![](media/image1.wmf){width="0.5583333333333333in"
height="0.5493055555555556in"} **U.S. Department of Housing and Urban
Development**

**Office of Public and Indian Housing**

**Special Attention of Notice** PIH 2008-16 (HA)

Public Housing Agencies

Public Housing Hub Office Directors Issued: March 25, 2008

Public Housing Program Center Directors

Regional Directors Expires: March 31, 2009

Field Office Directors

Resident Management Corporations

Cross Reference:

**Subject:** Guidance on Asset Management Provisions in the Consolidated
Appropriations Act, 2008

# 

1.  **[Purpose]{.underline}**

Title II of Division K of the Consolidated Appropriations Act, 2008,
P.L. 110-161, (approved December 26, 2007), contains two asset
management provisions. Specifically:

-   SEC. 225: Public housing agencies that own and operate 400 or fewer
    public housing units may elect to be exempt from any asset
    management requirement imposed by the Secretary of Housing and Urban
    Development in connection with the operating fund rule: *Provided,*
    That an agency seeking a discontinuance of a reduction of subsidy
    under the operating fund formula shall not be exempt from asset
    management requirements.

-   SEC. 226: With respect to the use of amounts provided in this Act
    and in future Acts for the operation, capital improvement and
    management of public housing as authorized by sections 9(d) and 9(e)
    of the United States Housing Act of 1937 (42 U.S.C. 1437g(d) and
    (e)), the Secretary shall not impose any requirement or guideline
    relating to asset management that restricts or limits in any way the
    use of capital funds for central office costs pursuant to section
    9(g)(1) or 9(g)(2) of the United States Housing Act of 1937 (42
    U.S.C. 1437g(g)(1),(2)): *Provided,* however, that a public housing
    agency may not use capital funds authorized under section 9(d) for
    activities that are eligible under section 9(e) for assistance with
    amounts from the operating fund in excess of the amounts permitted
    under sections 9(g)(1) or 9(g)(2).

The purpose of this notice is to provide guidance to public housing
agencies (PHAs) regarding the implementation of these two provisions.

For background information on certain terms and concepts included in
this notice, e.g., management fees, please refer to PIH Notice 2007-9,
Changes in Financial Management and Reporting Requirements for Public
Housing Agencies Under the New Operating Fund Rule (24 CFR part 990),
issued April 10, 2007.

2.  **[Effective Date]{.underline}**

As a general matter, appropriation act provisions are only effective for
the covered fiscal year, unless the Congress makes clear that the
provision is intended as permanent legislation through words of
"futurity" (for example, "hereafter" or "after the date of approval of
this act") or if the permanent character of the legislation is otherwise
clearly indicated (for example, if the provision would be rendered
meaningless unless it were treated as permanent legislation).

Section 225 of the Consolidated Appropriations Act, 2008, regarding the
asset management exemption for PHAs between 250-400 units, does not
include words of futurity. HUD interprets this section to provide an
additional one year extension of the asset management requirements.
Accordingly, until further instruction from Congress, section 225 is
only effective for Calendar Year (CY) 2008.

Section 226 of the Consolidated Appropriations Act, 2008, regarding
funding of central office costs from the Capital Fund Program, includes
such words of futurity in its first sentence. Accordingly, section 226
is permanent until amended or removed by Congress.

3.  **[Asset Management Election]{.underline}**

Under 24 CFR 990.260(b), PHAs with fewer than 250 public housing units
are exempt from asset management. Section 225 of the Consolidated
Appropriations Act, 2008, increases the threshold for exemption to 400
public housing units, except for PHAs eligible for a discontinuation of
reduction in operating subsidy, i.e., "stop-loss" agencies (see PIH
Notice 2007-16 for more information on stop-loss). To be eligible for
stop-loss, a PHA must implement asset management. Please note that
section 225 does not change other program thresholds. For example, the
250 unit thresholds for Annual Plans and the Public Housing Assessment
System (PHAS), particularly with respect to bi-annual
reporting/assessments, remain unchanged.

All PHAs with 250-400 units will indicate with their CY 2008 operating
subsidy submission whether they either will continue to implement asset
management or elect to be exempt from asset management (CY 2008
operating subsidy submissions are to be submitted to HUD by

April 25, 2008). If an agency elects to be exempt, it must do so by
board resolution.

