Public Housing: Information on the Financing, Oversight, and Effects of the HOPE VI Program
Published: 2007-06-20T00:00:00

Fast Facts:

Highlights:
section_title: Why GAO Did This Study
paragraphs: Since fiscal year 1992, the Department of Housing and Urban Development (HUD) has awarded more than $6 billion in HOPE VI program grants to public housing authorities to revitalize severely distressed public housing and provide supportive services to residents. HUD has encouraged housing authorities to use their HOPE VI grants to attract, or leverage, funding from other sources, including other federal, state, local, and private-sector sources. Projects funded with public and private funds are known as mixed-finance projects. This testimony is based primarily on three reports that GAO issued between November 2002 and November 2003, focusing on (1) the financing of HOPE VI projects, including the amounts of funds leveraged from non-HOPE VI sources; (2) HUD's oversight and administration of the program; and (3) the program's effects on public housing residents and neighborhoods surrounding HOPE VI sites. As requested, the statement summarizes the key findings from these reports, the recommendations GAO made to HUD for improving HOPE VI program management, and HUD's actions in response to the recommendations.
section_title: What GAO Found
paragraphs: In its November 2002 report, GAO found that housing authorities expected to leverage--for each HOPE VI dollar received--$1.85 in funds from other sources, and that the authorities projected generally increasing amounts of leveraged funds. GAO also found that even with the general increase in projected leveraging, 79 percent of the budgeted funds in mixed-finance projects that HUD had approved through fiscal year 2001 came from federal sources. GAO recommended that HUD provide the Congress with annual reports on the HOPE VI program, as required by statute, and provide data on the amounts and sources of funding used at HOPE VI sites. HUD has submitted these reports to Congress since fiscal year 2002. According to the 2006 report, HOPE VI grantees have cumulatively leveraged, from the program's inception through the second quarter of fiscal year 2006, $1.28 for every HOPE VI grant dollar expended. In its May 2003 report, GAO found that HUD's oversight of the HOPE VI program had been inconsistent for several reasons, including a shortage of grant managers and field office staff and confusion about the role of field offices. A lack of enforcement policies also hampered oversight; for example, HUD had no policy regarding when to declare a grantee in default of the grant agreement or apply sanctions. GAO made several recommendations designed to improve HUD's management of the program. HUD concurred with these recommendations and has taken actions in response, including publishing guidance outlining the oversight responsibility of field offices and notifying grantees that they would be in default of their grant agreement if they fail to meet key deadlines. In its November 2003 report, GAO found that most of the almost 49,000 residents that had been relocated as of June 2003 had moved to other public or subsidized housing; small percentages had been evicted, moved without giving notice, or vacated for other reasons. Grantees expected that about half of the original residents would return to the revitalized sites. Limited HUD data and information obtained during GAO's site visits suggested that the grantee-provided community and supportive services had yielded some positive outcomes, such as job training and homeownership. Finally, GAO's analysis of Census and other data showed that neighborhoods surrounding 20 HOPE VI sites (awarded grants in 1996) experienced improvements in several indicators used by researchers to measure neighborhood change, such as educational attainment levels, average household income, and percentage of people in poverty. However, for a number of reasons, GAO could not determine the extent to which the HOPE VI program was responsible for the changes.

section_title: Letter
paragraphs: I appreciate the opportunity to be here today as the Subcommittee  considers legislation to reauthorize the HOPE VI program. In 1992,  Congress established the Urban Revitalization Demonstration Program,  commonly known as HOPE VI, administered by the Department of  Housing and Urban Development (HUD). Under this program, HUD  competitively awards grants for revitalizing distressed public housing— through rehabilitation or demolition and construction of new, mixed- income developments—and for improving the lives of public housing  residents through supportive services such as child care and job training.  By providing funds for a combination of capital improvements and  community and supportive services, the program seeks not only to  improve the living environment for public housing residents, but also to  help improve surrounding neighborhoods and decrease the concentration  of very low-income families.
