prompt_front: You are given two reports by the government agency.



Question: Write a one-page summary of the report 1.



Report 2: Article I, Section 6, of the U S  Constitution, states that the compensation of Members of Congress shall be "ascertained by law, and paid out of the Treasury of the United States " Additionally, the Twenty-Seventh Amendment to the Constitution states, "No law, varying the compensation for the services of the Senators and Representatives, shall take effect, until an election of Representatives shall have intervened " This amendment was submitted to the states on September 25, 1789, along with 11 other proposed amendments, 10 of which were ratified and became the Bill of Rights  It was not ratified until May 7, 1992  Since FY1983, Member salaries have been funded in a permanent appropriations account  The most recent pay adjustment for Members of Congress was in January 2009  Since then, the compensation for most Senators, Representatives, Delegates, and the Resident Commissioner from Puerto Rico has been $174,000  The only exceptions include the Speaker of the House ($223,500) and the President pro tempore of the Senate and the majority and minority leaders in the House and Senate ($193,400)  This report provides historical tables on the rate of pay for Members of Congress since 1789; details on enacted legislation with language prohibiting the automatic annual pay adjustment since the most recent adjustment; the adjustments projected by the Ethics Reform Act as compared with actual adjustments in Member pay; and Member pay in constant and current dollars since 1992  Additional CRS products also address pay and benefits for Members of Congress: For information on actions taken each year since the establishment of the Ethics Reform Act adjustment procedure, see CRS Report 97-615, Salaries of Members of Congress: Congressional Votes, 1990-2018 , by Ida A  Brudnick  Members of Congress only receive salaries during the terms for which they are elected  Following their service, former Members of Congress may be eligible for retirement benefits, which are discussed in CRS Report RL30631, Retirement Benefits for Members of Congress , by Katelin P  Isaacs  For information on health insurance options available to Members, see CRS Report R43194, Health Benefits for Members of Congress and Designated Congressional Staff: In Brief , by Ada S  Cornell  For an overview of compensation, benefits, allowances, and selected limitations, see CRS Report RL30064, Congressional Salaries and Allowances: In Brief , by Ida A  Brudnick  There are three basic ways to adjust Member pay  Specific legislation was enacted to adjust Member pay prior to 1968  It has been used periodically since, most recently affecting pay for 1991  The second method by which Member pay can be increased is pursuant to recommendations from the President, based on those made by a quadrennial salary commission  In 1967, Congress established the Commission on Executive, Legislative, and Judicial Salaries to recommend salary increases for top-level federal officials (P L  90-206)  Three times (in 1969, 1977, and 1987) Congress received pay increases made under this procedure; on three occasions it did not  Effective with passage of the Ethics Reform Act of 1989 ( P L  101-194 ), the commission ceased to exist  Its authority was assumed by the Citizens' Commission on Public Service and Compensation  Although the first commission under the 1989 act was to have convened in 1993, it did not meet  The third method by which the salary of Members can be changed is by annual adjustments  Prior to 1990, the pay of Members, and other top-level federal officials, was tied to the annual comparability increases provided to General Schedule (GS) federal employees  This procedure was established in 1975 ( P L  94-82 )  Such increases were recommended by the President, subject to congressional acceptance, disapproval, or modification  Congress accepted 5 such increases for itself—in 1975, 1979 (partial), 1984, 1985, and 1987—and declined 10 (1976, 1977, 1978, 1980, 1981, 1982, 1983, 1986, 1988, and 1989)  The Ethics Reform Act of 1989 changed the method by which the annual adjustment is determined for Members and other senior officials  This procedure employs a formula based on changes in private sector wages and salaries as measured by the Employment Cost Index (ECI)  The annual adjustment automatically goes into effect unless 1  Congress statutorily prohibits the adjustment; 2  Congress statutorily revises the adjustment; or 3  The annual base pay adjustment of GS employees is established at a rate less than the scheduled adjustment for Members, in which case Members would be paid the lower rate  Under this revised method, annual adjustments were accepted 13 times (adjustments scheduled for January 1991, 1992, 1993, 1998, 2000, 2001, 2002, 2003, 2004, 2005, 2006, 2008, and 2009) and denied 16 times (adjustments scheduled for January 1994, 1995, 1996, 1997, 1999, 2007, 2010, 2011, 2012, 2013, 2014, 2015, 2016, 2017, 2018, and 2019)  Although discussion of the Member pay adjustment sometimes occurs during consideration of annual appropriations bills, these bills do not contain funds for the annual salaries or pay adjustment for Members  Nor do they contain language authorizing an increase  The use of appropriations bills as vehicles for provisions prohibiting the automatic annual pay adjustments for Members developed by custom  A provision prohibiting an adjustment to Member pay could be offered to any bill, or be introduced as a separate bill  The maximum potential January 2020 Member pay adjustment of 2 6%, or $4,500, was known when the Bureau of Labor Statistics (BLS) released data for the change in the Employment Cost Index (ECI) during the 12-month period from December 2017 to December 2018 on January 31, 2019  Each year, the adjustment takes effect automatically unless it is either denied or modified statutorily by Congress, or limited by the General Schedule (GS) base pay adjustment, since the percentage increase in Member pay is limited by law to the GS base pay percentage increase  The maximum potential January 2019 Member pay adjustment of 2 3%, or $4,000, was known when the BLS released data for the change in the ECI during the 12-month period from December 2016 to December 2017 on January 31, 2018  Each year, the adjustment takes effect automatically unless it is either denied or modified statutorily by Congress, or limited by the GS base pay adjustment, since the percentage increase in Member pay is limited by law to the GS base pay percentage increase  The 2019 GS base pay adjustment was 1 4%, automatically limiting any Member pay adjustment to $2,400  The House-passed ( H R  5894 ) and Senate-reported versions ( S  3071 ) of the FY2019 legislative branch appropriations bill both contained provisions to prevent this adjustment  The Member pay provision was included in the bills as introduced and no separate votes were held on this provision  Division B of P L  115-244 , enacted September 21, 2018, included the pay freeze provision  The maximum potential January 2018 member pay adjustment of 1 8%, or $3,100, was known when the BLS released data for the change in the ECI during the 12-month period from December 2015 to December 2016 on January 31, 2017  Each year, the adjustment takes effect automatically unless it is either denied or modified statutorily by Congress, or limited by the GS base pay adjustment, since the percentage increase in Member pay is limited by law to the GS base pay percentage increase  The 2018 GS base pay adjustment was 1 4%, automatically limiting any Member pay adjustment to $2,400  The House-passed ( H R  3162 ) and Senate-reported versions ( S  1648 ) of the FY2018 legislative branch appropriations bill both contained provisions to prevent this adjustment  The Member pay provision was included in the bills as introduced and no separate votes were held on this provision  Neither bill was enacted prior to the start of FY2018, and legislative branch activities were initially funded through a series of continuing appropriations resolutions (CRs) ( P L  115-56 , through December 8, 2017; P L  115-90 , through December 22, 2017; P L  115-96 , through January 19, 2018; P L  115-120 , through February 8, 2018; P L  115-123 , through March 23, 2018)  P L  115-56 contained a provision, extended in the subsequent CRs, continuing "section 175 of P L  114-223 , as amended by division A of P L  114-254  " This provision prohibited a Member pay adjustment in FY2017  Section 7 of the FY2018 Consolidated Appropriations Act ( P L  115-141 ) prohibited the adjustment for the remainder of the year  The maximum potential January 2017 Member pay adjustment of 1 6%, or $2,800, was known when the BLS released data for the change in the ECI during the 12-month period from December 2014 to December 2015 on January 30, 2016  Both the House-passed ( H R  5325 ) and Senate-reported ( S  2955 ) versions of the FY2017 legislative branch appropriations bill—which would provide approximately $4 4 billion in funding for the activities of the House of Representatives, Senate, and legislative branch support agencies —contained a provision that would prohibit this adjustment  The Member pay provision was included in the bills as introduced and no separate votes were held on this provision  No further action was taken on H R  5325 or S  2955 , but the pay prohibition language was included in the Further Continuing and Security Assistance Appropriations Act, 2017 ( P L  114-254 )  Absent the statutory prohibition on a Member pay adjustment, Members of Congress would have automatically been limited to a 1 0% ($1,700) salary increase to match the increase in base salaries for GS employees  The maximum potential January 2016 Member pay adjustment of 1 7%, or $3,000, was known when the BLS released data for the change in the ECI during the 12-month period from December 2013 to December 2014 on January 30, 2015  The House-passed and Senate-reported versions of the FY2016 legislative branch appropriations bill ( H R  2250 ) both contained a provision prohibiting this adjustment  The pay adjustment prohibition was subsequently included in the Consolidated Appropriations Act, 2016 ( P L  114-113 )  Absent the statutory prohibition on a Member pay adjustment, Members of Congress would have automatically been limited to a 1 0% ($1,700) salary increase to match the increase in base salaries for GS employees  The maximum potential January 2015 pay adjustment of 1 6%, or $2,800, was known when the BLS released data for the change in the ECI during the 12-month period from December 2012 to December 2013 on January 31, 2014  Each year, the adjustment takes effect automatically unless it is either denied statutorily by Congress, or limited by the GS base pay adjustment, since the percentage increase in Member pay is limited by law to the GS base pay percentage increase  The FY2015 legislative branch appropriations bill ( H R  4487 ), as reported by the Committee on Appropriations and passed by the House on May 1, 2014, contained a provision prohibiting this adjustment  This provision was continued in the House-passed and Senate-reported versions of this bill, with no separate vote on the Member pay provision  No further action on this bill was taken, but the provision was subsequently included in Section 8 of Division Q of the FY2015 Consolidated and Further Continuing Appropriations Act, which was enacted on December 16, 2014  On August 29, 2014, President Obama issued an "alternative pay plan for federal civilian employees," which called for a 1 0% increase in base salaries for General Schedule employees  Absent the statutory prohibition on a Member pay adjustment, Members of Congress would have automatically been limited to a 1 0% ($1,700) salary increase  The maximum potential 2014 pay adjustment of 1 2%, or $2,100, was known when the BLS released data for the change in the ECI during the 12-month period from December 2011 to December 2012 on January 31, 2013  The Continuing Appropriations Act, 2014 ( P L  113-46 , enacted October 17, 2013), however, prohibited the scheduled 2014 pay adjustment for Members of Congress  Each year, the adjustment takes effect automatically unless it is either denied statutorily by Congress, or limited by the GS base pay adjustment, since the percentage increase in Member pay is limited by law to the GS base pay percentage increase  The scheduled January 2014 across-the-board increase in the base pay of GS employees under the annual adjustment formula was 1 3%  A scheduled GS annual pay increase may be altered only if the President issues an alternative plan or if a different increase, or freeze, is enacted  The President issued an alternate pay plan for civilian federal employees on August 30, 2013  This plan called for a January 2014 across-the-board pay increase of 1 0% for federal civilian employees, the same percentage as proposed in the President's FY2014 budget  Legislation was not enacted to prohibit or alter the GS adjustment, and Executive Order 13655, issued on December 23, 2013, implemented a 1 0% increase for GS employees  Had the Member pay adjustment not been prohibited by law, the GS base pay adjustment would have automatically limited a salary adjustment for Members of Congress to 1 0% ($1,700)  The maximum potential 2013 pay adjustment of 1 1%, or $1,900, was known when the BLS released data for the change in the ECI during the 12-month period from December 2010 to December 2011 on January 31, 2012  The adjustment takes effect automatically unless (1) denied statutorily by Congress or (2) limited by the GS base pay adjustment, since the percentage increase in Member pay is limited by law to the GS base pay percentage increase  The President's budget, submitted on February 13, 2012, proposed an average (i e , base and locality) 0 5% adjustment for GS employees  President Obama later stated in a letter to congressional leadership on August 21, 2012, that the current federal pay freeze should extend until FY2013 budget negotiations are finalized  Section 114 of H J Res  117 , the Continuing Appropriations Resolution, 2013, which was introduced on September 10, 2012, extended the freeze enacted by P L  111-322 through the duration of this continuing resolution  H J Res  117 was passed by the House on September 13 and the Senate on September 22  It was signed by the President on September 28, 2012 ( P L  112-175 )  A delay in the implementation of pay adjustments for GS employees automatically delays any scheduled Member pay adjustment  On December 27, 2012, President Obama issued Executive Order 13635, which listed the rates of pay for various categories of officers and employees that would be effective after the expiration of the freeze extended by P L  112-175   The executive order included a 0 5% increase for GS base pay, which automatically lowered the maximum potential Member pay adjustment from 1 1% to 0 5%  As in prior years, schedule 6 of the 2012 executive order listed the pay rate for Members of Congress for the upcoming year  This executive order indicated that an annual adjustment would take effect after the expiration of the freeze included in P L  112-175   As stated above, the annual adjustments take effect automatically if legislation is not enacted preventing them  The executive order, however, by establishing the GS pay adjustment at a lower rate than the scheduled Member pay adjustment, automatically lowered the Member pay adjustment rate since by law Member pay adjustments cannot be higher than GS pay adjustments  Subsequently, a provision in H R  8 , the American Taxpayer Relief Act of 2012, which was enacted on January 2, 2013 ( P L  112-240 ), froze Member pay at the 2009 level for 2013  The language was included in S Amdt  3448 , a substitute amendment agreed to by unanimous consent  The bill, as amended, passed the Senate (89-8, vote #251) and the House (257-167, roll call #659) on January 1, 2013  This freeze was subsequently reflected in Executive Order 13641, which was signed April 5, 2013  This represented the second time, the first being in 2006, that Member pay was statutorily frozen for only a portion of the following year at the time of the issuance of the executive order  In both instances, the executive order listed new pay rates and indicated an effective date following the expiration of the statutory freeze  Pay adjustments in both years were further frozen pursuant to subsequent laws  As stated above, projected Member pay adjustments are calculated based on changes in the ECI  The projected 2011 adjustment of 0 9% was known when the BLS released data for the ECI change during the 12-month period from December 2008 to December 2009 on January 29, 2010  This adjustment would have equaled a $1,600 increase, resulting in a salary of $175,600  The 2011 pay adjustment was prohibited by the enactment of H R  5146 ( P L  111-165 ) on May 14, 2010  H R  5146 was introduced in the House on April 27 and was agreed to the same day (Roll no  226)  It was agreed to in the Senate the following day by unanimous consent  Other legislation was also introduced to prevent the scheduled 2011 pay adjustment  Additionally, P L  111-322 , which was enacted on December 22, 2010, prevents any adjustment in GS base pay before December 31, 2012  Since the percentage adjustment in Member pay may not exceed the percentage adjustment in the base pay of GS employees, Member pay is also frozen during this period  If not limited by GS pay, Members could have received a salary adjustment of 1 3% in January 2012 under the ECI formula  Pay for Members of Congress remained $174,000  Under the formula established in the Ethics Reform Act, Members were originally scheduled to receive a pay adjustment in January 2010 of 2 1%  This adjustment was denied by Congress through a provision included in the FY2009 Omnibus Appropriations Act  Section 103 of Division J of the act states, "Notwithstanding any provision of section 601(a)(2) of the Legislative Reorganization Act of 1946 (2 U S C  31(2)), the percentage adjustment scheduled to take effect under any such provision in calendar year 2010 shall not take effect " Had this provision not been enacted, the 2 1% projected adjustment would have been automatically reduced to 1 5% to match the 2010 GS base pay adjustment  As in previous Congresses, legislation was introduced in the 116 th Congress to repeal the automatic pay adjustment provision (for example, H R  751 and H R  1466 ); change the procedure by which pay for Members of Congress is adjusted or disbursed by linking it to congressional actions or economic indicators, including passage of a budget resolution, passage of appropriations, or reaching the debt limit (for example, S  39 , S  44 , S  949 , H R  86 , H R  102 , H R  129 , H R  236 , H R  298 , H R  834 , H R  1172 , H R  1178 , H R  1466 , H R  1612 , H J Res  10 , and H J Res  51 ); and prohibit pay for Members of Congress during a lapse in appropriations resulting in a government shutdown (for example, S  74 , S  949 , H R  26 , H R  211 , H R  845 , and H R  1612 )  Legislation was introduced in the 115 th Congress to prohibit adjustments in pay (for example, H R  342 ); repeal the automatic pay adjustment provision (for example, H R  668 and H R  5946 ); change the procedure by which pay for Members of Congress is adjusted or disbursed by linking it to congressional actions or economic indicators, including passage of a budget resolution or reaching the debt limit (for example, H R  429 , H R  536 , H R  646 , H R  1779 , H R  1951 , H R  2153 , H R  2665 , H R  3675 , H R  4512 , and H R  5946 , and S
