**PUBLIC HOUSING ADMINISTRATION REFORM INITIATIVE**

**DEVELOPMENT AND ASSET REPOSITIONING COMMITTEE**

**GROUP I**

**Recommendations on Fees Calculations #1**

I.  **Issue Statement:**

> [Property Management Fee Reasonableness]{.underline} should not be
> calculated at 80% percentile of the FHA housing portfolio formula as
> proposed by HUD. This will at least provide some relief to PHAs, whose
> portfolio are much more distressed than FHA properties and operate
> under vastly different laws, rules and regulations such as those
> required under resident involvement and participation regulations.
> Housing authorities will find themselves at a financial disadvantage
> and running significant deficits in their COCC or AMPs using the
> proposed fee schedule.
>
> According to the Financial Management Handbook property management
> fees can be arrived at by the following:
>
> [The property management fee schedule established for each HUD
> Multifamily Field Office.]{.underline} The OMH established fee ranges
> for federally subsidized properties that reflect 120% of the mean
> property management fee for profit-motivated properties that are well
> managed, in good physical condition, and are managed by independent
> agents, or
>
> [The 80^th^ percentile property management fee paid by all unlimited
> dividend, limited dividend and non-profit FHA properties, by FHA Field
> Office.]{.underline}
>
> Housing authorities that think fees developed by these methods are
> inadequate may make an individual case for higher fees based on
> compelling market data.

**II. Background:**

In HUD's April 10, 2007 Notice providing guidance on determining
property management fees reasonableness, one of the methods a PHA may
use is charging a management fee is based on the 80% percentile of the
property management fee paid by all unlimited dividend, limited
dividend, and non-profit FHA properties.

**III. Proposals:**

> **a.** PHAs property management fees reasonableness determinations
> should be based on the 100% percentile of the property management fee
> paid by all unlimited dividend, limited dividend, and non-profit FHA
> properties. While the FHA and PHA portfolios have distinct features,
> it seems unnecessarily arbitrary to use a subset of the FHA portfolio
> to establish management fees for the FHA portfolio. There seems to be
> intent on the part of HUD to establish some parity between programs.
> Matching 100% percentile of portfolios is a good starting point.
> Adjustments can be made later as more fee data becomes available.
>
> **b.** Add a more complete attachment to the Financial Management
> Handbook (Revised April 2007) to include property fee schedules for
> each HUD Multifamily Field Office.

**IV. Outcome/Results:**

This will at least allow for consistency in HUD guidance between the PIH
and FHA housing programs. More importantly, the proposal will provide
more cash flow to support COCC operations during the initial transition
to asset management when there is a lot of uncertainty.

**V. Program Cost/Savings:**

This proposal is budget neutral**.**

**VI. Regulatory/Statutory Reference:**

HUD PIH Notice 2007-9, paragraph 7.5 and 24 CFR 990.280

**VII. Stakeholder Impact:**

PHA, Residents, Industry and Community at large**.**

**VIII. Other Factors for Consideration:**

The difference in age between FHA properties and Public Housing
properties is another rationale for applying at least 100% of the FHA
property management fee.

**PUBLIC HOUSING ADMINISTRATION REFORM INITIATIVE**

**DEVELOPMENT AND ASSET REPOSITIONING COMMITTEE**

**GROUP I**

**Recommendations on Fees Calculation #2**

**I. Issue Statement:**

> Under proposed HUD guidance PHAs may earn an asset management fee of
> \$10 PUM only up to the amount of excess cash as calculated from the
> prior year FDS. The Department should provide flexibility to PHAs in
> determining asset management fees. Given the increasing importance HUD
> has placed on asset management conversion, PHAs should use all
> necessary resources to undertake these activities. In fact, HUD's
> criteria for stop loss require PHAs to engage in these activities. If
> asset management activities are critical for stop-loss compliance then
> HUD should provide PHAs with the latitude to charge for these
> activities.

**II. Background:**

> In HUD's April 10, 2007 Notice PHAs are permitted to charge \$10 PUM
> as an asset management fee to properties that meet the excess cash
> requirement.

**III. Proposals:**

> **a.** The \$10 PUM Asset Management fee should be permitted
> regardless of whether projects cash flow.

**IV. Outcome/Results:**

> Permitting PHAs to charge the \$10 Asset Management Fee regardless of
> whether or not projects cash flow will enhance the financial viability
> of the COCC. This is especially important since proration will
> frequently stop projects from cash flowing, but the COCC continues to
> function.

**V. Program Cost/Savings:**

This proposal is budget neutral.

**VI. Regulatory/Statutory Reference:**

> HUD PIH Notice 2007-9, paragraph 7.6 and 24 CFR 990.280

**VII. Stakeholder Impact:**

PHA, Residents, Industry and Community at large.

**VIII. Other Factors for Consideration:**

**PUBLIC HOUSING ADMINISTRATION REFORM INITIATIVE**

**DEVELOPMENT AND ASSET REPOSITIONING COMMITTEE**

**GROUP I**

**Recommendations on Fees Calculations #3**

**I. Issue Statement:**

> Transition to asset management is being required too quickly. Many
> projects, due to their distressed condition with substantial capital
> project backlogs, will not be able to produce cash flow. This will
> reduce rents, due to limited marketability of units to higher-income
> families, which will result in reduced fees to the COCC and
> potentially leading to a higher probability of the
>
> PHA going out of business.

