Multifamily Housing
Implementation of Fiscal Year 2003 Requirements Concerning Housing Choice Voucher Administrative Fees Gao ID: GAO-05-30 November 19, 2004The Department of Housing and Urban Development (HUD) received $12.9 billion in fiscal year 2003 for the Housing Choice Voucher Program, which helps about 2 million low-income families pay rent for privately owned housing. This amount included $1.1 billion in administrative fee payments to the public housing agencies that administer the program for HUD. In the Consolidated Appropriations Resolution of 2003, Congress included provisions to address a concern that housing agencies may have received more in fees than they needed to run the program. Housing agencies were directed to report to HUD their available reserves as of January 31, 2003. HUD was directed to reduce the fees agencies would receive if these levels were too high and recapture some excess fees. The conference report accompanying the Consolidated Appropriations Act of 2004 directed GAO to review compliance with these provisions. This report discusses (1) the extent to which housing agencies complied with the requirement to report to HUD their available administrative fee reserves as of January 31, 2003; (2) how these reported reserves compared with reserves reported in earlier fiscal years and possible reasons for any declines; (3) the extent to which HUD made required reductions to fiscal year 2003 fees; and (4) the extent to which HUD has recaptured excess fiscal year 2003 administrative fees.
By the end of calendar year 2004, HUD expects to have finished implementing most of the provisions in the Consolidated Appropriations Resolution of 2003 that address the administrative fees housing agencies receive under the Housing Choice Voucher Program. As of September 2004, all but 5 of the 2,477 housing agencies had reported their available administrative fee reserves as of January 31, 2003. The reported amounts totaled $587 million, or about $211 million (26 percent) less than the average $798 million that housing agencies had reported in fiscal years 1999 to 2002. GAO found several reasons for this decline. For example, the 2003 resolution allowed housing agencies to deduct from their January 2003 reported amounts funds that were not "available." Some housing agencies deducted obligated or committed funds they considered unavailable, although they normally include these funds in the reserve amounts they report at their fiscal year ends. Further, between the end of their fiscal year 2002 and the January reporting date, some housing agencies obligated some of their reserves for expenses not related to the Housing Choice Voucher Program, as was permitted by HUD regulations. By December 2004, HUD plans to have completed most of the required reductions to the estimated fiscal year 2003 administrative fees of 180 housing agencies, a total of about $37.8 million. As required by the 2003 resolution, HUD identified housing agencies whose fees would be reduced based on the difference between their available January 2003 reserve balances and 105 percent of the fees they earned in federal fiscal year 2002. HUD has not recaptured any excess 2003 administrative fees but expects to have made some of the required recaptures by December 2004.
GAO-05-30, Multifamily Housing: Implementation of Fiscal Year 2003 Requirements Concerning Housing Choice Voucher Administrative Fees
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Report to Congressional Committees:
November 2004:
MULTIFAMILY HOUSING:
Implementation of Fiscal Year 2003 Requirements Concerning Housing
Choice Voucher Administrative Fees:
[Hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO-05-30]:
GAO Highlights:
Highlights of GAO-05-30, a report to congressional committees
Why GAO Did This Study:
The Department of Housing and Urban Development (HUD) received $12.9
billion in fiscal year 2003 for the Housing Choice Voucher Program,
which helps about 2 million low-income families pay rent for privately
owned housing. This amount included $1.1 billion in administrative fee
payments to the public housing agencies that administer the program for
HUD. In the Consolidated Appropriations Resolution of 2003, Congress
included provisions to address a concern that housing agencies may have
received more in fees than they needed to run the program. Housing
agencies were directed to report to HUD their available reserves as of
January 31, 2003. HUD was directed to reduce the fees agencies would
receive if these levels were too high and recapture some excess fees.
The conference report accompanying the Consolidated Appropriations Act
of 2004 directed GAO to review compliance with these provisions. This
report discusses (1) the extent to which housing agencies complied with
the requirement to report to HUD their available administrative fee
reserves as of January 31, 2003; (2) how these reported reserves
compared with reserves reported in earlier fiscal years and possible
reasons for any declines; (3) the extent to which HUD made required
reductions to fiscal year 2003 fees; and (4) the extent to which HUD
has recaptured excess fiscal year 2003 administrative fees.
What GAO Found:
By the end of calendar year 2004, HUD expects to have finished
implementing most of the provisions in the Consolidated Appropriations
Resolution of 2003 that address the administrative fees housing
agencies receive under the Housing Choice Voucher Program. As of
September 2004, all but 5 of the 2,477 housing agencies had reported
their available administrative fee reserves as of January 31, 2003. The
reported amounts totaled $587 million, or about $211 million (26
percent) less than the average $798 million that housing agencies had
reported in fiscal years 1999 to 2002.
GAO found several reasons for this decline. For example, the 2003
resolution allowed housing agencies to deduct from their January 2003
reported amounts funds that were not ’available.“ Some housing agencies
deducted obligated or committed funds they considered unavailable,
although they normally include these funds in the reserve amounts they
report at their fiscal year ends. Further, between the end of their
fiscal year 2002 and the January reporting date, some housing agencies
obligated some of their reserves for expenses not related to the
Housing Choice Voucher Program, as was permitted by HUD regulations.
By December 2004, HUD plans to have completed most of the required
reductions to the estimated fiscal year 2003 administrative fees of 180
housing agencies, a total of about $37.8 million (see figure). As
required by the 2003 resolution, HUD identified housing agencies whose
fees would be reduced based on the difference between their available
January 2003 reserve balances and 105 percent of the fees they earned
in federal fiscal year 2002. HUD has not recaptured any excess 2003
administrative fees but expects to have made some of the required
recaptures by December 2004.
