Public Housing: New Assessment System Holds Potential for Evaluating Performance
Published: 2002-03-15T00:00:00

Fast Facts:

Highlights:
section_title: What GAO Found
paragraphs: The Department of Housing and Urban Development (HUD) spends $7 billion annually to provide decent, safe, and sanitary housing for low-income households in about 14,000 rental properties nationwide. Yet, many public housing properties have been unsafe and unsanitary for several decades. To identify and correct these problems, HUD began a Public Housing Assessment System (PHAS) to evaluate the performance of public housing authorities. Although HUD is still testing and revising PHAS, it has begun to designate certain housing authorities as troubled and to assign them to recovery centers, where they receive technical and other assistance. HUD also created the Public and Indian Housing Information Center (PIC) database to collect information on funding, compliance, and other problems that fall outside the scope of PHAS. PHAS includes four performance indicators: (1) the physical condition of the properties, (2) the financial condition of the housing authority, (3) the authority's management operations, and (4) residents' satisfaction with their living conditions. HUD develops a score for each indicator and, starting in this fiscal year, plans to use the scores for all four indicators to determine whether housing authorities are troubled. So far, HUD has used only the management operations score to designate housing authorities as troubled. The PIC risk assessment uses the total PHAS score and information about funding and compliance issues to classify troubled and nontroubled housing authorities as high, moderate, or low risk. According to HUD, the field offices focus their monitoring resources on the nontroubled high-risk authorities in an effort to correct their problems before the authorities are designated as troubled. GAO found inconsistencies between the PHAS and PIC assessment. The five public housing authorities GAO visited, which had not been designated as troubled under PHAS but had been classified as moderate to high risk under PIC, had various problems. However, even under the same authority, some developments were well or adequately maintained, while others had cosmetic, structural, or health and safety problems. HUD may provide technical assistance at a housing authority through either a field office team or a troubled agency recovery center. HUD may also impose sanctions on a housing authority or intervene in its operations to compel the authority to correct problems. For more serious, long-standing problems, HUD may put a housing authority into receivership. In some instances, HUD may enter into special agreements with housing authorities, giving them the flexibility to address unique problems. Although these options have the potential for solving problems at public housing authorities, it is still to early to evaluate their effectiveness. Moreover, in the past, the options have not always fully addressed the problems or the housing authorities have not sustained the improvements. Refer to the accompanying video, Public Housing Today (GAO-02-1040SP).

section_title: Letter
paragraphs: The Department of Housing and Urban Development (HUD) spends nearly  $7 billion annually to provide decent, safe, and sanitary housing for low- income households in about 14,000 rental properties administered by over  3,000 public housing authorities nationwide.  Yet despite expenditures of  this magnitude, many public housing properties have been unsafe and  unsanitary for several decades.  To identify and correct these and other  problems at public housing properties, HUD has begun to implement a new  tool—the Public Housing Assessment System (PHAS)—for evaluating  public housing authorities’ performance.  Although HUD is still testing and  revising PHAS, it has begun to use the results of the PHAS analysis to  designate certain housing authorities as troubled and to assign them to  recovery centers, where they receive technical and other assistance to  correct their problems.  In addition, HUD established the Public and Indian  Housing Information Center (PIC) database to collect information about  funding, compliance, and other problems that fall outside the scope of  PHAS.  PIC generates a risk assessment for HUD field offices to use in  planning their monitoring strategies and targeting their monitoring  resources.  Both PHAS and PIC collect data for all public housing  authorities, and these data are used for different but complementary  purposes.
Concerned about conditions at public housing authorities and how those  conditions are measured, you asked us to   identify HUD’s criteria for designating housing authorities as troubled  under PHAS and for classifying them as high risk under PIC and  determine whether the results of the PHAS and PIC analyses are  consistent;  describe the kinds of problems found at housing authorities that have  not been designated as troubled under PHAS but have been classified as  high risk under PIC; and  identify HUD’s options for addressing problems at housing authorities,  regardless of whether they have been designated as troubled, and  examples of the options HUD has used at nontroubled authorities that  pose high risks.
In addition, as requested by your office, we determined the extent to which  problems occur at all public housing authorities.  The results of this  analysis, which were based on PHAS and PIC data, are discussed in  appendix I.
To address these objectives, we analyzed PHAS and PIC data to identify  problems at troubled and nontroubled public housing authorities;  interviewed HUD headquarters and field staff; and reviewed public housing  laws, policies, and procedures.  We visited four public housing authorities  that had not been designated as troubled but had been classified as high  risk at the time of our review—the Camden Housing Authority, the Chicago  Housing Authority, the Housing Authority of New Orleans, and the San  Francisco Housing Authority.  In addition, because of serious problems that  have sparked intense congressional interest, we visited the Puerto Rico  Public Housing Administration.  We provide background information on  these five housing authorities in appendixes III through VII—that is,  historical problems, HUD’s role and corrective actions, and current status  and challenges.  Our scope and methodology are discussed in greater detail  at the end of this letter.  This is one of several engagements we have  planned to assess problems in public housing and to evaluate the corrective  actions that HUD and public housing authorities have taken.
subsections: section_title: Background
paragraphs: HUD is required by law to assess the performance of public housing  authorities so that the secretary of housing can evaluate the authorities’  performance in all major areas of management operations.  In response to  this law, HUD introduced the Public Housing Management Assessment  Program (PHMAP) in 1992.  Though designed to evaluate housing  authorities’ performance, PHMAP was based on self-certification, and, by  1998, about two-thirds of the authorities had certified themselves as high  performers.  Furthermore, PHMAP did not provide for either an  independent physical inspection or input from the public housing residents  themselves.  An authority could be classified as a standard or a high  performer even though its residents were living in conditions that HUD  considered unacceptable.
In 1997, as part of its 2020 Management Reform Plan, HUD instituted a new  approach for evaluating public housing authorities’ overall performance  and for helping them improve their performance.  The approach includes  the following components:  PHAS is designed to obtain an independent evaluation of an authority’s  overall operations, including the physical condition of its housing, the  soundness of its financial operations, the effectiveness of its  management operations, and the extent to which residents are satisfied  with their services and living conditions.
The Real Estate Assessment Center (REAC) collects and analyzes PHAS  data and provides for independent physical inspections of HUD’s 14,000  public housing properties as well as for analyses of their financial  condition and surveys of residents’ satisfaction.
Two Troubled Agency Recovery Centers assist those authorities that fail  the PHAS evaluation and are designated as troubled or substandard as  well as those that voluntarily seek technical support from the centers.
A statute requires that a housing authority be placed into receivership if  it is unable to turn around failing management and escape troubled  status within 2 years.
HUD began collecting data for all four PHAS indicators in 1998, and for  fiscal year 1999, it computed, for each housing authority, a score for each  indicator as well as a total PHAS score.  HUD used these scores to test the  system but not to classify housing authorities’ performance.  For public  housing authorities whose fiscal years ended on or after June 30, 2000,  HUD planned to implement PHAS fully; however, the Congress directed  HUD to conduct further testing and to obtain an independent evaluation of  PHAS before using its scores as a basis for taking adverse actions against  public housing authorities.  Interpreting the term “adverse action” to mean  the designation of a housing authority as troubled on the basis of its total  PHAS score, HUD decided to use the score for the management operations  indicator alone to classify performance for fiscal year 2000.  This decision,  in effect, perpetuated PHMAP, since the management operations indicator  served as the sole criterion for classifying performance under PHMAP.
HUD’s Office of Public and Indian Housing, which administers the public  housing program, uses PIC, an Internet-based information system, to  generate a risk assessment for the nation’s 14,000 public housing  properties.  HUD’s 43 field offices can then use the results of this  assessment to plan their annual monitoring strategies.  The field offices are  also responsible for approving the housing authorities’ annual plans and  monitoring their compliance with their annual contributions contracts as  well as their progress in responding to the HUD Inspector General’s  conclusions and recommendations.
section_title: PHAS and PIC Establish Criteria for Identifying Performance Problems
paragraphs: HUD uses PHAS and PIC to assess public housing authorities’  performance.  PHAS includes four performance indicators, which HUD  scores and plans to use for designating housing authorities as troubled.  In  most cases, HUD then refers troubled authorities to a recovery center for  rehabilitation.  To date, HUD has only partially implemented PHAS, using  the score for just one indicator to designate authorities as troubled.   Housing authorities self-certify the data for this indicator, whereas the data  for the other indicators are based on independent assessments.  As of  December 3, 2001, 21 of 3,167 authorities were designated as troubled.  Our  analysis indicates that when HUD fully implements PHAS, using the scores  for all four indicators as planned, it should designate many more  authorities as troubled.  HUD is currently revising PHAS, attempting to  make it more responsive to the concerns of residents and the public  housing industry, before implementing it fully.  In addition to PHAS, HUD  uses the PIC risk assessment to classify troubled and nontroubled housing  authorities as high, moderate, or low risk and to focus its monitoring  resources primarily on the nontroubled high-risk authorities to prevent  them from being designated as troubled.  According to our analysis, 12 of  the troubled authorities were classified as low risk, and 1 of these  authorities, which was not referred to a recovery center, was scheduled to  receive only limited monitoring from the supervising field office.  HUD  agreed that all troubled authorities should be classified as high risk to  better ensure that they receive sufficient monitoring.
subsections: section_title: PHAS Uses Four Indicators
paragraphs: Each year, HUD measures the essential housing operations of public  housing authorities through PHAS—a system intended to improve the  delivery of services in public housing and to enhance trust in the public  housing system among public housing authorities, public housing  residents, HUD, and the general public.  PHAS scores determine (1) how  HUD designates a housing authority (troubled overall, troubled in one area,  standard performer, or high performer); (2) which HUD office will be  responsible for overseeing the housing authority; and (3) whether the  housing authority will be eligible for certain bonus funding.  REAC is  responsible for assessing and scoring the performance of public housing  authorities.
