United States Government Accountability Office

GAO Report to Congressional Committees

PROJECT-BASED 

RENTAL 

ASSISTANCE 

HUD Should Update 

Its Policies and 

Procedures to Keep 

Pace with the 

Changing Housing 

Market 

April 2007 

 

GAO-07-290 
What GAO Found

United States Government Accountability Office

Why GAO Did This Study

Highlights

Accountability Integrity Reliability

April 2007

PROJECT-BASED RENTAL ASSISTANCE

HUD Should Update Its Policies and 

Procedures to Keep Pace with the 

Changing Housing Market 

Highlights of GAO-07-290, a report to 

congressional committees 

In light of the pressing need for

rental housing affordable to lowincome households and concerns 

that the Department of Housing 

and Urban Development (HUD) 

may not be committed to

maintaining its Section 8 projectbased housing stock—a key source 

of such housing—Congress

directed GAO to assess HUD’s 

efforts to preserve its project-based 

housing and recommend ways to 

improve these efforts. This report 

discusses (1) patterns in the 

volume and characteristics of

HUD’s Section 8 project-based 

properties; (2) tools and incentives

that are available to encourage

property owners to stay in the 

program; and (3) the views of 

property owners, managers, and 

industry representatives on HUD’s 

preservation efforts. To address

these issues, GAO analyzed HUD

data, reviewed pertinent legislation 

and regulations, and interviewed 

HUD officials and industry

representatives. 

What GAO Recommends

To enhance its efforts, GAO 

recommends that HUD modify its 

one-for-one replacement policy for

Section 8 units and address

property owners’ concerns about 

reimbursements for operating costs 

in high-cost areas. HUD provided 

comments on a draft of this report 

and generally agreed with the

findings and has efforts underway 

to address the recommendations. 

GAO identified a number of patterns in the volume, characteristics, and 

location of HUD’s project-based Section 8 housing between 2001 and 2005. 

During this period owners renewed 92 percent of Section 8 rental assistance

contracts and 95 percent of the units covered by these contracts. While 

relatively few owners left the program voluntarily, most of those we 

interviewed did so to seek higher rents in the private market or to convert 

their units into condominiums. The properties most likely to leave the 

program were those with few Section 8 units, family-occupied units, those in 

poor physical condition, and those located in markets with rapidly escalating 

housing values. 

HUD offers several incentives to keep Section 8 property owners in the 

program. Owners that used these incentives between 2001 and 2005 most 

often chose the Mark-to-Market and Mark-up-to-Market programs, both of 

which adjust rents to conform to prevailing market conditions. Some 

owners used HUD programs that offered additional financing for property 

rehabilitation to participants in the Section 236 mortgage reduction program 

and the Section 202 mortgage program for housing for the low-income 

elderly and persons with disabilities. HUD officials, owners, and industry 

representatives told us that many Section 8 owners also opted to use the 

Low-Income Housing Tax Credit and tax-exempt bonds, both of which the 

IRS administers through state housing finance agencies. 

Some property owners, managers, and industry representatives cited 

concerns with certain HUD policies and practices, especially the one-for-one 

replacement policy for Section 8 units and the Operating Cost Adjustment 

Factors (OCAF) payment process. GAO found that the one-for-one 

replacement policy, which prohibits reductions in the total number of 

Section 8 units in a property when a contract is renewed, had led some 

owners to leave the program. Property owners noted that they could not 

reconfigure their properties to supply larger units that were in higher 

demand, especially by elderly tenants. Although not required by statute to 

adopt this policy, HUD did so in order to preserve as many units as possible 

but is reviewing it in light of the growing concerns. Owners also expressed 

frustration with the long delay in OCAF adjustments, the use of statewide 

averages, and the inability of the process to deal with emergency situations. 

Finally, owners offered several suggestions that may warrant HUD’s 

attention, including improving the Section 8 contract renewal guidance and 

revisiting physical inspection guidelines. 

www.gao.gov/cgi-bin/getrpt?GAO-07-290.

To view the full product, including the scope 

and methodology, click on the link above. 

For more information, contact Orice Williams

at (202) 512-8678 or williamso@gao.gov. 
Contents 

Letter 1

Results in Brief 3

Background 7

While Most Owners Renewed Their Contracts, Patterns Were 

Identified Among Properties Leaving the Program 13 

Mark-to-Market and Other Programs Encourage Owners to Keep 

Their Properties in the Section 8 Program 23 

HUD Policies and Procedures Have Caused Frustration for Some 

Property Owners and Could Cause Others to Leave the ProjectBased Section 8 Program 27 

Conclusions 38

Recommendations for Executive Action 39 

Agency Comments and Our Evaluation 40 

Appendix I Scope and Methodology 42 

Appendix II Comments from the Department of Housing and 

Urban Development 45 

Appendix III Number of Opt-outs by State in Identified Census 

Divisions 49 

Appendix IV Number of Opt-outs by Metropolitan Area for the 3 

Census Divisions with the Highest Percentage of Optouts 51 

Appendix V GAO Contact and Staff Acknowledgments 55 

Tables 

Table 1: Project-Based Section 8 Rental Assistance Programs with 

Corresponding Financing Programs 8 

Page i GAO-07-290 Project-Based Rental Assistance
Table 2: Number of Section 8 Contract Renewals and Terminations, 

Fiscal Years 2001-2005 14 

Figures 

Figure 1: Section 8 Renewal and Opt-out Processes 12 

Figure 2: Contract Opt-outs, Foreclosures/Enforcements, and 

Terminations by Subprogram, Fiscal Years 2001-2005 15 

Figure 3: Total Terminated Contracts Nationwide, Fiscal Years 

2001-2005 16

Figure 4: Percentage of Section 8 Properties Renewed and 

Terminated by the Percentage of Units Subsidized, Fiscal 

Years 2001-2005 18 

Figure 5: Percentage of Section 8 Properties Renewed and 

Terminated by Type of Occupant, Fiscal Years 2001-2005 19 

Figure 6: Percentage of Section 8 Properties Renewed and 

Terminated by Ownership Type, Fiscal Years 2001-2005 20 

Figure 7: Percentage of Section 8 Properties Renewed and 

Terminated by REAC Scores, Fiscal Years 2001-2005 21 

Figure 8: Percentage of Section 8 Properties Renewed and 

Terminated by Census Division, Fiscal Years 2001-2005 22 

Figure 9: National and Selected State Opt-outs as a Percentage of 

All Active Section 8 Units, Fiscal Years 2001-2005 23 

Figure 10: Factors Contributing to HUD Fatigue 29 

Page ii GAO-07-290 Project-Based Rental Assistance
Abbreviations 

FHA Federal Housing Administration 

HUD Department of Housing and Urban Development 

IRP Interest Reduction Payment 

IRS Internal Revenue Service 

LIHTC Low-Income Housing Tax Credit 

MAHRA Multifamily Assisted Housing Reform and Affordability Act

NAHMA National Affordable Housing Management Association 

OAHP Office of Affordable Housing Preservation 

OCAF Operating Cost Adjustment Factors

PAE Participating Administrative Entities 

PBCA Performance Based Contract Administrators 

REAC Real Estate Assessment Center 

REMS Real Estate Management System 

TRACS Tenant Rental Assistance Certification System 

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Page iii GAO-07-290 Project-Based Rental Assistance
United States Government Accountability Office

Washington, DC 20548 

April 11, 2007

The Honorable Patty Murray 

Chairman 

The Honorable Christopher Bond 

Ranking Member 

Subcommittee on Transportation, Housing 

 and Urban Development, and Related Agencies 

Committee on Appropriations 

United States Senate 

The Honorable John W. Olver 

Chairman 

The Honorable Joe Knollenberg 

Ranking Member 

Subcommittee on Transportation, Housing 

 and Urban Development, and Related Agencies 

Committee on Appropriations 

House of Representatives 

A continuing need for rental housing affordable to low-income households

has prompted congressional efforts to preserve the availability of rental 

units subsidized by existing programs. Under the project-based Section 8 

program, the Department of Housing and Urban Development (HUD) 

contracts with property owners that receive rental subsidies for units 

rented to low-income tenants.1

 These tenants pay a portion of the rent, 

generally 30 percent of their adjusted income, and the subsidies make up 

the rest. In exchange for guaranteed rent payments from HUD, owners 

commit to restricting their units to low-income tenants for 15 to 40 years 

under contracts written or renewed since the program’s inception in 1974. 

Since then, HUD has provided rent subsidies to about 1.4 million 

households through approximately 24,000 project-based Section 8 housing 

contracts. Beginning in the late 1980s, however, these long-term contracts 

began to expire and some owners opted not to renew them. In response, 

 1

The project-based section 8 program was authorized by the Housing and Community 

Development Act of 1974, Pub. L. 93-383, and comprises several subprograms that provide

rental assistance. 

Page 1 GAO-07-290 Project-Based Rental Assistance
HUD has sought ways to keep property owners in the program and 

preserve Section 8 housing. 

Concerned that HUD was not committed to preserving the stock of 

existing project-based Section 8 housing and may be encouraging owners 

to opt out of the program or not encouraging them to stay, the Senate

report accompanying the fiscal year 2006 Transportation, Treasury, 

Housing and Urban Development, the Judiciary, the District of Columbia, 

and Independent Agencies Appropriations Act directed HUD to report on 

the status of the agency’s efforts to preserve project-based Section 8 

housing, including an analysis of contract activity from 2001 to 2005. The 

analysis was to include the number of units that had left the program and 

the number that remained, by year, state, and locality. In August 2006, 

HUD reported to Congress on the number of contract renewals and 

terminations, types of assistance offered through the preservation 

program, and steps taken to protect affected tenants. 

In addition to requiring the HUD report, the Senate report directed us to 

assess HUD’s efforts to preserve affordable housing and provide 

recommendations on how to improve these efforts. To this end, this report 

examines (1) patterns in the volume, characteristics, and location of 

HUD’s project-based Section 8 properties—including those that left the 

program—from 2001 through 2005; (2) available tools and incentives for 

encouraging project-based Section 8 owners to keep their properties in the 

program; and (3) views of property owners, managers, and industry 

representatives on HUD’s Section 8 housing preservation efforts and the 

effect of those efforts on owners’ decisions to opt out or keep properties 

in the program. 

To identify patterns in the volume and characteristics of properties from 

2001 through 2005, we analyzed data extracts from HUD’s Real Estate 

Management System (REMS) from 2001 through 2005.

2

 Our analysis 

looked at the significance of a number of variables, such as occupancy 

type and subsidy level, on owners’ decisions to opt out of the Section 8

program. We also reviewed a study that HUD commissioned from 

Econometrica, Inc., that was published in January 2006 and that compared 

multifamily properties leaving the project-based Section 8 program with 

 2

REMS includes historical information on all properties in HUD’s multifamily portfolio,

including data on project-based Section 8 properties and contracts. One Section 8 property

may have multiple contracts. 

Page 2 GAO-07-290 Project-Based Rental Assistance
multifamily properties remaining in it.3

 In addition, we monitored the 

progress of HUD’s analysis of terminated project-based Section 8 housing 

units and those retained over a 5–year period and compared HUD’s results 

with our analysis. To determine what tools and incentives HUD used to 

preserve project-based Section 8 properties, we reviewed and summarized 

legislation and regulations pertaining to project-based Section 8 housing 

preservation, documented HUD requirements, and conducted interviews 

with HUD headquarters and selected field office staff, nonprofit 

organizations, contractors, state and local government agencies, and 

lenders. To obtain the views of owners, managers, and industry 

representatives on HUD’s preservation efforts, we conducted standardized 

interviews with both for-profit and nonprofit owners of Section 8 

properties, housing industry organizations, state housing finance agencies, 

and other stakeholders in five localities.4

 We judgmentally selected these 

locations based on the following characteristics: (1) percentage of units 

that opted out of the project-based Section 8 program from 2001 through

2005, (2) vacancy rates, (3) geographic location, (4) percentage of 

households with worst-case housing needs, and (5) HUD regional and field 

office program performance. We conducted our work between October 

2005 and April 2007 in Baltimore, Chicago, Columbus, Houston, Los 

Angeles, New York, and Washington, D.C., in accordance with generally

accepted government auditing standards. Appendix I provides additional 

details on our scope and methodology. 

Using data on the project-based Section 8 housing program from 2001 

through 2005, we were able to identify patterns in the volume, 

characteristics, and locations of contract renewals and terminations, 

including contracts that property owners chose not to renew (opt-outs) 

from 2001 through 2005.5

 Among other things: 

Results in Brief 

• The majority of project-based Section 8 housing owners chose to stay in 

the program. A total of 13,218 project-based Section 8 contracts (931,570 

units) were renewed from 2001 through 2005, or 92 percent of the 

 3

Econometrica, Inc., Multifamily Properties: Opting In, Opting Out and Remaining 

Affordable, HUD Contract no. GS-10F-0269K (Washington, D.C.: January 2006). 

4

Housing Finance Agencies are state-chartered authorities established to help meet the 

affordable housing needs of residents of their states. They serve as lenders and resource

providers.

5

Terminations include opt outs, foreclosures, and enforcements. 

Page 3 GAO-07-290 Project-Based Rental Assistance
contracts during the review period and 95 percent of the units covered by

these contracts.6

 Conversely, 8 percent or 1,155 contracts (covering 51,131

units) were terminated—6 percent because owners opted out of the 

program and 2 percent because HUD foreclosed on the properties from 

2001 through 2005. Terminations decreased from 240 contracts (covering 

10,020 units) in 2001 to 160 contracts (covering 6,001 units) in 2005. 