Estimated Reductions to 180 Housing Agencies‘ Fiscal Year 2003 Fees:
[See PDF for image]
[End of figure]
www.gao.gov/cgi-bin/getrpt?GAO-05-30.
To view the full product, including the scope and methodology, click on
the link above. For more information, contact David G. Wood at (202)
512-8678 or woodd@gao.gov.
[End of section]
Contents:
Letter:
Background:
Results in Brief:
Almost All Housing Agencies Reported Their Available Reserves, but
Agencies Interpreted the Reporting Requirement Differently:
Some Housing Agencies' Available January 2003 Reserves Were Lower Than
Previously Reported Reserves for Several Reasons:
HUD Is Reducing Estimated Administrative Fees by About $37.8 Million:
HUD Expects to Have Recaptured Some Excess 2003 Administrative Fees by
December 2004:
Agency Comments:
Appendixes:
Appendix I: Scope and Methodology:
Appendix II: GAO Contacts and Staff Acknowledgments:
GAO Contacts:
Acknowledgments:
Figures:
Figure 1: Proportion of Housing Agencies Whose January 2003 Available
Reserves Were Different from Their Average Reserves from 1999 to 2002:
Figure 2: Total Reserves, by Housing Agency Fiscal Year:
Figure 3: How HUD Estimated Administrative Fees Earned in Federal
Fiscal Year 2002:
Figure 4: HUD's Process for Determining Reductions to Fiscal Year 2003
Fees:
Figure 5: Months in Which HUD Applied Reduced Administrative Fee
Payments:
Figure 6: Estimated Reductions to 180 Housing Agencies' Fiscal Year
2003 Fees:
Figure 7: How HUD Determines Amounts to Be Recaptured:
Letter November 19, 2004:
The Honorable Christopher Bond:
Chairman:
The Honorable Barbara A. Mikulski:
Ranking Minority Member:
Subcommittee on Veterans Affairs, Housing and Urban Development and
Independent Agencies:
Committee on Appropriations:
United States Senate:
The Honorable James T. Walsh:
Chairman:
The Honorable Alan B. Mollohan:
Ranking Minority Member:
Subcommittee on Veterans Affairs, Housing and Urban Development and
Independent Agencies:
Committee on Appropriations:
House of Representatives:
The Department of Housing and Urban Development (HUD) received $12.9
billion in fiscal year 2003 appropriations to help about 2 million low-
income families nationwide pay rent for privately owned housing through
the Housing Choice Voucher Program. About $1.1 billion of this amount
was designated for administrative fee payments to the approximately
2,500 public housing agencies that administer the program for
HUD.[Footnote 1] The fee payments, which are intended to compensate the
housing agencies for administrative activities such as finding property
owners to participate in the program, inspecting rental units, and
determining family eligibility, are not based on actual incurred
expenses, but rather on a formula that takes into account the number of
vouchers administered. The difference between the fees earned and
expenses incurred are recorded annually in the administrative fee
reserve, which shows the accumulated gains and losses housing agencies
incur over time. Housing agencies can use their administrative fee
reserves for the voucher program and other housing-related expenses.
In the Consolidated Appropriations Resolution of 2003, Congress
addressed a concern that housing agencies may have been provided more
in fees than necessary to effectively run the Housing Choice Voucher
Program, as indicated by the large amounts of some housing agencies'
administrative fee reserves. Specifically, the 2003 resolution included
provisions requiring the housing agencies to report to HUD their
administrative fee reserves available as of January 31, 2003, and
requiring HUD to:
* withhold administrative fees for fiscal year 2003 from agencies that
did not report their January 2003 reserves;
* reduce the administrative fees paid in fiscal year 2003 to any agency
whose reserve amount was more than an established limit; and:
* recapture any fees paid in fiscal year 2003 that exceeded housing
agencies' actual administrative expenses.[Footnote 2]
However, the conference report accompanying the Consolidated
Appropriations Act of 2004 raised concerns that neither HUD nor the
housing agencies had fully complied with the requirements in the 2003
resolution. This concern was based largely on the fact that some of the
reported January 2003 reserves were far lower than had been expected.
The conference report directed GAO to review compliance with the
provisions of the 2003 resolution. Accordingly, this report:
* shows the extent to which housing agencies complied with the
requirement to report to HUD their administrative fee reserves
available as of January 31, 2003;
* compares housing agencies' reported available reserves as of January
31, 2003, with reserves reported in earlier fiscal years and discusses
possible reasons for any declines;
* examines the extent to which HUD reduced fiscal year 2003
administrative fee payments, as required, in light of housing agencies'
reported reserves;[Footnote 3] and:
* shows the extent to which HUD recaptured excess fiscal year 2003
administrative fees, as required.
To meet our objectives, we reviewed relevant laws and HUD guidance,
compared HUD data on the January 2003 reported amounts with reserves
reported in prior fiscal years, and interviewed officials from HUD's
Office of Public and Indian Housing and Financial Management Center. We
also visited 5 housing agencies to review financial documents related
to their administrative fee reserves and to interview staff involved in
calculating their reserves.[Footnote 4] We selected these 5 agencies
from the 10 that showed the largest differences between their January
2003 reported reserves and their average reported reserves for fiscal
years 1999 to 2002.[Footnote 5] In addition, we interviewed officials
from several housing industry associations and spoke with private-
sector accountants these associations cited as experts in housing
agency accounting. We did not perform a financial audit of the housing
agencies' administrative fee reserves. We conducted our work from
January through September 2004 in Los Angeles and Orange County,
California; Broward County, Florida; Needham, Massachusetts; Newark,
New Jersey; New York, New York; and Washington, D.C., in accordance
with generally accepted government auditing standards. Our scope and
methodology are discussed in greater detail in appendix I.
