Homelessness
Information on Administrative Costs for HUD's Emergency Shelter Grants Program
Gao ID: GAO-10-491 May 20, 2010
The Homeless Emergency Assistance and Rapid Transition to Housing Act of 2009 (HEARTH Act) directed GAO to study the appropriate administrative costs of the U.S. Department of Housing and Urban Development (HUD) Emergency Shelter Grants Program (ESG)--a widely used, formula-based program that supports services to persons experiencing homelessness. This report discusses (1) for selected recipients, the types of administrative activities performed and administrative costs incurred under the ESG program, and the extent to which grant proceeds cover these administrative costs; (2) how the ESG program's allowance for administrative costs compares with administrative cost allowances for selected other targeted federal homeless grant programs, plus selected other HUD formula-based grant programs; and (3) how the nature or amount of administrative costs might be different under changes Congress made to the ESG program in the HEARTH Act that expand the types of activities that may be funded. To address these issues, GAO reviewed relevant policies and documents, interviewed officials of HUD and other agencies, made site visits in four states, reviewed HUD and other available standards on eligible administrative costs for federal grants, and reviewed cost allowances for homeless programs of the Departments of Education, Labor, and Health and Human Services. GAO makes no recommendations in this report.
ESG grantees and subgrantees we visited in four states performed a range of administrative activities, but the ESG program's allowance for administrative costs--currently 5 percent--did not fully cover the cost of these activities. Grantees generally focused their administrative activities on awarding subgrants and monitoring subgrantee performance, while subgrantees focused their administrative activities on operating their programs and reporting results to their respective grantees. To cover unfunded ESG administrative costs, grantees and subgrantees told us they used other sources, such as other grants or private donations. They added that these estimated unfunded administrative costs, which averaged 13.2 percent and ranged from amounts equal to 2.5 percent to 56 percent of their ESG grant proceeds, diminished their ability to support other program activities. In addition, we found minimal standards available for evaluating the appropriateness of ESG administrative costs, and grantees and subgrantees in the states we visited monitored ESG administrative costs in varying levels of detail. The funding and treatment of administrative costs varied across other targeted federal homeless grant programs we reviewed. For example, the maximum administrative allowance for grantees ranged from 4 percent to 50 percent for programs with such a provision; the ESG program's current 5 percent allowance is thus one of the lower amounts provided. Programs with similar funding structures varied in their requirements for grantees to share their administrative allowance with subgrantees; the ESG program generally does not require grantees to share their allowance. In addition, none of the programs we reviewed offered comprehensive direction on eligible and ineligible administrative activities. Overall, these and other varying program features make it difficult to make direct comparisons between the administrative cost provisions of the ESG program and those of other targeted federal homeless grant programs. A number of ESG grantees and subgrantees we visited told us they expect the new ESG activities authorized by the HEARTH Act will result in different kinds of administrative activities that in many cases will be more costly. They cited client screening and eligibility verification, technical assistance to subgrantees, number of grant applicants, and facility management and collaboration with third parties as among areas where administrative costs may increase. Although the HEARTH Act makes significant changes, including increasing the administrative cost allowance to 7.5 percent, it remains unclear when new program activities might be implemented. Uncertainty over how and when the new ESG program might be implemented, plus variation in administrative activities under the current program, complicate any attempt to determine the appropriate size of the ESG administrative allowance. HUD told us in comments on a draft of this report that some subgrantees appear to be confusing program and administrative costs, thus potentially overstating any need for a larger administrative allowance.
GAO-10-491, Homelessness: Information on Administrative Costs for HUD's Emergency Shelter Grants Program
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Report to Congressional Committees:
United States Government Accountability Office:
GAO:
May 2010:
Homelessness:
Information on Administrative Costs for HUD's Emergency Shelter Grants
Program:
GAO-10-491:
GAO Highlights:
Highlights of GAO-10-491, a report to congressional committees.
Why GAO Did This Study:
The Homeless Emergency Assistance and Rapid Transition to Housing Act
of 2009 (HEARTH Act) directed GAO to study the appropriate
administrative costs of the U.S. Department of Housing and Urban
Development (HUD) Emergency Shelter Grants Program (ESG)”a widely
used, formula-based program that supports services to persons
experiencing homelessness. This report discusses (1) for selected
recipients, the types of administrative activities performed and
administrative costs incurred under the ESG program, and the extent to
which grant proceeds cover these administrative costs; (2) how the ESG
program‘s allowance for administrative costs compares with
administrative cost allowances for selected other targeted federal
homeless grant programs, plus selected other HUD formula-based grant
programs; and (3) how the nature or amount of administrative costs
might be different under changes Congress made to the ESG program in
the HEARTH Act that expand the types of activities that may be funded.
To address these issues, GAO reviewed relevant policies and documents,
interviewed officials of HUD and other agencies, made site visits in
four states, reviewed HUD and other available standards on eligible
administrative costs for federal grants, and reviewed cost allowances
for homeless programs of the Departments of Education, Labor, and
Health and Human Services. GAO makes no recommendations in this report.
What GAO Found:
ESG grantees and subgrantees we visited in four states performed a
range of administrative activities, but the ESG program‘s allowance
for administrative costs”currently 5 percent”did not fully cover the
cost of these activities. Grantees generally focused their
administrative activities on awarding subgrants and monitoring
subgrantee performance, while subgrantees focused their administrative
activities on operating their programs and reporting results to their
respective grantees. To cover unfunded ESG administrative costs,
grantees and subgrantees told us they used other sources, such as
other grants or private donations. They added that these estimated
unfunded administrative costs, which averaged 13.2 percent and ranged
from amounts equal to 2.5 percent to 56 percent of their ESG grant
proceeds, diminished their ability to support other program
activities. In addition, we found minimal standards available for
evaluating the appropriateness of ESG administrative costs, and
grantees and subgrantees in the states we visited monitored ESG
administrative costs in varying levels of detail.
The funding and treatment of administrative costs varied across other
targeted federal homeless grant programs we reviewed. For example, the
maximum administrative allowance for grantees ranged from 4 percent to
50 percent for programs with such a provision; the ESG program‘s
current 5 percent allowance is thus one of the lower amounts provided.
Programs with similar funding structures varied in their requirements
for grantees to share their administrative allowance with subgrantees;
the ESG program generally does not require grantees to share their
allowance. In addition, none of the programs we reviewed offered
comprehensive direction on eligible and ineligible administrative
activities. Overall, these and other varying program features make it
difficult to make direct comparisons between the administrative cost
provisions of the ESG program and those of other targeted federal
homeless grant programs.
A number of ESG grantees and subgrantees we visited told us they
expect the new ESG activities authorized by the HEARTH Act will result
in different kinds of administrative activities that in many cases
will be more costly. They cited client screening and eligibility
verification, technical assistance to subgrantees, number of grant
applicants, and facility management and collaboration with third
parties as among areas where administrative costs may increase.
Although the HEARTH Act makes significant changes, including
increasing the administrative cost allowance to 7.5 percent, it
remains unclear when new program activities might be implemented.
Uncertainty over how and when the new ESG program might be
implemented, plus variation in administrative activities under the
current program, complicate any attempt to determine the appropriate
size of the ESG administrative allowance.
HUD told us in comments on a draft of this report that some
subgrantees appear to be confusing program and administrative costs,
thus potentially overstating any need for a larger administrative
allowance.
View [hyperlink, http://www.gao.gov/products/GAO-10-491] or key
components. For more information, contact Alicia Puente Cackley at
(202) 512-8678 or cackleya@gao.gov.
[End of section]
Contents:
Letter:
Background:
Grantees and Subgrantees We Visited Reported a Range of Administrative
Activities Whose Costs Generally Were Not Fully Covered by the ESG
Allowance:
Funding and Treatment of Administrative Costs Varied Across Selected
Federal Grant Programs:
Some ESG Recipients Expect the Nature of Administrative Costs to
Change and the Amount to Increase under New Activities Authorized by
the HEARTH Act:
Agency Comments and Our Evaluation:
Appendix I: Scope and Methodology:
Appendix II: GAO Contact and Staff Acknowledgments:
Tables:
Table 1: Retention of ESG Administrative Allowance by Selected
Grantees:
Table 2: Grantee Administrative Allowance for Selected HUD Formula
Grant Programs:
Table 3: ESG Grantee Summary for States Visited, Fiscal Year 2009:
Figures:
Figure 1: The Distribution of ESG Grants by State, Fiscal Year 2009:
Figure 2: How ESG Grants Fund Homeless Services:
Figure 3: ESG Grantee Administrative Activities by Major Categories:
Figure 4: ESG Subgrantee Administrative Activities by Major Categories:
Figure 5: Estimated Unfunded ESG Administrative Costs for Grantees and
Subgrantees in Selected States:
Figure 6: ESG Administrative Cost Provisions Compared to Selected
Other Federal Homeless Programs:
Abbreviations:
CDBG: Community Development Block Grant:
ESG: Emergency Shelter Grants Program:
HEARTH Act: Homeless Emergency Assistance and Rapid Transition to
Housing Act of 2009:
HUD: Department of Housing and Urban Development:
OMB: Office of Management and Budget:
[End of section]
United States Government Accountability Office:
Washington, DC 20548:
May 20, 2010:
Congressional Committees:
Against a backdrop of economic recession, an estimated 1.2 million to
2 million people used an emergency shelter or transitional housing
program during the 12-month period ending September 30, 2008,
according to a July 2009 report to Congress on homelessness.[Footnote
1] That report also provided some early indications of how the
sheltered homeless population might be changing as a result of the
recent economic downturn. For example, the report noted that family
homelessness, considered to be more sensitive to economic conditions
than homelessness among individuals, has increased. In addition, the
report noted that the number of those who reported living with family
or friends the night before entering a homeless residential facility
has increased, which could also reflect the economic downturn, because
people tend to use all alternative housing options before resorting to
the shelter system. Finally, the report noted that a larger percentage
of sheltered homeless persons have come from stable accommodations
prior to entering a facility.