Since fiscal year 1992, HUD has awarded more than $6 billion in HOPE VI  grants to public housing authorities. Grant agreements, which serve as  contracts between HUD and the grantees, specify the activities that the  housing authorities must complete and key deadlines they must meet. To  increase the number of affordable housing units developed at HOPE VI  sites, HUD has encouraged housing authorities to use their HOPE VI  grants to attract, or leverage, funding from other sources, including other  federal, state, local, and private-sector sources. Projects funded with a  combination of public and private funds are known as mixed-finance  projects. HUD also has encouraged housing authorities to leverage  additional funds for supportive services.
My testimony is based primarily on a series of three reports concerning the  program that we issued between November 2002 and November 2003.  These reports focused on (1) the financing of HOPE VI projects, including  the amounts of funds leveraged from non-HOPE VI sources, (2) HUD’s  oversight and administration of the program, and (3) the program’s effects  on public housing residents and neighborhoods surrounding HOPE VI  sites. As you requested, my statement summarizes the key findings from  our work, the recommendations we made to HUD for improving HOPE VI  program management, and HUD’s actions in response to the  recommendations.
In our November 2002 report, which examined the extent to which  housing authorities had leveraged HOPE VI funds with other sources of  financing, we found that for revitalization grants awarded since the  program’s inception through fiscal year 2001, housing authorities expected  to leverage—for each HOPE VI dollar received—$1.85 in funds from other  sources, and that the authorities projected generally increasing amounts of  leveraged funds. However, HUD considered the level of leveraging to be  somewhat higher, because it treated as “leveraged” other public housing  funds that the housing authorities would have received even in the  absence of their HOPE VI grants. Our analysis of mixed-finance projects  HUD had approved through fiscal year 2001 indicated that 79 percent of  the budgeted funds came from federal sources. This was a higher  proportion than HUD data indicated, because HUD did not treat funds that  grantees received through low-income housing tax credits as federal  funds—even though the credits represent forgone federal income and are  therefore a cost to the federal government. Finally, our analysis also  showed that although the majority of funds budgeted overall for  supportive serves were HOPE VI funds, the amount of non-HOPE VI funds  budgeted for supportive services had increased dramatically since the  program’s inception. We recommended that HUD provide the Congress  with annual reports on the HOPE VI program, as it was required by statute  to do, and to include in the reports the amounts and sources of funding  used at HOPE VI sites. The first such report that HUD submitted to  Congress was for fiscal year 2002. Based on data reported in HUD’s 2006  annual report, HOPE VI grantees have cumulatively leveraged, from the  program’s inception through the second quarter of fiscal year 2006, $1.28  for every HOPE VI grant dollar expended.
In our May 2003 report, which examined several issues concerning HUD’s  management of the program, we found that the department’s oversight had  been inconsistent for several reasons, including limited numbers of grant  managers and field office staff, and confusion about the role of field  offices; however, in response to our recommendations, HUD has taken  steps designed to address these problems. We found a number of instances  of limited oversight; for example, by the end of 2002, HUD field offices had  not conducted any of the required annual reviews for 8 out of 20 grants  awarded 6 years earlier. According to field office managers, the reviews  had not been performed either because they lacked staff or because the  offices did not understand their role in HOPE VI oversight. We also found  that the status of work at HOPE VI sites varied, with construction  completed at less than 10 percent of the 165 sites that had received  revitalization grants through fiscal year 2001; that many grantees had  missed deadlines specified in their grant agreements; and that HUD lacked  clear enforcement policies to deal with such grantees. We made several  recommendations designed to improve HUD’s management of the  program. HUD concurred with these recommendations and has taken  actions in response, including publishing guidance on the oversight  responsibility of field offices and notifying grantees that they would be in  default of their grant agreement should key deadlines not be met. Because  we have not examined HUD’s oversight of the program since the 2003  report, we do not know the extent to which HUD’s actions have corrected  the problems we identified.