Background:
The federal government's Housing Choice Voucher Program helps very-low-
income families, the elderly, and the disabled pay for housing in:
the private market.[Footnote 6] The program, which has been operating
for about 30 years, provides housing vouchers that individuals and
families can use to rent houses or apartments in the private housing
market if property owners participate in the program. Voucher holders
are responsible for finding suitable housing, which must meet the
health and safety standards set by the local housing agency. Voucher
holders generally pay about 30 percent of their household income on the
rent and utilities and the housing agency pays the remainder in
subsidies that are paid directly to the property owners.
The administrative fees housing agencies earn are not tied to the
actual expenses of operating the Housing Choice Voucher Program.
Rather, the fees are based on a formula that takes into account the
number of months that each voucher is actually in use (i.e., is used to
pay for a rental unit under lease). The amounts used to calculate
federal fiscal year 2003 fees were set in the Federal Register on May
6, 2003.[Footnote 7] In addition, housing agencies may also earn
additional special administrative fees--for example, the "hard-to-
house" fee for certain clients, such as persons with disabilities, who
require help in locating housing.
Administrative fee payments are based on estimates of voucher use and
are reconciled with actual earned amounts at the end of each housing
agency's fiscal year. Housing agencies' fiscal years are grouped into
four cycles ending in March, June, September, and December that allow
HUD to more easily complete the fiscal-year-end settlement process,
which generally is completed a few months after the close of a housing
agency's fiscal year. HUD projects leasing activity annually based on
data the housing agencies submit and provides the agencies with monthly
disbursements that are based on these projections. HUD uses the fiscal-
year-end settlement process to reconcile the administrative fees
disbursed to housing agencies with fees earned based on actual voucher
use. For example, if the fees a housing agency earns exceed the
projected amounts that HUD disbursed during the housing agency's fiscal
year, HUD pays the difference once the settlement process is completed.
Conversely, if the fees a housing agency earns are less than the amount
it was paid during its fiscal year, HUD offsets future fee payments by
the amount of the difference.
Housing agencies can use their administrative fee reserves both for
expenses associated with the voucher program and other expenses.
However, housing agencies must use their reserves for any actual
administrative expenses that exceed the total amount HUD provides for
each housing agency fiscal year. In addition, housing agencies are
allowed to use administrative fee reserves accumulated prior to fiscal
year 2004 appropriations "for other housing purposes permitted by state
and local law," provided that the agencies have adequately administered
the Housing Choice Voucher Program. For example, some housing agencies
we visited had used their reserves to offset expenses incurred from
rehabilitating or producing affordable housing units, while others had
used their reserves to offset expenses from their public housing
programs. In the Consolidated Appropriations Act of 2004, Congress
limited the uses of the administrative fees earned in fiscal year 2004
to the provision of Housing Choice Voucher Program rental assistance
and related development activities.
The amount of the administrative fee reserve is calculated based on
housing agency accounting data and does not necessarily represent cash
reserves. Housing agencies determine the amount of their administrative
fee reserve by calculating the difference (either gain or loss) between
the fees they earned that year and the expenses they actually incurred,
and adding that amount to (or subtracting it from) its last fiscal-
year-end amount. They also deduct amounts used for nonprogram expenses.
In calculating their reserves, housing agencies may deduct amounts
equal to noncash assets procured with administrative fee reserves. For
example, if a housing agency were to purchase a vehicle for program
purposes, it could deduct the purchase amount when calculating the
year-end balance for that year. However, a housing agency may include
amounts equal to noncash assets in their total reported reserve.
Housing agencies report their total administrative fee reserves to HUD
as a part of the fiscal-year-end settlement process.
Results in Brief:
As of September 2004, all but 5 of the 2,477 housing agencies that were
required to report their administrative fee reserves available as of
January 31, 2003, had done so. All five housing agencies we visited
determined their reserves in a manner consistent with HUD's guidance.
However, because HUD did not define the term "available" used in the
2003 Appropriations Resolution, they did not calculate their reserves
in exactly the same way. For example, in calculating the amount of
available reserves, some housing agencies excluded amounts committed
(but not obligated) for anticipated expenses. Moreover, two housing
agencies differed in their interpretation of whether noncash assets
should be included in available reserves; one housing agency had
excluded an amount equal to its noncash assets, while another had not.
The total of all housing agencies' reported reserves available as of
January 31, 2003, was $587 million, or about $211 million (26 percent)
less than the average $798 million in total reserves reported for
fiscal years 1999 to 2002. Ten housing agencies, including the five we
visited, accounted for 82 percent of the total difference. Officials
from HUD, housing agencies, and housing industry groups cited several
reasons why the total reported amount declined during that time. First,
the 2003 resolution allowed housing agencies to deduct from their
January 2003 reported amounts funds that were not "available," a term
that some housing agencies interpreted as excluding obligated or
committed funds. Housing agencies normally include these funds in the
reserve amounts they report at their fiscal year ends. Second, prior to
the reporting date, some housing agencies used some of their reserves
for expenses not related to the Housing Choice Voucher Program, as was
permitted by HUD regulations. For example, between the end of their
2002 fiscal years and January 2003, the housing agencies we visited had
used their reserves for, among other things, providing security
services for housing developments. Finally, changes in government
accounting standards, which were phased in beginning in 2001, could
have had a small effect on some housing agencies' reported reserves by
requiring agencies to deduct from their reserves certain liabilities,
such as employees' unused leave, that they had not previously deducted.