Report 2: gov for disbursements use the 3-day advanced rate exclusively and one uses the 5-day advanced rate  The official noted that a technical issue within ITS gov has restricted the disbursing office currently using the 5-day advanced rate from choosing any other rate, but that the service was further assessing options to correct the issue  In our conversations with an official in OUSD(C) about why the other services had not reviewed the foreign currency rates used for disbursements to determine what was being paid through ITS gov and whether there was an opportunity for savings, the official commented that OUSD(C) had not directed the services to conduct any reviews in this area  This official was unaware that different foreign currency rates were used to make disbursements, and assumed that the military services all make disbursements in the same way  However, as discussed above, the services are using different rates resulting in inconsistency across the department  The official further indicated that DOD could perform a review to determine the cost differences of using one disbursement rate over another  Absent a review of the rates the services are using in making disbursements and whether cost savings could be achieved by more consistently selecting the most cost-effective foreign currency rates available for use at disbursement, DOD is at risk for paying more to convert U S  Dollars for overseas expenditures than would otherwise be required  In fiscal years 2009 through 2016, DOD used the FCFD account to cover losses that the services experienced due to foreign currency fluctuations in 6 of the 8 years we reviewed  However, DOD does not effectively manage the FCFD account balance based on projected gains or losses  Transfers of expired unobligated balances from MILPERS and O&M accounts into the FCFD account have been made to replenish the account balance to the statutory limit of $970 million, without consideration of projected losses due to foreign currency fluctuations  Furthermore, DOD’s financial reporting on foreign currency fluctuations for fiscal years 2009 through 2016 contains incomplete and inaccurate information  In fiscal years 2009 through 2016, DOD transferred approximately $1 92 billion out of the FCFD account to cover losses that the services experienced due to foreign currency fluctuations in 6 of the 8 years we reviewed  For these years, DOD transferred funds from the FCFD account to the services’ MILPERS and O&M accounts during the fiscal year in which the funds were obligated for overseas expenses  The transfer amounts were based on both losses realized from actual disbursements and projected losses for any remaining obligations to be liquidated  The projected losses were calculated based on the current foreign currency market rates as of the time of the calculation  Based on the service-level data we reviewed, all of the services reported that they experienced losses in at least 5 of the fiscal years we reviewed  For example, the Army reported that it experienced losses in its MILPERS account for 5 of 8 years, while the Marine Corps reported that it experienced losses in its O&M and MILPERS accounts in each of the 8 years  In addition to the transfers to cover losses within the services’ MILPERS and O&M accounts, in fiscal year 2013 DOD transferred an additional $969 million to the Defense Working Capital Fund to offset fuel cost losses  Since fiscal year 2012, DOD has maintained the FCFD end-of-year account balance at $970 million—the maximum allowed by statute  To replenish the funds that were transferred out of the FCFD account, DOD transferred unobligated balances to the FCFD account from the services’ O&M and MILPERS accounts  While DOD can also replenish the FCFD account or absorb foreign currency losses in certain currencies by transferring to the FCFD account any gains experienced by the services, our analysis found that DOD did not transfer any gains into the FCFD account for fiscal years 2009 through 2016  Figure 3 shows the transfers into and out of the FCFD account and the end-of-year FCFD account balance for fiscal years 2009 through 2016  Our analysis also shows that DOD transferred funds to maintain the FCFD account at its maximum balance since 2012, despite experiencing fewer losses due to foreign currency fluctuations than it had experienced in fiscal years 2009 to 2011  Of the $1 92 billion transferred from the FCFD account to the services’ MILPERS and O&M accounts to cover losses, $464 5 million was transferred since fiscal year 2012, when DOD began maintaining its FCFD account at the maximum level  During that time, some of the services experienced foreign currency gains, while others experienced losses  For example, at the end of fiscal year 2013 the Navy reported a total realized and projected cumulative gain for its O&M and MILPERS accounts of about $98 6 million  In that same year, the Marine Corps reported a cumulative realized and projected loss for its O&M and MILPERS accounts of approximately $12 7 million  Had DOD not transferred unobligated funds back into the FCFD account, it would have retained a positive balance of approximately $505 5 million  However, DOD maintained the account balance at $970 million by transferring approximately $495 3 million in unobligated balances into the account  As part of its management of the FCFD account balance, DOD analyzes data on realized and projected losses as the basis for transferring funds from the FCFD account to the services’ MILPERS and O&M accounts to cover losses  However, DOD does not consider projected losses when making transfers of unobligated O&M and MILPERS balances into the FCFD account  Figure 4 below shows the FCFD account balance that DOD has maintained in relation to the transfers out of the account to cover losses  Specifically, according to the OUSD(C) official responsible for managing the FCFD account, DOD maintains the FCFD account balance at $970 million to maximize unobligated balances within the military services’ O&M and MILPERS accounts before they are canceled and are no longer available to DOD  In addition, this official stated that DOD prefers to maintain the maximum balance in case it is needed due to sudden, unfavorable swings in foreign currency exchange rates  Our review of the documentation used to make transfers into and out of the FCFD account corroborates that DOD maintains the FCFD account balance to maximize the retention of unobligated balances  Specifically, we found instances in which the documentation states that the transfers of unobligated balances into the FCFD account were made for the purpose of replenishing the account balance to the statutory limit  For example, DOD transferred $89 million from the FCFD account to the Army for losses it had realized and projected in fiscal year 2014, and later transferred unobligated balances of the same amount back into the account  DOD’s documentation states that this transfer of unobligated balances was made for the purpose of replenishing the account to $970 million in order to finance estimated foreign currency losses resulting from the decline in value of the U S  Dollar  However, the transfer to the Army already covered the realized losses and projected losses for any remaining disbursements  In other words, estimated foreign currency losses had already been accounted for at the time of the transfer to the Army  In addition, based on data reported by the Air Force, Marine Corps, and Navy, DOD had an estimated cumulative gain of about $30 million for fiscal year 2014 based on the other services’ gains and losses, which could have been transferred to the FCFD account to absorb any additional foreign currency losses elsewhere  However, DOD did not transfer those gains to the FCFD account  Similarly, based on data reported by these services, DOD experienced cumulative realized and projected gains of more than $200 million in fiscal year 2013 and about $92 6 million in fiscal year 2015, but it did not transfer any gains to the FCFD account because the account balance had already reached its maximum using transferred unobligated balances  Despite replenishing the account balance to the maximum amount for the purpose of covering additional losses, the FCFD transfers have not been made to fully offset losses in some years, further raising questions about the need to maintain the balance at the statutory cap of $970 million annually  Specifically, in 3 of the 6 years in which DOD transferred funds from the FCFD account to the services’ MILPERS and O&M accounts, DOD did not use the FCFD account to fully cover the losses that the Air Force, Marine Corps, and Navy experienced  In fiscal year 2011, for example, DOD’s transfers out of the FCFD account to these services covered about 88 percent of the reported MILPERS and O&M losses that these services had realized and projected to lose by the end of the fiscal year  In fiscal year 2012, FCFD transfers covered almost 72 percent of the MILPERS and O&M realized and projected losses reported by the Air Force, Marine Corps, and Navy, as of the end of the fiscal year  In fiscal year 2016, DOD FCFD transfers to these services covered approximately 55 percent of their reported MILPERS and O&M realized and projected losses by the end of the fiscal year  The OUSD(C) official we spoke with stated that FCFD transfers to cover losses begin with a request from the services, and the OUSD(C) office and the services then coordinate on the final transfer amount  In addition, some service officials told us that they try to cover their losses using each service’s available funding before reaching out for assistance from the FCFD account  Therefore, based on a service’s ability to cover the loss, it may not always request an FCFD transfer to cover the full amount of realized and projected losses  Further, according to an OUSD(C) official, the timing of a service’s request for an FCFD transfer may also affect any differences between the amount transferred and the actual losses experienced  Specifically, if a service requests a transfer early in the fiscal year based on realized and projected losses, actual losses experienced as of the end of the fiscal year may be greater than or less than the transfer amount due to foreign currency fluctuations  Using transfers of unobligated balances, DOD has maintained its FCFD account balance at the maximum level allowed by statute because it has not analyzed realized and projected losses to determine what size account balance is necessary to meet the intended purpose of the account  In our prior work, we have developed key questions for evaluating federal account balances that agencies may use to identify the amount of the balance necessary to maintain agency or program operations  Through examination of carryover balances, oversight of agencies’ management of federal funds may be enhanced  Specifically, we reported that understanding an agency’s processes for estimating and managing carryover balances provides information to assess how effectively agencies anticipate program needs, and ensure the most efficient use of resources  To estimate and manage carryover balances, agencies may consider such factors as future needs of the account, economic indicators, and historical data  If an agency does not have a robust strategy in place to manage carryover balances or is unable to adequately explain or support the reported carryover balance, then a more in-depth review is warranted  In those cases, balances may either fall too low to efficiently manage operations or rise to unnecessarily high levels, producing potential opportunities for those funds to be used more efficiently elsewhere  When asked about maintaining the balance at a level necessary to cover losses, rather than at the maximum level allowed by statute, the OUSD(C) official indicated that the OUSD(C) takes a cautious approach and prefers to have the additional flexibility allowed by the higher balance  Further, the official stated that it would be difficult for DOD to attempt to base its unobligated balance transfers and the FCFD account balance on analysis and evaluation, given the unpredictable nature and constant volatility of foreign currency rates  Our guidelines on evaluating carryover balances acknowledge that external events beyond an agency’s control can dramatically affect carryover balances  However, the challenges that are inherent in predicting foreign currency rates do not preclude DOD from conducting analysis to glean insight as to the appropriate size for the balance of the account and what potential opportunities for savings might exist  Specifically, our guidelines suggest that agencies would benefit from considering the sources and fiscal characteristics of an account with carryover balances  In this case, the FCFD account can receive funds from transfers of unobligated balances and realized foreign currency gains  In addition, DOD can make multiple transfers throughout a fiscal year and can transfer funds from the FCFD to and from the services’ O&M and MILPERS accounts simultaneously, if necessary  These characteristics of the FCFD account already provide the department with flexibility, indicating that DOD may be positioned to manage the FCFD balance in a more analytical manner based on any projected losses  Without analyzing any realized or projected losses to determine what balance may be needed to meet the FCFD account’s intended purpose, the account balance may be kept at a higher level than is necessary  As a result, although an exact amount is unknown, DOD may be maintaining balances in the FCFD account that are hundreds of millions of dollars higher than needed to cover any losses it has experienced, and these funds may have been more efficiently used in supporting other defense activities or returned to Treasury after the account is canceled by law  DOD prepares financial reports to monitor the status of its foreign currency funds, but some of DOD’s financial reporting on foreign currency fluctuations for fiscal years 2009 through 2016 is incomplete and inaccurate  DOD’s Financial Management Regulation establishes reporting requirements specifically for tracking all transactions that increase or decrease the FCFD  In accordance with that guidance, the services provide data from their accounting systems to the Defense Finance and Accounting Service to generate reports that are used as a tool with which the services and OUSD(C) can monitor how they are expending funds appropriated for overseas expenditures  For O&M appropriations, the Foreign Currency Fluctuations, Defense (O&M) report provides data on foreign currency gains and losses for each service, by currency, including data on projected gains or losses for any remaining obligations that have not yet been disbursed at the time of the report  The Foreign Currency Fluctuations, Defense Report (MILPERS) provides similar information for the MILPERS appropriation  We reviewed end-of-year Foreign Currency Fluctuations, Defense (O&M) and (MILPERS) reports for fiscal years 2009 through 2016 and found that some of the reporting for O&M was incomplete and inaccurate, which hampers the quality of information available to manage the FCFD account  For instance, we found the following: Incomplete data in the Foreign Currency Fluctuations Defense (O&M) reports: In our review of the end-of-year Foreign Currency Fluctuations Defense (O&M) and (MILPERS) reports we observed several instances of incomplete data in the O&M reports, and these affect managers’ ability to make sound decisions to manage foreign currency gains and losses  First, for the Navy, we found that the report data showed, for multiple currencies across fiscal years 2011 through 2016, values in the realized variance column, indicating that the service had experienced a gain or loss in a particular currency; however, the reports showed values of zero in other columns that are necessary for calculating the gain or loss  Second, the Air Force data for the Turkey Lira, in fiscal year 2012, showed a gain or loss without any data indicating what would have driven the gain or loss  Third, in one instance, Marine Corps data on obligations for fiscal year 2011 were missing from the end-of-year reports until 2014  Missing obligation data for these end-of-year reports indicate a limitation in using these reports for tracking actual gains and losses  Inaccurate data in the Army’s Foreign Currency Fluctuations Defense (O&M) reports: The Army’s Foreign Currency Fluctuation Defense (O&M) reports are inaccurate and cannot be used to reliably track gains or losses, and this hinders managers from making sound decisions regarding the Army’s foreign currency gains and losses  The reports are inaccurate in that the Army’s accounting system charges disbursements to the current fiscal year appropriation rather than to the fiscal year appropriation that incurred the obligation, as required by the Financial Management Regulation  According to officials from the Army Budget Office, the Army designed its General Fund Enterprise Business System (GFEBS) to record disbursements to the current fiscal year based on differing interpretations of a previous version of the Regulation  Because the Army is not recording its disbursements to the fiscal year appropriation as the other services are, Army data are inaccurate and cannot be used by the OUSD(C) official responsible for overseeing DOD’s foreign currency program to track the Army’s foreign currency transactions and maintain full visibility of DOD’s overall gains and losses in a given fiscal year  Army Budget Office officials acknowledged that the Army will need to modify its system to record disbursements consistent with Financial Management Regulation guidance, but it has not developed a plan or timeline for doing so  Without accurate reporting of the Army’s foreign currency transactions, DOD lacks information for tracking and helping to manage the Army’s foreign currency gain and losses  DOD’s Financial Management Regulation specifies the data that must be included in the Foreign Currency Fluctuations Defense (O&M) and (MILPERS) reports and the roles and responsibilities of the services as well as the Defense Finance and Accounting Service for ensuring the quality of those data  However, we identified data issues in our analysis that indicate that quality is inconsistent  For example, officials from the Navy stated that they had observed the incomplete data for some currencies and speculated that the incompleteness was attributable to data entry errors  Similarly, according to an OUSD(C) official, the Defense Finance and Accounting Service is notified when discrepancies are found in the reports and the Defense Finance and Accounting Service officials coordinate with the services to correct the data  However, neither Navy nor the Defense Finance and Accounting Service officials have corrected the data  Although DOD’s Financial Management Regulation specifies the data that are to be included, as well as roles and responsibilities of the services and the Defense Finance and Accounting Service, it does not identify who is responsible for correcting erroneous or missing data  According to an OUSD(C) official, correcting reporting issues is an area that OUSD(C), the Defense Finance and Accounting Service, and the services can improve on, and they would benefit from guidance in the Financial Management Regulation that establishes the steps that should be taken for making such corrections  Further, GAO’s Standards for Internal Control in the Federal Government and the Federal Accounting Standards Advisory Board’s Handbook of Federal Accounting Standards and Other Pronouncements, as Amended, both establish the importance of using reliable and complete information for making decisions  In addition, DOD’s Financial Management Regulation establishes responsibilities for both the DOD components and the Defense Finance and Accounting Service to establish appropriate internal controls to ensure that financial reporting data are complete, accurate, and supportable, in order for managers to make sound decisions and exercise proper stewardship over these resources  Effectively managing foreign currency gains and losses as well as any projected gains or losses for any remaining obligations that have not yet been liquidated through disbursement requires complete and accurate data  OUSD(C) and service officials recognize the importance of reliable data, as well as the need to take steps to improve the quality of the foreign currency gains and losses data  Without OUSD(C) establishing guidance to ensure that the Foreign Currency Fluctuation Defense (O&M) report data that tracks foreign currency gains and losses are complete, DOD and Congress do not have information to make sound decisions and exercise proper stewardship over resources due to foreign currency fluctuations  Furthermore, until the Army establishes a plan and timeline for modifying its system to record foreign currency disbursements in an accurate manner, the Army and DOD will lack quality information for tracking and helping to manage the Army’s and DOD’s foreign currency gain and losses  Congress provides DOD with a significant amount of funding each year to purchase goods and services overseas and to pay service-members stationed abroad  DOD develops and can revise foreign currency budget rates to determine its funding needs and calculate any gains or losses that result from DOD’s overseas expenditures  The Army