# Presentation: 798570

## Asset Management for Public Housing

- Outline Discussion
- August 15, 2007

## History and Background

- 1998: Quality Housing and Work Responsibility Act
- 1999: Negotiated-Rulemaking I, Funding of Harvard Cost Study
- 2003: Cost Study Completed
- 2004: Negotiated-Rulemaking II
- 2005: Final Rule on Operating Fund Program
- Provides a new formula for distributing operating subsidy to PHAs
- Establishes requirements for PHAs to convert to asset management
- 2007: PIH Notice 2007-9 (Financial Reporting Requirements)

## Operating Fund Rule (24 CFR 990): Key Themes  

- “PHAs shall manage their properties according to an asset management model, consistent with the management norms in the broader multi-family management industry. PHAs shall also implement project-based management, project-based budgeting, and project-based accounting, which are essential components of asset management.”
- “...property-management services [must be] tailored to the unique needs of each property, given the resources available to that property. “
- “...property management services are arranged, coordinated, or overseen by management personnel who have been assigned responsibility for the day-to-day operation of that property and who are charged with direct oversight of operations of that property.”
- “The arrangement of property management services must be done in the best interests of the property, considering such factors as cost and responsiveness.”

## Suppose...

- You own a group of restaurants.
- Would you hire a manager for each restaurant?
- Would you establish a budget for that restaurant?
- Would you assign significant responsibility for the day-to-day operation of that restaurant to the on-site manager?
- Would you monitor the individual performance of each restaurant in your portfolio, including financial performance?

## Initial Priorities/Building Blocks

- Project-based funding
- Project-based budgeting
- Project-based accounting
- Project-based management
- Project-based performance assessment

**Notes:**
In public housing, we can’t jump immediately to asset management without first building a proper foundation. Consequently, as  the conversion toward asset management continues over the next five years, the primary focus will be on the following: 
<advance 1> Project-based funding;
<advance 2> Project-based budgeting;
<advance 3> Project-based accounting;
<advance 4> Project-based management; and
<advance 5> Project-based performance assessment.
These building blocks need to be in place in order to form a solid foundation that build upon the strategic aspects of asset management. Let’s take a look at each building block individually.

## Initial Priorities/Building Blocks, cont’d

- Project-based funding
- Separate subsidy form for each project
- Project Expense Level (PEL) is a major component

**    ****Project-based funding**

**    **

**Notes:**
In contrast with the current model of funding PHAs at the entity level, the new rule establishes a system of project-based funding, our first building block. 
<advance 1> Under project-based funding, PHAs will complete a separate subsidy form for each project. <advance 2> A major component of a project’s subsidy calculation will be its Project Expense Level or PEL. The PEL is a model-generated estimate of the cost to operate the project, excluding utilities and taxes. It is based on the costs of operating other federally-assisted housing projects with similar characteristics.

## Initial Priorities/Building Blocks, cont’d

- Project-based budgeting
- Must be approved by PHA Board
- Not subject to HUD approval
- Used for planning purposes

**    ****Project-based funding**

**    ****Project-based budgeting**

**Notes:**
Along with project-based funding, PHAs will be required to do project-based budgeting, our next building block.
<advance 1> Project-based budgets must be approved by the PHA’s Board prior to the start of each fiscal year.
<advance 2> However, these budgets will not be subject to HUD approval, except in the case of non-performing projects. <advance 3> Primarily, project-based budgets will be used for internal PHA planning purposes.

## Initial Priorities/Building Blocks, cont’d

- Project-based accounting
- Year-end project statements submitted to HUD
- Can only charge projects for services actually received
- Fees must be
- 	considered
- 	reasonable

**    ****Project-based funding**

**    ****Project-based budgeting**

**    ****Project-based accounting**

**Notes:**
The next building block is project-based accounting. 
<advance 1> As with other federally-assisted housing programs, PHAs will be required to submit to HUD year-end financial statements on each project. These financial statements will include revenue, expense, and balance sheet items. 
<advance 2> Further, PHAs will only be able to charge projects for services actually received. In accounting for project costs, for example, PHAs will not be permitted to spread the cost of central maintenance across properties. The training will further elaborate on the proper way to handle project costs in Section 4: Project-based budgeting.
<advance 3> Lastly, any overhead fees, and any fees for centrally-provided property management services, must be considered reasonable. This means that the costs must not exceed what other efficient operators would incur for those same services in the local market.

## Initial Priorities/Building Blocks, cont’d

- Project-based management
- Arrange property management services in the best interest of the project
- Assign management personnel to each project

**Notes:**
The project-based management building block allows projects to operate using a conventional property management approach.
<advance 1> For example, PHAs will arrange property management services “in the best interests of each project.” In other words, a project must receive the same level of service from a central landscaping crew as could be obtained through the market or by handling the work with on-site staff. 
<advance 2> Additionally, PHAs must assign management personnel, such as a housing manager, to each project. The primary responsibility of this staff person will be the day-to-day operation of that project.

An important note to mention at this point is that the properties may elect to retain services either from a PHA or another property management firm, based upon what is most efficient and cost effective to the property.  This is why it is important for the PHAs to fully understand their role and how they can provide beneficial services to the properties.

## Initial Priorities/Building Blocks, cont’d

- Project-based performance assessment
- PHAS will be revised to emphasize project-based monitoring
- Each project will be evaluated on financial, managerial, and
- 	physical condition

**    ****Project-based funding**

**    ****Project-based budgeting**

**    ****Project-based accounting**

**    ****Project-based management**

**Project-based **
**performance assessment**

**Notes:**
Our last building block is project-based performance assessment.
<advance 1> Currently, the Public Housing Assessment System, or PHAS, examines mostly PHA-wide activities, not project-specific activities. However, HUD is revising PHAS to emphasize project-based performance monitoring and evaluation. 
<advance 2> Each project will be evaluated on its financial and management performance in addition to its physical condition, which is measured at a property level by a physical inspection. A central part of this new performance measurement structure will be a system of on-site management reviews of each project.

## Note

- Asset management doesn’t change the mission of public housing. Rather, it is intended to improve the business processes, consistent with the norms in private/multifamily housing.

## Helpful Resources

- The following documents, and other related materials, can be found on the Asset Management Website at
- _[http://www.hud.gov/offices/pih/programs/ph/am](http://www.hud.gov/offices/pih/programs/ph/am)_
- Preparing for Asset Management Under the New Public Housing Operating Fund Rule (24 CFR 990): A Planning Document
- Demonstrating Successful Conversion to Asset Management: A Site Visit to the Charlotte Housing Authority
- Asset Management Newsletter, Issue 02, March 2007, Special Issue on Administrative Reform