Public Housing Operating Fund (Formerly Payments for Operation of Low-income Housing Projects)

PROGRAM HIGHLIGHTS

NA = Not Applicable.

a/ Beginning in fiscal year 1998, the estimate for HA-owned units under management excludes Indian units, since they are ineligible for funds under the Public Housing Operating Fund.
b/ Excludes $41 million of fiscal year 1998 funds that were inadvertently not obligated prior to the end of the fiscal year. These funds will be allocated to a single HA in fiscal year 1999 to restore full fiscal year 1998 eligibility.
c/ Represents outlays from 1998 obligations of the "Public Housing Operating Fund" account, as well as pre-1998 obligations of the balances transferred from the "Preserving Existing Housing Investment" account and the "Payment for Operation of Low-Income Housing" account.

SUMMARY OF BUDGET ESTIMATES

1. SUMMARY OF FISCAL YEAR 2000 BUDGET REQUEST

   The fiscal year 2000 Budget proposes an appropriation of $3.003 billion for the Public Housing Operating Fund. This Fund provides operating subsidy payments to approximately 3,200 Housing Authorities (HAs) with a total of 1,243,100 units under management.

   The Quality Housing and Work Responsibility (QHWR) Act of 1998 directs the development of a new allocation formula for the distribution of the fiscal year 2000 PH Operating Fund appropriations. Pending development of the new formula, the fiscal year 2000 Budget request has been developed based on estimated requirements under the existing formula, the Performance Funding System (PFS).

   The fiscal year 2000 Budget proposes that HAs will receive the full 100 percent of their PFS subsidy eligibility which, on average, represents 60 percent of the total operating expenses of HAs. In fiscal year 2000, PHAs will have the discretion to transfer PH Capital Fund resources for operating expenses or vice versa. Small PHA's have full flexibility without any limitations. For large PHAs, this discretion may not exceed 20 percent, and must be included in the PHA's Plan, which is subject to the review and approval by HUD. The Operating Fund formula determines the level of funding necessary to enable HAs to provide a reasonable level of services, including maintenance, utilities, and protective services to residents. The requested level of funding will allow HAs to provide decent, safe, and sanitary housing for lower-income families as required by the United States Housing Act of 1937.

   The fiscal year 2000 Budget continues the Department's transformation of the public housing program through Management 2020 by pursuing administrative, regulatory and legislative changes that will: (1) remove and replace the worst public housing; (2) turn around troubled HAs and improve all aspects of PHA management; (3) promote greater income diversity in public housing communities and allow HAs to implement rent policies that encourage and reward work, and are coordinated with welfare reform; (4) demand greater household responsibility as a condition of housing assistance through more vigorous screening, eviction, and lease enforcement provisions; and, critically, (5) implement the Administration's key management reforms in order to ensure excellence and accountability in HA management. Important provisions for management reform include program consolidation and streamlining, deregulation of well-managed HAs, an improved performance assessment system for HAs that includes increased reliance on assessments of physical conditions, and more focused treatment of the most troubled HAs. The QHWR Act of 1998 will provide new opportunities for the improvement of public housing operations.

   It is essential to equip HAs with the tools they need in order to continue to provide public housing while at the same time promoting economies in operating subsidies. The Administration's proposal reflects this need.

2. CHANGES FROM 1998 ESTIMATES INCLUDED IN 1999 BUDGET

   A comparison of Fiscal Year 1998 actual data with the estimates included in the Fiscal Year 1999 Budget follows:

   

   The number of units under management by HAs at the end of fiscal year 1998 was 23,562 higher due to a modification in the number of demolitions in fiscal year 1997, as well as a significant decrease in the number of actual demolitions which occurred during 1998. Obligations during fiscal year 1998 were $73.9 million more than estimated in the 1999 Budget. The expectation that 1998 requirements would repeat the 1997 experience of decreasing by $113.9 million, primarily due to higher tenant income, did not materialize. Instead, actual 1998 operating subsidy requirements were $103 million higher, primarily due to higher than anticipated increases in utility costs.

