HUD Rental Assistance Demonstration: Information on Initial Conversions to Project-Based Vouchers
Published: 2014-04-24T00:00:00

Fast Facts:

Highlights:
section_title: Why GAO Did This Study
paragraphs: Over the next several years, rental assistance contracts will expire for about 38,000 affordable housing units currently subsidized through three HUD rental programs. Owners of these units would no longer be required to maintain affordable rents or make their units available to low-income residents. Residents in these units are eligible to receive special tenant-based vouchers called tenant-protection vouchers to shield them from resulting rent increases. HUD's RAD program was created in 2011 to preserve affordable housing by, among other things, allowing owners to convert these tenant-protection vouchers to project-based vouchers for units in three designated HUD programs. Project-based vouchers result in a long-term contract between the property owners and PHAs, which administer the vouchers.
The Consolidated and Further Continuing Appropriations Act of 2012 mandated that GAO review these conversions under RAD. This report describes the results of these conversions.
GAO reviewed HUD program documentation and procedures; analyzed data on conversions as of March 1, 2014; and conducted interviews with HUD officials as well as nongeneralizable interviews with four PHAs and five property owners selected based on geography and other factors.
GAO is not making recommendations in this report.
section_title: What GAO Found
paragraphs: Conversions to project-based vouchers under the Department of Housing and Urban Development's (HUD) Rental Assistance Demonstration (RAD) program will have a small effect on the percentage of total vouchers (made up of project and tenant-based) that are project-based. Residents with tenant-based vouchers can receive their assistance in any eligible privately owned rental unit, which means if they leave the unit, their assistance goes with them. In contrast, residents with project-based vouchers can only benefit from the assistance if they remain in the specific unit. As of March 1, 2014, property owners had converted a total of 6,670 units to project-based vouchers in nine states. The percentage of vouchers that are project-based including RAD conversions was 3.81 percent, and without RAD, would have been 3.45 percent. Further, the impact of these conversions on the overall long-term percentage of project-based vouchers will be small because the conversions are limited to the remaining 38,000 units assisted through the three designated HUD programs, which is relatively small compared to the over 2 million total outstanding vouchers. As the figure shows, most conversions have taken place in New York, Massachusetts, Michigan, and New Jersey—four states with a large concentration of units that were originally subsidized under designated HUD programs.
Stakeholders GAO interviewed generally viewed the conversions to project-based vouchers as a useful tool in preserving affordable housing. Stakeholders explained that, absent RAD, property owners would have had few or no options for continuing some form of rental subsidy when their contracts expired. Further, RAD conversions provide a stable subsidy for their properties that allows them to better obtain financing. All five owners—representing nine properties GAO contacted—have recapitalized or plan to recapitalize their properties, including refinancing or restructuring their debt, in order to rehabilitate them. Housing organization officials and a housing expert also told GAO that RAD has helped to preserve the number of affordable housing units. PHA officials, property owners, and residents told GAO that these conversions have not adversely affected residents' housing choices.

section_title: Letter
paragraphs: Over the next several years, rental assistance contracts will expire for  about 38,000 affordable housing units currently assisted through the  Department of Housing and Urban Development’s (HUD) Rent  Supplement (Rent Supp), Rental Assistance Payment (RAP), and  Moderate Rehabilitation (Mod Rehab) programs. HUD used the rental  assistance provided by these programs—referred to as covered programs  in our report—with other subsidies to develop affordable housing from the  1960s through the 1980s. Although these programs are no longer used to  develop new units, many properties subsidized under these programs  continue to offer rental assistance to eligible low-income residents today.  However, upon contract expiration, owners of these properties will have  few options for renewing the assistance and will no longer be required to  maintain affordable rents or make their units available to low-income  residents.
HUD’s Rental Assistance Demonstration (RAD) program was created, in  part, to respond to this concern. Prior to the creation of RAD in 2011,  HUD had limited authority to extend the availability of rental assistance at  these properties when the contracts expired (or owners terminated them).  However, HUD would make tenant-protection vouchers available to the  residents living in these units to keep their rents affordable and prevent  them from being displaced. Tenant-protection vouchers are “tenant- based”—that is, tied to the resident, not the unit. When the resident with a  tenant-protection voucher leaves the unit, rental assistance is no longer  available at that unit. As a result, the number of permanent housing units  that target low-income residents and offer subsidized rents declines.