• Our discussions with property owners, managers, and industry 

representatives in five metropolitan areas indicated that market conditions 

were the primary factors in owners’ decisions to leave or remain in the 

project-based Section 8 program and that HUD did not encourage owners 

to opt out of the program. In many cases, owners opted out to seek higher 

rents or to convert their units to condominiums in thriving housing 

markets such as Los Angeles and Manhattan. 

• We identified a number of key characteristics of properties that left the 

project-based Section 8 housing program. We found that more properties 

that had been rented to families left the program than properties that had 

been rented to individuals such as the elderly and persons with 

disabilities. Nonprofit owners, whose mission is to provide affordable 

housing, were more likely to renew their contracts, as were Section 202 

owners whose mortgages require that they serve low-income elderly and

persons with disabilities for up to 40 years.7

 We also found that a number 

of properties remained at risk of leaving the program because they had 

failed HUD’s inspections. Finally, the number of contract renewals and 

opt-outs varied by geographic location. The largest percentage of opt-outs

occurred in several midwestern states-–Illinois, Indiana, Michigan, Ohio, 

and Wisconsin—-the southern Atlantic (including Maryland, West Virginia, 

and the District of Columbia), and the Pacific coast (including Alaska and 

Hawaii). They were generally concentrated in large metropolitan areas. 

HUD offers a number of tools and incentives to property owners seeking 

additional funding to support their Section 8 properties. Owners that did 

use incentives primarily chose the Mark-to-Market program, under which 

Section 8 owners with above-market rents receive additional assistance

 6

These numbers reflect all contracts that were processed for renewal during fiscal year 

2001-2005 and were still active at the end of the reporting period. They cover contracts that

had been renewed prior to fiscal year 2001, but were renewed again from 2001 through

2005, as well as contracts that expired for the first time during this period. 

7

Prior to 1991, the Section 202 program provided direct loans at below-market rates for up

to 40 years to finance the construction of rental housing for low-income elderly and

persons with disabilities.

Page 4 GAO-07-290 Project-Based Rental Assistance
from HUD in exchange for reducing rents, and the Mark-up-to-Market 

program, which adjust rents to prevailing market conditions while 

maintaining affordability for low-income households. These tools have 

been effective in preserving some Section 8 projects, but they apply to 

only a portion of the project-based Section 8 housing stock. Owners have 

used other HUD programs to maintain project-based Section 8 housing to

a lesser extent. For example, these programs allow those project-based 

Section 8 owners that previously had participated in the Section 236 

program, which effectively reduces the mortgage interest to 1 percent, and 

the Section 202 program for the construction of elderly housing, to obtain

additional financing for Section 8 property rehabilitation. Program officials 

and others whom we interviewed said that to supplement HUD’s tools, 

nonprofits and housing industry representatives also encouraged Section 8 

owners to obtain funds through programs outside of HUD, such as the 

Low-Income Housing Tax Credit (LIHTC) program and tax-exempt bonds. 

HUD officials told us that they did not consistently collect data on Section 

8 properties that had used tax credits or tax-exempt bond financing. 

Section 8 owners, property managers, and industry representatives we 

interviewed indicated that owners generally did not opt out of the projectbased Section 8 program because of dissatisfaction with HUD’s 

preservation efforts but because of market factors. Many owners said they 

remained in the program because they wanted the guaranteed income, and 

others—primarily nonprofit organizations—said they remained because 

their mission was to preserve affordable housing. However, some property 

owners, managers, and industry representatives expressed frustration with 

some of HUD’s polices and practices, which they said could drive some 

property owners out of the program. Specifically, managers and owners 

expressed concern with HUD’s lack of flexibility in policies such as the 

one-for-one replacement requirement, which prohibits reductions in the 

total number of Section 8 units in a property. While not mandated by 

statute, HUD adopted this policy in an attempt to maximize the number of 

units remaining in the program. Under this policy, HUD does not allow 

owners to reduce the number of Section 8 units when a contract is 

renewed. For example, HUD does not allow owners to reconfigure 

efficiency apartments into fewer one-bedroom units, even when market 

studies show great demand for such units. We identified a Chicago owner

who chose to remove an 82-unit property from the program because HUD 

would not renew a contract with 3 fewer units. In addition, owners and 

managers indicated that some HUD practices and policies could cause 

financial distress. In particular, owners and managers expressed 

frustration with HUD’s Operating Cost Adjustment Factors (OCAF), an 

annual inflation adjustment that reflects changes in operating expenses 

Page 5 GAO-07-290 Project-Based Rental Assistance
such as insurance and utilities. These owners and managers said that 

OCAF did not take into account cost differences across regions, was often 

out of date by the time it was applied, and did not respond to emergency 

situations. Owners and managers also identified some HUD policies and 

practices that they said lacked clarity, were not consistently applied, or 

were administratively burdensome and could weigh on owners’ decisions 

to stay in or opt out of the program when their project-based contracts 

expired. For example, some property managers and owners told us that 

they needed full-time staff to manage project-based Section 8 

administrative requirements, an expense that was particularly burdensome 

for owners with few section 8 units. HUD officials told us that they were 

currently reviewing the one-for-one replacement policy for elderly housing 

and the OCAF adjustment process to take into account emergency 

situations and rapid increases in utilities, insurance, and property taxes in

some areas. 

To help ensure that affordable housing is provided to those persons in 

need and to keep pace with the changing housing market, we are 

recommending that HUD (1) expedite its reconsideration of the one-forone replacement requirement for project-based Section 8 housing and 

broaden its consideration to all project-based Section 8 housing properties 

on a case-by-case basis; and (2) address concerns about the need for more 

timely and better-targeted OCAF reimbursements. We are also

recommending that HUD determine whether any of the other issues raised 

by owners, such as unclear and burdensome policies and procedures and 

inconsistent application of policies, are contributing to owners’ decisions 

to opt out of the Section 8 program and that the agency take steps to 

address these issues as appropriate. 

We received comments on a draft of this report from HUD’s Assistant 

Secretary for Housing—-Federal Housing Commissioner (appendix II). 

The Commissioner generally agreed with the report findings, which were 

consistent with the findings of HUD’s report to Congress. He also noted 

that it confirmed that HUD was using a variety of tools to encourage 

continued participation in the project-based Section 8 program. Further, 

he said that the agency was already taking steps that begin to address two 

of our recommendations: (1) modify the one-for-one replacement policy to 

allow some reduction or reconfiguration of existing units when 

appropriate, and (2) evaluating the OCAF adjustment process and plan to

complete and announce the results by the end of fiscal year 2007. Finally,

he said that HUD officials were aware of concerns raised by property 

owners that we cited and that the agency was always willing to consider 

Page 6 GAO-07-290 Project-Based Rental Assistance
recommendations that could reduce administrative costs and encourage 

owners to stay in the program. 

The Housing and Community Development Act of 1974, a major overhaul 

of housing laws, created the tenant-based and project-based Section 8 

rental assistance programs for low-income households. The tenant-based 

program (now called Housing Choice Vouchers) provides rental assistance 

to eligible households to rent houses or apartments in the private market 

from landlords who are willing to accept the vouchers. Under the projectbased rental assistance program, HUD enters into contracts with property 

owners to provide rental assistance for a fixed period of time. 

The project-based Section 8 program has multiple subprograms, including 

Section 8 New Construction and Substantial Rehabilitation, Loan 

Management Set-Asides, Preservation, and Property Disposition.8

 Rental 

assistance under these project-based Section 8 subprograms has been 

generally used in conjunction with other public funding. For example, a 

Section 8 New Construction/Substantial Rehabilitation property could 

have been financed by a Federal Housing Administration (FHA) insured 

loan, a Section 202 direct loan, a U.S. Department of Agriculture Section 

515 direct loan, or state housing finance agency bonds. Some of these 

programs provided financing for the construction or rehabilitation of 

affordable rental housing prior to the 1974 Act. (See table 1).

Background 

 8

In 1978, a moderate rehabilitation portion of the Section 8 program was added but has not

been funded since 1989. The authorization for the new construction and substantial 

rehabilitation components of the Housing and Community Development Act of 1974 were 

repealed in 1983. 

Page 7 GAO-07-290 Project-Based Rental Assistance
Table 1: Project-Based Section 8 Rental Assistance Programs with Corresponding Financing Programs 

Rental Assistance Program Description

Section 8 New Construction and 

Substantial Rehabilitation 

Provides rent subsidies in new or substantially rehabilitated projects. Subsidy initially 

covered the difference between tenants’ payment and fair market rent, as determined by

HUD. Subsidy contracts were for 20 to 40 years. Tax incentives and financing 

arrangements also reduced owners’ effective mortgage interest rates and project rents. 

No new contracts have been issued since the 1990s, and only existing contracts have 

been renewed. 

Section 8 Loan Management Set-Aside HUD contracts with owners of HUD-insured multifamily or HUD-held housing projects 

experiencing financial problems. The program seeks to minimize defaults on HUD-insured

multifamily rental projects by ensuring a reliable income stream. Families receive a rental 

subsidy equal to the difference between their share of the rent and the rent charged by the 

owners, which was not to exceed applicable fair market rents. 

Section 8 Property Disposition HUD forecloses on subsidized properties with HUD-held multifamily mortgages for 

properties with project-based Section 8 or sells HUD-owned multifamily properties with 

project-based Section 8 assistance. 

Section 8 Preservation This program assists multifamily properties by providing project-based Section 8 subsidies

to a property in order to preserve its low-income status. There are no new contracts for 

this program. 

Financing Program

FHA Insurance The FHA Multi-Family Mortgage Insurance program enhances credit for rental housing 

developments through the provision of federal loan guarantees. These guarantees provide

a financing option in addition to those available in the private conventional market. FHA 

provides mortgage insurance for multifamily housing, supporting the construction of new 

apartment projects, and the refinancing of older ones. 

Section 202 Elderly and Disabled Housing 

Direct Loan Program 

Provides direct loans at below-market rates for up to 40 years to finance the construction

of rental housing for low-income elderly and disabled households. Projects built 

between1974 and 1991 also receive project-based Section 8 rent subsidies. The program

is no longer active, although projects developed under it continue to operate. In 1990, the 

program was restructured to provide capital advances for the development of elderly 

housing under Section 202, and a Section 811 capital advance program was implemented

to develop housing for persons with disabilities. Both 202 and 811 projects receive 

operating assistance through Project Rental Assistance Contracts. 

Section 515 USDA’s Rural Housing Service Section 515 program began in the early 1960s. At that 

time, loans were generally made for 40 years, but borrowers were encouraged to 

refinance their properties in the private market and to prepay their loans. The program 

provides direct loans to developers at a 1 percent interest rate. Supplementary rental 

assistance is provided to approximately half of the units through USDA, while some units 

also receive rental assistance through the Section 8 programs. After 1989, loans were 

precluded from prepayments, and loans that were made before that date were restricted. 

Housing Finance Development Authority Projects financed by state Housing Finance Agencies (HFAs) through mortgage revenue 

or multifamily housing bonds. 

Source: GAO.

Project-based Section 8 assistance may be provided only for tenants with 

incomes no greater than 80 percent of an area’s median income. Tenants 

generally pay rent equal to 30 percent of adjusted household income. As 

Page 8 GAO-07-290 Project-Based Rental Assistance
part of the Section 8 contract, property owners and managers are 

responsible for ensuring that households meet program eligibility 

requirements and calculating households’ payments. HUD pays rent 

subsidies directly to the property owners but does not pay them a separate

administrative fee. The owners’ include their administrative costs in their 

HUD-approved rents. 

Project-based Section 8 properties are subject to physical and 

management reviews. Most Section 8 contracts also require the 

submission of annual financial reports from property owners. These 

reviews and reports are to ensure management accountability and the 

physical condition of public and assisted housing. HUD’s Real Estate 

Assessment Center (REAC) conducts physical inspections of all HUD 

multifamily properties every 1 to 3 years, depending on the property’s 

previous physical inspection score. Project-based Section 8 properties are 

subject to annual management and occupancy reviews to verify 

compliance with the terms of the project-based Section 8 contracts, 

regulatory and management agreements, and management plans. 

In the mid- to late-1990s, Congress and HUD made several important 

changes to the duration of housing assistance contracts, contract rents, 

and management of on-going contracts. 

• In the mid-1990s because of budgetary constraints HUD shortened the 

terms of subsequent renewals after the initial 15- to 40-year terms began 

expiring. HUD generally reduced the contract renewal terms to 1 or 

5 years, with the funding renewed annually subject to appropriations. 

• In 1997, Congress passed the Multifamily Assisted Housing Reform and 

Affordability Act (MAHRA) to ensure that the rents HUD subsidized 

remained comparable with market rents. Over the course of the initial 

contracts with owners, contract rents in some cases had begun to 

substantially exceed local market rents as market conditions changed.

MAHRA generally requires an assessment of each property when it nears 

the end of its original contract term to determine whether the contract 

rents are comparable to current market rents and whether the property 

has sufficient cash flow to meet its debt and daily and long-term operating 

expenses. However, certain projects are exempt from the market 

comparability requirement (e.g., projects financed by state agency bonds). 

If the contract rents are higher than market rents, HUD can decrease the 

contract rents to market rents upon renewal. Conversely, if the expiring 

contract rents are below market rates, HUD may increase the contract 

rents to market rates upon renewal.

