Getting one-fourth of its funding axed in the state legislature’s skeleton budget early this month was trouble enough. But in the long run, the most contentious news about the Homeless Housing and Assistance Program (HHAP)–the state’s biggest initiative to build apartments for people living in shelters or on the street–is that the Pataki administration is starting to dramatically revamp how the program’s $40 million in annual construction grants are supervised and spent. If the plan prevails, it could redefine who builds these projects and who gets to live in them.

The Pataki administration has long stated its intention to switch HHAP from the state Office of Temporary and Disability Assistance, the agency that runs the state’s public aid programs, to the Division of Housing and Community Renewal. The state Assembly has consistently rejected this move, since it would divorce the development of the housing from the programs that fund supportive services for residents. The governor is moving ahead anyway: The long-delayed application for this year’s funding, released in late July, was drafted in close consultation with DHCR, causing smaller housing developers with a long history of serving the homeless to worry they may soon lose out. “DHCR caters to an entirely different audience of housing developers,” said Shelly Nortz, deputy director for policy for the Coalition for the Homeless.

The state’s new funding priorities may only reinforce a shift to big housing developers and big projects. Top consideration will go to developments counting on just 25 percent of their funding to come from the state; the rest would have to come from other sources, particularly federal low-income housing tax credit funds. Until now, HHAP has often paid for most or all construction costs. The private syndicators who package tax credit dollars for developers are typically not interested in backing small-scale projects for the homeless, which yield lower revenues and present higher risks than their other investments. The state is now saying that it, too, prefers proposals for big developments, with an emphasis on buildings that house people with a range of incomes.

But many advocates for the homeless say small sites are a vital part of the mix: They are not as likely as large projects to prompt community opposition, and help serve specialized groups of people. The Fifth Avenue Committee (FAC) has built a home for pregnant women with $960,000 from HHAP to cover all construction costs. “That wouldn’t necessarily be funded by the current program,” said Susan Friedland, FAC’s assistant director of housing development.

Some groups do anticipate the changes will be helpful. “I see a benefit flowing from tighter coordination of programs,” said Rosanne Haggerty, executive director of Common Ground, which rebuilt and operates the 652-room Times Square and two other large supportive housing facilities in Manhattan. Often the biggest obstacle to a project, she noted, is getting different streams of funding to come in at the right time.

But Haggerty is outnumbered by her colleagues. After a flurry of letters early this month from the Coalition for the Homeless, the Supportive Housing Network and many of their member organizations calling for the state to rescind the request for proposals, the Homeless Housing and Assistance Corporation announced last week it was postponing scheduled information sessions about the new funding system indefinitely.