By December 2004, HUD plans to have completed most of the required
reductions to the estimated fiscal year 2003 administrative fees of 180
housing agencies, a total of about $37.8 million. As required by the
2003 Appropriations Resolution, HUD identified housing agencies whose
fees would be reduced based on the difference between (a) their January
2003 reserves and (b) 105 percent of the fees they earned in federal
fiscal year 2002. HUD made about $27.4 million in reductions to housing
agencies' estimated administrative fees over the course of calendar
year 2003 (also the fiscal year for the Housing Choice Voucher Program)
and plans to complete the remainder of the required reductions as part
of the housing agencies' next fiscal-year-end settlement process.
HUD has not yet recaptured any excess fiscal year 2003 administrative
fees. However, it has begun processing recaptures and plans to have
made some of the required recaptures by December 2004. The 2003
Appropriations Resolution required HUD to recapture fees paid to
housing agencies that exceeded administrative expenses, except the fees
necessary to maintain a reserve of 5 percent of the fees earned in
fiscal year 2003. As a result, only housing agencies that had reserve
amounts of less than 5 percent of their fiscal year 2003 fees could add
to their reserves. As of September 2004, HUD was not able to provide
estimates of the number of housing agencies that would be affected or
the amount it expected to recapture.
Almost All Housing Agencies Reported Their Available Reserves, but
Agencies Interpreted the Reporting Requirement Differently:
Almost all of the housing agencies that were required to report their
available administrative fee reserves as of January 31, 2003, have done
so. However, because HUD did not define the term "available" used in
the 2003 Appropriations Resolution, housing agencies may have
interpreted the term--and thus calculated their reserves--differently.
Although the five housing agencies we visited determined their reserves
in a manner consistent with HUD's guidance, we found differences in
their methodologies.
Almost All Housing Agencies Reported January 2003 Reserves:
As of September 2004, all but 5 of the 2,477 housing agencies required
to report their available administrative fee reserves as of January 31,
2003, had done so. The 2003 Appropriations Resolution instructed HUD to
collect these reserves data from each housing agency administering the
Housing Choice Voucher Program. Although housing agencies had until
April 9, 2003, to report their reserves, HUD officials said they did
not track which housing agencies met that deadline. However, they said
that, as directed, HUD withheld 2003 administrative fees from housing
agencies until they reported. The officials said that HUD continued to
withhold 2003 administrative fees from the 5 housing agencies that had
not yet reported their reserves.[Footnote 8]
The five housing agencies we visited calculated their reserves
available as of January 31, 2003, in a manner consistent with HUD's
instructions.[Footnote 9] As directed, they began with their last
fiscal-year-end reserve amounts and employed year-end closing
procedures to bring the reserves current as of January 31, 2003. The
five housing agencies had different fiscal years, however. For example,
to meet this requirement the New York City Housing Authority had to
update its reserve from its fiscal year ending December 31, 2002, while
the Newark Housing Authority had to update its reserve from its fiscal
year ending March 31, 2002.[Footnote 10] The five housing agencies we
visited first added estimated fees earned and other income, such as
interest income, earned since their most recent fiscal year end. They
then deducted program expenses, such as staff salaries, incurred up to
the January 2003 reporting date. In addition, all of the housing
agencies deducted amounts used for housing purposes other than the
Housing Choice Voucher Program, an action allowed under HUD
regulations. For example, officials from the Broward County Housing
Authority deducted $1.5 million (13 percent of its average reserve from
1999 to 2002) from its administrative fee reserves to offset the cost
of installing air conditioning in public housing units. Finally,
officials from two of the housing agencies deducted obligated amounts
from their reported reserves. For example, officials from the New York
City Housing Authority deducted slightly over $6 million (8 percent of
its average reserve from 1999 to 2002) from the agency's reported
reserve for two housing-related development projects.
Housing Agencies Interpreted "Available" Reserves Differently Due to a
Lack of HUD Guidance:
Because HUD did not define the term "available" used in the 2003
Appropriations Resolution, housing agencies interpreted the term
differently and thus may not have reported consistently defined reserve
amounts to HUD.[Footnote 11] HUD's regular fiscal-year-end closing
procedures require housing agencies to report their total reserves.
Therefore, reporting only their "available" reserves was a new
requirement for housing agencies. HUD program officials did not
elaborate on the 2003 Appropriations Resolution's language. In the
guidance it provided housing agencies regarding the 2003 resolution,
HUD simply emphasized the word "available" with bold and italics
several times throughout the instructions. Officials from HUD's Office
of General Counsel told us that legally obligated funds were not
"available" amounts.
The lack of a clear definition of "available" resulted in two
interpretive issues. First, three of the housing agencies we visited
deducted from their "available" reserves amounts committed (but not yet
obligated) for anticipated expenses. For example, Orange County Housing
Authority officials deducted almost $900,000 (5 percent of its average
reserve from 1999 to 2002) that the agency had committed for fraud
investigation services for the Housing Choice Voucher Program in future
fiscal years. Similarly, officials at the Housing Authority of the City
of Los Angeles deducted over $8 million (15 percent of its average
reserve from 1999 to 2002) from its reported reserve for an expected
shortfall in public housing subsidies. HUD's guidance did not indicate
whether these amounts should or should not have been deducted from
their "available" reserves.
