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— Baltimore could lose $28 million a year in federal funding under an Obama administration proposal that also would change how some of the nation's largest housing agencies deliver services.

The proposed reduction, which has set off a scramble among local and federal officials in Maryland, would have a profound impact on Baltimore's effort to revitalize aging public housing and could force the city's housing agency to draw from other programs.

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"We were not happy," said Baltimore Housing Commissioner Paul T. Graziano, who said he initially had a commitment from the U.S. Department of Housing and Urban Development to keep the current funding in place.

"It's been frustrating," he said.

At issue is an initiative Congress created in 1996 called Moving to Work that fundamentally changed how participating local housing agencies administer their public housing and Section 8 voucher programs. Moving to Work eliminated many regulations — such as required annual inspections — and allowed local officials to spend money with far greater flexibility than in the past.

The Housing Authority of Baltimore City joined the program in 2005.

For Baltimore and 10 other cities — including Philadelphia, Chicago and Oakland, Calif. — the 10-year "demonstration" program came not just with fewer rules, but also with millions more in funding. Now the federal housing department is seeking to rein in some of those provisions as it negotiates a 10-year extension with local agencies.

Baltimore officials are alarmed by the development.

Mayor Stephanie Rawlings-Blake said in a statement that the proposal would "cut critical resources to housing that is already woefully underfunded."

But others note that the program has faced scrutiny from housing groups and auditors, and that there has long been a desire to standardize how the program distributes money.

In 2012, the Government Accountability Office found that HUD was not adequately monitoring the progress of Moving to Work agencies and that it was not verifying the performance data they reported.

"We'd like to see them include some reforms," said Linda Couch, senior vice president for policy at the National Low Income Housing Coalition. "We're almost 20 years into the Moving to Work demonstration and we don't have any idea of the benefits, the successes or the downsides of these policies."

The $28 million cut represents a roughly 30 percent reduction in funding Baltimore receives for public housing operations, but Graziano stressed that a large portion of remaining federal money is dedicated to a specific development. As a result, the proposed cut pinches much harder.

Local consternation over funding in Baltimore is playing out as Congress is deciding the future of the Moving to Work. The Senate Appropriations Committee approved legislation Thursday that would dramatically expand the program, increasing the number of participating local agencies from 39 to 300.

Maryland Sen. Barbara A. Mikulski, the committee's top-ranking Democrat, tucked a provision into the $55 billion spending bill that would extend Baltimore's involvement in the program, and maintain its current funding, through 2018.

But that underlying legislation has been caught up in a broader fight in Washington over government spending and faces difficult odds in Congress.

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Mikulski pressed Housing Secretary Julian Castro on the issue at a hearing earlier this year. She said Baltimore officials believed its Moving to Work contract would be renewed without changes and said she was "deeply troubled to learn that HUD has reversed its position."

"My city can't lose [that money] while it tries to meet the compelling needs," Mikulski said. "I am asking that we not be dismissed, and because my city feels that the bureaucracy's blowing them off. That's what they feel."

Castro responded that his department wants to bring Baltimore and the 10 other agencies in line with the formula used by all Moving to Work sites. The 11 cities and counties at issue, he said, were operating under a formula that is "providing a lot more revenue."

"We need to find a way to work with them so that eventually we can have each of the communities… under the same formula," he said.

A spokesman for the Department of Housing and Urban Development did not respond a request for comment.

The city housing authority has roughly 11,000 public housing units in its inventory and administers about 12,000 Section 8 vouchers, which tenants can apply toward their rent in private housing.

Moving to Work changed how both programs operate in several key ways. The agency may forgo annual inspections in housing units that have passed previous inspections consistently, for instance. It also may verify income qualifications of tenants less frequently — particularly for fixed-income families.

Both changes reduce administrative costs, proponents say.

But one of the most significant benefits Moving to Work provides to local agencies is the freedom to shift money from one program to another. Baltimore has been able to redirect Section 8 funding toward public housing renovation projects, for example. Generally, non-Moving to Work agencies are prohibited from doing that.

"We need it," said Sunia Zaterman, executive director of the Washington-based Council of Large Public Housing Authorities, of the added authority Moving to Work provides. "The program and regulation flexibility was intended to be responsive to what the really high needs were in these communities."

But Barbara Sard, vice president for housing policy at the Washington-based Center on Budget and Policy Priorities, said that some agencies were pulling money out of the Section 8 program and not reinvesting it in a way that benefited families.

When it comes to the operating funding, Sard said that if the 11 agencies that receive special accommodation were treated like the others, that alone would have a significant impact on the budgets of the roughly 3,000 other housing agencies in the nation that are not in the program.

"Of course they're concerned about losing the money. From their perspective, that makes sense," she said of Baltimore. "But from an equity point of view, I think there's a serious issue."

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