In our November 2003 report, which focused on resident issues and  changes in the neighborhoods surrounding HOPE VI sites, we found that  public housing residents at HOPE VI sites had been affected in varying  ways by the program, and that the neighborhoods surrounding the HOPE  VI sites we examined had generally experienced improvements in  indicators such as education, income, and housing, although we could not  determine the extent to which HOPE VI contributed to the changes. Most  of the almost 49,000 residents that had been relocated as of June 30, 2003,  had moved to other public housing or subsidized housing, and that small  percentages had been evicted, moved without giving notice, or vacated for  other reasons. At the time of our study, the grantees expected that about  half of the original residents would return to the revitalized sites. The  grantees had involved the public housing residents of HOPE VI sites in  project plans to varying degrees. They had also provided a variety of  community and supportive services to residents, and limited HUD data  and information obtained during our site visits suggested that these had  yielded at least some positive outcomes; for example, 31 of 49 participants  in a Housing Authority of Pittsburgh health worker training program had  obtained employment. Finally, according to our analysis of census and  other data, the neighborhoods in which 20 HOPE VI sites (1996 grantees)  are located had experienced improvements in a number of indicators used  by researchers to measure neighborhood change, such as educational  attainment levels, average household income, and percentage of people in  poverty. However, for a number of reasons, we could not determine the  extent to which the HOPE VI program was responsible for the changes.
subsections: section_title: Background
paragraphs: In 1992 the National Commission on Severely Distressed Public Housing  (the Commission) reported that approximately 86,000, or 6 percent, of the  nation’s public housing units were severely distressed—characterized by  physical deterioration and uninhabitable living conditions, high levels of  poverty, inadequate and fragmented services, institutional abandonment,  and location in neighborhoods often as blighted as the public housing sites  themselves. In response to the Commission’s report, Congress established  the Urban Revitalization Demonstration Program, more commonly known  as HOPE VI, at HUD. The program awards grants to public housing  authorities (PHA). The grants can fund, among other things, the  demolition of distressed public housing, capital costs of major  rehabilitation, new construction, and other physical improvements, and  community and supportive service programs for residents, including those  relocated as a result of revitalization efforts. Beginning in 1996 with the  adoption of the Mixed-Finance Rule, PHAs were allowed to use public  housing funds designated for capital improvements, including HOPE VI  funds, to leverage other public and private investment to develop public  housing units. Public funding can come from federal, state, and local  sources. For example, HUD itself provides capital funding to housing  agencies to help cover the costs of major repair and modernization of  units. Private sources can include mortgage financing and financial or in- kind contributions from nonprofit organizations.
HUD’s requirements for HOPE VI revitalization grants are laid out in each  fiscal year’s notice of funding availability (NOFA) and grant agreement.  NOFAs announce the availability of funds and contain application  requirements, threshold requirements, rating factors, and the application  selection process. Grant agreements, which change each fiscal year, are  executed between each grantee and HUD and specify the activities, key  deadlines, and documentation that grantees must meet or complete.  NOFAs and grant agreements also contain guidance on resident  involvement in the HOPE VI process. HUD encourages grantees to  communicate, consult, and collaborate with affected residents and the  broader community, but allows grantees the final decision-making  authority. Grant applications are screened to determine whether they meet  the eligibility and threshold requirements in the NOFA. A review panel  (which may include the Deputy Assistant Secretary for Public Housing  Investments, the Assistant Secretary for Public and Indian Housing, and  other senior HUD staff) recommends the most highly rated applications  for selection, subject to the amount available for funding.
