Summary: The recent proposal to dismantle the Department of Housing and Urban Development (HUD)--S. 1145--reduces federal funding and makes basic changes to the federal role in housing and community development. If enacted, such a bill could have far-reaching effects on renters, communities, and would-be home buyers. Although the bill's voucher system to allow tenants to choose their residences could expand housing choices for renters in some areas, its phaseout of assistance for specific projects could reduce the supply of affordable housing in other areas. The bill's creation of a block grant for community development would give the states and localities more choice in spending federal funds, but the total federal funding for community development programs would be cut by about 40 percent. Some beneficiaries of federal programs, such as the homeless, might receive less assistance in an open competition for funds at the local level. Also, small cities would see a significant reduction in federal funding for their projects. Other provisions in the bill seek to reduce the government's risk in insuring loans and guaranteeing mortgage-backed securities; however, these same provisions would make purchasing a home more difficult, especially for low-income and first-time buyers. Both the states and federal agencies that would take over HUD's functions generally believe that they could assume additional responsibilities if they also received additional resources. HUD contends that transferring its functions to other agencies would break up the network it has developed to implement its programs, could harm the delivery of services to its clients, and would eliminate the focus on housing and community development that it has provided as a cabinet-level agency.