has estimated potential cost savings that would result from more consistently selecting a more cost-effective foreign currency rate for making disbursements to liquidate its overseas O&M obligations  However, DOD has not fully determined whether additional cost-saving opportunities exist because the services have not reviewed the rates used for foreign currency disbursements  Absent a review of the foreign currency rates the services are using at disbursement, including whether cost-saving opportunities exist, by more consistently selecting cost-effective foreign currency rates, DOD risks paying more than would be required otherwise  Further, while DOD has used the FCFD account to cover losses that resulted from foreign currency fluctuations, it has not managed the FCFD account balance by basing the transfers of unobligated balances into the FCFD account on an analysis of realized and projected losses  Without basing its FCFD account balance on such analyses, DOD may be maintaining balances in the FCFD account that are hundreds of millions of dollars higher than needed to cover any losses it has experienced, and these amounts may have been more efficiently used supporting other defense activities or ultimately returned to Treasury, once expired  Moreover, DOD has not established guidance and other procedures to ensure that complete and accurate data are included in financial reporting on foreign currency funds, and this limits the quality of information available to effectively manage the FCFD account  We are making the following four recommendations to DOD  The Secretary of Defense ensures that: The Under Secretary of Defense (Comptroller), in coordination with the U S  Army, Air Force, Navy, and Marine Corps, should conduct a review of the foreign currency rates used at disbursement to determine whether cost-saving opportunities exist by more consistently selecting cost- effective rates at disbursement  (Recommendation 1) The Under Secretary of Defense (Comptroller) should analyze realized and projected losses to determine the necessary size of the FCFD account balance and use the results of this analysis as the basis for transfers of unobligated balances to the account  (Recommendation 2) The Under Secretary of Defense (Comptroller) should revise the Financial Management Regulation to include guidance on ensuring that data are complete and accurate, including assignment of responsibility for correcting erroneous data in its Foreign Currency Fluctuations Defense (O&M) reports  (Recommendation 3) The Secretary of the Army should develop a plan with timelines for implementing changes to its General Fund Enterprise Business System to accurately record its disbursements, consistent with DOD Financial Management Regulation guidance  (Recommendation 4) We provided a draft of this report to DOD for review and comment  In its written comments, reproduced in appendix II, DOD concurred with our first, third, and fourth recommendations and outlined its plan to address them  DOD partially concurred with our second recommendation that the Under Secretary of Defense (Comptroller) analyze realized and projected losses to determine the necessary size of the FCFD account balance and use the results of the analysis as the basis for transfers of unobligated balances to the account  DOD also provided technical comments, which we incorporated in the report, where appropriate  In partially concurring with our second recommendation, DOD stated that projecting foreign currency gains or losses can be difficult given that foreign currency rates can be volatile due to various factors, such as trade balances, money supply, and national income, as well as arbitrary disturbances that affect foreign currency rates that cannot be predicted or forecasted, such as the departure of the United Kingdom from the European Union  DOD noted that because of the risk and volatility associated with foreign currency rates, the Congress established the FCFD account  We agree that forecasting foreign currency rates is challenging due to market volatility and include examples in our report of the effect of foreign currency rate fluctuations on DOD’s planned foreign currency obligations  Our report also describes the relationship between gains and losses and foreign currency fluctuations, and the movement of funds from the FCFD account to offset any losses  As our report also discusses, DOD calculates actual and projected losses due to foreign currency fluctuations and uses those projections as the basis, at least in part, for any transfers out of the FCFD account to cover losses experienced in the military services’ O&M and MILPERS appropriations  However, our report also notes that DOD does not consider its calculations of actual and future projected losses when making transfers of unobligated O&M and MILPERS balances to replenish the FCFD account  Instead, since fiscal year 2012, DOD has kept the FCFD account balance at the maximum level allowed by statute by using unobligated balances before they are canceled and are no longer available to DOD, regardless of whether the funds were needed in the account to offset any projected losses  DOD’s comments also stated that projecting gains or losses for foreign currency to determine the size of the FCFD account opens the door to greater uncertainty and risk at a time when the department is working to rebuild readiness and implement the National Defense Strategy  Our report describes the characteristics of the FCFD account that provide DOD with flexibility to manage market volatility, thereby helping to address uncertainty and reduce risk  For example, DOD can make multiple transfers of funds to the FCFD account throughout a fiscal year in response to unforeseen foreign currency fluctuations  The FCFD account can also receive funds from transfers of actual foreign currency gains and/or unobligated balances  As we also noted, DOD made use of its authority to transfer expired unobligated MILPERS and O&M amounts into the FCFD account in the event that actual losses exceeded the projected amounts and additional transfers were deemed necessary  We continue to believe that by analyzing actual and projected losses and basing the transfer of any unobligated balances on these losses, DOD would be better positioned to determine the size of the FCFD account balance that is necessary to meet its intended purpose  Further, such analyses would provide opportunities to more efficiently use unobligated balances for other defense activities or return the balances to Treasury  We are sending copies of this report to the Secretary of Defense, the Under Secretary of Defense (Comptroller), the Secretary of the Army, the Secretary of the Navy, the Secretary of the Air Force, the Commandant of the Marine Corps, and appropriate congressional committees  In addition, the report is available at no charge on the GAO website at http://www gao gov  If you or your staff have any questions about this report, please contact me at (202) 512-5431 or russellc@gao gov  Contact points for our Offices of Congressional Relations and Public Affairs may be found on the last page of this report  Key contributors to this report are listed in appendix III  To describe the Department of Defense’s (DOD) revised foreign currency budget rates since 2009 and the relationship between the revised budget rates and DOD’s projected Operation and Maintenance (O&M) and Military Personnel (MILPERS) funding needs, we reviewed DOD’s foreign currency budget rates for the period of fiscal years 2009 through 2017, and we identified any years during which DOD revised the initial budget rates  We compared DOD’s initial foreign currency budget rates and revised foreign currency budget rates with rates published by the U S  Treasury Department (Treasury) for fiscal years 2009 through 2017  This period corresponded with data available to us on DOD’s initial and revised rates and allowed for use of the most current data available, since DOD had not yet decided whether or not to revise the fiscal year 2018 budget rates, while we were conducting our audit work  We chose rates published by Treasury for this comparison because Treasury has the sole authority to establish for all foreign currencies or credits the exchange rates at which such currencies are to be reported by all agencies of the government  Because Treasury rates are issued quarterly, we averaged Treasury’s first and second quarter rates for each currency and compared the Treasury average with DOD’s initial budget rates  Similarly, we computed an average of the third and fourth quarter Treasury rates for each currency and compared them with the DOD initial or revised budget rates, where applicable  These comparisons are meant to show the difference between DOD’s budget rates and Treasury rates for the first 6 months of the fiscal year, and the difference between DOD’s revised exchange rates and Treasury rates for the last 6 months of the fiscal year  Further, we analyzed the extent to which DOD’s budget rates were within 10 percent of Treasury rates during these same years  We chose 10 percent as the basis for our analysis because Treasury’s guidance states that amendments to the quarterly rates will be published during the quarter to reflect significant changes in the quarterly data, such as rate changes of 10 percent or more  Additionally, to understand the effect that revising the budget rates had on DOD’s O&M and MILPERS funding estimates and on potential gains or losses due to foreign currency fluctuations, we used a three-step approach  First, we identified the amount of O&M and MILPERS funds DOD requested for each currency  We converted the U S  Dollars requested to the total amount of foreign currency needed by multiplying the U S  Dollars requested by DOD’s initial budget rate  Second, we determined the total amount of U S  Dollars required using the revised rates by dividing the total amount of foreign currency needed using DOD’s initial budget rate by DOD’s revised budget rate  We used this same approach to determine the total amount of U S  Dollars required using the average Treasury rates  Third, we computed the differences in DOD’s O&M and MILPERS foreign currency funding needs by subtracting the U S  Dollars required to meet its foreign currency needs based on the average Treasury rates from the amounts required based on DOD’s initial budget rates and DOD’s revised budget rates, respectively  We discussed further with officials from the Office of the Under Secretary of Defense, Comptroller (OUSD(C)) the factors considered in revising the rates and whether those factors are communicated within and outside of the department  To evaluate the extent to which DOD has taken steps to reduce costs in selecting foreign currency rates at which to make disbursements and determine whether opportunities exist to gain additional savings, we reviewed accounting standards and any guidelines that exist regarding disbursements and calculations of foreign currency gains and losses, such as DOD’s Financial Management Regulation 7000 14-R, which calls for the use of prevailing foreign currency rates to make disbursements  We also discussed with agency officials how those guidelines are being carried out, and whether DOD or the services have developed guidance that instructs the services in selecting rates used for disbursements in foreign currencies  Additionally, we examined a non-generalizable selection of data for DOD disbursements made during the months June and July 2017 from Treasury’s International Treasury Service (ITS gov) system to determine which rates DOD used during this period and what savings might be achievable from using alternate rates  We chose data from those 2 months because it was the most recent data available on disbursements at the time Treasury provided the data for our review  Additionally, we discussed with officials from OUSD(C) and the services any analysis and ongoing efforts to transition to more cost-effective rates, including savings that may result  To assess the extent to which DOD has effectively managed the Foreign Currency Fluctuations, Defense (FCFD) account to cover losses, and maintained quality information to manage these funds, we analyzed DOD data for fiscal years 2009 through 2016 on foreign currency gains and losses reported by each of the services as reported in their Foreign Currency Fluctuation, Defense (O&M) and (MILPERS) reports; movements of funds between the FCFD account and the services’ O&M and MILPERS accounts; and the end-of-year FCFD account balances  We chose this time period in order to capture years in which both gains and losses were experienced, and for which DOD had complete data on gains and losses, fund transfers, and end-of-year balances for the FCFD account  Because the Army charges disbursements to the current fiscal year appropriation instead of the fiscal year appropriation that incurred the obligation, we requested that the Army adjust its reported data on foreign currency gains and losses and provide information consistent with how the other services report them, and with DOD’s Financial Management Regulation  However, the Army was unable to provide us with data that were consistent with what was provided by the other services at the time of our review  We, therefore, were unable to use Army data for purposes of comparison with data provided by the other services  We compared the end-of-year FCFD account balances and the use of the account with guidelines established in our prior work on the importance of examining unobligated balances  Additionally, we reviewed and analyzed DOD financial reports on foreign currency gains or losses and compared the reports, including any identified discrepancies, against best practices and standards on accurate reporting and maintaining quality information, such as those in GAO’s Standards for Internal Control in the Federal Government, and the Federal Accounting Standards Advisory Board’s Handbook of Federal Accounting Standards and Other Pronouncements, as Amended  To determine the reliability of the data used in addressing these objectives, we analyzed DOD and Treasury foreign currency rates, data on DOD foreign currency disbursements, and DOD financial reporting data on foreign currency gains and losses to identify any missing or inaccurate information, and we discussed with agency officials any identified abnormalities and how the information was extracted from systems, when appropriate  We found the data to be sufficiently reliable for the purposes of our reporting objectives, with the exception of the financial reporting on financial gains and losses  Specifically, based on problems with the completeness and accuracy of DOD’s financial reporting on foreign currency gains and losses, we found that these data were not sufficiently reliable for the purpose of computing exact totals for the gains and losses DOD experienced  However, because DOD uses these data as the basis for decisions related to management of the FCFD account, we included the data in our analysis to provide insight into the scope of gains and losses experienced  We also spoke with OUSD(C), military service, and Treasury officials regarding the process and systems used to input the reviewed data and generate the foreign currency reports we reviewed  We conducted this performance audit from February 2017 to April 2018 in accordance with generally accepted government auditing standards  Those standards require that we plan and perform the audit to obtain sufficient, appropriate evidence to provide a reasonable basis for our findings and conclusions based on our audit objectives  We believe that the evidence obtained provides a reasonable basis for our findings and conclusions based on our audit objectives  In addition to the contact named above, Matt Ullengren, Assistant Director; and Tulsi Bhojwani, Justin Bolivar, Carol Bray, Amie Lesser, Kelly Liptan, Felicia Lopez, Leah Nash, Randy Neice, Jacqueline McColl, Mike Silver, Roger Stoltz, Susan Tindall, John Trubey, Elaine Vaurio, and Cheryl Weissman made key contributions to this report 

ground_truth: HUD administers the Public Housing program, which provides federally assisted rental units to low-income households through PHAs. In 2010, HUD estimated its aging public housing stock had $25.6 billion in unmet capital needs. To help address these needs, the RAD program was authorized in fiscal year 2012. RAD allows PHAs to move (convert) properties in the public housing program to Section 8 rental assistance programs, and retain property ownership or transfer it to other entities. The conversion enables PHAs to access additional funding, including investor equity, generally not available for public housing properties. GAO was asked to review public housing conversions under RAD and any impact on residents. This report addresses, among other objectives, HUD's (1) assessment of conversion outcomes; (2) oversight of resident safeguards; and (3) provisions to help preserve the long-term affordability of units. GAO analyzed data on RAD conversions through fiscal year 2017; reviewed a sample of randomly selected, nongeneralizable RAD property files; and interviewed HUD officials, PHAs, developers, academics, and affected residents. The Department of Housing and Urban Development (HUD) put procedures in place to evaluate and monitor the impact of conversion of public housing properties under the Rental Assistance Demonstration (RAD) program. RAD's authorizing legislation requires HUD to assess and publish findings about the amount of private-sector leveraging. HUD uses a variety of metrics to measure conversion outcomes. But, the metric HUD uses to measure private-sector leveraging—the share of private versus public funding for construction or rehabilitation of assisted housing—has limitations. For example, HUD's leveraging ratio counts some public resources as leveraged private-sector investment and does not use final (post-completion) data. As a result, HUD's ability to accurately assess private-sector leveraging is limited. HUD does not systematically use its data systems to track effects of RAD conversions on resident households (such as changes in rent and income, or relocation) or monitor use of all resident safeguards. Rather, since 2016, HUD has required public housing agencies (PHA) or other post-conversion owners to maintain resident logs and collect such information. But the resident logs do not contain historical program information. HUD has not developed a process for systematically reviewing information from its data systems and resident logs on an ongoing basis. HUD has been developing procedures to monitor compliance with some resident safeguards—such as the right to return to a converted property—and begun a limited review of compliance with these safeguards. However, HUD has not yet developed a process for monitoring other safeguards—such as access to other housing voucher options. Federal internal control standards require agencies to use quality information to achieve objectives, and obtain and evaluate relevant and reliable data in a timely manner for use in effective monitoring. Without a comprehensive review of household information and procedures for fully monitoring all resident safeguards, HUD cannot fully assess the effects of RAD on residents. RAD authorizing legislation and the program's use agreements (contracts with property owners) contain provisions intended to help ensure the long-term availability of affordable units, but the provisions have not been tested in situations such as foreclosure. For example, use agreements between HUD and property owners specify affordability and use restrictions that according to the contract would survive a default or foreclosure. HUD officials stated that HUD intends to develop procedures to identify and respond to risks to long-term affordability, including default or foreclosure in RAD properties. However, HUD has not yet done so. According to federal internal control standards, agencies should identify, analyze, and respond to risks related to achieving goals and objectives. Procedures that address oversight of affordability requirements would better position HUD to help ensure RAD conversions comply with program requirements, detect potential foreclosure and other risks, and take corrective actions. GAO makes five recommendations to HUD intended to improve leveraging metrics, monitoring of the use and enforcement of resident safeguards, and compliance with RAD requirements. HUD agreed with our recommendations to improve metrics and build on existing oversight.