The four PHAS indicators measure different aspects of a housing  authority’s performance.  Each indicator receives a score that is based on  specific types of data.
The physical condition indicator is used to determine whether the  housing authority is providing decent, safe, and sanitary housing to its  residents.  Its score is based on an independent physical inspection of  the authority’s properties provided by REAC.  The public housing  industry has expressed concerns about the reliability of these  inspections.
The financial condition indicator measures whether the housing  authority has sufficient financial resources and is capable of effectively  managing those resources. Its score is based on audited and unaudited  financial data that the authority is required to submit to HUD each year.
The management operations indicator measures housing authorities’  management performance.  Its score, like PHMAP’s, is based on self- certified data submitted by the public housing authorities.  As we  previously reported, HUD cannot ensure the reliability of this indicator  because it does not have a systematic way to verify the authorities’ self- certified data.
The resident service and satisfaction indicator measures residents’  satisfaction with their living conditions.  Its score is based on data  obtained through a survey of the residents and an evaluation of the  extent to which the public housing authority manages the process in  accordance with a methodology prescribed by HUD.
Each of the four PHAS indicators is scored individually.  Public housing  authorities can receive a maximum of 30 points each for the physical,  financial, and management indicators and a maximum of 10 points for the  resident service and satisfaction indicator, for a maximum total score of  100 points.  HUD’s regulations classify housing authorities on the basis of  their scores as follows:  Overall troubled:  Less than 60 percent overall or less than 60 percent of  the points available under more than one of the three major (physical,  financial and management) indicators.
Troubled in one area:  Less than 60 percent of the points available under  any one of the three major indicators:  substandard physical,  substandard financial, or  substandard management.
Standard:  At least 60 percent but less than 90 percent overall and at  least 60 percent of the points available under each of the three major  indicators.
High:  90 percent or more overall and at least 60 percent of the points  available under each of the four indicators.
section_title: Full Implementation of PHAS Is Likely to Result in More Troubled Designations
paragraphs: For fiscal years 2000 and 2001, HUD used the scores for the management  operations indicator alone to designate housing authorities as troubled.   Thus, the authorities that were designated as troubled in these years were,  in fact, troubled in one area—management—rather than overall.   According to our analysis of the fiscal year 2001 scores for the management  indicator, 45 of 3,167 authorities were troubled.  Had HUD used the scores  for all four indicators to designate performance in fiscal year 2001, as it  plans to do in fiscal year 2002, our analysis indicates that it could have  designated as many as 90 public housing authorities as troubled overall and  442 others as troubled in one area.  Table 1 presents the results of our  analysis.
The number of housing authorities designated as troubled changes over  time as housing authorities take corrective action and resolve their  problems or demonstrate to HUD through an appeals process that the  troubled designation is inappropriate.  Thus, although our analysis  identified 45 housing authorities with troubled management as of  September 30, 2001, this number declined as the authorities worked with  the recovery centers or field offices to correct their problems.  As of  December 3, 2001, 21 authorities were designated as troubled under the  management indicator.
When HUD fully implements PHAS, the number of troubled designations is  likely to increase and the workload for the recovery centers therefore  could rise dramatically.  According to HUD’s regulations, housing  authorities that are designated as either troubled overall or troubled in one  area shall be referred to a recovery center.  In practice, HUD field offices  sometimes continue to oversee troubled housing authorities, but most of  those with troubled management have been referred to the recovery  centers.  For fiscal year 2001, for example, 20 of the 21 troubled authorities  were assigned to the recovery centers.  Figure 3 shows how the recovery  centers’ workload could increase if all of the authorities that would be  designated under all four indicators as troubled overall or troubled in one  area in fiscal year 2001 were referred to the centers.
HUD did not believe that such potentially large increases in workload  would be a problem for the recovery centers.  According to HUD, each  center is staffed to monitor between 150 and 175 housing authorities, and  not all authorities would be referred to the centers at the same time.  In  addition, HUD noted that the field offices can continue to monitor some  troubled housing authorities.
section_title: HUD Is Revising PHAS before Implementing It Fully
paragraphs: Before implementing PHAS fully, HUD is obtaining input from stakeholders  and revising the system in an effort to make it more responsive to the  stakeholders’ concerns.  In 2001, HUD met with representatives of housing  authorities, residents, housing advocacy groups, and other government  agencies to make interim modifications to PHAS.  These stakeholders  recommended a number of changes that they believed would improve the  system.  For example, they recommended that the physical inspection score, which was based on five components, be based on the two  components that have the greatest impact on residents’ living conditions— that is, building systems and dwelling units.  The stakeholders also  recommended some changes for the management operations indicator and  suggested that the resident service and satisfaction indicator continue to be  worth 10 points and be counted in the total scores and performance  designations for public housing authorities.
HUD plans to move forward with the modifications to PHAS, using the  stakeholders’ recommendations as guidelines, and to complete the  modifications in time to use the scores for all four indicators to evaluate  public housing authorities’ performance in fiscal year 2002.  HUD intends  to continue the 100-point scoring system and to maintain the overall  troubled designation for any housing authority that scores less than 60  points.  In addition, according to HUD, public housing authorities  designated as high performers (those scoring 90 points or more) will  receive regulatory relief and bonus points for funding competition.  Finally,  HUD plans further improvements to PHAS over the long term that could  lead to an assessment system that, according to HUD officials, would differ  dramatically from the current system.
section_title: PIC Does Not Classify All Troubled Housing Authorities as High Risk
paragraphs: HUD field offices use the PIC risk assessment to identify housing  authorities under their jurisdiction that are having serious problems and to  devise monitoring strategies to address those problems before the  authorities are designated as troubled.  The risk assessment takes three  factors into account and assigns different weights to each of them.   Specifically, the risk assessment considers   the total PHAS score, weighted at 50 percent;  funding issues that lie outside the scope of PHAS, including funds that  are available but not obligated and the number and complexity of active  programs, weighted at 30 percent; and   compliance issues identified in audit reports, weighted at 20 percent.
In addition, PIC includes data on “qualitative factors” that HUD field offices  provide for housing authorities that they plan to visit.  Such factors include  major audit findings, concerns raised by another group or department  about a housing authority, court actions or situations that restrict a housing  authority’s management, significant and repeated delays in submitting  required information, and claims by tenants that something was done  improperly.  These factors provide additional context for the risk  assessments.
The PIC risk assessment uses a 100-point scale to reflect the housing  authorities’ PHAS scores, funding issues, and compliance issues as  weighted in the risk assessment:  Low risk: 0 to 44 points  Moderate risk: 45 to 64 points  High risk: 65 to 100 points According to our analysis, the vast majority of housing authorities, whether  troubled or nontroubled, were classified as low risk or high risk.  Figure 4  shows the breakdown, by risk level, for the 45 housing authorities that our  analysis identified as troubled and for the 3,121 housing authorities that  were nontroubled as of September 30, 2001.
The classification of any troubled housing authority as low risk is  inconsistent with the severity of the problems indicated by the troubled  designation.  This inconsistency would probably not affect troubled  authorities assigned to recovery centers, since they would be compelled to  take corrective action, regardless of their risk level.  However, troubled  authorities that are not assigned to recovery centers but remain under field  office supervision might not receive sufficient monitoring attention if they  were classified as low risk because the field offices target their monitoring  resources according to risk level.  The one troubled low-risk authority we  identified that was not assigned to a recovery center was scheduled to  receive routine monitoring—the lowest level of monitoring.  This housing  authority may not receive the attention it needs from HUD to correct the  problems that led to its troubled designation.  HUD officials could not  explain the apparent anomaly, but, according to one official, all troubled  housing authorities should be considered high risk.  HUD plans to address  this flaw in the risk assessment.
section_title: At Some Nontroubled Housing Authorities, Unsatisfactory Living Conditions Stemmed from Management Deficiencies
paragraphs: The five public housing authorities we visited, which have not been  designated as troubled under PHAS but have been classified as moderate to  high risk under PIC, exhibited a wide range of problems.  However, many  developments at these authorities were well or adequately maintained.  The  problems at other developments varied in their severity and, in the worst  cases, created unsafe and unsanitary living conditions for residents.  These  problems are, in large part, the results of management deficiencies,  including poor procurement practices, fraud and abuse, and weak  management of maintenance and modernization programs.  Such  deficiencies—which can themselves be traced to frequent management and  staff turnover, insufficient training, and weak internal controls—divert  funds from their intended uses and create repair and capital improvement  backlogs.  Comprehensive data are not readily available to determine  whether conditions at the housing authorities we visited are representative  of conditions at nontroubled high-risk authorities nationwide.  However,  our analysis of PIC data for fiscal year 2001 shows that factors indicative of  management problems—such as staff with insufficient skills,  disagreements between the housing board and management, and major  audit findings (including noncompliance with procurement requirements,  fraud and abuse, and ineffective management of modernization  programs)—are more likely to be found at nontroubled high-risk housing  authorities than at nontroubled low-risk housing authorities (see app. II).
subsections: section_title: Property and Living Conditions Vary, but Deterioration Creates Health and Safety Hazards for Residents of Some Properties
paragraphs: At the five public housing authorities we visited, property and living  conditions varied, often from one development to another within the same  authority.  At the Puerto Rico Public Housing Administration, for instance,  some developments were well-maintained, as shown in figure 5, while  others had deteriorated to varying degrees, as shown in figure 6.  Figures 7  and 8 illustrate health (termites and mold and mildew) and safety (exposed  wiring and open electric meters) hazards.  Figures 9 through 13 illustrate  some of the problems we observed at the other public housing authorities  we visited.