PHAs with 250-400 units that elect not to implement asset management
should consider the following:

-   **CY 2008**. The election for exemption is only authorized for
    CY 2008. PHAs that elect this exemption for CY 2008 are not
    "grandfathered" for future years.

-   **Add-on Fee for Asset Management.** The PHA will not receive the
    \$4 per unit monthly (PUM) add-on fee for asset management.

-   **Fee-for-Service**. The PHA shall not implement fee-for-service
    (property management fees, bookkeeping fees, asset management fees,
    etc.). Instead, the PHA shall continue to allocate overhead costs
    across federal programs in a manner consistent with OMB Circular
    A-87, Cost Principles for State, Local, and Indian Tribal
    Governments. Under asset management, fee income is treated as local
    income. Under cost allocations, allocated overhead remains subject
    to program income requirements.

-   **Central Office Cost Center (COCC).** The PHA shall not establish a
    COCC and is not eligible for the 6 months of associated working
    capital.

-   **Single Asset Management Project (AMP).** Except for any mixed
    finance projects, all PHA units will be combined into one AMP for
    purposes of measurement and scoring under the PHAS. However, because
    of the time required to adjust HUD systems, the REAC may need to
    continue to conduct inspections based on current AMP configurations.
    In such cases, the results of the inspections will be combined into
    a unit-weighted average to produce a consolidated score.

-   **Project Expense Levels (PELs).** Where the PHA currently has more
    than one AMP, HUD will calculate a PEL for the newly consolidated
    AMP. Because of the impact of formula coefficients on the PEL when
    multiple projects are combined into one project (for instance, a
    1.49 percent reduction for projects of 150 or more units), PHAs
    between 250-400 units that previously had more than one AMP will, on
    average, have their PELs reduced by \$4.25 PUM. HUD has posted on
    its asset management website the current and projected PELs for all
    PHAs that are eligible for this new exemption from asset management.

-   **Subsidy and Grants Information System (SAGIS).** Also due to the
    time needed to modify HUD systems, PHAs that elect to be exempt from
    asset management, and that previously had more than one AMP, will,
    for CY 2008, continue to submit a subsidy form for each AMP
    currently identified in SAGIS.

-   **Financial Data Schedule (FDS).** All PHAs are still required to
    submit the new FDS, beginning with fiscal years ending June 30,
    2008; however, a PHA that elects not to implement asset management
    will report all public housing activity under one AMP.

-   **Capital Fund Program Drawdown.** If a PHA elects not to implement
    asset management, it must draw down Capital Fund Program
    administrative costs only within 72 hours of expenditure. Under
    asset management/fee-for-service, a PHA may draw down its entire
    management fee at time of award.

-   **Alternate Asset Management Model.** The alternate asset management
    model, i.e., conversion without a COCC, is available only for PHAs
    of less than 250 units (see Chapter 9 of the Supplement to PIH
    Notice 2007-9).

4.  **[Use of Capital Fund Program Grants to Support Central Office
    Costs]{.underline}**

Section 9(g) of the Housing Act of 1937 permits PHAs to spend 20 percent
of the Capital Fund Program grant to operate public housing (100 percent
for PHAs with fewer than 250 units). Effectively, these funds are
"transferred" to the Operating Fund Program, or operations. Under
current asset management guidance, a PHA can transfer Capital Fund
Program grant funds to operations to pay for direct project costs such
as maintenance or resident services, but not to enable the COCC to
charge a management fee higher than otherwise allowed. Section 226 of
the Consolidated Appropriations Act, 2008, prohibits HUD from limiting a
PHA from using Capital Fund Program grant amounts to pay for public
housing central office costs, within the 20 percent limit on operations
(100 percent for PHAs with fewer than 250 units). As explained below,
PHAs that utilize section 226 must maintain overhead allocations to
demonstrate reasonable costs and must not use fee-for-service for their
Public Housing Program. They will report the allocated overhead to each
project on a new FDS line item called "Allocated Overhead." Moreover, to
ensure proper program monitoring, including Capital Fund Program grant
drawdowns for administration, a PHA must notify HUD by email of its
intent to switch to the cost-allocation method for overhead prior to
utilizing section 226. The email address is:

