United States General Accounting Office

GAO Testimony

Before the Subcommittee on Human Resources and

Intergovernmental Relations, Committee on Government

Reform and Oversight, House of Representatives

For Release

on Delivery

Expected at

1:30 p.m. EST

Thursday

March 6, 1997

HOUSING AND URBAN

DEVELOPMENT

HUD’s Management

Deficiencies, Progress on

Reforms and Issues for Its

Future

Statement of Lawrence J. Dyckman,

Associate Director

Housing and Community Development Issues,

Resources, Community, and Economic

Development Division

GAO/T-RCED-97-89

Mr. Chairman and Members of the Subcommittee:

Two years ago before this Subcommittee, we discussed the most

important management and budget problems facing the Department of

Housing and Urban Development (HUD) as part of your effort to help set

the stage for addressing those problems. We are pleased to return here

today to discuss progress that has been made since then and the problems

and challenges that remain for both the Congress and HUD.

HUD remains a Department with serious management and budgetary

problems. While it has formulated approaches and initiated actions over

the last 2 years to address some of its most significant problems, those

actions are far from complete. HUD’s programs continue to represent large

federal loan commitments and discretionary spending, much of which

goes for rental assistance to those people who are least able to afford

decent housing. Therefore, we believe that controlling spending for these

programs will require a continued reexamination—by both the Congress

and the administration—of federal housing policies and the type of

program delivery systems best suited to carry out those policies.

As we said in a statement to your full Committee on February 12 of this

year, the Congress is an important partner in working with executive

branch agencies to implement the Government Performance and Results

Act (GPRA), which focuses on clarifying missions, setting programmatic

goals, and measuring performance toward those goals.1

 Building on GPRA’s

call to measure performance better and focus on results, the Congress has

enacted additional important reforms including (1) the Government

Management Reform Act of 1994, which expanded the 1990 Chief

Financial Officers (CFO) Act’s requirements for financial statements and

controls that can pass the test of an independent audit; and (2) the 1996

Clinger-Cohen Act, which is directed at more effective management and

use of information technology to better support agencies’ missions and

improve program performance.

Our statement today is based on several reports that we have issued and

testimony that we have given over the past 2 years as well as our ongoing

work. (See app. I for a list of related GAO products). It will focus on (1) the

long-standing management deficiencies that hamper HUD’s effectiveness,

progress made in addressing these problems, and the work remaining in

the coming years; (2) the problems in HUD’s assisted and public housing

1

Managing for Results: Using GPRA to Assist Congressional and Executive Branch Decisionmaking

(GAO/T-GGD-97-43, Feb. 12, 1997).

Page 1 GAO/T-RCED-97-89
programs—which account for the largest portion of its outlays and a vast

share of the budget authority HUD expects to need in the future; and,

(3) the need to achieve consensus on federal housing policy, HUD’s

mission, and the resources devoted to achieving that mission.

In summary, we found the following:

• Four long-standing, Department-wide management deficiencies continue

to make HUD vulnerable to waste, fraud, abuse, and mismanagement.

These deficiencies are weak internal controls, inadequate information and

financial management systems, an ineffective organizational structure, and

an insufficient mix of staff with the proper skills. While HUD has made

progress in addressing these weaknesses, we have determined that much

remains to be done and that therefore the Department continues to

warrant the focused attention that comes with being designated by GAO as

a “high-risk area.”2

• HUD faces a variety of problems in its largest assisted and public housing

programs. These include how to (1) continue providing Section 8 housing

assistance to 3 million families while not undermining the funding for

other important housing and community development programs,

(2) reduce excess rental subsidies to some insured multifamily properties

while minimizing insurance losses to the Federal Housing Administration

(FHA) fund and ensuring that those properties meet basic housing quality

standards, and (3) help public housing authorities deal with increasingly

tight funding levels while ensuring a minimum level of oversight and

assistance from HUD for the authorities with management problems.

• The Congress and the administration need to agree on the future direction

of federal housing policy and put in place the organizational and program

delivery structures that are best suited to carrying out that policy. Doing

so will require revisiting fundamental issues about that policy, including

whom the federal government will serve, how much will be spent on those

being served, and how—via existing systems, block grants, devolution to

states, or other means—those policies will be implemented.

