The Bush administration may have finally found a winning strategy to overhaul rental assistance programs, giving housing authorities wide-ranging discretion on how to run them. Last year, a coalition of affordable housing advocates and public housing officials blocked the administration’s plans. But the White House’s budget proposal for fiscal year 2005 will likely drive a wedge between those two groups, dramatically increasing its chances of passage.

Currently, the federal government funds rental assistance, known as Section 8, by allocating money directly to public housing authorities based on the number of apartments they subsidize each year. In cities like New York, that funding is perennially short: The city has a 10-year-old waiting list of more than 125,000 families seeking Section 8 vouchers.

In last year’s budget, the Bush administration proposed making rental assistance a program that helps people transition to independence rather than an indefinite subsidy. The first step, the administration said, was shifting the funding formula to fixed, lump-sum payments for each state, which would then disburse the money to their housing authorities.

Congress, deluged with complaints from housing advocates and officials, rejected the idea. “We very strongly opposed that plan,” said Timothy Kaiser, head of the D.C.-based Public Housing Authorities Directors Association. “We thought it would create an unnecessary middleman.” So this year, the White House cut the states out of the equation, proposing a block grant directly to the housing authorities. Said Kaiser of the block grant, “This proposal is a lot better.”

The Bush plan offers housing officials flexibility they have long clamored for. It would lift a rule that stipulates 75 percent of vouchers must go to families living at less than a third of their area’s median income. And it would remove a rule that limits tenants’ rent to 30 percent of their income.

The idea is to give authorities space to create programs helping people “graduate” out of Section 8. New York City Housing Authority General Manager Douglas Apple offered WNYC Radio an example of one way the city might accomplish this. Currently, as a Section 8 tenant’s income goes up, so does that person’s rent. Under the proposed new rules, says Apple, the city may put a freeze on rents for a Section 8 family, potentially helping a household save enough money to get a place on its own without subsidies. Under an existing federal initiative, the city already gives some Section 8 households such incentives to leave subsidies behind after a certain period of time.

But while housing authorities are excited about flexibility, they remain united with affordable housing advocates in concern about the level of funding that will accompany it. Observers estimate the budget falls between $1.1 billion and $1.5 billion short of what will be needed just to maintain the existing number of vouchers in circulation. NYCHA’s Apple says that adds up to an estimated loss of 5,000 vouchers in New York City. The National Low Income Housing Coalition estimates a loss of 250,000 vouchers nationwide.

The formula behind these cuts is nothing new. From Medicaid to Head Start, the Bush administration has sought to shrink social services through block grants and reduced funding. And many advocates are still smarting from welfare reform, which also gave states flexibility and incentives to move recipients off assistance.

Kaiser says it’s unlikely that local authorities will pull subsidies right out from under needy families. “Public housing authorities recognize that public housing and Section 8 programs are intended for low-income families,” he explained. “The notion that authorities are going to start charging exorbitant rents is absurd.”

But Kaiser, of course, cannot speak for future administrators. And that, argues National Low Income Housing Coalition policy analyst Kim Willis, is why the feds have always policed the process. “That’s what’s so scary,” Willis said. “The administration would leave it completely up to the authorities to determine what ‘graduating’ means.”