WASHINGTON -- The Clinton Administration may soon propose radical changes for HUD, including transforming the Federal Housing Administration into a private corporation and merging dozens of programs into a few big block grants, housing industry officials said yesterday.
Housing and Urban Development Secretary Henry Cisneros suggested the restructuring to President Clinton to stave off a plan under consideration at the White House to abolish HUD entirely and shift its functions to other bodies, the industry officials said. Cisneros gave them details of his proposals in private meetings earlier this week.
The idea of eliminating HUD had reportedly developed out of a desire to show the American public that Clinton can be as bold as the Republicans in reorganizing and downsizing the federal government.
Clinton is expected to reveal his plans for HUD in an Oval Office address tentatively scheduled for Thursday night, the officials said.
Currently, HUD administers a number of programs that are significant to state and local finance in general and the municipal bond market in particular. For example, the department controls the FHA, which insures billions of dollars in multifamily housing loans, many of which are backed by tax-exempt bond issues.
Also under HUD's jurisdiction is the HOME program, which requires the federal government to match contributions that state and local governments make to low-income housing projects. HUD permits general obligation bond issues and some private-activity bond issues to count as contributions that are eligible for federal matching funds.
Other programs under the department's aegis are the 20-year-old Community Development Block Grant program, which doles out community development money to states and localities, and the Section 8 rent subsidy program. In many cases the subsidies disbursed under Section 8 are used to pay debt service on bond-financed, insured housing loans.
Among the proposals Cisneros offered to the White House is one that would end HUD's oversight of the FHA and turn the insurance administration into a private corporation along the lines of government-sponsored enterprises like the Federal National Mortgage Association and Federal Home Loan Mortgage Corp.
In addition, Cisneros urged the consolidation of about 60 HUD programs, including HOME, CDBG, and Section 8, into two large block grants, according to industry officials.
One of the block grants would be labeled "community development," and would contain programs that spur housing production, such as HOME and CDBG. The funds would be administered by state and local governments, but the governments would still have to adhere to a set of federal guidelines to make sure the money was being used properly.
The second block grant, tentatively labeled "individual empowerment," would include such programs as the Section 8 rent subsidy program. Here too, the funding would be administered by state and local governments. Industry officials said there is also some talk of shifting this grant away from HUD and into the Department of Health and Human Services, which administers other aid to the poor, such as welfare and food stamps.
Those housing programs could ultimately become merged with the other aid programs, industry officials said. Administration officials and congressional Republicans have toyed with the idea of creating "universal vouchers" so that a low-income person, rather than being given several different forms of assistance, would receive one certificate designed to cover all his needs.
Cisneros is also said to be suggesting that HUD's public housing programs be controlled and their funding administered directly by local public housing authorities.
Although setting up block grants to fund most federal housing programs would in theory give more power to states and localities, industry officials said they are worried that eventually the proposals could lead to a gradual lessening of federal support for housing.
"Some of these consolidations may have merit, but they have to be looked at in terms of retaining a direct relationship for local governments" said Reggie Todd, the legislative director of the National Association of Counties, who said his worry is that "we may lose resources down the road."
John T. McEvoy, the executive director of the National Council of State Housing Agencies, said he was also concerned about the future level of funding.
"You would have to believe in Santa Claus to believe that what the President and Congress give you in the first year won't become less and won't pick up more strings," McEvoy said.
Even if Clinton does decide to accept Cisneros' proposals and retain HUD as a department, the idea of abolishing HUD is likely to resurface in Congress next year because incoming House Speaker Newt Gingrich endorsed it earlier this week, industry officials said.
"I would argue that you could abolish HUD tomorrow morning and improve life in most of America" because "HUD's reputation now is so bad," Gingrich said Monday in an interview with the Washington Post.
Another option reportedly under consideration at the White House would be for Clinton to propose "demoting" HUD, abolishing its cabinetlevel status and putting it on a par with agencies such as the Environmental Protection Agency.