Among other things, the RAD program allows the owners of properties  receiving rental assistance under the covered programs to convert these  tenant-protection vouchers to project-based vouchers upon contract  expiration or termination. As preservation of affordable housing is one of  HUD’s goals for its housing policies, project-based vouchers tie the  assistance to the property—and preserve the property’s long-term  affordability—because residents with project-based vouchers can only  benefit from the subsidy if they remain in the specific unit. The  conversions result in a contract between the property owners and a public  housing agency (PHA), which administers the program. These  conversions are also intended to allow property owners to leverage  private debt and equity in order to address immediate capital needs.
The Consolidated and Further Continuing Appropriations Act of 2012  mandated that we review the long-term impact of conversions under RAD  on the ratio of project-based vouchers to tenant-based vouchers. This  report examines (1) how HUD has implemented RAD conversions of  tenant-protection vouchers to project-based vouchers for properties under  the covered programs; (2) how these conversions are expected to affect  the long-term percentage of project-based vouchers and costs to the  voucher program; and (3) how these conversions have affected selected  converted units and the housing choices available to assisted residents.
To address these objectives, we reviewed and assessed HUD guidance  and procedures for implementing the RAD program. Specifically, to  describe how HUD has implemented conversions of the covered  programs under RAD, we reviewed HUD’s RAD notices and guidance on  processes and procedures the agency uses to process applications  submitted for conversions. We compared HUD’s guidance and  procedures to the applicable federal internal control standards. We also  selected nine properties in four geographically diverse locations that  converted assistance to project-based vouchers, and we interviewed  HUD field office staff who had worked on those conversions. To describe  how conversions have affected the percentage of project-based vouchers  to tenant-based vouchers and costs to the voucher program, we obtained  and analyzed HUD data on conversions and data on the total number of  tenant-based and project-based vouchers as of March 1, 2014. We  assessed the reliability of the data by verifying that data fields, such as  the total number of units in a property, total number of units converted to  project-based vouchers, and dates for conversions, were reasonable and  consistent with our data request, and determined that the data were  sufficiently reliable for purposes of this report. We also obtained and  analyzed documentation from HUD to determine the impact of these  conversions on the budget. To determine how the conversions have  affected selected converted units and the housing choices available to  assisted residents, we interviewed the five property owners (or their  representatives) for the nine converted properties we selected, and we  interviewed assisted residents from the converted properties where  possible. We also interviewed officials representing property owners and  PHAs from the Council for Large Public Housing Authorities, the Public  Housing Authorities Directors Association, the National Association of  Housing and Redevelopment Officials, the National Affordable Housing  Management Association, and the National Leased Housing Association.
We conducted this performance audit from September 2013 through April  2014 in accordance with generally accepted government auditing  standards. Those standards require that we plan and perform the audit to  obtain sufficient, appropriate evidence to provide a reasonable basis for  our findings and conclusions based on our audit objectives. We believe  that the evidence obtained provides a reasonable basis for our findings  and conclusions based on our audit objectives.
subsections: section_title: Background
paragraphs: The RAD program was authorized by Congress in November 2011 under  the Consolidated and Further Continuing Appropriations Act of 2012. The  RAD program provides HUD the opportunity to test the conversion of  units subsidized under HUD’s public housing and certain other programs  to long-term (typically 15 to 20 years), project-based voucher or rental  assistance contracts—two forms of rental assistance that tie the  assistance to the unit in order to provide subsidized housing to low- income residents. The goals of the RAD program include maintaining the  affordability of federally assisted rental properties and improving their  physical and financial condition. Specifically, property owners and PHAs  (for the public housing program) can leverage the subsidy payments  under the newly converted contracts to raise capital through private debt  and equity investments to make improvements. The RAD program  consists of two components. The first component focuses on the  voluntary conversion of public housing properties, while the second  component of RAD—and the focus of our review—addresses the  following programs that provide subsidized rents to residents. The  project-based contracts under these programs—generally between HUD  and the owners of private rental housing—were entered into in the 1960s,  1970s, and 1980s, typically for terms of 15, 20, or 40 years. New  contracts cannot be authorized under these programs, and current  contracts are either not eligible for renewal or have limited contract  renewal provisions.