prompt_front: You are given two reports by the government agency.



Question: Write a one-page summary of the report 2.

Report 1: The RAD program was authorized by Congress and signed into law by the President in November 2011 under the Consolidated and Further Continuing Appropriations Act, 2012 with amendments in 2014, 2015, 2016, and 2017  The RAD program consists of two components  The first component of the RAD program—and the focus of our review— provides PHAs the opportunity to convert units subsidized under HUD’s public housing program and owned by the PHAs to properties with long- term (typically, 15–20 years) project-based voucher (PBV) or project- based rental assistance (PBRA) contracts  These are two forms of Section 8 rental assistance that tie the assistance to the unit to provide subsidized housing to low-income residents  In a RAD conversion, PHA- owned public housing properties can be owned by the PHA, transferred to new public or nonprofit owners, or transferred to private, for-profit owners when necessary to access LIHTC financing, if the PHA preserves its interest in the property in a HUD-approved manner  The second component of RAD converts privately owned properties with expiring subsidies under old rental assistance programs to PBV or PBRA in order to preserve affordability and encourage property rehabilitation  The goals of the RAD program include preserving the affordability of federally assisted rental properties and improving their physical and financial condition  Specifically, postconversion owners (PHAs, nonprofits, or for-profit entities) can leverage the subsidy payments under the newly converted contracts to raise capital through private debt and equity investments, or conventional private debt, to make improvements  The RAD program provides added flexibility for PHAs to access private and public funding sources to supplement public housing funding  These financing sources may include debt financing through public or private lenders; mortgage financing insured by FHA; PHA operating reserves; replacement housing factor funds; seller or take-back financing; deferred developer fees; equity investment generated by the availability of 4 percent and 9 percent LIHTC; or other private or philanthropic sources  PHAs also may pursue various options for their conversions, which often depend on property needs and available financing, including property rehabilitation or new construction  Additionally, PHAs may undertake conversion involving no property rehabilitation or new construction to meet certain financial goals or for future rehabilitation or new construction, as long as the PHA can demonstrate to HUD that the property does not need immediate rehabilitation and can be physically and financially maintained for the term of the Section 8 Housing Assistance Payment contract (HAP contract)  The RAD authorizing legislation and RAD Notice also specify requirements for ownership and control of converted properties  That is, converted properties must have public or nonprofit ownership or control, with limited exceptions  The RAD authorizing legislation, RAD Notice, HAP contracts, and RAD Use Agreement also establish procedures to help ensure that public housing remains a public asset should challenges arise, such as default, bankruptcy, or foreclosure  Oversight of RAD conversion and properties is primarily divided among three HUD offices  The Office of Recapitalization is responsible for administering the conversion process but generally does not oversee converted properties  Before conversion, the Office of Public and Indian Housing oversees the properties  After conversion, oversight remains with Public and Indian Housing for properties that convert to PBV contracts and transfers to the Office of Multifamily Housing Programs for PBRA  The RAD program has been implemented and expanded in phases  Since its authorization, the RAD unit cap gradually increased from 60,000 units in 2011 to 225,000 units in May 2017  The RAD program is currently fully subscribed with all 225,000 units allocated  As of September 30, 2017, 689 conversions were closed that involved a total of 74,709 units (see fig  1 for a breakdown by fiscal year)  Additionally, 706 conversions involving 79,078 units were in the process of structuring conversion plans  The remaining conversions under the cap were allocated to specific properties and in the process of having commitments issued or reserved under multi-phase or portfolio awards, according to HUD officials  RAD conversions begin with the submission of an application by PHAs after which they are notified of selection  The PHA is then required to submit a financing plan within 180 days or a later deadline based on the nature of the financing proposed  A RAD conversion is considered closed when the HAP contract is signed and financial documents are executed  The properties are considered converted to Section 8 assisted housing on the effective date of the HAP, which is generally the first day of the following month  Once the RAD conversion is closed, the PHA or ownership entity can move forward with its submitted proposals or RAD-related rehabilitation or new construction and is responsible for complying with RAD requirements and associated contracts  In some cases, rehabilitation can take place in advance of conversion closing if public housing funds are being used  Most RAD conversions involved some type of construction  Our analysis of HUD data showed that as of September 30, 2017 417 of 689 closed conversions (61 percent) involved planned rehabilitation to the property, 86 (12 percent) new construction, and 186 (27 percent) no construction; and 361 of 706 active RAD conversions (51 percent) involved planned rehabilitation, 89 (13 percent) new construction, and 256 (36 percent) no construction  HUD officials stated that they approve conversions that involve no immediate planned rehabilitation or new construction as long as the property has no immediate needs to be addressed  Such conversions allow PHAs to better position themselves to access additional capital to address future rehabilitation or construction plans  Our review of 31 conversion files also showed that the scope of proposed physical changes varied among RAD conversions  For properties that included scope of work narratives, physical changes included renovations to mitigate hazardous materials, aesthetic renovations, code and accessibility compliance, and construction of new buildings, among other changes  Financing for RAD conversions involved multiple public and private sources, but many conversions used LIHTC  Our analysis of HUD data showed that as of September 30, 2017, 173 of 689 closed RAD conversions (25 percent) utilized 4 percent LIHTC, 99 (14 percent) utilized 9-percent LIHTC, and 416 (60 percent) did not use LIHTC  By dollar amount, major financing sources were 4 percent LIHTC at $2 4 billion; new first mortgages at $1 8 billion; and 9 percent LIHTC at $1 1 billion  Construction costs constituted the highest-dollar use of financing for RAD conversions, but not all conversions incurred construction costs, as discussed earlier  On average, construction costs per closed conversion were $6 4 million (ranging from no construction costs to $236 million) and nearly $60,000 per-unit converted to RAD  Construction costs represented the highest-dollar use of financing for closed RAD conversions at $4 4 billion followed by building and land acquisition costs, and developer fees  For more information on financing sources and uses, see appendix II  PHA officials and developers we interviewed cited various factors that influence financing sources needed for RAD conversions  For example, property needs assessments help establish the level of rehabilitation or new construction that would address the capital needs of the property  In turn, needs assessments can derive from physical assessment results and incorporate federal, state, or local compliance requirements  For instance, rehabilitation or construction would need to address the accessibility requirements of the Americans with Disabilities Act and local building codes, among other requirements  PHA officials and developers we interviewed also said they had to consider competition or access to financing for RAD conversions  For example, PHAs noted that tax credit applications and other financing had to be competitive  Some PHAs we interviewed also noted that while the 9 percent LIHTC provides more equity to finance low-income units (finances 70 percent of the costs of the units), there is more competition for the 9 percent LIHTC, while the 4 percent LIHTC can be automatically awarded for certain deals involving tax exempt bonds and federally subsidized projects  Thus, while some PHAs and developers might prefer to obtain 9 percent LIHTC, they often apply for 4 percent LIHTC to increase the chances of obtaining some tax credit equity  For example, one particular PHA that had used both 4 percent and 9 percent LIHTCs noted that in one transaction it had to compete against 74 applicants for 25 available awards of 9 percent credits  The RAD authorizing statute requires HUD to assess and publish findings regarding the amount of private capital leveraged as a result RAD conversions  A leverage ratio relates the dollars other sources provide to the dollars a program provides to an institution or a project  HUD uses various quantitative, qualitative, and processing and efficiency metrics to measure conversion outcomes  To meet the RAD statutory requirement, HUD published an overall RAD leverage ratio that has fluctuated between 19:1 and 9:1 since 2014  HUD’s most recent leverage ratio in fiscal year 2017 was 19:1, nearly double what the agency reported the prior year  We asked HUD officials why the leverage ratio nearly doubled between 2016 and 2017 and received conflicting information during the course of our audit  Initially, officials noted that the ratio was intended to replicate the methodology used by PD&R in its September 2016 report  Subsequently, the officials clarified that they did not follow PD&R’s methodology for categorizing financial source data  Specifically, officials did not review or make manual adjustments to the financial data PHAs entered in open source fields to ensure sources actually represented public, private, or other funding categories when calculating the leverage ratio  Finally, they noted that they disagreed with the methodology used in the PD&R September 2016 report and stated that there are various ways to calculate leverage  For the purposes of announcing the most recent leverage ratio in 2017, HUD officials decided that a leverage ratio comparing federally appropriated public housing resources would reflect the amount of financing leveraged had RAD not existed  We found, and officials from HUD acknowledged, three limitations to the RAD leverage calculation  First, HUD generally had data on funding sources and amounts a RAD conversion proposed to use (at the time of its application to HUD and at the time of closing of construction financing) rather than data after construction is completed on funding sources and amounts  HUD officials stated that they were reviewing final closing packages to confirm that the data reflect the latest reported information on sources and uses of funds for each conversion at closing  However, sources and uses of funds and amounts at the time the RAD conversion is closed may differ from amounts upon completion of construction  In October 2017, HUD implemented procedures to verify completion of planned construction activities and costs, which we discuss later in this report  Second, HUD’s leverage ratio, published in 2017, did not manually adjust funding source data to accurately account for all sources in calculating the leverage ratio for RAD  Specifically, HUD did not isolate funding sources that were federally appropriated, contributed by the PHA, or contributed by state or local municipalities to calculate leverage  For example, among approximately $2 billion from other financial sources, HUD included Moving to Work (MTW) funding (which may include public housing capital funds, public housing operating funds, and voucher funds) and tax credit equity as leveraged sources  However, these are not necessarily private sources, which we explain later in this report  As a result, HUD’s current calculation does not reflect the amount of private- sector leveraging  HUD calculated and published a RAD leverage ratio in May of 2017 using the following formula: Total leverage ratio = (total dollars from all sources – public housing dollars) To calculate the RAD leverage ratio, HUD uses some but not all financial source data it collects (see app  II for a list of data fields collected by HUD)  For example, HUD mistakenly excluded data that capture private funds, reducing the amount of total sources in the numerator  HUD calculates “public housing dollars” by adding data that capture replacement factor funds, public housing operating reserve funds, and prior-year public housing capital funds  HUD considers tax credit equity, new first mortgages, and “other funding” data to be non-public housing dollars (see app  II for a list of fields in HUD’s calculation)  PHAs enter a description and amount for other funding sources in “other funding” data fields (see app  II)  For example, a PHA may enter a federal financial source in one of the open-entry “other funding” data fields, requiring a manual adjustment to properly account for the financial source  According to HUD, additional fields were included in mid-2016 to better differentiate certain sources such as from the HOME Investment Partnerships Program (HOME) and seller take-back financing  Prior to this point, these financial sources were placed into “other” fields, and the standard resource desk report had not been updated until mid-2017 to include all of these fields  Third, HUD does not categorize and report its leveraging by private and public sources  According to HUD officials, informative leverage methodologies could calculate the ratio based on the leveraging of public housing program funds, the leveraging of all federally appropriated funds, or the leveraging of PHA funds (i e , sources in the transaction that have come from the PHA itself even if not federally appropriated through the public housing program), among other methodologies  The RAD authorizing statute requires HUD to assess and publish findings on the amount of private-sector leveraging  In addition, Standards for Internal Control in the Federal Government require agencies to communicate quality information with external parties, such as other government entities, to make informed decisions and evaluate the entity’s performance in achieving key objectives  HUD also does not use final (postcompletion) funding data in another metric of RAD leveraging  Specifically, in June 2017 HUD publicly reported that RAD “has leveraged more than $4 billion in capital investment in order to make critical repairs and improvements ” HUD calculates this figure by summing the construction costs—a subcomponent of total costs—with data from the time a conversion closes and not upon completion of construction  HUD officials we spoke with clarified that this metric solely reports construction investments and does not reflect any conclusion regarding private leverage of public funds  But, HUD publically characterized this measure in different ways, including as the amount of “public-private investment in distressed public housing,” the amount of “construction achieved under RAD,” and the amount of “new private and public funds leveraged by RAD ” HUD’s 2016 interim report calculated and published multiple leverage ratios, but chose to highlight a RAD leverage ratio that is consistent with ratios used for other HUD programs  However, the ratio does not specifically follow the prescribed ratio language in the authorizing statute because the report states that the ratio represents the amount of private and public external sources invested for every dollar invested by PHAs but the statutory language only discusses private-sector leveraging  Officials further noted that the statute does not require a particular methodology and HUD relies on PD&R—and its independent contractor— to determine the appropriate methodology for purposes of compliance with the statute  Lastly, the statute does not preclude the use of other leverage metrics for other purposes, such as using the ratio to measure the amount of nonpublic housing funds leveraged in RAD transactions that would not be available to the property absent RAD  As a result, HUD’s leverage metrics announced in May 2017 do not accurately reflect the amount of private-sector leveraging achieved through RAD, do include public funding as private sources, and inconsistently measured sources that were federally appropriated or contributed by PHAs, potentially under- or over-reporting the program’s performance  Additionally, in October 2017, HUD began implementing procedures to collect data after construction is completed and is not yet able to calculate a leverage metric using final (postcompletion) financial sources rather than the financial sources collected at closing  The lack of a consistent metric for private leveraging could also lead to inconsistent reporting of the leverage ratio, as has occurred in prior years  We recalculated RAD leverage ratios in a number of different ways, including to correct errors we identified during our review  For example, HUD’s 2016 interim report noted that data on closed transactions do not provide detailed description of “other sources,” requiring a crosswalk between applications and closed transactions to develop estimates for the allocation of “other sources” across financial source categories  Abbreviated descriptions are provided in the form of notes that are not always clear and consistent; therefore public housing sources may include federally appropriated sources, as well state, city, or county sources  Through our estimates, we found that the overall leverage ratio could range from 7 44:1 for a ratio recalculating HUD’s leverage ratio to 1 23:1 for a ratio estimating private-sector leveraging  Recalculation with HUD methodology and financial source recategorization  As discussed previously, HUD’s methodology does not account for all financial data collected by HUD and includes “other” funding sources erroneously considered as leveraged funds  Thus, we manually adjusted RAD funding source data and found that nearly $1 2 billion were erroneously considered leveraged funds because they are not private funds  For example, HUD included MTW funds; public housing operating reserves; public housing capital funds; replacement housing factor funds; other federal funds; other state, local, or county funds; and take-back financing funds as leveraged financial sources  For more information, see appendix II  We obtained documentation from HUD to replicate their methodology and recategorized financial sources that corrected errors in the data, and found that the RAD leverage ratio was less than half of HUD’s most recently publicly reported leverage ratio (19:1), approximately 7 44:1 (see app  II)  Recalculation to exclude LIHTC and other federal sources  We previously reported that LIHTCs are considered a federal source because tax credit equity represents foregone federal tax revenue and, therefore, are a direct cost to the government  Accordingly, we recalculated the RAD leverage ratio by excluding all federal funding sources and obtained a ratio of approximately 1 43:1 (see app  II)  Recalculation of private-sector leveraging  Lastly, the RAD authorizing statute requires HUD to assess and publish findings on the amount of private-sector leveraging, but HUD’s current calculation does not present the amount of private-sector leveraging and does not include all available data (for example, the “Other Private” funds collected by HUD)  We estimated the amount of private-sector leveraging by grouping public housing sources, other public sources, and private sources, resulting in a leverage ratio of approximately 1 23:1 (see app  II)  In October 2017, HUD implemented procedures to certify completion after developers finish RAD-approved rehabilitation or construction  Previously, HUD had a limited ability to monitor and evaluate final (postcompletion) physical and financial changes in RAD projects with existing data  According to HUD officials, HUD did not implement completion certification procedures before October 2017 because it had been addressing what it considered to be the highest risks first (such as clarifying requirements for RAD participants, resident safeguards, and other procedural and administrative requirements)  HUD’s October 2017 completion certification procedures include instructions for owners to report final construction costs and documentation on completion of repairs or construction within 45 days of the completion date recorded in the RAD Conversion Commitment  More specifically, HUD requires owners to list a final construction cost amount—a subcomponent of total costs—in the RAD resource desk, describe variances from the approved construction cost amount in a comment box, and describe how increases in costs were addressed  Additionally, a third-party must certify that the repairs in the scope of work were completed by providing an attestation to HUD  However, HUD’s procedures do not require documentation from the owners to support the final total cost figures, which include not only construction costs but also building and land acquisition costs, and developer fees, among others as noted earlier in this report  These procedures also do not require a certification from owners on all financing sources and costs recorded in the RAD Conversion Commitment  Standards for Internal Control in the Federal Government require that management implement control activities through documented policies and procedures to provide reasonable assurance that the objectives of the agency will be achieved, and also communicate quality information with external parties to make informed decisions and evaluate the entity’s performance in achieving key objectives  While HUD now has certification completion procedures in place, this process provides the agency limited financial information from owners  As a result, HUD is unable to report metrics that reflect final (postcompletion) RAD financial outcomes after construction is completed  Furthermore, HUD is limited in its ability to effectively oversee conversion budget and cost variances, and expenditures that require HUD approval  Lastly, the RAD authorizing statute requires that the Secretary of HUD demonstrate the feasibility of the RAD conversion model to recapitalize and operate public housing properties under various situations and by leveraging other sources of funding to recapitalize properties  Without metrics that reflect the final (postcompletion) financial outcomes of RAD after construction is completed, HUD and congressional decisionmakers are unable to make informed decisions concerning the RAD program  HUD has not systematically tracked or analyzed household data on residents in RAD-converted units that are available from its public housing or Section 8 databases or from PHAs or other postconversion owners—the main sources of resident data for the RAD program  In addition, HUD has not yet developed monitoring procedures for all the resident safeguards in the RAD program  Finally, residents told us of some concerns about information they received on RAD conversions, communications opportunities, and the relocation process  HUD officials told us that the agency does not systematically track or analyze household-level data on residents in RAD-converted units across existing program databases (HUD maintains household data for the public housing and Section 8 rental assistance programs in two databases)  In particular, HUD does not track changes in household characteristics before and after conversion, such as changes in rent, as well as relocations or displacement of individual households  However, according to HUD officials, their databases are not designed to track the impact of RAD conversion on residents and they are unable to electronically link household information submitted before RAD conversion to information submitted after conversion  Once a property is converted, the property and corresponding household information are removed from the public housing database  Owners of converted properties are to use software to manually enter household information into the databases for the Section 8 program when submitting tenant certifications and information for assistance payments  This procedure is the standard for administration of all project-based Section 8 properties  HUD officials stated that they have explored the possibility of transferring household data from one system to another at the time of a property’s conversion  While HUD has not systematically analyzed household information from its public housing and Section 8 databases, we were able to perform a limited analysis  We requested and received data from HUD on the households affected by RAD  Using the data provided that were current as of June 2017, we were able to identify about 26,000 households that lived in units that were converted to a PBV subsidy, but we were unable to identify the total number of households converted to a PBRA subsidy  Based on our analysis of 26,000 PBV households, we found about 2,700 (about 11 percent of) households were headed by an about 6,800 (about 26 percent of) households were headed by an individual with a disability; about 2,700 households (about 10 percent of) households were headed by an elderly person who also had a disability; over half (about 14,000 or 54 percent) of the households were headed by an individual identified as black; close to 11,000 households (about 41 percent) were identified as white; and about 1,000 households (about 4 percent) were identified as Asian  Close to 3,100 households (about 12 percent) were headed by an individual identified as Hispanic; about half (about 49 percent) of the PBV households were single- person households; the median annual income of PBV households both before and after RAD conversion was about $10,000; and about 5,300 (about 20 percent) of households were paying a flat rent rather than income-based rent before RAD conversion  However, the data on PBV households were not comprehensive  For example, while about 10,000 residents (about 57 percent) experienced a rent increase following RAD conversion under PBV, we could not determine if the rent increase was the result of an increase in resident income  We also could not determine changes in location among the PBV households following RAD conversion  Rather than relying on the public housing and Section 8 databases for tracking household information during conversion, HUD officials indicated that the agency will rely on locally maintained resident logs, which contain household information collected by property owners, as the starting point when HUD determines a compliance review is warranted  The logs will be the primary way the agency collects household information for compliance reviews under the RAD program, according to HUD officials  In November 2016, HUD issued a notice, which requires the PHA or other postconversion owner to maintain a log about every household at a converting project, including information on race and ethnicity, household size, and disability  The notice also requires owners to track residence status throughout the relocation process, including whether the resident has returned, moved elsewhere, was permanently relocated or evicted; relocation dates; and details on any temporary housing and moving assistance provided  Owners are required to make the information available to HUD upon request for audits and other purposes  According to HUD officials, the agency expects the information in the resident logs to be more robust than what they would collect through the public housing and Section 8 databases, which do not track residents while they are relocated  HUD officials stated that the agency plans to review selected resident logs as part of an ongoing limited compliance review of about 90 RAD conversion projects  HUD officials told us they are developing procedures for performing compliance reviews—such as developing a mechanism to review a sample of logs on a periodic basis—but they have not yet done so because they have been focusing on developing procedures for activities that present a high risk to the program as described in the following section  HUD has not established a time frame for developing these procedures  However, HUD officials indicated that they plan to select resident logs for review based on risk of noncompliance and do not plan to analyze program-wide information currently collected in the public housing and Section 8 databases for program monitoring  HUD officials also noted that that PD&R is planning to track a sample of residents through its evaluation of the program, which we previously mentioned  While HUD has decided to rely on resident logs because of the difficulty of tracking household information across its program databases, using resident logs to assess the effects of the RAD program on residents has limitations  While the resident logs would contain detailed household information, they were not required prior to November 2016 and may not contain information on households converted before that date (RAD conversions started in 2013)  HUD’s public housing and Section 8 databases contain information on such households  Second, as previously mentioned, HUD plans to review resident logs only when there is a risk of noncompliance, but they collect household information in their databases on a rolling basis  Standards for Internal Control in the Federal Government require agencies to use quality information to achieve their objectives, and obtain and evaluate relevant and reliable data in a timely manner for use in effective monitoring  Without a comprehensive review of household information—one based on information in HUD data systems as well as resident logs—HUD cannot reasonably assess the effects of ongoing and completed RAD conversions on residents and compliance with resident safeguards, as discussed in the next section  HUD has not yet developed monitoring procedures for certain resident safeguards under the RAD program  RAD requirements include those intended to ensure that residents whose units are converted through RAD are informed about the conversion process; can continue to live in a converted property following RAD conversion; are afforded certain protections carried over from the public housing are afforded a phase-in of any rent increases under Section 8 program requirements  Currently, based on HUD notice requirements, PHAs must document compliance with three safeguards (PHA plan amendments, resident notification, and procedural rights) in their RAD application and other conversion paperwork  For example, PHAs must submit comprehensive written responses to resident comments received in connection with the required resident meetings with their RAD application  For one safeguard, PHAs are not required to report to HUD but must retain documentation of compliance to be made available to HUD as part of the monitoring for the program  For others, the HUD notice does not specify reporting and monitoring requirements  Based on our review of files for selected conversions, which we previously discussed, we found PHAs generally submitted documentation of their efforts to inform residents about RAD conversion, such as providing evidence to HUD of meetings with residents and written responses to resident questions as required  However, the specific documents for these requirements were not available from HUD in all cases  HUD’s review of amendments to PHA plans was documented in all but one of the conversions we reviewed  Documentation requirements for resident relocations have changed since RAD was introduced, which made the documentation more difficult to assess  HUD developed and started implementing procedures in October 2017 that require owners to certify and provide data supporting compliance with the resident right-to-return requirements  For example, owners must certify the number of residents who exercised their right to return to a converted property compared with the number of residents who did not return  HUD is also developing standard operating procedures to review each conversion for compliance with RAD relocation provisions  Specifically, the procedures would describe the review steps required at different stages of the conversion process, a process for identifying risks, and how to address instances of noncompliance with RAD requirements  Additionally, HUD noted that they have 2 compliance reviews under way including 1 involving a set of HUD requirements that affect relocations of more than 1 year and the limited compliance review of 90 projects that we previously described  HUD officials noted that they are developing additional guidance in other areas  First, HUD officials indicated that as part of an overall update of RAD standard operating procedures, they are developing additional protocols on resident notification and how residents’ comments are addressed through conversion planning  Second, the agency had not been consistently collecting required documentation on “house rules,” which describe the conditions and procedures for evicting residents and terminating assistance at RAD PBRA properties, so it has developed and implemented additional legal review procedures as part of the implementation of RAD resident eviction and grievance procedural rights requirements  According to HUD officials, they have been focusing primarily on right-to-return and relocation requirements because they represent areas of highest risk  HUD has not developed separate monitoring procedures for other resident safeguards—the phase-in of tenant rent increases, resident representation through tenant organizations, and choice mobility requirements  However, HUD officials told us that they plan to assess how administrative data can be used to monitor choice mobility as part of the planning for a separate PD&R evaluation of this safeguard  HUD officials also indicated that there are procedures for residents to report complaints to HUD if resident representation and organization requirements are not met  Standards for Internal Control in the Federal Government require agencies to implement control activities through documented policies and procedures to provide reasonable assurance that agency objectives will be achieved  These standards also require agencies to design procedures to achieve goals and objectives, and identify, analyze, and respond to risks related to achieving the defined objectives  Table 1 includes a description and information on implementation of resident safeguards that most directly affect residents’ experience with the conversion process and ability to live at the property following conversion  Appendix III describes these and other RAD resident safeguards  HUD officials indicated that the safeguards for the phase-in of tenant rent increases, resident representation, procedural rights, and choice mobility presented a lower risk than the right-to-return requirements, so they were a lower priority, and in some cases were addressed through general monitoring of the Section 8 program  For choice mobility options, HUD indicated that its data systems are not designed to track whether residents are able to exercise these options, such as tracking whether residents left a property to exercise choice mobility or for other reasons  All but two of the resident safeguards do not take effect until after a property has been converted and is part of the Section 8 program  For example, residents are only eligible to use vouchers through choice mobility after they have lived in the converted property for 1 or 2 years depending on the assistance contract involved (PBV or PBRA)  Moreover, certain RAD safeguards are not typically available for Section 8 residents  For example, RAD establishes resident representation provisions and procedural rights that are more in line with public housing rather than Section 8 requirements  While HUD has indicated that the Section 8 program has experience administering different types of assistance contracts, RAD nonetheless creates separate requirements for certain provisions from the public housing and Section 8 programs  As previously mentioned, RAD conversions have been completed at an increasing pace in the last 5 years  However, because HUD has not yet developed separate monitoring procedures for certain requirements—the phase-in of tenant rent increases, resident representation through tenant organizations, and choice mobility requirements, many of which take effect after a conversion—and without using all available household data, the agency will not be able to reasonably ensure that these safeguards were implemented  Residents who participated in our focus groups expressed some concerns about information they received on RAD conversions, communications opportunities, and the relocation process  Residents indicated that they were notified about RAD conversion in a variety of ways  Residents in 5 of 14 focus groups found the information presented to them on RAD to be helpful  Residents in 7 of 14 focus groups indicated that the information they received was not helpful  Across these focus groups, a range of concerns was expressed, including that the information provided was not always clear or reflective of the final changes resulting from RAD conversion, and that the PHA and management were not always forthcoming with information about the RAD changes  Residents in some focus groups also indicated that they were not involved in the RAD conversion  Residents in 5 of 14 groups indicated that they were not given the opportunity to provide input into the RAD changes, while residents in 6 of 14 groups indicated that their concerns were not addressed and their suggestions were not incorporated  Residents also described problems with relocations  Some of the concerns expressed by resident focus groups on relocation related to the location of the