Page 9 GAO-07-290 Project-Based Rental Assistance
• In 1999, because of staffing constraints (primarily in HUD’s field offices) 

and the workload involved in renewing the increasing numbers of rental 

assistance contracts reaching the end of their initial terms, HUD began an

initiative to contract out the oversight and administration of most of its 

project-based contracts. The entities that HUD hired—typically public 

housing authorities or state housing finance agencies—are responsible for 

conducting on-site management reviews of assisted properties; adjusting 

contract rents; reviewing, processing, and paying monthly vouchers 

submitted by owners; renewing contracts with property owners; and 

responding to health and safety issues at the properties. These 

performance-based contract administrators (PBCA) now administer the 

majority of project-based Section 8 contracts. 

In the late 1980s, initial Section 8 contracts began expiring; by 2003, all of

the original 20-year contracts had expired. Forty-year contracts will expire 

between 2014 and 2023. Section 8 owners are offered six options upon 

contract expiration. According to the HUD Section 8 Renewal Guide, 

Section 8 owners may9

• renew without any modifications, with rents capped at HUD’s market 

levels; 

• renew with rents that are elevated to market rents through the Mark-up-toMarket program; 

• renew with rents that are reduced to market rents through the Mark-toMarket program; 

• renew as a Section 8 “exception project;”10

 9

The Section 8 Renewal Guide provides comprehensive guidance for renewing expiring 

project-based Section 8 contracts. 

10In general, Section 8 exception projects are those projects with project-based Section 8

rental assistance, but without FHA mortgage insurance. Owners of exception projects may 

maintain above-market rents if justified on a cost basis. 

Page 10 GAO-07-290 Project-Based Rental Assistance
• renew as a Section 8 preservation or portfolio reengineering 

demonstration projects;11 and 

• opt out of the Section 8 contract. 

When their contract expires, project-based Section 8 owners may decide 

not to renew their Section 8 contracts and convert their units from 

affordable housing to market rents. Once owners remove their properties 

from HUD programs, Section 8 households receive enhanced vouchers as

long as they remain in their units.12

Owners are required to give both tenants and HUD notice of their 

intention to renew or opt out 1 year before the Section 8 contract’s 

expiration (see fig. 1). An owner who intends to opt out must also provide 

HUD with a 120-day notification. An owner who intends to renew is 

required to submit to HUD or the PBCA a request for contract renewal and 

a rent comparability study (when required) at least 120 days before the 

contract expires. Local HUD offices review the study to determine if the 

property’s current rents are at, above, or below market rates. If rents are at 

or below market rates, HUD field office staff will make any necessary 

adjustments and execute a new Section 8 contract. If rents are above 

market, HUD staff renews the contract (at above-market rents) for up to 

1 year and forward the owner’s submission to the HUD Office of 

Affordable Housing Preservation (OAHP) for a Mark-to-Market 

restructuring. OAHP assigns properties to participating administrative 

entities (PAE) to carry out restructurings under the Mark-to-Market 

program on behalf of HUD.13 The owner then signs a renewal contract with 

the contract administrator. 

 11Preservation projects are those projects maintained as affordable housing under the

Emergency Low Income Housing Preservation Act of 1987 (ELIPHRA) and the Low Income 

Housing Preservation and Resident Home Ownership Act of 1990 (LIHPRA). The Portfolio 

Reengineering Demonstration program was the predecessor to the Mark-to-Market 

program. 

12To protect Section 8 households from rent increases that may result when owners opt out

of their contracts or prepay their subsidized mortgages, HUD provides a special type of

tenant protection voucher known as an enhanced voucher. Rents are set at market

comparable levels, instead of the regular voucher payment standard. A tenant with an 

enhanced voucher is entitled to remain in his unit as long as the property remains a rental 

property, provided the rent is reasonable. 

13The PAE is responsible for structuring Mark-to-Market transactions, under contract with 

HUD. PAEs may be public or private entities or joint ventures. 

Page 11 GAO-07-290 Project-Based Rental Assistance
Figure 1: Section 8 Renewal and Opt-out Processes 

120-day notice

of renewal

and rent 

study

One-year

notice

of

renewal

120-day notice

for issuance

of enhanced

vouchers

One-year

notice of

opt-out

HUD HUD

Tenants Tenants

Below Above

Are rents

above or below

market rates?

HUD staff make rent

changes as necessary

HUD refers to OHAP

for Mark-to-Market

Program

Section 8 contract renewal Section 8 opt-out

Enhanced

vouchers

Sources: GAO; Art Explosion (images).

Owners Owners

Note: Exception projects are not subject to market comparability rent study and are not referred to 

OAHP. 

In a January 2004 report, we found that state and local agencies offer 

incentives to preserve affordable housing, including project-based 

Section 8 housing. Some of these agencies perceived that the information 

on opt-outs was not readily available. In this report, we recommended that 

HUD make this information more widely available and useful.14

 14See GAO, Multifamily Housing: More Accessible Data Could Help Efforts to Preserve 

Housing for Low Income Tenants, GAO-04-20, (Washington, D.C.: Jan. 23, 2004). 

Page 12 GAO-07-290 Project-Based Rental Assistance
States and localities may use funds provided by other federal programs to 

subsidize housing for low-income tenants. The HOME program, authorized 

by the Cranston-Gonzalez National Affordable Housing Act, is the primary 

block grant program that state and local governments use to develop

affordable housing. Under the Low-Income Housing Tax Credit (LIHTC) 

Program, authorized by the Tax Reform Act of 1986, state housing finance

agencies provide federal tax incentives to private investors to develop

housing affordable to low-income tenants. Some states and localities have 

established housing trust funds and other financial mechanisms that have 

helped organizations acquire HUD properties and maintain their 

affordability to low-income tenants when owners want to sell properties 

and exit the program. 

Federal housing programs serve many different types of households and 

provide units that are affordable at different income levels. For example, 

under the LIHTC program, either 20 percent of units must be affordable to

households with incomes of less than 50 percent of area median 

household income, or 40 percent of units must be affordable to 

households earning incomes less than 60 percent of the area median 

income. HUD pays assistance for project-based Section 8 units on behalf

of tenants with incomes no greater than 80 percent of area median income. 

Further, the states and localities may use other tools and incentives, such 

as offering property tax relief, to encourage owners to keep serving lowincome tenants. 

We found a number of patterns in the volume, characteristics, and 

locations of HUD’s project-based Section 8 housing contract renewals and 

terminations, from 2001 through 2005. First, from 2001 through 2005, 92

percent of project-based Section 8 housing assistance contracts and 95

percent of assisted units that were eligible for renewal were renewed. We 

also found that the percentages of opt-outs, foreclosures, and 

enforcements varied by project-based Section 8 subprogram. Relatively 

few owners opted out of the Section 8 program, and of those we 

interviewed, most reported that they did so to seek higher rents in the 

private rental market or to convert their units into condominiums. Second, 

we found that opt-outs shared other characteristics, such as property size 

and physical condition. Finally, opt-outs were more prevalent in some 

regions and localities. 

While Most Owners 

Renewed Their 

Contracts, Patterns 

Were Identified 

Among Properties 

Leaving the Program 

Page 13 GAO-07-290 Project-Based Rental Assistance
From 2001 through 2005, 14,373 of the 24,000 project-based contracts and 

982,701 of the 1.4 million units were determined to be eligible for renewal 

or termination. Of these, 92 percent of the eligible contracts and 

95 percent of the eligible units remained in the program (table 2). 

Few Project-based Section 

8 Owners Opted Out of the 

Program, and Opt-Outs 

Varied by Subprogram 

Table 2: Number of Section 8 Contract Renewals and Terminations, Fiscal Years 

2001-2005 

Contracts Units

Action Number Percent Number Percent

Renewal 13,218 92 931,570 95

Termination 1,155 8 51,131 5

Total 14,373 100 982,701 100

Source: HUD. 

Note: The contracts included in the analysis are those that had either renewal or termination activity 

during fiscal years 2001 through 2005. These do not represent all Section 8 contracts. 

The percentage of opt-outs while small overall, varied by subprogram. As 

shown in figure 2, only 1 percent of project-based Section 8 contracts 

whose owners financed the properties through the Section 202 program 

opted out from 2001 through 2005. This percentage is generally low largely 

because Section 202 property owners are nonprofit entities established for 

the singular purpose of providing housing for the elderly or persons with 

disabilities, and because the statute requires low income use at least 

through the original term of the loan. As a result, it is in the owners’ 

interest to renew their project-based Section 8 contracts.15 Similarly, 

Section 8 contracts that also carry a U.S. Department of Agriculture 

Section 515 mortgage had a much lower percentage of opt-outs (3 

percent), in part due to mortgage prepayment restrictions. Conversely, 

contracts listed under Property Disposition, which are troubled properties, 

had the highest percentage of opt-outs, foreclosures, and enforcements. In 

total, of the 8 percent of contract terminations, 6 percent were due to optouts and 2 percent were due to contract foreclosures and enforcements. 

 15The American Homeownership and Economic Opportunity Act of 2000 (Pub. L. 106-569; 

12 U.S.C.1701q note) provides the authority for HUD to allow higher than market Section 8 

rents in connection with the refinancing of the underlying Section 202 mortgage. According

to HUD officials, this act has improved the program’s operations, including better meeting

the long-term needs of the elderly and people with disabilities served.

Page 14 GAO-07-290 Project-Based Rental Assistance
Figure 2: Contract Opt-outs, Foreclosures/Enforcements, and Terminations by Subprogram, Fiscal Years 2001-2005 

Subprogram

Preservation

Section 202 with Section 8

Section 515 with Section 8

Housing Finance Development Authority with Section 8

Loan Management

Set-Aside

FHA Insured

with Section 8

Property Disposition

Other

Total 14,373

422

2,408

1,480

725

4,528

4,353

450

7

0.9

1.0

3.0

4.7

6.8

9.1

10.4

0.0

%

6.0 % 2.1 % 8.0 %

0.2

0.9

0.3

2.2

3.1

2.1

5.6

0.0

% 1.2

1.8

3.4

6.9

9.9

11.2

16.0

0.0

%

Contracts Opt-outs

Percentage of those eligible

+ Foreclosures/Enforcements = Terminations

Source: GAO.

Note: Percentage of opt-outs and foreclosures/enforcements may not exactly equal percentage of 

terminations due to rounding. 

As shown in figure 3, the total number of project-based Section 8 contract 

opt-outs nationwide declined from 240 in 2001 to 120 in 2003, but 

increased slightly in 2004 to 125 and increased further in 2005 to 160.

Conversely, the number of foreclosures and enforcements has continued 

to decline slightly over the period. 

Page 15 GAO-07-290 Project-Based Rental Assistance
Figure 3: Total Terminated Contracts Nationwide, Fiscal Years 2001-2005 

0

50

100

150

200

250

300

350

2001 2002 2003 2004 2005

Contracts

Source: 2006 HUD Report to Congress.

Fiscal year

240

67

307

67

280

213

120

63

183

125

56

181

160

44

204

Opt-outs

Foreclosures/enforcements

Properties Leaving the 

Program Shared Similar 

Characteristics 

The properties that owners withdrew from the program shared similar 

characteristics. Specifically, owners with properties that were generally 

not fully subsidized by the program, were family occupied, were for profit, 

or were in poor physical condition had a higher percentage of opt-outs. 

Conversely, we did not find substantial differences in the percentage of 

opt-outs based on property size, meaning owners with fewer units were as 

likely to opt out as owners with more units. 

Page 16 GAO-07-290 Project-Based Rental Assistance
Properties that were only partially supported by the Section 8 program 

comprised 4,492, or 33 percent, of the total 13,847 Section 8 properties that 

renewed or terminated their contracts from 2001 through 2005.

16 As shown 

in figure 4, about 13 percent of those properties with a less than 50 percent

Section 8 subsidy level that were eligible to opt out during the 5-year 

period from 2001 through 2005 did so, compared with about 4 percent of 

the properties that were fully supported by the Section 8 program. Owners 

with properties with subsidy levels between 50 and 97 percent were as 

likely to remain in the program as those that were fully supported. These 

results were consistent with the views of owners about their desire to 

continue receiving guaranteed payments that Section 8 provides. About 2 

percent of all partially and nearly fully subsidized properties were 

terminated through foreclosures or enforcements actions. 

Partially Subsidized Properties 

Had a Higher Percentage of 

Opt-Outs 

 16Although HUD’s analysis deals strictly with contracts, the remainder of this report section

focuses on the 13,847 properties covered by the 14,373 contracts analyzed in the previous 

section because, from a policy perspective, property counts serve as a better indication of 

the supply of available housing for low-income tenants because a single property can have

multiple contracts. 

Page 17 GAO-07-290 Project-Based Rental Assistance
Figure 4: Percentage of Section 8 Properties Renewed and Terminated by the Percentage of Units Subsidized, Fiscal Years 

2001-2005 

Percentage of all 13,847 Section 8

properties analyzed by subsidy level Percentage of opt-outs, foreclosures/enforcements, and renewals by subsidy level

13%

68%

Source: GAO.

Renewals

Opt-outs

Foreclosures/enforcements

0 10 20 30 40 50 60 70 80 90 100

Less Than 50%

Section 8

50% to 97%

Section 8

98% to 100%

Section 8

13%

20%

4 2 94

3 2 95

13 2 85

No data

(0.1 %)

No data

(0.1 %)

No data

(0.1%)

Note: Percentage may not add up to 100 percent due to rounding. There were 7 properties with no

data on subsidy level; of these properties, 29 percent were opt-outs and 71 percent were 

foreclosures/enforcements. 