3. CHANGES FROM 1999 ESTIMATES INCLUDED IN THE 1999 BUDGET

   Summarized below are changes in the fiscal year 1999 estimates that impact on the fiscal year 2000 request.

   

   The funding available for fiscal year 1999 includes $40.7 million carried over from fiscal year 1998. Fiscal year 1999 outlays for operating subsidies are currently estimated to decrease by $54.9 million from the estimate in the 1999 Budget. This decrease is directly attributed to the $73.5 million reduction in the amount of carryover from 1998 that was expected to be available for 1999. Actual carryover from 1998 into 1999 was $40.7 million instead of the $113.4 million projected to be available for 1999 in the 1999 Budget.

EXPLANATION OF INCREASES AND DECREASES

Fiscal year 2000 outlays of $2.9 billion represent the spendout of prior year obligated balances as well as first year disbursements from fiscal year 2000 budget authority of $3.003 billion.

The table below compares the principal factors comprising the fiscal year 1999 estimated available budget authority to those estimated for fiscal year 2000.

As shown in the table, the fiscal year 2000 Budget proposes an appropriation of $3.003 billion for the Public Housing Operating Fund, which is $185 million more than the current estimated requirements for fiscal year 1999.

Specific factors affecting the fiscal year 2000 operating subsidy estimates are:

1. Economic Assumptions. The fiscal year 2000 estimates reflect the most recent assumptions about inflation and assume a three percent increase in non-utility costs and a 3.4 percent increase in utility rates. Increases in tenant income are reflected separately under "Change in Rental Income/Income Targeting." The calculation of individual HA subsidy requirements includes the use of an inflation factor which is a weighted average percentage increase in local government wages and salaries for the area in which the HA is located and non-wage expenses.

2. Adjustments to Operating Subsidy Requirements. The fiscal year 2000 estimate reflects adjustments in operating subsidy requirements for various HA income and expense factors based on both existing and anticipated legislation, procedures and regulations affecting tenant rent payments and HA operating costs. These adjustments reflect the following factors:

1. Non-Dwelling Units. The estimate reflects additional operating subsidies for the cost of funding for units removed from the dwelling rental inventory for non-dwelling use to support resident economic self-sufficiency and anti-drug programs.

2. Family Self-Sufficiency (FSS). The estimate for Family Self-Sufficiency (Section 554 of the Cranston-Gonzalez National Affordable Housing Act), includes the salary/benefit cost associated with the public housing share of a full-time FSS coordinator for each HA with a HUD approved FSS Action Plan. The estimated cost also includes the subsidy of one non-dwelling unit in each FSS HA for the provision of supportive services.

3. Unit Reconfigurations. The estimate for unit reconfigurations includes the costs resulting from Section 118 of the 1987 HCD Act requirement which eliminates subsidy reductions due to unit reconfiguration (breakthroughs) where the same number of people can reside in the new larger unit formed by combining two or more smaller units.

4. Transition Funding for Demolitions. The Department has published a regulatory change which adds a provision to the PFS to provide a short transition period of funding for HAs that have received approval to demolish units, and have not received replacement Section 8 certificates or vouchers. The purpose of the change is to encourage and support efforts by HAs to reduce overhead costs in a planned and orderly manner when the inventory of units is reduced by demolition.

5. Earned-Income Disregard. The Quality Housing and Work Responsibility Act of 1998 assists families in public housing to transition from welfare to work by prohibiting public housing tenant rent increases as a result of increased income due to employment during the 12-month period beginning on the date the employment began when the earned income increase is the result of a family member who (1) was unemployed for at least 12 months, (2) is participating in a self-sufficiency program or job training program, or (3) is, or was in the past 6 months, receiving welfare. Implementation instructions for this provision of the new Act which is effective October 1, 1999 will be issued in fiscal year 1999.

