HUD Sends Letter on HCV Budget Management; Expects Large Shortfalls Despite 99% HAP Proration

By: Tushar Gurjal, Senior Policy Manager

February 18, 2026 – Earlier today, HUD sent a letter via email to housing agency executive directors discussing certain Housing Choice Voucher (HCV) budgetary issues. The letter discusses timelines, Housing Assistance Payments (HAP) prorations, offsets, and provides recommendations for housing agencies on how to manage their budgets. The letter notes that though HUD is expecting a 99% HAP proration, housing agencies should take measures now to reduce program costs to ensure that an agency’s funding meets its anticipated expenditure needs.

The letter discusses HAP prorations, renewal funding inflation factors, and offsets. The Department is currently estimating a 99% proration factor for HAP. Additionally, HUD’s two-year tool includes each agency’s renewal funding inflation factor for this year. The letter also notes that HUD will likely offset “excess reserves” from both regular agencies and Moving To Work (MTW) agencies.

The Department notes that some PHAs, despite having a high HAP proration, may not have enough funding to fully support every current participant “. . . without immediate cost savings measures.” The Department notes that it “. . . can confirm that HUD’s tools to address shortfalls in 2026 will be limited, and HUD cannot guarantee that funding will be available to resolve all shortfall needs.” Final shortfall policies will be outlined in the forthcoming 2026 HCV funding implementation notice, which will be published in the spring with housing agency funding enclosures.

The Department recommends all PHAs consider implementing the following cost savings measures (reproduced exactly below from the letter):

• “Cease issuance of new vouchers (with the exception of HUD-VASH vouchers and Foster Youth to Independence (FYI) vouchers)) [sic]
• Pause entering into new project-based voucher agreements and commitments (with the exception of public housing repositioning efforts)
• HUD strongly encourages PHAs to consider the most cost-effective methods of responsibly repositioning, including the Section 18 program
• Reduce payment standards, including ending the use of any approved exception payment standards, and remain within the basic range except for reasonable accommodations, as necessary
• Assess rent reasonableness policies and procedures to ensure compliance with statutory and regulatory requirements
• Adopt other cost savings measures in PIH Notice 2025-28, ‘Cost-Savings Measures in the Housing Choice Voucher (HCV) and Project-based Voucher program.’”

Housing agencies that received shortfall awards may not issue vouchers and must adhere to the action plan created by the Shortfall Prevention Team (SPT). To request technical assistance, housing agencies may contact shortfallinquiries@hud.gov.

Finally, Mainstream vouchers have now been combined with the HCV renewals account in the recently enacted appropriations bill. The letter notes that HUD will provide additional information on this topic, but housing agencies should continue to track and report leasing for Mainstream vouchers separately.

The text of the letter from the email can be found here.