The Rent Supp program was authorized in Section 101 of the Housing  and Urban Development Act of 1965, which authorized rent  supplements on behalf of needy tenants living in privately owned  housing and was the first project-based assistance program for  mortgages insured by HUD’s Office of Housing. Eligible tenants pay  30 percent of the rent or 30 percent of their income toward the rent,  whichever is greater. The Rent Supp program provides payments  directly to the project owner to cover the difference between the  tenant’s payment and the HUD-approved rent. Rental assistance  under Rent Supp contracts is not eligible for renewal.
The RAP program was established by the Housing and Community  Development Act of 1974 to provide additional rental assistance  subsidies to property owners on behalf of very low-income tenants.  RAP was available only to Section 236 properties and was the  predecessor of the project-based Section 8 program. Eligible tenants  under the RAP program generally pay 30 percent of their monthly  adjusted income or 10 percent of gross income toward rents,  whichever is greater. HUD pays the difference between the tenant  payment and the HUD-approved rent directly to the owner. Rental  assistance under RAP contracts is not eligible for renewal.
The Mod Rehab program provides project-based rental assistance for  low-income families and is intended for housing units that require a  moderate level of repair. Contracts under the Mod Rehab program are  between the owner and PHA. Eligible tenants generally pay 30  percent of their monthly adjusted income toward rents. PHAs pay the  difference between the tenant payment and the approved rent directly  to the owner. Mod Rehab projects with expiring housing assistance  payment contracts are eligible for renewal, but renewal options are  limited in that the assistance is generally only renewed in the form of a  1-year contract, which makes it difficult for property owners to secure  financing for capital improvements.
Under RAD, owners may elect to apply for a long-term, project-based  voucher contract for their property rather than have PHAs provide eligible  residents tenant-protection vouchers when a property’s rental assistance  contract with HUD (or with a PHA in the case of the Mod Rehab program)  expires or the contract is terminated due to prepayment of the mortgage  (in the case of Rent Supp and RAP). Tenant-protection vouchers are a  type of assistance provided under the Housing Choice Voucher (voucher)  program. The voucher program pays subsidies to property owners to help  very low- and extremely low-income households rent units on the private  market. The voucher program currently serves over 2 million  households. PHAs administer the program on HUD’s behalf, including  special-purpose vouchers, such as tenant-protection, and project-based  vouchers. Eligible owners apply to HUD to request approval for the  conversions and must take specific steps and meet certain criteria, such  as notifying residents of the conversions, obtaining consent from each  resident who has already received a tenant-protection voucher in order to  convert their unit, and passing housing-quality-standards inspections for  the units proposed for conversion. Once approved, the conversions  allow the owners to convert their current assistance to long-term, project- based voucher contracts.
After the conversion, if residents decide to move, they would lose their  assistance because it is tied to the unit. However, project-based vouchers  provide a mobility option for residents. The mobility option for residents  allows them to apply for a tenant-based voucher from their local PHA and  be placed at the top of the PHA’s wait list for tenant-based vouchers after  having resided in the converted unit for 1 year. The ability of residents to  relocate, however, is subject to the availability of vouchers from the PHA.
As of March 2014, HUD had approved project-based voucher funding for  a total of 8,014 units, of which 6,670 units (61 properties) had their rental  assistance converted to project-based voucher assistance through RAD.  There is a high concentration of conversions in certain geographic areas  due to the Rent Supp and RAP programs being concentrated in these  areas. Specifically, a large percentage of conversions have taken place in  New York, Massachusetts, Michigan, and New Jersey (see fig. 1).  Approximately 38,000 affordable housing units continue to be assisted  under the Rent Supp, RAP, and Mod Rehab programs. This number  includes 22,233 Mod Rehab units within 385 projects; 4,713 Rent Supp  units within 89 projects; and 10,915 RAP units in 113 projects.
