POLITICIANS who make a career out of beating up on the welfare program are missing the point: Most federal welfare is no longer in welfare checks.
It is in medical aid. It is in food stamps. And, more and more these days, it is in housing. The federal government, in other words, plays doctor, grocer, landlord to poor people - and these so-called "in-kind" services now dwarf cash payments to the needy.
Housing subsidies have, in fact, become America's fastest-growing welfare program. Five years ago they were consuming $2 billion annually. Now they cost $5 billion. A few years hence, based on commitments already made by Washington, the figure will reach $10 billion.
By 1984, according to the White House's Office of Management and Budget, housing welfare will cost nearly as much as food stamps - and more than Washington's Aid for Families with Dependent Children, the largest cash payment program.
One out of every 25 U.S. households is aided now by these little-known housing programs, 1 out of 10 black households, 1 out of 8 renters. Subsidized housing units have been rising at a rate of about 10 percent a year, and there are now more than 3 million of them.
How did this happen? What are the long-term implications?
Like other major government initiatives, the surge in housing welfare spans several administrations, both political parties, good times and bad. While the public was generally unaware of this shift, the housing experts in Congress and the executive branch have been arguing over the implications for more than two years, trying to get a handle on the soaring costs and the complexities of regulating homes for the poor.
In part, this has been a traditional debate over dollars. The Medicaid and food stamp programs snuck up on government policymakers; their costs were high before many people were fully aware they even existed. Medicaid in just 14 years has become the largest of all federal welfare programs. Food stamps are second-largest. Between them, they have transformed the national welfare system; less than half of all federal welfare is now paid in cash. Faced now with a third large in-kind program still in fledgling form, OMB has been understandably wary.
But in-kind programs are also more complex than traditional welfare programs; they involve more than just redistributing income. Thus in part the debate has also been over housing policy, and sometimes almost housing regulation.
There are two main kinds of federally subsidized housing today. The largest is still old-fashioned public housing, in which the government pays construction costs and owns the real estate; the tenants are required to pay only the operating costs (and not always all of those).
The newer and more active program is called Section 8. In this, the housing, old or new, stays privately owned. The government and the participating owner or developer agree on a rent for each unit each year; the tenant pays a fixed portion of his income toward that rent, and the government pays the rest.
On two occasions the House has quietly moved to cut the cost of this Section 8 program this year by making more use of cheaper housing and making some tenants pay a larger share of the cost.
In this year's housing authorization bill, the House voted to make some Section 8 tenants pay up to 30 percent of their incomes in rent, instead of the usual 25 percent. In the HUD appropriations bill, the House voted to change the housing mix provided under Section 8, to make less use of new housing and more of less expensive older units.
It is not clear if the Senate will go along with these changes. HUD is resisting them. The department says that it would be a mistake to reduce the Section 8 construction rate - that there is a serious shortage of the multi-family rental units that the poor need and that Section 8 provides. It also says it would be wrong to cut the budget by raising the rents of the poor.
HUD has proposed instead a series of regulatory retrenchments in hopes of satisfying the economizers. It has, for example, redefined "rent reasonableness" - the maximum rents it will pay for units of various sizes in various parts of the country. That is a measure of where these in-kind programs have taken the government: What began as a debate over budget deficits and welfare costs ends up in a discussion of rates of return on real estate.
HUD also makes this point in defense of the subsidized housing program: The $5 billion in housing aid it gives to the poor is only about a fourth of total federal housing aid. The other three-fourths is given out by the Treasury, through various forms of tax forgiveness, and goes mainly to the better-off.
The two main forms of tax forgiveness - homeowner tax deductions for mortgage interest and property taxes - will together cost almost $16 billion this year. And about 75 percent of that will go to households with incomes above $20,000 a year.
The effect of inflation
The basic decision to expand low-income housing programs was made in 1968, the last year of the Johnson administration. The housing act in that year of urban riots set a national construction goal of 6 million new or rehabiliated low-income units in 10 years - 600,000 a year.
That goal has never been met; in the Nixon administration it was all but renounced. Nixon imposed a moratorium on further federal housing commitments in 1973, then in 1974 pressed Congress into passing a bill aimed at reducing federal involvement in construction. Instead, the Nixon administration hoped to give poor people what amounted to housing allowances, then have them fend mainly for themselves through the private market.
But the housing programs were growing even in these Nixon-Ford years. Long-term, slow-to-mature commitments continued to be made; these have now accumulated and begun to show up as costs. And HUD now has again embraced the Johnsonian themes of construction and expansion.