Second, two housing agencies differed on whether to include noncash
assets in their reported reserves. Officials from the Newark Housing
Authority did not deduct amounts representing noncash assets, including
computers and vehicles, from their January 2003 reported reserve.
According to these officials, they included those amounts in the
reported reserve because they include noncash assets in the amount they
report to HUD at their fiscal year end. In contrast, officials from the
Orange County Housing Authority deducted amounts from their reported
reserve for noncash assets--primarily notes receivable from loans they
had made to help developers build affordable housing. These officials
told us that they did not consider these amounts to be "available"
because the loans had not yet been repaid.
Some Housing Agencies' Available January 2003 Reserves Were Lower Than
Previously Reported Reserves for Several Reasons:
Housing agencies' total reported reserves available as of January 31,
2003, were about 26 percent less than the average total reserves
reported by the agencies for fiscal years 1999 to 2002. Declines in the
amounts reported by 10 housing agencies, including the 5 we visited,
represented 82 percent of this difference. Officials from HUD, housing
agencies, and housing industry groups cited several explanations for
the difference.
A Small Number of Housing Agencies Were Responsible for Most of the
Difference:
The total of all the housing agencies' reported reserves available as
of January 31, 2003, was $587 million, about $211 million (26 percent)
lower than the average total reserves of $798 million for fiscal years
1999 to 2002.[Footnote 12] Of those housing agencies whose January 2003
available reserves were different from their average reserves from 1999
to 2002, 984 (41 percent) housing agencies reported available reserve
amounts that were lower than their average year-end amounts, but a
small number of housing agencies was largely responsible for the
overall difference (fig. 1). Of housing agencies that reported lower
amounts, most (69 percent) showed a decline of less than $100,000,
while only about 8 percent had declines of over $500,000. Specifically,
the 10 housing agencies with the largest declines represented 82
percent ($173 million) of the decline in total reserves; of these, the
5 we visited represented 61 percent ($129 million) of the total
difference. In contrast, most housing agencies (59 percent) reported
amounts that were higher than their average reserves from 1999 to
2002.[Footnote 13]
Figure 1: Proportion of Housing Agencies Whose January 2003 Available
Reserves Were Different from Their Average Reserves from 1999 to 2002:
[See PDF for image]
Note: The figure above accounts for 2,398 of the 2,472 (97 percent)
housing agencies that reported a January 2003 reserve. Due to missing
data, GAO could not calculate the differences for 63 housing agencies.
In addition, 11 housing agencies reported no change between their
average reserves (1999-2002) and their January 2003 reported reserves.
[End of figure]
The total amount of reserves reported by agencies at fiscal year ends
varied from fiscal year to fiscal year. For example, the total reserves
went from $753 million in fiscal year 1999 to $825 million in fiscal
year 2000 but fell from $888 million in 2001 to $725 million in 2002
(fig. 2).[Footnote 14] Over a third of the total decline between 2001
and 2002 was attributable to the New York City Housing Authority, which
used $58 million to cover deficits in public housing programs sponsored
by their state and city governments.
Figure 2: Total Reserves, by Housing Agency Fiscal Year:
[See PDF for image]
[End of figure]
January 2003 Available Reserves Were Lower for Several Reasons:
We found several reasons for the difference in reported reserve
amounts. First, officials from HUD, housing industry associations, and
some housing agencies we visited told us that the different reporting
requirement was in part responsible for the lower reported amounts. As
previously discussed, the January 2003 requirement was for "available"
reserves, a term that some housing agencies interpreted as excluding
funds that had been obligated or committed. The regular year-end
reporting requirement was (and is) for total reserves, including
amounts the housing agency had either obligated or committed. As a
result, the January 2003 reserves for some housing agencies fell from
the previous year-end levels--in some cases, dramatically. For example,
officials from the Broward County Housing Authority deducted from the
agency's January 2003 reported reserve $9.5 million (80 percent of its
average reserve from 1999 to 2002) that it had committed for the
redevelopment of a public housing site.
Second, some housing agencies obligated some of their reserves for
expenses not related to the Housing Choice Voucher Program, as was
permitted by HUD regulations.[Footnote 15] Of the five housing agencies
we visited, two had used their reserves for projects or expenses not
related to the Housing Choice Voucher Program between the end of their
fiscal year 2002 and the January 2003 reporting date. For example,
officials from the Newark Housing Authority deducted about $3.4 million
(47 percent of its average reserve from 1999 to 2002) from its reserve
for security services at their housing developments.
Third, a new accounting requirement may have contributed to the decline
in the total reported amount, but housing agency officials said that
this effect was likely small. Beginning in 2001, housing agencies began
implementing applicable provisions of the Governmental Accounting
Standards Board Statement No. 34, Basic Financial Statements--and
Management's Discussion and Analysis--for State and Local Governments.
The statement directed housing agencies to deduct from their reserves
certain liabilities that they had not been required to deduct before,
such as employees' unused compensated leave. The largest agencies were
required to implement this standard in June 2001. Other agencies were
not required to implement the standard until June 2003. According to
some housing agency officials, the effect of this accounting
requirement was relatively small. For example, officials at the Housing
Authority of the City of Los Angeles deducted almost $4 million (7
percent of its average reserve from 1999 to 2002) from its reported
reserve as a result of the conversion to this accounting standard.