section_title: HUD Established an Effective Process for Conversions to Project-Based Vouchers under RAD
paragraphs: HUD has developed an effective process for managing applications and  implementing conversions of assistance to project-based vouchers under  RAD. Internal control standards for the federal government state that  properly communicating, executing, and documenting transactions related  to a program is critical to establishing effective implementation of that  program. HUD issued notices and hosted webinars to provide program  instructions and selection criteria for conversions under the RAD  program. HUD also developed a specific checklist for the processing of  applications to convert rental assistance under the covered programs to  project-based vouchers and created a database to track these  conversions. Property owners and PHA officials we spoke with generally  stated that HUD provided effective assistance throughout the conversion  process.
subsections: section_title: HUD Issued Notices and Hosted Webinars to Notify Applicants of the Availability of Conversions under the RAD Program
paragraphs: Federal internal control standards note the importance of open and  effective communication channels for the implementation of programs.  HUD issued an initial notice in March 2012 that authorized conversions  under RAD for the covered programs and sought comment through this  notice on eligibility and selection criteria for the conversions. HUD then  issued a final notice for implementation of the RAD program in July 2012  and a revision of the final notice in July 2013. HUD’s notices provided  guidance to owners of covered-program properties with instructions on  how to apply to convert the assistance their properties are receiving to  project-based vouchers. The notices also included requirements property  owners must meet, such as communicating with the local HUD field office  and expressing interest in the RAD conversion, contacting a PHA that  could potentially administer the project-based vouchers, and conducting  the required resident notifications and briefings on the conversions. The  July 2013 revised notice also included clarifications related to the  conversions. For example, the revised notice clarified that only occupied  units in a property are eligible to be converted to project-based vouchers.
HUD also took steps to communicate program requirements to property  owners, PHAs, and residents. For example, HUD conducted webinars for  property owners and PHAs on the process to apply for conversion,  required documentation, and time frames. HUD has established an online  resource desk that includes information and web links to various RAD  program resources, including a searchable list of frequently asked  questions that can be specifically sorted by questions related to  conversions under the covered programs. HUD’s RAD website also  contains an area specifically for residents to learn more about the RAD  program, how it may impact their assistance, and their housing choices.
section_title: HUD Developed Multiple Tools to Help Ensure Consistent Processing and Approval of RAD Applications
paragraphs: Federal internal control standards point to the importance of proper  execution and documentation of transactions when implementing  program procedures. HUD developed a specific checklist for the  processing of applications to convert rental assistance under the covered  programs to project-based vouchers. HUD field office staff who review  RAD applications that owners submit use the checklist to help ensure that  materials submitted by property owners are complete and meet HUD  requirements for conversion. For example, the checklist includes specific  fields for HUD field staff to indicate that the RAD applicant has supplied  the required resident notification material, such as a copy of the  notification letter to residents living at the property, any comments  received from residents regarding the potential conversions, and a copy  of the property owner’s responses to the residents’ comments. The  checklist also includes fields for other required information, such as  documentation of how many units are planned for conversion. HUD  headquarters officials we spoke with also told us that they conduct regular  conference calls with staff working on these applications in HUD field  offices. HUD officials explained that these conference calls help to ensure  that applications are being processed similarly nationwide.
HUD has also developed a RAD database to track and document  applications the agency receives for conversions, as well as their  progress. HUD’s database includes a tracking sheet for each project,  which provides information on the project, such as date the completed  RAD application was received, the number of units proposed for  conversion, and the expiration date of the current rental assistance the  project is receiving. The tracking sheet also includes a section specifically  for tracking the various stages of the conversion process, such as HUD’s  review of the application, the selection of the PHA, and HUD’s notification  of the owner that the application has been approved. The RAD database  also contains information on the conversions that have taken place, such  as the number of units for each project for which rental assistance was  actually converted to project-based vouchers based on HUD’s verification  of documentation once the conversions take place, and the PHAs that are  administering the vouchers. Similar data for projects going through the  conversion process are also available in the RAD database.