We consider properties with 98-100 percent Section 8 to be fully supported, since some properties 

have an unsupported unit for use by the property manager. 

A higher percentage of properties identified as renting to families left the 

project-based Section 8 program than properties rented to the elderly and 

persons with disabilities. As shown in figure 5, 9 percent of familyoccupied properties opted out of the program from 2001 through 2005 

compared to about 2 percent for properties identified as renting to the 

elderly and persons with disabilities. The lower opt-out percentage for 

properties renting to the elderly and persons with disabilities can be 

attributed largely to the fact that many were financed through Section 202. 

As stated earlier, Section 202 owners find it is in their interests to continue

to serve the very-low income elderly and persons with disabilities. 

Moreover, properties for the elderly and persons with disabilities are 

generally owned by non-profit entities and have use restrictions which 

require their low-income use through the terms of the properties’ original 

Family-occupied Properties 

Had a Higher Percentage of 

Opt-outs Than Others 

Page 18 GAO-07-290 Project-Based Rental Assistance
loan. Our analysis also found that family-occupied properties also 

experienced a slightly higher percentage of foreclosures/enforcements 

than properties for the elderly and persons with disabilities. 

Figure 5: Percentage of Section 8 Properties Renewed and Terminated by Type of Occupant, Fiscal Years 2001-2005 

Percentage of all 13,847 

Section 8 properties

analyzed by occupancy type Percentage of opt-outs, foreclosures/enforcements, and renewals by occupancy type

13%

54%

Source: GAO.

Renewals

Opt-outs

Foreclosures/enforcements

0 10 20 30 40 50 60 70 80 90 100

Persons

with

disabilities

Elderly

Family

37%

6%

9 3 88

 97

1

2

2 2 96

No data (2%)

No data (2%)

No data (2%)

Note: Percentage may not add up to 100 percent due to rounding. There were 323 properties with no

data on occupancy type; of these properties, 7 percent were opt-outs and 3 percent were 

foreclosures/enforcements. Eleven properties did not fall into any of the listed categories. 

For-profit and limited-dividend property owners had a higher percentage 

of opt-outs than other types of property owners. Limited-dividend 

ownerships are formed under federal or state laws or regulations and can 

have restrictions involving rents, charges, capital structure, rate of return, 

or methods of operations. As shown in figure 6, collectively these two 

types of property owners represented 57 percent of all project-based 

Section 8 properties and had the highest percentage of opt-outs, at 8 and

6 percent, respectively. Conversely, nonprofit owners had the lowest 

percentage of opt-outs at 2 percent. The percentage of foreclosures and 

enforcement actions for nonprofits was also slightly lower than for all 

other types of ownerships. 

For-profit Owners Had a Higher 

Percentage of Opt-outs than 

Others 

Page 19 GAO-07-290 Project-Based Rental Assistance
Figure 6: Percentage of Section 8 Properties Renewed and Terminated by Ownership Type, Fiscal Years 2001-2005 

Percentage of all 13,847

Section 8 properties

analyzed by ownership type Percentage of opt-outs, foreclosures/enforcements, and renewals by ownership type

13%

32%

Source: GAO.

Renewals

Opt-outs

Foreclosures/enforcements

0 10 20 30 40 50 60 70 80 90 100

Other

Limited

dividend

For profit

Nonprofit

37%

20%

2%

2 1 97

8 2 90

6 2 91

10%

No data

10%

No data

10%

No data

10%

No data

5 1 94

Note: Percentage may not add up to 100 percent due to rounding. There were 1,345 properties with 

no data on ownership type; of these properties, 10 percent were opt-outs and 5 percent were 

foreclosures/enforcements. 

When properties repeatedly fail physical inspections, HUD officials told us 

that they take action to protect the tenants by issuing vouchers and 

terminating the Section 8 contract. The officials noted that in many cases 

these owners wish to be relieved of HUD oversight and may believe they 

can do so by failing to meet HUD requirements. HUD reviews each such 

case and may take punitive enforcement action against the owner. These 

owners are more likely to opt out. Physical REAC inspection scores reflect 

as-is condition with negative adjustments for certain health and safety 

issues. Figure 7 shows that 94 percent of the properties received passing 

Properties in Poor Physical 

Condition Have a Higher 

Percentage of Opt-outs 

Page 20 GAO-07-290 Project-Based Rental Assistance
Page 21 GAO-07-290 Project-Based Rental Assistance 

scores, with 50 percent of the properties receiving superior scores of over 

89 and 44 percent receiving satisfactory scores (60-89).17 Also, as shown in 

figure 7, the percentage of opt-outs for properties with substandard or 

severe scores was substantially higher than the percentages of opt-outs for 

properties with satisfactory or superior scores. 

Figure 7: Percentage of Section 8 Properties Renewed and Terminated by REAC Scores, Fiscal Years 2001-2005 

Note: Percentage may not add up to 100 percent due to rounding. There were 206 properties with no 

information on REAC physical inspection score; of these properties, 16 percent were opt-outs and 

20 percent were foreclosures/enforcements. 

 17HUD considers REAC physical inspection scores of 60 and above to be passing. 

Percentage of all 13,847 Section 8

properties analyzed by REAC 

physical inspection score Percentage of opt-outs, foreclosures/enforcements, and renewals by REAC physical inspection score

0.5% 13%

Source: GAO.

Renewals

Opt-outs

Foreclosures/enforcements

0 10 20 30 40 50 60 70 80 90 100

Superior

(Over 89)

Satisfactory

(60-89)

Substandard

(31-59)

Severe

(30 or less)

4%

44%

50%

28 31 41

19 14 67

6 1 92

No data

(2%)

No data

(2%)

No data

(2%)

No data

(2%)

4 1 96
Our analysis of HUD data shows that the percentage of opt-outs varies 

slightly by region. Certain parts of the country had more opt-outs than 

other regions (fig. 8). Several southern states and New England 

experienced the smallest percentage of opt-outs. Appendix III and IV 

contain analyses of the number of opt-outs by state and the 3 regions with 

the highest number of opt-outs, by metropolitan areas. 

The Percentage of Optouts Varies Slightly by 

Region 

Figure 8: Percentage of Section 8 Properties Renewed and Terminated by Census Division, Fiscal Years 2001-2005 

Sources: GAO; Art Explosion (map).

0 10 20 30 40 50 60 70 80 90 100

No Data

New England

East South Central

Mid Atlantic

West North Central

Mountain

West South Central

Pacific

South Atlantic

East North Central

Percentage

Renewals

Opt-outs

Foreclosures/enforcements

 91

 92

 93

 92

 93

 91

 93

 94

 96

 88

 7

 7

 7

 6

 6

 6

 5

4

3

 11

1

1

2

2

3

3

4

4 5

5

6

6

7

7

8

8

9

9

Figure 9 shows the national average for opt-outs and states we visited that 

experienced a higher percentage of opt-outs compared with the national

average. Consistent with the HUD commissioned study by Econometrica, 

Inc., property owners and others we interviewed reported that the location 

of the property and the changes in the valuation of the neighborhood 

greatly influenced the owner’s decision to remain or leave the Section 8 

program. For example, properties located in neighborhoods with higher 

median incomes, higher median rent levels, and lower poverty and 

vacancy rates had higher opt-outs as a percentage of all active Section 8 

units. Nationwide, over 50 percent of the opt-outs were in metropolitan 

areas with a million or more residents. 

Page 22 GAO-07-290 Project-Based Rental Assistance
Figure 9: National and Selected State Opt-outs as a Percentage of All Active Section

8 Units, Fiscal Years 2001-2005 

0.0

0.2

0.4

0.6

0.8

1.0

1.2

USA Calif. Ill. N.Y. Ohio Texas

Percentage

Source: GAO analysis of HUD data.

HUD offers a number of tools and incentives to property owners seeking 

additional funding to support their Section 8 properties. HUD reports that 

when owners do choose to use the HUD incentives offered, they most 

often select the Mark-to-Market and the Mark-up-to-Market programs. To a 

lesser extent, some Section 8 owners are also eligible to participate in the 

Section 236 decoupling program and the Section 202 refinancing program 

to obtain additional funding for rehabilitation. However, because these 

programs are available to only a portion of project-based Section 8 owners 

and funding for rehabilitation is limited, project-based Section 8 owners 

also use funds from programs outside of HUD for property rehabilitation. 

HUD officials, owners, and industry representatives have told us that 

Section 8 owners often opt to use non-HUD programs such as LIHTC and 

tax-exempt bonds, which the IRS administers mostly through state 

housing finance agencies. Both LIHTC and tax exempt bonds may be 

combined with HUD incentives to maintain housing at rents affordable to

low-income households, but limited data is available to show how often 

owners make this choice. 

Mark-to-Market and 

Other Programs

Encourage Owners to 

Keep Their Properties 

in the Section 8 

Program 

Page 23 GAO-07-290 Project-Based Rental Assistance
HUD Uses Mark-to-Market 

to Help Owners with

Above-Market Rents 

Remain in the Section 8 

Program 

The Mark-to-Market Program, which may consist of a full or “lite” 

restructuring, often provides an incentive for owners with rents above the 

market rate to remain in the Section 8 program. Owners that have a 

contract with the project-based Section 8 program and mortgages that are

insured by FHA or held by HUD must participate in the program if their 

rents exceed the prevailing market level (as determined by HUD).18

Through a full Mark-to-Market restructuring, the owner is able to finance 

rehabilitation needs, cover projected operating expenses, and, in some 

cases, enhance the property’s reserve fund to address future capital 

improvement needs. In exchange for choosing a full Mark-to-Market 

restructuring, owners virtually always receive a new project-based Section 

8 contract with HUD and execute a Use Agreement to maintain the 

property as affordable housing for at least 30 years. 

Owners of FHA-insured properties with above-market rents may request to 

participate in Mark-to-Market lite. This option involves only rent 

restructuring rather than a full mortgage restructuring and is typically used 

when owners can reasonably cover all of their expenses at the reduced

rents and still maintain an affordable mortgage payment. In addition to 

lower rents, these owners generally renew their contracts for 5 years and 

remain eligible to participate in a Mark-to-Market full restructuring at a 

later date. According to HUD, Mark-to-Market lite is generally used for 

properties in better financial and physical condition and rents that are only 

slightly higher than market rents. Between 2001 and 2005, owners who 

renewed their contracts using HUD incentives chose this option less often 

than the full restructurings. 

The Mark-to-Market program was scheduled to expire in October 2006. 

However, the Revised Continuing Appropriations Resolution of 2007 

extended the program for an additional 5 years (through September 

2011).19 In addition, the House and Senate introduced the Mark-to-Market 

Extension Act of 2007 in January 2007.20 If enacted, the act would 

(1) expand the existing Mark-to-Market authorities to provide for higher 

rents for eligible properties damaged by disasters, (2) expand the 

program’s authority to set rents above existing rent level limits, 

 18There are a few exceptions to this rule, such as HUD-insured mortgages financed by state 

or local agencies where a restructuring plan conflicts with laws or regulations governing

such financing.

19Pub. L. 110-5. 

20H.R. 647 and S. 131. 

Page 24 GAO-07-290 Project-Based Rental Assistance
(3) increase to 5 years the period during which HUD may provide for notfor-profit debt relief, and (4) allow a limited number of projects with rents 

below market to be eligible for a Mark-to-Market restructuring. 

Owners with below-market rents may participate in the Mark-up-to-Market 

program, which permits them to raise rents to either market rates or 

150 percent of the HUD-determined fair market rent, whichever is less. 

The program provides additional rental revenue for property operations 

and renovation and increased distributions to owners of limited-dividend 

projects. Typically, Mark-up-to-Market transactions occur in rental 

markets with escalating rents that have exceeded HUD’s established rent 

levels for area properties. The program’s goal is to encourage owners to 

renew their contracts and remain in the Section 8 program by removing 

the economic incentive to opt out. 

HUD also has a Mark-up-to-Budget Program, which is a variation of the 

Mark-up-to-Market program and has been used as an incentive for 

nonprofit owners to preserve Section 8 properties with below-market 

rents. The nonprofit owners must justify higher rents based on their 

operating budget and repair costs. Under this program, HUD permits a 

Section 8 budget-based rent increase for nonprofit properties to perform 

capital improvements that will maintain the long-term financial and 

physical viability of the property when current rents are not sufficient. 

According to HUD, Mark-Up-to-Budget may be used by a nonprofit to 

either facilitate a purchase transaction or finance needed repairs. 

HUD has offered a number of other incentives to preserve affordable 

housing, such as the Section 236 decoupling, Section 202 refinance, and 

HOME programs, but only certain properties in the project-based Section 8 

portfolio are eligible to take advantage of these incentives. Under Section

236 of the National Housing Act, HUD provides a monthly Interest 

Reduction Payment (IRP) subsidy to reduce the mortgage interest rate 

paid by property owners effectively to 1 percent. The Section 236 

decoupling program allows leveraging of the IRP to benefit the owner and 

the property and to provide funds for rehabilitation. For example, we 

visited a nonprofit’s 72-unit Section 8 property in Baltimore that according 

to the property manager had not undergone a major renovation in more 

than 30 years. Because the property had a Section 236 mortgage and 

project-based Section 8, the owner will be eligible to participate in the 

Section 236 Decoupling program. Through the 236 Decoupling program, 

Mark-up-to-Market Is 

Designed to Make the 

Section 8 Program More 

Attractive by Ensuring 

That Owners Receive 

Market Rents 

HUD Also Offers Other 

Incentives to Preserve 

Certain Project-Based 

Section 8 Affordable

Housing 

Page 25 GAO-07-290 Project-Based Rental Assistance
the owner was able to receive additional funds to make necessary repairs 

to the property and to begin construction of a new community center. 