temporary units (3 of 14 focus groups), the timing of relocation or amount of notice given (7 of 14 focus groups), and moving issues (such as items damaged during moves)  Residents were asked to describe ways in which RAD conversion improved or harmed their living conditions  Residents in several focus groups indicated that RAD improved their living conditions, including both the condition (7 of 14 focus groups) and appearance of their units or the property in which they lived (6 of 14 focus groups)  Some of the changes residents liked included the installation of new appliances, mold and pest removal, and safety and energy efficiency improvements  However, residents in several of the focus groups identified problems with their living conditions following RAD conversion  The problems residents identified included security concerns (10 of 14 focus groups); renovations that were of poor quality (6 of 14 focus groups); and other problems with the units (10 of 14 focus groups), such as pest problems; decreased amenities (8 of 14 focus groups), such as the removal of common areas or in-unit washing machines; and issues with property management (11 of 14 focus groups)  For example, in several instances, residents stated that new managers or owners in place following RAD conversion were not responsive to their needs or concerns  During our site visits, residents described other experiences with RAD conversion  Residents in all of the groups identified being notified about RAD  Residents in 9 of 14 focus groups indicated that their rent was the same following RAD conversion  Residents in a few focus groups indicated that their rent had increased because of changes in their income or conversion from a flat rent  However, residents in a few focus groups experienced challenges in how their income was certified for the purpose of calculating rents, such as problems with requests for information (2 of 14 focus groups) and other issues with the process (4 of 14 focus groups)  For example, residents reported having to provide the same paperwork multiple times  No instances in which residents were permanently involuntarily displaced were reported  One resident organization expressed concerns about fewer eviction protections and resident representation after RAD conversion  We spoke with 18 PHAs, some of which cited benefits as well as several challenges of RAD participation and some noted HUD responsiveness to their circumstances and concerns  According to many of the PHAs we spoke with, benefits of participating in the RAD program included reducing administrative requirements in Section 8 programs and opening avenues for additional sources of funding  In particular, many of the PHAs noted that RAD allowed them to access tax credit equity and other funding to complete the bulk of their repairs and renovations at once  Over half of the PHAs we spoke with also found HUD to be flexible and responsive to individual PHA circumstances  The majority of PHAs we spoke with indicated that remaining in the public housing program was not tenable because funding for the public housing program was not enough to meet their long-term capital needs  PHAs we contacted also noted several challenges of participating in RAD: financing constraints, timing challenges, and evolving requirements  Financing constraints  Some PHAs noted that program rent requirements can limit PHA participation in RAD  Each year, HUD calculates a contract rent—the total rent for a unit, including operating subsidy and resident contribution  PHAs must use the contract rent to calculate Section 8 subsidies for properties converting under RAD  According to HUD and several PHAs, contract rents for RAD-converted Section 8 units are lower than rents in traditional Section 8 assisted units, and are almost always lower than market-rate rents  Several PHAs and HUD officials have described the difficulty of converting units from the public housing program with this rent limitation  For example, when the cost of needed rehabilitation or construction is high, low allowable contract rents might not be sufficient to access appropriate capital for the conversion  In certain localities, PHAs have found solutions to augment rents and have used RAD flexibilities to allow them to convert and plan for operating expenses  For example, the PHA in Tacoma, Washington, used the Moving to Work program flexibilities to increase contract rents and housing officials in San Francisco used an allowable procedure to transfer RAD assistance from converted buildings to properties throughout its portfolio (each is a blend of traditional project-based vouchers with higher contract rents and RAD assistance)  In Montgomery County, Maryland, the PHA similarly included RAD assistance in some mixed-finance properties that contain other high-rent subsidies and market-rate rents  Timing challenges  Some PHAs said they faced major challenges in coordinating RAD timelines with HUD, lenders, or other parties or with the requirements of the LIHTC process  HUD officials acknowledged that PHAs with more complex transactions, including those involved in the LIHTC process, struggle to implement their conversion plans within RAD time frames  HUD officials noted that because there is a statutory cap on the number of units that can be converted under RAD, they have established time frames to stay under the cap and ensure that PHAs that are planning to convert are ready to participate in the program  Additionally, according to HUD, it has made technical assistance available to all PHAs that receive a Commitment to enter into a Housing Assistance Payment contract during the RAD process to help ensure their readiness for RAD closing and to meet remaining conversion deadlines  On the other hand, some PHAs expressed concern to us about delays in the conversion process that put them at risk for missing state LIHTC deadlines  HUD officials described putting conversions on a fast-track on a case-by-case basis to meet LIHTC deadlines  For example, in one case a PHA relocated residents before closing and without HUD approval  HUD required the PHA to fund an escrow account until it was able to determine any payments that might need to be made to residents and any other necessary corrective action  This was done so that HUD could look into the issue while mitigating additional harm to the residents and continuing to move the PHA toward closing and aligned with tax credit application deadlines  The timing of conversion can also create gaps in the payment of Section 8 funds to PHAs  Section 8 funding should begin in January of the year following conversion  PHAs rely on annual public housing subsidies for the conversion year—public housing program funds are paid to PHAs annually and are not recaptured by HUD following RAD conversion  However, according to some PHAs we interviewed, Section 8 funding did not begin on time  For example, in Baltimore, Maryland, subsidy flow after conversion had not begun as of June of the following year  HUD officials told us inadequate guidance from HUD and confusion from PHAs regarding the necessary steps to request payment in a timely manner have been the major cause of the problems  HUD has tried to remedy delays and updated its notice to provide clearer guidance on the timing of subsidy flow around the time of conversion to Section 8  Moreover, HUD officials indicated that there has been confusion among PHAs on how to request funds, so HUD is currently revising and updating the guidance on steps PHAs must take to request payment under the PBRA program  HUD officials also indicated that it has begun monitoring whether new participants are taking the steps needed well before their first request for funding  Some PHAs we contacted also mentioned difficulty in coordinating with HUD on fulfilling internal RAD requirements and reviews  According to some, the different offices involved in RAD conversions within HUD were not well aligned and had different interpretations of the rules  For example, some RAD conversions require a civil rights review by HUD’s Office of Fair Housing and Equal Opportunity Office, including those transactions that require new construction or resident relocations  Some PHAs indicated that such reviews occurred too late in the conversion process even after other HUD offices had approved the conversion  HUD officials acknowledge that different HUD offices have different objectives in the RAD process  HUD officials indicated that the agency is trying to coordinate more effectively among these offices and streamline the conversion process as much as possible  Evolving requirements  While the majority of PHAs with which we spoke said that HUD provided clear, sufficient, and timely information, some PHAs noted that it also was challenging to adapt to evolving requirements  Some PHAs noted that as HUD identified problems in the early years of the program, it would change the guidance in response  For example, HUD officials explained that it had clarified fair housing review requirements in response to PHA concerns that the fair housing review occurred too late in the process and could affect successful conversion of projects  The most recent RAD notice (effective January 2017) is the third version since 2013 and revisions have involved substantial changes  For example, this notice provided PHAs with greater flexibilities on the funding sources they can use to raise initial contract rents and the ways they can demonstrate ownership and control of a converted property  In addition, HUD introduced a notice in November 2016 to strengthen resident protections  Some PHAs told us they found the pace or timing of the evolving requirements difficult to manage and also noted confusion about conversion instructions and guidance due to changing requirements  For example, one PHA indicated that the agency had problems reporting information into a new RAD data field in HUD’s Voucher Management System because there was no guidance at the time on how to complete this field  However, HUD has since included additional instructions in the user’s manual that became effective in April 2017  The Committee has included language to establish procedures that will ensure that public housing remains a public asset in the that event that the project experiences problems, such as default or foreclosure  In each RAD conversion, HUD and the property owner execute a use agreement, which specifies affordability and use restrictions for the property  The use agreement generally exists concurrently with the HAP contract, which is executed to govern the provision of either the PBRA or PBV subsidy for the unit  The use agreement must be recorded in a superior position to new or existing financing or other encumbrances on the converted property  Under a Section 8 HAP contract, residents pay 30 percent of adjusted household income  In the absence of the HAP contract, the use agreement is set up to control the amount paid: If the HAP contract is removed due to breach, noncompliance, or insufficiency of appropriations, under the use agreement new households in all units previously covered under the HAP contract must have incomes at or below 80 percent of the area median income for households of the size occupying an appropriately sized unit for their family size at the time of admission, and rents may not exceed 30 percent of 80 percent of area median income for the remainder of the term of the use agreement  For new residents at or below 80 percent of the area median income, under the use agreement the resident rent contribution without a HAP contract generally would be higher than that paid under a HAP contract, which is based on household income instead of the universally determined area median income  Although the use agreement maintains some level of affordability, the owner receives no subsidy under PBRA or PBV without a HAP contract and resident rent contribution is not tied to individual household income but rather based on a universal area income calculation (see fig  3)  According to HUD officials, other program requirements support the goal of long-term preservation: HAP contracts are executed for 20 years for PBRA or 15–20 years for PBV properties and compliance with all affordability requirements in the HAP and statute and regulation governing the PBRA and PBV programs must be maintained while the contract is in force  According to the authorizing statute, PHAs (for PBV contracts) and HUD (for PBRA contracts) shall offer and project owners shall accept a renewal contract at the expiration of the initial HAP contract and at each subsequent renewal  Each renewal contract will be subject to a RAD use agreement, governing the use of the property consistent with HUD requirements  According to the RAD notice, the project owner also is to establish and maintain a replacement reserve to aid in funding extraordinary maintenance and repair and replacement of capital items  The reserve account must be built up to and maintained at a level determined by HUD to be sufficient to meet projected requirements  According to HUD officials, during the conversion, HUD staff review each capital needs assessment to try to determine whether a property’s capital needs can be addressed over the forthcoming 20-year period  We reviewed 31 completed conversion files, the set of documentation required by HUD to enable a PHA to convert units from public housing to a Section 8 subsidy, and associated RAD contracts  In each file, key contractual protections appeared consistent with program requirements  Specifically, in all cases executed use agreements (which included requirements to limit residency eligibility to households making less than 80 percent of area median income) were included and not altered from the HUD template  In most files we reviewed, we found foreclosure riders were included and that they stated that use agreements would survive foreclosure, meaning that any new owners would take ownership subject to the agreements  Executed HAP contracts, requiring that residents’ contributions be set at 30 percent of adjusted household income, also were present in all files we reviewed  According to HUD officials, PHAs, and two housing groups we spoke with, provisions in the RAD use agreement to keep units affordable appear to be strong, with use and affordability protections designed to survive foreclosure, but the strength of provisions cannot yet be fully determined because the provisions have not yet been tested in foreclosure proceedings or in courts  According to HUD officials, as of October 2017 no RAD properties had entered foreclosure  The RAD authorizing statute requires that ownership be transferred to a capable public entity or, if not one, a capable entity as determined by HUD, or if necessary to fulfill LIHTC requirements for the property, to a HUD-approved for-profit entity (provided the PHA retained sufficient interest in the property)  HUD also subjects any subsequent transfer of the property to HUD review and requires the successor ownership to meet these same requirements  As stated in the use agreement, a lien holder must give HUD notice prior to declaring a default and provide HUD concurrent notice with any written filing of foreclosure (providing that the foreclosure sale must not be sooner than 60 days after the notice), but the use agreement does not prohibit a lien holder from foreclosing on the lien or accepting a deed in lieu of foreclosure  The RAD use agreement, which is recorded superior to other liens and places use and affordability restrictions on the property, survives foreclosure  With or without a HAP contract in place, the lender or new owner must maintain the units for low- income households according to the terms of the use agreement  Therefore, according to HUD officials, the lender or new owner has an incentive to identify an appropriate owner and secure HUD approval to avoid a default under the HAP contract, which provides a Section 8 subsidy to the owner  That is, if no HAP contract were in place, the owner would collect only the tenant rent contribution (30 percent of 80 percent of area median income), rather than the tenant rent contribution plus the subsidy  HUD has discretion to enforce or waive certain use and affordability protections  According to the authorizing statute, in the case of foreclosure, bankruptcy, or termination and transfer of assistance for material violation or substantial default, the priority for ownership or control must be provided to a capable public entity, or, if no such entity can be found, to a capable entity as determined by the Secretary of HUD  Additionally, the statute allows the transfer of property to for-profit entities to facilitate the use of LIHTC financing, with requirements to maintain the PHA’s interest, which was discussed above  As of September 30, 2017, about 40 percent of RAD conversions involved LIHTC financing  According to the RAD notice, in the event of a default of a property’s use agreement or HAP contract, HUD may terminate the HAP contract and transfer assistance to another location to retain affordable units  HUD will determine the appropriate location and owner entity for the transferred assistance consistent with statutory goals and requirements for RAD  The RAD use agreement will remain in effect even in the case of abatement or termination of the HAP contract for the term the contract would have run, unless HUD agreed differently in writing  In this case, the RAD notice limits HUD discretion to terminate the use agreement to only cases involving a transfer of assistance to another property  HUD has not yet developed procedures to monitor RAD projects for risks to long-term affordability of units, including default or foreclosure  HUD officials described an ongoing effort to develop oversight procedures it would need to reasonably ensure compliance with RAD agreements and avoid risks to long-term affordability once conversions closed and units moved to Section 8 but, as previously discussed, the agency has not yet completed this effort or fully implemented a monitoring system  HUD officials told us they also planned to develop protocols to more closely monitor properties at risk of foreclosure, including developing indicators, procedures, roles, and responsibilities within HUD, but they have not finalized the design of procedures or fully implemented them  To develop protocols, HUD created an asset management working group in September 2016  The officials also stressed that no one can take possession of or foreclose on a property without HUD involvement and approval  For example, HUD officials said they expect few foreclosures among RAD-converted properties because lenders tend to communicate with the agency early so that it can become involved to prevent foreclosure  HUD officials pointed to a robust structure to oversee program properties in the PBRA program, but stated PBV property oversight continues to be developed by the Office of Public and Indian Housing  According to Standards for Internal Control in the Federal Government, agencies should design procedures to achieve goals and objectives, such as the preservation of unit affordability, and respond