Property owners and PHA officials we spoke with generally stated that  HUD staff answered questions about the conversion process and  provided effective assistance to close projects. Most property owners we  spoke with stated that HUD readily answered questions about the RAD  conversion process and provided clarification on guidance when  necessary. For example, most property owners we spoke with stated that  HUD staff were present at the resident meetings, were effective at  explaining the process to residents, and helped residents understand that  the conversions under RAD to project-based vouchers would provide  rental assistance to keep their units affordable once the assistance their  units are currently receiving expires. Officials from most PHAs we spoke  with stated that HUD staff communicated regularly with them and  provided responses to questions regarding the conversion process. They  also stated HUD staff provided the necessary assistance to close projects  in a timely manner.
section_title: RAD Conversions Will Have a Small Effect on the Long- Term Percentage of Project-Based Vouchers
paragraphs: Conversions of rental assistance to project-based vouchers under the  covered programs have not substantially affected the overall percentage  of project-based vouchers. Further, the impact of the conversions on the  long-term percentage of project-based vouchers is limited to the  remaining contracts for the three programs—a relatively small number  compared to the overall voucher program. Additionally, these conversions  of rental assistance should not affect voucher program costs because  HUD uses the same calculation for providing budget authority for the  project-based vouchers converted under RAD as it does for calculating  budget authority for the tenant-protection vouchers.
subsections: section_title: RAD Conversions Have Had a Small Effect on the Percentage of Project- Based Vouchers
paragraphs: RAD conversions have had a small effect on the number and percentage  of total vouchers (project-based and tenant-based vouchers). Although  RAD has increased the number of project-based vouchers nationally, the  increase was not enough to substantially affect the overall percentage.  For example, as of March 1, 2014, there were 2,055,349 tenant-based  vouchers and 81,364 project-based vouchers—8,014 of which HUD  approved for funding RAD conversions. As a result, the percent of  project-based vouchers increased slightly from 3.45 to 3.81 percent (see  table 1).
RAD conversions can have a larger impact on the percentage of project- based vouchers for smaller PHAs compared to larger PHAs. For  example, the Brockton Housing Authority (Massachusetts)—a smaller  local PHA—had a total of 61 project-based vouchers prior to RAD  conversions of rental assistance under the covered programs. This PHA  now administers an additional 463 project-based vouchers for three  properties that converted rental assistance, for a total of 524 project- based vouchers out of 1,716 total vouchers. Since it has a small portfolio  of vouchers, the percentage of vouchers that are project-based increased  from about 5 percent to about 31 percent. Conversely, the percentage of  project-based vouchers for the Michigan State Housing Development  Authority—a larger state PHA—changed only slightly. This housing  agency added 495 vouchers to their 2,075 project-based vouchers, for a  total of 2,570 project-based vouchers. Since this PHA has a larger  portfolio of vouchers (24,113 total vouchers), the increase of project- based vouchers as a result of RAD did not substantially impact the  percentage of project-based vouchers, increasing it from about 9 percent  to about 11 percent. The remaining two PHAs we selected had a  percentage point difference between about 1 percent and 2 percent in  project-based vouchers due to RAD conversions. Table 2 summarizes the  number and percentage of project-based vouchers for the PHAs we  analyzed.
Based on completed RAD conversions and the small number of potential  remaining conversions, the effect of RAD conversions on the long-term  percentage of project-based vouchers will be relatively small. Specifically,  the change in the long-term percentage of project-based vouchers is  limited to the remaining contracts for the covered programs. The  remaining active contracts for the Rent Supp, RAP, and Mod Rehab  programs include about 38,000 units, which is relatively small compared  to the over 2 million vouchers currently assisting low-income residents.  Further, not all of the units are likely to be converted to project-based  vouchers. Even if all of these units were converted as of March 1, 2014,  the maximum change in the nationwide percentage of project-based  vouchers would be an increase from 3.45 percent to 5.48 percent. Finally,  HUD funding of RAD conversions is limited by the availability of funding  for tenant-protection vouchers.
section_title: Conversions to Project- Based Vouchers Should Not Affect Voucher Program Costs
paragraphs: On the basis of our review of HUD documentation, conversions to project- based vouchers should not affect voucher program costs compared to  providing tenant-protection vouchers. HUD documentation on the  conversion process shows that HUD uses the same calculation for  providing budget authority for the project-based vouchers converted  under RAD as it does for calculating budget authority for the tenant- protection vouchers. Specifically, when HUD issues tenant-protection  vouchers to protect residents from rent increases upon the expiration of  rental assistance, a local PHA with jurisdiction in the area is selected to  administer the tenant-based vouchers. HUD then determines the budget  authority for these vouchers by calculating the PHA’s average per-unit  per-month cost of all the vouchers, and multiplying that amount by the  number of eligible households receiving tenant-protection vouchers. That  funding is then added to the PHA’s voucher budget authority.
