A Little Known HUD Program Could Help Lift Renters Out of Poverty

Too often, particularly when it comes to federal programs to help lift up low-income families, the national dialogue focuses more on programs that don’t work and not enough on those that do, but eligible recipients may not know exist. A perfect example is HUD’s Family Self-Sufficiency Program (FSS), which helps families in subsidized housing build equity with income that otherwise might have to go exclusively to increased rent. Compass Working Capital is a leader in efforts to make the FSS better known and easier to use, a topic Compass CEO Markita Morris-Louis wrote about recently in a post for the Brookings Institution. Morris-Louis discussed how the FSS could be more widely used recently with Spotlight; the transcript of that conversation has been lightly edited for length and clarity.

Why don’t we start with some general background about Compass?

Compass was founded about 17 years ago and our mission, which we recently refreshed, is to end asset poverty. We’re working to end asset poverty for families with low incomes and to narrow the racial and gender wealth divides. So, our work is really partnering with families with low incomes to help them build assets as a pathway out of poverty. We have a particular focus and interest in working with Black and/or Latinx women-led households. And to achieve our mission, we operate financial savings programs and financial coaching programs. We deliver training and technical assistance to other practitioners, and we shape policy solutions that dismantle barriers to asset building.

And that’s nationwide, correct?

Yes, we’re a national nonprofit headquartered in Boston and Philadelphia.

The recent piece that you wrote centers specifically on folks that are in subsidized housing. Before we get to the solution, I wanted you to talk a little bit about the problem. What are some of the barriers that those families are facing in terms of accumulating assets and building equity?

Great question. The big problem is that our nation’s anti-poverty system often discourages families from building assets and often penalizes them when they do. And there’s so much data and research to support the idea that assets actually help families move out of poverty. Assets are a greater predictor of your ability to weather financial calamity or financial shock. They actually tell a better story about folks who are experiencing financial challenge, meaning people who don’t have sufficient savings to support themselves through a crisis. Our anti-poverty apparatus focuses primarily, if not exclusively, on income and we think assets have to be a part of the conversation to really move the needle on families who are experiencing poverty.

I’ll use Philadelphia as an example.  Philadelphia has the unenviable distinction of being the poorest big city in the country. Our poverty rate has hovered around 20 to 25% for the last 15 years. But that’s income poverty. When you look at asset poverty, that number is closer to 35% and it’s been as high as 43%. Asset poverty is basically not having three months of savings to live at the federal poverty level if you experience an interruption of income.

For a household of three, which is the typical household size we serve, that number right now is $5,757. The problem is that we see many families with low incomes who do not have access to that kind of savings, are often disincentivized or discouraged from even entering the social safety net with those savings or have difficulty building that level of savings while they’re part of the social safety net. And when those opportunities are made available, oftentimes there’s tons of requirements that we expect families experiencing poverty to jump through that folks who are not experiencing poverty would never consider doing.

So, HUD has this program, FSS, that helps, but it sounds like not enough people know about it. Tell us a little bit about that.

So, this program’s been around for over 30 years. It’s a mature program. It’s rare in that it’s enjoyed bipartisan support for the majority of its existence — it was put in place when Jack Kemp was HUD secretary. It was really designed as a workforce development program to quote “incentivize” families to increase their earned income so they could reduce their reliance on subsidies and disrupt the cliff effect that happens with families. In HUD assisted housing, families pay 30% of their income towards rent as an affordability mechanism. But as they increase their income, they experience a proportional increase in rent, and that has the effect of making families feel that even as they take a step ahead, they are pulled two steps back because at the same time they’re losing income-based benefits like child care and SNAP and food assistance.

FSS interrupts that process by allowing families to save the increase in their rent over time and it goes into an account for up to around five years generally. And we are seeing families save at least $8,000 on average, which is absolutely fantastic, and at the same time experience an increase in earned income. Once they graduate from the program, the use of those savings is unrestricted — they can use it however they choose. And we often see families pay down debt, pay off debt, seed their children’s education or use it for their own higher education to move into more stable employment, combine it with other down payment assistance to purchase a home, or just have an emergency savings fund. God forbid, if we experience another pandemic or they’re forced out of work and have to reduce their hours, they have some money to draw down.

And as it as it works now, as I’m coming into HUD assisted housing, am I made aware of this program?