HUD also administers a Section 202 refinancing program that allows 

owners to refinance their direct HUD loans while maintaining their 

Section 8 rent levels. According to HUD’s August 2006 Report to Congress, 

the Section 202 refinancing program was used sparingly from 2001 through 

2005, but activity in the program increased significantly during fiscal year 

2006. In exchange for the refinancing, owners must agree to maintain 

affordable occupancy restrictions, comply with HUD requirements, and 

undertake appropriate rehabilitation of the property. 

HOME is the largest federal block grant to state and local governments 

and is designed exclusively to create affordable housing for low-income 

households. Each year the program allocates approximately $2 billion 

among the states and hundreds of localities nationwide. While HUD does 

not maintain data on the number of project-based Section 8 properties that

use HOME funding, HUD officials have indicated that HOME funds have 

been used as an incentive to keep project-based Section 8 owners in the 

program. 

Low-Income Housing Tax 

Credits, Tax-exempt 

Bonds, and Other Tools 

May Also Help Preserve 

Project-based Section 8 

Housing 

HUD officials, property managers, and industry groups told us that projectbased Section 8 owners also combine HUD preservation tools and 

incentives with non-HUD preservation tools such as the LIHTC and taxexempt bonds to provide additional funds for rehabilitation.21 LIHTC and 

tax-exempt bonds can be used by themselves or with HUD incentives such 

as Mark-to-Market to provide the Section 8 owner with funding for 

substantial rehabilitation and repairs while keeping the property 

affordable for low-income tenants. By combining incentives, the owner 

would have enough resources for capital improvements while at the same

time ensuring that the property remained affordable through useagreements for at least 30 years. However, because LIHTC and tax-exempt 

bonds are administered by state and local housing and finance agencies, 

HUD does not consistently collect data on the number of Section 8 

properties using these incentives. 

 21LIHTC is an indirect federal subsidy used to finance the development of affordable rental 

housing for low-income households. LIHTC is an IRS program based on Section 42 of the 

Internal Revenue Code and was enacted by Congress in 1986 to provide the private market 

with an incentive to invest in affordable rental housing. 

Page 26 GAO-07-290 Project-Based Rental Assistance
According to HUD officials, industry groups, and owners, project-based 

Section 8 owners often use LIHTC to provide additional funding for 

rehabilitation. To be eligible for consideration under the LIHTC, a 

proposed property must: 

• be a residential rental property; 

• commit to one of two possible low-income occupancy threshold 

requirements; 

• restrict rents, including utility charges, in low-income units; and 

• operate under the rent and income restrictions for 30 years or longer in 

accordance with written agreements with the agency issuing the tax 

credits.22

State and local housing finance agencies also sell tax-exempt housing 

bonds (commonly known as Mortgage Revenue Bonds and Multifamily 

Housing Bonds) and use the proceeds for several purposes. These include 

financing low-interest mortgages for low- and moderate-income 

homebuyers and acquiring, constructing, and rehabilitating multifamily 

housing for low-income renters, including Section 8 properties.

While most owners renewed their contracts, some told us that they had

concerns with certain HUD policies and practices. Some described 

multiple frustrations that led to what they and industry representatives 

called “HUD fatigue.” They said that frustrations with HUD could result in 

owners opting out of their contracts even when doing so might not be in 

their economic interest. Among the frustrations they discussed were 

HUD’s one-for-one replacement policy for Section 8 units; policies and 

procedures that could lead to economic distress, especially Operating Cost 

Adjustment Factors (OCAF) payments; and a lack of clarity and 

consistency on HUD’s part in applying policies. We found that the one-forone replacement policy, in particular, resulted in a loss of some properties 

and higher vacancy rates that could potentially lead to foreclosure. 

HUD Policies and 

Procedures Have 

Caused Frustration 

for Some Property 

Owners and Could 

Cause Others to Leave 

the Project-Based 

Section 8 Program 

 22LIHTC recipients must commit to one of two possible low-income threshold

requirements. Owners must commit to renting at least 20 percent of the units to households 

with incomes at or below 50 percent of the HUD-established area median income or

commit to renting at least 40 percent of units to households at or below 60 percent of the 

HUD-established area median income. 

Page 27 GAO-07-290 Project-Based Rental Assistance
Industry representatives whom we interviewed agreed that HUD could 

improve its policies and procedures for project-based Section 8 housing, 

and both industry representatives and owners offered suggestions for 

steps HUD could take to improve preservation efforts. 

In the locations we visited, we spoke to owners and managers who either 

renewed their project-based Section 8 contract or decided to opt out of the 

program. Of those owners and managers who decided to remain in the 

program, many told us that their primary motivation was the guaranteed 

rental income that the Section 8 subsidy provided. Some of the managers 

in depressed rental markets in the locations we visited told us that they 

would be unable to fill units or would have high vacancy rates if they were 

to opt out of the Section 8 program. As we have seen, nonprofit owners 

rarely decided to opt out of the Section 8 program and told us that they 

stayed in the program because their mission was to provide affordable 

housing. 

Generally, Section 8 owners and property managers in the locations we 

visited said that HUD did not encourage them to opt out of the Section 8 

program. Rather, most stated that HUD tried to keep them in the program 

by using various tools and offering incentives, such as the Mark-to-Market 

and Mark-up-to-Market programs. HUD officials also stated that although 

their goal was to preserve as many project-based Section 8 housing units

as they could, the final decision on whether to renew or opt out was made 

by the owner and in most cases was driven by market factors that were 

beyond HUD’s control. 

Some owners who left the program said that their decision was based on 

economic or market factors and not on dissatisfaction with HUD. 

Nonetheless, many of the owners (both those that remained in and those 

that had left the Section 8 program), managers, and industry 

representatives with whom we spoke cited areas in which the Section 8 

program could be improved. Owners and managers expressed concerns 

regarding specific HUD policies and practices that could result in opt-outs, 

foreclosures, or cause financial distress or that lacked clarity and 

consistent application. Figure 10 illustrates project-based Section 8 

owners’ frustrations with HUD that have caused opt-outs in the past or 

could possibly increase the number of future opt-outs. As shown in the 

graphic, although the majority of the opt-outs occur for economic or 

market factors, growing owner frustration could upset the balance causing

more owners to consider opting out even when economic conditions could 

be overcome or mitigated. 

Many Project-Based 

Section 8 Owners Were 

Committed to Remaining 

in the Program 

Page 28 GAO-07-290 Project-Based Rental Assistance
Figure 10: Factors Contributing to HUD Fatigue 

Some owners, managers, and industry representatives told us that some 

HUD practices have not always kept pace with changes in market 

conditions. For example, some owners told us that HUD required a onefor-one replacement policy for Section 8 units when owners renewed their 

contracts. That is, HUD generally does not allow owners to reduce the 

number of project-based Section 8 units or to reconfigure the units to 

better meet market demand, even when the alternative could result in 

owners opting out and removing all of their units from the program. 

HUD officials told us that although there was no statutory requirement for 

one-for-one replacement of project-based Section 8 units, the unwritten 

policy had been to require replacement of units in all cases. HUD officials 

said that they based this policy on the public housing requirement set by 

the Housing and Community Development Act of 1987. However, Congress 

waived the one-for-one replacement requirement for public housing units 

from 1995 through 1998, and the Quality Housing and Work Responsibility 

Act of 1998 permanently eliminated it for public housing. HUD officials 

said that their rationale for maintaining their policy was that many of the 

properties had long waiting lists and that any reductions in the number of 

available units was counter to a demonstrated need for affordable housing.

Some owners, managers, and industry representatives pointed to the onefor-one replacement requirement for all units as an example of one of their 

Opt-outs currently

due to market factors Opt-outs due

to other reasons

Current sources of owner/manager frustration

with HUD that could increase the

number of opt outs in the future:

• One-for-one replacement policy

• OCAF rent adjustments

• Late subsidy payments

• High administrative costs

 for few Section 8 units

• Outdated policies and procedures

• Inconsistent REAC scores

• Confusion with Limited 

 English Proficiency requirements

Source: GAO.

HUD’s One-for-One 

Replacement Policy Can 

Result in Fewer Units and 

More Opt-outs 

Page 29 GAO-07-290 Project-Based Rental Assistance
frustrations with HUD policies. Some owners told us that HUD would not 

allow them to reduce the number of Section 8 units in a property or 

reconfigure the units to better meet market demand, even when some 

types of units had high vacancy rates and other types had long waiting 

lists. The requirement was particularly troublesome for owners of units 

containing efficiency apartments, which in some areas were not in high 

demand. These owners wanted to replace the efficiency apartments with 

fewer one-bedroom units, which were in demand. For example, one 

nonprofit that primarily serves the elderly told us that even though the 

HUD field office approved a transaction converting efficiencies into fewer 

one-bedroom units for one of their properties, HUD headquarters reversed 

that decision based on its one-for-one replacement policy. Also, a member 

of the National Affordable Housing Management Association (NAHMA), an 

association that represents property management agents, told us that the

owners of an Iowa property rented to elderly tenants had difficulties filling 

efficiency units. NAHMA officials said that one of the owner’s major 

obstacles in converting to one-bedroom units was getting HUD’s approval 

to waive the one-for-one replacement policy. This lack of flexibility on the 

part of HUD in insisting upon one-for-one replacement, rather than—for 

example—evaluating each case on its own merits, could hinder the 

preservation of certain project-based Section 8 units. 

In at least one case, a property owner left the project-based Section 8 

program because the owner could not convert some units into market-rate 

housing. The owners of a property in Chicago wanted to split their Section 

8 contract and convert 3 of the 82 units to condominiums, preserving the 

rest as Section 8. According to the owners, splitting the contract made 

sense because the three units were in a building that was separate from 

the remaining 79 units. HUD’s Chicago Field Office told the owners that 

they could not split the Section 8 contract because of the one-for-one 

replacement policy. As a result, the owners opted out, and all 82 units left 

the Section 8 program. 

Other industry groups, including NAHMA, the National Leased Housing 

Association, and the law firm of Nixon Peabody, which represents owners 

and managers, also agreed on the need for HUD to adapt to changing 

market conditions in reconfiguring Section 8 units. These representatives 

told us that some of their transactions involving project-based Section 8 

units were being held up by issues relating to reducing the number of 

unmarketable efficiencies or reconfiguring other Section 8 units. HUD 

headquarters officials told us that they were aware of the problem and that 

they were rethinking their policy, particularly as it applied to units for 

elderly tenants, but were concerned about setting precedent for owners to 

Page 30 GAO-07-290 Project-Based Rental Assistance
request unit reductions even when the market factors were not an issue. 

HUD officials told us that they had initially planned to focus on providing 

flexibility to elderly developments affected by the one-for-one replacement

policy. But the officials added that they had seen the need to assess the 

impact that the one-for-one replacement policy was having on family 

properties as well. Nevertheless, not allowing owners to reconfigure the 

number of units in their Section 8 contract in certain cases could result in 

some owners deciding to opt out of the Section 8 contract altogether. 

Some of the owners, managers, and industry representatives told us that 

the OCAF inflation adjustments that owners are entitled to receive every

year are not timely, equitable, or responsive to price hikes or emergency 

situations. OCAF adjustments are calculated by HUD annually using nine 

expense categories, including utilities, property taxes, and insurance that

are aggregated at the state level.23 Section 524 of MAHRA gives HUD broad 

discretion in setting OCAF adjustments, with one exception: that 

application of an OCAF adjustment will not result in a negative rent 

adjustment. 

Owners, managers, and industry representatives were concerned that the 

OCAF adjustments were not made on a timely basis. According to a 

number of industry groups, the adjustments are often obsolete by the time 

they are adopted. HUD officials confirmed that there was a lag of about 15 

to 18 months from the time that HUD collected the data to the time that 

the adjustments became effective. One industry representative told us that 

HUD was unable to revise the adjustments to respond to any cost hikes 

during the lag time period. 

Some of the owners and the industry representatives also told us that they 

were concerned with the unequal distribution of OCAF adjustments within 

states. Some owners and industry representatives pointed out that the 

formula HUD used did not take into account differences in markets within 

states for commodities such as electricity and insurance. They said that in

some markets, the cost of utilities and insurance often escalated monthly, 

while in other areas this cost was relatively stable. For example, a 

property manager in New York City told us that it did not seem equitable 

The OCAF Adjustment 

Process is Not Timely and 

Imposes a Financial 

Burden on Some Owners 

 23The nine expense categories that HUD takes into account when determining the OCAF 

adjustments are wages, employee benefits, property taxes, insurance, supplies and 

equipment, fuel oil, electricity, natural gas, and water and sewer. 

Page 31 GAO-07-290 Project-Based Rental Assistance
to have the same OCAF adjustment for New York City, where costs were 

extremely high and likely to fluctuate precipitously, as for upstate New 

York, where costs were much lower. 