The U.S. Department of Housing and Urban Development (HUD) Emergency
Shelter Grants Program (ESG), a widely used federal program to address
homelessness, provides funds for emergency shelters to help people
achieve independent living. Under the program, HUD makes grants to
states, large cities, urban counties, and U.S. territories. With the
exception of states, these direct recipients, or "grantees," may carry
out ESG projects through their own departments or agencies, or may
make the funds available in the form of subgrants to nonprofit
organizations that carry out ESG projects. State grantees, however,
cannot use their ESG grant funds to conduct their own program
activities and instead must subgrant funds to nonprofit organizations
or local governments to carry out ESG projects.[Footnote 2] Eligible
ESG projects include the renovation, rehabilitation, or construction
of buildings to be used as emergency shelters; operation of the
facilities; essential supportive services (including those related to
employment, health, drug abuse, or education); and homeless prevention.
The Homeless Emergency Assistance and Rapid Transition to Housing Act
of 2009 (HEARTH Act) made significant changes to the ESG program.
[Footnote 3] Among other things, the act, which renamed the program
the Emergency Solutions Grants Program, increased the range of
eligible homeless prevention and re-housing activities, including
short-or medium-term rental assistance and housing stabilization
services. In general, according to HUD, the act shifted program
emphasis from providing shelter to fostering housing stability. The
act also increased the percentage of grant funds that grantees may use
for administrative purposes from 5 percent to a maximum of 7.5
percent. Finally, the HEARTH Act directed GAO to conduct a study of
the appropriate administrative costs for the ESG program.
In this report, we provide information about ESG program
administrative costs, based in significant part on our work at
selected grantees and subgrantees in four states. More specifically,
this report discusses (1) for selected recipients, the types of
administrative activities performed and administrative costs incurred
under the ESG program, and the extent to which grant proceeds cover
these administrative costs; (2) how the ESG program's allowance for
administrative costs compares with administrative cost allowances for
selected other targeted federal homeless grant programs, plus selected
other HUD formula-based grant programs; and (3) how the nature or
amount of administrative costs might be different under the changes
Congress made to the ESG program in the HEARTH Act.
To address these issues, we reviewed the ESG program's authorizing
legislation, objectives, and implementing regulations. In addition, we
interviewed HUD officials knowledgeable about the ESG program. We made
site visits to four states--California, Georgia, Michigan, and
Pennsylvania--where we interviewed selected ESG grantees and
subgrantees and obtained estimates of their ESG administrative costs.
We selected these states based on geographic balance and the total
amount of funding HUD provided to state grantees for fiscal year 2009.
We also reviewed available sources, including from HUD, regarding
eligible administrative costs for federal grants. Further, we reviewed
the administrative cost allowances for homeless grant programs
administered by the Departments of Labor, Education, and Health and
Human Services, and we interviewed officials from these departments
knowledgeable about the programs. Finally, we reviewed the HEARTH Act
changes to the ESG program and obtained the perspectives of HUD
officials, 34 grantees and subgrantees we visited, various nonprofit
organizations that advocate for people experiencing homelessness, and
others regarding how these changes might affect the nature or amount
of administrative costs for the ESG program. Appendix I provides a
more detailed description of our scope and methodology.
We conducted this performance audit from August 2009 to May 2010, in
accordance with generally accepted government auditing standards.
Those standards require that we plan and perform the audit to obtain
sufficient, appropriate evidence to provide a reasonable basis for our
findings and conclusions based on our audit objectives. We believe
that the evidence obtained provides a reasonable basis for our
findings and conclusions based on our audit objectives.
Background:
According to HUD, the ESG program was designed to be the first step in
a continuum of assistance to prevent homelessness and to enable
individuals and families experiencing homelessness to move toward
independent living.[Footnote 4] More specifically, the program
objectives were to increase the number and quality of emergency
shelters for individuals and families experiencing homelessness, to
operate these facilities and provide essential social services, and to
help prevent homelessness. The ESG program is targeted at persons
experiencing homelessness.[Footnote 5] It was originally established
by the Homeless Housing Act of 1986, in response to the growing issue
of homelessness among men, women, and children in the United States.
[Footnote 6] In general, the ESG program uses the Community
Development Block Grant (CDBG) formula as the basis for allocating
funds to states, metropolitan cities, and urban counties.[Footnote 7]
The CDBG formula uses factors reflecting community need, including
poverty, population, housing overcrowding, and age of housing.
According to HUD, in fiscal year 2009, there were 360 ESG grantees.
[Footnote 8]
For fiscal year 2009, HUD awarded $160 million in ESG funding to
grantees. Figure 1 shows the total amount of ESG funds received by
grantees, by state, for fiscal year 2009.
Figure 1: The Distribution of ESG Grants by State, Fiscal Year 2009:
[Refer to PDF for image: illustrated map of the U.S.]
Total amount received by state and eligible local governments:
$500,000 or less:
Alaska:
Delaware:
Montana:
North Dakota:
South Dakota:
Vermont:
Wyoming:
Greater than $500,000 to $1 million:
District of Columbia:
Hawaii:
Idaho:
Maine:
Nebraska:
Nevada:
New Hampshire:
New Mexico:
Rhode Island:
Utah:
Greater than $1 million to $3 million:
Alabama:
Arizona:
Arkansas:
Colorado:
Connecticut:
Iowa:
Kansas:
Kentucky:
Louisiana:
Maryland:
Minnesota:
Mississippi:
Missouri:
Oklahoma:
Oregon:
South Carolina:
Tennessee:
Virginia:
Washington:
West Virginia:
Wisconsin:
Greater than $3 million to $10 million:
Florida:
Georgia:
Illinois:
Indiana:
Massachusetts:
Michigan:
New Jersey:
North Carolina:
Ohio:
Pennsylvania:
Puerto Rico:
Greater than $10 million:
California:
New York:
Texas:
Source: GAO analysis of HUD data; map (MapInfo).
Notes: Amounts shown are for federal ESG grants only. The U.S.
territories of Guam, Virgin Islands, American Samoa, and Northern
Mariana Islands received $320,000 combined.
[End of figure]
The ESG program generally requires matching contributions by grantees,
thus increasing the total funds used to provide services under the
program. Metropolitan cities and urban counties must match the ESG
funding dollar-for-dollar with cash or noncash resources from public
or private sources. States are generally subject to the same
requirement, with an exemption for the first $100,000 in funding.
[Footnote 9]
ESG funds may reach eligible projects through different routes, as
shown in figure 2. First, HUD allocates ESG funds to grantees.
Metropolitan cities, urban counties, and territories may carry out the
program directly or subgrant all or part of their ESG funds to
nonprofit organizations. States cannot carry out program activities
directly, and must subgrant ESG funds (but may retain up to 5 percent
for administration, as discussed below) to local governments or
nonprofit organizations. Local governments receiving ESG funds as a
subgrant from the state may carry out the program themselves or
further subgrant funds to nonprofit organizations. HUD allows ESG
grantees flexibility to determine how to award funds to subgrantees.
For example, many grantees conduct a competitive process for awarding
funds to subgrantees. Other grantees offer repeat funding to
organizations that have demonstrated success with ESG-funded homeless
assistance programs in the past, or they alternate funding each year
among multiple agencies with ongoing homeless assistance programs.
Grantees also might make relatively few, but relatively larger,
subgrants, or award relatively smaller grants to a greater number of
subgrantees.
Figure 2: How ESG Grants Fund Homeless Services:
[Refer to PDF for image: illustration]
HUD:
Funding (generally based on formula for Community Development Block
Grant program):
Metropolitan cities (including the District of Columbia), urban
counties, territories[A] (can retain administrative allowance):
Can carry out program directly, or subgrant to Nonprofit organizations.
States (including Puerto Rico) (can retain administrative allowance):
Must subgrant to:
* Nonprofit organizations;
* Must share portion of administrative allowance with Local
governments;
- Can carry out program directly, or subgrant to Nonprofit
organizations.
Source: GAO, HUD.
[A] Regulations require HUD to set aside 0.2 percent of the total ESG
allocation for U.S. territories.
[End of figure]
Subgrantees and grantees that are not states may use ESG funding to
conduct a range of eligible activities which, as previously noted,
include the rehabilitation or remodeling of buildings to be used as
shelters, operation of the facilities, essential supportive services,
and homeless prevention.
Under current law, ESG program grantees may use up to 5 percent of
their grant award for administrative purposes, which can include staff
to administer the grant, the preparation of progress reports and
audits, or the monitoring of subgrantees.[Footnote 10] Grantees are
not required to share any of their ESG administrative allowance with
subgrantees, except in one instance--when a state awards a subgrant to
a unit of local government. According to HUD, the department does not
track the extent to which grantees share their ESG administrative
allowance with subgrantees.
The HEARTH Act made major changes to the ESG program, while renaming
it the Emergency Solutions Grants Program. As noted earlier, the
HEARTH Act changed the amount of ESG funds that grantees may use to
cover administrative costs, increasing it from 5 percent to a maximum
of 7.5 percent of the total grant amount. Programmatically, the HEARTH
Act also made the following changes:
* The act authorized new eligible homeless assistance activities:
short-term rental assistance, medium-term rental assistance, security
deposits, utility deposits and payments, and moving costs.[Footnote 11]
* It established housing relocation and stabilization services as a
major focus area for both homeless assistance and homeless prevention,
including outreach, housing search, legal services, and credit repair.
* It established rapid re-housing as a major focus area for homeless
assistance. The aim of rapid re-housing is to help people experiencing
homelessness return to permanent housing as soon as possible.
According to a national homeless advocacy group, these efforts reduce
the length of time people remain in homeless shelters, which in turn
opens beds for others who need them and reduces the public and
personal costs of homelessness.[Footnote 12]
HUD expects to implement the HEARTH Act changes, including increasing
the allowance for administrative costs, with the program's fiscal year
2011 allocation.
Grantees and Subgrantees We Visited Reported a Range of Administrative
Activities Whose Costs Generally Were Not Fully Covered by the ESG
Allowance:
We found that ESG grantees and subgrantees in the states we visited
performed a range of administrative activities, but the program's
allowance for administrative costs generally did not fully cover the
cost of these activities. As a result, grantees and subgrantees told
us they must cover any shortfalls with funds from other sources, which
diminishes their ability to support other activities. In addition,
there are minimal standards that can be used as guidance for
evaluating the appropriateness of ESG administrative costs, and we
found that grantees and subgrantees in the states we visited monitored
ESG administrative costs at varying levels of detail.
Grantees' Administrative Activities Focus on Awarding and Monitoring
Subgrants, while Subgrantee Administrative Activity Centers on
Operating Programs and Reporting Outcomes:
Grantees in the states we visited told us they conducted various
activities to administer their ESG allocations. As figure 3 shows,
these activities generally fell into five categories: application/
approval, financial, reporting, monitoring/oversight, and other. Our
review found these grantees' ESG administrative activities generally
focused on awarding subgrants and monitoring subgrantee performance.
