HUD 2020 Management Reform Plan
The Six Major Reforms

"Contrary to what much experience and certainly much old wisdom tell us, the essence of reengineering lies in this principle: The larger the scale of change, the greater the opportunity for success."
James Champy, Reengineering Management

HUD cannot affect community change unless it first changes within.

To effectively bolster community revitalization and offer new opportunities for America's citizens, HUD must cast aside our outdated structures that no longer serve customers well. The bureaucracy that has swelled and become rigid over time must make way for a lean, flexible, results-oriented structure.

This transformation is driven by HUD's realization that fundamental change is critical if HUD is going to remain relevant into the next century. These reforms are the product of a bottom-to-top review of everything HUD does.

To kick off this change process, HUD pulled together dynamic thinkers from across the Department to question every aspect of our programs and processes. Complementing these change agents were outside experts from the private sector, including Ernst & Young LLP, David Osborne, and James Champy, among others, who lent additional strength and perspective to our refocusing efforts.

These "change agents" started with no "givens," no constraints, no commitments to bygone structures — their only mandate was to question how HUD should organize itself to effectively fulfill its twin missions of empowering people and communities and restoring the public trust. Principles guiding the process emphasized changes that would match workload and workforce; focus on customers; measure and reward performance; and take advantage of new technologies.

In figuring out what to fix, change agents had to find what was broken. They identified several breakdowns within HUD's structure that prevent optimal fulfillment of our missions. They noted, for example, that HUD is driven by process rather than performance; that we are organized by program rather than function, creating wasteful reduncancies; that

We shall not cease from exploration

And the end of all our exploring

Will be to arrive where we started

And know the place for the first time

T.S. Eliot,
"Four Quartets"

management information systems aren't integrated; and that the current relationship between headquarters and field office responsibilities makes poor use of resources. Finally, change agents concluded that the Department's culture has not made vigilant stewardship of public funds a priority.

Next, the change agents focused on how to fix these fundamental structural flaws. Their recommendations targeted everything from creating a performance-based culture, to overhauling HUD's technological systems, to consolidating or eliminating redundant functions. Perhaps most importantly, they developed a new structure that emphasizes function, customer service, and commitment to our mission.

Change agents distilled these recommendations into six major areas of reform that affect all aspects of HUD's ability to provide the value, effectiveness, and quality demanded by our taxpaying customers. Reforms in these areas will hit home with every HUD employee, from the way we think about our purpose to how we measure progress and the tools we have at hand to deliver services.

We call these changes "cross-cutting" reforms. Carpenters know that cross-cutting lumber means to cut across the natural grain of the wood. Sometimes it's a little harder to do. But the results make it worth the extra effort.

Transforming HUD will involve cutting across program lines that have been in place so long they must seem as natural as grains of wood. But what seems natural in bureaucracies may only be illusion. The reforms that will transform HUD cut across outmoded structures that have too often given the illusion of efficiency, while in reality making HUD less efficient.

This section explains each of the Department's six major reforms and the organizational and programmatic changes they entail. It also describes how these reforms will contribute to a new HUD — one that partners with local communities to empower America's citizens and that scrupulously protects the public trust.

REFORM

SPECIFIC CHANGES

#1 Reorganize by function rather than program "cylinders." Where needed, consolidate and privatize

 Organizational Changes

  • Create the following centers:
    1. Real Estate Assessment Center for reviewing and evaluating physical inspections and financial reporting
    2. Section 8 Financial Management Center for Housing and PIH
    3. Housing: Single Family Homeownership Centers, Multifamily Centers
    4. Public and Indian Housing: Troubled Agency Recovery Centers, Special Applications Center, PIH Grants Center
    5. CFO: Accounting Center
    6. Office of Administration: Administrative Service Centers, Employee Service Center
  • Redesign contract procurement process to improve operations and oversight
  • Consolidate routine cross-operational processing into centralized back office processing centers, or hubs, in the field
  • Consolidate program administrative functions into the Office of Administration
  • Establish Economic Development and Empowerment Service, aligning various job skills and other programs from CPD, PIH, and Housing
  • Outsource legal and investigative services when appropriate
  • Outsource technical assistance to grantees when appropriate
  • Privatize physical building inspections, financial audits, technical assistance, and real estate assessments
  • Consolidate ten field accounting divisions into one accounting center within the Office of the CFO
  • Consolidate operations in 51 field offices into 17 Multifamily Centers within Multifamily Housing
  • Consolidate financial management and budget functions in CFO
Program Changes
  • Privatize HOPE VI construction management and development process as appropriate (L)
  • Consolidate 6 homeless assistance programs (L)
  • Merge Section 8 certificate and voucher programs to streamline HUD regulations and oversight (L)
  • Extend FHA note sale authority permanently (L)
  • Reform FHA single family property disposition to reduce staff burden, value lost while in inventory, and exposure to risk (L)
L = Legislation Required

#2 Modernize and integrate HUD's outdated financial management systems with an efficient, state-of-the-art system

Organizational Changes

  • Integrate HUD's fragmented financial management system, repairing or replacing HUD's 89 separate financial management and information systems
  • Use advanced mapping software system, Communities 2020, to show communities the impact of HUD funding and activity in their area and enable them to plan, track, and measure perfomance
  • Implement HUD's new Management Integrity Plan
#3 Create an Enforcement Authority