**II. Background:**

> The department is requiring PHAs to convert to asset management
> budgeting by October 1, 2007 and to fully convert to operating under
> its asset management requirements under HUD's April 10, 2007 Notice,
> PIH-2007-9, as of October 1, 2011.

**III. Proposals:**

a.  HUD should negotiate an AMP transition plan, similar to the Chicago
    Housing Authority. A PHA that has an AMP operating at a deficit
    because the properties are distressed will not be able to market
    those properties to higher-income tenants or convert to a mixed
    income property without substantial redevelopment. In short, housing
    authorities with older, obsolete and/or distressed properties need
    more time and money to reposition these non-performing properties
    into performing assets..

> **b**. Redevelopment plans to reposition properties should be
> initiated at the housing authorities. Based on local community and
> market conditions, the HA will produce a plan and pro forma of sources
> and uses, debt service coverage and cash flow. The plan will "back
> into" the amount of loan and/or grant required from HUD to make the
> deal work. HUD will simply plug the gap required to keep the project
> optimally affordable and viable.
>
> **c.** There is a significant need for redevelopment assistance for
> the many housing authorities that lack the human and financial
> resources to deal with repositioning of distressed properties. This
> assistance could take the form of an enhanced HOPE VI program or othe
> mixed finance initiatives.

**IV. Outcome/Results:**

> The above proposal will provide PHAs the opportunity to take
> distressed properties in its portfolio and convert them into viable
> mixed income properties. This will also avoid the needless loss of
> affordable housing stock that is in very limited supply.

**V. Program Cost/Savings:**

> This will require a higher, consistent level of funding in the Capital
> Fund so that capital markets and lenders continue to have faith in the
> CFFP. This will eventually have a cost savings affect on the federal
> budgets because costly, obsolete properties will eventually not exist
> in PHAs' portfolios. Higher funding will also be required for a fully
> functioning HOPE VI program. HOPE VI funding should not result in
> reductions in the Capital Fund. Likewise, housing authorities will
> likely need a predevelopment pool of funds to pay for planning and
> predevelopment costs related to the repositioning of their projects.

**VI. Regulatory/Statutory Reference:**

PIH Notice 2007-9

**VII. Stakeholder Impact:**

> PHA, residents, industry, federal government, low-income developer
> partners and the community at large.

**VIII. Other Factors for Consideration:**

**PUBLIC HOUSING ADMINISTRATION REFORM INITIATIVE**

**DEVELOPMENT AND ASSET REPOSITIONING COMMITTEE**

**GROUP I**

**Recommendations on Fee Calculations #4**

**I. Issue Statement:**

> HUD should provide local flexibility in setting fees and in
> determining how they are to be used with asset management. Because of
> the methodology used to calculate rents in public housing program, the
> operating fund is rarely fully funded.
>
> Additionally, actual costs can easily exceed the market rate fees in
> various regions of the country. These variables make the amount of
> cash flow that a housing authorities can count on subject to
> fluctuation.

**II. Background:**

> Project-based budgeting is good business practice, but PHAs need more
> flexibility in converting to asset management. There are various
> influences that exert pressure on PHAs which justify this need for
> flexibility. Included among these pressures are the following three
> (3): fluctuating rents, under funding of the Operating Fund and local
> conditions.
>
> As stated above, because of how rents are calculated in the public
> housing program, the amount of rent that a housing authority can count
> on will fluctuate, particularly in locales with sharp fluctuations in
> their economies. PHAs should be allowed flexibility in transferring
> income between AMPs and the COCC during any given year. For example,
> in Seattle 50% of rent is from tenants rents and 50% comes from
> subsidy. This is good as it shows that there is considerable economic
> self-sufficiency among residents. But lower-income residents are the
> first to get laid off with the fluctuations in the Seattle economy,
> leading to fluctuations in income and this translates to lower rent
> revenue and the housing authority's ability to produce cash flow. One
> of HUD's major objectives is for PHAs to assist its residents with
> achieving higher levels of self sufficiency. Implementing the current
> fee proposal will punish PHAs who are making significant headway in
> getting their residents employed.
>
> Public housing receives funds from the federal government to provide
> low and extremely low-income families with decent, safe and affordable
> housing. Public Housing Agencies nationwide own and operate more than
> 3,000,000 affordable units in fulfilling this sacred purpose. However,
> maintaining and keeping these units up to code and making available
> for use by our clients have become very challenging due to
> insufficient funding over the pass several decades. During this time
> period the United States Department of Housing and Urban Development
> (HUD) has been forced to prorate its fund for distribution amongst
> housing authorities. For Fiscal Year 2007 alone PHAs were funded only
> 82. 9 cents out of every dollar needed to fully fund public housing.
> This left a \$784 million short fall in operating funds. Current
> Congressional proposals for the FY 2008 budget, although treading
> positively, adds to this trend by proposing a short fall of \$800
> million and will only provide 84 cents for every dollar of need. These
> trends of funding puts further strain on a PHA's cash flow and add to
> the lessening of the viability and structural integrity of its housing
> stock. Without fungibility and with restrictive excess cash rules,
> negative cash flows for some AMPs will be pronounced under asset
> management.
>
> Lastly, management fees should be revisited to more appropriately
> reflect the actual local cost of managing public housing units and
> developments. There are cost items in certain local markets that may
> not currently be considered in the formula as meeting the rule's
> standard of reasonableness for calculating a PHA's management fee
> which can cause budget short falls for the COCC. For example, the cost
> of providing employee workers compensation insurance can increase at
> rates that are well beyond the national standards. This problem is
> well documented for the State of California where the Governor and the
> State legislature in 2004 had to develop special legislation to
> address this program because it was a drag on the state's economy.