Some of the owners, managers, and industry representatives that we 

talked to also said that OCAF adjustments were not able to respond to 

price hikes or emergency situations in many parts of the country. For 

example, a member of NAHMA that managed elderly developments in 

Iowa told us that the OCAF adjustments during the last 4 years had been 

too small given the rapid escalation of natural gas rates in that region of 

the country. As a consequence, the management company had to use 

capital reserves to address operating cash deficits, putting it at risk of 

being unable to cover unexpected capital repairs. Another NAHMA 

member that managed a 120-unit project-based Section 8 property for the 

elderly in Minnesota said that heating costs had increased 22 percent in 

2006 over the previous year but that the OCAF adjustment for 2006 was 

only 2.8 percent. NAHMA officials said that rising utility costs had become

an enormous challenge for many Section 8 owners. In particular, NAHMA 

officials noted that HUD needed a more timely mechanism to address 

emergency operating cost increases—for example, after natural disasters. 

Officials from Stewards of Affordable Housing, a group representing some 

of the largest nonprofits that own and manage project-based Section 8 

properties, also stated that OCAF adjustments did not keep up with 

inflation. For instance, a 2006 survey of members of the Florida 

Association of Homes for the Aging and the Southeastern Affordable 

Housing Management Association reported that none of the respondents 

had had an insurance premium increase of less than 50 percent between 

2005 and 2006. Further, the survey found that, on average, premiums had 

doubled in one year, and one respondent reported a tenfold increase in its 

insurance premium. 

HUD officials, including the Deputy Assistant Secretary for Multifamily 

Housing, said that they were aware of the lag in OCAF adjustments, the 

equity concerns, and the difficulties in responding to price hikes and 

emergency situations. However, they said that HUD was taking steps to 

address these issues. In the short term, HUD officials said that they were 

allowing owners to tap into their capital reserve accounts to cover 

unforeseen operating cost increases. However, this practice works only as 

long as reserves are available or future OCAF adjustments are guaranteed. 

In the long run, HUD officials plan to evaluate ways to change the OCAF 

adjustment factors and make them responsive to market factors. To deal 

with the issue of market differences within a state, HUD is currently 

considering a proposal to make adjustments to OCAF using data from 

Page 32 GAO-07-290 Project-Based Rental Assistance
metropolitan areas instead of states. HUD officials said that they were also 

considering an industry group’s proposal to address owners’ concerns 

about price hikes and emergency situations.24 The proposal would 

authorize owners to borrow against future rent adjustments using their 

capital reserve accounts as collateral. Owners and industry groups 

contended that if HUD neglected to revise the OCAF adjustment process, 

owners in high-cost areas or those experiencing emergency cost 

escalations might not receive enough in subsidies to meet their expenses

and could consider opting out of the program. 

Some owners, managers, and industry groups expressed concerns that 

some HUD policies and procedures could affect the owners’ cash flows 

and undermine their abilities to undertake needed rehabilitation of their 

properties. Among these were (1) late subsidy payment to owners, (2) high 

administrative costs relative to the number of Section 8 units in a property, 

(3) confusion about the Limited English Proficiency requirement, and 

(4) unclear or vague HUD policies and procedures. 

Several owners and HUD staff told us that project-based Section 8 Housing 

Assistance Payments were frequently late, especially when HUD was 

under continuing resolutions. In November 2005, we reported that from 

fiscal years 1995 through 2004, HUD disbursed three-fourths of its monthly 

Section 8 payments on time but that thousands of payments were late each

year.25 Owners who are heavily reliant on HUD’s subsidy to operate their 

properties are the most likely to be severely affected by payment delays. 

Owners reported receiving no warning from HUD when payments would 

be delayed and reported that such notification would allow them to 

mitigate the effects of a delay. In our November 2005 report, we 

recommended that HUD, among other things, streamline and automate the 

contract renewal process to prevent processing errors and delays and 

eliminate paper/hard-copy requirements to the extent practicable; develop 

systematic means to better estimate the amounts that should be allocated 

and obligated to project-based Section 8 payment contracts each year; 

Other Factors Affect 

Owners’ Cash-Flows and 

Abilities to Undertake 

Rehabilitation 

Late Subsidy Payments 

 24The “Recognized Increased Cost” (RIC) initiative was developed by NAHMA and a 

coalition of eight organizations, with the help of the consulting firm Recapitalization 

Advisors, Inc.

25See GAO, Project-Based Rental Assistance: HUD Should Streamline Its Processes to 

Ensure Timely Housing Assistance Payments, GAO-06-57 (Washington, D.C.: Nov. 15, 

2005). 

Page 33 GAO-07-290 Project-Based Rental Assistance
monitor the ongoing funding needs of each contract; ensure that additional 

funds were promptly obligated to contracts when necessary to prevent 

payment delays; and notify owners if their monthly payments would be 

late, including in such notifications the date when the monthly payment 

would be made. In response to the report, HUD officials said that they 

would take actions to better predict the funding allocation process and 

develop a system to more promptly notify owners when payments were 

expected to be late. 

Owners told us that when they did not receive payments on time, they 

often had to use reserve funds to cover critical operating expenses, 

leading to cash flow problems. During these periods, some owners delayed

needed maintenance to make up for the budget shortfall. For example, we 

found in our work for this current report that in Baltimore, a nonprofit 

owner of a project-based Section 8 property for elderly residents delayed 

critical repairs to the boiler system when the payments were delayed. The

owner used reserve funds that should have been used for repairs to cover

operating costs. This situation contributed to a lower physical REAC score

for the owner because the boiler was in need of repair. 

HUD headquarters officials told us that they had created a working group 

of HUD officials and industry representatives that would provide 

recommendations to HUD for improving its budget process to reduce late

Section 8 payments. 

HUD officials said that they require the same information and 

documentation from all owners, no matter how many Section 8 units they 

own. Therefore, owners with a few Section 8 units may find the 

administrative costs of participating in the program burdensome. Some of 

the property owners we met with confirmed this fact. HUD officials said 

that owners with larger numbers of Section 8 units were able to spread the

fixed administrative costs across more units and achieve economies of 

scale. Most of these owners’ expenditures went to hire dedicated staff to

manage the program, which requires separate accounting, management, 

occupancy, and oversight systems. The owners said that they were also 

incurring costs for background checks on Section 8 applicants and annual 

tenant recertifications. For example, in Columbus, Ohio, a manager told us

that an owner with a few Section 8 units decided to opt out in 2002 

because of the high administrative costs of keeping 24 Section 8 units in a

development that had a total of 141 units. The manager said that by opting 

out, the owner saved up to $25,000 in payroll costs and was still able to 

keep the majority of the tenants who were eligible to receive Section 8

incentives through tenant vouchers administered by the local public 

Administrative Costs Relative 

to Number of Section 8 Units 

Page 34 GAO-07-290 Project-Based Rental Assistance
housing agency. HUD field office staff in Columbus told us that for some 

owners who had few Section 8 subsidized units, keeping separate 

financial, management, and occupancy records for both Section 8 and 

other tenants might not be feasible. 

The January 2006 HUD commissioned study by Econometrica, Inc., 

reported a similar finding. The study noted that owners with a smaller 

portion of their portfolio in Section 8 units incurred additional operating 

costs for maintaining staff members with the skills needed to administer 

the Section 8 program. The study concluded that operating a Section 8 

property required administrative skills specific to the program and it might

not be economically feasible for these owners to employ staff members 

with the needed skills. 

There is some concern and confusion among project-based Section 8 

owners and managers on what is required of them to comply with their 

obligations to persons with limited English proficiency. Under Title VI of 

the Civil Rights Act of 1964, and its implementing regulations, recipients of 

federal financial assistance have a responsibility to ensure meaningful 

access to programs and activities for these individuals. Presidential 

Executive Order 13166, “Improving Access to Services to Persons with 

Limited English Proficiency” directs each federal agency that extends 

assistance subject to Title VI to publish guidance for its recipients 

clarifying their obligations to persons with limited English. 

HUD published the final “Guidance to Federal Financial Assistance 

Recipients Regarding Title VI Prohibition against National Origin 

Discrimination Affecting Limited English Proficient Persons” on 

January 22, 2007. Under this guidance, recipients of HUD funds use four 

factors to determine the extent of their obligations to provide services to 

those with limited English proficiency. These four factors include: (1) the 

number or proportion of such persons who are eligible to be served or 

likely to be encountered by the program or grantee, (2) the frequency with 

which these persons come in contact with the program, (3) the nature and 

importance of the program, activity, or service provided by the program to 

people’s lives, and (4) the resources available to the grantee/recipient and 

costs. Based on these factors, a HUD recipient would develop an 

implementation plan to address the identified needs of the populations 

they serve that have limited English proficiency.

Some owners, managers, and their representatives said that they agreed 

with the goal that this group have access to HUD programs but that it was 

not clear how HUD was implementing this order. Particularly, these 

The Limited English 

Proficiency Requirement 

Page 35 GAO-07-290 Project-Based Rental Assistance
officials were concerned with the lack of clarity in describing the written 

translations and oral interpretation services HUD was to provide and those 

that would be the owners’ responsibility. NAHMA officials stated that the 

perception was that the owners would have to bear most of the cost of 

providing the written translations of vital documents and oral 

interpretation services free of charge to both applicants and residents. 

However, these officials noted that HUD had proposed no additional 

funding to offset these higher costs. Furthermore, NAHMA officials said 

that expenses for translating documents or providing interpretation 

services were not accounted for in the OCAF adjustments or included in 

rent comparability studies. 

NAHMA officials added that they were concerned because HUD was 

already holding property owners accountable to the requirements for 

limited English proficiency as part of fair housing and compliance reviews. 

These officials stated that holding the owners to these requirements could 

expose affordable housing owners to unwarranted fair housing complaints 

and discrimination lawsuits. Also, NAHMA officials stated that adding this

regulatory expense without increasing compensation changed the nature 

of the agreement between HUD and the property owner. Given this extra 

cost and additional legal liability, owners could be inclined to leave the 

program, because they would not have to deal with the requirement once 

they had opted out. 

Some owners, managers, and industry representatives raised concerns 

about the clarity of HUD policies and procedures and the way the policies 

were applied. Of particular concern were the Section 8 Renewal Guide and 

the REAC physical inspection score. MAHRA established policies for 

renewing project-based Section 8 contracts, and HUD adopted these 

regulations in 1998. The rules and procedures were then incorporated in 

the Section 8 Renewal Guide, which HUD published in 1999. HUD officials 

noted that they were currently in the process of issuing updates to the 

Renewal Guide. However, according to a group representing the private 

owners, only parts of the Renewal Guide had been updated despite many 

changes to HUD’s policies and procedures, particularly regarding the 

Mark-to-Market and Mark-Up-to-Market program. 

Largely as a result of the out-of-date information, the guide can be 

confusing, particularly to owners that have a few project-based Section 8 

units. Property owners and industry representatives cited gray areas in the 

guide, particularly concerning the Mark-to-Market option. For example, in 

Baltimore we visited two small nonprofits that owned Section 8 

properties. Property managers for both properties faced challenges 

Unclear HUD Policies and 

Procedures 

Page 36 GAO-07-290 Project-Based Rental Assistance
navigating complex HUD policies that they said the guide did not 

adequately explain, such as when and under what conditions the owner 

could choose a different renewal option. While several nonprofit groups 

offer training on HUD policies for project-based Section 8 properties, a 

property manager told us they did not have the resources to pay for 

training on their own. We also were told that a lack of understanding of 

HUD policies had caused some owners to receive low scores on 

management reviews that comprised their Section 8 status. HUD officials 

told us that they had set up a task force to examine the guide and that it 

was currently being updated. 

REAC inspections are an integral part of HUD’s efforts to oversee the 

properties in its inventory of affordable housing. HUD’s physical 

inspections require that multifamily housing be decent, safe, sanitary, and 

in good repair. The standards establish specific requirements for the site, 

the dwelling units, and common areas. HUD has developed a detailed list 

of items that inspectors are required to review at properties and 

specifically defines what constitutes a deficiency for each inspected unit.

However, some owners, managers, and representatives of multifamily 

housing industry groups we interviewed had concerns about the reliability, 

consistency, and fairness of REAC’s inspections. For example, owners and 

property managers in New York City and Houston indicated that REAC 

inspectors recorded violations for minor issues that often were outside of 

the managers’ control. 

Some of the owners also stated that they were cited for minor violations 

rather than for cumulative violations and that inspections tended to be 

arbitrary. For example, HUD’s Chicago field office and a Chicago 

nonprofit reported that REAC inspectors ignored the deteriorating overall 

condition of a property because the inspectors were either inexperienced

or afraid to enter some of the buildings. Specifically, Chicago’s Lawndale 

apartments—which had one owner with 1,105 units in 104 buildings 

spread over a large area in North Lawndale—received passing REAC 

physical condition scores, although the overall complex was in disrepair. 

The end result was that Lawndale was to be split up and sold to a number 

of owners, resulting in about 700 of the 1,105 Section 8 units leaving the 

project-based Section 8 program. HUD officials told us that because of the 

enormous size of the Lawndale apartments, the complex was not a typical 

HUD Section 8 project-based property. They defended the REAC process, 

stating that the random nature of its inspections could result in passing 

scores at a large project like Lawndale, which had a mix of substandard 

and passing units. They believed that what happened at Lawndale was an 

Page 37 GAO-07-290 Project-Based Rental Assistance
isolated incident but that such an outlier should have been more carefully 

monitored by HUD. 