Organizational Changes

  • Consolidate existing organizations and employees; contract where appropriate with outside investigators, auditors, and attorneys
  • Monitor low-performing PHAs, properties failing physical and financial audit inspections, and CPD/FHEO grantees failing program compliance
  • Create a business-like entity to clean up the backlog of over 5,000 troubled multifamily properties
Program Changes
  • Streamline and privatize process for Housing's pursuit of negligent owners (L)
  • Reform bankruptcy laws to prevent owners from using them as a refuge from enforcement actions (L)
L = Legislation Required
#4 Refocus and retrain HUD's workforce to carry out our revitalized mission Organizational Changes
  • Select and train staff as Community Resource Representatives and Public Trust Officers for all field offices
  • Downsize HUD staff from 10,500 to 7,500, using skills and resources where they are needed most
  • Develop a road map for downsizing HUD employees, including a buyout strategy and options for career transitions
  • Streamline and consolidate operations and reassign staff to high priority work

#5 Establish new performance-based systems for HUD programs, operations, and employees

Organizational Changes

  • Create meaningful GPRA performance measures that hold HUD staff and grantees accountable for results
Program Changes
  • Convert inflexible, labor-intensive competitive grant programs to performance-based grant programs, including: Tenant Opportunities, Economic Development/Support Services, Public Housing Drug Elimination, Competitive PHA Capital Funds; and six homeless programs (L)
  • Deregulate high-performing PHAs and smaller PHAs by mandating fewer reporting requirements (L)
  • Create a Public Housing Authority Performance Evaluation Board (L)
  • Mandate judicial receivership for PHAs on the troubled list for more than one year (L)
  • Reduce excessive rent subsidies to market levels on assisted housing (L)
L = Legislation Required

#6 Replace HUD's top-down bureaucracy with a new customer-friendly structure

Organizational Changes

  • Create neighborhood "store-front" service centers in communities
  • Offer single point of service to customers through Community Resource Representatives and centralize back-office centers
  • Establish a new management planning strategy
  • Streamline headquarters and redeploy staff to field

"Companies today consist of functional silos, or stovepipes, vertical structures built on narrow pieces of a process…People involved in a process look inward toward their department and upward toward their boss, but no one looks outward toward the customer. The contemporary performance problems that companies experience are the inevitable consequences of process fragmentation."

Michael Hammer and James Champy, Reengineering the Corporation

 Reform 1: Reorganize by function rather than program "cylinders." Where needed, consolidate and/or privatize.

Management theorists call them "stovepipes." At HUD we refer to them as "cylinders." They mean the essentially self-contained program areas within HUD, Housing, Public and Indian Housing, Fair Housing, and Community Planning and Development. Insulated from the outside, operating from top to bottom in a relatively narrow way — like a stovepipe — these units duplicate each other's efforts, and sometimes work at cross-purposes. They make it hard for communities to use HUD's programs to shape comprehensive solutions.

Compounding this long-standing situation are the reductions in workforce of the last few years. From 13,500 employees in 1992, HUD has shrunk to 10,500 — and plans a further reduction to 7,500 by fiscal year 2000. The reductions that have occurred and those to come will strain HUD's organization to the breaking point.

How do we compensate for the reductions? How do we correct the problems inherent in HUD's structure? The answer: reorganize the Department by function to cut across "stovepipes," eliminate duplication where possible, and focus on customer service.

ORGANIZATIONAL CHANGES

The most important organizational efforts to consolidate in the new HUD involve creating both Department-wide and program-specific centers. The major consolidations are described below; a complete list of consolidated centers appears in Appendix D.

  • Create Consolidated Centers

    • Real Estate Assessment Center

      Currently, the need to monitor activities far outstrips the abilities of both the Office of Housing and the Office of Public and Indian Housing.

    "Get out the red pen. Be a ruthless editor. Ask this about every sentence, every rule, every `don't': Does this need to be in there? Is it going to help our company one bit, whit, or iota as it struggles to hustle and achieve towering competence in an upside-down world? No? Tear it out. Crumple it up. See that wastebasket? Practice your hoop skills."

    Tom Peters,
    The Pursuit of Wow

      The proliferation of programs itself creates difficulties for a shrinking staff. But the wide variety of smaller, highly specialized programs and the many facets of public housing options often call for skills the field office staff do not have. Consequently, FHA has an estimated backlog of over 5,000 troubled properties. And as PHAs are more accurately assessed, it is more likely that all of those that are "troubled" will receive help as needed early on. This will require still more attention from a lean staff already overburdened with conflicting priorities.

      Even in the best of organizations such obstacles would make assessments a challenge. These challenges are further aggravated, however, by an inefficient process. Fragmented and beset by red tape, the current assessment process makes an effective and flexible response almost impossible.

      Furthermore, FHA and PIH each use different standards for performing separate physical inspections of public housing and multifamily insured housing projects.

      To help solve these problems, HUD will create the Department-wide Real Estate Assessment Center. At the Center, HUD staff will rigorously review data from physical inspections, based on guidelines used by PHAs, mortgagees, and lenders. They will also determine whether each project has passed or failed, using standard protocols for financial performance reviews established by the new HUD Consolidated Asset Management System (described under Reform #2).