For example, City of Philadelphia officials told us they awarded a
total of $2.2 million through five ESG grants for fiscal year 2009 and
their administrative activities included, among other things, approval
and tracking of subgrantee budgets and program monitoring.
Figure 3: ESG Grantee Administrative Activities by Major Categories:
[Refer to PDF for image: illustrated table]
Application/approval:
* Advise localities of grant availability;
* Create, distribute, receive applications;
* Hold workshops, provide information and technical assistant to
applicants;
* Troubleshoot applications;
* Evaluate, rank, approve applications;
* Share proposals with citizens, local government officials for review;
* Recommend funding decisions to local government officials;
* Conduct public hearings on grant funding decisions;
* Determine subgrantee funding sources and mix, if multiple programs
involved;
* After approval, submit plans to HUD;
* Negotiate, prepare contracts;
* Conduct post-award workshops, provide other information and
technical assistance to subgrantees.
Financial:
* Process grant disbursements, including related financial and
accounting functions;
* Planning, budgeting;
* Audits, including auditor review of subgrantee reports;
* Review, adjust subgrantee budgets;
* Monitor subgrantee budgets, programs to ensure HUD compliance;
* Report information to HUD grant management system;
* Reconcile data discrepancies between HUD system and local accounting
system;
* Secure matching funds.
Reporting:
* Prepare reports to HUD;
* Provide technical assistance to subgrantees for their reporting
requirements to primary grantee;
* Collect, assess required subgrantee progress reports;
* Prepare annual reports on program activity.
Monitoring/oversight:
* Financial monitoring of subgrantees, including procurement and
financial systems, to ensure costs incurred are eligible;
* Program monitoring of subgrantees, including reviews for program
eligibility, timeliness of service delivery, that the proper clients
being served;
* Conduct site visits/inspections;
* Share best practices.
Other:
* Portion of rent, utilities;
* Portion of senior managers‘ time;
* Information technology, including grants management system;
* Legal review;
* Incidental expenses;
* Prepare Consolidated Plan (master plan for addressing homelessness);
* General problem-solving, including denial of applications, funding
reductions, trouble with grant reimbursements, and monitoring;
* Addressing complaints.
Source: GAO interviews with grantees.
[End of figure]
Similarly, City and County of San Francisco officials reported they
awarded $944,900 in ESG grants to 19 local service providers for
fiscal year 2009 and their administrative activities included site
visits and audit reviews.
Among grantees we reviewed, current practice in retaining the 5
percent administrative allowance varied, as shown in table 1. Where
grantees kept all or most of the administrative allowance, officials
told us this was to cover, at least in part, their administration
costs. Where they kept none of the allowance, officials said this was
to maximize funds available to local service providers. Table 1 also
shows what grantees told us they expect to retain under the higher
administrative allowance provided under the HEARTH Act.
Table 1: Retention of ESG Administrative Allowance by Selected
Grantees:
Grantee: State of California;
Percentage retained under current ESG program (up to 5%): Retain 4%;
Share 1%;
Expectation for percentage retained under new ESG program (up to
7.5%): Retain 6%; Share 1.5%.
Grantee: Oakland;
Percentage retained under current ESG program (up to 5%): Retain 5%;
Expectation for percentage retained under new ESG program (up to
7.5%): Retain 7.5%.
Grantee: San Francisco;
Percentage retained under current ESG program (up to 5%): Retain 5%;
Expectation for percentage retained under new ESG program (up to
7.5%): Retain 7.5%.
Grantee: State of Michigan;
Percentage retained under current ESG program (up to 5%): Retain 0%;
Expectation for percentage retained under new ESG program (up to
7.5%): Retain 0%.
Grantee: Detroit;
Percentage retained under current ESG program (up to 5%): Retain 0%[A];
Expectation for percentage retained under new ESG program (up to
7.5%): Retain 7.5%.
Grantee: Commonwealth of Pennsylvania[B];
Percentage retained under current ESG program (up to 5%): Retain 2.5%;
Share 2.5% with local governments;
Expectation for percentage retained under new ESG program (up to
7.5%): Retain 3.75%; Share 3.75% with local governments.
Grantee: Philadelphia;
Percentage retained under current ESG program (up to 5%): Retain 5%;
Expectation for percentage retained under new ESG program (up to
7.5%): Retain 7.5%.
Grantee: State of Georgia;
Percentage retained under current ESG program (up to 5%): Retain 5%;
Expectation for percentage retained under new ESG program (up to
7.5%): Retain 7.5%.
Grantee: Atlanta;
Percentage retained under current ESG program (up to 5%): Retain 5%;
Expectation for percentage retained under new ESG program (up to
7.5%): Retain 7.5%.
Source: As reported to GAO by grantees.
[A] Before 2009, Detroit retained 5 percent, but officials reduced the
amount to zero, in part due to declining grant amounts.
[B] For compliance purposes, the state uses local governments to
distribute ESG funds to local service providers. In such cases,
sharing of the administrative allowance, from state to local
government, is mandatory, although the amount is not specified.
[End of table]
Subgrantees in the states we visited also reported a range of
administrative activity.[Footnote 13] As figure 4 shows, these
activities generally fell into six categories: application/approval,
financial, reporting, management, monitoring/oversight, and other. Our
review found that their ESG administrative activities generally
focused on operating programs and reporting outcomes. For example, one
Georgia subgrantee told us its ESG administrative activities included
a portion of the executive director's time, for program oversight;
preparing monthly reimbursement requests; coordinating maintenance;
and training and coordinating volunteers.
Figure 4: ESG Subgrantee Administrative Activities by Major Categories:
[Refer to PDF for image: illustrated table]
Application/approval:
* Write grant proposals, applications;
* Review grant contracts;
* Participate in grant orientations, training.
Financial:
* Budgeting;
* Cash management;
* Track, allocate grant funds;
* Billing;
* Obtain reimbursements from primary grantees;
* Accounting, payroll;
* Audit;
* Procurement;
* Pay contractors;
* Process checks;
* Review documentation for checks, invoices.
Reporting:
* Various reports to primary grantees or others, including financial
matters, number of clients served, services provided, number of
clients housed, referrals made;
* Data collection, reporting for Homeless Management Information
System.
Management:
* General supervision/oversight of program operations, including time
of executive director, managers of finance, operations, human
resources;
* Outreach to funding sources, participate in networking meetings;
* Community relations, such as with police or neighbors who dislike
shelter nearby;
* Recruit, hire, train staff;
* Supervise volunteers.
Monitoring/oversight:
* Participate in oversight meetings, visits, other activities with
primary grantee;
* Prepare staff for audits/oversight.
Other:
* Utilities, including phone, Internet;
* Technical support, including for copiers;
* Staff time for mailings;
* Building, maintenance costs;
* Rent;
* Document staff time utilization;
* Risk management;
* Human resources, including employee assistance program;
* Train, coordinate volunteers, including background checks.
Source: GAO interviews with subgrantees.
[End of figure]
Similarly, a Michigan subgrantee told us its ESG administrative
activities included oversight and supervision of its program,
financial reporting and auditing, and reporting shelter statistics.
Neither Grantees Nor Subgrantees Fully Cover Administrative Costs with
Amounts Designated for Administration and Rely on Other Sources to
Cover Unfunded Costs:
Grantees and subgrantees in the states we visited told us the ESG
administrative allowance generally did not fully cover their actual
costs to administer the grant award, and that as a result, they relied
on other sources to cover any unfunded costs. We found that grantees'
and subgrantees' actual ESG administrative costs depended on a number
of factors, such as the number of grant awards made, level of
oversight provided, number of staff involved in administrative tasks,
and types of ESG program activities funded. Figure 5 provides details
on the estimated unfunded ESG administrative costs and sources used to
cover these costs for grantees and subgrantees we visited. Overall,
the unfunded administrative costs reported to us across the eight
grantees and 22 subgrantees we visited for which information was
available averaged an estimated 13.2 percent of the ESG allocation,
with a range of 2.5 percent to 56 percent. However, HUD officials
cautioned that some subgrantees we visited appear to be confusing
program activities with administrative activities, which might have
affected their estimates of actual administrative costs.
Figure 5: Estimated Unfunded ESG Administrative Costs for Grantees and
Subgrantees in Selected States:
[Refer to PDF for image: 4 illustrated tables]
State: California;
Grantee: State of California;
ESG grant funds received: $6.8 million;
Estimated unfunded ESG administrative expenses as percentage of grant:
4.0%;
Source(s) used to fill the gap: General fund;
Grantee: Oakland;
ESG grant funds received: $371,000;
Estimated unfunded ESG administrative expenses as percentage of grant:
25.0%;
Source(s) used to fill the gap: General fund, redevelopment funds;
Grantee: San Francisco;
ESG grant funds received: $939,000;
Estimated unfunded ESG administrative expenses as percentage of grant:
16.0%;
Source(s) used to fill the gap: CDBG[A], general fund;
Subgrantee: Local homeless service provider: Shelter for homeless
women, children;
Use of ESG funds: General operations;
Estimated unfunded ESG administrative expenses as percentage of grant:
3.4%;
Source(s) used to fill the gap: Private fundraising;
Subgrantee: Local homeless service provider: Emergency shelter,
transitional housing;
Use of ESG funds: Case manager salary;
Estimated unfunded ESG administrative expenses as percentage of grant:
13.5%;
Source(s) used to fill the gap: Federal, county funding; private
fundraising;
Subgrantee: Local homeless service provider: Range of housing options
from emergency shelter to permanent supportive housing, plus homeless
services;
Use of ESG funds: Facilities, food, and direct operating costs for age
18-24 shelter;
Estimated unfunded ESG administrative expenses as percentage of grant:
9.0%;
Source(s) used to fill the gap: City funding; private fundraising;
Subgrantee: Local homeless service provider: Shelter for abused and
homeless women, children;
Use of ESG funds: General operations;
Estimated unfunded ESG administrative expenses as percentage of grant:
9.0%;
Source(s) used to fill the gap: County funding; private fundraising;
Subgrantee: Local homeless service provider: Drop-in resource center
for homeless;
Use of ESG funds: Primarily employee salaries, plus some telephone and
rent;
Estimated unfunded ESG administrative expenses as percentage of grant:
10.0%;
Source(s) used to fill the gap: Private fundraising;
Subgrantee: Local homeless service provider: Shelter for homeless
adults;
Use of ESG funds: Shelter utility costs;
Estimated unfunded ESG administrative expenses as percentage of grant:
12.0%;
Source(s) used to fill the gap: City funding.
