Executive Summary

This study projects the impacts of welfare reform on tenant incomes and resulting rent revenues at eight public housing authorities (HAs) in four states. These HAs were chosen for their geographic and economic diversity as well as for contrasts in the welfare reform systems implemented by the four states, the major elements expected to influence the impacts of welfare reform. By 2002, virtually all housing authorities and their residents will be affected by welfare reform. The impacts will be generated by those residents who receive TANF benefits and who are required to seek employment according to the welfare reform programs enacted by the states. These residents are referred to here as "mandated public housing residents;" there are non-public housing TANF recipients also "mandated" under reform programs and they are clearly differentiated in this study.

Welfare reform impacts on public housing tenant incomes and HA rent revenues can be expected to vary considerably, depending in large part on: who and how many households are mandated, their potential for finding employment, their contributions to rent revenues and on the mitigating actions taken by the HAs, such as charging minimum rents. Changes in HA rent revenues can impact the federal budget, since the estimated need for operating subsidies is currently linked to such revenues under the public housing Performance Funding System (PFS).

Two housing authorities in Virginia are examined here in particular detail because they were the object of a broadly based data collection effort which included field visits. However, to provide a basis for comparison, as well as some geographic scope for estimating the impact of welfare reform, the study also introduces information on the six other HAs in three states, made possible through telephone conversations and file transfers. Because of the site visits, information on the support network is available for Norfolk and Richmond, which allows for a richer understanding of the potential impacts of welfare reform. Labor market information is available only at the metropolitan level for the Virginia, California and Texas study HAs, but it is provided at the neighborhood level for the three study HAs in Ohio, where a special contracted effort was undertaken. In the Ohio study sites, neighborhood-level information made it possible to consider how many metropolitan area jobs are actually available to inner-city public housing residents after accounting for spatial and transportation barriers and for competition from other entry-level job seekers.

In three of the four study States, time limits will not result in families losing assistance until 2000. In Texas, some families will lose assistance in 1999. To project potential public housing impacts of welfare reform, it is necessary to make assumptions about the success of mandated public housing residents finding jobs before their time limited benefits end. In this study, two principal assumptions provide an upper and lower bound. For the upper bound, or more optimistic estimate, it is assumed that mandated public housing residents will be as successful finding employment as the unassisted people they resemble. For the lower bound, or more conservative estimate, it is assumed that the success of mandated residents is a function of both how many jobs there will be and how many people will compete for them when TANF benefits end; success, therefore, is limited to what the labor market can absorb.

It is further assumed that the current numbers and demographic characteristics of mandated residents at the study HAs remain constant through the time when TANF benefits cease. This resulting static analysis does not give the total impact but rather a range of possible impacts at HAs similar to the study HA at the present time, dependent upon estimates of how much each mandated public housing resident might contribute to changes in rent revenue. In addition, the analysis does not necessarily reflect total future impacts at the study HAs to the extent that current mandated populations or local economies change over time.

Most housing authority residents are not TANF recipients and, therefore, do not receive benefits which are tied to an obligation to seek employment. This study found that mandated public housing residents represent roughly one-quarter of all public housing residents at 7 of the 8 housing authorities. In Los Angeles, nearly 2 of 5 public housing families were also TANF recipients. Though state plans differ, welfare reform will require all TANF recipients to participate in work related activities and places time limits on the receipt of cash assistance. At some point in the welfare reform timeframe, these households will have to replace their TANF benefits with income from wages (see Table ES-1).

For all eight housing authorities, it is estimated that there are typically three or four times more entry-level job seekers than entry-level jobs in the metropolitan labor markets. At the neighborhood level, mandated residents sometimes face even greater odds because they live in areas where not enough entry-level jobs are in reasonable commuting range, and because large numbers of other entry-level job seekers, including the unemployed, are also concentrated in these areas. Inadequate education and job experience, inadequate transportation to jobs, and difficulty paying for child care also represent substantial obstacles to work.

Mandated tenants contribute between nine and 30 percent of total rent revenues in the eight housing authorities. In some housing authorities, up to 60 percent of mandated households will have to find full-time employment in order for the HAs to maintain current tenant rent contributions. For other housing authorities, however, few, if any, of the affected households will have to find employment to maintain HA rent contributions. The latter is the result of a combination of low rents paid by mandated residents and the use of minimum rents by HAs. Using the more conservative estimate, between less than 10 to about 60 percent of housing authority residents are actually estimated to find an entry-level job (see Table ES-1).

Depending upon which assumption is adopted, the eight housing authorities could either find themselves collectively a little over $5 million ahead or almost $4 million behind their current rent revenue position, if the numbers of mandated residents and their demographic distribution remain at their current levels. Annual revenues from mandated residents at the eight HAs amount to more than $14 million annually. Hence, using conservative estimates of work participation, these eight housing authorities would experience a decrease amounting to about 27 percent of their current rent receipts from mandated households (see Table ES-2).

At four of the HAs in the study, the increase in work participation as a result of welfare reform appears likely under the more conservative assumption to produce increases in annual tenant rent revenues of between $350,000 and $800,000 -- or increases of between 30 and 98 percent over current rent revenues at these housing authorities. At the other four HAs, decreases in rent revenues would likely occur, with estimates ranging from about $340,000 at the low end to more than $4 million at the high end. These represent decreases of between 15 and 60 percent over current rent revenues for mandated residents at these housing authorities.

Under current law, HAs are allowed to charge tenants a minimum rent of up to $50, regardless of what proportion of tenant income this represents. Charging minimum rents mitigates some of the rent revenue loss from mandated tenants unable to replace their assistance income. However, families who reach time limits and suffer substantial declines in income may have great difficulty in continuing to pay this minimum rent.

For illustrative purposes, this study considers a "worst case" scenario. In this unlikely event, all non-working mandated TANF participants would fail to get jobs. Without minimum rents in this worst case, annual rent revenues decrease by between $405 to $1,640 per mandated tenant at the study HAs. The minimum rent requirement replaces about $250 of this drop in rent revenue at the six housing authorities which have chosen a $25 monthly minimum rent. For the two HAs choosing $50 minimum rents, about $550 is saved per mandated tenant. Although charging higher minimum rents clearly can reduce an HA's loss of rent revenue, there is a major tradeoff to consider. As already noted, there will be some number of residents who find it difficult or impossible to pay higher minimum rents if they are unsuccessful in finding jobs to replace lost welfare assistance.

Despite local efforts that help compensate for some of the obstacles faced by public housing residents affected by welfare reform, the cash income of the majority of TANF participants is likely to be eliminated according to the more conservative estimates of work participation. These are households who are mandated to find jobs, are projected to be unsuccessful and will lose their income source when time limits are reached. At the same time, those TANF recipients who do find jobs are projected to double their current income levels, based upon the assumption that mandated residents will earn the same wage as current, non-mandated, working residents of public housing. As a result, greater income disparities among public housing tenants are expected in the wake of welfare reform.

This study has attempted to project the financial impacts of welfare reform on a sample of diverse public housing authorities. It finds large variation in the expected impacts on housing authority revenues, due in part to the variation of the proportion of HA residents who are affected and by variations in local labor market conditions. It is difficult to project these findings to the full 1.3 million unit public housing program because of the tremendous variations in state welfare policies, on local labor market conditions and on public housing authority tenant selection policies.