The physical problems we observed at the five housing authorities we  visited stemmed in large part from deficiencies in the quality of the housing  authorities’ management. At the five authorities we visited, problems such  as poor procurement practices, fraud and abuse, and weak administration  of maintenance and modernization programs contributed to the physical  problems we observed at some developments.
section_title: Poor Procurement Practices Waste Funds and Delay Projects
paragraphs: Poor procurement practices have been a problem at most of the housing  authorities we visited.  Before being placed into receivership, for example,  the Camden Housing Authority failed to comply with its own procurement  policies and federal procurement regulations. Noncompliance with  federal procurement practices was also found at the San Francisco  Housing Authority, in March 2000 as well as at the Puerto Rico Public  Housing Administration, where the Inspector General classified as  ineligible about $21.8 million of $39 million in procurements reviewed. In  addition, the Inspector General found that the Puerto Rico housing  authority did not effectively monitor the activities of its management  agents or maintain adequate property management and related  procurement documents.
Sound procurement plans, policies, and procedures are crucial for public  housing authorities, particularly those that have largely replaced their own  staff with contractor staff.  At the Chicago Housing Authority, for example,  the staff has declined from about 2,600 to 500 employees, and, in Puerto  Rico, fewer than 100 of 4,500 housing authority employees remain.  These  remaining staff are responsible for hiring and overseeing the contractors.   However, the authorities often lack adequate procurement plans, policies,  and procedures; continuity in management and staffing; and managers and  staff with the training needed to oversee and implement procurements  effectively.
At the Puerto Rico Public Housing Administration, a lack of adequate  procurement policies and procedures led to many of the housing  authority’s procurement problems.  For example, the authority’s  procurement regulations, policies, and procedures did not comply with  federal requirements.  As a result, the authority was not implementing  federal requirements for planning, soliciting, and awarding purchase orders  and contracts.  As early as 1994, the Inspector General and HUD program  officials began recommending that the housing authority develop and issue  a procurement manual and improve its procurement records.
High turnover rates and other changes in roles and responsibilities also  contribute to procurement problems.  At some of the housing authorities  we visited, frequent changes in managers and staff were among the causes  of uncertainty over who was in charge of awarding, reviewing, and  monitoring contracts.  The Housing Authority of New Orleans, for example,  has had four different one-person housing boards of directors since 1997  and three executive directors in the past 6 years.  In part because of these  many changes in leadership, it was not clear who was finally responsible  for approving contracts.  Similarly, at the San Francisco Housing Authority,  there appeared to be confusion and some tension over whether the board  of commissioners, the recovery center, the field office, or HUD  headquarters had the final word in approving and reviewing contracts.   According to the current acting executive director, the San Francisco  Housing Authority has had 10 different executive directors in the past 10  years.
Insufficient training for managers and policymakers, as well as for staff, is  another cause of procurement problems.  For example, the HUD Inspector  General found that the San Francisco Housing Authority’s management and  board of commissioners did not follow federal procurement policies and  procedures and recommended that HUD sanction the executive director  and the board.  Later, one of the HUD recovery centers provided  procurement training to the board and began reviewing all contracts over  $50,000.  Similarly, the Inspector General found that procurement problems  in Puerto Rico existed because the housing authority’s management  disregarded federal requirements and therefore was incapable of  administering the procurement program.  In October 2000, HUD  headquarters sent a team to Puerto Rico to oversee the procurement  process and provide technical assistance.
section_title: Fraud and Abuse Divert Funds from Their Intended Uses
paragraphs: Fraud and abuse have contributed to deterioration at the Puerto Rico  Public Housing Administration, reducing the funds available for  maintenance and modernization.  In November 2001, for example, the  Inspector General reported that criminal investigations of fraud and abuse  had resulted in 26 indictments and 24 guilty pleas. In 1 case, a consultant at  the housing authority, who reviewed payment vouchers and approved  payments to management agents, conspired with employees of a  management company to embezzle over $1 million. The Inspector General  attributed this and other problems with fraud and abuse at the housing  authority to poor internal controls, noting as early as March 2000 that the  authority did not have effective management control systems to deter  waste, fraud, and abuse. In June, the Inspector General pointed out that the  parties who embezzled $1 million were able to commit this fraud because  the housing authority did not have internal controls in place to prevent the  consultant from solely approving unauthorized checks to the management  company.
section_title: Weak Management of Maintenance and Modernization Programs Creates Backlogs
paragraphs: Weak management of maintenance and modernization programs was a  problem at several of the housing authorities we visited.  For instance, the  Housing Authority of New Orleans failed to make effective use of the funds  it received for maintenance and modernization.  For years, it made no  progress toward implementing plans to modernize its rapidly deteriorating  properties, and maintenance backlogs grew.  The Puerto Rico housing  authority had difficulty monitoring contracts.  As a result, the physical  condition of housing developments varied widely from one contracted  management agent to another.  According to residents, some management  agents were adequately maintaining their developments and responding to  residents’ concerns, while others were allowing their developments to  deteriorate.  Even though the housing authority had a contractor- monitoring unit, a HUD official told us that the housing authority was not  adequately monitoring its contractors.
The problems in managing maintenance and modernization programs, like  the poor procurement practices, often stemmed from high turnover rates  and insufficient training.  For example, HUD attributed many of the delays  in carrying out repair and modernization efforts at the New Orleans  housing authority to a lack of continuity in the authority’s management.  In  addition, according to the current executive director, interference from  parties outside of the housing authority limited its ability to follow through  on many of its plans.  Furthermore, in New Orleans and in Puerto Rico  many housing authority staff were let go, and the in-house staff who  remained to hire and supervise contractor staff were not always trained in  monitoring and oversight.
section_title: Factors Associated with Management Problems Are Found at Nontroubled High- Risk Housing Authorities Nationwide
paragraphs: HUD does not maintain data on the types of problems found at public  housing authorities according to their PHAS designation and PIC risk  classification.  Therefore, we cannot determine whether the problems we  observed at the five nontroubled high-risk housing authorities we visited  are representative of problems at such housing authorities nationwide.   However, HUD field offices do report certain “qualitative factors” that, in  their view, may indicate problems with the quality of a housing authority’s  management.  They use these factors, which are entered into PIC, to target  housing authorities for on-site monitoring.  According to PIC, these factors  were more frequently reported for nontroubled high-risk housing  authorities than for nontroubled low-risk authorities.  While the  percentages of authorities where these factors were reported were  generally small for both groups (under 5 percent for all but two factors),  the percentages were consistently higher for the high-risk group.  The most  frequently reported factors were insufficient staff skills; significant and  repeated delays in submitting required information; reports of tenant  complaints; the number, size, or complexity of new programs; issues or  disagreements between the board and management; and major audit  findings such as noncompliance with federal procurement requirements,  theft, fraud, and abuse.  (App. II lists all of the factors and the percentages  of housing authorities where the factors were reported.)
section_title: HUD Has Several Options for Addressing Housing Authorities’ Problems
paragraphs: HUD has several options for improving a housing authority’s performance,  from providing technical assistance, to imposing sanctions, to taking over  the authority’s operations.  In some instances, HUD may enter into special  agreements with housing authorities, giving them the flexibility to address  unique problems.  Although implementing these options can bring about  positive changes at housing authorities, it may not completely or  permanently solve long-standing problems.  For this review, we did not  evaluate the effectiveness of HUD’s efforts to resolve management  problems at public housing authorities, but we are planning future reviews.
subsections: section_title: HUD May Provide Technical Assistance to Address Problems
paragraphs: HUD may provide technical assistance to address chronic problems at  housing authorities even when the authorities have not been designated as  troubled under PHAS.  The Quality Housing and Work Responsibility Act of  1998 and regulations authorize HUD to provide technical assistance,  training, or both to authorities that are at risk of being designated as  troubled as well as to those that have not been so designated. For those  that have not been designated as troubled, this assistance is contingent  upon agreement or may even be requested by the housing authority.   Technical assistance may involve developing policies for the housing  authority, streamlining its operations, designing or improving its  organizational structure, or training its staff.  HUD may provide this  assistance continuously, by stationing a team at the housing authority, or  periodically, by visiting the authority from time to time.  HUD may also hire  a contractor to provide the assistance or make funding available for the  authority to hire technical assistance contractors.