State: Michigan;
Grantee: State of Michigan;
ESG grant funds received: $2.8 million;
Estimated unfunded ESG administrative expenses as percentage of grant:
13.0%;
Source(s) used to fill the gap: State housing development authority[B];
Grantee: Detroit;
ESG grant funds received: $1.6 million;
Estimated unfunded ESG administrative expenses as percentage of grant:
27.5%;
Source(s) used to fill the gap: CDBG[A];
Subgrantee: Local homeless service provider: Emergency shelter,
transitional housing, other housing and services, for men, women,
children;
Use of ESG funds: General operations;
Estimated unfunded ESG administrative expenses as percentage of grant:
8.5%;
Source(s) used to fill the gap: Private fundraising, foundation grants;
Subgrantee: Local homeless service provider: Emergency shelter for
victims of domestic violence and sexual assault, and their children;
Use of ESG funds: Utilities and other shelter expenses such as
insurance, trash pickup, telephone, janitorial;
Estimated unfunded ESG administrative expenses as percentage of grant:
14.0%;
Source(s) used to fill the gap: Private fundraising;
Subgrantee: Local homeless service provider: Transitional housing,
apartments, case management, prevention, other services;
Use of ESG funds: General operations;
Estimated unfunded ESG administrative expenses as percentage of grant:
20.0%;
Source(s) used to fill the gap: Federal, state, county funding; United
Way, private fundraising;
Subgrantee: Local homeless service provider: Shelter, apartments for
homeless women;
Use of ESG funds: General operations;
Estimated unfunded ESG administrative expenses as percentage of grant:
18.0%;
Source(s) used to fill the gap: Private fundraising, endowment funds.
State: Pennsylvania;
Grantee: Commonwealth of Pennsylvania;
ESG grant funds received: $3.2 million;
Estimated unfunded ESG administrative expenses as percentage of grant:
not available;
Source(s) used to fill the gap: General fund;
Grantee: Philadelphia;
ESG grant funds received: $2.3 million;
Estimated unfunded ESG administrative expenses as percentage of grant:
5.0%;
Source(s) used to fill the gap: General fund;
Subgrantee: Local homeless service provider: Human services, including
homeless family shelter;
Use of ESG funds: Rent, utilities, equipment, insurance, sometimes
fuel;
Estimated unfunded ESG administrative expenses as percentage of grant:
7.3%;
Source(s) used to fill the gap: Subsidy from parent organization;
Subgrantee: Local homeless service provider: Shelter for domestic
violence victims and their children;
Use of ESG funds: Supplies, utilities, maintenance;
Estimated unfunded ESG administrative expenses as percentage of grant:
6.5%;
Source(s) used to fill the gap: United Way, private fundraising;
Subgrantee: Local homeless service provider: Shelter and services for
families, single adults;
Use of ESG funds: General operations;
Estimated unfunded ESG administrative expenses as percentage of grant:
10.0%;
Source(s) used to fill the gap: Federal, county funding; United Way;
Subgrantee: Local homeless service provider: Shelters for men and
women, other programs;
Use of ESG funds: General operations;
Estimated unfunded ESG administrative expenses as percentage of grant:
13.0%;
Source(s) used to fill the gap: City funding[C], internal funds;
Subgrantee: Local homeless service provider: Homeless shelter,
transitional housing for women, children;
Use of ESG funds: Heating, ventilation, air-conditioning repairs;
Estimated unfunded ESG administrative expenses as percentage of grant:
2.5%;
Source(s) used to fill the gap: United Way, corporate and foundation
donations;
Subgrantee: Local homeless service provider: Emergency shelter, other
housing, case management, employment support for homeless families;
Use of ESG funds: General operations;
Estimated unfunded ESG administrative expenses as percentage of grant:
10.0%;
Source(s) used to fill the gap: City funding[C];
Subgrantee: Local homeless service provider: Multi-state human service
agency, including homeless shelters;
Use of ESG funds: General operations;
Estimated unfunded ESG administrative expenses as percentage of grant:
15.0%;
Source(s) used to fill the gap: City funding[C],[D].
State: Georgia;
Grantee: State of Georgia;
ESG grant funds received: $2.4 million;
Estimated unfunded ESG administrative expenses as percentage of grant:
12.5%;
Source(s) used to fill the gap: State trust fund for homeless, state
housing finance authority;
Grantee: Atlanta;
ESG grant funds received: $369,000;
Estimated unfunded ESG administrative expenses as percentage of grant:
56%;
Source(s) used to fill the gap: CDBG[A];
Subgrantee: Local homeless service provider: Homeless prevention;
Use of ESG funds: Prevention services; in most cases, to pay client
rent;
Estimated unfunded ESG administrative expenses as percentage of grant:
20.0%;
Source(s) used to fill the gap: County funding, United Way;
Subgrantee: Local homeless service provider: Emergency shelter,
transitional housing for women, families with children; homeless
prevention;
Use of ESG funds: General operations;
Estimated unfunded ESG administrative expenses as percentage of grant:
5.0%;
Source(s) used to fill the gap: Donations from congregations, other
private donations;
Subgrantee: Local homeless service provider: Emergency shelter,
residential recovery, transitional housing;
Use of ESG funds: Utilities;
Estimated unfunded ESG administrative expenses as percentage of grant:
10.5%;
Source(s) used to fill the gap: Generally from other sources;
Subgrantee: Local homeless service provider: Shelter, financial
assistance, employment education;
Use of ESG funds: Short-term housing;
Estimated unfunded ESG administrative expenses as percentage of grant:
13.0%;
Source(s) used to fill the gap: Generally from other sources; United
Way;
Subgrantee: Local homeless service provider: Comprehensive homeless
service center, including shelter,day center, medical clinic,
employment and training services;
Use of ESG funds: Food, security;
Estimated unfunded ESG administrative expenses as percentage of grant:
7.0%;
Source(s) used to fill the gap: Generally from other sources; United
Way;
Subgrantee: Local homeless service provider: Legal services;
Use of ESG funds: Foreclosure prevention;
Estimated unfunded ESG administrative expenses as percentage of grant:
not available;
Source(s) used to fill the gap: Generally from other sources;
Source: GAO interviews with respective government officials, homeless
service providers.
Notes: "Use of ESG funds" refers to program services funded by ESG
grants. "Est. unfunded ESG administrative expenses" refers only to
administrative costs. Funding is as reported for fiscal year 2009.
When range provided by source, mid-point is reported here. Figures for
unfunded administrative costs are for actual or minimum amount, as
reported by source. Some local homeless service providers may receive
ESG funds from state as well as local government sources. Omitted is
one additional homeless service provider in Detroit, for which
information was unavailable.
[A] Community Development Block Grant:
[B] Specifically, proceeds from operations of the Michigan State
Housing Development Authority, a quasi-governmental authority that
oversees the state's ESG program.
[C] City combines ESG funding with other sources to make lump sum
grants to homeless service providers, of which 12 percent may be used
for administration. ESG funds do not go towards the 12 percent
allowance.
[D] Also, some charges not billed, and some costs absorbed through
growth.
[End of figure]
For example, California ESG program officials estimated their unfunded
ESG administrative costs at 4 percent of the state's ESG allocation
(actual administrative costs equal to 8 percent of ESG allocation,
less 4 percent retained for administrative costs). To cover these
unfunded costs, the officials said they rely on the state's general
fund revenues. Similarly, City of Oakland (California) officials
estimated their unfunded ESG administrative costs at 25 percent of
their ESG annual allocation (actual administrative costs equal to 30
percent of ESG allocation, less 5 percent retained for administrative
costs). These officials also told us that they used the city's general
and redevelopment funds to cover the unfunded costs. In Pennsylvania,
one subgrantee estimated its unfunded ESG administrative costs at 2.5
percent of its grant award (based on actual costs, with no
administrative allowance from its grantee). This subgrantee, which
reported using ESG funds for a one-time building repair project, told
us that it used private donations, including from corporations and
foundations, to cover its unfunded costs. In Michigan, a subgrantee
estimated its uncovered ESG administrative costs at 14 percent (based
on actual costs with no administrative allowance), saying it also
relied on private donations to cover its unfunded costs. As previously
noted, grantees must match their ESG allocations, and subgrantees can
provide the match. These matching funds provide a potential source for
covering administrative costs.
Several subgrantees in the states we visited told us there has been a
trend toward more private donations being restricted--that is, made
for specific programs or purposes, rather than generally available for
a subgrantee's operations, including administrative costs. Thus,
reliance on private donations to cover unfunded ESG administrative
costs may become more challenging. For example, one subgrantee told us
that donors feel it is more attractive to fund specific programs that
have more tangible outcomes compared with funding administrative
costs. Another subgrantee told us that business donors tend to target
contributions to address specific issues and achieve particular
results. Finally, one subgrantee told us that nonprofits themselves
have contributed to this trend by telling potential donors they will
use donations to undertake specific nonadministrative tasks.[Footnote
14]
Some grantees and subgrantees in the states we visited told us the
need to cover unfunded ESG administrative costs using other funding
sources has diminished their ability to fund other program activities.
For example, one grantee told us that amounts spent to cover unfunded
ESG administrative costs could otherwise be directed toward community
and economic development activities. Another grantee cited housing
counseling and home purchase down-payment assistance as areas that
could receive funding but for the need to cover unfunded ESG
administrative costs. One subgrantee also told us it could otherwise
devote more resources to programs aimed at adoption, single mothers,
and family counseling if not for unfunded ESG administrative costs.
Some grantees and subgrantees also told us that unfunded ESG
administrative costs can affect program administration, interest in
participating in the program, and program oversight.[Footnote 15] For
example, one grantee told us that it chooses to make fewer but larger
ESG awards to subgrantees, rather than make a greater number of
smaller awards, in part because it is less costly to oversee a smaller
number of subgrantees. In addition, two subgrantees told us that but
for other mitigating factors, they would consider not participating in
the ESG program because of the unfunded administrative costs.[Footnote
16] Some grantees also told us that if more funds were available for
administrative costs, there could be greater monitoring of subgrantee
activity. One grantee noted that it must stop monitoring subgrantees
during parts of the year and generally does not do as much oversight
as is desirable. Another grantee added it has difficulty meeting its
goal of making at least one site visit to subgrantees each year.
