgeted for renewals of Section 8 vouchers. In general, Section 8 vouchers are limited to families with incomes at or less than 50 percent to (in some cases) 80 percent of the median income for their county or metropolitan areas. Recipients pay approximately 30 percent of their income toward rent, and the government-provided voucher pays the difference between that figure and the gross rent to a private landlord. HUD’s own research has shown that, overall, Section 8 vouchers have had no beneficial impact on self-sufficiency and welfare dependency. This finding is not surprising given that no time limits are associated with the voucher program, thus lowering families’ incentive to stop relying on the subsidies.
Section 8 vouchers are just one of numerous programs operated by HUD that provide subsidized housing assistance to low-income families. Overall, the cost of subsidized housing assistance programs came to roughly $53 billion in FY 2015. Nearly all of these dollars come from the federal taxpayer. Housing assistance programs are just one portion of a $1 trillion means-tested welfare system that provides cash, food, housing, medical care, and social services to poor and low-income Americans. Over 10 years, financial responsibility for all subsidized housing programs should be gradually returned to the states. This would promote greater efficiency in subsidized housing assistance, as states have greater incentive to spend wisely if the money is coming out of their own coffers.
The House Transportation, Housing and Urban Development appropriations bill continues to provide billions of dollars in funds to wasteful and inefficient programs. The bill also provides a tremendous amount of uncapped budgetary resources to a Highway Trust Fund that is ultimately unsustainable in its current form. Until these long-term solvency issues are solved, appropriators should take a careful approach in the amount of funding that they provide. If they fail to do so, it is only a matter of time before another bailout will be required. There are numerous other opportunities to save money within this bill. A significant portion of the funding in HUD could be devolved to states or eliminated outright. When it comes to cutting government waste and reducing spending, the THUD appropriations bill is a great place to start.—Justin Bogie is Senior Policy Analyst in the Thomas A. Roe Institute for Economic Policy Studies, of the Institute for Economic Freedom and Opportunity, at The Heritage Foundation. Norbert J. Michel, PhD, is a Research Fellow in Financial Regulations in the Roe Institute. Michael Sargent is a Research Associate in the Roe Institute.
 Many of the recommendations in this paper can be found in The Heritage Foundation, “A Blueprint for Balance: A Federal Budget for 2017,” February, 2016, http://www.heritage.org/research/reports/2016/02/a-blueprint-for-balance-a-federal-budget-for-2017.
 See Michael Sargent, “Going Nowhere FAST: Highway Bill Exacerbates Major Transportation Funding Problems,” Heritage Foundation Issue Brief No. 4494, December 3, 2015, http://www.heritage.org/research/reports/2015/12/going-nowhere-fast-highway-bill-exacerbates-major-transportation-funding-problems.
 Congressional Budget Office, “Projections of Highway Trust Fund Accounts—CBO’s March 2016 Baseline,” March, 2016, https://www.cbo.gov/sites/default/files/51300-2016-03-HighwayTrustFund.pdf (accessed May 16, 2016).
 See Dorothy Robyn, “Alternative Governance Models for the Air Traffic Control System: A User Cooperative Versus a Government Corporation,” Brookings Institution, April 6, 2015, http://www.brookings.edu/blogs/fixgov/posts/2015/04/06-faa-user-cooperative-government-corporation-robyn (accessed May 16, 2016), and Robert W. Poole, Jr., “The Urgent Need to Reform the FAA’s Air Traffic Control System,” Heritage Foundation Backgrounder No. 2007, February 20, 2007, http://www.heritage.org/research/reports/2007/02/the-urgent-need-to-reform-the-faas-air-traffic-control-system.
 Transportation and Housing and Urban Development, and Related Agencies Appropriations Bill, 2017, S. Rep. 114–223, 114th Cong., 2nd Sess., April 21, 2016, http://www.appropriations.senate.gov/imo/media/doc/FY2017%20Transportation,%20Housing%20and%20Urban%20Development%20Appropriations%20Bill%20Report%20114-243.pdf (accessed May 16, 2016).
 See John Ligon and Norbert J. Michel, “The Federal Housing Administration: What Record of Success?” Heritage Foundation Backgrounder No. 3006, May 11, 2015, http://www.heritage.org/research/reports/2015/05/the-federal-housing-administration-what-record-of-success (accessed May 12, 2016).
 See Ted DeHaven, “Community Development,” Downsizing The Federal Government, The Cato Institute, 2009, http://www.downsizinggovernment.org/hud/community-development#_edn6 (accessed May 12, 2016).
 CDBGs were authorized under Title I of the Housing and Community Development Act of 1974 (P.L. 93–393), and the HOME program was authorized by the Cranston-Gonzalez National Affordable Housing Act of 1990 (P.L. 101–625). See Eileen Norcross, “Community Development Block Grant: The Case for Reform,” testimony before the Subcommittee on Federal Financial Management, Government Information, and International Security, Committee on Homeland Security and Government Affairs, U.S. Senate, June 29, 2006, http://mercatus.org/publication/community-development-block-grant-case-reform (accessed May 16, 2016).
 See Katherine Bradley and Robert Rector, “Confronting the Unsustainable Growth of Welfare Entitlements: Principles of Reform and the Next Steps,” Heritage Foundation Backgrounder No. 2427, June 24, 2010, http://www.heritage.org/research/reports/2010/06/confronting-the-unsustainable-growth-of-welfare-entitlements-principles-of-reform-and-the-next-steps.
 David B. Muhlhausen, Do Federal Social Programs Work? (Santa Barbara, CA: Praeger, 2013), pp. 190–204. Furthermore, Section 8 vouchers effectively serve as a price floor, thus distorting rental (and sales) markets and raising prices, especially for those who do not receive vouchers.
 Heritage calculations based on data from the U.S. Office of Management and Budget, Budget of the United States Government, Fiscal Year 2017: Appendix, https://www.whitehouse.gov/omb/budget/Appendix (accessed May 16, 2016).