Background on HUD’s

Programs and Budget

Established in 1965, HUD is the principal federal agency responsible for

programs dealing with housing and community development and fair

housing opportunities. Through its programs, HUD provides rental

assistance to more than 4 million lower-income households, has insured

mortgages for about 23 million homeowners, has helped revitalize over

2

We identified areas throughout the government that are especially vulnerable to waste, fraud, abuse,

and mismanagement and termed these “high-risk areas.” See GAO’s High-Risk Series (GAO/HR-97-1,

Feb. 1997).

Page 2 GAO/T-RCED-97-89
4,000 communities, and helps ensure that access to housing is equally

available to all.

HUD is responsible for the expenditure of significant amounts of tax

dollars. The net budget outlays for HUD’s programs were close to

$25.5 billion in fiscal year 1996, the vast majority of which was for assisted

and public housing programs. HUD also is responsible for managing more

than $400 billion in mortgage insurance, $464 billion in guarantees of

mortgage-backed securities, and about $180 billion in prior years’ budget

authority for which it has future financial commitments.

HUD’s Management

Deficiencies

The HUD scandals of the late 1980s served to focus a great deal of public

attention on the management problems at HUD. HUD’s information and

financial management systems were inadequate, failing to meet program

managers’ needs or to provide adequate oversight of housing and

community development programs. These internal controls weaknesses

were a major factor leading to the scandals. The organizational problems

at HUD included overlapping and ill-defined responsibilities and authorities

between the Department’s headquarters and field organizations as well as

a fundamental lack of management accountability and responsibility.

Finally, an insufficient mix of staff with the proper skills hampered HUD’s

ability to effectively monitor and oversee its programs.

HUD’s slow progress in correcting the fundamental management

weaknesses that allowed the scandals to occur and a concern that HUD

needed heightened congressional attention led us to designate the

Department as a “high-risk area” in January 1994. In February 1995, we

reported in more depth on HUD’s management deficiencies as part of GAO’s

biennial High-Risk Series,3

 and, last month, we reported on the corrective

actions that HUD has taken or initiated since our February 1995 report.4

Because HUD is still working to correct its management weaknesses and, in

some areas, has a long way to go, we have determined that the Department

continues to warrant being designated as a “high-risk area.”

HUD has made progress in addressing each of the major management

deficiencies, but in most cases, much work remains for the Department

before its actions will be complete. For example, HUD has made progress

improving its internal controls, but major problems persist. HUD has

implemented a new management planning and control program intended

3

High-Risk Series: Department of Housing and Urban Development (GAO/HR/95-11, Feb. 1995).

4

High-Risk Series: Department of Housing and Urban Development (GAO/HR-97-12, Feb. 1997).

Page 3 GAO/T-RCED-97-89
to identify and rank the major risks in each program and develop

strategies to abate those risks. Also, HUD has reported that its number of

material internal control weaknesses dropped from over 51 in the early

1990s to only 9 at the end of fiscal year 1995.

However, we and HUD’s Inspector General question the effectiveness of the

Department’s management control program in identifying material

weaknesses and assessing front-end risks. For example, we noted in our

review of the fiscal years 1995 and 1996 management plans prepared by

several of HUD’s major program areas that the only risks identified in the

management control section of each plan were previously identified

material weaknesses and the abatement actions were those previously

outlined in HUD’s report on compliance with the Federal Managers’

Financial Integrity Act. In addition, the Inspector General stated that

weaknesses existed in the management control program because HUD’s

major program areas were not performing front-end risk assessments on

new or substantially modified programs, as required.

Furthermore, even though HUD has reduced the number of material

internal control weaknesses, some of those remaining weaknesses are

significant and long-standing. For example, these remaining material

weaknesses (first identified in fiscal years 1983 through 1993) include

weaknesses that affect more than $18 billion in subsidy funds that HUD

disburses annually, primarily through its Section 8 and Section 236

programs. For both fiscal years 1994 and 1995, HUD’s auditors were not

able to express an opinion on the reliability of HUD’s consolidated financial

statements. The fiscal year 1995 audit of FHA’s financial statements

continued to identify internal control weaknesses, including a lack of staff

and administrative resources for such tasks as performing loss mitigation

functions, managing troubled assets, and implementing new automated

systems.5

Much work also remains for HUD to improve its information and financial

management systems. HUD has continued to make progress on these

systems over the last 2 years, moving beyond the planning stages to where

portions of major new systems are becoming operational. However, some

of the projects involving major improvements to HUD’s systems will not be

completed before the year 2000. Furthermore, HUD reported in March 1996

that 93 out of 116 of its information and financial management systems did

not meet the requirements of the Federal Managers’ Financial Integrity Act

5

Federal Housing Administration, Audit of Fiscal Year 1995 Financial Statements, prepared by KPMG