6. Income Targeting. The Quality Housing and Work Responsibility Act of 1998 provide: (1) public housing deconcentration requirements, (2) annual requirements for serving families with incomes below thirty percent of area median income, and (3) permanent repeal of Federal preferences and authorization for local preferences in public housing. Through these and other mechanisms, HAs may increase income diversity in public housing.

7. Minimum Rents. The Quality Housing and Work Responsibility Act of 1998 continues previous statutory authority of allowing minimum rents of up to $50 for public housing and Section 8 tenant-based assistance, moderate rehabilitation and project-based certificates. The New Act establishes certain exceptions to the minimum rent requirements for hardship circumstances and bars eviction for 90 days if a family requests a hardship exemption and the PHA or HUD determine that the hardship is temporary. During the 90-day period, the family must demonstrate that the financial hardship is of a long-term basis. Paying a minimum rent requires most families in assisted housing to make some contribution to support the operation of their unit.

8. Utilities Rolling Base. The estimate of utilities expenses reflects regulations that require the use of a "rolling-base" consumption level consisting of average consumption levels for the most recent 3-year period. This includes energy saving improvements funded from the Public Housing Capital Fund, which will continue to decrease subsidy requirements for utility expenses.

9. Moving To Work/Job Plus Demonstration. Moving to Work (MTW) is a demonstration program that allows HAs to design and test ways to give incentives to families to become economically self-sufficient, achieve programmatic efficiencies and reduce costs, and increase housing choice for low-income households. The purpose of this demonstration program is to develop more effective strategies and replicable models for managing public housing and tenant-based housing assistance and achieving self-sufficiency among assisted families. The program was authorized by Section 204 of the fiscal year 1996 HUD Appropriations Act. For selected sites, and where reasonable and consistent with the overall objectives of the MTW demonstration, the Department is proposing: to ensure fixed subsidy levels to fairly judge if selected HAs can achieve efficiencies and deliver services more effectively within existing resource levels; and for a limited number of sites substantially testing self-sufficiency and rent incentives, HUD may decide to hold reasonable sites harmless by absorbing the cost of these incentives through PFS modifications.

PROGRAM DESCRIPTION

The Quality Housing and Work Responsibility Act (QHWR) of 1998 directs the development of a new allocation formula for the distribution of the fiscal year 2000 PH Operating Fund appropriations. Pending development of the new formula, the fiscal year 2000 Budget request has been developed based on estimated requirements under the existing formula, the Performance Funding System (PFS).

Operating subsidies are currently provided to HAs to assist in funding the operating and maintenance expenses of their owned dwellings in accordance with Section 9 of the United States Housing Act of 1937, as amended. Annual subsidy requirements are calculated on the basis of the PFS formula which takes into account what it would cost a comparable well-managed HA to operate its units. Requirements are calculated separately for certain "non-PFS" areas (i.e., Alaska, Guam, Puerto Rico and the Virgin Islands) and HA-owned homeownership projects due to their unique operating characteristics. The non-PFS HAs are treated individually because the PFS formula was not designed to apply to their economic markets.

Non-utility operating costs for each HA are based on what it would cost a well-managed HA of comparable location and characteristics to operate based on a PFS equation, including such variables as the local government wage rate index, ratio of three or more bedroom units to total dwelling units, and the ratio of two or more bedroom units in high rise family projects to total dwelling units. These cost levels are updated annually based on inflation and changes in the HA characteristics included in the equation. Utility expenses are estimated separately based on rules that set consumption at the average of a prior 3-year period ("rolling-base") and changes in utility rates.

The figures below reflect an aggregate pattern of expenditures from fiscal year 1997 and may vary substantially for individual agencies. This data does not reflect the impact on expenditures that may occur from recent statuary changes under the Quality of Housing and Work Responsibility (QHWR) Act of 1998 or the result of Department current negotiated rulemaking to modify the PFS formula.

Utilities. Includes water, electricity, gas, fuel, and related labor expenses.

Administration. Includes administrative salaries, legal, expenses, staff training, travel, accounting fees, auditing fees, sundry, and outside management costs.