REAC_OpSub@hud.gov

**General**

Under asset management, the COCC charges each project a reasonable
management fee, consistent with fees paid in the local market. The COCC
also charges a management fee for each program it administers, e.g., the
Capital Fund Program, the Housing Choice Voucher Program, etc. These
fees are in lieu of overhead allocations. The fees that a project or
program pays the COCC are an eligible program expense. The fees that the
COCC earns are considered local income, i.e., this income is
"de-federalized." PHAs have until 2011 to comply with the reasonableness
standards for management fees, subject to inclusion in the PHA's Annual
Plan of appropriate supporting documentation. These phased-in fees are
also de-federalized.

**Example of Current Policy**

Assume that a project has income of \$100 and that the COCC charges the
project a "reasonable" management fee of \$30 (the term "reasonable"
here includes the phased-in fee through 2011). The PHA then transfers
\$15 from the Capital Fund Program to operations. The project now has
\$115 in revenue, all of which is subject to Operating Fund Program
rules (once transferred, capital funds lose their identity and are
controlled under the rules of the Operating Fund Program). Under
existing asset management guidance, the project can use the higher
revenue to support direct project costs such as utilities or security,
but not to charge a management fee higher than otherwise allowed.

**Application of Section 226**

Section 226 permits a PHA to use the Capital Fund Program to pay for
central office costs of the Public Housing Program, provided the PHA
does not transfer more than 20 percent of the Capital Fund Program grant
for operations (100 percent for PHAs with fewer than 250 units). Section
226 cannot be read, however, to obviate the requirements under OMB
Circular A-87 for costs to be reasonable and necessary.

When a PHA complies with the established procedures for charging
reasonable management fees (including the phased-in or transition fees),
it satisfies the reasonable and necessary standards of A-87, which
permits that fee income to be de-federalized. If a PHA chooses not to
use fee-for-service, the PHA must maintain an overhead allocation system
and can only charge actual costs, subject to the reasonable and
necessary standards of A-87.  In the actual costs approach with the
limit of section 226 to a maximum of 20 percent of the Capital Fund
Program grant, there would not be fee income that is de-federalized. For
purposes of the year-end financial reporting, PHAs will use a new
"Allocated Overhead" line item on the FDS and should not charge a
management fee, bookkeeping fee, or asset management fee.

PHAs that utilize section 226 are further instructed that:

-   A statutory and regulatory condition of using Capital Fund Program
    grants for operations is that the PHA includes this election in its
    PHA Annual Plan, which is submitted to HUD annually for approval.

-   Capital Fund Program grants can only be used to support the
    operations of public housing. Capital Fund Program grants cannot be
    used to support operations of the Housing Choice Voucher Program or
    other programs.

-   If a PHA utilizes section 226, it may not collect other fees allowed
    under asset management, such as the fee for mixed-finance
    development, the Capital Fund Program management fee, and the
    voucher management fee.

-   Section 226 does not permit a PHA to exceed the statutory limitation
    of 20 percent of the Capital Fund Program grant for transfers to
    operations for PHAs with 250 or more units.

-   Section 226, as stated previously, is applicable to the Capital Fund
    Program grant for Federal Fiscal Year 2008 and to grants provided in
    subsequent years.

-   PHAs that have already drawn down a Capital Fund Management Fee
    under fee-for-service, and now wish to convert to an allocation
    method for overhead, will need to refund the fee advance and charge
    back actual costs.

-   A PHA's change from "fee-for-service" to "allocated overhead" during
    a fiscal year may constitute a change in accounting principle and
    require special considerations, including a restatement of beginning
    net assets. It may also increase the risk of an auditor rendering
    other than an unqualified audit opinion. As such, PHAs should
    communicate with their auditor if planning to change from
    fee-for-service to allocated overhead within defined financial
    reporting periods.

For more information about this notice, please contact Gregory A. Byrne,
Director, Financial Management Division, Real Estate Assessment Center,
at 202-475-8632, or by e-mail to Gregory.A.Byrne@hud.gov.

[/s/]{.underline}

Paula O. Blunt, General Deputy Assistant Secretary

for Public and Indian Housing