HUD tailors its assistance to the problems at a housing authority, often  attempting to improve the authority’s ability to manage an aspect of its  operations or administer one of its programs.  For example, HUD put  together a team led by its field office-based procurement specialist to assist  the Puerto Rico Public Housing Administration in developing policies and  procedures for its procurement office that will allow it to comply with  federal procurement regulations.  Similarly, HUD provided grant funding  for the Chicago Housing Authority to contract with a local university for  assistance in streamlining its procurement processes.  At the financially  troubled San Francisco Housing Authority, staff from the Memphis  recovery center are helping the authority find ways to reduce expenses and  balance its budget. Recovery center staff are also helping the housing  authority address findings from an audit by HUD’s Inspector General.  At  small housing authorities, HUD assists in building overall management  capacity, usually by sending a team to completely revamp an authority’s  policies and procedures.
section_title: HUD May Apply Sanctions or Intervene in a Housing Authority’s Operations to Correct Problems
paragraphs: When HUD is unable to address the problems at a housing authority  cooperatively, it has the authority to intervene or apply several different  sanctions at varying levels of severity as follows:  HUD may review a housing authority’s expenditures and place  restrictions and conditions on them.  For example, at the financially  troubled San Francisco Housing Authority, HUD recovery center  officials review all staff salaries and procurement contracts in excess of  $50,000.
HUD can remove housing authority officials through a suspension,  debarment, or limited denial of participation if the authority’s poor  performance is directly related to the actions of these officials.
A suspension disqualifies an individual from participation in HUD  programs for a time because of evidence of crime, fraud, or serious  improper conduct.
A debarment excludes an individual from participation in HUD  programs for criminal offenses or other violations.
A limited denial of participation prevents an individual from  participating in the HUD program under which the cause arose for up  to 12 months.  HUD can apply this sanction even if no criminal  activity is suspected if it determines that an individual’s removal is in  the best interest of the government.
HUD may impose an alternative management arrangement when it finds  ongoing management weaknesses in some or all of a housing authority’s  operations.  The alternative management can be provided by a private  management company, a resident management corporation, a  management team from another housing authority, or some other  arrangement for effecting change at the housing authority.  For example,  at the Housing Authority of New Orleans, the secretary of HUD and the  mayor of New Orleans entered into a cooperative endeavor agreement.   This agreement established the role of an executive monitor, a HUD  appointee and representative who would oversee the operations of the  housing authority.  The agreement also replaced the board of  commissioners with a contractor.
HUD may declare a housing authority in substantial default or in breach  of its annual contributions contract with HUD. According to HUD’s  guidance, this measure should be considered only when (1) the housing  authority’s performance problems are severe, pervasive, and systemic;  (2) the authority consistently and vigorously resists problem-solving  efforts; and (3) other remedies have been exhausted or are determined  inappropriate because of the urgent need to take action.  Under these  circumstances, HUD can arrange for an alternative form of  management, including the designation of a receiver, to remedy the  housing authority’s problems.
section_title: HUD May Name a Receiver to Take Over a Housing Authority’s Operations
paragraphs: When problems are long-standing, severe, or both, HUD may seek a  receivership if a housing authority is in substantial default of its contractual  obligations to HUD.   For a housing authority that has been designated as  troubled on the basis of its PHAS scores, HUD must seek an administrative  or a judicial receivership if the authority has not substantially improved its  performance within 2 years.  Under an administrative receivership, HUD  appoints either a contractor or a HUD employee to take over the housing  authority’s management.  Under a judicial receivership, a judge makes the  appointment.  According to HUD officials, a receivership is a good option  when a housing authority is very poorly run and is under local political  pressure that is impeding HUD’s efforts to bring about the authority’s  recovery.
The Camden Housing Authority had long-standing problems, an inability to  provide decent, safe, and sanitary housing; numerous instances of  noncompliance with federal regulations; poor internal controls; or political  influence, that were preventing improvements at the authority.   Consequently, HUD determined that the housing authority had breached its  annual contributions contract and acted to take over the housing  authority’s operations.  HUD and the mayor of Camden agreed in August  1997 on an administrative receivership, under which HUD assumed  responsibility for the housing authority’s management.  HUD hired  consultants to administer the housing authority’s financial management  and modernization programs, focused on improving properties’  maintenance and reducing the vacancy rate, and established a security  partnership with local police and set up a housing authority security force  to reduce crime.  Although the housing authority is still under  administrative receivership, HUD has reduced the consultants’ role and an  administrator currently manages the authority.
Although there is no requirement for HUD and a housing authority to focus  corrective actions on raising the authority’s PHAS scores, the Camden  Housing Authority’s administrator has done so with positive results,  according to HUD officials.  From fiscal years 1999 to 2000, the  management operations indicator rose from a troubled level of 16 to a  standard level of 23, and the financial operations indicator rose from a  failing score of 15 to a passing score of 19.  In addition, several  modernization projects have been completed (see fig. 14) or are under way  (see fig. 15); crime rates have declined; and, according to the residents,  maintenance has vastly improved.
section_title: HUD May Enter into Special Agreements to Address Unique Problems at Housing Authorities
paragraphs: HUD has given some housing authorities the flexibility to address unusual  challenges.  At the Chicago Housing Authority, for example, HUD waived  some of its regulations for 10 years and allowed the authority to  consolidate its capital and operating funding into a single block grant.   HUD approved these steps in February 2000 under the housing authority’s  Plan for Transformation—a plan to completely revamp Chicago public  housing.  The plan was designed to address the poor physical condition of  the housing stock; the poor design of the developments, which encouraged  crime; and the high concentration of extremely poor families.  The  authority plans to solve these problems by developing low-rise public  housing structures in mixed-income communities.  In part, the plan  responds to a mandate from HUD calling for the housing authority to  demolish distressed public housing units and either provide the residents  with tenant-based assistance or relocate them to other pubic housing  developments.  The plan calls for the demolition of 18,000 units and the  redevelopment and rehabilitation of 25,000 units.  HUD approved the  Chicago Housing Authority's plan under its Moving to Work Program.  The  program was designed to give housing authorities the flexibility to design  and test cost-effective approaches for providing housing assistance, to  assist public housing residents in obtaining employment and becoming self- sufficient, and to increase housing choices for low-income families.  The  flexibility that HUD has given this housing authority has allowed it to  undertake a large-scale redevelopment project.  HUD has entered into  similar agreements at 22 other housing authorities and has entered into  negotiations with 5 other authorities.
section_title: Effectiveness and Sustainability of HUD’s Interventions Are Uncertain
paragraphs: Despite the variety of actions available to improve public housing  authorities’ performance, these actions have not always fully resolved  problems or precluded their recurrence.  For example, HUD sanctioned the  Puerto Rico Public Housing Administration in 1991, freezing its unobligated  funds, because of serious financial, administrative, and project  maintenance problems.  A decade later, the HUD Inspector General found  similar problems at the housing authority, including a lack of management  controls, inadequate procurement and contract management procedures,  and an inability to administer the authority’s HOPE VI project. HUD’s  actions also have not resolved problems at the Housing Authority of New  Orleans.  A designated HUD representative has been monitoring the  progress of the housing authority since 1996, yet many of the authority’s  past problems persist, including the poor physical condition of the housing  stock and delays in the completion of modernization work. The San  Francisco Housing Authority is also struggling with problems even after  extensive HUD assistance.  Despite the work of a HUD recovery team  between 1996 and 1997 and ongoing monitoring by the recovery center, the  housing authority still has significant financial difficulties.  Lastly, while  HUD officials agree that the Camden Housing Authority has improved  significantly and has addressed many of its past deficiencies by targeting  corrective actions to problems identified through PHAS, both HUD and the  authority’s current administration are concerned about the ability of the  housing authority to sustain its current level of performance when it  reverts to local control.  We are planning to review the nature and  outcomes of housing authorities’ corrective actions.
section_title: Conclusions
paragraphs: Because HUD has not yet fully implemented PHAS, it is too early to tell  how effective the new system will be in identifying and providing for the  correction of long-standing problems at public housing authorities.  But  when HUD fully implements PHAS, it should have a broader and more  reliable basis for evaluating housing authorities’ performance.  As a result,  full implementation should increase the potential for PHAS to identify the  authorities’ problems.
It would be consistent for public housing authorities that are designated as  troubled overall or troubled in one area to be classified as high risk to  ensure that they receive sufficient monitoring attention from HUD.  While  most troubled housing authorities are assigned to troubled agency recovery  centers where they receive close monitoring regardless of their risk  classification, those troubled authorities that remain under field office  supervision and are classified as low risk may not be scheduled for  sufficient monitoring.  When HUD fully implements PHAS and designates  many more authorities as troubled, this problem could become more  widespread.
section_title: Recommendation for Executive Action
paragraphs: To help ensure that troubled public housing authorities receive sufficient  monitoring, we recommend that the secretary of housing and urban  development revise the PIC risk assessment to automatically classify all  troubled housing authorities as high risk so that they receive the correct  level of HUD monitoring.
section_title: Agency Comments
paragraphs: We provided a draft of this report to HUD for its review and comment.  In e- mails dated January 31, February 1, and February 4, 2002, incorporating  comments from the deputy assistant secretary for the Office of Troubled  Agency Recovery, the deputy assistant secretary for the Office of  Administration and Budget, and the acting director of field operations,  Office of Public and Indian Housing, and a REAC official, HUD provided  background information on the PIC risk assessment process and indicated  that it planned to revise the PIC rating scheme to ensure that all troubled  public housing authorities are designated as high risk.  In addition, HUD  provided technical comments, which we incorporated in this report as  appropriate.
section_title: Scope and Methodology
paragraphs: To accomplish our objectives, we conducted case studies of five public  housing authorities: (1) the Camden Housing Authority, (2) the Chicago  Housing Authority, (3) the Housing Authority of New Orleans, (4) the  Puerto Rico Public Housing Administration, and (5) the San Francisco  Housing Authority.  With the exception of the Puerto Rico Public Housing  Administration, we selected these housing authorities because they were  known to pose high risks but had not been designated as troubled at the  time of our review and they were geographically diverse.  We selected the  Puerto Rico Public Housing Administration because its history of  significant problems had generated congressional interest although HUD  only considered it to be of moderate risk.
