McKinney Funding - Why an Increase is Really a Decrease

written by Kate Seif
June 28, 2012

Yesterday, the House voted on the fiscal year (FY) 2013 funding bill for the Department of Housing and Urban Development (HUD). The bill provides $2.05 billion for McKinney-Vento Homeless Assistance Grants – a $104 million increase over the FY 2012 funding level. In this fiscal environment, this may seem like good news, but in reality, it creates a shortfall because of the fund distribution process. What this basically means for this funding cycle is that the increase would be insufficient to maintain the level of housing and services provided in 2012, and for 2013, approximately 25,000 people would be homeless instead of housed.

To really understand the funding implications, and how the distribution process works at the federal level, we need to delve a little deeper into what this funding level means.

Unfortunately, because of accounting issues, the approximately $100 million increase would actually mean less money for homeless assistance programs to spend. While it may be a bit confusing, this blog should help clear the air a bit on why, in FY 2013, what seems like more is actually less. Essentially, Congress is providing HUD with funding for housing and services up to several years before they are actually provided, and then once that cycle expires, it will cost more for HUD to continue the same level of spending on housing and services going forward.  Thus, the proposed FY 2013 funding level won’t cover what is already in place.

How it works:

Some of HUD’s Continuum of Care (CoC) grants initially operate under multi-year contracts. These renewals typically comprise most of the funding provided by Congress to McKinney programs each year. The annual funding appropriation from Congress is like a deposit into HUD’s checking account, to be paid out to providers over a certain number of years. In these CoC programs, all the funding for a multi-year contract is deposited into HUD’s bank account, if you will, in the first year of the contract. Each year, HUD distributes funds to providers from that initial deposit for the duration of the contract, so Congress does not need to provide any additional appropriations. When the initial contract expires and funds have dried up, in order to keep paying for the same level of services and housing, new money has to be put in HUD’s checking account. Thus, Congress must increase HUD’s budget authority in the appropriations bill so that spending under the Continuum of Care grants may continue at the same level as in the previous year. You can learn more about all the nitty-gritty details of the appropriations process here.

Okay, here’s an example:

Suppose HUD awarded $350,000 to a provider in FY 2008 for rent subsidies for people experiencing homelessness. Typically, under the law in effect at that time, HUD would be required to award five years’ worth of rent subsidies (for a five-year contract). Under congressional accounting rules, the entire $350,000 would be set aside from the FY 2008 appropriation to last for five years. In the first year, HUD would write $70,000 worth of checks to landlords for those housed, and $280,000 would remain. In each of the remaining four years of the contract, HUD would provide another $70,000 to the landlords out of the remaining funds, but Congress would not need to appropriate any additional funds for the project.

But by FY 2013, the money is gone, and those people are still living in their apartments and need their rent paid. Therefore, in FY 2013, HUD will need an additional $70,000 from Congress in the FY 2013 appropriations bill in order to continue to pay the landlords. Thus, HUD will spend the same amount of money in FY 2013 as in FY 2012 ($70,000), but the amount appropriated by Congress will be greater than in FY 2012. All subsequent renewals, after the initial contract expires, would be done through one-year contracts. So, the amount appropriated by Congress and the amount spent by HUD would be the same in FY 2013 and all future years. The following chart summarizes how federal funding would be made available for this one project:

 

 

 

 

As a result, Congress could provide an increase in appropriations in FY 2013 (such as the House bill does – about a $100 million increase), while still having an end result that the number of people served and contracts supported see a cut in funding. There’s not enough of that $100 million increase to go around among all these programs already housing and assisting people. Under the House’s proposal, some existing programs just won’t get funded, or won’t be fully funded at the same level as they have been.

So, as I said earlier, this basically means the increase would be insufficient to maintain the level of housing and services provided in 2012. As a result, approximately 25,000 people would be homeless instead of housed.

For FY 2013, the Senate provided $2.145 billion for McKinney – enough for all renewals and $286 million for the Emergency Solutions Grant program, though it’s still not as much as the $2.231 billion requested by the President. To avoid what we have estimated as an approximately 5 percent across-the-board cut to CoC funding, Congress must provide a greater increase in McKinney funding than the House did.

Help us make sure that Congress knows that letting 25,000 people be homeless instead of housed would be unacceptable! Urge them to provide $2.231 – the amount requested by the President – for McKinney-Vento Homeless Assistance Grants. Act now!