to risks, in this case the risk of default or foreclosure or noncompliance with program requirements  Additionally, management should identify, analyze, and respond to risks related to achieving its goals and objectives  According to HUD officials, the agency had not yet fully developed and implemented oversight procedures for postconversion monitoring because since 2012, the agency has focused on RAD start-up and review and oversight procedures for the conversion process  HUD officials also said that many projects would receive ongoing monitoring from other parties, which also could serve as a safeguard for unit affordability and help ensure the appropriate financial and physical condition of the property after RAD conversion  For example, just under half of all RAD properties use LIHTC financing as part of financing packages, which can also include local and state bonds  According to HUD officials, oversight by tax credit allocating agencies, investors, and lenders, while not alone sufficient, helps secure affordable units in a property for the long-term  However, tax credit allocating agencies, investors, and lenders are not signatories to the HAP contract or use agreement and have no formal role in reasonably ensuring that properties meet requirements exclusive to RAD  Although other entities may exercise some oversight of properties, by not developing and implementing procedures for ongoing oversight, HUD in its role as program administrator will not be able to reasonably ensure that properties adhere to requirements or meet basic program goals  Furthermore, without such monitoring HUD would be limited in its ability to identify and assist with properties at risk of foreclosure  RAD was created to demonstrate the feasibility of converting public housing units to other rental assistance programs to help preserve affordable rental units and address the significant backlog of capital needs in the public housing program  However, demonstrating the feasibility of RAD conversion is contingent on collecting and assessing quality information about the conversion projects  HUD has an opportunity to improve the demonstration’s metrics  For instance, implementing robust postclosing oversight and collecting information on financial outcomes upon completion of construction would not only improve HUD’s oversight capabilities but also allow it to report quality information  Moreover, limitations in HUD’s methodology for calculating leverage ratios for RAD may obscure the effect of funding sources used to help fund RAD conversions, potentially under- or over-reporting the program’s capital leveraging  By collecting comprehensive information on final (postcompletion) financing sources and costs and developing quality metrics, HUD would be better positioned to more accurately report the results of the demonstration program  Additionally, a focus on the conversion process itself (and less on its results), and limitations in HUD’s data have contributed to limited monitoring by HUD in other areas  Specifically, by not developing and implementing monitoring procedures to assess the effect of RAD on residents HUD cannot ensure compliance with resident safeguards  Further, HUD collects and maintains household data for the public housing and Section 8 programs, yet it does not systematically use this information to ensure that resident safeguards are in place  Finally, HUD could benefit from additional procedures to assess RAD properties for risks to long-term preservation to be able to respond to property default or foreclosure  We are making the following five recommendations to HUD: HUD’s Assistant Secretary for Housing should include provisions in its postclosing monitoring procedures to collect comprehensive high quality data on financial outcomes upon completion of construction, which could include requiring third-party certification of and collecting supporting documentation for all financing sources and costs  (Recommendation 1) HUD’s Assistant Secretary for Housing should improve the accuracy of RAD leverage metrics—such as better selecting inputs to the leverage ratio calculation and clearly identifying what the leverage ratio measures—and calculate a private-sector leverage ratio  (Recommendation 2) HUD’s Assistant Secretary for Housing should prioritize the development and implementation of monitoring procedures to ensure that resident safeguards are implemented  (Recommendation 3) HUD’s Assistant Secretary for Housing should determine how it can use available program-wide data from public housing and Section 8 databases, in addition to resident logs, for analysis of the use and enforcement of RAD resident protections  (Recommendation 4) HUD’s Assistant Secretary for Housing should prioritize the development and implementation of procedures to assess risks to the preservation of unit affordability  (Recommendation 5) We provided a draft of this report to HUD for comment  HUD provided written comments on the draft report, which are summarized below and reproduced in appendix IV  HUD also provided technical comments, which we incorporated as appropriate  In its comment letter, HUD stated that it agreed with our findings that HUD can improve metrics used to assess program impact and build on existing oversight structures  HUD described actions it intends to take to implement our recommendations to the extent possible and consistent with resource limitations  More specifically, HUD agreed with our first recommendation to ensure it collects comprehensive quality data on financial outcomes in its postclosing monitoring procedures (which could include supporting documentation for all financing sources and costs)  HUD agreed it should routinely collect an updated list of funding sources and uses and related documentation when projects had cost overruns or other significant changes  HUD intends to review and revise, as appropriate, required postcompletion certifications  HUD added that in most cases, funding sources and uses do not materially change between closing and construction completion  HUD stated that securing the postclosing information in such cases might be of minimal benefit relative to the additional reporting burden  However, it is not clear how HUD would determine if projects had significant changes in costs or uses because HUD lacks postcompletion information that would show the magnitude of changes  In relation to reporting burden, HUD already has implemented procedures to collect limited financial information following the completion of construction in October 2017  We believe any additional reporting would not be disproportionate to the benefits of improving HUD's oversight capabilities through project completion and enhancing its reporting to more accurately reflect the results of the demonstration program  For our second recommendation to improve the accuracy of RAD leverage metrics and calculate a private-sector leverage ratio, HUD agreed that RAD leverage metrics can be improved  HUD will ensure that the private-sector leverage ratio required by statute is clearly identified and included in its RAD evaluation  HUD also intends to identify a small number of relevant leverage ratios with distinct methodologies and will routinely publish these ratios with clear identification and explanations  In relation to our finding of misidentified funding sources, HUD plans to re- examine its chart of accounts and review prior transaction records to address errors and properly classify transaction sources  In response to our third recommendation to prioritize the development and implementation of monitoring procedures for resident safeguards, HUD agreed that it is important to better document and expedite development and implementation of monitoring procedures  HUD also agreed that additional monitoring was needed to ensure the right of residents to request and move with a tenant-based voucher after a period of residency (choice-mobility)  HUD noted that its Office of Policy Development and Research is seeking funding for additional research on RAD with a focus on the use and effect of choice-mobility options, which would inform HUD's monitoring efforts  Finally, while HUD said that we did not find the safeguards to be weak or inadequate, we did not perform an audit designed to assess the safeguards and therefore cannot opine on their adequacy  On the basis of our findings, we found that HUD’s implementation of these safeguards could be strengthened  Regarding our fourth recommendation that HUD determine how it can use available program-wide data and resident logs for analysis of RAD resident protections, HUD agreed to examine how it could use its existing data systems to further enhance its monitoring efforts  HUD added that the systems have limitations, so that the agency also uses other mechanisms to track and monitor implementation of resident protections  For our fifth recommendation to prioritize the development and implementation of procedures to assess risks to the preservation of unit affordability, HUD agreed that it is important to assess and mitigate risks to unit affordability  HUD stated that it employs robust underwriting standards prior to permitting conversion, and relies on existing procedures to conduct ongoing oversight of Project-Based Rental Assistance (PBRA) properties, which we discussed in the draft  However, as we noted, HUD has not yet developed procedures to more closely monitor RAD properties at risk of foreclosure, though it plans to establish indicators of foreclosure risk and oversight roles and responsibilities within HUD  HUD said that since the summer of 2017, it has been evaluating what additional oversight procedures might be needed for RAD Project-Based Voucher properties  HUD also described plans to augment its existing oversight procedures to preserve affordable units in the event of foreclosure by developing protocols in the following areas: transfer of property ownership to a capable entity, transfer of the rental assistance to another site, and protection of residents in the event a Housing Assistance Payment contract was terminated  As agreed with your office, unless you publicly announce the contents of this report earlier, we plan no further distribution until 30 days from the report date  At that time, we will send copies to the Secretary of Housing and Urban Development and other interested parties  In addition, the report will be available at no charge on the GAO website at http://www gao gov  If you or your staff have any questions about this report, please contact me at (202) 512-8678 or garciadiazd@gao gov  Contact points for our Offices of Congressional Relations and Public Affairs are listed on the last page of this report  GAO staff who made major contributions to this report are listed in appendix IV  This report examines aspects of the Department of Housing and Urban Development’s (HUD) Rental Assistance Demonstration (RAD) program  More specifically, this report addresses (1) HUD’s assessment of the physical and financial outcomes of RAD conversion to date; (2) how RAD conversions affected residents and what safeguards were in place to protect them, including while temporarily relocated and during conversion; (3) what challenges, if any, public housing agencies (PHA) faced in implementing RAD; and (4) the extent to which RAD provisions are designed to help preserve the long-term affordability of units  To address all four objectives, we analyzed agency documentation and interviewed officials from HUD  The documentation we reviewed included policies and procedures for RAD; manuals describing HUD data systems; draft policies and procedures for implementing postclosing oversight; and reports on RAD performance  We interviewed HUD headquarters officials from the Office of Recapitalization within the Office of Housing, which oversees the administration of RAD, and the Office of Policy Development and Research (PD&R)  We also interviewed PHA officials and developers involved in RAD transactions, as well as selected experts and other stakeholders to obtain their perspectives on RAD  Additionally, we conducted a literature search to identify publications related to RAD  We visited a nonprobability sample of eight PHAs in Maricopa County, Arizona; Alameda County, California; Montgomery County, Maryland; and in the cities of San Francisco, California; Baltimore, Maryland; New Bern, North Carolina; El Paso, Texas; and Tacoma, Washington, to observe housing units before, during, or after renovation when possible as well as common areas that had planned or undergone renovation  We selected sites to include varying PHA sizes, RAD subsidy types, planned rehabilitation and resident relocation, numbers and sizes of RAD transactions, closing dates, constructions costs, and geographic locations across the United States  At each site, we conducted semistructured interviews with PHA officials and, when available, developers (5 sites)  We also conducted one or two focus-group interviews with groups of 6– 15 residents who lived at the converted properties to obtain their perspectives and experiences  In each location, we asked the PHAs to invite residents to participate in the focus groups based on their availability  We also met with the Resident Advisory Board in each location that had one  For 7 of 8 site visits, we selected two RAD properties to conduct resident focus groups (in Alameda County, California we held one focus group)  We conducted a content analysis based on resident focus group interviews to describe resident experiences and the RAD program’s effects on residents  Utilizing the selection criteria noted above, we conducted semistructured telephonic interviews with an additional nonprobability sample of 10 PHAs in Fresno, California; Fort Collins, Colorado; Dekalb County, Georgia; Chicago, Illinois; Ypsilanti, Michigan; Cuyahoga County, Ohio; Philadelphia; Pennsylvania; Spartanburg, South Carolina; McKinney, Texas; and Yakima, Washington  Because we selected a non-probability sample of PHAs to visit and interview, the information we obtained cannot be generalized more broadly to all PHAs  However, it provides context on RAD particularly on implementation challenges and perspectives on physical and financial impacts, long-term affordability, and resident protections  We also selected the following 11 individuals and organizations as experts and stakeholders: 1  Council of Large Public Housing Authorities 2  National Association of Housing and Redevelopment Officials 3  Center on Budget and Policy Priorities 4  Public Housing Authorities Directors Association 5  National Housing Law Project 6  Community Legal Services of Philadelphia 7  Maryland Legal Aid 8  Disability Rights Maryland 9  Jaime Alison Lee, Associate Professor of Law and Director, Community Development Clinic, University of Baltimore School of Law 10  Yumiko Aratani, Assistant Professor, Columbia University Mailman 11  University of California, Berkeley, Terner Center for Housing We interviewed experts and stakeholders on resident impacts and implementation challenges associated with RAD  The entities may not represent all views on these topics, but their views provide insights on RAD  To select these individuals and groups, we met with three major PHA associations and two resident advocacy groups, and asked for referrals for organizations or individuals with expertise in RAD  We also selected a nonprobability, random sample of 31 RAD conversion files to review  Utilizing HUD RAD Resource Desk data, we randomly selected 31 RAD files for properties that had closed conversion as of June 30, 2017 and that planned to incur construction costs  We used the files to help us determine physical changes to RAD conversions and the impacts of RAD on residents through, for example, relocation  We excluded RAD conversions with no construction costs from the random sample because they would not have physical changes and no resident relocation would occur before or during our review  To address our first objective on the physical and financial outcomes of RAD conversion to date and how HUD measured these outcomes, we first obtained and analyzed HUD data on RAD conversions since RAD’s authorization (from fiscal years 2013 through 2017)  We assessed the reliability of these data by reviewing system documentation, interviewing knowledgeable officials about system controls, and conducting electronic testing  We determined that the data were sufficiently reliable for the purposes of describing rehabilitation and new construction in RAD projects and evaluating RAD leveraging metrics  We included in our analysis all RAD conversions that were active or closed  We used these data to determine the number of closed RAD conversions, associated financial sources and uses, subsidy types, and type of construction (rehabilitation, new construction, and no rehabilitation or new construction)  In addition, during our interviews with PHAs and developers, we obtained their perspectives on potential contributing factors to financial decisions and type of construction pursued through RAD conversion  As noted earlier, we also reviewed 31 randomly selected files of converted properties with construction costs to describe property physical changes in RAD conversions  Furthermore, we reviewed HUD documents, such as HUD and PD&R evaluations, publications, and policies and procedures to gain additional context for how HUD measures RAD outcomes  We also interviewed HUD officials, including PD&R and Office of Recapitalization officials, on RAD data and metrics, as well as other performance monitoring activities  We further analyzed data from the HUD RAD Resource Desk to determine how these data support HUD’s metrics and performance monitoring activities  As previously mentioned, we determined that these HUD data were sufficiently reliable for the purposes of this report  Specifically, we assessed and calculated RAD leverage ratio and construction activity  We assessed HUD’s performance monitoring activities and reporting against the RAD authorizing statute, Standards for Internal Control in the Federal Government  To recalculate estimates of the RAD leverage metric, we obtained documentation from the Office of Recapitalization to review the methodology used to calculate their most recent leverage ratio  We aligned the methodology they provided with RAD Resource Desk Transaction Log data that was downloaded on August 7, 2017  We replicated HUD’s methodology and matched the data utilized with the descriptors from the Transaction Log  To isolate financial sources and manually adjust the “other source” data, we compiled matched descriptors and funding amounts and categorized each observation based on the funding source description, as a federal source, state/county/city source, or PHA source, among others  For additional information and results, see appendix II  To determine how RAD affected residents in converted units, we analyzed HUD public housing and Section 8 household data before and after conversion (demographic characteristics of residents and changes in rent, income, and location)  Specifically, we examined data from 2013— when the first transactions closed—through