To identify HUD’s criteria for designating housing authorities as troubled  under PHAS and for classifying them as high risk under PIC, we reviewed  HUD’s guidance on public housing assessment criteria.  This included our  review of PHAS and the status of its implementation.  We also received a  briefing on PIC from HUD officials.
To identify the kinds of problems found at housing authorities that have not  been designated as troubled under PHAS but have been classified as high  risk under PIC, we interviewed HUD officials, representatives of the public  housing authorities, and tenant representatives at our five case study  authorities.  In addition, we visited public housing developments at these  authorities and took photographs to document the kinds of problems we  observed.  The developments we visited were of different types, had  different PHAS scores, and varied in the severity of their problems.
To identify HUD’s options for addressing problems at housing authorities,  regardless of whether they have been designated as troubled, we examined  the corrective actions taken at each of our case study authorities.  We  discussed these options with HUD officials at headquarters and at the hub  offices near the five authorities.  In addition, we obtained HUD’s guidelines  for these options, relevant correspondence between HUD and the housing  authorities, and status reports sent by the housing authorities to HUD.
We used PHAS data, obtained from REAC, and PHAS and PIC data,  obtained from HUD’s Office of Public and Indian Housing, to examine the  kinds of problems found at nontroubled high-risk public housing  authorities and at public housing authorities in general.  The data in both  PHAS and PIC are collected for each public housing authority once a year  on a rolling basis, by quarter.  Thus, at any point in time, the data are the  most current that have been collected, but conditions may have changed at  some public housing authorities since the data were collected.  We  assessed the reliability of HUD’s REAC and PIC data by (1) reviewing  existing information about the REAC and PIC systems and data, (2)  interviewing agency officials knowledgeable about the data, and (3)  performing electronic testing of the data elements used in this report.  We  determined that the data were reliable enough for the purposes of this  report.
The data we obtained from REAC were for the end of fiscal year 2000 and  contained the total PHAS scores and the scores for each of the four PHAS  indicators and their subindicators.  The data we obtained from PIC were  for the end of fiscal year 2001.  These data included both the PHAS scores  (the total scores and the scores for the four indicators) for fiscal year 2001  that PIC received from REAC and the PIC risk assessment scores.  At the  time that we received the PIC data, HUD was updating its method of  calculating risk; thus, the risk assessment scores used in our analysis are  derived according to the method HUD told us it is most likely to use in  calculating future scores.
Using the PHAS scores for fiscal year 2001 and HUD’s scoring system, we  determined how many public housing authorities should be designated as  troubled under both HUD’s current and planned approaches.  Under the  current approach, we used the score for the management operations  indicator alone, as HUD has done to date, and classified housing authorities  as troubled if they scored less than 18 out of 30 possible points (60  percent).  Under the approach HUD plans to use in fiscal year 2002, we  used the total PHAS score and the scores for all four indicators, classifying  housing authorities as troubled if they scored less than 60 percent overall  or less than 60 percent on more than one of the major indicators (physical  condition, financial condition, and management operations).  We based our  calculations for both approaches on rounded scores, following HUD’s  example.  Our analysis did not exclude scores of zero for any indicator,  even though a zero may indicate that a housing authority was late in  submitting the applicable data, never submitted the data, or in rare  instances was not required to submit the data.  Additionally, PHAS scores  may not always be updated immediately in PIC.
We used the results of the PIC risk assessment and HUD’s scoring system to  determine whether housing authorities posed low (0-44 points), moderate  (45-64 points), or high (65-100 points) risks.  Then we grouped the  authorities according to their status (troubled or nontroubled) and risk  level (low, moderate, or high) and determined what quality factors were  present at authorities in each of the six resulting groups.  To identify the  kinds of problems found at nontroubled high-risk authorities, we paid  particular attention to the quality factors present at authorities in this  group, comparing them with the quality factors present at nontroubled low- risk authorities.  See appendix II for the results of our analyses.
We used REAC data for fiscal year 2000 and PIC data for fiscal year 2001 to  identify the kinds of problems found at all public housing authorities.  See  appendix I for the results of our analyses of PHAS subindicators and PIC  quality factors.
We conducted our work from January 2001 through January 2002 in  accordance with generally accepted government auditing standards.
As agreed with your office, we are sending copies of this report to the  chairman and ranking minority member, Senate Committee on Banking,  Housing, and Urban Affairs; the chairman, Subcommittee on Housing and  Transportation, Senate Committee on Banking, Housing, and Urban Affairs;  the chairman and ranking minority member, House Committee on  Financial Services; and the chairwoman and ranking minority member,  Subcommittee on Housing and Community Opportunity, House Committee  on Financial Services.   We will also send copies to the secretary of housing  and urban development and the director of the Office of Management and  Budget.  Please contact me at (202) 512-6520 if you have any questions  about this report.  Key contacts and contributors to this assignment are  listed in appendix VIII.
section_title: Extent to Which Problems Occur at All Public Housing Authorities
paragraphs: To determine the extent to which problems occur at all public housing  authorities, we analyzed the most recent data available for these  authorities from the Department of Housing and Urban Development  (HUD).  HUD maintains these data in two databases.  The data from one  database, managed by HUD’s Real Estate Assessment Center (REAC), were  for the end of fiscal year 2000.  The data from the other database, HUD’s  Public and Indian Housing Information Center (PIC), were for the end of  fiscal year 2001.  For both of these databases, information is collected for  each public housing authority once a year on a rolling basis, by quarter.   Thus, at any point in time, the data are the most current that have been  collected, but conditions may have changed at some housing authorities  since the data were collected.
subsections: section_title: REAC’s Data for the End of Fiscal Year 2000
paragraphs: REAC maintains the data used to assess the performance of public housing  authorities under HUD’s new assessment system, the Public Housing  Assessment System (PHAS).  From these data, REAC generates a total  PHAS score for each housing authority.  This total score is made up of  scores for four indicators of performance—physical condition, financial  condition, management operations, and resident service and satisfaction.   The score for the physical condition indicator reflects the results of all  physical inspections performed at the housing authority.  The score for  each of the other three indicators is made up of scores for several  subindicators.  For example, the score for the resident service and  satisfaction indicator is the sum of the scores for subindicators that  measure residents’ satisfaction as gauged by their responses to a survey,  housing authorities’ completion of a plan for implementing the survey, and  housing authorities’ development of a follow-up plan to address issues  arising from the survey.
We examined the scores for each subindicator for 3,166 public housing  authorities to identify any widespread problems with their performance.   For several of the subindicators for which data had been collected for the  entire fiscal year, the scores were low, indicating possible problems.
However, we could not determine from information in the database  whether the low scores indicated problems with the housing authorities’  performance or problems with their filing the required data with HUD.
Because PHAS considers a score of less than 60 percent as failing, we  examined the extent to which housing authorities received scores below 60  percent for each subindicator.  Since the maximum scores for the  subindicators ranged from 2 to 9, the failing percentages varied from 0 to 56  percent.  The scores were particularly low for the annual inspections and  work orders subindicators under the management operations indicator.   The results of our analysis are shown in figure 16.
For several subindicators, particularly within the financial condition and  resident service and satisfaction indicators, a large percentage of housing  authorities received a score of zero.  Again, the information in the database  did not allow us to determine whether this score indicated a serious  performance problem or a problem with filing the required data.  Figure 17  shows the percentages of housing authorities that received scores of zero  for the subindicators.
section_title: PIC Data for the End of Fiscal Year 2001
paragraphs: HUD’s Office of Public and Indian Housing, which administers the public  housing program, uses PIC, an Internet-based information system, to  generate risk assessments for the nation’s public housing authorities.   These risk assessments use the total PHAS score and information about  funding and compliance issues to classify housing authorities as high,  moderate, or low risk.  HUD’s 43 field offices can then use the results of  these assessments to plan their annual monitoring strategies.
Besides generating risk assessment scores, PIC includes information on the  presence of certain factors associated with the quality of a housing  authority’s operations.  Figure 18 lists the factors—all of which are  indicative of potential problems—and the percentage of housing  authorities where, according to PIC, the factors were present.  As the figure  indicates, the factors most frequently identified as present (apart from  “other problems”) were insufficient staff skills, delays in submitting  required information, and reports from tenants of something done  improperly by the housing authority.  The database does not define what is  in the “other problems” category.
section_title: Problems at Nontroubled High-Risk Public Housing Authorities
paragraphs: To identify the kinds of problems found at public housing authorities that  HUD has not designated as troubled but has classified as high risk, we  applied HUD’s criteria for determining housing authorities’ status (troubled  or nontroubled) and risk level (high, moderate, or low) to the nation’s 3,166  public housing authorities.  First, as HUD has done to date, we considered  the scores for the PHAS management operations indicator alone and  determined which housing authorities met HUD’s criteria for troubled  (those that scored less than 18 out of 30 possible points) and nontroubled  (those that scored 18 or more points).  We then considered the PIC risk  assessment scores and determined what risk levels would be assigned to  the troubled and nontroubled housing authorities under HUD’s scoring  system.  Under PIC, housing authorities are classified as low risk if they  score between 0 and 44, moderate risk if they score between 45 and 64, and  high risk if they score between 65 and 100.  All data were for the end of  fiscal year 2001.  Our analysis produced six groups of housing authorities,  the largest of which were the nontroubled high-risk (1,416) and the  nontroubled low-risk (1,615) groups.