    • Section 8 Financial Processing Center

      Handled by both Housing and PIH, financial documentation for the Section 8 rental assistance voucher program has been neither centralized nor easy to obtain. Without the necessary financial data, HUD has had difficulty obligating and disbursing funds. Worse yet, HUD has no electronic validation for processing payments or determining the accuracy of requests from landlords or mortgagees. This fragmented system leaves the door open to fraud — and in fact, HUD's Inspector General estimates overpayments to be in the millions of dollars each year.

      To close these loopholes, the Office of Housing and PIH will establish a unified center for Section 8 payments processing. Functions will include budgeting, payment scheduling, contract reservations and revisions, financial statement revisions, rent calculations, and income verification. The electronic, integrated financial management of all Section 8 processing helps HUD by monitoring compliance and ensuring disbursement accuracy.

    • Single Family Homeownership Centers

      Currently, loan production, asset management, and property disposition for Single Family programs are beset by problems. Insurance endorsements are delayed; information systems are often inappropriate for staff needs; disposition of properties is poorly controlled and monitored; and staff reductions have made it difficult to deliver consistently excellent service.

      One solution: consolidate all Single Family operations into Homeownership Centers, or HOCs. It is a move that will encourage economies of scale and better use of sophisticated technology.

      The Office of Single Family Housing will open three Homeownership Centers. Located in Philadelphia, Denver, and Atlanta, the centers will become fully operational by fiscal year 1999. The Homeownership Centers will consolidate work formerly performed in field offices, including routine processing, loss mitigation, and quality assurance.

      To jumpstart this transition, HUD will either streamline, privatize or outsource Real Estate Owned (REO) activities and will sell nearly all assigned mortgage notes.

      Such consolidation and streamlining will result in faster service, better risk assessment and loss mitigation, and better loan targeting, among other benefits.

    • Multifamily Development Centers

      The Multifamily Centers will carry out both Asset Management and Asset Development. Asset Management will oversee and manage property assets, as well as administer programs to ensure that low and moderate income families have safe and affordable housing. Asset Development will provide a full range of development services, including applications, underwriting approval, construction inspection, and final closing.

      These centers will provide leadership for HUD staff who will provide technical expertise in managing multifamily properties. Additionally, several consolidated operations will facilitate the multifamily asset development and management processes, including: the Department-wide Enforcement Authority, Section 8 Financial Processing Center, and Property Disposition.

    But these are not HUD's only organizational efforts to consolidate. Others include:

  • Redesign contract procurement

    HUD recognizes that its staff can't create positive change and serve communities unless we remove longstanding roadblocks to action. One of these roadblocks is obsolete and inefficient procurement and contracting processes, long a source of frustration within the Department.

    At the Secretary's request, the National Academy of Public Administration (NAPA) scoured FHA's procurement system in an assessment of what is wrong with the system and how we can fix it.

    NAPA identified how procedures could be streamlined or eliminated; pointed out how we could better train staff to handle procurements fairly, quickly, and, responsibly; and suggested how "best practices" should be supported in the Department's operations. Everything from giving contracting staff greater authority to using Intranet and e-mail to speed up approvals was put on the table.

    HUD is committed to creating a model federal government procurement system, and a road map for getting there. This new system will:

    • Establish high-level procurement priorities consistent with the Government Performance and Results Act of 1993 (GPRA), focusing on performance;
    • Ensure accountability by clarifying lines of responsibility and authority; and
    • Respond quickly to changing program needs, becoming flexible and user-friendly.

    Where frustration once was ensured and fairness questioned, procurement needs to become a tool HUD's program staff can rely on to more effectively and efficiently serve customers in America's communities.

    "The way we organize to get things done in the public and private sectors and in general is undergoing the most profound shift since at least the Industrial Revolution."

    Tom Peters,
    Liberation Management

  • Consolidate administrative functions

    Currently, many routine operations occur at field offices scattered around the country. These will be moved to a handful of centralized processing centers. We have already described four.

    One other important example: The Office of the Chief Financial Officer will complete its consolidation of ten field accounting divisions into one accounting center by the end of fiscal year 1998. The CFO reviewed accounting processes to identify streamlining and consolidation opportunities.

    HUD will also continue to eliminate redundant administrative functions through consolidation in the Office of Administration. To accomplish this, the Office of Administration has established three Administrative Service Centers in New York City, Atlanta, and Denver. The Centers will support field offices with such services as information technology, human resources, procurement, and space planning. In addition, an Employee Service Center in Chicago handles all payroll, benefits, and counseling services. In conjunction with adoption of new technologies, the administrative centers will ultimately dramatically reduce the need for administrative staff in each field office.

    • In addition, HUD will review and streamline the separate administrative operations currently being carried out by each business line in headquarters. The review will examine how administrative resources should most effectively be allocated across the Department.

  • Consolidate economic development and empowerment programs

    Many economic development and job skills programs are scattered throughout the Department, such as the Economic Development Initiative (EDI), Section 108, Empowerment Zones, and job training programs in PIH and Office of Housing. These will be consolidated into a new Economic Development and Empowerment Service. The result: improved focus on community empowerment.