HUD Is Reducing Estimated Administrative Fees by About $37.8 Million:
By December 2004, HUD plans to have completed most of the required
reductions to the estimated fiscal year 2003 administrative fees of 180
housing agencies, a total of about $37.8 million. As required by the
2003 Appropriations Resolution, HUD identified housing agencies whose
fees should be reduced because their reported January 2003 reserves
exceeded 105 percent of the fees they earned in federal fiscal year
2002. HUD made about $27.4 million in reductions to housing agencies'
estimated administrative fees over the course of calendar year 2003
(the Housing Choice Voucher Program's fiscal year). HUD plans to make
most of the remaining reductions by December 2004 through the housing
agencies' fiscal-year-end settlements.
HUD Identified 180 Housing Agencies That Should Receive Reductions:
To implement the reductions required in the 2003 Appropriations
Resolution, HUD needed information on each housing agency's available
administrative fee reserves as of January 31, 2003, and on the fees
each housing agency earned in fiscal year 2002. According to HUD
attorneys, HUD interpreted the term "fiscal year 2002" in the 2003
resolution to mean federal fiscal year 2002. Because HUD generally
collects information on fees earned based on the housing agency fiscal
year, it had to estimate the amounts for federal fiscal year 2002 for
all agencies except those with fiscal years that ended in September. As
shown in figure 3, HUD used a combination of data to estimate fees
housing agencies earned in federal fiscal year 2002.
Figure 3: How HUD Estimated Administrative Fees Earned in Federal
Fiscal Year 2002:
[See PDF for image]
[A] HUD used August 2002 data for these months because it was the
nearest monthly data available.
[End of figure]
Using these estimates and housing agencies' reported January 2003
reserves, HUD determined which housing agencies should receive less in
administrative fees and the amounts of the reductions.[Footnote 16] HUD
identified 180 housing agencies whose fiscal year 2003 administrative
fees should be reduced because their available reserves as of January
31, 2003, exceeded 105 percent of the fees they earned in federal
fiscal year 2002. The total reduction for each agency was the lower of
(a) the difference between its January 2003 reserve and 105 percent of
the fees it earned in federal fiscal year 2002, or (b) the total
administrative fees the housing agency would earn in fiscal year 2003.
HUD did not reduce the fees of some housing agencies by the full
difference between their January 2003 reserves and 105 percent of the
fees earned in federal fiscal year 2002, because the 2003 resolution
did not require HUD to make reductions to housing agencies'
administrative fees that exceeded the amounts they earned in fiscal
year 2003. Figure 4 shows, for three possible scenarios, how HUD
determined the reduction, if any, in a housing agency's fiscal year
2003 fees. In the first scenario, no reduction would be made, because
the reserves were less than the 105 percent level; the housing agency
would receive all of the fiscal year 2003 fees it earned. In the second
scenario, the reduction would equal the full difference between the
January 2003 reserves and the 105 percent level, and the housing agency
would receive the remainder of its fiscal year 2003 administrative
fees. In the third scenario, the reduction would equal the full amount
of the housing agency's fiscal year 2003 fees, and the housing agency
would not receive any administrative fees.
Figure 4: HUD's Process for Determining Reductions to Fiscal Year 2003
Fees:
[See PDF for image]
[End of figure]
HUD Reduced Administrative Fees in Two Stages:
As noted previously, HUD normally makes monthly disbursements to
housing agencies based on projections of their earnings for each month,
and reconciles these disbursements with the agencies' actual earnings
during the fiscal-year-end settlement process.[Footnote 17] To
implement the reductions required by the 2003 Appropriations
Resolution, HUD estimated each agency's total reduction (as described
above) and the estimated monthly reduction, based on the total fees
earned in federal fiscal year 2002 divided by 12. Using these amounts,
HUD reduced some housing agencies' monthly payments over the course of
calendar year 2003 (also the fiscal year for the Housing Choice Voucher
Program) and will make any remaining reductions during the housing
agencies' fiscal-year-end settlement process.
In the first stage of reductions, HUD lowered the monthly disbursements
for the housing agencies' estimated administrative fees by a total of
about $27.4 million between September and December 2003. Although HUD
began calculating reductions in May 2003, HUD did not apply any
reductions to fee disbursements until September 2003, after housing
agencies' budgets were revised.[Footnote 18] The September payments
reflected up to 5 months of estimated monthly reductions (May through
September), even if the reduction affected not only the administrative
fees but also the payments for tenants' housing assistance. In
contrast, fees for October through December 2003 were reduced by no
more than the estimated monthly reduction. According to HUD officials,
HUD initially stopped reductions with the December 2003 payment after 8
months of estimated monthly reductions because of uncertainty about
applying the 2003 Appropriations Resolution retroactively to January
through April 2003, the first 4 months of the Housing Choice Voucher
Program fiscal year.
Although HUD has already made these estimated reductions, it must
complete the housing agencies' fiscal-year-end settlements to determine
the actual amount of fees to which reductions should be applied. HUD
will not have the data to calculate the actual reductions for all
housing agencies until after December 2004 (when the September 2004
fiscal-year-end settlements are due), because housing agencies whose
fiscal years ended in June and September received reduced payments over
the course of two of their fiscal years, as illustrated in figure 5.
The actual reductions might be higher or lower than the estimated
amounts, depending on each agency's actual voucher use.
Figure 5: Months in Which HUD Applied Reduced Administrative Fee
Payments:
[See PDF for image]
[End of figure]
HUD will implement a second stage of reductions because its general
counsel determined that the reductions should apply to the entire
period during which fiscal year 2003 appropriations were used. In July
2004, HUD developed procedures to make adjustments to housing agencies'
January, February, March, and April 2004 payments using the fiscal-
year-end settlement process. HUD will use actual fees earned to
determine the amount of additional reductions to be made to the fees of
housing agencies whose fees have not been reduced by the full amount
required by the 2003 Appropriations Resolution. HUD estimated that
these additional 4 months of administrative fee reductions would total
about $10.4 million, bringing the total reduction to about $37.8
million. As shown in figure 6, most housing agencies will receive total
reductions of less than $250,000. By December 2004, HUD plans to have
completed reductions for the majority of housing agencies.
