PROGRAM HIGHLIGHTS

SUMMARY OF BUDGET ESTIMATES

1. SUMMARY OF BUDGET REQUEST

The Budget proposes an appropriation of $2.955 billion for the Public Housing Capital Fund in fiscal year 2001.

To update information on the magnitude of PHA Capital requirements, and the impact of HOPE VI funding on those requirements, the Department contracted a comprehensive Study which was conducted during a 10-month period beginning in the spring of 1998. Based on a nationally representative sample of the public housing stock, existing backlog modernization needs exceed $20 billion with new needs accruing at an annual rate of approximately $2 billion. The backlog would have been much higher without the annual appropriations for the Public Housing Capital Fund and HOPE VI programs.

The Department remains committed to improving the Nation's public housing through: (1) the development of new public housing that blends into the community, often to replace demolished obsolete housing; (2) the rehabilitation of viable stock, and (3) the demolition of non-viable units. Given the results of the Study, the requested funding is vital to achieve HUD's goal of sustaining the existing housing resources and to bring change to public housing within a reasonable period of time.

The Budget request of $2.955 billion includes up to $100 million for technical assistance, contract expertise, training, troubled authorities intervention, independent physical inspections (including inspections by the Real Estate Assessment Center), and management improvements.

The fiscal year 2001 Budget request also includes $55 million for the Resident Opportunity and Self-Sufficiency (ROSS) program (formerly funded through the Community Development Block Grant (CDBG) appropriation), and two original proposals: (1) up to $10 million to provide incentives for small PHAs to form consortia or other consolidations, and (2) up to $1 million for the development of a loan guarantee program to provide PHAs with a mechanism to increase and accelerate the availability of funds to meet their capital improvement needs.

Summary Of Program Strategic Goals/Objectives

The Capital Fund is essential to achieve HUD's Strategic Goal 1: Increase the availability of decent, safe and affordable housing in American communities, and specifically Strategic Objective 1.2-to provide affordable rental housing for low-income households and Strategic Objective 1.3-to ensure that America's housing is safe and disaster-resistant. In addition, funding for this program supports Strategic Goal 3: Promote self-sufficiency and asset development by families and individuals, and specifically Strategic Objective 3.2-to enable poor and disadvantaged families and individuals to become self-sufficient and develop assets. Funding for the Capital Fund also contributes to Strategic Goal 4: Improve community quality of life and economic vitality, Strategic Objective 4.3-to ensure communities are safe.

2. CHANGES FROM 1999 ESTIMATES INCLUDED IN THE 2000 BUDGET

Of the total $4.6 billion available for obligation in fiscal year 1999, $2.173 billion was obligated during the year. The remaining $2.46 billion, almost entirely from fiscal year 1999 appropriations, carried over and remains available for obligation in fiscal year 2000. The implementing regulations for the PHA Plan, a new requirement created by the Public Housing Reform Act of 1998, are expected to facilitate capital fund obligations by allowing PHAs to reserve their funds quarterly coincident with the Department's approval of their Plan.

The increased outlays in fiscal year 1999 reflect the faster obligation and disbursement of the Capital Funds due to higher standards for such actions included in the Public Housing Reform Act, as well as the Department's continued efforts to streamline the process, and stimulate the movement of funds through the pipeline.

3. CHANGES FROM 2000 ESTIMATES INCLUDED IN THE 2000 BUDGET

The fiscal year 2000 current estimate of budget authority available reflects an increase of $345 million in enacted budget authority and $2.5 billion of unobligated funds carried over from fiscal year 1999. In addition, a rescission of $31 million was enacted in fiscal year 2000. The estimated obligations reflects an increase of $489 million based on recent program activity.

EXPLANATION OF INCREASES AND DECREASES

The fiscal year 2001 Budget authority reflects an increase of $55 million in appropriations, and a decrease of $175 million in estimated carryover funds. In addition, no rescissions are proposed in fiscal year 2001. Estimated obligations reflect a decrease of $133 million in fiscal year 2001. Outlays are expected to increase by $186 million as a result of the implementation of the obligation and disbursement provisions of the Public Housing Reform Act of 1998.

PROGRAM DESCRIPTION AND ACTIVITY

Effective in fiscal year 2000, the Public Housing Reform Act of 1998 authorized the Capital Fund which expands the scope of the predecessor Capital Fund by consolidating all public housing capital programs (except HOPE VI), and allowing greater local flexibility in decisions on major capital initiatives and management improvements undertaken by Public Housing Agencies (PHAs).