But the Carter administration faces a problem the Johnson administration did not: inflation. Housing costs have risen faster than household income in recent years. Families at all income levels are paying a higher percentage of income for housing, and that is particularly true for the poor. In 1950, about a third of all U.S. renters paid more than 25 percent of their incomes in rent. By 1976, that was true for nearly half of all renters and for 60 percent of renting households with incomes under $10,000 a year.
Prices and incomes are such that private developers can no longer readily build housing the poor can afford. Inflation has simultaneously been increasing the need for subsidized housing and its cost - and adding pressure to hold down federal spending. The problem is how to apportion the burden.
The president's goal in all this has been, for obvious political reasons, to keep up the number of new units proposed in the budget each year but keep down the projected costs.
OMB has thus sought ways to cut per-unit costs.
One methods has been the time-honored one of fudging the figures by making optimistic assumptions. A recent report by the Congressional Budget Office warned Congress against this. It noted that the money Carter has asked for in each of the last several years has ended up buying fewer additional units than he said it would at budget time.
Carter says he has asked for enough money next year to add 300,000 units, for example. That is already less than he sought to add this year and less than housing advocates want (they persist in calling the increase he is seeking a cut, since it is a smaller increase than the year before). And now CBO says the budget may provide enough funds for only 266,000 additional units.
Moreover, "There is reason to believe that the amount of budget authority being reserved to fund new Section 8 subsidy commitments may not be adequate to cover actual long-term costs and that additional funds may be needed in the future to meet these obligations," according to the CBO report.
OMB has also argued internally for a shift in the mix of Section 8 housing, less construction and more use of existing units. The problem here is that HUD has no authority to shift this mixture on its own. Congress has decreed that the national mix reflect aggregate local needs for new and existing housing, as expressed in "housing assistance plans" that all participating local governments must file.
Some OMB experts say that local builders have undue influence in the preparation of these housing plans, that this is how the housing industry keeps the program tilted toward new construction. HUD experts say that the plans are fairly genuine reflections of recent history and current need. They note that construction declined during the 1973-75 recession and that the country is still making up that "loss," that household formation rates remain high and that vacancy rates are low.
For whatever reason, local governments have been calling for a higher and higher percentage of new construction in the last few years; under the local housing assistance plans, about 65 per cent of additional Section 8 units would be new next fiscal year. The House Appropriations Committee has voted to cut this to 60 per cent; the Senate's budget resolution assumed 50 per cent.
HUD has tried to defuse this issue by sending fresh instructions to local governments, reminding them that they always may - and if the local vacancy rate is high they "shall" - seek to make use of existing housing. Skipping the poorest
HUD says it expects the Section 8 program to serve a slightly higher income class on average in the future. Indeed, in its response to CBO's report on program costs, HUD said it will soon publish a regulation urging owners of newly build Section 8 units to choose their tenants so that average tenant income is around 40 percent of the national median. The current figure is 28 percent.
If average tenant income is higher, tenants will pay a larger share of total costs without any change in the percentage of income they must contribute. By the same token, government costs - which make up the difference between what each unit costs and each tenant can afford - will decline.
The problem with this is that the program will then, for cost reasons, be skipping over some of the poorest households in the country.
The average income of four-member households in newly build Section 8 units (not counting units reserved for the elderly) is a little over $6,000 now. And these tend to be the best-off families in subsidized housing; in older Section 8 units and public housing, the income averages are lower.
What will eventually become of the housing programs and all these proposals for change is not clear. All that is clear now are the pressures.
Sen. William Proxmire (D.-Wis.), chairman of the Senate Banking, Housing and Urban Affairs Committee and of the Appropriations subcommittee on housing, summed up these pressures in remarks on this year's pending housing authorization bill:
"The projected outlays for assisted housing under S. 1149 [the Senate bill] imply a 16.2 percent annual rate of increase through fiscal year 1984. At the same time, if we are to achieve our goals for bringing the federal budget into balance and reducing federal spending, total federal outlays cannot increase by more than 7 percent. Therefore, unless the housing assistance program is restructured or cut back, housing assistance payments will account for an increasingly greater fraction of the federal budget."
Then this liberal Democratic senator concluded: "It is simply not possible for the program to increase at past rates while the federal budget as a whole is constrained." CAPTION: Graph, Major Federal Welfare Expenditures, By Robin Jareaux - The Washington Post