After grouping the nation’s housing authorities according to their status  and risk level, we attempted to identify the kinds of problems found at  nontroubled high-risk authorities by determining what quality factors were  associated with this group.  For comparative purposes, we also determined  what quality factors were associated with the nontroubled low-risk  authorities. As discussed in appendix I, the quality factors are indicative  of potential problems.  Table 2 identifies the percentage of housing  authorities in each group where, according to PIC, the factors were  present.  When we compared our results for the two groups, we found that,  in all but one instance, the quality factors were more commonly present  for the nontroubled high-risk authorities than for the nontroubled low-risk  authorities.  The largest differences between the two groups were for other  problems; reports where tenants claimed that the housing authority did  something improperly; and the number, size, or complexity of new  programs.  The factors are ordered in the table according to their frequency  at nontroubled high-risk housing authorities.
section_title: Camden Housing Authority
paragraphs: The Camden Housing Authority was established on April 20, 1938.  It  consists of nine developments with 1,540 units.  In addition, it administers  804 Section 8 units and 93 Homeownership Project units, which are  available for purchase by residents.  For fiscal year 2001, the authority  received an operating subsidy of $8.1 million and capital funding of $4.8  million.  Over the years, it has also received about $80 million for two  ongoing HOPE VI projects—$42.1 million in fiscal year 1993, $3.1 million in  fiscal year 1998, and $35 million in fiscal year 2000.  The authority is  currently under administrative receivership because it breached its annual  contributions contract.  The director of the New York Office of Public  Housing is the HUD secretary’s designee and functions in lieu of the  Camden Housing Board of Commissioners, with the responsibilities and  authority that would normally be assigned to the board.
subsections: section_title: Historical Problems
paragraphs: Management turnover has long been a problem at the Camden Housing  Authority.  Since 1992, the authority has had nine executive directors and  many changes in the membership and leadership of its board of  commissioners, including five different chairpersons.  Past administrators  attempted to respond to a broad range of issues and constituencies— including local, state, and federal officials; community leaders; residents;  special interest groups; and the press—instead of setting the foundations  for substantive change.  This reactive management style left the residents  confused and disheartened, the staff demoralized, and the public housing  authority open to continuous criticism.  In almost every key functional  area, the authority’s systems were weak, nonexistent, or poorly  administered.  In addition, the authority lacked clear goals, a strategic plan,  and strong leadership; most management decisions were subject to  political pressure; and the authority’s workforce lacked the technical  competencies needed to operate a large property management  organization.
In addition, in July 1996 the HUD Inspector General reported that the  Camden Housing Authority was not complying with many of the public  housing program’s requirements and regulations.  Specifically, the report  indicated that the housing authority was, among other things,   generally not providing decent, safe, and sanitary housing to tenants;  not complying with its procurement policies or with federal  procurement regulations;  improperly hiring staff and providing salary increases;  improperly paying for vacations and overtime;  inadequately controlling the disbursement of funds; and   inadequately controlling its equipment inventory.
On August 4, 1997, HUD found that the Camden Housing Authority had  substantially breached its annual contributions contract, seized the  authority’s assets, appointed a transitional administrator, and appointed a  secretary’s designee to assume the role and responsibilities of the board of  commissioners until the authority could be returned to a fully functioning  board.
section_title: HUD’s Role and Corrective Actions
paragraphs: After taking over the Camden Housing Authority, HUD installed a  consultant to act as a transitional executive director and start the recovery  process.  This individual assessed conditions at the public housing  authority, finding many of the problems previously identified by the  Inspector General, and formulated a recovery plan.  The initial approach  was to gain the confidence of residents through meetings with them and to  ensure that staff were properly trained and placed in positions for which  they were qualified.  Several short-term initiatives were instituted to clean  and repair the housing projects, improve management’s relationship with  residents, and improve the authority’s organizational structure.  In addition,  the authority developed a long-term improvement strategy that focused on  modernization efforts, property management and maintenance, financial  management, administration, security, resident initiatives, and strategic  planning.
HUD awarded two technical assistance grants that totaled $1.1 million for  consulting services to manage the authority’s day-to-day operations as well  as to provide technical assistance to the transitional administrator and  staff.  In November 1997, HUD decided to downsize the consultant team  and hire permanent management staff in order to build permanent capacity  and stabilize the recovery effort for the long term.  On June 3, 1998, the  transitional administrator resigned and a permanent executive director  took control of the public housing authority.  Since that time, there have  been three executive directors.  Throughout the recovery process, HUD’s  New Jersey State Office has provided intensive oversight and technical  assistance to the public housing authority to ensure an efficient and  effective recovery process.
section_title: Current Status and Challenges
paragraphs: Under the current executive director, the public housing authority has  achieved many goals and successes in several operational areas.  For  example, the public housing authority has  privatized its financial management and modernization functions until  internal capacity could be built;  hired consultants to conduct an extensive training program and  reassigned its strongest employees to prominent positions;   rehabilitated 148 units authoritywide;  submitted an annual plan for the first time;  initiated several capital improvement projects;  reduced crime by improving security in its developments; and   instituted a skills training program for residents, many of whom have  subsequently been hired by the housing authority or the rehabilitation  and modernization contractors.
In addition, the executive director established a PHAS coordinator who  made a concerted effort to raise the authority’s PHAS scores.  The results  have been positive.  For example, the management operations indicator  rose from a troubled level of 16 in fiscal year 1999 to a standard level of 23  in fiscal year 2000, and the financial operations indicator rose from a failing  score of 15 in fiscal year 1999 to a passing score of 19 in 2000.
Despite these improvements, the public housing authority has not yet fully  recovered.  Furthermore, there is a real concern within the authority’s  current administration regarding whether the existing reforms can be  sustained and the authority can continue to move forward after the  Camden housing board resumes control.
section_title: Puerto Rico Public Housing Administration
paragraphs: Public housing programs started in Puerto Rico in 1938.  In an effort to  reorganize its public housing, in 1957, the Puerto Rico government created  the Urban Renewal and Housing Corporation—the current housing  authority’s predecessor.  Then, in 1989, the government created the Puerto  Rico Public Housing Administration (PRPHA) within the Puerto Rico  Department of Housing. For a brief period, the government operated both  housing authorities before dissolving the Puerto Rico Urban Renewal and  Housing Corporation in 1991 and transferring its public housing program to  PRPHA.  An administrator who is appointed by the Puerto Rico secretary of  housing directs PRPHA.
PRPHA is the second largest public housing authority in the nation, with  338 developments and 56,834 units.  Fifteen private management  companies and eight resident management corporations manage the  developments.  In fiscal year 2001, it received about $270 million from the  federal government, including $175.2 million for its Capital Fund Program,  $80.8 million for its operations, and $14 million for its Drug Elimination  Program.  In addition, PRPHA continued to obligate funds from a $50  million HOPE VI grant that it received in fiscal year 1994.
subsections: section_title: Historical Problems
paragraphs: Over the years, PRPHA has experienced many management problems,  although it is not currently considered troubled under PHAS.  In 1981, HUD  designated the authority’s predecessor as “financially troubled.”  Later, in  1985, because of serious financial, administrative, and project maintenance  problems, HUD designated the agency as “operationally troubled.”  In 1991,  HUD severely sanctioned the agency by freezing about $308 million of  unobligated funds, and in 1992, the governor of Puerto Rico transferred the  housing authority’s modernization and development programs to the  Puerto Rico Building Authority, directing it to act as an agent for the  housing authority.  In addition, private management companies were hired  to manage the housing developments, and the housing authority’s staff was  reduced from over 4,500 employees to fewer than 100.  The housing  authority’s role was limited to accounting for and reporting on the use of  federal funds and ensuring that the management agents were fulfilling their  contractual responsibilities.  HUD continued to view the housing authority  as troubled until December 1996, when it lifted the troubled rating and  restored control of the modernization program to the authority.  However, a  year later, HUD designated the modernization program as troubled because  of financial management problems and the need for corrective actions.
Single audits and HUD Inspector General reports have disclosed other  serious problems at PRPHA, including noncompliance with procurement  standards and associated management control weaknesses.  From fiscal  years 1992 to 1997, single audit reports repeatedly cited the housing  authority for not following federal procurement requirements.  The reports  also disclosed numerous instances of poor management controls over  disbursements and recommended that millions of dollars in ineligible costs  be recovered.  Financial statement audits for fiscal years 1993 through 1996  resulted in a disclaimer of opinion because of the poor condition of the  authority’s accounting system and internal control weaknesses.   Furthermore, these audits were all done in 1998—the authority had not  contracted for a single audit since 1991.  In 1997, the authority received a  clean opinion, even though the auditors found its internal controls to be  inadequate, and, in 1998 and 1999, it again received clean opinions despite  misappropriations of funds during those 2 years.  For example, an  Inspector General’s audit of the authority’s fiscal year 1999 procurement  activities disclosed that the authority had improperly withdrawn and used  about $17 million in public housing operating funds for ineligible disaster  relief expenses.  Additionally, according to the audit, the authority had  improperly withdrawn and transferred $1 million in Comprehensive Grant  Program funds to the Puerto Rico Economic Development Bank for loans  to public housing residents.