Figure 6: Estimated Reductions to 180 Housing Agencies' Fiscal Year
2003 Fees:
[See PDF for image]
[End of figure]
HUD Expects to Have Recaptured Some Excess 2003 Administrative Fees by
December 2004:
The 2003 Appropriations Resolution required HUD to recapture from
housing agencies administrative fees that they earned in fiscal year
2003 that exceeded administrative expenses, except for an amount
necessary to maintain a reserve equal to 5 percent of the fees earned
in the Housing Choice Voucher Program fiscal year 2003. HUD began
processing recaptures in July 2004, but had not completed any at the
time of our review.
During the fiscal-year-end settlement process, HUD will review housing
agencies' actual earned fees (including any reductions resulting from
the 2003 Appropriations Resolution) and compare them with expenses:
incurred to determine any amounts that should be recaptured.[Footnote
19] According to the provisions of the 2003 resolution, if a housing
agency's fiscal year 2003 fees did not exceed its fiscal year 2003
program expenses, it will not be subject to any fee recaptures,
regardless of the amount of its reserves. However, if a housing
agency's fiscal year 2003 fees exceeded its fiscal year 2003 program
expenses, HUD will compare the housing agency's last fiscal-year-end
reserve with 5 percent of the fees it earned in fiscal year 2003. HUD
will then recapture the entire difference or, if the agency has a very
low reserve, HUD will recapture an amount that will leave the housing
agency with a reserve equaling 5 percent of its fiscal year 2003 fees
(fig. 7). Thus, this provision prevented housing agencies from adding
to their reserves unless they had reserve amounts of less than 5
percent of their fiscal year 2003 fees.
Figure 7: How HUD Determines Amounts to Be Recaptured:
[See PDF for image]
[End of figure]
HUD has not yet recaptured any excess fiscal year 2003 administrative
fees. In July 2004, HUD began implementing the recapture process for
the first housing agencies for which data were available--those whose
fiscal years ended in December 2003. As with the reduction process, HUD
will have all the data needed to calculate recaptures following the
receipt of September 2004 fiscal-year-end settlements. HUD plans to
complete the recaptures for the first group of housing agencies by
December 2004. As of September 2004, HUD could not estimate the number
of housing agencies that would be affected or the total amount to be
recaptured and could not give a date when the process would be
completed.
Agency Comments:
HUD agreed with our findings and provided technical comments, which we
incorporated into this report as appropriate.
We are sending copies of this report to the Secretary of Housing and
Urban Development and will make copies available to others upon
request. In addition, the report will be available at no charge on the
GAO Web site at [Hyperlink, http://www.gao.gov]. Please contact me at
(202) 512-8678 if you or your staff have any questions concerning this
report. Key contributors to this report are listed in appendix II.
Signed by:
David G. Wood:
Director, Financial Markets and Community Investment:
[End of section]
Appendixes:
Appendix I: Scope and Methodology:
To meet our objectives, we reviewed relevant laws and HUD guidance,
analyzed HUD data, and interviewed officials from HUD's Office of
Public and Indian Housing and Financial Management Center. We also
visited five housing agencies to review financial documents related to
their reserves and to interview staff involved in calculating the
reserves. In addition, we interviewed officials from several housing
industry associations and spoke with private-sector accountants these
associations cited as experts in housing agency accounting. We did not
perform a financial audit of the housing agencies' administrative fee
reserves.
To determine the extent to which housing agencies reported to HUD their
available administrative fee reserves as of January 31, 2003, we
analyzed data from HUD showing all of the housing agencies that had
reported their January 2003 reserves and the amounts they had reported.
In addition, to compare the January 2003 reserves with reserves
reported in prior fiscal years, we analyzed HUD data showing the
fiscal-year-end reserves for the housing agencies participating in the
Housing Choice Voucher Program in fiscal years 1999 to 2002. We
reviewed the reliability of these data through electronic data testing
and interviews with HUD staff familiar with the databases from which
this information was extracted and determined that the data were
sufficiently reliable for the purposes of our report. We also
interviewed HUD officials from the Financial Management Center to
confirm the number of housing agencies that had not reported their
available reserves as of January 31, 2003. Because the January 2003
reporting date did not coincide with any other reporting requirements
HUD places on housing agencies, we could not validate the accuracy of
the January 2003 reported reserves.
To determine how housing agencies calculated their reserves as of
January 31, 2003, and the possible reasons for declines in the reported
amounts, we selected 5 of the 10 housing agencies that had the largest
differences between the average of their reserves reported for fiscal
years 1999 to 2002 and the amount they reported as of January
2003.[Footnote 20] To achieve some geographic distribution, we selected
sites in both the eastern and western parts of the country. None of the
10 housing agencies with the largest differences were located in the
Midwest. The sites we selected were the Housing Authority of the City
of Los Angeles (California), the Orange County Housing Authority
(California), the Broward County Housing Authority (Florida), the
Newark Housing Authority (New Jersey), and the New York City Housing
Authority (New York).[Footnote 21] Prior to our site visits, we sent
each housing agency a data collection instrument on which they
documented how their reserves had changed from their last fiscal year
end to the January 2003 reporting date. During our site visits, we
obtained documentation to support the financial information recorded in
the data collection instrument and interviewed housing agency officials
involved in preparing financial information submitted to HUD. In
addition, to determine why the January 2003 amounts might have been
lower than previously reported amounts, we interviewed officials from
HUD, the five housing agencies, and several public housing industry
associations, as well as private-sector accountants working for housing
agencies.