Peat Marwick LLP for the Office of Inspector General (June 7, 1996).

Page 4 GAO/T-RCED-97-89
and therefore could not be relied upon to provide timely, accurate, and

reliable information and reports to management. As we said in our

testimony last month,6

 conclusions about what the government is

accomplishing with the taxpayers’ money cannot be drawn without

adequate program performance and cost information. HUD plans to replace

or enhance these systems, but its efforts have been hampered by problems

with systems development, funding constraints, and data conversion

problems.

HUD has taken a number of steps to address the problems with its

organizational structure. It has completed a field reorganization, which

was intended to eliminate previously confused lines of authority, enhance

communications, reduce levels of review and approval, and improve

customer service; transferred direct authority for field staff and resources

to the Assistant Secretaries in HUD headquarters; and, restructured its 81

field offices. HUD is continuing its reorganization efforts, which will include

reducing headquarters staff, redeploying staff, and further streamlining

and consolidating field activities. When we recently conducted a telephone

survey of HUD’s field directors about the Department’s reorganization

efforts, the respondents rated three areas as good or excellent—HUD’s

success in improving the lines of program management authority,

empowering staff, and improving communications with headquarters and

HUD’s customers.7 However, HUD has found that, to some extent, the

reorganization has impaired communications across program lines at its

field offices. HUD is taking actions, such as adding program integration

requirements to senior managers’ performance expectations and

appraisals, that it believes will alleviate this situation.

HUD has made progress on its efforts to address the problems with staff

members’ skills. HUD has begun to implement a needs assessment process

to plan future training. In addition, HUD has increased staff training and has

begun to evaluate the effectiveness of its stepped-up training efforts. While

the field directors we surveyed generally believed that the skills of their

staff have improved over the past 2 years, 40 percent of these directors

rated HUD’s current training as less than good. The field directors also said

that more training is needed in the use of information systems, the

implementation of program regulations, HUD-related technical skills, and

interpersonal skills. In addition, we and HUD’s Inspector General continue

to find staff resource problems in some of HUD’s major program areas,

including public housing and FHA.

6

See footnote 1.

7

HUD: Field Directors’ Views on Recent Management Initiatives (GAO/RCED-97-34, Feb. 12, 1997).

Page 5 GAO/T-RCED-97-89
HUD’s Assisted and

Public Housing

Programs Face

Difficult Management

and Budget Problems

In addition to wrestling with critical agencywide management weaknesses,

HUD faces a daunting task in managing the costs associated with

(1) renewing Section 8 contracts for assisted housing, (2) the multifamily

projects that FHA has insured, and (3) ensuring the soundness of public

housing in a time of intense scrutiny and pressure on all housing programs

in light of the move to reduce the budget deficit. As I mentioned earlier,

these rental assistance programs serve more than 4 million low-income

households; figure 1 illustrates the number of households currently

receiving Section 8 tenant-based and project-based assistance and the

number in public housing.

Figure 1: Number of Households in

HUD-funded Assisted and Public

Housing Public Housing

(1.25 million households)

31.4 %

Project-based Section 8

(1.3 million households)

35.8 %

Tenant-based Section 8

(1.43 million households)

32.7 %

Figure 2 gives you an overall picture of whom HUD’s rental assistance

programs are serving.