According to HUD officials, the ESG program was established with a
lower administrative cost allowance based on the expectation that
grantees could obtain funds from other sources to cover unfunded ESG
administrative costs. The officials also told us that although they do
not have comprehensive information on the extent to which the ESG
administrative cost allowance is sufficient to cover grantees' actual
administrative costs, the agency has received many informal comments
over time characterizing the allowance as insufficient.[Footnote 17]
Available Sources for Evaluating the Appropriateness of ESG Program
Administrative Costs Offer Little Detail, and Monitoring of These
Costs Varies:
As GAO has noted previously, there is no government-wide definition of
what constitutes an administrative cost.[Footnote 18] For the ESG
program in particular, there are a number of sources that provide
standards for administrative costs, but we found they generally offer
little detail for evaluating the appropriateness of these costs.
For grantees, there are regulations and agency guidance that address
administrative costs.
* HUD Regulations. HUD regulations for ESG administrative costs define
such costs by way of example only, to include costs associated with:
accounting for the use of grant funds, preparing reports for
submission to HUD, obtaining program audits, similar costs related to
administering the grant after the award, and staff salaries associated
with these administrative costs.[Footnote 19] Under the regulations,
administrative costs do not include the costs of carrying out eligible
activities under the ESG program.[Footnote 20]
* HUD ESG Program Desk Guide. The desk guide provides an overview of
the ESG program, describes the funding process, and covers topics
including the initial application, grant administration, project
implementation, and performance monitoring. For administrative costs,
the desk guide also works on the basis of example, stating that
eligible administrative costs include staff to operate the program,
preparation of progress reports and audits, and monitoring of
recipients. Ineligible administrative costs include the preparation of
the Consolidated Plan and other application submissions,[Footnote 21]
conferences or training in professional fields, and salary of an
organization's executive director, except to the extent they are
involved in carrying out eligible administrative functions.
In addition to the regulations and the desk guide, HUD also publishes
the Guide for Review of ESG Cost Allowability and the Guide for Review
of ESG Financial Management as resources for grantees.[Footnote 22]
These guides, however, do not provide any additional details on the
appropriateness of administrative expenses. The guides refer to
compliance with regulations and circulars published by the Office of
Management and Budget (OMB). In particular, OMB Circular A-87, Cost
Principles for State, Local, and Indian Tribal Governments, details
principles for determining allowable costs incurred by state, local,
and federally recognized Indian tribal governments under grants and
other agreements with the federal government. These principles are not
specific to the ESG program, and the circular is not necessarily the
final authority on such matters, as it requires agencies administering
programs to issue regulations implementing the circular. HUD officials
told us the agency's ESG regulations incorporate the provisions of OMB
Circular A-87.[Footnote 23]
It is difficult to evaluate the appropriateness of grantees' ESG
administrative costs because the available sources for doing so, as
described above, are brief and not exhaustive. For example,
Pennsylvania ESG program officials undertake a number of activities
during the preaward application stage, including providing technical
assistance to applicants and offering general training every several
years, but it is not explicitly clear under the federal guidance
whether such activities are eligible administrative costs based on
available sources for evaluation. In addition, San Francisco ESG
program officials told us they included office space rental, general
overhead, and utility costs among their ESG administrative costs, but
the available sources do not address nonpersonnel costs. As a result,
it is not clear whether such specific activities are eligible
administrative costs. Further complicating the issue of examining
administrative costs is grantees' self-funding of ESG administrative
costs. To the extent grantees use other funding sources to cover
unfunded ESG administrative costs, as discussed earlier, the ESG
program standards for administrative expenses do not apply.
For subgrantees we visited, we also found that ESG administrative cost
standards were varied and can offer little or no detail for evaluating
the appropriateness of these costs. Generally, grantees address
subgrantee administrative costs by providing rules or guidance through
program solicitation documents or contracts with subgrantees. The
State of California's ESG Notice of Funding Availability, for example,
states that eligible administrative costs are "only those necessary to
administer the [ESG] grant, not to administer or operate the shelter."
In addition, specific allowable administrative expenses include staff
costs to prepare ESG reports, communications with ESG staff, payment
for the ESG share of a required audit, and staff costs associated with
processing accounting records and billings. The City of Atlanta takes
a different approach, citing administrative expenses as identified
under OMB Circular A-122, Cost Principles for Non-Profit
Organizations, as acceptable. This circular distinguishes
administrative costs from other types of expenses, and includes
consideration of a number of different expense categories.[Footnote
24] The state of Georgia took the least detailed approach among the
states we visited, as Georgia ESG program officials told us they do
not provide criteria for administrative costs because the state does
not fund these types of costs.
As with grantees, the level of detail in the various cost standards
for subgrantees' administrative costs can make it difficult to assess
the appropriateness of spending. For example, as noted, California
rules cite expenses necessary to administer the ESG grant itself, not
to administer or operate a shelter. However, one California subgrantee
reported to us that its ESG administrative activities include those
associated with client intake, handling client case management forms,
and technical support. Similarly, as noted, the City of Atlanta relies
on OMB Circular A-122, which identifies administrative costs as a form
of "indirect costs"--those incurred for common or joint objectives--
and defines "administration" as "general administration and general
expenses." However, a subgrantee also reported to us that its ESG
administrative activities include those associated with a range of
client-focused dealings spanning intake to post-program follow-up. HUD
officials told us that both client intake and case management
(including handling case management forms) activities are not eligible
administrative costs under the ESG program; rather, these activities
are eligible program costs under the shelter operations and essential
services categories. Moreover, as with grantees, a complicating factor
is subgrantees' self-funding of ESG administrative costs.
To monitor the ESG program's grantees, HUD field offices annually
conduct a risk analysis to determine which grant programs are higher
risk and thus warrant attention. According to HUD officials, the ESG
program usually is not identified for any heightened on-site
monitoring. However, HUD officials said that HUD field office staff
conduct off-site monitoring of many ESG grants annually. ESG grantees
must submit a Consolidated Annual Performance and Evaluation Report
that contains qualitative and quantitative information about ESG,
including annual expenditures and accomplishments. More broadly,
grantees prepare an annual action plan that describes, among other
things, how they plan to use ESG funds. The plan includes a brief
description of activities, and it varies as to whether the plan
includes details on administrative expenses, HUD officials told us.
[Footnote 25] Overall, HUD officials told us they have not conducted
any comprehensive evaluation of ESG administrative costs for grant
recipients.[Footnote 26]
Grantees and subgrantees in the states we visited also monitored ESG
administrative costs at varying levels of detail. Grantees told us
they generally monitored subgrantee administrative costs through
budget reviews, either before or after grant award, or both, and also
through in-office monitoring and subgrantee site visits. For example,
San Francisco ESG program officials told us they evaluate subgrantees'
audits, conduct site visits, perform business and cost reviews, and
provide technical assistance. In addition, City of Detroit ESG program
officials told us they do not perform a specific check of ESG
administrative spending but watch for any obvious problems, such as
whether a program's total administrative costs exceed 10 percent.
Further, City of Atlanta officials told us they review proposed
budgets of subgrantees as part of the application process, and
applications with administrative costs deemed to be too high (greater
than 20 percent) are rated negatively. They added that the city
monitors its ESG subgrantees annually, but does not specifically track
the administrative costs of ESG-funded activities because the city
provides no funding for these administrative costs.
Funding and Treatment of Administrative Costs Varied Across Selected
Federal Grant Programs:
We found that the funding and treatment of administrative costs varied
across the other targeted federal homeless grant programs we reviewed.
We identified variations in areas such as the administrative allowance
provided to grantees, requirements for sharing any of that allowance
with subgrantees, and guidance on the appropriateness of
administrative costs. First, as shown in figure 6, the extent to which
each program included a maximum administrative allowance varied, and
when a maximum allowance was specified, the amount of that allowance
varied widely. Among programs with a maximum administrative allowance,
the ESG program's current 5 percent maximum administrative allowance
for grantees is one of the lower allowances. The maximum
administrative allowance for the other programs that have specified a
maximum allowance ranges from 4 percent to 50 percent.
Figure 6: ESG Administrative Cost Provisions Compared to Selected
Other Federal Homeless Programs:
[Refer to PDF for image: illustrated table]
HUD: Emergency Shelter Grants Program: Emergency shelter, related
services, homeless prevention;
Administrative allowance (percentage of grant if specified) authorized
for: Grantees: less than or equal to 5% (increasing to 7.5%);
(provision/allowance);
Administrative allowance (percentage of grant if specified) authorized
for: Subgrantees: No provision/allowance, with one exception;
Provision for sharing administrative allowance: Yes, sharing
provisions vary by program;
Administrative costs not funded: Grant preparation: [Check];
Administrative costs not funded: Professional training: [Check];
Administrative costs not funded: Executive director salary[A]: [Check];
Administrative costs not funded: Unnecessary, unreasonable[B]: [Check];
Other: Law, regulations silent on whether grantees must share
allowance with nonprofit subgrantees.
HUD: Supportive Housing Program: Supportive housing, related services
for independent living;
Administrative allowance (percentage of grant if specified) authorized
for: Grantees: less than or equal to 5%; (provision/allowance);
Administrative allowance (percentage of grant if specified) authorized
for: Subgrantees: Provided, but unspecified;
Provision for sharing administrative allowance: Yes, sharing
provisions vary by program;
Administrative costs not funded: Grant preparation: [Check];
Administrative costs not funded: Professional training: [Check];
Administrative costs not funded: Executive director salary[A]: [Check];
Administrative costs not funded: Unnecessary, unreasonable[B]: [Check];
Other: Government grantees that pass on at least 50% of administrative
funds deemed to have met sharing requirement.
Labor: Homeless Veterans' Reintegration Program: Job placement for
homeless veterans;
Administrative allowance (percentage of grant if specified) authorized
for: Grantees: less than or equal to 20% (provision/allowance);
Administrative allowance (percentage of grant if specified) authorized
for: Subgrantees: Provided, but unspecified;
Provision for sharing administrative allowance: Yes, sharing
provisions vary by program;
Administrative costs not funded: Grant preparation: [Empty];
Administrative costs not funded: Professional training: [Empty];
Administrative costs not funded: Executive director salary[A]: [Empty];
Administrative costs not funded: Unnecessary, unreasonable[B]: [Check];
Other: Grantees required to attend financial management training,
which includes administrative costs.