General Operating Expenses. Includes insurance, payments made to local governments in lieu of taxes, terminal leave payments, employees benefit contributions, collection losses, interest on administrative and sundry notes, and other general expenses.

Ordinary Maintenance and Operations. Consists of expenses for labor, materials, contracts and garbage fees associated with the day-to-day operation of the public housing authority.

Tenant Services. Covers salaries, recreation, publication, contract costs, training, and other expenses.

Protective Services. Includes expenses for labor, materials, and contract costs.

Capital Expenditures. Includes extraordinary maintenance, casualty losses and property betterments (e.g. roofs and furnaces).

Operating Reserves. Provides working capital funds, cushion for emergencies and to cover any future operating expenses.

FISCAL YEAR 2000 PERFORMANCE MEASURES

Performance Assessment Overview

Through fiscal year 1999, the Department evaluates PHA management through the Public Housing Management Assessment Program (PHMAP). PHMAP, developed in accordance with section 502 of the Cranston-Gonzalez National Affordable Housing Act, identified HA management capabilities and deficiencies and provides non-monetary incentives to high-performing HAs. It has been used by the Department as a tool to rate HAs' performance and to gauge HAs' progress toward key Federal program objectives. Under PHMAP, HUD evaluated a HA's performance in the following areas: vacancy rate and unit turnaround; modernization; rents uncollected; work orders; annual inspection of units and systems; financial management; resident services and community building; and security. These performance measures will be used to rate all HAs at least annually as well as to determine which agencies are troubled or at risk of being troubled.

HUD defines a HA as "troubled" if it scores less than 60 out of a possible 100 under the PHMAP management evaluation system. Troubled agencies would have a maximum period of time in which to show steady improvement to avoid a declaration of breach or default and installation of an alternate administrator. In 1992, the number of troubled agencies appeared almost unmanageable. But, HUD has reduced the troubled agencies to a manageable number and confronted the remaining ones in sequence, starting with the worst. Among the 40 largest housing authorities, eight remain classified as "troubled." HUD has an intensive recovery partnership in place for each one.

As part of the Department's Management 2020 reform effort, a new grading and inspection system, called the Public Housing Assessment System (PHAS) will be implemented for HAs with fiscal year ending on or after September 30, 1999. Prior to receiving its first PHAS score, each HA will receive an advisory PHAS score. The PHAS advisory score is designed to illustrate to an HA, a reasonable facsimile of the score it would receive if PHAS was in place during fiscal year 1999. In this way, each HA has an opportunity to evaluate its standing vis-a-vis both systems.

The PHAS score will be based on a physical condition inspection, financial condition, management operations, and resident service and satisfaction survey for each HA. The PHAS will designate HAs as either high, standard, or troubled performers. HAs that score 90 or higher on a 100-point scale will be labeled as high performers and given more operating flexibility. HAs scoring below 60 will be judged to be troubled performers and will get help from the Department's Troubled Agency Recovery Center in order to improve performance and meet HUD's new standards.

Performance Measures

Four performance measures for this Fund are as follows:

1.*/ Improve average Public Housing Assessment System (PHAS) score to 88.5 percent by fiscal year 2000. This measure will be replaced starting in fiscal year 2001 (see performance measure #2).

2.*/ For Public Housing Assessment System (PHAS), improve HA numbers in each performance category: a) increase number of HAs passing with distinction, (b) increase/maintain number of HAs passing, and (c) decrease the number of HAs failing.

3. Increase the percentage of heads of household residing in public housing deriving most of their income from work (pertains to non-elderly, non-disabled families).

4. Increase the percentage of heads of household who move from welfare to work while residing in public housing (pertains to non-elderly, non-disabled families).

*/ As part of the Department's management reform effort, PHMAP assessment methodology for HAs is undergoing conversion in fiscal year 1999 to a new grading and inspection system known as the Public Housing Assessment System (PHAS). New baseline data will be available after fiscal year 1999, at which time the fiscal year 2000 goals will be established.