Page 6 GAO/T-RCED-97-89
Figure 2: Characteristics of

HUD-assisted Renters

Primary income

is public assistance

Families

with children

Elderly household

(65 and older)

Non-white

0

10

20

30

40

50

60

70

53 51

30

48

Percent of assisted renters in 1995

Retaining Support for

Important Housing

Programs in the Face of

the Spiraling Costs of

Section 8 Contract

Renewals

Under Section 8 of the 1937 Housing Act (as amended), HUD contracts with

public housing authorities and private property owners to provide housing

assistance for low income families. In fiscal year 1998, Section 8 contracts

covering 1.8 million housing units will expire, an increase of more than a

million over 1997. To the extent that HUD may not have the budget

authority to renew these contracts, the currently assisted families could

face rent increases or displacement. Moreover, owners of many

multifamily properties currently receiving Section 8 assistance will default

on their FHA-insured mortgages if the assistance is withdrawn. (We address

in greater detail those properties with FHA-insured loans later in this

testimony).

Overall, the price of renewal is high and will increase over the next several

years. Figure 3 shows HUD’s estimates of over $9 billion for the fiscal year

1998 budget authority it will need to renew contracts covering over

1.8 million housing units; figure 3 also shows how the escalating needs for

section 8 budget authority will soon surpass funding levels for all of HUD’s

other programs. As you can see in figure 4, this budget authority grows to

over $21 billion by the year 2006. This amount exceeds HUD’s total budget

authority of about $19.3 billion in fiscal year 1997. With increases in

budget authority of this magnitude forecast for the next 8 years, other

Page 7 GAO/T-RCED-97-89
long-standing HUD programs with significant funding could be at risk of

being funded at levels less than would support their current commitments.

These programs include public housing at more than $6 billion, community

development block grants at nearly $5 billion, and homeless assistance at

nearly $1 billion.

Figure 3: Budget Authority Required to

Renew Existing Section 8 Contracts

1997 1998 1999 2000 2001 2002 2003 2004 2005 2006

$0

$5

$10

$15

$20

$25

Fiscal year

Billions of dollars

Tenant Based Project Based Total

Page 8 GAO/T-RCED-97-89
Figure 4: Budget Authority Required to

Renew Existing Section 8 Contracts

Through Fiscal Year 2006

1996 1997 1998 1999 2000 2001 2002

0

5

10

15

20

Fiscal year

Dollars in billions

Section 8

All Other

HUD Programs

Funding these programs as well as the Section 8 housing assistance

program will be difficult in the face of other agencies’ competing budget

requests. The challenge for HUD will be to demonstrate that it is operating

its programs efficiently, that it has planned realistic reforms that will lead

to decreased costs, and that the programs themselves are achieving the

goals and policy objectives that the Congress envisioned in creating them.

Costs Associated With

Multifamily Projects

Over the past 2 years, HUD has begun the difficult process of attempting to

resolve three basic problems affecting its insured Section 8 portfolio: high

subsidy costs, high exposure to insurance loss, and the poor physical

condition of some properties. In 1995, HUD introduced its “mark-to-market”

proposal (subsequently renamed “portfolio reengineering”), through which

it sought to (1) reduce subsidies by setting rents at market levels,

(2) reduce the mortgages on those properties as necessary to achieve

positive cash flows and terminate the FHA mortgage insurance on them,

and (3) replace project-based Section 8 subsidies with portable

tenant-based subsidies.

The insured Section 8 portfolio—the subject of the portfolio reengineering

proposal—consists of more than 8,600 properties containing just under

Page 9 GAO/T-RCED-97-89
859,000 apartments. The properties provide housing for a diverse

population, including families and single adults as well as special-needs

populations such as the elderly and the disabled. These properties have

FHA insurance, loans with unpaid principal balances of nearly $18 billion,

and receive project-based Section 8 assistance, much of which HUD

provided under long-term contracts executed in the 1970s. Over time,

these properties’ Section 8 subsidies have increased dramatically, and

today many of the Section 8 contracts are reaching their expiration.

However, for many properties, reductions in the Section 8 subsidies

without a reduction in the outstanding mortgage balances on those

properties would lead to defaults and partial claims against FHA’s

insurance fund. This would happen because, without a continuation of the

subsidy, many of the projects would not be economically viable.