**III. Proposals:**

> **a.** Where actual costs exceed markets rates for reasons not
> contemplated under the existing formula such as binding union
> contracts or excessive health benefits related costs, these or similar
> items should be considered as meeting the rule's standard of
> reasonableness.
>
> **b.** An allocation method, in addition to a fee for service method,
> should be permitted for all centralized property management functions
> (including maintenance). Alternatively, housing authorities should be
> given more flexibility regarding decentralization. In some cases, it
> is more efficient to operate centralized programs and services (e.g.
> Maintenance Department, warehouse, and procurement of goods and
> services)
>
> **c.** The use of a portion of Capital Funds for central office cost
> centers is permitted by QHWRA. HUD should not be issuing rules that
> run counter to these allowable costs in the statute. Sections 9(g),
> 9(j), 9(l), and 9(m) of the U.S. Housing Act of 1937, 42 U.S.C.
> Sections 1437g(g), 1437g(j), 1437g(l) and 1437g(m).
>
> **d.** Minimum rents should be determined by each housing authority
> based on low-income target populations, as well as, budgetary and
> market conditions.

**IV. Outcome/Results:**

> The above proposals will enhance the financial viability of the COCC
> and AMPs by permitting the flexibility of setting PHA fees to reflect
> local market conditions and the actual costs of managing public
> housing units and developments. It will help to stabilize the cash
> flow for all authority operations by permitting fungibility through
> out the year so that cross subsidy can be applied from high performing
> areas of the PHA to lower performing areas of the PHA while
> redevelopment plans are put into effect. Lastly, it will increase or
> stabilize cash flow to an AMP that have a higher percentage of
> employed residents that may be impacted by an economic downturn while
> simultaneously allowing the PHA to continue to support economic self
> sufficiency efforts.

**V. Program Cost/Savings:**

> These proposals are cost neutral except for residents who will be
> impacted by the increase in the minimum rent.

**VI. Regulatory/Statutory Reference:**

> 24CFR990.280 (d), HUD PIH Notice 2006-14 (Table 6, 4d), HUD PIH Notice
> 2006-14 Paragraph 7(a) 92) and HUD PIH Notice 2007-9 Paragraph 7.5

**VII. Stakeholder Impact:**

PHA, Resident, Industry and the Community at large.

**VIII. Other Factors for Consideration:**

**Project Based Vouchers Subcommittee**

**"PHA-OWNED PROJECTS" - REDUCE UNNECESSARY ADMINISTRATIVE BURDEN**

**(four related recommendations)**

1.  **Issue Statement** (specific issue and related problems)

> Because of asset management and the relative dearth of public housing
> funds for new construction, PHAs are looking into new avenues and
> funding sources to enable them to continue their core mission of
> serving very low-income households. Below are areas where in which the
> Department could make budget-neutral changes to the Project Based
> Voucher regulation at 24 CFR 983 that would reduce administrative
> burden for PHAs wishing to project base a portion of their portfolio
> in order to create new "hard units." It also facilitates the
> increasingly common practice of incorporating Project-Based Vouchers
> (PBVs) into public housing mixed-finance redevelopments -- a situation
> in which PHAs are putting together complex financing packages and are
> already undergoing significant review by Public and Indian Housing.
>
> The PBV regulation establishes special rules for any units in which a
> PHA, its officers, or its staff owns even a minimal direct or indirect
> interest, which it calls "PHA-Owned Units." The first and most
> important item essentially requires a PHA to "procure" an entity it
> holds an ownership interest in, which creates inherent complexity and
> conflicts better addressed by waiving the requirement. The remaining
> three items outlined below actually make it [more]{.underline}
> complicated for a PHA to apply PBV in its own redevelopment efforts
> than third party efforts. The first essentially requires a PHA to
> "procure" an entity it holds an ownership interest in, which creates
> inherent complexity and conflicts better addressed by waiving the
> requirement.

a.  **983.59(a) & 983.59(e): PHA-Owned Projects should be exempt from
    competition requirement.** This is the most important of the four
    suggestions. As a general rule, the PBV regulation requires a PHA to
    competitively procure owners/properties who are interested in
    participating its PBV program. A PHA can also rely on previous
    competitive procurements under 983.51(e), a provision we also
    suggest revising in a separate recommendation. A PHA must also
    procure "PHA-Owned Units" AND have the selection reviewed and
    approved by HUD or an independent entity approved by HUD. In
    general, we think the procurement requirement creates problems --
    how can a PHA-owned property respond to a PHA-issued Request for
    Proposals in a way that does not suggest conflicts of interest or
    favoritism. Rather it makes more sense to establish adequate
    controls on how and when a PHA may apply PBV to units it owns (even
    in part) rather than requiring the gyrations of procurement. This is
    also consistent with the principles outlined by the department in
    PIH Notice 2007-15 for treatment of PHA affiliated entities.