The Department recently completed a negotiated rulemaking process with representatives of the housing industry, residents, PHAs and public housing industry groups. This process produced a new formula for the equitable distribution of capital funds to all PHAs, regardless of size. The formula, which considers both accrual and backlog needs, will be implemented in fiscal year 2000.

Designed to respond to the public housing capital and management improvement requirements, the Capital Fund is a comprehensive, formula-driven program. In conjunction with local officials and HA residents, the Capital Fund provides PHAs with optimum latitude in determining the most appropriate approaches to respond to local low-income housing needs. Patterned after the Comprehensive Grant program, it consolidated the following programs: public housing modernization; public housing development; Major Reconstruction of Obsolete Public Housing Projects; and public housing amendments.

Capital Fund grants can be used to support the following activities: (1) development, financing and modernization of public housing projects; (2) vacancy reduction; (3) deferred maintenance; (4) planned code compliance; (5) management improvements (including those which support resident participation); (6) demolition and replacement; (7) resident relocation; (8) capital expenditures for resident empowerment assistance and self-sufficiency; (9) capital expenditures for security and safety, and (10) home ownership. Targeted demolition and replacement housing will facilitate lower-density, mixed-income housing. Development of a locally prepared 5-year and annual plan, and improved accountability requirements are expected to ensure that capital improvement funds are utilized in a timely and focused manner.

Providing a steady stream of funding through a formula-driven system allows PHAs to carry out realistic plans for their long-term capital needs in a systematic and cost-effective manner. PHAs will also be able to leverage funds with other public and private partnership entities to meet their affordable housing goals. Non-troubled PHAs with less than 250 units have complete flexibility for the use of both capital and operating funds among eligible Capital Fund and Operating Fund activities. For large non-troubled PHAs, this flexibility is limited to 20 percent.

Reserve for Disasters and Emergencies. Up to 2 percent of the total appropriations for both the Capital Fund and the Operating Fund may be used for emergencies and other disasters, and for housing needs arising from the settlement of litigation. This reserve will be maintained in the Capital Fund.

Technical Assistance and Intervention Funds. The fiscal year 2001 Budget request includes up to $100 million for technical assistance, intervention and management improvement support, and annual physical evaluations of assisted properties. Technical assistance funding at the requested level (the same level appropriated for fiscal year 1999) is vital to support the full range of inspection and supportive activities that are essential to sustain the continued viability of the housing stock. The requested technical assistance funding includes up to $3 million for related travel to support and expedite the delivery of the technical assistance, physical inspections and intervention measures.

Full operation of the national Real Estate Assessment Center (REAC) and the Troubled Agency Recovery Centers (TARCs), as well as the monitoring/inspection contractual services administered by the REAC, requires a substantial level of funding support for unit inspections, and recovery efforts for small and medium PHAs. The REAC will conduct the following activities: physical inspection of assisted housing developments; technical assistance and training of PHAs and other industry groups related to financial data submission to REAC, conversion to Generally Accepted Accounting Principles (GAAP) based standardized reporting; and customer surveys and other management assessments. On-site inspections will be conducted of all properties assisted by the Department. Such independent physical inspections provide the Department with the requisite information to identify any potential structural or management problems that would require remedial action by PHAs. Inspections are a key component of the Department's evaluation and monitoring of both PHA and owner performance, and help to ensure that both the assisted households and taxpayers are getting high quality, affordable housing, as cost effective as possible.

Funds are also required to support efforts to assist PHAs that are designated as troubled, or in breach of the Annual Contributions Contract/Memorandum of Agreement demonstrating substantial default. The Public Housing Assessment System (PHAS), the Department's new evaluation and inspection system administered by the REAC, was tested in fiscal year 1999; full implementation will occur in April 2000. In addition to the aforementioned physical inspection of the facilities, the PHAS encompasses a financial assessment, management review, and resident survey of every public and Federally assisted housing development in the United States. The PHAS evaluation results in PHA designations as either high, standard, or troubled performers. PHAs that score 90 or higher on a 100-point scale are labeled as high performers and given expanded discretion over operations and will receive additional funds consistent with the new capital rule. At the other extreme, PHAs scoring below 60 or not meeting thresholds for physical condition, financial, and management reasons, are considered to be troubled performers and will receive technical assistance from the TARCs in order to restore their performance to meet the Department's standards.