  • Privatize specific functions

    Sometimes it is clearly more efficient to contract with private firms. As specialists, outside firms can often do work faster and more economically than HUD, especially given the Department's sharp reductions in workforce.

    HUD thus plans to privatize a number of activities, as appropriate. These include physical building inspections for the PIH and FHA portfolios, and financial audits of both PIH and FHA grantees. We will also outsource legal and investigative services to the newly created Enforcement Authority (described in Reform #3) as well as real estate assessment and technical assistance to grantees.

    PROGRAM CHANGES

    In addition to changes in HUD's organizational charts, HUD is seeking legislation to allow program changes. These legislative reforms are necessary to continue and strengthen the transformation of public housing, to ensure that it works for residents and surrounding communities, and to effect management reforms that permit all HUD programs to make the most efficient, cost-effective use of scarce federal resources. Specific program changes we seek include:

  • Privatize HOPE VI construction management

    Overseeing the HOPE VI construction management process takes tremendous staff time and often calls for specialized skills the field staff may not possess. Contracting with private real estate firms, who are familiar with this type of construction management, would both ease staffing burdens and improve oversight of these urban revitalization projects.

  • Consolidate homeless assistance programs

    A myriad of homeless assistance programs now award grants based on annual competition for funds. These competitions are staff-intensive and are an impediment to long-term planning and coordination across programs and providers. HUD's proposal would consolidate these programs and change the funding award process to a performance-based formula grant program. Permanent consolidation would remedy this time-consuming, unproductive process.

  • Merge rental assistance certificate/voucher programs

    The Section 8 certificate and voucher programs currently operate under two different sets of rules. HUD's proposal would establish standardized guidelines and procedures, consolidating these programs into a uniform whole. This change would facilitate staff oversight of the program, streamline HUD regulations, and reduce the opportunity for waste and abuse.

    "Information technology greatly enhances institutional memory: a retrievable account of what an organization has done — who did what, with what resources, at what costs, and with what results."

    John Kao,
    Jamming — The Art and Discipline of Business Creativity
  • Extend FHA note sale authority permanently

    FHA's loan asset sales program was initiated to address the substantial inventory of HUD-held mortgages, a result of the downturn in real estate markets in the late 1980s. This program has been tremendously successful in returning assets to the private sector and in generating savings for the federal government. The asset sales program has benefitted FHA in other important ways: it has increased understanding of portfolio composition and performance; helped managers refine portfolio strategies; allowed staff to focus on managing the insured portfolio to prevent defaults; and institutionalized the capacity to dispose of unsubsidized mortgages. Enactment of HUD's proposed legislation to extend this authority would perpetuate these benefits.

  • Reform FHA Single Family property disposition

    When HUD takes possession of a property after its owners default on an FHA loan, the process consumes tremendous staff time. Meanwhile, the property loses value while in HUD's inventory, and exposes HUD to risk. It is easier for HUD to find buyers for notes (mortgages on these properties) than to sell the properties themselves. FHA is considering possession of Single Family notes instead of properties upon default. HUD's proposal will also allow FHA to consider outsourcing or streamlining disposition, including using joint ventures to dispose of properties and notes — further reducing financial risk and staff time on servicing defaulted properties.

    • Reform 2: Modernize and integrate HUD's outdated financial management systems with an efficient, state-of-the-art system

    The Book of Genesis describes the Tower of Babel, whose completion was frustrated because its builders all spoke different languages and couldn't talk to one another.

    At HUD, this is one story that rings true. The Department's single most glaring deficiency is its financial management systems. Today, every program cylinder operates its own system — a total of 89 separate systems throughout the Department.

    Written in many different languages, these systems can't talk to each other. This bureaucratic Tower of Babel is the key reason the Department finds itself on the GAO "high risk" list and why HUD's own Inspector General says HUD's future is "dim."

    The Inspector General (IG) has described HUD's material weaknesses and systemic management and program difficulties to Congress. The IG has argued that HUD would greatly improve its ability to address these problems if it finishes upgrading its financial management system.

    Meanwhile, the GAO has sharply criticized HUD's financial management system, calling it poorly integrated, ineffective, and generally unreliable.

    HUD does not dispute this assessment; since 1989 it has made many similar points in its reports under the Federal Managers Financial Integrity Act (FMFIA). And in his confirmation hearing, Secretary Cuomo stated that his top priority would be to put HUD's management systems in order and to restore effective management and financial accountability at HUD.

    To effect a complete overhaul of HUD's financial management system, HUD will take these steps:

    ORGANIZATIONAL CHANGES

  • Integrate HUD's fragmented financial management system, repairing or replacing HUD's 89 separate financial management and information systems

    The new HUD will have a common, consolidated financial management information system. This system will ease communication throughout HUD and will allow HUD to better communicate with grantees and communities across the country.

    The new system will provide quick, user-friendly access to accurate, current, and complete consolidated financial, program, and portfolio information. It will support program management decision-making and financial management, readily provide information to partners and constituents, and generate program and financial performance measurements.

    The new HUD integrated financial system will incorporate the following features: efficient data entry, support for budget formulation and execution, updates on status of funds, standardized data for quality control, security controls, and the ability to correlate program performance measures with related spending transactions in accordance with GPRA.