Education: Education for Homeless Children and Youth ” Grants for
State and Local Activities: Public education for homeless children;
Administrative allowance (percentage of grant if specified) authorized
for: Grantees: less than or equal to 25%[E] (provision/allowance);
Administrative allowance (percentage of grant if specified) authorized
for: Subgrantees: Provided, but unspecified;
Provision for sharing administrative allowance: Yes, sharing
provisions vary by program;
Administrative costs not funded: Grant preparation: [Empty];
Administrative costs not funded: Professional training: [Empty];
Administrative costs not funded: Executive director salary[A]: [Empty];
Administrative costs not funded: Unnecessary, unreasonable[B]: [Check];
Other: States can impose more stringent requirements than 25% federal
rule.
Education: Homeless Education Disaster Assistance Program: Assistance
to local education agencies where homeless student enrollment
increased due to 2008 natural disasters[F];
Administrative allowance (percentage of grant if specified) authorized
for: Grantees: Provided, but unspecified;
Administrative allowance (percentage of grant if specified) authorized
for: Subgrantees: N/A (fund distributed directly);
Provision for sharing administrative allowance: N/A (fund distributed
directly);
Administrative costs not funded: Grant preparation: [Empty];
Administrative costs not funded: Professional training: [Empty];
Administrative costs not funded: Executive director salary[A]: [Empty];
Administrative costs not funded: Unnecessary, unreasonable[B]: [Check];
Other: One-time program ending in 2010; under the grant, states not
responsible for monitoring local educational agency activities.
HHS: Health Care for the Homeless: Primary health care, mental health,
substance use services;
Administrative allowance (percentage of grant if specified) authorized
for: Grantees: Provided, but unspecified;
Administrative allowance (percentage of grant if specified) authorized
for: Subgrantees: N/A (fund distributed directly);
Provision for sharing administrative allowance: N/A (fund distributed
directly);
Administrative costs not funded: Grant preparation: [Check];
Administrative costs not funded: Professional training: [Empty];
Administrative costs not funded: Executive director salary[A]: [Empty];
Administrative costs not funded: Unnecessary, unreasonable[B]: [Check];
Other: Grantees are federally qualified health centers, and may use
health center income to cover general costs, including administrative
costs.
HHS: Programs for Runaway and Homeless Youth: Immediate needs,
transitional living, street outreach services for runaway and homeless
youth;
Administrative allowance (percentage of grant if specified) authorized
for: Grantees: Provided, but unspecified;
Administrative allowance (percentage of grant if specified) authorized
for: Subgrantees: N/A (fund distributed directly);
Provision for sharing administrative allowance: N/A (fund distributed
directly);
Administrative costs not funded: Grant preparation: [Check];
Administrative costs not funded: Professional training: [Empty];
Administrative costs not funded: Executive director salary[A]: [Empty];
Administrative costs not funded: Unnecessary, unreasonable[B]: [Check];
Other: Peer monitoring process used, where reviewer selected as a
suitable peer to program under review is paired with HHS program
specialist.
HHS: Projects for Assistance in Transition from Homelessness: Support
services for homeless, or at risk of homelessness, with mental illness
or substance use disorders;
Administrative allowance (percentage of grant if specified) authorized
for: Grantees: less than or equal to 4% (provisional/allowance);
Administrative allowance (percentage of grant if specified) authorized
for: Subgrantees: No provision/allowance;
Provision for sharing administrative allowance: No provision/allowance;
Administrative costs not funded: Grant preparation: [Check];
Administrative costs not funded: Professional training: [Empty];
Administrative costs not funded: Executive director salary[A]: [Empty];
Administrative costs not funded: Unnecessary, unreasonable[B]: [Empty];
Other: No formal guidance for indirect costs, which include
administrative costs.
HHS: Grants for the Benefit of Homeless Individuals: Treatment for
homeless persons with mental illness or substance use disorders ;
Administrative allowance (percentage of grant if specified) authorized
for: Grantees: Provided, but unspecified;
Administrative allowance (percentage of grant if specified) authorized
for: Subgrantees: N/A (fund distributed directly);
Provision for sharing administrative allowance: N/A (fund distributed
directly);
Administrative costs not funded: Grant preparation: [Check];
Administrative costs not funded: Professional training: [Empty];
Administrative costs not funded: Executive director salary[A]: [Empty];
Administrative costs not funded: Unnecessary, unreasonable[B]: [Empty];
Other: Grantees must have indirect cost agreement if claiming indirect
costs, which include administration. Otherwise, grant specialists
review administrative items.
HHS: Services in Supportive Housing Program: Housing assistance and
support services for homeless persons with mental illness and
substance use disorders;
Administrative allowance (percentage of grant if specified) authorized
for: Grantees: Provided, but unspecified;
Administrative allowance (percentage of grant if specified) authorized
for: Subgrantees: N/A (fund distributed directly);
Provision for sharing administrative allowance: N/A (fund distributed
directly);
Administrative costs not funded: Grant preparation: [Check];
Administrative costs not funded: Professional training: [Empty];
Administrative costs not funded: Executive director salary[A]: [Empty];
Administrative costs not funded: Unnecessary, unreasonable[B]: [Empty];
Other: Grantees must have indirect cost agreement if claiming indirect
costs, which include administration. Otherwise, grant specialists
review administrative items.
Source: Agency documents, GAO interviews with respective agency
officials.
Note: This comparison does not include HUD's Shelter Plus Care
Program, which provides rental assistance for permanent housing.
According to HUD, the program provides an allowance for administering
rental assistance, such as providing housing information or inspecting
housing units, but does not provide funds for grant administration. On
that basis, although Shelter Plus Care is a targeted homeless program,
we excluded it from our comparison.
[A] Salary of an organization‘s executive director is an ineligible
administrative cost, except to extent he or she is involved in
carrying out eligible administrative functions.
[B] Administrative costs must be reasonable and necessary, as
indicated in OMB Circular A-87.
[C] Program‘s 20 percent administrative allowance cap applies even if
the grantee has negotiated an indirect cost rate greater than 20
percent.
[D] Limited to 20 percent total for grantees and subgrantees combined.
[E] State grantees may retain up to 25 percent of grant for state-
level activities, which may include administration; in minimally
funded states, figure is up to 50 percent.
[F] Eligibility determined according to a Federal Emergency Management
Agency compilation of disasters, available at [hyperlink,
www.fema.gov/news/disasters.fema#sev1.
[End of figure]
Second, we found that program rules for grantee sharing of
administrative allowances with subgrantees varied across homeless
programs with similar funding structures. For example, HUD's
Supportive Housing Program requires grantees to share administrative
allowances with subgrantees, but does not specify the amount.[Footnote
27] The Department of Labor's Homeless Veterans' Reintegration Program
does not require sharing of administrative allowances, but gives
grantees discretion to share with subgrantees. The ESG program
combines mandatory and discretionary sharing--it requires grantees
that are state governments to share an unspecified portion of their
administrative allowance when passing funds to local governments.
Otherwise, sharing is optional but not mandated.[Footnote 28] These
specific programs and their particular rules notwithstanding, most of
the programs we reviewed do not provide administrative cost allowances
for when grantees pass along funds to subrecipients. In all, there was
considerable variation across programs in provision of subgrantee
administrative allowances.
Third, we found that program guidance on the appropriateness of
administrative costs differed across the targeted homeless programs we
reviewed, and that no program offered comprehensive direction on
eligible and ineligible administrative activities. As noted earlier,
the ESG program's desk guide provides examples of both eligible and
ineligible administrative activities, albeit not exhaustively. By
contrast, five of the targeted programs' rules--including programs of
the Departments of Education, Labor, and Health and Human Services--do
not specifically define eligible or ineligible administrative
activities. Instead, some of these programs' rules reference OMB cost
principles and note that administrative costs must be reasonable and
necessary, as defined by OMB Circular A-87.[Footnote 29] HUD's
Supportive Housing Program follows an ESG-style example approach.
We also found that the ESG program's maximum administrative allowance
for grantees was one of the lower allowances for HUD formula grant
programs offered through HUD's Office of Community Planning and
Development. As table 2 shows, the ESG program's administrative
allowance for grantees will also remain one of the lower of the group
after it increases to 7.5 percent. The ESG program is among four
formula grant programs offered through the Office of Community
Planning and Development, which seeks to develop communities by
promoting decent housing and expanded economic opportunities for low-
and moderate-income persons. However, given the programs' diverse
missions, as also shown in table 2, the nature and amount of
administrative costs may vary among them.
Table 2: Grantee Administrative Allowance for Selected HUD Formula
Grant Programs:
Grant program and purpose: Emergency Shelter Grants Program Emergency
shelter, related services, homeless prevention;
Administrative allowance: Up to 5% of grant amount;
increasing to 7.5%;
Total allocation, FY 2009: $160 Million.
Grant program and purpose: Community Development Block Grants Range of
purposes, including affordable housing, community services, job
creation through expansion and retention of business;
Administrative allowance: Up to 20% of grant amount (also includes
planning costs);
Total allocation, FY 2009: $3.64 Billion.
Grant program and purpose: HOME Investment Partnerships Program Build,
buy, rehabilitate affordable housing for rent or ownership, or provide
rental assistance to low-income renters;
Administrative allowance: Up to 10% of grant amount;
Total allocation, FY 2009: $1.82 Billion.
Grant program and purpose: Housing Opportunities for People with AIDS
Housing, social services, program planning costs;
Administrative allowance: Up to 3% of grant amount;
Total allocation, FY 2009: $276 Million.
Source: HUD Office of Community Planning and Development:
[End of table]
Some ESG Recipients Expect the Nature of Administrative Costs to
Change and the Amount to Increase under New Activities Authorized by
the HEARTH Act:
A number of grantees and subgrantees in the states we visited and
others told us they expect that the newly allowable ESG activities
authorized by the HEARTH Act will result in different kinds of
administrative activities that in many cases will be more costly than
before. As previously noted, the act increased the range of eligible
prevention and re-housing activities to include short-or medium-term
rental assistance and housing relocation or stabilization services.