b.  **983.59(b); 983.103(f): Independent Entity Inspections not
    necessary.** This provision requires a PHA to contract with an
    independent entity, approved by HUD, to do unit inspections. Finding
    and arranging for a third party to perform inspections is easy --
    but finding a third party capable and willing to take on the burden
    of overseeing the work can be more complicated, particularly in
    rural jurisdictions. It essentially requires a PHA to find an entity
    comfortable with doing unit inspections and willing to take the task
    on. The provision seems to respond to a statutory requirement that
    "every voucher contract" provide for "inspection of the dwelling
    unit by an independent professional." This requirement could be
    fulfilled more efficiently by requiring a PHA to contract out
    inspections rather than using staff. This places a PHA in
    essentially a position to manage the PBV inspections as a routine
    part of its voucher and public housing program, rather than always
    creating expensive and time consuming "special circumstances."

c.  **983.59(b); 983.303(f): Independent Entity Rent Reasonableness not
    necessary either.** Similarly, this provision requires an
    "independent entity", approved by HUD, to perform the initial
    determination of contract rents. It certainly makes sense to have a
    third party review initial whenever a PHA proposes to deviate from
    usual PBV rent setting for PHA-owned units; however if a PHA is not
    treating its PBV units differently from others, no additional HUD or
    third party review should be necessary. A PHA certification should
    be sufficient to meet this requirement.

d.  **983.59(b)(1): Appraisal required for PHA-Owned Units only.**
    Generally in the voucher program, rent reasonableness is a very
    simple determination -- do a comparability analysis of at least
    three units. This holds true for all tenant based vouchers and all
    project based vouchers other than PHA-Owned Units. Only PHA owned
    units are required to establish the initial contract rent "based on
    an appraisal by a licensed state, certified appraiser." This imposes
    a higher burden in terms of time and cost on PHA-Owned Units than on
    any other type of voucher.

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2.  **Background** (history of issue, new or long-term)

    a.  These issues have arisen only in the past few years as the prior
        certificate program prohibited PHA-owned units. As public
        housing funding decreases, we expect PHAs to look for new ways
        to leverage public housing and their ability to provide housing
        generally -- which PHA-owned units are perfect for. For example,
        many PHAs have used non-federal funds to develop properties to
        receive project-based section 8 and many others have
        incorporated both public housing and project based vouchers into
        one property, so that the PBV can subsidize the public housing
        units.

3.  **Proposal** (describe in detail)

    a.  **Issue 1**: Eliminate procurement requirement for PHA-Owned
        units; a PHA has a right to assign 50% of its permitted PBV
        maximum to PHA-Owned Units; above that threshold, HUD approval
        would be required. Approval could be based upon a showing that
        solicitation produced one or fewer qualified bidders, a
        documented shortage of affordable "hard units." Delete 983.51(e)
        and revise 983.59 per attached.

    b.  **Issue 2**: Permit PHA to contract for inspections of PHA-Owned
        Units rather than requiring an independent entity. Delete
        983.103(f) and revise 983.59 per attached.

    c.  **Issue 3:** Third party review of initial contract rents of
        PHA-Owned Units required only if the PHA proposes to provide
        higher rents than in the remainder of its voucher portfolio.
        Delete 983.303(f) and revise 983.59 per attached.

    d.  **Issue 4:** Eliminate appraisal requirement for PHA-Owned
        Units. Revise 983.59 per attached.

4.  **Outcome/Results** (describe advantages and disadvantages of
    proposal)

    a.  **Option a**: reducing RFPs issued solely so a PHA can do a
        project, whether alone or in conjunction with public housing
        revitalization -- especially projects seeming "odd" to the IG or
        auditors. Limiting the percentage of units a PHA may designate
        as "PHA-Owned Units" ensures that the availability of PBV to
        third parties is reduced only where HUD determines that
        additional PHA-Owned Units are appropriate.

    b.  **Options b & c**: Possible downside of eliminating independent
        entity: a PHA could favor its own property in inspections and
        rent setting. SEMAP inspections should take care of the first,
        and checks on rent levels would take care of the second.
        Possible upside: ensuring that PHA-owned units are integrated
        into the routine management of the voucher program, rather than
        being a special case, should significantly simplify
        administration.

    c.  **Option d**: Seems straightforward -- all units should have
        rent determined by the same process.

5.  **Program Cost/Savings** (cost benefit analysis of suggestion;
    include implementation costs)

    a.  Budget neutral, but would produce long-term savings in PHA and
        HUD administrative time, PHA attorney and consultant costs.
        Eliminating the independent entity would also save costs, as
        contracting specially for a small number of units is somewhat
        inefficient, as the PHA cannot take advantage of economies of
        scale.

6.  **Regulatory/Statutory Reference** (regs/statutes./handbooks that
    need to be changed to implement the proposal)

    a.  Cited portions of 983.

7.  **Stakeholder Impact** (who is impacted +/- by the proposal --PHA.,
    resident, industry, HUD taxpayer)

    a.  PHAs and HUD on the administrative side. Substantively, voucher
        holders having trouble utilizing vouchers because of shortages
        of landlords accepting vouchers, will benefit from increased
        availability of project-based vouchers.

**Proposed changes to 983.**

**Sec. 983.59 PHA-owned units.**

[(a) Selection of PHA-owned units.]{.underline} The selection of
PHA-owned units ~~must~~ [does not need to]{.underline} be done in
accordance with Sec. 983.51(e); [provided however, that if a PHA wishes
to award vouchers in an amount that would bring the percentage of
PHA-Owned Units over 50% of the amount identified in Section 983.6(a)
herein, a PHA must first obtain HUD approval, which will be granted
based upon a showing of insufficient interest by third parties or
insufficient affordable units in a PHA's jurisdiction.]{.underline}

\(b\) Inspection and determination of reasonable rent ~~by independent
entity~~. In the case of PHA-owned units, the following program services
may not be performed by ~~the~~ PHA [employees]{.underline}, but
[instead]{.underline} must be performed [in accordance with this part
983]{.underline} ~~instead~~ by an independent [contractor retained by
the PHA.]{.underline} ~~entity approved by HUD~~.