    HUD has identified the 89 separate information and accounting systems in major use throughout the Department that fail to comply with FMFIA. These systems will be overhauled to either correct deficiencies, consolidate functions into new accounting systems, or be eliminated.

    Use the advanced mapping software system, Communities 2020, to show communities the impact of HUD funding and activity in their area

    It was only a few decades ago that ATMs were unknown. Now we see them on every corner and Americans use them routinely, comfortably moving through a variety of transactions by pushing a few buttons.

    In a way, HUD's 2020 mapping software is a kind of housing ATM. Users can move through graphic displays of HUD funding in virtually every community in the country.

    The Consolidated Plan advanced mapping system, which has won an award from Harvard University's Kennedy School, will be enhanced to provide current, accurate information on where and how public housing dollars are being spent. This helps communities better understand the options open to them. It also allows every HUD employee to grasp the workings of the entire Department.

    HUD will incorporate its award-winning mapping software into the new financial system to provide one seamless communication and financial management system.

    HUD's Community Resource Representatives can then bring this software into the communities they serve. By interacting with other HUD program databases, Communities 2020 will allow Community Resource Representatives and non-profits to see where specific programs like Elderly Housing or Homeless Assistance are most needed — and to do so as easily as they use an ATM.

  • Implement HUD's new Management Integrity Plan

    Recent Inspector General and GAO reports identify a serious disconnect at the program management level between responsibility and accountability. The basic problem is that the current management control process is driven by "external policemen" — the Inspector General and GAO. To be successful, HUD must change from a negative, externally-driven internal control process to a new business culture — a positive financial management process that is fully integrated with day-to-day operations and owned by program managers. An effective financial management system simply ensures that what should occur does occur.

    How do we create a new business culture in which management monitors itself and looks at its own results? How do we make financial integrity everybody's business?

    To transform HUD into an agency where fiscal prudence matches management responsibility, HUD will follow a three-part Management Integrity Plan.

    First, it will make program managers responsible for their programs' financial management. We will hold them accountable for results — and reward them for excellent results.

    Second, HUD will set clear, reasonable expectations and give managers the resources necessary to meet them. In particular, HUD will expand the role of its Chief Financial Officer.

    Third, HUD will develop and demonstrate this new business culture by incorporating front-end risk assessments in reorganized and consolidated programs outlined in the Management Reform Plan.

    Reform 3: Create an Enforcement Authority with one objective: to restore the public trust.

    "I am concerned that we do not take a Band-Aid approach to curing deep systemic problems."

    Senator Barbara Mikulski, HUD and Independent Agencies Subcommittee Hearing

    Restoring public trust is a priority that drives the entire reorganization. And the greatest breach of public trust is the waste, fraud, and abuse in HUD's existing portfolio of ten million housing units.

    Currently, each of HUD's housing agencies — PIH, FHA, FHEO, and CPD — operate independent enforcement divisions, with different priorities. PIH, for example, considers enforcement action when an authority fails its annual assessment, and has a variety of ad hoc solutions, from judicial receiverships to partnership agreements with the local housing authority.

    FHA, on the other hand, takes enforcement action only as a last resort; the Department's critics note that the financial interest of FHA's insurance fund can be at odds with the social interests of the tenants.

    Because the enforcement system clearly needs reform, HUD will make significant changes, both organizational and programmatic.

    ORGANIZATIONAL CHANGES

  • Consolidate existing organization and employees; and contract with outside investigators, auditors, and attorneys where appropriate

    The new HUD will combine non-civil rights compliance enforcement actions for PIH, CPD, FHEO, and Housing program participants into one new organization. This Enforcement Authority will consolidate existing employees and contract with outside investigators, auditors, engineers, and attorneys. It will also work with the Inspector General, consult with the FBI on training staff, and share information with the IRS.

  • Monitor low-performing PHAs, properties failing physical and financial audit inspections, and CPD/FHEO grantees who fail program compliance

    The new Enforcement Authority will be responsible for all PHAs that receive a failing score on their annual assessment. It will also be responsible for all multifamily properties failing the physical and financial audit inspections performed by the real estate management system. Finally, the authority will handle all CPD and FHEO grantees who fail program compliance.

  • Create a business-like entity to clean up an estimated backlog of over 5,000 troubled assisted properties

    HUD will aggressively pursue owners of troubled HUD-insured and subsidized properties that do not meet established standards. This entity will receive ratings from the Assessment Center on properties that "fail" those established standards. Using professional resources under contract, the entity will: 1) quickly identify and implement appropriate sanctions based on contractor recommendations; 2) initiate appropriate civil or criminal actions in a timely manner; and 3) proceed expeditiously to acquire, foreclose on, and dispose of the property.

    When a property fails its assessment, it will be forwarded for immediate action to recover the property or misspent funds. Action may include transfer of physical assets, sanctions, acquisitions, foreclosures, and civil or criminal referrals. In the event of foreclosure, a contractor will prepare the disposition plan and dispose of the property.