To determine the extent to which HUD reduced fiscal year 2003
administrative fees in light of the reported January 2003 reserves, we
obtained data from HUD showing all of the housing agencies subject to
reductions and the estimated amount of those reductions. We reviewed
the reliability of these data and determined that the data were
sufficiently reliable for the purposes of our report. To assess HUD's
processes and how they related to the legislation, we reviewed
applicable legislation, HUD notices, and policies concerning
administrative fees, as well as a contractor's analysis of HUD's
process for determining which housing agencies were subject to a
reduction in fees. We also interviewed HUD officials regarding the
implementation of the process.
To determine the extent to which HUD recaptured excess fiscal year 2003
administrative fees, we reviewed applicable legislation and HUD
policies regarding the recapture process. In addition, we interviewed
HUD officials regarding the implementation of the process.
We conducted our work from January through September 2004 in Los
Angeles and Orange County, California; Broward County, Florida;
Needham, Massachusetts; Newark, New Jersey; New York, New York; and
Washington, D.C., in accordance with generally accepted government
auditing standards.
[End of section]
Appendix II: GAO Contacts and Staff Acknowledgments:
GAO Contacts:
David G. Wood (202) 512-8678 Steven Westley (202) 512-6221:
Acknowledgments:
In addition to those named above, Daniel Blair, Christine Bonham, Emily
Chalmers, Eben Darling, David Dornisch, John McGrail, Phillip McIntyre,
Marc Molino, Gretchen Maier Pattison, and Mijo Vodopic made key
contributions to this report.
(250188):
FOOTNOTES
[1] These 2,500 public housing agencies are among the more than 4,100
housing agencies that administer federal housing programs on behalf of
HUD.
[2] These provisions were unique to the 2003 Appropriations Resolution
and were not included in previous or subsequent appropriations acts.
Several public housing industry associations and public housing
agencies have filed a lawsuit in federal district court against HUD
concerning the administrative fee provisions in the 2003 resolution.
The plaintiffs maintain that the administrative fee reserves are the
property of the pubic housing agencies and that the appropriations
provisions, by requiring the reduction and recapture of the fees earned
in fiscal year 2003, are unconstitutional and violate both the
contractual terms and the Administrative Procedure Act.
[3] Unless otherwise noted, "fiscal year" refers to the Housing Choice
Voucher Program's fiscal year, which runs from January to December.
[4] The agencies we visited were the Housing Authority of the City of
Los Angeles (California), the Orange County Housing Authority
(California), the Broward County Housing Authority (Florida), the
Newark Housing Authority (New Jersey), and the New York City Housing
Authority (New York).
[5] To achieve some geographic distribution, we selected sites in both
the eastern and western parts of the country. None of the 10 housing
agencies showing the largest differences were located in the Midwest.
[6] The Housing Choice Voucher Program was formerly referred to as the
Section 8 Tenant-Based Program.
[7] Federal Register, Vol. 68, No. 87.
[8] The five housing agencies represented 0.02 percent of fees earned
in fiscal year 2002. Therefore, these missing data probably had little
effect on the total reserves reported as of January 2003.
[9] Results from a judgmental sample cannot be used to make inferences
about a population, because in a judgmental sample some elements of the
population being studied have no chance or an unknown chance of being
selected as part of the sample.
[10] None of the four fiscal year ending dates (March 31, June 30,
September 30, and December 31) corresponds to the January 31, 2003
reporting date required by the 2003 Appropriations Resolution.
[11] The 2003 resolution required housing agencies to report to HUD
"the amounts remaining available as of January 31, 2003," in their
administrative fee reserves (P.L. 108-7).
[12] The average total reserve is based on the sum of the reserves
reported by housing agencies at the end of their fiscal years.
[13] We did not determine the reasons for these increases in the course
of our audit work.
[14] These fiscal year totals are the sum of the reserves housing
agencies reported at the end of their fiscal years.
[15] HUD regulations permitted housing agencies to use administrative
fee reserves accumulated prior to 2004 for other housing purposes
permitted by state or local law. The Consolidated Appropriations Act of
2004 prohibited housing agencies from using administrative fees earned
under the period covered by the act for purposes not related to the
program.
[16] The 2003 Appropriations Resolution did not require HUD to reduce
the fees of any housing agency that earned less than $100,000 in
administrative fees in fiscal year 2003.
[17] Housing agencies receive a monthly disbursement from HUD to cover
both their administrative fees and the housing assistance payments that
the agencies pay to property owners on behalf of tenants in the Housing
Choice Voucher Program.
[18] In January through August 2003, HUD disbursed fees according to
housing agencies' existing budgets until they were revised in August
2003.
[19] This process, which calculates the difference between actual fees
earned and actual expenses incurred, differs from the regular fiscal-
year-end settlement process, which calculates the difference between
the projection-based monthly disbursements and the actual fees earned
based on voucher use.
[20] Our sample was a judgmental sample, so our results cannot be used
to make inferences about the population. In a judgmental sample, some
elements of the population being studied have no chance or an unknown
chance of being selected for the sample.
[21] The other five housing agencies with the largest differences were
the Housing Authority of the County of Santa Clara (California), the
Oakland Housing Authority (California), the Housing Authority of the
County of Tulare (California), the City and County of Honolulu
(Hawaii), and the Boston Housing Authority (Massachusetts).
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