\(1\) Determination of rent to owner for the PHA-owned units. Rent to
owner for PHA-owned units is determined pursuant to Sec. Sec. 983.301
through 983.305 in accordance with the same requirements as for other
units, [except that any rents proposed by the PHA to be paid at a higher
contract rent in relation to FMRs than the remainder of the PHA's
voucher portfolio must be based on initial contract rents approved by
HUD]{.underline}; ~~the independent entity approved by HUD must
establish the initial contract rents based on an appraisal by a
licensed, state-certified appraiser;~~ and

\(2\) Inspection of PHA-owned units as required by Sec. 983.103(f);
[provided however that such inspections must be performed by independent
contractors or other persons other than PHA staff.]{.underline}

~~(c) Nature of independent entity. The independent entity that performs
these program services may be the unit of general local government for
the PHA jurisdiction (unless the PHA is itself the unit of general local
government or an agency of such government) or another HUD-approved
public or private independent entity.~~

\(d\) Payment [to independent contractor.]{.underline} ~~entity and
appraiser~~.

\(1\) The PHA may only compensate the independent [contractors for
conducting reasonable rent determination or inspection]{.underline}
~~and appraiser~~ from PHA ongoing administrative fee income (including
amounts credited to the administrative fee reserve). The PHA may not use
other program receipts to compensate the independent
[contractors]{.underline} ~~entity and appraiser~~ for their services.

\(2\) The PHA~~, independent entity, and appraiser~~ may not charge the
family any fee for the appraisal or [the rent reasonableness
determination]{.underline}. ~~services provided by the independent
entity.~~

**Project Based Vouchers Subcommittee**

**COMPETITIVE SELECTION REQUIREMENT -- EXCEPTION COULD BE EXPANDED**

**(two related requirements)**

1.  **Issue Statement** (specific issue and related problems)

> As with the PHA-Owned Units discussion, these proposals tie into PHA
> efforts to revitalize their aging portfolios through innovative
> financing mechanisms. As mentioned earlier, PHAs generally must
> competitively procure owners/ properties for participation in their
> PBV programs. However, a number of PHAs are working with private
> developers in multi-phase revitalization efforts which are jointly
> structured with a mixture of PBV units and other units -- public
> housing, tax credit, market etc. In such cases, competitive selection
> for PBV is inappropriate. Because of the number of waiver requests it
> received in this context the Department permits a PHA to rely on a
> prior competitive selection for funding or development services, if
> the proposal has been awarded within three years and "in accordance
> with such program\'s competitive selection requirements within three
> years of the PBV proposal selection date, and the earlier competitive
> selection proposal did not involve any consideration that the project
> would receive PBV assistance."[^1]
>
> However, in applying this exception, PHAs have found that a longer
> time period would be helpful, as many developers, particularly those
> participating in the HOPE VI program, are procured five to seven years
> before the final phase is complete and have found that the wording of
> the exception is ambiguous enough to create uncertainty about its
> applicability.

a.  **Issue 1**: many redevelopment projects have long lead times,
    especially with timed to annual tax credit cycles, and it may be
    more than three years from the date a developer is selected to the
    date project based vouchers are awarded to the third or later phase.
    This limits the value of the exception.

b.  **Issue 2**: the regulation states that the earlier selection must
    not have involved "any consideration that the project would receive
    PBV assistance." This may be possible for developer selection, but
    any competitive funding application involves outlining all proposed
    financing sources as well as an operating pro forma. If a PHA or
    project owner anticipates that they will apply for and hopefully get
    PBV, they would indicate that in the application at least indirectly
    through the pro forma (or file a pro forma that is deliberately
    misleading as to anticipated funding). This leads to lengthy
    discussions with lawyers about whether a stray reference in the
    application constitutes "any consideration" or does the reference
    have to result in points.

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2.  **Background** (history of issue, new or long-term)

    a.  Prior to issuance of the regulation in late 2005, PHAs routinely
        requested waivers from the competition requirement for proposed
        PBVs in PHA-involved redevelopment projects, typically in a
        project also containing tax credits, public housing funds, etc.
        The regulation was designed to eliminate the need for such
        waivers, and has reduced the need. Unfortunately, it has also
        created its own set of issues.

3.  **Proposal** (describe in detail)

    a.  **Proposal 1**: Change "3 years" in exception to "7 years"

    b.  **Proposal 2**: Change final clause to "and the earlier
        competitive selection proposal did not involve [any award of
        points or other competitive advantage based on the proposed PBV
        assistance.]{.underline}" \[underlined language is new\]

4.  **Outcome/Results** (describe advantages and disadvantages of
    proposal)

    a.  **Proposal 1**: facilitates PHA-driven redevelopment efforts by
        expending period in which developer selection can serve to base
        waivers.

    b.  **Proposal 2**: provides clarity and certainty in PHA decision
        making, and fewer unnecessary waiver requests to field offices.