For example, for a property that converted to project-based vouchers  under RAD in the state of Washington, a total of 35 units were eligible for  conversion to project-based vouchers upon expiration of a Rent Supp  contract on July 31, 2013. The average per-unit per-month cost of that  property’s administering PHA’s voucher program was $475. Therefore,  the total cost of the tenant-protection vouchers per month would have  been $16,625 (35 residents x $475). Because RAD allows for the  conversion of tenant-protection vouchers to project-based voucher  contracts, HUD used the same exact calculation to fund the 35 project- based vouchers that were funded for this property. As such, conversions  of the tenant-protection vouchers to project-based vouchers under RAD  would result in the same amount used to fund the project-based vouchers  that would have funded the tenant-protection vouchers. Additionally,  tenant-based and project-based voucher subsidies are generally subject  to the same payment standard limits. The subsidies are based on  payment standards that cannot exceed 110 percent of the fair-market rent  established by HUD for standard rental housing given the unit size the  voucher will be used for in that area.
Program requirements that allow assisted households with project-based  vouchers to move to a different unit will not add to the cost of these  conversions. According to project-based voucher regulations, residents  with a converted project-based voucher can move after a year of residing  in the unit and be eligible for a tenant-based voucher. The project-based  voucher would remain available for another eligible household, and the  household intending to move would be placed on the PHA’s waitlist for  the next voucher that becomes available (i.e., after another voucher  holder exits the program). As a result, households with project-based  vouchers that move to another unit and continue receiving voucher  assistance would not increase the net number of vouchers and the  amount of funding required.
section_title: Stakeholders Generally Viewed RAD Conversions of Covered Program Units as Useful in Preserving Affordable Housing
paragraphs: Stakeholders we spoke with generally said that the RAD program is a  useful tool in helping to preserve affordable housing and improve units  converted to project-based vouchers. Furthermore, residents, property  owners, and PHA officials we spoke with told us that residents’ housing  choices have not been negatively impacted by the conversions.
subsections: section_title: Stakeholders Utilized RAD Conversions to Preserve and Improve Affordable Housing Units
paragraphs: Property owners, PHAs, residents, housing organizations, and a housing  expert we spoke with generally viewed the RAD program as a useful tool  for preserving affordable housing. For example, representatives of a  property owner involved in a large number of conversions told us that  without RAD, they would not have preserved as many of the affordable  housing units as they have, and that those units would have most likely  been lost as affordable housing. Also, one housing expert said that RAD  provides a good mechanism for keeping properties with expiring  assistance in the affordable housing pool and putting them on a long-term  plan that can better maintain the property. Officials from the Brockton  Housing Authority (Massachusetts) stated that if the owner of a cluster of  properties in its jurisdiction had not converted, the units would have  become market rent units, and would no longer be affordable to low- income residents. Further, a housing expert and some housing officials  stated that these conversions represent the last opportunity to preserve  project-based assistance for expiring units under the Rent Supp, RAP,  and Mod Rehab programs. According to HUD data, contracts subsidizing  a total of 15,628 units under Rent Supp and RAP will be expiring in the  coming years, and about half of these units (7,274 units) are scheduled to  expire in fiscal year 2016 alone (see fig. 2).
All five property owners we spoke to—representing nine properties—had  recapitalized their properties or planned to do so in order to conduct  major rehabilitation on the sites we selected. All are utilizing or  considering low-income housing tax credits—eligible developers can  obtain and “sell” low-income housing tax credits to investors to raise  capital (or equity) for their projects. The long-term (typically 15 year)  project-based voucher contract provides a stable subsidy that can be  used to attract investors and strengthen the underwriting. PHA officials  and HUD field office staff who administer and oversee RAD conversions  to project-based vouchers consistently told us that, in their experience,  most property owners plan to recapitalize or have recapitalized their  properties, in order to rehabilitate the property. The following are  examples of recapitalization and rehabilitation for some of the property  owners (or their representatives) we spoke with.