Recognizing this predicament—properties that cannot command market

rents high enough to cover their federally insured mortgages but which

continue to receive excessively costly Section 8 subsidies—HUD proposed

to restructure the FHA-insured mortgages and bring income and expenses

into line so that they could operate on market rents. HUD’s fiscal year 1997

appropriation includes a demonstration program covering those properties

with contract rents exceeding 120 percent of fair market rents. For owners

who are eligible for and agree to participate in this demonstration, HUD has

the flexibility to use tools such as reinsurance, debt forgiveness, and

second mortgages to decrease the escalating costs of Section 8 rental

assistance, prevent mortgage defaults, protect residents against

dislocation, and resolve associated tax issues.8

In 1996, HUD hired Ernst & Young LLP to study a randomly selected sample

of 558 properties to obtain information about how HUD’s original

mark-to-market proposal would affect them. Subsequently, we selected 10

of the properties included in Ernst & Young’s study as case studies and

hired three licensed real estate appraisal firms to help assess the effects of

HUD’s proposal on them.9 Among other things, Ernst & Young found that 60

to 66 percent of the properties in the insured Section 8 portfolio receive

above-market rents and that $9.2 billion to $10.2 billion would be required

to address deferred maintenance and future capital needs at the properties

if they were to compete in the marketplace without project-based

8

For owners who are eligible for but do not choose to participate in the demonstration, contract rents

are reduced to 120 percent of fair market rents. For projects with rents below 120 percent of fair

market rents, the appropriation requires HUD, if requested by the project owner, to renew the

assistance contract for 1 year.

9

Multifamily Housing: Effects of HUD’s Portfolio Reengineering Proposal (GAO/RCED-97-7, Nov. 1,

1996).

Page 10 GAO/T-RCED-97-89
subsidies. We believe that for the most part, the methodology and

assumptions that Ernst & Young used were reasonable given their study’s

overall scope. However, for most of the 10 properties we reviewed, the

study estimated substantially higher deferred maintenance needs than did

the property owners or managers and our contract appraisers.

HUD’s initiative to reengineer its portfolio recognizes a reality that has

existed for some time—namely, that the value of many of the properties in

the insured Section 8 portfolio is far lower than the mortgages on the

properties suggest. Addressing the problems of HUD’s insured multifamily

portfolio will inevitably be costly and difficult. As the Congress evaluates

the options for addressing this situation, the fundamental problems that

have affected the portfolio and their underlying causes will be important

to consider. Any approach that is implemented should address not only

the high costs of Section 8 subsidies, but also the government’s high

exposure to insurance loss, the poor physical condition of some of the

properties, and the underlying causes of these long-standing problems

with the portfolio. The overarching objective should be to implement the

process as efficiently and cost-effectively as possible, recognizing not only

the interests of the parties directly affected by restructuring but also the

impact on the federal government.

Ensuring the Soundness of

Public Housing

About 3 million low-income people, many of whom are elderly or disabled,

live in public housing, which is operated on a day-to-day basis by local

public housing authorities (PHA). HUD currently provides PHAs with

$5.4 billion a year to help them operate and modernize their projects.

However, over time, the costs for PHAs have begun to exceed the financial

resources available to them because their tenants’ incomes—on which the

amount they pay the PHAs in rent is based—have declined steadily over the

last decade. In addition, over the last several years, the amounts

appropriated for HUD’s operating subsidy to the PHAs have not kept pace

with the PHAs’ expected costs. The recent welfare reforms could further

reduce the rents that the tenants are able to pay if they lose welfare

benefits without finding work. With funding for the PHAs increasingly tight,

interest has been keen in knowing how well the PHAs are managing their

properties and whether HUD has been adequately identifying and helping

those PHAs having management problems.

Reducing Housing

Authorities’ Need for

Operating Subsidies

HUD provides the PHAs with an operating subsidy to supplement the rent

paid by residents because federal statutory requirements generally limit

the amount that tenants may be required to pay to 30 percent of their

Page 11 GAO/T-RCED-97-89
income. Also, until recently, federal preferences for admission to public

housing required the PHAs to give preference to admitting those who are

usually the poorest of the poor. By concentrating the very poor in public

housing, these preferences limited the PHAs’ ability to meet operating

expenses on their own and gave rise to the need for a subsidy from HUD to

make up the difference between the rents that the PHAs could charge and

what it costs them to operate their projects.