5.  **Program Cost/Savings** (cost benefit analysis of suggestion;
    include implementation costs)

    a.  Budget neutral, with long-term benefits of saving time, money,
        and hassle on the PHA side. For example, Reno & Cavanaugh, PLLC
        discusses Issue #2 for virtually every PBV mixed-finance
        project. Lawyer time adds up, especially when it includes memos
        to the field office and follow up.

6.  **Regulatory/Statutory Reference** (regs/statutes./handbooks that
    need to be changed to implement the proposal)

    a.  Changes to regulation as identified above.

7.  **Stakeholder Impact** (who is impacted +/- by the proposal --PH A.,
    resident, industry, HUD taxpayer)

    a.  PHA, field office, ultimately residents of mixed-finance
        projects containing PBV units

8.  **Other factors**

**Project Based Vouchers Subcommittee**

**SUBSIDY LAYERING SHOULD BE DELEGATED TO**

**PHAs, HFAs, or OPHI (if applicable)**

1.  **Issue Statement** (specific issue and related problems)

    a.  983.55 requires subsidy layering to be conducted in order to
        prevent excessive public assistance by layering assistance
        payments. A PHA may not enter into a HAP or AHAP until subsidy
        layering is done. Unlike other programs which delete subsidy
        layering responsibility to Housing Finance Agencies ("HFAs"),
        PIH conducts the subsidy layering at headquarters.

    b.  This could and should be delegated to HFAs, to PHAs to
        self-certifying in accordance with publicly available standards,
        and/or to OPHI if it is also doing subsidy layering review as
        part of the mixed finance approval process.

2.  **Background** (history of issue, new or long-term)

    a.  **Secretary Must Certify to Subsidy Layering.** Section 102(b)
        & (d) of the HUD Reform Act of 1989[^2] requires HUD to (1)
        obtain disclosures of other governmental assistance for any
        applicant that receives \$200,000 or more per year of HUD
        assistance and (2) to certify that HUD funding "to any housing
        project shall not be more than is necessary to provide
        affordable housing after taking account of \[other governmental
        assistance\]." This is commonly called subsidy layering.

    b.  **Except When Delegated to HCAs.** Section 911 of the Housing
        and Community Development Act of '92[^3] authorizes HUD to
        delegate subsidy layering review of projects involving low
        income housing tax credits to "housing credit agencies".

    c.  **Notices Except PBV from Delegation to HCAs.** In 1994, HUD
        issued a subsidy layering notice in February and a revised
        subsidy layering notice in December that established standards
        and delegated subsidy-layering authority to state housing
        finance agencies for most HUD programs.[^4] The December draft
        said that Project-Based Certificates (predecessor to vouchers)
        is explicitly exempt, and subsidy layering will be conducted by
        HQ in accordance with the draft February notice until PIH issues
        PBC requirements.[^5]

    d.  Delegation could occur under § 911 for properties when PBV will
        be combined with low-income housing tax credits. Subject to a
        concurring certification by the Sectary, delegation of
        *performing* the subsidy layering analysis could occur for all
        PBV under 102(d). Thus, these proposals should be possible
        without statutory change.

3.  **Proposal** (describe in detail): four options:

    a.  **Proposal 1**: Issue notice explaining how to do subsidy
        layering, providing a template spreadsheet, and allowing PHAs to
        self-certify as to compliance. Concurrence by the Secretary
        would be required only where delegated subsidy layering does not
        occur through some other program (LIHTC, public housing
        mixed-finance).

    b.  **Proposal 2**: In mixed-finance projects involving public
        housing units as well, permit the public housing subsidy
        layering analysis to suffice for both programs and reduce
        duplication, redundancy, and duplication. This probably does not
        require a notice, just a change in procedures.

    c.  **Proposal 3**: Issue notice authorizing HFAs to conduct subsidy
        layering reviews for PBVs, whether alone or in conjunction with
        tax credits.

    d.  **Proposal 4**: Any combination of the above.

4.  **Outcome/Results** (describe advantages and disadvantages of
    proposal)

    a.  Smoother and easier path to PBV projects for both PHAs and HUD.
        We understand the voucher side of HQ has limited resources to
        conduct the reviews.

5.  **Program Cost/Savings** (cost benefit analysis of suggestion;
    include implementation costs)

    a.  Budget neutral, but resulting in savings of administrative cost
        and burden. Smoother transactions.

6.  **Regulatory/Statutory Reference** (regs/statutes./handbooks that
    need to be changed to implement the proposal)

    a.  Procedures and possibly issuing a brief notice.

7.  **Stakeholder Impact** (who is impacted +/- by the proposal --PH A.,
    resident, industry, HUD taxpayer)

    a.  HUD, PHAs, and ultimately residents.

8.  **Other factors**

**Project Based Vouchers Subcommittee**

**SITE AND NEIGHBORHOOD STANDARDS -- STREAMLINE COMPLIANCE**

1.  **Issue Statement** (specific issue and related problems)

> "Site and neighborhood standards" is a Department requirement that a
> PHA assess the suitability of a site for residential housing,
> considering various factors such as access to services, poverty of the
> area, minority concentration, economic opportunity, etc. The criteria
> at 983.57 are complex, somewhat vague and not clearly understood.
>
> For example, some field offices request additional back from PHAs
> about specific elements as if there is some FO approval required prior
> to placement of PBV contract, though the regulation provides for no
> such approval -- merely PHA determinations on the basis of their PHA
> Plan and Section 8 Administrative Plan (both of which are approved by
> the field office). no such approval see. Similarly, there is a
> relatively widespread sense that a PHA may not place PBV units in a
> census tract having a poverty rate of 20% or greater as requiring a
> waiver -- while the regulation itself merely sets forth a complex of
> criteria that a PHA must include in the two plans cited above and
> consider prior to awarding a PBV contract.