Most project-based Section 8 property owners opt to renew their contracts 

with HUD, but the 8 percent of expiring contracts that were not renewed 

between 2001 through 2005 represent over 50,000 units that are no longer 

subsidized through the program. Our work identified some recurring 

program issues and concerns including the rigidity of the one-for-one 

replacement requirement, difficulties with the OCAF adjustments and 

other administrative burdens, all of which could affect the program’s 

positive retention rate as more properties come up for renewal. 

Based on the views of Section 8 owners and managers we interviewed, 

HUD’s one-for-one replacement policy has made certain properties 

vulnerable to exiting the program. Particularly, not allowing owners to 

reconfigure hard-to-fill efficiency apartments in some markets into fewer 

one-bedroom units could cause financial difficulty for owners and lead to

a decision to opt out of the program. Also by not allowing owners to 

reduce the number of units in a property because of the desire to have 

one-for-one replacement, HUD may inadvertently be forcing owners out of 

the program. Consistent with congressional action that eliminated the onefor-one replacement requirement in HUD’s Public Housing programs, we 

are encouraged that HUD has started to rethink this policy in light of 

changing market conditions especially for the elderly, and understand the 

difficulty HUD faces in balancing the need to preserve affordable housing 

with the requests of property owners. However, without a more flexible 

policy, HUD risks losing more properties from the Section 8 program. As 

more contracts come up for renewal, owners may continue to leave the 

program if they do not have the flexibility to make changes that the market 

demands to existing housing stock. HUD’s field offices, which are best 

situated to understand local market needs, may be in the best position to 

make these types of property decisions. 

The OCAF adjustment process, which is required by MAHRA, is another 

area that may threaten HUD’s preservation efforts. As currently 

implemented, HUD estimates of costs for items such as utilities and 

insurance in some cases do not reflect current market conditions, 

primarily because they are estimated 15-18 months before they take effect

and are applied statewide. As a result, property owners in high-cost areas 

may not receive enough in subsidies to meet their expenses. Moreover, 

during emergency situations HUD does not have a process to address 

rapidly changing prices such as spikes in energy costs or rapidly 

Conclusions 

Page 38 GAO-07-290 Project-Based Rental Assistance
increasing insurance rates in coastal areas. Ultimately, owners divert 

money from capital improvement projects to cover such operating 

expenses. These types of issues could result in more owners leaving the 

program. Given that many property owners emphasized that guaranteed

rental income was a primary reason for staying in the program, HUD needs 

to help ensure that properties are covered for the increases in costs 

incurred. If HUD does not act quickly to review the OCAF adjustment 

process, property owners may be forced to leave the Section 8 program 

due to lack of sufficient funding. 

Finally, owners, managers, and industry representatives raised a number

of other issues that could drive them out of the program. These issues 

included certain policies and procedures that were described as unclear, 

inconsistently applied, or administratively burdensome. Specifically, late 

subsidy payments, higher administrative costs for owners with fewer 

Section 8 units, confusion about requirements for persons with limited 

English proficiency, and unclear HUD policies and procedures could 

contribute to owners opting out of the Section 8 program, taking units that 

cannot be replaced out of the affordable housing stock. 

To help ensure that project-based Section 8 preservation efforts meet the 

needs of a changing housing market, we recommend that the HUD 

Secretary direct the Deputy Assistant Secretary for Multi-family Housing 

to: 

Recommendations for 

Executive Action 

• modify the one-for-one replacement requirement to allow for a case-bycase assessment of the merits of permitting owners to reduce the number 

of project-based Section 8 units or reconfigure the units to better meet 

market demand and to expand its reconsideration of this policy beyond 

elderly properties, 

• expeditiously reevaluate its OCAF adjustment process to make sure that 

the adjustments reflect local variations, are implemented in a more timely 

manner, and are responsive to emergency situations, and 

• determine if any of the additional issues raised by owners such as policies 

and procedures that are unclear, inconsistently applied, or 

administratively burdensome could contribute to owners’ opting out of the 

Section 8 program and take steps to address these issues. 

Page 39 GAO-07-290 Project-Based Rental Assistance
We received comments on a draft of this report from HUD’s Assistant 

Secretary for Housing—-Federal Housing Commissioner that have been 

reproduced in appendix II. The Commissioner generally agreed with the 

report, and noted that it confirmed that HUD was not encouraging 

property owners to opt out of the project-based Section 8 program but 

rather was using a variety of tools to encourage continued participation. 

He also said that the report contained several positive suggestions for 

improving program delivery, but added that none of the recommendations 

would likely deter owners seeking to maximize their economic gains in a 

“hot” real estate market from leaving the program. We agree that most 

owners that opt out of the project-based Section 8 program do so because

of market factors rather than dissatisfaction with HUD’s preservation 

efforts. However, given the finite supply of project-based Section 8 

properties, addressing some of the recurring program issues and concerns

we identified could help keep some owners from opting out of the 

program. The Commissioner also noted that the report lacked data on the 

number of opt-outs that might have been avoided if the proposed 

recommendations had been implemented. We agree that such data would 

have allowed us to determine specific reasons owners opted out of the 

program, but because HUD does not track properties and the reasons that 

they leave the program, the data were not readily available. 

Addressing our recommendation that HUD modify the one-for-one 

replacement policy to allow for case-by-case assessments of requests to 

reduce the number of or reconfigure existing units, the Commissioner 

expressed concern that revising the policy might save one or two projects 

from opting out but lead to a greater net loss of assisted units. He added,

however, that HUD was aware of the need to accommodate market 

demand and would be evaluating the policy and identifying criteria for 

approving such requests. We are encouraged that HUD is considering a 

more flexible policy and continue to support the position that criteria can 

be developed that balance market demand and the need to preserve 

affordable housing. 

Regarding our recommendation that HUD expeditiously reevaluate its 

OCAF adjustment process, the Commissioner wrote that the department 

was aware of industry concerns about the use of statewide data, the 

approximately 18-month lag between the time data is collected and the 

adjustments go into effect, and the fact that OCAF does not take into 

account emergency situations. He noted that HUD had initiated a review of 

the OCAF methodology, including the actual costs to the portfolio 

resulting from the lag time and the use of statewide data, and planned to

Agency Comments 

and Our Evaluation 

Page 40 GAO-07-290 Project-Based Rental Assistance
complete and announce the results of the review by the end of fiscal year 

2007. 

Concerning our recommendation that HUD determine if any of the 

additional issues that property owners raised could be contributing to the 

decision to opt out of the program, the Commissioner said that HUD was 

aware of the concerns we cited and was always willing to consider 

recommendations that could reduce administrative costs and encourage 

owners to stay in the program. For example, he acknowledged that the 

project-based Section 8 payments were late from time to time but added 

that the agency was committed to improving the process and would 

provide updates on its progress to GAO and the Congress. 

We are sending copies of this report to the Chairman and Ranking 

Minority Member of the Senate Committee on Appropriations; the 

Chairman and Ranking Minority Member of the Senate Committee on 

Banking, Housing and Urban Affairs; the Chairman and Ranking Minority 

Member of the House Committee on Appropriations; the Chairman and 

Ranking Minority Member of the House Committee on House Financial 

Services; the Secretary of HUD; and other interested parties. This report 

will also be available at no charge on GAO’s Web site http://www.gao.gov. 

Please contact me at (202) 512-8678 or williamso@gao.gov if you or your 

staff have any questions about this report. 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 V.

Orice M. Williams 

Director, Financial Markets 

 and Community Investment 

Page 41 GAO-07-290 Project-Based Rental Assistance
Appendix I: Scope and Methodology 

Page 42 GAO-07-290 Project-Based Rental Assistance

Appendix I: Scope and Methodology 

To assess the Department of Housing and Urban Development (HUD’s) 

efforts to maintain Section 8 project-based housing stock and identify any 

discernable patterns in its preservation efforts, we reviewed the 

department’s five-year analysis of units terminated and retained by year, 

state, and locality for the period 2001-2005. HUD’s analysis is contained in

a report to Congress, Section 8 Project-Based Contract Renewals, sent to 

the Senate Appropriations Committee in August, 2006. To facilitate this 

effort, HUD’s Office of Multifamily Programs and Systems, in June of 2006, 

provided us a data extract containing information on all Section 8 contract 

activity for the 5-year period. This extract incorporated and combined data 

from HUD’s Real Estate Management System (REMS), which reflects 

historical information on all properties in HUD’s multifamily portfolio; 

DATAMART, a subset of REMS, which depicts data for all active 

multifamily properties; and the Tenant Rental Assistance Certification 

System (TRACS), which illustrates historical activity for all multifamily 

properties subsidized department’s Real Estate Assessment Center 

(REAC) database system showing the most recent physical and financial 

conditions of properties in HUD’s multifamily portfolio. 

To determine the number of Section 8 project-based units renewed and 

terminated during the five year period as well as the characteristics and 

locations of their associated properties, we reviewed, analyzed, and 

replicated all numbers contained in HUD’s report relating to Section 8 

contracts that left or remained in HUD’s portfolio during 2001-2005. By 

comparing renewals and terminations, we determined the extent to which

HUD’s Section 8 project-based housing stock grew or declined. Our 

analysis also enabled us to observe patterns associated with such actions. 

Following the same methodology HUD employed in its Report to 

Congress, we counted individual contract renewals and their associated 

units only once irrespective of how many times an owner renewed the 

contract. Moreover, we only considered contracts as renewals if such 

contracts were active at the end of 2005. In contrast, terminated contracts

included all situations where owners opted out of their Section 8 

contractual obligations anytime during the 5-year period; mortgage 

foreclosures; and contracts terminated by HUD due to enforcement 

actions. We counted contractual terminations as a single event because, by 

definition, the contract no longer exists. 

We also used the database extract to analyze characteristics of properties 

that left or remained in the Section 8 Program that HUD did not address in 

its report. For instance, we evaluated the types of rental assistance 

associated with renewals and terminations; occupancy and unit 

characteristics of properties whose owners elected to renew or opt out of 
Appendix I: Scope and Methodology 

their contractual obligations; and the physical and financial conditions of

such properties. In addition, to determine which geographic locations had 

what number of contract renewals or terminations, and if any evidence of 

patterns in such locations existed, we obtained census divisions from the

Census Bureau website and mapped properties using the divisions. Our 

analysis enabled us to depict the locations where HUD was losing or 

gaining Section 8 housing stock at the county level. 

To ensure that the HUD data were reliable, we performed various 

electronic tests and checks to determine (1) the extent to which the data 

were complete and accurate, (2) the reasonableness of the values reflected

in the data variables, (3) if any data fields had missing values, and, 

(4) whether any data limitations existed in the data we relied upon to do 

our work. In addition, we reviewed existing information about the quality 

and controls of the data systems and discussed the data we analyzed, as 

well as the programming code used to manipulate such data, with agency

officials to ensure that we interpreted them correctly to do our analysis. 

Based upon our reliability assessment, we concluded that HUD’s data 

were sufficiently reliable for purposes of this report. Moreover, our 

analysis determined that the information reflected in HUD’s report to 

Congress was accurate and reliable for purposes of ascertaining the extent 

to which Section 8 contracts and their associated units were terminated or 

gained during the 5-year period 2001-2005. The data we obtained from 

HUD were current as of June 15, 2006. 

To identify the tools and incentives available to HUD to preserve projectbased Section 8, we reviewed and summarized legislation and regulations 

pertaining to Section 8 project-based housing preservation including the 

Multifamily Assisted Housing Reform and Affordability Act (MAHRA) of 

1997 and the Section 8 Renewal Guide. To identify the incentives offered 

to Section 8 owners, we conducted interviews with HUD headquarters 

staff in Washington, D.C. and field office staff in Baltimore, Maryland; 

Chicago, Illinois; New York, New York; Los Angeles, California; Columbus, 

Ohio; and Houston, Texas. To get additional information about the use of

these incentives, we conducted interviews with Section 8 property owners 

and managers, nonprofit organizations, industry groups, HUD contractors, 

and state and local government finance agencies. To determine how 

frequently Section 8 owners used each tool or incentive, we extracted and 

analyzed data from HUD’s Real Estate Management System (REMS) and 

spoke with HUD officials and industry groups. REMS includes historical 

information on all properties in HUD’s multifamily portfolio including data

on project-based Section 8 properties and contracts. One Section 8 

property may have multiple contracts. 

Page 43 GAO-07-290 Project-Based Rental Assistance
Appendix I: Scope and Methodology 

To assess the views of for-profit and nonprofit property owners and 

managers on HUD’s Section 8 housing preservation efforts, we interviewed 

industry representatives and conducted case studies in five selected 

locations.1

 We judgmentally selected for review five HUD office locations 

(two regional offices and three field offices) in which to complete 

interviews with for-profit and nonprofit property owners and managers. 

Sites were selected based on the following characteristics: (1) percentage

of units that opted out from 2001 through 2005, (2) vacancy rate 

(3) geographic location, (4) percentage of households with worst-case 

housing needs, and (5) HUD regional and field office program 

performance. In the selected case study locations, we conducted 

interviews with current and former project-based Section 8 for-profit and 

nonprofit property owners and managers as well as HUD office staff. We 

also interviewed performance-based contract administrators (PBCA), 

entities responsible for administering project-based Section 8 contracts, 

and participating administrative entities (PAE), entities responsible for 

structuring Mark-to-Market transactions, serving the selected case study 

locations. For all of our interviews, we used a standardized interview 

guide to ensure consistency. We gathered information on reasons selected 

for-profit and nonprofit property owners stayed in or left the project-based 

Section 8 program and perceptions about the effectiveness of HUD’s tools 

and incentives to preserve Section 8 housing. We also reviewed relevant 

documentation provided by property owners and managers, HUD regional 

and field office staff, PBCAs, and PAEs. 