Overall, grantees and subgrantees told us they expect changes in areas
including client screening and eligibility verification, technical
assistance to subgrantees, number of applicants for grants, and
facility management and collaboration with third parties, which in
turn could affect administrative costs. For example, City of San
Francisco and Pennsylvania state officials told us the new activities
authorized by the act might result in a greater number of applicants
for grant awards, or their agencies might have to provide more
outreach and technical assistance to subgrantees. In addition, one
California subgrantee told us that they expect an effort to have
people leave shelters more quickly under the new ESG activities. This
subgrantee added that this might increase the administrative costs
associated with collecting and reporting data on an increased number
of people coming through the program. This subgrantee also said it
expects the new ESG activities to have a secondary effect in shelters
themselves, where a changing mix of residents likely will mean higher
administrative costs. This subgrantee said that new HEARTH Act-style
programs will likely enroll the best functioning people, so those left
in shelters will be relatively less functioning--and hence more costly
to manage. Another subgrantee, in Michigan, told us it is already
starting to see changes in administrative costs with expansion of
activities beyond traditional emergency shelter services and into
rapid re-housing. For example, new program activities require more
time for administration, both internally and externally, and there
have been organizational changes such as in handling of rent funds.
Finally, one California subgrantee estimated its administrative costs
could rise from about 3.5 percent to between 12 percent to 14 percent
under the new ESG activities. As noted previously, however, HUD
officials told us that some subgrantees we visited appear to be
confusing program activities with administrative activities, which
might have affected their estimates of actual administrative costs.
While a number of grantees and subgrantees told us they expect the
nature of administrative activities to change, and their costs to
increase, not all the recipients we visited agreed that higher
administrative costs are likely. For example, a Pennsylvania
subgrantee told us it anticipates that the administrative costs
associated with a prevention program would probably be equal to the
costs of a shelter program, and it would not expect costs to be higher
unless program requirements become more onerous. California state
officials told us they do not expect the nature or amount of
administrative costs will change with new program activities, because
activities already change frequently today. Similarly, a Michigan
subgrantee told us that barring any increase in regulatory
requirements, it does not expect any added burden in areas such as
reporting of program activity, audit duties, or office space required
for administration. Overall, expectations about higher administrative
costs are plainly prospective in nature, because the new activities
have not yet been implemented.
Although the HEARTH Act makes significant changes to allowable ESG
activities, it remains unclear when actual program changes might be
implemented. According to HUD officials, the total funds allocated to
the ESG program will determine the extent to which money is available
for the new services. HUD officials also told us that a significant
increase in ESG funding, along with significant program changes, could
increase grantees' costs of monitoring and reporting, because more
money must be tracked and monitored in conjunction with a wider array
of program requirements.[Footnote 30]
Uncertainty over how and when the new ESG program might be
implemented, as well as variation in the nature of administrative
activities seen in the current ESG program, complicate any attempt to
determine the appropriate size of the program's administrative
allowance. Providing such an allowance helps ensure funds are spent
properly and directed to their appropriate purpose. But if the
allowance is insufficient to allow adequate administration and
oversight, program efficiency and effectiveness could be at risk.
Grantees and subgrantees we spoke with reported that the current ESG
administrative allowance does not fully cover their administrative
costs. Moreover, our work indicates that even with the new
administrative allowance of 7.5 percent, the ESG program would still
have one of the lower allowances among similarly structured homeless
grant programs. If the new ESG program increases in complexity or
scope of services, its administrative cost allowance will take on even
more significance in the future.
Agency Comments and Our Evaluation:
We provided a draft of this report to the Departments of Housing and
Urban Development, Education, Health and Human Services, and Labor for
their review and comment. HUD did not provide formal comments, but
noted by e-mail that some subgrantees we visited may not be making a
proper distinction between program costs and administrative costs,
which could have the effect of overstating any need for a larger ESG
administrative allowance. We reflected this sentiment throughout this
report as appropriate. HUD further indicated that the department would
examine what steps it could take to help grantees and subgrantees
better understand which administrative costs can be funded under the
ESG program and the extent to which administrative costs differ from
activity delivery costs. HUD added that these steps would include
providing greater clarity and detail on what costs are eligible under
the different ESG activity categories, including administrative costs,
in a proposed new rule the department is developing to implement the
changes to the McKinney-Vento Homeless Assistance Act provided in the
HEARTH Act. HUD also provided technical comments by e-mail, which we
have incorporated into the report as appropriate.
The Secretaries of Education, Health and Human Services, and Labor did
not provide comments.
We are sending copies of this report to interested congressional
committees and the Secretaries of the Departments of Housing and Urban
Development; Education; Health and Human Services; and Labor. This
report will also be available at no charge on GAO's Web site at
[hyperlink, http://www.gao.gov]. Please contact me at (202) 512-8678
or cackleya@gao.gov if you or members of your staffs have any
questions about this report. Contact points for our Offices of
Congressional Relations and Public Affairs may be found on the last
page of this report. See appendix II for key contributors to this
report.
Signed by:
Alicia Puente Cackley:
Director, Financial Markets and Community Investment:
List of Committees:
The Honorable Christopher J. Dodd:
Chairman:
The Honorable Richard C. Shelby:
Ranking Member:
Committee on Banking, Housing, and Urban Affairs:
United States Senate:
The Honorable Robert Menendez:
Chairman:
The Honorable David Vitter:
Ranking Member:
Subcommittee on Housing, Transportation and Community Development:
Committee on Banking, Housing, and Urban Affairs:
United States Senate:
The Honorable Barney Frank:
Chairman:
The Honorable Spencer Bachus:
Ranking Member:
Committee on Financial Services:
House of Representatives:
The Honorable Maxine Waters:
Chairwoman:
The Honorable Shelley Moore Capito:
Ranking Member:
Subcommittee on Housing and Community Opportunity:
Committee on Financial Services:
House of Representatives:
[End of section]
Appendix I: Scope and Methodology:
To determine the types of administrative activities performed and
costs incurred under the Emergency Shelter Grants Program (ESG) of the
U.S. Department of Housing and Urban Development (HUD), and the extent
to which grant proceeds cover these administrative costs, we made site
visits to four states: California, Georgia, Michigan, and
Pennsylvania. We selected these states based on the amount of ESG
funding distributed to these grantees for fiscal year 2009 and their
geographic location across the country. We initially identified state-
level grantees receiving more than $1.5 million in ESG funding, in
order to focus on states with relatively more ESG activity. This
criterion reduced our target group to 20 states. We judgmentally
selected the four states we visited by considering proximity of the
capital city, where state officials are located, to the location of
other grantees we could visit concurrently. Within the four states, we
visited nine grantees (four state governments and five local
governments) and 25 subgrantees. This allowed us to obtain
illustrative observations from state officials, local government
officials, and representatives of local homeless service providers on
the operation of the ESG program, with an emphasis on type and level
of spending to administer grants received under the program. Table 3
provides details on grantees' receipt of ESG funds in the states we
visited.
Table 3: ESG Grantee Summary for States Visited, Fiscal Year 2009:
State government award;
California: $6.8 million;
Georgia: $2.2 million;
Michigan: $2.8 million;
Pennsylvania: $3.2 million.
Total awards to local governments;
California: $13.4 million;
Georgia: $1.4 million;
Michigan: $2.9 million;
Pennsylvania: $6.4 million.
Number of local governments with awards;
California: 46;
Georgia: 8;
Michigan: 10;
Pennsylvania: 22.
Median local award;
California: $147,700;
Georgia: $131,800;
Michigan: $138,000;
Pennsylvania: $149,200.
Largest local award;
California: $3.2 million Los Angeles (city);
Georgia: $368,900 Atlanta;
Michigan: $1.6 million Detroit;
Pennsylvania: $2.3 million Philadelphia.
Smallest local award;
California: $84,000 Fontana;
Georgia: $91,800 Clayton County;
Michigan: $81,000 Genesee County;
Pennsylvania: $85,100 Wilkes-Barre.
Source: GAO analysis of U.S. Department of Housing and Urban
Development data.
Note: Figures for state governments, total awards to local governments
rounded to nearest $100,000; local award figures rounded to nearest
$100.
[End of table]
The states we visited collectively received 24.5 percent of the total
ESG funds HUD awarded to grantees in fiscal year 2009. Because we used
a nongeneralizable sample to select state grantees that had received
larger amounts of ESG funding in fiscal year 2009, our findings cannot
be used to make inferences about other grant recipients. Other
grantees that we did not visit may have different characteristics that
are unknown to us. However, we believe that our selection of the
states and recipients was appropriate for our design and objectives,
and that the selection provides valid and reliable evidence to support
our work. We interviewed grantees and subgrantees in the states we
visited to obtain information on administrative activities performed,
the cost of performing those activities, and related topics.[Footnote
31] We also interviewed HUD officials, plus representatives of
national organizations involved with homeless issues, that are
familiar with trends in charitable giving, or that represent local
governments. We also researched the legislative history of the ESG
program. We examined HUD guidance, federal regulations, and relevant
Office of Management and Budget (OMB) circulars on allowability of
administrative costs, including circulars A-87, Cost Principles for
State, Local, and Indian Tribal Governments, and A-122, Cost
Principles for Non-Profit Organizations. Further, we reviewed state
and local government ESG solicitation documents, such as Notices of
Funding Availability and Requests for Proposal.
To determine how the ESG program's allowance for administrative costs
compares with administrative cost allowances for selected other
targeted federal homeless grant programs, plus selected other HUD
formula-based grant programs, we interviewed officials from HUD and
the Departments of Education, Labor, and Health and Human Services. We
examined relevant federal statutes and regulations, as well as
relevant OMB circulars. We also examined program guidance and
documents, such as desk guides, resource manuals, solicitations for
grant applications, and requests for applications, for the federal
targeted homeless grant programs and the other HUD formula grant
programs that we reviewed.
To determine how the nature or amount of administrative costs might be
different under the changes Congress made to the ESG program in the
Homeless Emergency Assistance and Rapid Transition to Housing Act of
2009, we reviewed relevant provisions of the act detailing the newly
allowable activities. We also interviewed HUD officials, state and
local government officials, representatives of homeless organizations,
and homeless service providers to obtain their perspectives.
We conducted this performance audit from August 2009 to May 2010, in
accordance with generally accepted government auditing standards.
Those standards require that we plan and perform the audit to obtain
sufficient, appropriate evidence to provide a reasonable basis for our
findings and conclusions based on our audit objectives. We believe
that the evidence obtained provides a reasonable basis for our
findings and conclusions based on our audit objectives.