2.  **Background** (history of issue, new or long-term)

> Site and neighborhood standards is an important tool for HUD and PHAs
> to use in combating historical and current discrimination in the
> placement of assisted units. However the specific interpretation in
> the regulation is not required by any law.

3.  **Proposal** (describe in detail)

> **Proposal 1**: simplify and streamline the regulation. It could, in
> fact, track existing public housing regs at 941.202 to simplify
> administration for both PHAs and FOs, at least for PBV used in
> conjunction with public housing revitalization. Like 941, also make an
> exception for PBV applied on the site of former public or assisted
> housing, so long as density is not increased.
>
> **Proposal 2**: Specifically authorize PHAs to certify to the that
> they are in compliance with 983.57.
>
> **Proposal 3:** Train field office staff and PHAs on interpreting and
> applying the regulation as currently written.

4.  **Outcome/Results** (describe advantages and disadvantages of
    proposal)

> Clarity for PHAs and FO, who both work with both regulations.

5.  **Program Cost/Savings** (cost benefit analysis of suggestion;
    include implementation costs)

> Cost: budget neutral. Long-term administrative savings.

6.  **Regulatory/Statutory Reference** (regs/statutes./handbooks that
    need to be changed to implement the proposal)

Reg cited above.

7.  **Stakeholder Impact** (who is impacted +/- by the proposal --PH A.,
    resident, industry, HUD taxpayer)

PHAs, FO and ultimately residents

**Project Based Vouchers Subcommittee**

**EXTEND MAXIMUM TERM OF HAP CONTRACT TO 15 YEARS**

**TO FACILIATE USE WITH TAX CREDIT FINANCING**

1.  **Issue Statement** (specific issue and related problems)

> 983.205(a) provides that a HAP may have a maximum term of 10 years,
> which can be extended for additional 5 year terms. Tax credit
> financing is typically underwritten for a 15 year period because the
> tax credit compliance period is 15 years. Investors will be more
> comfortable with a 15 year contract. Some investors require a special
> reserve to cover the possibility that a contract is not renewed in
> year 10, which adds additional development costs.

2.  **Background** (history of issue, new or long-term)

> See above

3.  **Proposal** (describe in detail)

Proposal 1: Change 10 years to 15 years in 983.205(a).

4.  **Outcome/Results** (describe advantages and disadvantages of
    proposal)

> Better terms from tax credit investors, resulting in more affordable
> housing for the same HUD investment.

5.  **Program Cost/Savings** (cost benefit analysis of suggestion;
    include implementation costs)

> Budget neutral - the contract is still subject to appropriations.

6.  **Regulatory/Statutory Reference** (regs/statutes./handbooks that
    need to be changed to implement the proposal)

> See above

7.  **Stakeholder Impact** (who is impacted +/- by the proposal --PH A.,
    resident, industry, HUD taxpayer)

PHAs, HUD, and ultimately residents

8.  **Other factors**

Development and Asset Repositioning -- Issue Paper

1.  **Issue Statement:**

The Capital Fund Financing Program (CFFP) would be more cost effective
if there were clear "safe harbor" standards that would allow a more
streamlined approval process for standard transactions. In addition,
transactions would be less costly to undertake if HUD removed some of
the current submission requirements that are not required by statute and
not attempt to measure risks that are already underwritten by private
investors. HUD should also allow flexibility in how the use restriction
is applied and enforced so PHA's can access "stranded equity" in their
land for public housing reinvestment.

2.  **Background:**

Section 9(d)(1)(a) of the U.S. Housing Act of 1937, as amended, permits
PHAs to use public housing capital funds for financing. Although the
authority was included in the Quality Housing and Work Responsibility
Act of 1998, there is no final regulation regarding the processing of
these transactions.

HUD published informal guidance and a term sheet to be submitted with
supporting documentation. HUD requires a number of costly and time
consuming items for the submission, including an independent management
assessment and a fairness opinion. HUD approval of these transactions
generally takes 4-6 months or longer compared to 45-90 days for mixed
finance approval.

Section 30 of the U.S. Housing Act of 1937, as amended, allows for the
mortgaging of public housing property for the purpose of leveraging
funds to invest in low income housing and other eligible purposes. HUD's
recent proposed rule regarding leveraging of public housing funds seems
to indicate there are no circumstances where the HUD use restriction
could be recorded behind that of a private investor. Without this
ability, some PHAs will be unable to fully utilize the value of their
real estate assets to improve low income communities as contemplated by
the statute.

3.  **Proposal(s):**

1\) Establish "safe harbors" for CFFP approval. If a transaction meets
the safe harbor, the housing authority could proceed without specific
HUD approval. (Again, there is no statutory or regulatory requirement
that these deals be individually underwritten. For example, if a
transaction (a) pledged one third or less of the PHAs annual capital
fund allocation for that year, (b) had a debt coverage ratio of 2.5 or
above, (c) the transaction costs were consistent with industry
standards, and (d) the transaction was described and proceeds were to be
used for capital fund eligible purposes included an approved PHA plan,
no further HUD approval would be needed. This streamline approval would
save time and cost of issuance, as well as help PHAs mitigate against
rising construction costs. Transactions outside these parameters would
undergo individual HUD review and underwriting.