A decline in the average income of public housing residents since 1981 has

led to a steady increase in the PHAs’ need for operating subsidies. In 1981,

the average income of public housing residents was 33 percent of the area

median income, but by 1995 the average had dropped to 17 percent. As a

result, 1982 operating subsidy needs were $1.5 billion, while in 1996 needs

reached $3.1 billion (in nominal dollars). However, for several years in a

row now, budgetary pressures and reduced appropriations have meant

that HUD could not fully fund the difference between tenants’ rents and the

PHAs’ operating costs—for example, in fiscal year 1996, HUD’s subsidy was

90 percent of the PHAs’ expected operating costs. In many cases, the effect

of reduced operating subsidies can be that the PHAs defer routine

maintenance, which, over time, can lead to deteriorated housing

conditions and higher accrued needs for major rehabilitation and

modernization.

Congress has proposed legislation and HUD has taken steps over the last 2

years to give the PHAs more flexibility in managing their properties to

strengthen the long-term viability of this housing. These steps—public and

assisted housing reform bills in both the House and Senate10 and HUD’s

efforts to relax some requirements—are aimed at encouraging the PHAs to

find additional sources of income and allowing them to admit tenants with

a broader mix of incomes so that the PHAs have less need for an operating

subsidy from HUD. For its part, HUD has attempted to increase incentives

for the PHAs to generate additional nonrental income by allowing them to

keep more of that income to meet their operating expenses. Previously,

each dollar of extra income that a PHA generated reduced its subsidy by a

dollar, thereby creating a disincentive to generating additional income

from sources other than rent.

The Congress, HUD, and many of those in the public housing industry were

in general agreement on the financial and other benefits of admitting

tenants with a broader mix of incomes to public housing to better ensure

10The House of Representatives passed H.R. 2406, The United States Housing Act of 1996, and the

Senate passed S. 1260, the Public Housing Reform and Empowerment Act of 1995. Agreement was not

reached on a compromise between the two bills before the 104th Congress adjourned.

Page 12 GAO/T-RCED-97-89
public housing’s long-term viability. However, neither of the reform bills

nor a compromise between the two has been enacted into law. As a result,

each of HUD’s last two annual appropriations included provisions

temporarily repealing the federal preferences as well as other statutory

requirements that were seen as limiting the PHAs’ management discretion.11

The reforms that were contained in H.R. 2406 and S. 1260 would likely

improve the long-term viability of public housing. The PHAs have agreed,

telling us that reforms such as allowing them to admit tenants with

incomes higher than those they currently house will enable them to adjust

to possible reductions in the operating subsidies.12 However, the PHAs also

said that they need an adjustment period in which to admit new tenants

before the subsidies are significantly cut; industry associations

representing PHAs have said that the PHAs need more certainty that these

reforms are permanent so that they know that they will not be operating

under the old rules in the next new federal fiscal year.

In public housing, just as in a myriad of other HUD programs, there remains

a need for HUD and the Congress to reach consensus on whom will be

served and at what cost. While, over time, income mixing can help the PHAs

meet more of their operating expenses on their own, adopting such a

strategy comes at the expense of those very low-income people who have

been given preference for admission to public housing for years. This

strategy may also exacerbate worst-case housing needs among the poor,

which, according to HUD, are at an all-time high.

Improving HUD’s Oversight

of Housing Authorities’

Performance

With the funding for public housing increasingly tight, knowing how well

the PHAs are managing their properties with the resources HUD gives them

takes on added importance. However, we recently found that HUD’s

primary tool for measuring PHAs’ performance, the Public Housing

Management Assessment Program (PHMAP), needs to be more accurate and

useful in order for HUD to ensure that it is identifying all of the PHAs to

which it should be targeting its limited oversight and technical assistance

resources.13

11For example, each appropriation waived the “one-for-one” replacement requirement, which

mandated that the PHAs replace each unit of housing they elect to demolish with another unit or a

Section 8 certificate.

12Housing and Urban Development: Public and Assisted Housing Reform (GAO/T-RCED-96-25, Oct. 13,

1995).

13Public Housing: HUD Should Improve the Usefulness and Accuracy of Its Management Assessment

Program (GAO/RCED-97-27, Jan. 29, 1997).

