Drastic Pruning Reportedly Planned to Save HUD Itself : Housing: Many federal programs will give way to block grants, sources say. Cutbacks are seen as a reaction to GOP sweep in November elections.

The Department of Housing and Urban Development is planning sharp reductions next year, including consolidation of 60 specific housing programs into broad funding grants that would free states and localities from most federal oversight, sources said Wednesday.

The planned cuts, described by Housing Secretary Henry G. Cisneros in closed-door sessions with public housing advocates and others, would make Housing and Urban Development one of the biggest and most visible victims of the budget-cutting fervor sweeping across Washington in reaction to the November elections.

With an annual budget of $27 billion, the department has become a favorite target of conservatives because of chronic problems associated with urban housing projects and the agency’s origins in the Great Society movement of the 1960s. The departments of Energy and Transportation are other prime targets for large-scale budget reductions, which the White House has been scrambling to make to offset a middle-class tax cut that the President plans to propose tonight.

While it was clear that Cisneros’ plan would reduce HUD’s budget, people who attended the meeting said that officials did not specify how much money would be saved. Cisneros also talked about his plans to replace the Federal Housing Administration, which provides mortgage insurance to millions of home buyers, with a quasi-government corporation.

Cisneros canceled an interview with The Times scheduled for Wednesday. The President is expected to announce the proposed changes in a speech tonight.

One senior official of the department said that Cisneros talked to the interest groups instead of the press because he “does not want to scoop the President.” He believed that he needed to “level with them” early on so that he can “rally their support” behind him in what he expects to be a tough battle on Capitol Hill.

“He’s managed to prevent HUD from completely being chopped by presenting alternatives,” said the official, who spoke only if not identified. But Republicans in Congress are expected to make further reductions in whatever budget for the department is handed to them by the White House.

Advocates for the people who benefit from affected programs warn that the changes could have tragic consequences for cities as more people go without shelter because they lack government assistance.

“It’s an overreaction to the (Republican) election victories,” said Rick Nelson of the National Assn. of Housing and Redevelopment Officials. “I think there’s a great potential for serious problems. We’re talking about adding to the list of people who can’t survive in the cities.”

But Republicans on Capitol Hill said the proposal indicates that Democrats have finally realized what Republicans have been preaching for years: The less federal government the better.

“HUD cannot continue to exist the way it is. That is why we need this radical restructuring,” said a Republican congressional aide, who spoke on condition of anonymity. It will get rid of a lot of the archaic federal micro-management so money will be spent quicker and get to the people who need it. People will be better served because local officials won’t have to listen to a HUD bureaucrat nickel-and-diming them.”

In a meeting with representatives of about 100 interest groups Wednesday, Cisneros said that the radical changes he is proposing are a lot better than eliminating his department, as the White House was considering last week and incoming House Speaker Newt Gingrich (R-Ga.) has suggested.

While making clear that the White House and HUD are still in negotiations about the shape of the agency and size of the budget cuts, Cisneros said it is likely that most of the housing and community development programs the department now administers would be combined into one, two or three types of block grants.

Block grants give the recipients great flexibility to spend the money as they see fit, instead of focusing funds where the federal government believes they are needed.

Many details still are unclear. For instance, Administration officials still are struggling over whether the grants would go to states or directly to cities and counties.

This situation worries advocates for the homeless, who fear that because of the rising negative sentiment toward homeless people in cities across the country, local officials will starve programs for the homeless and direct funds toward community development or other activities.

“The homeless are likely to get lost in the shuffle,” said Fred Karnas, director of the National Coalition for the Homeless.

Karnas and others said that Cisneros made it very clear that major changes must be made if the agency wants to stave off outright elimination. Gingrich told the Washington Post earlier this week that the agency is a prime candidate for elimination.