In order to reduce the incidence of agencies being designated as troubled, the Department continues to place a high priority on the implementation of preventive measures, notably through additional technical assistance for near-troubled PHAs. The TARCs develop and implement an intervention strategy or technical assistance option to improve the PHA's performance to a passing level. This is consistent with Congress' and the Department's emphasis that troubled PHAs must bring their operations up to standard. The brief time-frame allowed under current legislation for PHA improvement, together with the substantial task of assessing PHA performance, requires an intensive, aggressive recovery effort. Such a strategy may include:

1. selection or participation in the selection of an alternate entity to provide technical assistance or other services up to, and including contract management of all or any part of the public housing developments administered by the PHA;
2. assumption of the assets and operational responsibility for all or part of the PHA;
3. provision of technical assistance directly by HUD staff, including travel, training, workshops and conferences; and
4. any combination of the above.

Funds are also required for the provision of contract expertise, training, technical assistance and supportive systems required by the Department to support and enhance the oversight and management of public housing or tenant-based assistance, as authorized by Section 9(h) of the United States Housing Act of 1937, as amended. Among the activities included are the following: inspections and technical assistance for capital programs; resident surveys; data collection and analysis; training and technical assistance for HUD employees, PHA employees and residents; and the development of computer, management and financial systems to facilitate the fulfillment of Headquarters responsibilities relative to the management, review and oversight of information pertaining to the status or the provision of support for PHAs. Finally, a limited amount of technical assistance funds will also be used for lease adjustments to Section 23 projects.

Resident Opportunities and Self Sufficiency

Section 538 of the Public Housing Reform Act (P.L. 105-276) created a new section 34 of the United States Housing Act of 1937 which authorizes funds for a linkage of public housing resident services to promote economic self-sufficiency. The program provides a vital connection between the delivery of housing assistance and other services that are necessary to improve the quality of life for public housing residents.

The program is intended to improve linkages to public housing residents by: (1) implementing supportive services and resident empowerment activities, and (2) assisting residents to become economically self-sufficient. Grants will be made to public housing agencies, resident management corporations, resident councils, and resident organizations including non-profit entities supported by residents.

Eligible activities include, but are not limited to: physical improvements, academic skills training, resident management activities, health care for seniors in public housing, micro-enterprises, small business development and start ups, and social service support programs. Grants will be awarded competitively through a Notice of Funding Availability (NOFA). ROSS is consistent with the Department's goal to focus resources on "welfare to work" and independent living for the elderly and the disabled.

PHA Consolidation Incentives Demonstration

To encourage smaller PHAs to combine resources and simplify administrative duties, the Department is proposing to provide grants to newly formed consortia which may be used for start up purposes or PHA program activities. Up to $10 million is requested for this purpose.

Forty-seven percent of all housing authorities (about 1,594) have fewer than 100 units. Yet, these small entities generally are bound by the same requirements as much larger agencies. Procedures that are particularly burdensome for small PHAs, include procurement and contracting, and budget and financial management. The Department is challenged to disseminate revised program and policy information, especially to the large number of small PHAs, many of which are staffed by a part-time executive director.

The Public Housing Reform Act of 1998 provides new authority for PHAs to form a consortia. The proposed demonstration will provide incentives for PHAs to consolidate operations, further relieving their administrative burden. For example, PHAs which form consortia would include their needs in a consolidated plan rather than preparing their own individual plan. Grants could be used to initiate a consortium in order to obtain services, such as technical assistance, legal, or to support PHA programs, including marketing and outreach, maintenance, etc.

Capital Financing Demonstration

Up to $1 million will be used to design or identify financing mechanisms that give PHAs additional flexibility to meet their existing need for capital funds. Since Federal funds are limited, PHAs need additional options to leverage public and private resources to supplement their capital grants from HUD.

A loan guarantee program could significantly enhance PHAs' ability to leverage private financing in appropriate circumstances, particularly where substantial capital improvements are needed at viable public housing developments that do not successfully compete for HOPE VI grants. The debt under such an approach could be repaid from increased rental revenue that is expected to result from higher tenant incomes, income-mixing, or other income.

Fiscal Year 2001 Performance Measures

Performance Indicators:

1. Demolish 100,000 units by fiscal year 2003.
1. Baseline: The baseline through the end of fiscal year 1999 was 43,593 actual demolitions. Local conditions, i.e., resident opposition, litigation, etc., greatly impact the timing of the actual demolition subsequent to demolition approval.
2. Goals:
2. The share of public housing units that meet HUD established (physical) standards (REAC).