Page 13 GAO/T-RCED-97-89
HUD uses PHMAP to annually collect data from each PHA on basic indicators

of management performance, such as vacancy rates and operating

expenses. The PHAs submit and certify to the accuracy of most of the data

on these indicators. On the basis of aggregate performance against these

indicators, HUD calculates a score from 0 to 100 for each authority and

assigns one of the following three designations: “troubled performer” for a

score less than 60, “standard performer” for a score between 60 and less

than 90, and “high performer” for a score of 90 or above. Troubled PHAs

must enter into a binding agreement with HUD stipulating the problems the

authority needs to address and an approach and timetable to resolve them.

Standard- and high-performing authorities that fail any indicator must

submit a plan for improving their performance in that indicator. HUD

requires its field offices to go to troubled PHAs to verify the data that the

PHAs submit (and thus, the PHMAP score) when those data would lead to a

score high enough to remove the “troubled” designation.

We found HUD needs to do a better job of ensuring that all of its field

offices comply with PHMAP’s follow-up requirements and use PHMAP scores

and other information available to them to better target their limited

technical assistance resources. HUD’s field offices have the bulk of the

Department’s responsibility for the day-to-day implementation of PHMAP,

including negotiating the binding agreements required of troubled PHAs,

approving improvement plans for standard and high performers, and

monitoring the PHAs’ progress in meeting agreed-upon goals to which they

have committed themselves. However, according to the results of a survey

of all of HUD’s public housing field offices, we found HUD has not been

systematically complying with PHMAP’s statutory and regulatory follow-up

requirements for all housing authorities. For example, in 1995,

• less than 20 percent of the troubled PHAs that should have been operating

under a binding agreement with HUD actually were;

• nearly a third of HUD’s field offices had not ensured that standard- and

high-performing PHAs developed improvement plans for each indicator

they failed; and,

• the field offices confirmed the accuracy of the data behind fewer than

30 percent of the troubled PHAs’ PHMAP scores that HUD requires them to

confirm.

Some field offices cited resource constraints—a lack of staff, travel funds,

or expertise—as the main reason for not meeting follow-up requirements,

while others opted not to enforce the requirements when they believed the

PHAs were already addressing their problems. Differences in how the field

Page 14 GAO/T-RCED-97-89
offices interpret their role in helping the PHAs improve performance also

played a part in the field offices’ oversight and technical assistance

activities. Some field offices told us they interpret their role narrowly,

generally limiting their assistance to advice, information on complying

with HUD’s regulations, and suggestions for solving management problems.

Others were more willing to get involved in the PHAs’ operations by

performing tasks such as setting up proper tenant rent records and waiting

lists.

The bottom line is that HUD is not maintaining a consistent, minimally

acceptable level of oversight at all PHAs. Without this oversight, HUD cannot

be reasonably confident that the housing authorities are using federal

funds appropriately, managing and maintaining their developments

properly, and reporting performance information accurately.

Future Federal

Housing and

Community

Development Policy:

Coming to Consensus

on HUD’s Mission

Since it was created in 1965, HUD has grown to include some 240 programs

and activities (according to a December 1994 report by HUD’s Inspector

General) and hundreds of billions of dollars in financial commitments.

Through its multiple social and financial roles, it directly or indirectly

affects most Americans. Over the years, we and others have criticized the

inefficiencies in HUD’s organization and the deficiencies in its management.

Leaders in the administration and in the Congress agree that HUD must, at a

minimum, be restructured to better meet the nation’s housing and

community development needs. Some policymakers believe that HUD’s

problems are so great that they can be cured only by dismantling the

agency and transferring or eliminating its functions. In its initial

Reinvention Blueprint, HUD proposed major changes, including

consolidating programs, devolving responsibility for program design and

implementation to states and localities, and HUD’s assuming the role of

overseer and clearinghouse for national models. While some limited, yet

significant, improvements to HUD’s existing program structure have been

made, a comprehensive redesign of HUD’s overall mission and program

delivery structure has not occurred. Likewise, various bills to

fundamentally restructure HUD’s programs to subsidize multifamily rental

housing also have been proposed, but thus far none has been enacted.

