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What Could Debt Limit Negotiations Mean for Housing and Community Development?

Published by Peter Lawrence on Friday, February 24, 2023 - 12:00AM

Housing advocates are concerned that upcoming negotiations on raising the debt limit could result in harmful cuts to housing programs. Even if Congress passes a clean debt limit bill–one without funding cuts or other unrelated provisions–related negotiations on federal spending has housing advocates worried housing programs could suffer as many call for action on the nation’s rising deficit. If the debt limit were hit and Congress failed to act, the negative ramifications would be felt most by those who depend on various safety net programs.

How Did We Get Here?

This isn’t the first time in recent history that raising the debt limit has been a task before Congress. The U.S. Department of the Treasury (Treasury) reports that since 1960, Congress has had to act 78 times–permanently raising, temporarily extending, or revising the definition of the debt limit–to avert a breach.

Affordable housing stakeholders remember when the country neared the debt limit in 2011 and the final negotiations that lead to the Budget Control Act (BCA), which implemented budget caps on discretionary spending from fiscal year (FY) 2013 to FY 2021.

In 2011, as is the case now, a divided Congress set up a budget fight during debt ceiling negotiations. The biggest difference is that in 2011, Republicans had a 49-seat advantage over Democrats–after gaining 63 seats in the 2010 election–providing them with more of a mandate to make policy changes than currently exists based on the slim margin Republicans have today.  

Discretionary spending covers funding for defense and non-defense activities, and while housing was not specifically targeted in 2011, the non-defense spending caps implemented by the BCA ultimately resulted in a decade of cuts to housing and homelessness spending programs.

As Congress decides which action to take when the country’s outstanding debt nears the statutory limit, the Treasury must begin employing extraordinary measures to continue to finance the government on a temporary basis. How long then existing funding would last once extraordinary measures are implemented is based on several factors such as tax receipts. Current estimates place the deadline to raise to debt limit between June and September, at which time the country will no longer be able to pay its outstanding debt and will face a “catastrophic default.”  

Sometimes Congress acts without much fanfare, but in a divided Congress, as is the case now, the negotiations become more fraught. One such fight in recent memory was during the presidency of Barack Obama, when the House tied the raising of the debt limit to cuts in future federal spending. This is very similar to the intentions of current House Republicans who want efforts to raise the debt limit to include addressing federal spending as the deficit is expected to reach $1.4 trillion.

Blog Graphic: Numerous Actions Taken Since 2011 Due to Growing Debt

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In 2011, the result of debt limit negotiations was the BCA, which allowed for up to a $2.4 trillion increase in the debt limit, based on certain conditions, and called for at least $1.2 trillion in deficit reduction. The Joint Committee on Deficit Reduction (also known as the Super Committee) was established by the BCA and tasked with enacting legislation that resulted in the $1.2 trillion in savings. If the deficit reduction goal was not met, budget caps would be implemented affecting both defense and non-defense spending. Deficit reduction requirements were not met and led to an automatic sequestration that went into effect in 2013 and was intended to last through FY 2021 that affected both discretionary and mandatory programs. As Congressional members generally shy away from cuts to defense spending, discretionary cuts usually disproportionately affect non-defense spending.  

Housing advocates, as well as those concerned about other activities that fall under non-defense spending, fear a similar deal being struck now.   

If Past is Prologue, Spending Cuts Could Exacerbate the Current Housing Crisis

Though no formal proposal has been put forth by House Republicans, several suggestions for addressing the federal debt have been made. With entitlement programs reportedly off the table, some Republican members have been quoted as being open to the idea of at least considering proposals to take back approved, but unspent COVID-19 funding. Another idea floated is holding FY 2024 spending to FY 2022 levels, or even as low as FY 2019 levels. Cutting spending to FY 2022 levels would mean an average 9% cut to discretionary program funding below current FY 2023 appropriations. The National Low Income Housing Coalition (NLIHC) estimates that capping spending at FY 2022 levels could mean a $130 billion cut in non-defense spending. Pledges to protect certain programs–such as Social Security and Medicare–and holding defense spending at the FY 2023 level could mean a 24% cut in non-defense programs.

Any cuts in non-defense spending could mean cuts to funding for housing and homelessness programs. Over FY 2013 to FY 2021, sequestration put in place as a result of the BCA led to a 5.2% budget cut for the U.S. Department of Housing and Urban Development (HUD) and other non-exempt mandatory programs. Though this is lower than the across the board 8.4% cut that had been feared for affected non-defense programs over that time, NLIHC found that even with the post BCA increases in HUD appropriations, the department received $29 billion less in funding from FY 2013 to FY 2023 than if the funding had been held to FY 2010 levels and just increased for inflation.

Blog Graphic: Recent Increases in HUD Funding Follow Nine Years of Decreases

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Since sequestration measures were implemented, a number of actions were taken to soften the blow of the austere budget cuts put in place by the BCA. For instance, 2016 appropriations legislation included budget increases for a number of programs. Still, funding for key housing programs suffered as FY 2022 funding was less than FY 2010 levels for a number of HUD programs.  

Blog Graphic: Changes in Funding for Select HUD Programs Over FY 2010-2022

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During sequestration, the effects of budget cuts were found to negatively affect efforts to address the country’s affordable housing crisis. A 2016 Bloomberg article found that cuts were deepest to public housing and HOME block grants but most deeply felt by households that relied on housing choice vouchers.

Blog Graphic: Sequestration Budget Cuts Caused Deep Housing Voucher Cuts

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In the years since the passage of BCA, the country’s housing crisis has only worsened. NLIHC research presented in their report, The Gap: A Shortage of Affordable Homes, found a 7 million affordable housing shortfall for extremely low-income renters. Further, in addition to supply issues, there is not enough funding to assist all who need support—a November 2022 Congressional Budget Office study reports that 13 million households that are eligible for housing support do not receive it.

Cuts for non-defense spending could mean that the programs designed to assist the most vulnerable would not be able to sustain the support provided to existing households, much less aid new households. The uneven recovery from the COVID-19 pandemic, the lowest-income households are still struggling to pay rent, along with higher-than-normal inflation rates and rents mean that budget caps could have even more profound effects now than they did under the BCA.

The Next Few Months will be Tense as House, Administration Negotiate

The summer deadline for action on the debt limit and House Republicans’ attempts to tie federal spending to raising the limit means the upcoming budget negotiations will be contentious. The federal government is currently funded through Sept. 30. President Biden will release his FY 2024 budget request March 9; though the president’s budget is just a “request” it does detail the administration’s priorities and likely present his contrasting ideas for the budget in preparation for the debt limit negotiations. Since his candidacy, President Biden has made clear that he wants to address the country’s housing crisis.

Being that the federal government is funded through the end of the 2023 fiscal year, Sept. 30, one possibility floated is a temporary suspension of the debt limit that allows Congress to put off finding a permanent solution until Sept. 30, which sets up a combined budget and debt limit fight. So far, President Biden has said he will not negotiate on the debt limit, and he will veto anything other than a clean debt limit bill.   

While all this is going on, there is little bandwidth left to address other important issues. In a new Congress, the reintroduction of legislation not previously addressed is something seen in the first few months of the session. As the 118th Congress got off a slow start, and the impending debt limit and budget showdowns, housing and community development stakeholders will have to fight to keep a spotlight on their issues, some of which are included in the Affordable Housing Credit Improvement Act (AHCIA) and the Neighborhood Homes Investment Act (NHIA). Novogradac will be watching negotiations in Congress and keeping readers updated on what this could mean for housing programs, the reintroduction of the AHCIA and NHIA, and advocacy efforts.

 

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