2\) Remove the requirement for an "independent" management assessment.
It is redundant, costly and time consuming. These assessments can add
tens of thousand of dollars to the cost of issuance -- money that could
be better spent on housing. Generally, the do not provide additional
information that is not included in the PHAS evaluation or in the
investors own underwriting of the PHAs management capacity. These
evaluations also take time and can hold up an approval.

3\) HUD may also consider removing or reducing the requirements for a
fairness opinion. Again, these sometimes add time and cost to the
transactions.

4\) HUD should also reconsider language in the proposed rule that would
require the Declaration of Trust to always be recorded in the first
position. There may be situations, such as a transaction under Section
30, where recording the Declaration of Trust behind a private lien will
better enable the PHA to leverage private investment needed to
revitalize a public housing site. Without this ability, in some cases,
PHAs will have difficultly repositioning some of their properties and
maintaining them as low income housing as anticipated under the asset
management program. There are other legal mechanisms to ensure that
public housing properties remain restricted other than requiring the
Declaration of Trust always to be in first place.

4.  **Outcome/Results:**

This proposal will allow more PHAs to take better advantage of important
leveraging tools, so they can leverage capital funding more efficiently
and reposition their assets more quickly.

5.  **Program Cost/Savings:**

This proposal will save housing authorities and HUD money on the
modernization and redevelopment of public housing. More leveraging tools
will allow PHAs to reposition their assets more quickly as contemplated
under the new asset management program.

6.  **Regulatory/Statutory Reference:**

This proposal would affect, in part, the recently proposed rule on use
of Public Housing Capital Fund and Operating Fund for Debt.

7.  **Stakeholder Impact:**

This proposal will save time and money, creating a positive impact on
all stakeholders: PHAs, residents, industry, HUD, and taxpayers.

8.  **Other Factors for Consideration:**

As the proposed funding for the Public Housing Capital Fund continues to
be reduced and the cost of construction continues to rise, PHAs need
more efficient ways to leverage their dwindling resources. Reducing the
costs and time for processing CFFP transactions will help provide more
money for public housing reinvestment. In addition, allowing PHAs more
flexibility to structure deals that will better leverage the value of
public housing land will enable PHAs to reposition their assets more
expeditiously while still preserving their affordable housing stock.

Issue Paper

Consolidated Application for OPHI Programs

9.  **Issue Statement:**

**The review process for mixed-finance, Capital Fund Financing and
demo-dispo, while done in the Office of Public Housing Investments, is
completed by different staff in different divisions within OPHI. HAs,
who have one project requiring approvals from each of these divisions,
must submit different proposals to each division. Frequently, the
information required by each division is redundant. There is little
information sharing among the three divisions, which means that HA staff
must spend more time and energy satisfying each reviewer.**

10. **Background: \]**

**This has become more of a problem as HAs are utilizing multiple tools
in order to redevelop public housing. The recent activity where HAs are
modernizing elderly buildings using CFFP proceeds using the
mixed-finance method has made this problem more apparent.**

11. **Proposal(s):** *(Describe your proposal in detail for addressing
    the issues)*

    a.  **Proposal 1---Develop a consolidated application that will
        allow HAs to satisfy information requirements for multiple
        programs.**

    b.  **Proposal 2---Now that HAs will soon be allowed to use
        operating subsidy to pay debt service to pay debt, it is
        imperative that the review of these proposals be integrated with
        these other programs.**

12. **Outcome/Results:**

**More efficient use of limited HA resources. Better communication
between HUD staff.**

13. **Program Cost/Savings:**

**More efficient use of limited HA resources.**

14. **Regulatory/Statutory Reference:**

**This could be accomplished without changing regs or statutes. OPHI
could accomplish this by consolidating rental term sheets, proposal
documents, and guidance. Revised forms would have to be reviewed by OMB
for compliance with the Paperwork Reduction Act.**

15. **Stakeholder Impact:** **HAs, Developers and ultimately PH
    residents.**

16. **Other Factors for Consideration: OPHI DAS has agreed that OPHI
    staff should work on this.**

[^1]: 983.51(b)(2): competition not required for "selection of a
    proposal for housing assisted under a federal state, or local
    government housing assistance, community development, or supportive
    services program that requires competitive selection of proposals
    (e.g., HOME, and units for which competitively awarded LIHTCs have
    been provided), where the proposal has been selected in accordance
    with such program\'s competitive selection requirements within three
    years of the PBV proposal selection date, and the earlier
    competitive selection proposal did not involve any consideration
    that the project would receive PBV assistance."

[^2]: Codified at 42 USC 3545(b).

[^3]: Codified as note to 42 USC 3545.

[^4]: *Notice; Administrative Guidelines; Limitations On Combining Low
    Income Housing Tax Credits With HUD And Other Government
    Assistance*, Federal Register dated Feb. 25, 1994; *Notice; Low
    Income Housing: Administrative Guidelines: Limitations on Subsidy
    Layering*; Federal Register dated Dec 15, 1995.

[^5]: Specifically, the notice states that the PIH "will publish a
    separate set of guidelines which will apply to ... project based
    Rental Certificate projects developed under part 882, Subpart G.
    Until PIH\'s guidelines are published, Subsidy Layering Reviews will
    continue to be conducted at Headquarters, with input from PIH Field
    Offices. In performing these reviews, PIH will rely on the Interim
    Administrative Guidelines published February 25, 1994."