June 30, 2017  HUD compiled and provided custom extracts of data on households in RAD- converted properties from the Inventory Management System/Public and Indian Housing Information Center (IMS/PIC) (public housing and Section 8 PBV) and Tenant Rental Assistance Certification System (Section 8 PBRA)  We assessed the reliability of the data extracts provided by HUD by (1) performing electronic testing of required data elements, (2) reviewing existing information about the data and the system that produced them, and (3) interviewing agency officials knowledgeable about the data  We determined the data on PBV households were sufficiently reliable for the purposes of our reporting objectives, but that the data on PBRA households was not sufficiently reliable for purposes of describing some characteristics of RAD households  For example, in trying to determine participation in the RAD program by year, we received several thousand PBRA entries that preceded the establishment of the RAD program  Moreover, as we previously mentioned, the postconversion household data for PBRA conversions is in a separate data system, so some variables, such as those related to race, ethnicity, rent, and income, differ from the other household data for that program  Because of these limitations, the data for PBRA households were not reliable for purposes of comparing RAD household characteristics before and after conversion as we had intended  To describe safeguards for residents and help ascertain how HUD implemented protections, we reviewed legal protections and requirements in HUD notices, reviewed selected conversion files, and interviewed HUD officials about monitoring and compliance processes  Finally, as previously described, we held focus groups with residents to better understand any effects on their living conditions and quality of life  To determine challenges PHAs faced in implementing RAD, we reviewed HUD guidance and related documents for PHAs in the program  We also interviewed eight PHAs during our site visits and spoke with another 10 PHAs by telephone about the benefits and challenges of participating in the RAD program  To examine provisions designed to help preserve long-term affordability of units, we reviewed the RAD authorizing statute and amendments and HUD notices and interviewed HUD staff to verify our understanding of agency affordability protections  For a sample of 31 randomly selected properties, we examined templates for contractual agreements for RAD closings and analyzed closing documents and contracts to determine if agreements matched program requirements  We interviewed HUD staff and staff of 18 PHAs to obtain viewpoints on the potential strengths or weaknesses of preservation in the case of default or foreclosure  We conducted this performance audit from February 2016 to February 2018 in accordance with generally accepted government auditing standards  Those standards require that we plan and perform the audit to obtain sufficient, appropriate evidence to provide a reasonable basis for our findings and conclusions based on our audit objectives  We believe that the evidence obtained provides a reasonable basis for our findings and conclusions based on our audit objectives  The Department of Housing and Urban Development’s (HUD) Office of Recapitalization collects financial sources and use data from Rental Assistance Demonstration (RAD) participants  Table 2 lists the financial source fields collected by HUD  Table 3 lists the financial cost fields collected by HUD  Table 4 provides additional financial source detail pertaining to HUD’s leverage ratio calculation  Table 5 and Table 6 show the total financial source amounts collected by HUD  Specifically, Table 5 shows total financial source amounts prior to recategorization, while Table 6 shows total financial source amounts after manual adjustments  Manual adjustments included isolating funding source observations in “other funding” fields 1-6 and incorporating them into existing fields, as appropriate  Table 7 replicates HUD’s methodology for calculating the RAD leverage metrics after manual adjustments in HUD data  See Table 4, above, to compare changes in each category  Table 8 recalculates the leverage ratio by deducting federal sources as leveraged sources  Table 9 recalculates the leverage ratio by deducting public sources as leveraged sources (compare to Table 8 above)  The Rental Assistance Demonstration (RAD) program has numerous requirements intended to ensure residents whose units are converted through RAD receive certain protections  The following is a description of these safeguards and their reporting and monitoring 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Report 2:  14 ); reduce the pay of Members of Congress (for example, H R  1786 and H R  5539 ); and prohibit pay for Members of Congress during a lapse in appropriations resulting in a government shutdown (for example, H R  1789 , H R  1794 , H R  2214 , H R  4852 , H R  4870 , and S  2327 )  Legislation was introduced in the 114 th Congress to prohibit adjustments in pay (for example, H R  109 and H R  302 ); repeal the automatic pay adjustment provision (for example, H R  179 , H R  513 , H R  688 , H R  1585 , and S  17 ); change the procedure by which pay for Members of Congress is adjusted or disbursed by linking it to congressional actions or economic indicators, including the passage of a budget resolution or existence of a deficit (for example, H Con Res  27 , S Con Res  11 , H R  92 , H R  110 , H R  174 , H R  187 , H R  3757 , H R  4814 , H R  4476 , and S  39 ); reduce the pay of Members of Congress (for example, H R  179 and H R  688 ); and prohibit or reduce pay for Members of Congress during a lapse in appropriations resulting in a government shutdown (for example, S  2074 , H R  3562 , H R  2023 , and H R  1032 )  The House budget resolution for FY2016, H Con Res  27 , included a policy statement that Congress should agree to a concurrent budget resolution each year by April 15, and if not, congressional salaries should be held in escrow (Section 819)  The statement proposed that salaries would be released from the escrow account either when a chamber agrees to a concurrent resolution on the budget or the last day of the Congress, whichever is earlier  The House agreed to this resolution on March 25, 2015, and no further action was taken  The Senate agreed to its resolution on the FY2016 budget, S Con Res  11 , on March 27, 2015, without this language  The conference report for S Con Res  11 —agreed to in the House on April 30 and in the Senate on May 5, 2015—contains a "Policy Statement on 'No Budget, No Pay'" (Section 6216), which refers to actions by the House  Legislation was introduced in the 113 th Congress to prohibit adjustments in pay (for example, H R  54 , H R  243 , H R  636 , S  18 , S  30 ); repeal the automatic pay adjustment provision (for example, H R  134 , H R  150 , H R  196 , S  65 , and H R  398 ); change the procedure by which pay for Members of Congress is adjusted or disbursed by linking it to congressional actions or economic indicators, including passage of a budget resolution or reaching the debt limit (for example, H R  108 , H R  167 , H R  284 , H R  308 , H R  310 , H R  325 , H R  372 , H R  397 , H R  396 , H R  522 , H R  593 , H R  1884 , H R  2335 , H R  3234 , S  18 , S  30 , and S  263 ); reduce the pay of Members of Congress (for example, H R  37 , H R  150 , H R  391 , H R  396 , H R  398 , and H R  1467 ); prohibit pay for Members of Congress during a lapse in appropriations resulting in a government shutdown (for example, H R  3160 , H R  3215 , H R  3224 , H R  3234 , and H R  3236 ); and apply any sequester to Member pay (for example, S  436 , H R  1181 , H R  1478 , and H R  2677 )  H R  325 , which (1) included language holding congressional salaries in escrow if a concurrent resolution on the budget was not agreed to by April 15, 2013, and (2) provided for a temporary extension of the debt ceiling through May 18, 2013, was introduced on January 21, 2013  Salaries would have been held in escrow for Members in a chamber if that chamber had not agreed to a concurrent resolution by that date  Salaries would have been released from the escrow account either when that chamber agreed to a concurrent resolution on the budget or the last day of the 113 th Congress, whichever was earlier  H R  325 was agreed to in the House on January 23, 2013, and the Senate on January 31, 2013  It was enacted on February 4, 2013 ( P L  113-3 )  Both the House and Senate agreed to a budget resolution prior to that date, however, and salaries were not held in escrow  H R  807 , the Full Faith and Credit Act, was introduced in the House on February 25, 2013  The bill would have prioritized certain payments in the event the debt reaches the statutory limit  An amendment, H Amdt  61 , was offered on May 9, 2013, that would clarify that these obligations would not include compensation for Members of Congress  It was agreed to the same day  The bill passed the House on May 13, 2013  No further action was taken in the 113 th Congress  The House-passed version of H J Res  59 , the Continuing Appropriations Resolution, 2014, also contained a provision addressing actions by the Secretary of the Treasury in the event that the debt limit is reached and not raised  The provision (Section 138) would, in part, prohibit borrowing to provide pay for Members of Congress in the event that the debt reaches the statutory limit prior to December 15, 2014  The bill passed the House on September 20, 2013  It was enacted on December 26, 2013, without this section  Legislation was introduced in the 112 th Congress to repeal the automatic pay adjustment provision (for example, S  133 , S  148 , H R  187 , H R  235 , H R  246 , H R  343 , H R  431 , H R  3673 ); change the procedure by which pay for Members of Congress is adjusted or disbursed by linking it to other action or economic indicators (for example, H R  124 , H R  172 , H R  236 , H R  994 , H R  1454 , H R  3136 , H R  3565 , H R  3774 , H R  3799 , H R  3883 , H R  4036 , H R  6438 , S  1442 ); reduce the pay of Members of Congress (for example, H R  204 , H R  270 , H R  335 , H R  1012 , H R  4399 ); otherwise alter or restrict pay for Members under certain conditions (for example, H R  6108 ); and freeze Member pay (for example, S  1931 , S  1936 , S  2065 , S  2079 , S  2210 , H R  3858 , H R  6474 , H R  6720 , H R  6721 , H R  6722 )  Legislation was also introduced in the 112 th Congress that would have affected Member pay in the event of a lapse of appropriations resulting in a government shutdown  These included H R  819 , H R  1255 , H R  1305 , H Con Res  56 , and S  388   The Senate passed S  388 on March 1, 2011  The bill would have prohibited Members of the House and Senate from receiving pay, including retroactive pay, for each day that there is a lapse in appropriations or the federal government is unable to make payments or meet obligations because of the public debt limit  The House passed H R  1255 on April 1, 2011  The bill would have prohibited the disbursement of pay to Members of the House and Senate during either of these situations  No further action was taken on either bill  On April 8, 2011, the Speaker of the House issued a "Dear Colleague" letter indicating that in the event of a shutdown, Members of Congress would continue to be paid pursuant to the Twenty-Seventh Amendment to the Constitution, which as stated above, states: "No law, varying the compensation for the services of the Senators and Representatives, shall take effect, until an election of Representatives shall have intervened"—although Members could elect to return any compensation to the Treasury  Additional legislation to prohibit any Member pay adjustment in 2013 was introduced but not enacted in the 112 th Congress, including the following: Section 5421(b)(1) of H R  3630 , as introduced in the House, would have prohibited any adjustment for Members of Congress prior to December 31, 2013  Section 706 of the motion to recommit also contained language freezing Member pay  On December 13, 2011, the motion to recommit failed (183-244, roll call #922), and the bill passed the House (234-193, roll call #923)  The House-passed version of the bill was titled the "Middle Class Tax Relief and Job Creation Act of 2011 " The Senate substitute amendment, which did not address pay adjustments, passed on December 17  It was titled the "Temporary Payroll Tax Cut Continuation Act of 2011 " The bill was enacted on February 22, 2012 ( P L  112-96 ), without the pay freeze language  H R  3835 , introduced on January 27, 2012, also would have extended the pay freeze for federal employees, including Members of Congress, to December 31, 2013  This bill passed the House on February 1, 2012  H R  6726 , introduced on January 1, 2013, would have extended the pay freeze for federal employees, including Members of Congress, to December 31, 2013  This bill passed the House on January 2, 2013  Table 1 provides a history of the salaries of Members of Congress since 1789  For each salary rate, both the effective date and the statutory authority are provided  Table 2 provides information on pay adjustments for Members since 1992, which was the first full year after the Ethics Reform Act that Representatives and Senators received the same salary  The table provides the projected percentage changes under the formula based on the Employment Cost Index and the actual percentage adjustment  The differences between the projected and actual Member pay adjustments resulted from the enactment of legislation preventing the increase (adjustments for 1994, 1995, 1996, 1997, 1999, 2007, 2010, 2011, 2012, 2013, 2014, 2015, 2016, 2017, 2018, and 2019); limits on the percentage increase of Member pay because of the percentage increase in GS base pay (adjustments for 1994, 1995, 1996, 1998, 1999, 2001, 2003, 2007, 2008, 2010, 2011, 2012, 2013, 2014, 2015, 2016, 2017, 2018, and 2019); and a combination of the above  In some years, the percentage adjustment for Member pay would have been lowered to match the percentage adjustment in GS base pay if Congress had not passed legislation denying the adjustment (adjustments for 1994, 1995, 1996, 1999, 2007, 2010, 2011, 2013, 2014, 2015, 2016, 2017, 2018, and 2019)  If Members of Congress had received every adjustment prescribed by the ECI formula since 1992, and the 2 U S C  §4501 limitation regarding the percentage base pay increase for GS employees remained unchanged, the 2019 salary would be $210,900  Table 3 lists the laws which have previously delayed or prohibited Member pay adjustments, the dates these laws were enacted, and the text of the provision  While many of the bills in this list are appropriations bills, a prohibition on Member pay adjustments could be included in any bill, or be introduced as a separate bill  Figure 1 , which follows, shows the salary of Members of Congress in current and constant (inflation adjusted) dollars since 1992  It shows that Member salaries, when adjusted for inflation, decreased 15% from 2009 until 2019 

ground_truth: Congress is required by Article I, Section 6, of the Constitution to determine its own pay. In the past, Congress periodically enacted specific legislation to alter its pay; the last time this occurred affected pay in 1991. More recently, pay has been determined pursuant to laws establishing formulas for automatic adjustments. The Ethics Reform Act of 1989 established the current automatic annual adjustment formula, which is based on changes in private sector wages as measured by the Employment Cost Index (ECI). The adjustment is automatic unless denied statutorily, although the percentage may not exceed the percentage base pay increase for General Schedule (GS) employees. Member pay has since been frozen in two ways: (1) directly, through legislation that freezes salaries for Members but not for other federal employees, and (2) indirectly, through broader pay freeze legislation that covers Members and other specified categories of federal employees. Members of Congress last received a pay adjustment in January 2009. At that time, their salary was increased 2.8%, to $174,000. A provision in P.L. 111-8 prohibited any pay adjustment for 2010. Under the pay adjustment formula, Members were originally scheduled to receive an adjustment in January 2010 of 2.1%, although this would have been revised downward automatically to 1.5% to match the GS base pay adjustment. Members next were scheduled to receive a 0.9% pay adjustment in 2011. The pay adjustment was prohibited by P.L. 111-165. Additionally, P.L. 111-322 prevented any adjustment in GS base pay before December 31, 2012. Since the percentage adjustment in Member pay may not exceed the percentage adjustment in the base pay of GS employees, Member pay was also frozen during this period. If not limited by GS pay, Member pay could have been adjusted by 1.3% in 2012. The ECI formula established a maximum potential pay adjustment in January 2013 of 1.1%. P.L. 112-175 extended the freeze on GS pay rates for the duration of this continuing resolution, which also extended the Member freeze since the percentage adjustment in Member pay may not exceed the percentage adjustment in GS base pay. Subsequently, Member pay for 2013 was further frozen in P.L. 112-240. The maximum potential 2014 pay adjustment of 1.2%, or $2,100, was denied by P.L. 113-46. The maximum potential January 2015 Member pay adjustment was 1.6%, or $2,800. President Obama proposed a 1.0% increase in the base pay of GS employees, which would automatically have limited any Member pay adjustment to 1.0%. P.L. 113-235 contained a provision prohibiting any Member pay adjustment. The maximum potential January 2016 pay adjustment of 1.7%, or $3,000, would have been limited to 1.0%, or $1,700, due to the GS base pay increase. Member pay for 2016 was frozen by P.L. 114-113. The maximum potential January 2017 pay adjustment of 1.6%, or $2,800, would have been limited to 1.0%, or $1,700, due to the GS base pay increase. Member pay for 2017 was frozen by P.L. 114-254. The maximum potential January 2018 pay adjustment of 1.8%, or $3,100, was automatically limited to 1.4%, or $2,400, before being frozen by P.L. 115-141. The maximum potential January 2019 pay adjustment of 2.3%, or $4,000, was automatically limited to 1.4%, or $2,400, before being frozen at the 2009 level by P.L. 115-244. The maximum potential January 2020 pay adjustment is 2.6%, or $4,500. If Members of Congress had received every adjustment prescribed by the ECI formula since 1992, and the 2 U.S.C. §4501 limitation regarding the percentage base pay increase for GS employees remained unchanged, the 2019 salary would be $210,900. When adjusted for inflation, Member salaries have decreased 15% since the last pay adjustment in 2009. Both the automatic annual adjustments and funding for Members' salaries are provided pursuant to other laws (2 U.S.C. §4501)—not the annual appropriations bills—and a provision prohibiting a scheduled adjustment could be included in any bill, or introduced as a separate bill.