HUD’s programs will remain at high risk to fraud, waste, abuse, and

mismanagement until the agency completes more of its planned corrective

actions and until the debate over HUD’s future—in which the Congress

must participate—is settled. In our view, the Congress now has an

excellent opportunity to help HUD eliminate the deficiencies that make it a

Page 15 GAO/T-RCED-97-89
high risk and to align the agency’s management responsibilities and

capacity by authorizing a major restructuring strategy that focuses HUD’s

mission and significantly consolidates, reduces, and/or reengineers its

many separate program activities. What is needed now is for the

administration and the Congress to agree on the future direction of federal

housing and community development policy and the organizational and

program delivery structures that are best suited to carry out that policy—a

process that will involve inherent trade-offs between the needs of those

seeking HUD’s assistance and other demands on the total federal budget. As

the Congress provides input to HUD’s and other agencies’ strategic plans, as

required by GPRA, it can insist that agencies show how their programs are

aligned with related efforts in other agencies.14 Congress can also use the

GPRA planning process to seek opportunities to streamline government by

comparing the effectiveness of similar program efforts carried out by

different agencies.

Mr. Chairman, this concludes our prepared remarks. We will be pleased to

respond to any questions that you or other Members of the Subcommittee

might have. We in GAO look forward to working with the Congress to help

address HUD’s management deficiencies and their impact on housing and

community development programs.

14In order to successfully implement the initial requirements of GPRA, HUD must prepare, by the end

of this fiscal year a strategic plan that includes a statement of its mission.

Page 16 GAO/T-RCED-97-89
Page 17 GAO/T-RCED-97-89
Page 18 GAO/T-RCED-97-89
Appendix I 

Related GAO Products

Public Housing: Status of the HOPE VI Demonstration Program

(GAO/RCED-97-44, Feb. 25, 1997).

Housing and Urban Development: Potential Implications of Legislation

Proposing to Dismantle HUD (GAO/RCED-97-36, Feb. 21, 1997).

Managing for Results: Using GPRA to Assist Congressional and Executive

Branch Decision-Making (GAO/T-GGD-97-43, Feb. 12, 1997).

HUD: Field Directors’ Views on Recent Management Initiatives

(GAO/RCED-97-34, Feb. 12, 1997).

GAO High-Risk Series (GAO/HR-97-1, Feb. 1997).

High-Risk Series: Department of Housing and Urban Development

(GAO/HR-97-12, Feb. 1997).

Public Housing: HUD Should Improve the Usefulness and Accuracy of Its

Management Assessment Program (GAO/RCED-97-27, Jan. 29, 1997).

Multifamily Housing: Effects of HUD’s Portfolio Reengineering Proposal

(GAO/RCED-97-7, Nov. 1, 1996).

Public Housing: Partnerships Can Result in Cost Savings and Other

Benefits (GAO/RCED-97-11, Oct. 17, 1996).

Housing and Community Development Products 1995 (GAO/RCED-96-248W,

Aug. 1996).

Multifamily Housing: HUD’s Portfolio Reengineering Proposal: Cost and

Management Issues (GAO/T-RCED-96-232, July 30, 1996).

Multifamily Housing: Issues Facing the Congress in Assessing HUD’s

Portfolio Reengineering Proposal (GAO/T-RCED-96-231, July 26, 1996).

Executive Guide: Effectively Implementing the Government Performance

and Results Act (GAO/GGD-96-118, June 20, 1996).

Housing and Urban Development: Limited Progress Made on HUD Reforms

(GAO/T-RCED-96-112, Mar. 27, 1996).

Page 19 GAO/T-RCED-97-89
Appendix I 

Related GAO Products

Housing and Urban Development: Public and Assisted Housing Reform

(GAO/T-RCED-96-22 and GAO/T-RCED-96-25, Oct. 13, 1995).

Public Housing: Converting to Housing Certificates Raises Major

Questions About Cost (GAO/RCED-95-195, June 20, 1995).

Public Housing: Funding and Other Constraints Limit Housing Authorities’

Ability to Comply With One-for-One Rule (GAO/RCED-95-78, Mar. 3, 1995).

Housing and Urban Development: Reforms at HUD and Issues for Its Future

(GAO/T-RCED-95-108, Feb. 22, 1995).

High-Risk Series: Department of Housing and Urban Development

(GAO/HR/95-11, Feb. 1995).

(385665) Page 20 GAO/T-RCED-97-89
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