    General contractors will perform the work through qualified subcontractors in areas of specific expertise in three major areas: asset management, legal, and property disposition. A National Advisory Board of independent stakeholders from the private and non-profit sectors will give ongoing feedback on performance and policy and will advise on particularly sensitive issues prior to final action.

    PROGRAM CHANGES

  • Streamline and strengthen the Office of Housing's process for pursuing negligent owners

    HUD's legislative proposals would strengthen FHA's enforcement authority to minimize fraud and abuse in FHA and assisted housing programs. Key provisions expand the Mortgagee Review Board's ability to impose sanctions on lenders and other HUD program participants who violate HUD rules; increase equity skimming penalties and expand equity skimming prohibitions to all National Housing Act programs, Section 202, elderly, and multifamily risk-sharing pilot programs; and broaden HUD's authority to impose civil penalties and double damage remedies. These new or expanded authorities would reduce the staff burden for each enforcement action and put teeth in their ability to resolve troubled properties.

  • Reform bankruptcy laws to prevent owners from using them as a refuge from enforcement actions

    Currently the bankruptcy code legitimizes non-compliance for owners who have misused HUD funds and who avoid repayment under bankruptcy protection. HUD seeks to reform Sections 105 and 362 of the Code, which make this refuge possible. HUD's proposed amendments would allow the agency to proceed with timely foreclosure of insured or assisted multifamily housing projects, while protecting the residents, the property, and the FHA insurance fund.

    "A core ideology provides the glue that holds an organization together through time."

    James Collins and Jerry Porras, Harvard Business Review

    Reform 4: Refocus and retrain HUD'S workforce to carry out our revitalized mission.

    Partly because HUD was originally an amalgam of several different organizations, its mission has never been sharply defined.

    Moreover, HUD has often changed its emphasis to suit the times. After the HUD scandals of the 1980s, for example, all emphasis was on monitoring and enforcing regulations. At other times, the emphasis was to help grantees do whatever they wanted.

    Under the new HUD, we will refocus our mission — then retrain HUD's leaner workforce to serve that mission. This reform includes four organizational components.

    ORGANIZATIONAL CHANGES

  • Select and train Community Resource Representatives and Public Trust Officers for all field offices

    HUD's mission involves both empowering communities and winning the public trust. They are distinct functions and will be performed by different individuals — and in different divisions — within the organization.

    • Community Resource Representatives, a new group of HUD employees, will facilitate community empowerment by bringing in technical expertise, program knowledge, and knowledge of finance and economic development. Their purpose is to be cooperative, helpful problem solvers.

    • Public Trust Officers require different skills and a different public stance. Public Trust Officers ensure that federal funds are used appropriately and that HUD customers comply with the law. They must have zero tolerance for waste, fraud, and abuse. HUD will sharply increase the number of staff devoted to this monitoring work by shifting all facilitating work to the Community Resource Representatives and placing all routine processing work in "back office" processing centers.

  • Downsize HUD staff from 10,500 to 7,500 by the end of fiscal year 2000, using skills and resources where they are needed most

    Once refocused, employees must be retrained. The HUD Training Academy is designing a training program for Public Trust Officers in each program area. It will retrain Community Resource Representatives as well, since they must have broad knowledge of HUD's programs and the field.

    Throughout downsizing HUD will retrain and redeploy available staff to minimize workload imbalances. HUD will also try to avoid reductions-in-force (RIFs), with their disproportionate effect on mid-level and mid-career employees. Since April, 1994 a total of 1,190 employees have separated with a buyout from the Department — a 9.4 percent reduction, without one involuntary layoff.

    In general, HUD will downsize by consolidating and streamlining operations; contracting out program and support functions that the private sector can perform cost-effectively; eliminating functions that are only marginally effective; and reducing part-time and temporary employees.

  • Develop a road map for downsizing for HUD employees, including a buyout strategy and options for career transitions

    HUD will reduce staff levels by maintaining an employment freeze throughout the downsizing period, except for limited hiring targeted at urgently needed skills. The Department will implement early retirement and buyouts to spur staff reduction and will also offer employee outplacement and other transition services.

    HUD has received approval for Voluntary Separation Incentive Payments (VSIP) — also known as buyouts — for employees in targeted locations, titles, series, grades, and program operations. Under this authority, the Department will offer 600 - 1,000 buyouts to employees to most effectively make progress toward reducing the Salaries and Expenses (S&E) Appropriation to 7,500 Full Time Equivalents (FTEs) by fiscal year2000. The buyout strategy, provided in Appendix A, will target areas where consolidations and streamlining make staff reduction most necessary. Buyouts will be used as an alternative to involuntary separations that might otherwise be required for downsizing and restructuring.

    Alone, HUD's traditionally low attrition rate (less than 2 percent per year) would be insufficient to meet the target staffing number of 7,500 FTEs. Buyouts have been an integral part of HUD's efforts to streamline, downsize, and consolidate operations. These buyouts, as well as early-out authority begun in March 1994 and an employment freeze since October 1994, have substantially reduced staffing levels.

    Without buyouts, HUD may have to resort to RIFs as the only other tool available to meet downsizing goals. Yet RIFs would strip the agency of key mid-level employees, disrupt agency operations, and defeat staff diversity gains.