[End of section]
Appendix II: GAO Contact and Staff Acknowledgments:
GAO Contact:
Alicia Puente Cackley, (202) 512-8678, or cackleya@gao.gov:
Staff Acknowledgments:
In addition to the individual named above, Marshall Hamlett, Assistant
Director; William Chatlos; Meredith Graves; Kun-Fang Lee; Marc Molino;
Christopher Schmitt; Jennifer Schwartz; and Paul Thompson made major
contributions to this report.
[End of section]
Footnotes:
[1] See The 2008 Annual Homeless Assessment Report to Congress, U.S.
Department of Housing and Urban Development, Office of Community
Planning and Development, July 2009.
[2] Grantees that make subgrants are responsible for ensuring that
subgrantees comply with ESG program requirements.
[3] The HEARTH Act is contained in Division B of Public Law 111-22.
Pub. L. No. 111-22 § 1001, et seq., 123 Stat. 1632 (May 20, 2009).
[4] In this report, we use "ESG" primarily to refer to the current
version of the program, because the new Emergency Solutions Grants
Program, as authorized by the HEARTH Act, has not yet been
implemented. Where appropriate, we distinguish between the current
program and the new program.
[5] Targeted homeless programs such as ESG are designed to
specifically assist people experiencing homelessness; homeless persons
may also obtain assistance from mainstream programs, which are not
specifically designed to assist them. Examples of such mainstream
programs include Medicaid, HUD's Section 8 Rental Voucher Program, and
employment and training activities provided under the Workforce
Investment Act. See, for example, GAO, Homelessness: Barriers to Using
Mainstream Programs, [hyperlink,
http://www.gao.gov/products/GAO/RCED-00-184] (Washington, D.C.: July
6, 2000).
[6] The Homeless Housing Act of 1986 was enacted at Pub. L. No. 99-500
§ 101(g), 100 Stat. 1783 (Oct. 18, 1986) and Pub. L. No. 99-591 §
101(g), 100 Stat. 3341 (Oct 30, 1986). In 1987, the ESG program was
incorporated into Subtitle B of Title IV of the Stewart B. McKinney
Homeless Assistance Act. Pub. L. No. 100-371 (July 22, 1987).
[7] For purposes of the CDBG formula, a metropolitan city is a city
within a metropolitan area that is the central city of the area, as
defined by the Office of Management and Budget (OMB), or any other
city within a metropolitan area that has a population of 50,000 or
more. An urban county is, generally, one meeting specified population
or density requirements. 24 C.F.R. § 576.3; see Housing and Community
Development Act of 1974, as amended, 42 U.S.C. § 5302(a). Prior to the
CDBG-based allocation, HUD first sets aside 0.2 percent of the annual
appropriation for allocation among U.S. territories.
[8] According to HUD, the grantees were: the 50 states, the District
of Columbia, Puerto Rico, 202 metropolitan cities, 102 urban counties,
and the U.S. territories of Guam, Virgin Islands, American Samoa, and
the Northern Mariana Islands.
[9] Grantees that are local governments may comply with the matching
requirement by providing matching funds themselves, or through
matching funds or voluntary efforts provided by any subgrantee. For
state grantees, ESG subgrantees can also contribute the matching
funds, but each state grantee must distribute the benefit of a
$100,000 credit toward the state's required match amount to those
subgrantees that are least capable of contributing matching funds.
Matching funds can be cash or other forms including donated materials,
rental value of a building, or value of time and services contributed.
Territories are not subject to the matching requirement.
[10] As noted previously, the 5 percent limitation, set forth at 42
U.S.C. § 11378, will increase to 7.5 percent when the pertinent
provisions of Pub. L. No. 111-22 take effect. The effective date is
the earlier of 18 months from the date of enactment (May 20, 2009) or
3 months after the publication of HUD's final regulations implementing
the amendments, which are to be promulgated not later than 12 months
after the date of enactment. Pub. L. No. 111-22 § 1503.
[11] See Pub. L. No. 111-22 § 1202.
[12] See Rapid Re-Housing: Creating Programs That Work, National
Alliance to End Homelessness, Washington, D.C., July 2009.
[13] As noted earlier, ESG funding may reach eligible projects through
different routes. In our state visits, we spoke with homeless service
providers that were nonprofit organizations. We did not visit any
local governments that use ESG funds to provide homeless services
themselves. We refer collectively to the nonprofit organizations we
visited as "subgrantees."
[14] Representatives of two national organizations we contacted that
are familiar with charitable giving--the National Council of
Nonprofits and the Center on Nonprofits and Philanthropy of the Urban
Institute--echoed the views of the subgrantees, saying there is a
pronounced trend toward more restricted donations, accompanied by a
growing awareness among nonprofits that too much restricted funding
can undermine their ability to perform by not providing enough money
for essential general and administrative activities.
[15] Our review focused on current ESG grantees and subgrantees. We
did not seek to identify any instances of grantees or subgrantees
dropping out of the ESG program, or declining to participate, because
of unfunded administrative costs.
[16] For one subgrantee, the mitigating factor was the ability to
realize economies by using data produced for other purposes to satisfy
ESG requirements. For the other, officials told us that cost
notwithstanding, they believed it is important to be an active
participant in the local community.
[17] In general, federal grant programs can treat administrative
expenses, and expected contributions by grant recipients, a number of
different ways. See, for example, GAO, Human Service Programs:
Demonstration Projects Could Identify Ways to Simplify Policies and
Facilitate Technology Enhancements to Reduce Administrative Costs,
[hyperlink, http://www.gao.gov/products/GAO-06-942] (Washington, D.C.:
Sept. 19, 2006). This report describes, among other things, how
definitions of administrative costs vary across programs, and how
federal and state participation in funding administrative costs can be
governed by matching rates, block grants, spending caps, or other rules.
[18] See, for example, GAO, Title I: Although Definitions of
Administrative Expenditures Vary, Almost All School Districts Studied
Spent Less Than 10 Percent on Administration, GAO-03-386 (Washington,
D.C.: Apr. 7, 2003). Additionally, a relevant OMB circular--OMB
Circular A-87, Cost Principles for State, Local, and Indian Tribal
Governments--does not define administrative costs. Similarly, OMB
Circular A-122, Cost Principles for Non-Profit Organizations, which
establishes cost principles for determining costs of grants, contracts
and other agreements with nonprofit organizations, states that
"because of the diverse characteristics and accounting practices of
non-profit organizations, it is not possible to specify the types of
cost which may be classified as indirect cost in all situations,"
where "indirect cost" includes "administration" expenses.
[19] See 24 CFR 576.3 (defining ESG "administrative costs" by
reference to 24 C.F.R. § 583.135(b)).
[20] Id.
[21] According to HUD, a Consolidated Plan is a plan resulting from a
collaborative process in which a community establishes a unified
vision for community development. The process aims to have local
jurisdictions shape various housing and community development programs
into coordinated neighborhood and community development strategies.
HUD requires jurisdictions receiving ESG grants, among other programs,
to submit a Consolidated Plan detailing objectives for community
revitalization.
[22] These are contained within HUD's CPD Monitoring Handbook, which
contains HUD monitoring criteria for programs administered by HUD's
Office of Community Planning and Development.
[23] See, e.g., 24 C.F.R. § 576.57 (specifying applicability of OMB
Circulars).
[24] The circular identifies administrative costs as a form of
"indirect costs"--those incurred for common or joint objectives--and
specifically defines "administration" as "general administration and
general expenses" such as a director's office, accounting, personnel,
library expenses, and other nonfacility expenses. OMB Circular A-122,
Attachment A (Revised June 9, 2004). See 2 C.F.R. Part 230.
[25] In addition to HUD's own monitoring of grantees, there can also
be monitoring by entities other than HUD. For example, officials of
the Michigan State Housing Development Authority, which runs the
state's ESG program, described to us how credit rating agencies play a
role in overseeing their agency's performance. As an issuer of bonds,
the authority is subject to evaluations by credit rating agencies.
According to authority officials, the ratings agencies look at such
things as the authority's finances, legal situation, and program and
service delivery. The officials told us that despite the scrutiny,
rating agency attention is more constructive than a liability and has
contributed to the agency's financial stability and ability to expand.
[26] HUD officials said the last major evaluation of the ESG program
was in 1994; see HUD Office of Policy Research and Development,
Evaluation of the Emergency Shelter Grants Program, Washington, D.C.,
prepared by Abt Associates: September 1994. The report contains
limited discussion of administrative costs. Since then, the agency has
not undertaken a separate analysis of ESG administrative costs,
officials told us.
[27] Under the program, when a state or local government receives a
grant to fund projects operated by nonprofit organizations, the
administrative funds provided as part of the grant must be passed on
to the nonprofit in proportion to the administrative burden borne. HUD
considers sharing of at least 50 percent of the administrative
allowance as meeting this requirement.
[28] Regarding sharing of the ESG administrative allowance in
particular, subgrantees to whom we spoke said they would welcome
additional money, but there were mixed views about requiring sharing
in all cases. Some said sharing should be mandated and questioned the
worth of the activities performed by grantees. Other service
providers, however, said they recognized that grantees themselves have
legitimate administrative costs or that programs could suffer if their
administrative funding were reduced through a mandatory sharing
feature. HUD officials echoed this view, saying that in focus groups
held in preparation for writing the HEARTH Act regulations,
participants were divided on whether there should be mandatory
sharing. If sharing were required, less funding would be available for
programs. HUD officials also told us it is a significant concern for
them that oversight could be compromised if grantees are required to
transfer some of their administrative allowance to local service
providers.
[29] HUD officials said they have adopted OMB's reasonable and
necessary standard into the agency's own rules.
[30] HUD officials told us they are drafting regulations to implement
the new Emergency Solutions Grant Program, but did not specify a
schedule for publishing proposed regulations for public comment. HUD
expects to implement the new ESG program in the fiscal year 2011
allocation process. In its fiscal year 2011 budget proposal, HUD
requested $200 million for the new ESG program, a 25 percent increase
above the $160 million allocated for ESG in fiscal year 2010.
[31] We obtained cost information expressed as a percentage of the ESG
grant amount. The amounts reported to us generally were estimates and
not the product of formal accounting systems, because ESG grant
recipients generally did not track ESG administrative costs
specifically. We compared the cost figure to any administrative
allowance received from ESG grant proceeds, also expressed as a
percentage of the grant amount. We netted the two amounts to calculate
any unfunded ESG administrative expenses.
[End of section]
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