The owners of a property located in Michigan that converted under  RAD recapitalized in order to rehabilitate a substantial part of the  property. This recapitalization included refinancing with a long-term  mortgage. In addition, the long-term project-based voucher contract  allowed the owners to obtain a competitive low-income housing tax  credit that provided significant funds to use toward repairs. The  owners of the property stated that they completed upgrades to 160  units and common areas that totaled about $8 million. This  rehabilitation was completed at the end of December 2013. The types  of rehabilitation included new cabinets, carpet, vanity, windows, and  heating and cooling systems.
The owner of a converted property in California, told us that the  property will undergo about $11 million in comprehensive  rehabilitation by early 2015. The owner said he utilized low-income  housing tax credits and other financing tools. The rehabilitation will  include new flooring, kitchens, bathrooms, windows, doors, and  appliances. For the exterior, the owner plans to install a new roof,  paint the exterior, and add community gardens and a playground,  among other improvements.
For one of the largest clusters of properties to have converted thus  far—a set of three buildings located in the Bronx, New York— representatives of the property owners estimated that there will be  about $75 million spent on rehabilitation for the three buildings that  were converted, covering over 1,200 units. In order to fund the  rehabilitation, the owner’s representatives said they utilized low- income housing tax credits and other financing tools. The  rehabilitation is scheduled to be completed by 2016 and includes  major upgrades to units (including bathrooms and kitchens), common  areas, site improvements, a more efficient heating system, and  improvements to the exteriors of the three buildings. Figure 3 shows  what the planned rehabilitation for each unit’s bathrooms and kitchen  will look like based on a unit that has already been renovated in one  of the buildings.
section_title: Stakeholders and Residents Generally Said That Residents’ Housing Choices Have Not Been Negatively Impacted
paragraphs: Residents, property owners, and PHA officials we spoke with generally  told us that residents’ housing choices have not been negatively impacted  by the conversions. Conversions to project-based vouchers include a  mobility feature for residents who would like to move after living in a  converted unit for 1 year. A few housing officials we spoke to stated that  the mobility feature could create resident turnover because if residents  decide to leave the unit after 1 year, they would be placed at the top of  the administering PHA’s tenant-based voucher waiting list. This may  negatively impact individuals who have been on the voucher waiting list  because they may have to wait longer to receive a voucher, depending on  availability. Residents, property owners, and PHAs for the most part told  us that resident mobility did not seem to be an issue at the properties we  visited, but some also stated that it may be too soon to tell because the 1- year waiting period for resident mobility had not yet passed. For example,  one PHA official told us that in low-vacancy areas—including those where  RAD conversions to project-based vouchers are taking place— preservation of these units, particularly when rehabilitation is included,  results in residents preferring to stay in their units and not wanting to be  relocated. The official explained that in New York City, for example, it can  be difficult and costly to find units; as a result, residents would prefer to  not relocate if they are satisfied with the unit they are living in. Further,  residents we spoke to at three properties told us that they were planning  on staying at the property, so mobility was not a concern for them. The  residents also said that they had a good experience with the RAD  conversion process and were happy with the program because it allowed  them to stay in their current unit and continue to receive rental assistance.  Since renovations at the residents’ properties had not yet begun,  residents we spoke with were not able to comment on improvements as a  result of the conversions.
section_title: Agency Comments
paragraphs: We provided a draft of this report to HUD for review and comment. HUD  did not provide written comments, but did provide technical comments,  which we incorporated, as appropriate.
We are sending copies of this report to interested congressional  committees and HUD. The report also is available at no charge on the  GAO website at http://www.gao.gov. If you or your staffs have any  questions about this report, please contact Daniel Garcia-Diaz at (202)  512-8678 or garciadiazd@gao.gov. Contact points for our Offices of  Congressional Relations and Public Affairs may be found on the last page  of this report. GAO staff who made major contributions to this report are  listed in appendix II.
section_title: Appendix I: Objectives, Scope, and Methodology
paragraphs: This report examines aspects of the second component of HUD’s Rental  Assistance Demonstration (RAD) program, which allows the owners of  properties receiving rental assistance under the Department of Housing  and Urban Development’s (HUD) Rental Supplement (Rent Supp), Rental  Assistance Payment (RAP), and Moderate Rehabilitation (Mod Rehab)  programs—referred to as covered programs—to convert tenant-protection  vouchers to project-based vouchers upon contract expiration or  termination. Specifically, this report examines (1) how HUD has  implemented RAD conversions of tenant-protection vouchers to project- based vouchers under the covered programs; (2) how these conversions  are expected to affect the long-term percentage of project-based  vouchers and costs to the voucher program; and (3) how these  conversions have affected selected converted units and the housing  choices available to residents.