    Continued use of buyouts, however, will allow us to target management reforms to specific positions, locations, programs and/or functions. In this way, HUD can focus buyouts on those employee populations and functions which present the greatest need to reduce staff levels. Buyouts are much more cost-effective than RIFs and are more positively viewed by employees prepared to seek new challenges.

    Reform 5: Establish new performance-based systems for HUD programs, operations, and employees.

    "To build business performance into the human organization is difficult. But it is essential."

    Peter Drucker,
    Managing For Results

    In this, we are guided by the story about Bobby Knight, who, when he first became the basketball coach at Indiana University, reportedly received a telegram from the Alumni Association: "Bobby, we're with you all the way," it read. "Win — or tie." Alumni Associations are noted for caring about results — sometimes too much.

    HUD's management reform plan places a new emphasis on results. It creates new internal and external benchmarks, as well as uniform standards for measuring performance, to increase productivity and accountability across program lines.

    These tools increase HUD's ability to mandate compliance from contractors and customers. But by rewarding efforts that go beyond mere compliance — like performance-based grants for contractors or added autonomy for HUD employees — they will make HUD's ability to measure and reward performance and results the true foundation of its reengineering. To that end we have made one organizational change and seek legislation for many program changes.

    ORGANIZATIONAL CHANGES

    The Government Performance and Results Act of 1993 (GPRA) essentially requires federal agencies to demonstrate to the public that its tax dollars are being well used. GPRA requires each agency to identify specific measures of its performance, results it will achieve, and timelines for doing so.

    In line with these requirements, HUD will create meaningful performance measures that hold its staff and grantees accountable for results - in a quantifiable, measurable way. These measurements will allow HUD staff to compare actual performance against established goals.

    By the end of fiscal year 1997, HUD must submit to the Office of Management and Budget a three-year strategic plan and mission statement for complying with GPRA. In that document, HUD will describe its changing direction, including concrete actions. It will then establish performance measures that conform to GPRA goals. In fact, we have already begun creating these measures: at least 20 percent of HUD's major goals and objectives are based on straightforward outcome-oriented performance standards. Outside contractors will be held to the same standards.

    PROGRAM CHANGES

  • Convert inflexible and labor-intensive competitive grant programs into performance-based grant programs

    HUD advocates the use of performance-based grant programs wherever feasible as part of its "reinvention" to serve its customers more efficiently and effectively. Performance-based grant programs distribute funds by formula, and reward good performance. They also conserve valuable staff time by eliminating time-consuming annual competitions and make funding more predictable so that grantees can plan more strategically. Finally, they give the Department greater flexibility in partnering with local communities to monitor individual projects.

    Thus HUD has proposed legislation that would allow it to convert competitive grants into performance-based formula grants. Affected programs include Tenant Opportunities, Economic Development/Support Services, Public Housing Drug Elimination, and Competitive PHA Capital Funds.

    In CPD, HUD has legislation to consolidate homeless assistance services from six disparate programs into one flexible, performance-based formula grant program. Affected homeless programs include Emergency Assistance, Safe Haven Housing, Supportive Housing Program, Shelter Plus Care, Rural Housing, and the Section 8 Mod Rehab Program.

  • Deregulate high-performing PHAs and smaller PHAs by mandating fewer reporting requirements

    Currently all PHAs must prepare extensive reports, planning documents, and other operational reviews. Monitoring compliance with this stream of paperwork requires inordinate staff time and is burdensome to those PHAs that already perform responsibly and efficiently. HUD will reduce staff oversight burdens and reward effective, high-performing PHAs by reducing the volume of paperwork they are required to submit. Specific changes HUD will make include streamlining planning submissions and performance indicators for small PHAs, and reducing submission requirements for high-performing ones. These steps will substantially reduce the burden on field staff for monitoring and oversight.

  • Create a Public Housing Authority Performance Evaluation Board

    An independent Performance Evaluation Board will be established to help HUD monitor public housing authority performance. The board will be composed of seven members, all appointed by HUD, with members representing public housing authorities, residents, the real estate industry and local government.

    The board will be responsible for making broad recommendations for improving HUD's oversight and monitoring of all facets of public housing authority performance. The board will be evaluate the current Public Housing Management Assessment Program (PHMAP) and suggest future improvements. The board will also study alternative performance evaluation models used in other industries, including accreditation models that can be applied to public housing. The board will also develop standards for professional competency for PHA employees and review HUD's system to increase on-site physical inspections and independent audits of PHAs.

  • Mandate a judicial receivership for all large PHAs on the troubled list for more than one year

    Currently, troubled PHAs may remain on HUD's troubled list for years, consuming tremendous staff energy and oversight time in attempts to restructure and salvage these properties. This prevents HUD staff from focusing attention on those properties that may need additional support to prevent their becoming troubled. HUD proposes to place troubled PHAs in judicial receivership if they remain on the troubled list for more than one year. This step gets HUD staff out of the business of managing and restructuring large, troubled PHAs.

  • Reduce excessive rent subsidies to market levels on assisted housing

    The Section 8 program, which subsidizes rents, is HUD's largest housing program for low-income people. Established as a means to help low-income people find affordable housing, the program has become fraught with abuse by landlords and developers. FHA insurance of multifamily Section 8 development virtually eliminated risk from the development process. As a result, investors developed "affordable" multifamily properties that required rents well above market simply to meet the development cost. Also, significant tax advantages made Section 8 development even more palatable.

