To: Contra Costa County Housing Authority Board of Commissioners
From: Joseph Villarreal, Executive Director
Report Title: REPORT ON THE SHORTFALL FUNDING STATUS OF THE HOUSING CHOICE VOUCHER PROGRAM AND PROPOSED CUTS TO VOUCHER SUBSIDIES
Recommendation: Recommendation of Board Committee
RECOMMENDATIONS:
CONSIDER accepting a report on the shortfall funding status of the Housing Authority of the County of Contra Costa’s (HACCC) Housing Choice Voucher (HCV) program; and
APPROVE a reduction in HACCC’s annual Housing Assistance Payments (HAP) subsidy expenditures for the HCV program; and
APPROVE submission of a waiver request to HUD to apply payment standard decreases immediately in accordance with Notice PIH 2025-28 (as suggested by HUD).
BACKGROUND:
A shortfall in a Housing Choice Voucher (HCV) program means that a housing authority does not receive enough annual funding to continue housing everyone currently on their HCV program. There are many reasons a housing authority could face shortfall, but it is generally due to Congressional funding not keeping up with rent inflation (which has been historically high over recent years). As a result, an increasing number of housing authorities across the country have fallen into shortfall and HUD is struggling to keep everyone housed nationally.
Nationally, the HCV program received $38.4 billion in funding for 2026, with $400 million set aside to fund housing authorities in shortall, a number that is double what had last been set aside for this purpose. However, HUD is currently projecting that national shortfall will fall between $600-$800 million this year and perhaps as much as $1 billion in 2027. To compound matters, it is impossible for HUD to truly gauge the expected scale of shortfall by year’s end since not every housing authority is good at projecting their costs. Last year, HUD had housing authorities who did not realize they would be in shortfall for 2025 until December, including one that did not determine until the middle of the month that they needed $35 million in additional funding to prevent terminating families from the program.
HACCC staff have made changes to HACCC’s HCV operations that will drop the Agency’s projected shortfall by nearly $2 million this year. HUD expects HACCC to take further steps to reduce costs as a Group 3 agency. Among HUD’s required steps for Group 3 public housing authorities (PHAs), HACCC must “(r)eview payment standards within the basic range and assess whether payment standards should be reduced. If the PHA determines that payment standards should not be reduced, the PHA must propose significant, alternative cost savings measures for HUD to review. The PHA must then adopt significant, alternative cost savings measures.”
A payment standard represents the maximum monthly financial assistance that HACCC can pay toward an HCV family’s rent and utilities. PHAs can set payment standards within HUD’s basic range, which is between 90 percent to 110 percent of the applicable Fair Market Rent (FMR). Payments standards that are higher or lower than the basic range require HUD approval. Payment standards are used in the calculation of the housing assistance payment (HAP).
Most PHAs review payment standards annually when HUD publishes new FMRs (usually by October 1st). Generally, the FMR for an area represents the 40th percentile gross rent (shelter rent plus utilities) of privately owned, decent, and safe rental housing of a modest (non-luxury) nature paid by recent movers in a local housing market. HACCC’s FMRs are based on data from Alameda and Contra Costa counties. While they are used to derive our payment standards, FMRs do not have a direct effect on rents approved in HACCC’s HCV program. An owner’s requested rent will only be approved if it meets rent comparability tests based on existing private market rents currently being paid for similar units in the same geographic locale.
HUD’s recently published FMRs for Contra Costa have dropped between 2.52% to 3.98% depending on bedroom size. If HACCC continues to apply the same percent of the FMR it uses now to set payment standards (100% in East County, 110% in the remainder of Contra Costa except Pittsburg, which has its own HCV program), there will be an annual projected HAP savings of $3,899,398. This will also mean that families will lose between $54 and $259 in subsidy per month, depending on bedroom size and where they are located. We expect approximately 3,113 families to receive some level of increase in their rent payments under this plan. Of the families we project to be impacted, approximately 887 will be what we term “protected families”. A protected family is one with an elderly or disabled head-of-household, spouse or co-head of household whose household receives income only from fixed-income sources (Social Security, SSI/SSA, pension, general Assistance or CalWORKS). It will be hard, or even impossible, for these families to increase household income.
In PIH 2026-12, Revision 2 (attached), the 2026 HCV funding notice, HUD discussed how they would determine how much, if any, set-aside funding will be provided in special circumstances. This includes shortfall. In the Notice, HUD stated the following:
Upon determination that shortfall funds are not adequate to fund all shortfall need, HUD may prioritize or prorate an award to a PHA based on any or all of the following criteria:
• Availability of funds and estimated shortfall need
• Number of times PHA has been in shortfall
• Percentage shortfall need is of ABA, e.g., reducing an award for any shortfall amounts over certain percent of ABA
• Complete applications received prior to September 15, 2026
• PHA adoption of cost-increasing policies after enactment of the 2026 Act on February 3, 2026
• Failure to comply with any shortfall requirements, including requirements pertaining to unallowable new admissions
Since HACCC is in Category 3, we may be deprioritized if HUD runs short of funds. We also absorbed Emergency Housing Vouchers (EHV) after February 3, 2026. Because of these facts, it is hard to say how HUD will react to our proposed subsidy cuts. As extensive as they are, we will still have a $7,457,989 shortfall. It is possible HUD will ask us to cut deeper or that HUD will not have enough money to fully fund our program at the end of the year.
Attached are charts the impacts of the proposed cuts (this is labeled “No Change”) along with 12 other options we analyzed.
Finally, HUD strongly suggested that PHAs should ask for a waiver to apply payment standard decreases immediately in accordance with Notice PIH 2025-28. HACCC’s current policy takes a hold-harmless approach and does not apply decreases in payment standards until a new HAP contract is executed. This typically happens when the family moves. However, given the need to reduce the HAP sooner than later, staff are also asking the Board to approve submission of this waiver request to HUD.
FISCAL IMPACT:
The United States Department of Housing and Urban Development (HUD) is currently projecting a shortfall in 2026 voucher funding for HACCC’s HCV program in the amount of $11,357,387. This is down from the projected shortfall of $13,320,654 in July 2026. If HUD does not provide additional funding in the amount of $11,357,387 by December 2026, or if HACCC’s costs don’t drop dramatically, HACCC will not be able to pay the rent subsidy for 5,466 families.
CONSEQUENCE OF NEGATIVE ACTION:
We need to take an action, both because the FMRs have dropped and HACCC needs to satisfy HUD’s shortfall requirements. If the Board does not prefer the No Change Option, then it needs to approve another of the options presented here, or some other course of action that will provide us significant savings.