In March 2000, the Inspector General issued an audit report on the housing  authority’s procurement management.  The audit’s objectives had been to  determine whether the authority (1) had procurement policies and  procedures that complied with HUD’s requirements, (2) followed the  policies and procedures, (3) adequately determined the need for goods and  services, and (4) had adequate management controls to ensure the receipt  of quality goods and services and preclude duplicate payments.  According  to the report, the authority’s procurement practices and controls fell short,  as follows:   PRPHA did not comply with federal and agency procurement  requirements and did not maintain control over its central office  procurement activities.  For example, it bought 12,000 electric stoves at  a cost of $2,604,000 without going through the proper bidding process,  21,425 hot water heaters at a cost of $2,365,437 even though the heaters  could not be installed in many of the projects because the units had only  one water line, and a desktop computer at the excessive price of $8,200.
The housing authority also paid about $4.9 million more than necessary  for two professional services contracts valued at almost $14 million,  because it issued the contracts without competition and a  comprehensive cost and price analysis.
The authority did not have effective management controls to deter  waste, abuse, and fraud.
The authority did not maintain adequate property management and  related procurement documents.
The Inspector General recommended, among other things, that HUD  consider declaring the authority in substantial default and placing it on a  reimbursement basis for funding.  The authority “vehemently” disagreed  with many aspects of the report, including many factual findings and  recommendations, and claimed, among other things, that the report failed  to recognize efforts already in place to improve operations.
In addition, since 1998, a number of former public housing authority and  HUD employees and contractors have been under investigation for  embezzling federal housing funds, conspiracy, bribery, and money  laundering.  These investigations have resulted in 26 indictments and 24  guilty pleas.
Finally, on March 30, 2001, the Inspector General reported a total  breakdown of the housing authority’s administration of its HOPE VI  revitalization project.  The report indicated that the authority lacked  effective management and accounting controls over its federal funds and  did not effectively monitor the activities of its project manager.   Furthermore, the Inspector General identified $5.4 million of ineligible  expenditures and $10.5 million of unsupported costs.
section_title: HUD’s Role and Corrective Actions
paragraphs: Since many of PRPHA’s problems were in the procurement area, HUD sent  a procurement team to Puerto Rico in October 2000 to oversee the  procurement process and provide technical assistance.  Specifically, the  team assessed how well the housing authority was addressing the  Inspector General’s findings and recommendations, evaluated the  procurement practices, provided staff training, and reviewed documents  and manuals.  The team spent 2 weeks a month on-site.  In addition, HUD  sent a 10-member management team to Puerto Rico to provide technical  assistance in a variety of areas.  The team expects the housing authority to  make tangible improvements over a specified time frame.  HUD will  continue to evaluate the authority’s progress and determine whether more  drastic intervention, such as placing the authority into receivership, is  warranted.  Lastly, HUD planned to add seven staff to its Puerto Rico field  office to enhance its capacity to monitor the authority and provide  technical assistance.
To resolve problems with PRPHA’s HOPE VI program, the governor of  Puerto Rico agreed on July 6, 2001, to transfer the program to HUD,  including all assets and functions necessary to complete and lease all of the  developments in the program.  As a result, HUD now has  the ability to direct and hire the staff—including housing authority  staff—needed to complete the HOPE VI program,  the right to propose resolutions of claims against the housing authority  arising under the program, and   the ability to direct and administer contracts that pertain to the  program.
section_title: Current Status and Challenges
paragraphs: PRPHA’s new administration has many initiatives under way to improve  operations and internal controls and to resolve many of the issues  identified by the HUD Inspector General.  For example, the administration  centralized procurement functions in one office and developed a  procurement plan and manual, centralized all modernization functions that  were formerly decentralized, and created a new central auditing office to  review the authority’s operations and coordinate corrective actions with  the Inspector General.
While these steps appear to be positive, there continues to be high turnover  in the housing authority’s management—a source of past problems and a  potential limit on the authority’s ability to sustain recent improvements.   The authority has had several administrators over the past few years as  well as a constantly changing stream of senior administrative staff.  With  every change in administration, new staff have been trained, and new  processes and guidelines have been established.  This constant change has  resulted in a lack of accountability for past problems and confusion among  those responsible for implementing the new processes and procedures.   Already, the new administration, which was installed in January 2001, has  hired a second administrator.
section_title: Housing Authority of New Orleans
paragraphs: The Housing Authority of New Orleans (HANO) was organized in 1937 to  assist and provide housing to low-income residents of New Orleans.  HANO  operates approximately 9,600 public housing units in the city of New  Orleans.  As of December 14, 2001, the housing authority had  approximately 6,600 occupied units and 3,000 vacant units.  HANO was  designated as troubled in 1979 and remained as such until 1998, after it  scored well enough under HUD’s former evaluation system to be removed  from the troubled list.  The most recent and available assessment of the  housing authority’s performance is for fiscal year 2000.  Under this  assessment, the authority received an overall advisory PHAS score of 61  out of 100 possible points, including 26 out of 30 points for its management  operations. For fiscal year 2001, the housing authority received over $66  million, including an operating subsidy of $34 million, $29.8 million through  the Capital Fund Program, and $2.8 million through the Drug Elimination  Program.
HANO’s current executive director assumed responsibility in September  2000.   At that time, the accounting and management firm of Mitchell and  Titus, LLP, won a federal contract to assume the role of the board of  commissioners at HANO.  In January 2001, the firm appointed a  subcontractor who acts as a one-person board for HANO.
subsections: section_title: Historical Problems
paragraphs: HANO has experienced significant management problems, particularly a  lack of continuity in its top management.  Since 1997, HANO has had four  different one-person boards.  In addition, it has had three executive  directors in the past 6 years.  This lack of continuity has contributed to the  housing authority’s inability to make any significant progress in  maintaining and improving its housing stock.  During some periods, routine  maintenance was not conducted on many of its properties, and it is only  now, under its most recent executive director, that it has begun major  rehabilitation work to modernize many of its units.  Because of these  management problems, HANO has received poor physical condition scores  for the last several years.  The current executive director has also had to  make changes within the Section 8 staff.  The executive director conveyed  that an in-depth investigation of the program revealed improprieties among  some of the staff, and several individuals were fired, placed on  administrative leave, or relocated.
According to HANO officials, outside interference has made it extremely  difficult to determine who is actually in charge at HANO.  The chair of  HANO’s board of directors explained that he has periodically seen  outsiders step in and either influence or reverse decisions taken by the  housing authority.  The chair explained that the ambiguity surrounding who  is in charge at HANO has contributed to further delays in the housing  authority’s plans to maintain its housing assets.  Specifically, he said that  contracts and proposals have at times been delayed by outside  interference.
HANO also has had a history of procurement problems.  According to the  local HUD Inspector General’s office, HUD headquarters has denied  procurements in some cases because of improprieties in the housing  authority’s scoring of bids for projects. Concerns have also arisen about  procurement violations under a recovery plan that the authority embarked  upon in 1996.
Finally, HANO has accumulated insurance and other claims that have  amounted to about $22 million in liabilities.  Judgments against the housing  authority have continued to accrue interest.  While the claims have left the  housing authority financially strapped, HUD’s current executive monitor  and HANO’s executive director are making this issue a priority, allocating  approximately $5 million annually for payments of claims.
section_title: HUD’s Role and Corrective Actions
paragraphs: In 1996, HUD entered into a partnership with the city of New Orleans  through a cooperative endeavor agreement designed to bring about the  agency’s recovery.  HANO officials view this agreement as a form of  administrative receivership.  Under the agreement, HANO’s seven-member  board of commissioners was dissolved and the acting assistant secretary  for public and Indian housing was given the authority to fulfill the duties of  the board.  An executive monitor position was created to oversee,  coordinate, and monitor HANO’s compliance with the agreement.   Specifically, the executive monitor oversees work on modernization,  revitalization, capital funding, and development.  HUD retained its right to  appoint a receiver and created a specific action plan for the authority’s  improvement.  Under the agreement, HUD headquarters, and not the local  HUD field office, makes most of the decisions affecting the oversight and  monitoring of the housing authority.  The cooperative endeavor agreement  is effective through December 31, 2003.
section_title: Current Status and Challenges
paragraphs: HANO is currently focusing on its modernization and revitalization  projects.  The authority is taking steps to correct the problems caused by  deferring maintenance in the past.  Progress has been slower than  expected, particularly on the HOPE VI sites where, according to the local  HUD field office, tenants’ concerns about relocation have caused delays.   The housing authority is also investigating the insurance claims against it  and attempting to settle those that pose the greatest financial risks.