    Excessive subsidies reduce the incentive for managers to provide the results demanded both by residents and HUD. The FHA insurance on these properties also makes unscrupulous landlords less willing to invest in their properties. The resulting neglect, abandonment, or "deferred maintenance" has in many cases led to much lower property values, even as rents remain high.

    Roughly 65 percent of HUD's Section 8/FHA loan portfolio is currently subsidizing rents that are substantially above market. In ten years, the annual cost of renewing Section 8 project-based contracts at their current above-market levels will increase to approximately $7 billion, about one-third of HUD's current budget. HUD simply cannot afford to continue this level of spending.

    " Merely increasing housing assistance will not save neighborhoods or create opportunity communities. We need to empower citizens and communities to work toward their own solutions with the Federal government acting as a partner."

    Congressman
    Rick Lazio

    		The Department is therefore engaged in an intensive legislative push to lower these rents to market levels (mark-to-market) and restructure the portfolio of FHA-insured loans with Section 8 assistance. Without such actions, HUD risks defaulting on approximately $18 billion of federal guarantees.

    HUD has introduced legislation that forces landlords to bring their rents down to supportable levels and restructure their current debt. This will reduce the likelihood of massive foreclosures when landlords' Section 8 contracts expire over the next few years.

    Reform 6: Replace HUD's top-down bureaucracy with a new customer-friendly structure.

    Just like a bank or a mortgage broker, HUD realizes that we too have customers. And like a business, we have to think about what makes customers satisfied. The top-down structure that characterizes HUD, from headquarters to the smallest field office, is no longer appropriate.

    That structure is based on corporate models of the 1930s and 1940s; yet while many corporations reorganized and restructured a decade ago, HUD has not kept pace.

    Where are the models for HUD? One comes from the financial services field. Banks like Citibank and NationsBank have consolidated routine functions into centralized "back office" processing centers. They have established "store-front" customer offices closer — and more responsive — to their markets.

    HUD has learned from their example. HUD's goal is to provide integrated delivery of services and products and to offer a single point of service to all customers. We have identified a number of organizational changes allowing us to do just that.

    ORGANIZATIONAL CHANGES

  • Create neighborhood "store-front" service centers and back office processing centers

    The current field structure has state offices with a full staff of program-specific employees. This structure will be replaced by field offices staffed

    "All institutions, including governments, churches, universities, and so on will become more inter-dependent, more market and customer-driven."

    Peter Drucker,
    Leader to Leader

    		 with Community Resource Representatives and Public Trust Officers. While none of the field offices will close, their operations will change dramatically, becoming processing centers and new store-front service centers. In this way HUD will maintain its presence in the communities while allocating resources the way a customer-friendly Department should.

  • Offer single point of service to customers through Community Resource Representatives

    Community Resource Representatives will play the most critical role in the new HUD. Highly trained generalists with expertise in all HUD programs, they will be trained with coursework in housing development, information technology, real estate and economic development, small group dynamics, and related topics. They will be the new generation of urban and community leaders.

    • These Community Resource Representatives will be the first point of contact for our customers and will be the Department's "front door," helping customers gain access to the whole range of HUD services. They will also help HUD coordinators assess the agency's performance and the impact of programs in local communities.

  • Establish a new management planning strategy based on customer feedback and the Secretary's priorities, goals, and objectives

    In a top-down management style, goals decided at the top are passed down through the ranks. But where is the avenue for bottom-up goals and ideas? How can customers guide HUD's direction?

    HUD's new planning strategy makes that possible. It creates a loop in which Department goals are constantly refined by feedback from customers. While the Secretary sets priorities for achieving the Department's mission, increased attention will go to:

    • Creating an integrated customer service plan;
    • Internal consultation; and
    • External consultation.

    "At the heart of business reengineering lies the notion of `discontinuous thinking' - identifying and abandoning the outdated rules and fundamental assumptions that underlie current operations. Reengineering takes nothing for granted. It ignores what is and concentrates on what should be."

    Michael Hammer and
    James Champy,
    Reengineering the Corporation

    		 The Secretary's Representatives and Community Resource Representatives will be responsible for establishing an effective partnership and working relationship with customers as we implement management plans.

    A more detailed description of the management plan process can be found in Appendix B.

  • Streamline Headquarters

    The Department will undertake a broad range of downsizing and streamlining initiatives that support our major management reforms. We will look for opportunities to consolidate and improve personnel, procurement, information technology, training, and other administrative functions.

    For example, FHEO will eliminate one deputy assistant secretary position, reduce its offices from six to four and its divisions from 14 to six. CPD will combine affordable housing, block grant assistance, and economic development into a new Office of Community and Economic Development. We will transfer the administration of Section 312 loan functions to Ginnie Mae.

    • The Housing, OGC, PIH, and headquarters transformations will include major organizational changes and consolidations, as well as significant staffing reductions and redeployment to field activities. We will expand the Office of the CFO to include the Office of Budget to better comply with the CFO Act, as well as to improve the strategic planning, performance, and measurement of HUD's operations.

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    Content Archived: December 9, 2011