We conducted our work between October 2005 and April 2007 in 

Baltimore, Maryland; New York, New York; Chicago, Illinois; Columbus, 

Ohio; Los Angeles, California; Houston, Texas; and Washington, D.C., in 

accordance with generally accepted government auditing standards. 

 1

These were Chicago, Illinois; Columbus Ohio; Houston, Texas; Los Angeles, California; and 

New York, New York (The Bronx). 

Page 44 GAO-07-290 Project-Based Rental Assistance
Appendix II: Comments from the Department 

of Housing and Urban Development 

Page 45 GAO-07-290 Project-Based Rental Assistance

Appendix II: Comments from the Department 

of Housing and Urban Development 
Appendix II: Comments from the Department 

of Housing and Urban Development 

Page 46 GAO-07-290 Project-Based Rental Assistance
Appendix II: Comments from the Department 

of Housing and Urban Development 

Page 47 GAO-07-290 Project-Based Rental Assistance
Appendix II: Comments from the Department 

of Housing and Urban Development 

Page 48 GAO-07-290 Project-Based Rental Assistance
Appendix III: Number of Opt-outs by State in 

Identified Census Divisions 

Page 49 GAO-07-290 Project-Based Rental Assistance

Region State

Total Eligible 

Properties

Total

Property 

Opt-outs

Percentage of

Opt-outs 

Total Unit

 Opt-outs

East North Central Division ILLINOIS 496 29 5.8% 1,381

INDIANA 393 21 5.3% 781

MICHIGAN 409 29 7.1% 1,859

OHIO 940 87 9.3% 3,768

WISCONSIN 373 26 7.0% 871

East South Central Division ALABAMA 251 18 7.2% 1,040

KENTUCKY 360 12 3.3% 310

MISSISSIPPI 236 2 0.8% 58

TENNESSEE 301 10 3.3% 301

Middle Atlantic Division NEW JERSEY 299 36 12.0% 512

NEW YORK 843 38 4.5% 3,108

PENNSYLVANIA 494 6 1.2% 127

Mountain Division ARIZONA 99 6 6.1% 431

COLORADO 229 17 7.4% 714

IDAHO 60 6 10.0% 194

MONTANA 101 1 1.0% 16

NEVADA 48 12 25.0% 374

NEW MEXICO 78 0 0.0% N/A

UTAH 77 0 0.0% N/A

WYOMING 55 0 0.0% N/A

New England Division CONNECTICUT 180 9 5.0% 787

MAINE 103 3 2.9% 39

MASSACHUSETTS 379 5 1.3% 129

NEW HAMPSHIRE 84 5 6.0% 163

RHODE ISLAND 129 5 3.9% 124

VERMONT 49 0 0.0% N/A

Pacific Division ALASKA 22 2 9.1% 63

CALIFORNIA 1,250 89 7.1% 3,095

HAWAII 58 9 15.5% 259

OREGON 150 7 4.7% 112

WASHINGTON 347 19 5.5% 520

Appendix III: Number of Opt-outs by State in 

Identified Census Divisions 
Appendix III: Number of Opt-outs by State in 

Identified Census Divisions 

Region State

Total Eligible 

Properties

Total

Property 

Opt-outs

Percentage of

Opt-outs 

Total Unit

 Opt-outs

South Atlantic Division DELAWARE 22 0 0.0% N/A

DISTRICT OF COLUMBIA 102 14 13.7% 312

FLORIDA 378 13 3.4% 598

GEORGIA 302 31 10.3% 1,577

MARYLAND 293 39 13.3% 2,036

NORTH CAROLINA 480 15 3.1% 428

SOUTH CAROLINA 233 12 5.2% 317

VIRGINIA 209 22 10.5% 1,827

WEST VIRGINIA 121 3 2.5% 55

West North Central Division IOWA 255 35 13.7% 967

KANSAS 227 7 3.1% 261

MINNESOTA 325 11 3.4% 232

MISSOURI 372 11 3.0% 425

NEBRASKA 166 4 2.4% 34

NORTH DAKOTA 148 17 11.5% 362

SOUTH DAKOTA 120 3 2.5% 70

West South Central Division ARKANSAS 178 7 3.9% 136

LOUISIANA 164 3 1.8% 178

OKLAHOMA 146 2 1.4% 322

TEXAS 543 48 8.8% 2,492

No Regional Designation GUAM 1 0 0.0% N/A

MICRONESIA 2 2 100.0% 11

N MARIANAS 4 0 0.0% N/A

PUERTO RICO 155 16 10.3% 1,396

VIRGIN ISLANDS 8 0 0.0% N/A

13,847 824 6.0% 35,172

Source: GAO analysis of HUD data. 

Page 50 GAO-07-290 Project-Based Rental Assistance
Appendix IV: Number of Opt-outs by 

Metropolitan Area for the 3 Census Divisions 

with the Highest Percentage of Opt-outs 

Page 51 GAO-07-290 Project-Based Rental Assistance

Region State Metro Area

Number 

Properties

Number 

Units

East North Central Division ILLINOIS CHICAGO IL 26 1,209

ILLINOIS DAVENPORT-MOLINE-ROCK ISLAND IA-IL 1 76

ILLINOIS NOT IN METRO AREA 1 48

ILLINOIS PEORIA-PEKIN IL 1 48

INDIANA BLOOMINGTON IN 1 27

INDIANA EVANSVILLE-HENDERSON IN-KY 1 40

INDIANA FORT WAYNE IN 1 94

INDIANA GARY IN 1 65

INDIANA INDIANAPOLIS IN 12 348

INDIANA LAFAYETTE IN 1 79

INDIANA LOUISVILLE KY-IN 1 65

INDIANA NOT IN METRO AREA 3 63

MICHIGAN ANN ARBOR MI 2 394

MICHIGAN DETROIT MI 17 1,191

MICHIGAN FLINT MI 1 33

MICHIGAN GRAND RAPIDS-MUSKEGON-HOLLAND MI 3 75

MICHIGAN JACKSON MI 1 19

MICHIGAN KALAMAZOO-BATTLE CREEK MI 2 58

MICHIGAN LANSING-EAST LANSING MI 1 23

MICHIGAN NOT IN METRO AREA 2 66

OHIO AKRON OH 5 145

OHIO CINCINNATI OH-KY-IN 46 1,397

OHIO CLEVELAND-LORAIN-ELYRIA OH 11 702

OHIO COLUMBUS OH 7 204

OHIO DAYTON-SPRINGFIELD OH 4 426

OHIO MANSFIELD OH 1 32

OHIO NOT IN METRO AREA 11 728

OHIO TOLEDO OH 1 34

OHIO YOUNGSTOWN-WARREN OH 1 100

WISCONSIN EAU CLAIRE WI 1 21

WISCONSIN MADISON WI 3 118

WISCONSIN MILWAUKEE-WAUKESHA WI 11 422

WISCONSIN MINNEAPOLIS-ST. PAUL MN-WI 1 6

WISCONSIN NOT IN METRO AREA 9 246

Appendix IV: Number of Opt-outs by 

Metropolitan Area for the 3 Census Divisions 

with the Highest Percentage of Opt-outs 
Appendix IV: Number of Opt-outs by 

Metropolitan Area for the 3 Census Divisions 

with the Highest Percentage of Opt-outs 

Region State Metro Area

Number 

Properties

Number 

Units

WISCONSIN WAUSAU WI 1 58

Pacific Division ALASKA NOT IN METRO AREA 2 63

CALIFORNIA BAKERSFIELD CA 2 39

CALIFORNIA CHICO-PARADISE CA 3 77

CALIFORNIA FRESNO CA 5 272

CALIFORNIA LOS ANGELES-LONG BEACH CA 16 580

CALIFORNIA MODESTO CA 1 44

CALIFORNIA NOT IN METRO AREA 3 15

CALIFORNIA OAKLAND CA 9 431

CALIFORNIA ORANGE COUNTY CA 3 179

CALIFORNIA REDDING CA 1 48

CALIFORNIA RIVERSIDE-SAN BERNARDINO CA 4 206

CALIFORNIA SACRAMENTO CA 20 428

CALIFORNIA SAN DIEGO CA 3 176

CALIFORNIA SAN JOSE CA 1 79

CALIFORNIA SAN LUIS OBISPO-ATASCADERO-PASO 

ROBLES CA 

1 22

CALIFORNIA SANTA CRUZ-WATSONVILLE CA 1 110

CALIFORNIA SANTA ROSA CA 3 134

CALIFORNIA STOCKTON-LODI CA 4 101

CALIFORNIA VALLEJO-FAIRFIELD-NAPA CA 4 78

CALIFORNIA YOLO CA 4 52

CALIFORNIA YUBA CITY CA 1 24

HAWAII HONOLULU HI 8 159

HAWAII NOT IN METRO AREA 1 100

OREGON NOT IN METRO AREA 3 17

OREGON PORTLAND-VANCOUVER OR-WA 3 87

OREGON SALEM OR 1 8

WASHINGTON BREMERTON WA 3 89

WASHINGTON NOT IN METRO AREA 3 75

WASHINGTON OLYMPIA WA 2 69

WASHINGTON PORTLAND-VANCOUVER OR-WA 1 24

WASHINGTON SEATTLE-BELLEVUE-EVERETT WA 6 140

WASHINGTON SPOKANE WA 2 72

WASHINGTON TACOMA WA 2 51

Page 52 GAO-07-290 Project-Based Rental Assistance
Appendix IV: Number of Opt-outs by 

Metropolitan Area for the 3 Census Divisions 

with the Highest Percentage of Opt-outs 

Region State Metro Area

Number 

Properties

Number 

Units

South Atlantic Division DISTRICT OF COLUMBIA WASHINGTON DC-MD-VA-WV 14 312

FLORIDA FORT LAUDERDALE FL 2 166

FLORIDA FORT MYERS-CAPE CORAL FL 1 30

FLORIDA JACKSONVILLE FL 1 24

FLORIDA MIAMI FL 1 48

FLORIDA NOT IN METRO AREA 1 5

FLORIDA ORLANDO FL 3 48

FLORIDA PENSACOLA FL 1 200

FLORIDA SARASOTA-BRADENTON FL 1 36

FLORIDA TAMPA-ST. PETERSBURG-CLEARWATER FL 2 41

GEORGIA ATHENS GA 2 19

GEORGIA ATLANTA GA 21 1,445

GEORGIA NOT IN METRO AREA 1 8

GEORGIA SAVANNAH GA 7 105

MARYLAND BALTIMORE MD 21 961

MARYLAND COLUMBIA 1 35

MARYLAND HAGERSTOWN MD 3 141

MARYLAND WASHINGTON DC-MD-VA-WV 14 899

NORTH CAROLINA CHARLOTTE-GASTONIA-ROCK HILL NC-SC 1 100

NORTH CAROLINA GREENSBORO—WINSTON-SALEM—HIGH

POINT NC 

4 132

NORTH CAROLINA NOT IN METRO AREA 4 37

NORTH CAROLINA RALEIGH-DURHAM-CHAPEL HILL NC 6 159

SOUTH CAROLINA AUGUSTA-AIKEN GA-SC 1 26

SOUTH CAROLINA CHARLESTON-NORTH CHARLESTON SC 2 24

SOUTH CAROLINA COLUMBIA SC 2 56

SOUTH CAROLINA GREENVILLE-SPARTANBURG-ANDERSON

SC 

4 61

SOUTH CAROLINA NOT IN METRO AREA 2 38

SOUTH CAROLINA SUMTER SC 1 112

VIRGINIA LYNCHBURG VA 1 149

VIRGINIA NORFOLK-VIRGINIA BEACH-NEWPORT

NEWS VA-NC 

8 567

VIRGINIA NOT IN METRO AREA 4 369

VIRGINIA RICHMOND-PETERSBURG VA 3 565

VIRGINIA WASHINGTON DC-MD-VA-WV 6 177

WEST VIRGINIA CHARLESTON WV 1 23

Page 53 GAO-07-290 Project-Based Rental Assistance
Appendix IV: Number of Opt-outs by 

Metropolitan Area for the 3 Census Divisions 

with the Highest Percentage of Opt-outs 

Region State Metro Area

Number 

Properties

Number 

Units

WEST VIRGINIA NOT IN METRO AREA 1 8

WEST VIRGINIA PARKERSBURG-MARIETTA WV-OH 1 24

467 19,859

Source: GAO analysis of HUD data. 

Page 54 GAO-07-290 Project-Based Rental Assistance
Appendix V: 

A

GAO Contact and Staff 

cknowledgments 

Page 55 GAO-07-290 Project-Based Rental Assistance

Appendix V: GAO Contact and Staff 

Acknowledgments 

GAO Contact Orice M. Williams, (202) 512-8678, williamso@gao.gov

In addition to the individual named above, Andy Finkel, Assistant Director; 

Grace Haskins, Michelle Bracy, Emily Chalmers, Mark Egger, Charlene 

Johnson, Alison Martin, John McGrail, Marc Molino, and Roberto Piñero 

made key contributions to this report. 

Staff 

Acknowledgments 

(250273) 
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