HUD and HANO have discussed the possibility of a judicial receivership as  the next step in bringing about the authority’s recovery.  However, they  have not yet reached a final decision.
section_title: Chicago Housing Authority
paragraphs: The Chicago Housing Authority—the nation’s third largest, with 38,000  units—has long had a history of problems.  HUD designated the authority  as “troubled” as far back as 1979, when the Department first began to focus  on poorly performing housing authorities.  In 1995, HUD took control of the  authority’s operations.  It reorganized the authority’s management,  privatized some functions, developed plans to improve maintenance and  security, and began to rebuild and rehabilitate the housing stock.  After  completing these actions, HUD returned the authority to local control in  1999.  For fiscal year 1999, the Chicago Housing Authority received an  overall advisory PHAS score of 65.
subsections: section_title: Historical Problems
paragraphs: Management problems and distressed housing conditions have plagued the  Chicago Housing Authority for years.  It has had material weaknesses in its  internal control system, fiscal problems, and frequent turnover of top  management. In 1989, we reported that the authority had operated for years  without reasonable assurance that federal funds were adequately  safeguarded against waste, loss, or misuse.  In addition, the authority’s  housing is among the worst in the nation—old, deteriorated, and poorly  designed for the climate. According to a Chicago Housing Authority  official, the cost of repairing these poorly designed projects is excessive.   For example, after the boilers at the authority’s Robert Taylor Homes  development broke down in the middle of winter, causing flooding and  freezing, the repairs cost $150,000 per affected unit, according to a housing  authority official.  Further complicating the authority’s problems are large  concentrations of high-rise family projects.  For example, the Robert Taylor  Homes and Stateway Gardens public housing complexes form one  continuous development with approximately 6,000 units.  The design of  these developments and their concentration of residents have exacerbated  crime and social problems in Chicago’s public housing.
section_title: HUD’s Role and Corrective Actions
paragraphs: After returning the Chicago Housing Authority to local control, HUD  agreed with its management and Mayor Daley to grant the authority budget  and management flexibility, allowing it to completely revamp public  housing in Chicago under its Plan for Transformation.  HUD agreed to  provide $1.5 billion over 10 years so that the housing authority could carry  out this plan, which includes the demolition of 18,000 units and the  redevelopment or rehabilitation of 25,000 units.  The new units are to be  located in mixed-income communities.  HUD used its Moving to Work  Program to allow the Chicago Housing Authority to undertake a  redevelopment plan of this size, even though the authority does not have  the history of high performance that other authorities in the program have  had. The Moving to Work Program was designed to reward housing  authorities that had demonstrated above-average performance by giving  them the flexibility to combine their funding streams into a single block  grant. The purpose of the program was to test innovative methods of  providing housing and delivering services to low-income families in a cost- effective manner.  According to Chicago Housing Authority and HUD  officials, even though the housing authority was not a high-performing  agency, the Moving to Work Program was the only means by which it could  carry out its Plan for Transformation.  According to housing authority  officials, they needed to combine their funding sources to leverage their  assets and attract private funding.
Under this special agreement, HUD is monitoring the housing authority  through a headquarters-based liaison, using monitoring goals that the  authority agreed to under the Plan for Transformation.  While still subject  to evaluation under PHAS, the authority will not be penalized until March  2003 if its developments fail their physical inspections, if the authority is  making reasonable progress under its plan.  HUD considers the Plan for  Transformation sufficient to meet its requirement for a recovery plan.
section_title: Current Status and Challenges
paragraphs: The Chicago Housing Authority has instituted several changes in its  operations in accordance with its goals under the Plan for Transformation  and has begun redevelopment activities. It has transferred all of its  property management functions to professional property management  companies or resident management corporations, reduced overhead  expenses, and eliminated its police force to achieve further cost savings.   According to the representatives of resident groups we spoke with,  maintenance at the developments has improved since the transfer of  property management responsibilities to private companies.  The  representatives also commented that under the Plan for Transformation,  the housing authority officials are more responsive to the residents’  concerns and have a better rapport with the residents.  Housing authority  officials are also seeking input from residents on the design of the new  public housing developments and the amenities they should provide.  According to the Chicago Housing Authority, redevelopment has begun at  six of its major developments.  Since 1995, the authority has spent  approximately $50 million on redevelopment activities, including the  demolition of 1,190 units, rehabilitation of 2,178 units, and construction of  455 new units.
The Chicago Housing Authority has many challenges to face in completing  its massive transformation.  The plan will take several years to complete,  repairs of existing units will cost over $3 billion, and approximately 6,000  households will require relocation.  Some of the residents are opposed to  relocating because they are fearful that they will not be able to return to  public housing.  As a result, residents have taken legal action to prevent the  demolition of their housing projects.  Another challenge for the residents  who need to relocate is the tightness of the rental housing market in  Chicago.  Some residents have complained that they have not been able to  use their Section 8 vouchers to find apartments.  According to the  Metropolitan Planning Council, as of 1999, Chicago’s rental market has a  vacancy rate of 4.2 percent, well below the 6-percent figure that HUD uses  to define a tight market.  The Chicago Housing Authority also faces  constraints on where it may build new public housing developments. As a  result of a 1969 court order, known as the Gautreaux judgment order, the  building of new public housing units is restricted in neighborhoods where  more than 30 percent of the population is African American.
section_title: San Francisco Housing Authority
paragraphs: The San Francisco Housing Authority (SFHA) was established in 1938 and  currently operates approximately 6,100 public housing units in the city of  San Francisco.  As of July 31, 2001, approximately 98 percent of these units  were occupied.  The current executive director assumed his position in  March 2001.  For fiscal year 2001, SFHA received over $43 million,  including a $24.6 million operating subsidy, $17.6 million through the  Capital Fund Program, and $1.4 million through the Drug Elimination  Program.   To date, the authority has also received $115 million in HOPE VI  grants.
The most recent and available assessment of SFHA’s performance is for  fiscal year 2000.  The authority received an overall advisory PHAS score of  63 but was awarded only 9 of 30 possible points for the financial condition  indicator.  The authority was taken over by a HUD recovery team from 1996  to 1997 and was then assigned to a recovery center in 1997. The housing  authority could have been removed from the center in 1999 after being  designated as a standard performer under PHMAP, but the authority  decided to stay in the center so that it could continue to receive assistance.   SFHA is currently assigned to the Memphis Troubled Agency Recovery  Center.
subsections: section_title: Historical Problems
paragraphs: SFHA’s most pressing problem—and the primary reason for its low  financial condition score under PHAS—is an operating reserve shortfall.   The authority has been unable to balance its budget and for fiscal year 2001  had an operating deficit of $6.2 million.  In general, the authority has very  high expenses because, according to HUD officials, its employees are paid  at union rates, reflecting the strength of unions in the city.  In addition, the  housing authority spent almost $5 million during fiscal year 2001 for  security provided by the San Francisco Police Department and by private  security hired by the authority.
Other reasons for SFHA’s operating reserve shortfall include debt incurred  in recent years and past improper procurements.  The authority is paying  back approximately $22 million in emergency funds that the previous  executive director borrowed from HUD for repairs to roofs and broken  concrete, among other problems.  In addition, more money was spent on  some contracts than was necessary because the authority was not  following procurement policies correctly and contracts were being handled  improperly.
According to SFHA officials, the housing authority has also had problems  with high turnover and staffing.  Specifically, the authority has had 10  executive directors in the past 10 years.  In addition, past hiring practices  led to overstaffing, and some of the personnel who were hired did not have  the necessary qualifications, according to HUD and SFHA officials.   Furthermore, an SFHA official explained that some of the housing  authority’s current employees are still loyal to the previous executive  director, and that this situation has caused divisions within the housing  authority.
section_title: HUD’s Role and Corrective Actions
paragraphs: The Memphis recovery center is currently servicing SFHA.  A team from  the center provides technical assistance deemed necessary for the  authority’s recovery and works closely with the authority’s public housing  programs.  It also monitors the authority and works with it to close out the  HUD Inspector General’s audit findings.
The recovery center works with the housing authority on many fronts.   Together, they have developed a plan to balance the budget, and the center  has submitted a plan to the authority’s executive director for improving the  authority’s operations.  HUD expects that some of the plan’s  recommendations will be reflected in the authority’s budget.  The recovery  center has also worked with the authority on procurement procedures by  training staff on contracting regulations and practices.  The recovery center  also reviews all procurement actions in excess of $50,000.  Finally, the  recovery center is assessing the staffing situation at SFHA.  According to  the recovery center’s team leader for SFHA, since the center began  servicing the authority, 50 to 70 positions have been terminated in an effort  to cut costs and alleviate the overstaffing.  As part of this effort, the center  is responsible for reviewing the hiring of individuals whose salary exceed  $50,000.
section_title: Current Status and Challenges
paragraphs: SFHA has made some progress toward financial accountability under the  recovery center’s supervision.  More attention is now being given to how  the housing authority allocates its budget.  In addition, procurement  policies and procedures are being improved.  The housing authority has  reduced its staff and, with assistance from the recovery center, is working  on a plan to improve its operations.  The center’s goal for completing the  authority’s recovery is September 30, 2002.
section_title: Contact and Staff Acknowledgments
subsections: section_title: GAO Contact
section_title: Acknowledgments
paragraphs: In addition to those named above, Avani Divgi, Mark Egger, Elizabeth  Eisenstadt, Michele Fejfar, Jacqueline Garza, Kirk Kiester, Tarek  Mahmassani, John McGrail, Frank J. Minore, Theresa Perkins, and Roberto  Piñero made key contributions to this report.
section_title: GAO’s Mission
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subsections: section_title: Order by Mail or Phone
section_title: Visit GAO’s Document Distribution Center
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section_title: Public Affairs