Not necessarily and it depends on where you live — we estimate that about 2.2 million folks could take advantage of it, but only about 65,000 are currently enrolled. There’s a number of reasons for that. One is exactly what you identified, that there’s not the best marketing and outreach done around the program. And oftentimes even when it’s marketed, it’s not done in a way that appeals to people’s sense of hope and aspiration. As you can imagine a lot of people don’t trust their housing authorities — they literally can’t believe that their landlord would do this on their behalf. And so, working to overcome that trust is really challenging.

And then, unfortunately, a lot of the housing authorities just don’t have the resources to invest in either the marketing or the outreach for the program and then to provide the services that accompany the program, such as case management and referral. Congress has to appropriate the funds to support this program and for many years the total amount of funds remained flat. We’ve been working in coalition with a number of partners to try to increase the pot of money. And we’ve seen increases in the FY23 budget from $109 million to $120 million.

What Compass does, for example, is provide financial coaching along with this savings opportunity, helping families also improve their credit, pay down debt, eliminate financial liens and judgments. Credit is an asset in our economy — it helps to lower the cost of your participation in our economy.

When we do outreach to families, we lead with aspirational messages. We found when we started this program that too often housing providers will lead with compliance —this is what you have to do, this is what the program is, this is how you stay in it, this is how you get kicked out. We don’t do any of that. We want to tap into someone’s aspirations for their children; that’s how you get real transformation.

But I will say our real vision is what I discussed in that blog post, which is an opt-out. We would love to see that when a person comes off the waiting list for a housing voucher, this escrow account is automatically opened up for them so that the moment that they increase their earned income and have to pay a higher rent, that money’s put into their account.

A couple of follow-up questions. Is the opt-out something HUD can do on its own?

There are some housing authorities who can do that right now on their own. They have a special designation called Moving to Work — it’s akin to being a charter school, where you get special dispensation from the rules that traditional public schools have to follow. These housing authorities can waive certain rules, but there are a limited number of agencies with that designation. We actually have done an opt-out pilot with a MTW agency in Massachusetts and we’re looking to do more with others. But the vast majority of housing authorities don’t have that designation. And private owners of assisted housing are not able to waive the rules. So, in order for us to test opt-out within traditional housing authorities and among private owners, which is a growing segment of the FSS community, HUD has to get permission from Congress.

And given the bipartisan support you’ve described, that seems a possibility, right?

Yes. We have been working with HUD and I have to say there’s a lot of receptivity from this administration towards asking Congress for that authority. Secretary Fudge put out a Bridging the Wealth Gap agenda last summer and named FSS and even mentioned opt-out as a solution for increasing asset building opportunities. We give them a ton of credit for even entertaining this. We’ve doing a lot of policy advocacy and talking to officials within HUD about making this ask to Congress and we believe they will.

And to make this policy really work, would you need significantly more budget authority?

What we’re asking for is just authority to run a pilot and do a larger scale test within the private owners and the traditional housing authorities. And the beautiful thing is we know that philanthropy will step up and support the cost. So, it’s also a budget neutral request. And we designed it that way as we did not want appropriations to hold up our ability to test this.

We did a pilot with just a few hundred families, but we want to do a pilot with 3,000 families across multiple partners and in different markets. And a few of the things that are part of our learning agenda would be, will people opt in, opt out, or will they stay in the program? What percentage of folks will stick around once they become aware they’ve been enrolled? Who will take advantage of financial inclusion services if offered voluntarily? Can we get the same or better outcomes from this population as we do from traditionally enrolled populations, in terms of increased earnings, average escrow, improved credit, etc. cetera? What does it take to kind of make people aware that they’re enrolled, in terms of marketing and outreach? And then, what’s the cost ultimately for delivering services under this model and is it financially sustainable such that we could make it the norm?

Do you have specific locations in mind?

We have several partners who’ve expressed interest. One is a traditional housing authority and two are private owners of multi-family assisted housing. We’re geography agnostic. We really just want to work within our housing partners’ portfolios.

Something we are very interested in is what the pro-opportunity, pro-family agenda for the new Republican House will be and this sounds like something that might get traction. It’s hard to have better conservative ancestry than Jack Kemp.

I definitely take that perspective. If we want our economy to thrive, we need to have more people who have savings, who have money to invest in homeownership and invest in things that drive our economy forward. So, to me, the most American thing to do is to support an initiative like this, especially one where there should be no controversy about helping families achieve their financial dreams.