To examine how HUD has implemented conversions to project-based  vouchers, we reviewed RAD program notices and documentation on  processes and procedures the agency uses to process applications  submitted for conversions. We also reviewed documentation on what  information HUD collects for the conversions and how the conversions  are tracked throughout the various stages of the application process. We  also reviewed HUD’s online RAD resources and webinars for explaining  the RAD program. We compared HUD’s guidance and procedures to the  applicable federal internal control standards. We selected nine properties  in four geographically diverse locations (California, Massachusetts,  Michigan, and New York) that participated in the conversions, and we  spoke with cognizant officials from the HUD field offices in these  locations. We selected the nine properties to reflect a mix of properties  that have converted under RAD based on the following factors: (1)  number or units converted at the property; (2) the program that the  property was receiving rental assistance under (Rent Supp, RAP, or Mod  Rehab); (3) the location of the property (urban or nonurban); and (4)  geographic dispersion.
To describe how conversions have affected the percentage of project- based vouchers to tenant-based vouchers, we obtained and analyzed  HUD data on conversions and vouchers. The voucher data included the  total number of tenant-based and project-based vouchers and the number  of project-based vouchers created as a result of RAD conversions as of  March 1, 2014. We calculated the percentage of vouchers that are  project-based and assessed the extent to which RAD conversions to  project-based vouchers affected the percentage. We assessed the  reliability of RAD and voucher data by verifying data fields, such as the  total number of units in a property, total number of units converted to  project-based vouchers, and dates for conversions. We also performed  other electronic tests, such as comparing data to different sources, and  we conducted interviews with knowledgeable agency officials. We found  that RAD conversion and voucher data were sufficiently reliable for our  purposes. We also obtained and analyzed documentation from HUD to  determine the impact of these conversions on the budget. Specifically, we  examined HUD documentation on conversions to project-based vouchers  and the costs of funding tenant-protection vouchers (absent RAD) when  the rental assistance would have expired compared to the funding of  project-based vouchers (through the RAD conversion). We also  interviewed public housing agency (PHA) and HUD officials regarding the  potential impact of the conversions on the costs of the voucher program.
To examine how the conversions have affected selected converted units  and the housing choices available to residents, we conducted  nongeneralizable interviews with the five property owners (or their  representatives) representing the nine converted properties we selected,  and we interviewed residents from the three converted properties we  visited as we were able to schedule meetings with residents on-site. We  also interviewed officials from the PHAs administering the vouchers for  the converted properties and HUD field office staff who oversaw the  conversions for the nine selected properties. Additionally, we interviewed  officials representing property owners and PHAs, such as the Council for  Large Public Housing Authorities, the Public Housing Authorities Directors  Association, the National Association of Housing and Redevelopment  Officials, the National Affordable Housing Management Association, and  the National Leased Housing Association.
We conducted this performance audit from September 2013 to April 2014  in accordance with generally accepted government auditing standards.  Those standards require that we plan and perform the audit to obtain  sufficient, appropriate evidence to provide a reasonable basis for our  findings and conclusions based on our audit objectives. We believe that  the evidence obtained provides a reasonable basis for our findings and  conclusions based on our audit objectives.
section_title: Appendix II: GAO Contact and Staff Acknowledgments
subsections: section_title: GAO Contact
section_title: Staff Acknowledgments
paragraphs: In addition to the contact named above, Paul Schmidt (Assistant  Director), Tarek Mahmassani, John McGrail, Jessica Sandler, Jennifer  Schwartz, Jena Sinkfield, Andrew Stavisky, and Verginie Tarpinian made  key contributions to this report.