HUD’s Office of Public Housing Investments, housed in the Office of  Public and Indian Housing, manages the HOPE VI program. Grant  managers within the Office of Public Housing Investments are primarily  responsible for overseeing HOPE VI grants. They approve changes to the  revitalization plan and coordinate the review of the community and  supportive services plan that each grantee submits. In addition, grant  managers track the status of grants by analyzing data on the following key  activities: relocation of original residents, demolition of distressed units,  new construction or rehabilitation, reoccupancy by some original  residents, and occupancy of completed units. Public and Indian Housing  staff located in HUD field offices also play a role in overseeing HOPE VI  grants, including coordinating and reviewing construction inspections.  Beginning in fiscal year 1999, HUD began to encourage HOPE VI  revitalization grant applicants to form partnerships with local universities  to evaluate the impact of their proposed HOPE VI revitalization plans.
In 2003, Congress reauthorized the HOPE VI program and required us to  report on the extent to which public housing for the elderly and non- elderly persons with disabilities was severely distressed. We subsequently  reported that available data on the physical and social conditions of public  housing are insufficient to precisely determine the extent to which  developments occupied primarily by elderly persons and non-elderly  persons with disabilities are severely distressed. Using HUD’s data on  public housing developments—buildings or groups of buildings—-and  their tenants, we identified 3,537 developments primarily occupied by  elderly residents and non-elderly persons with disabilities. Data from HUD  and other sources indicated that 76 (2 percent) of these 3,537  developments were potentially severely distressed.
section_title: Grantees Had Projected A General Increase in Leveraged Funds, Primarily From Federal Sources
paragraphs: According to our analysis of HUD data for our November 2002 report,  housing authorities expected to leverage an additional $1.85 in funds from  other sources for every dollar received in HOPE VI revitalization grants  awarded since the program’s inception through fiscal year 2001. However,  HUD considered the amount of leveraging to be slightly higher because it  treated as “leveraged” both (1) HOPE VI grant funds competitively  awarded for the demolition of public housing units and (2) other public  housing capital funds that the housing authorities would receive even in  the absence of the revitalization grants. Even when public housing funds  were excluded from leveraged funds, our analysis of HUD data showed  that projected leveraging had increased; for example, 1993 grantees  expected to leverage an additional $0.58 for every HOPE VI grant dollar  (excluding public housing funds), while 2001 grantees expected to  leverage an additional $2.63 from other sources (excluding public housing  funds). But, our analysis of HUD data through fiscal year 2001 also  indicated that 79 percent of funds that PHAs had budgeted came from  federal sources, when low-income housing tax credit funding was  included. Finally, our analysis showed that although the majority of funds  budgeted overall for supportive services were HOPE VI funds, the amount  of non-HOPE VI funds budgeted for supportive services increased  dramatically since the program’s inception. Specifically, while 22 percent  of the total funds that fiscal year 1997 grantees budgeted for supportive  services were leveraged funds, 59 percent of the total that fiscal year 2001  grantees budgeted were leveraged funds.
Although HUD had been required to report leveraging and cost  information to the Congress annually since 1998, it had not done so at the  time of our 2002 report. As required by law, this annual report is to include  the cost of public housing units revitalized under the program and the  amount and type of financial assistance provided under and in conjunction  with the program. We recommended that the Secretary of Housing and  Urban Development provide these annual reports to Congress and include  in these annual reports, among other things, information on the amounts  and sources of funding used at HOPE VI sites, including equity raised from  low-income housing tax credits, and the total cost of developing public  housing units at HOPE VI sites, including the costs of items subject to  HUD’s development cost limits and those not subject.
In response to this recommendation, HUD issued annual reports to  Congress for fiscal years 2002 through 2006 that include information on  the amounts and sources of funding used at HOPE VI sites. In each of  these reports, HUD included the amount of funds leveraged from low- income housing tax credits in its data on non-federal funds. Based on data  reported in the 2006 annual report, since the program’s inception HOPE VI  grantees have cumulatively leveraged $1.28 per HOPE VI grant dollar  expended. Currently, we have work underway examining, among other  things, how and the extent to which leveraging occurs in several federal  programs, including the HOPE VI program.
section_title: HUD’s Oversight of Projects and Enforcement of Program Requirements Had Been Inconsistent
paragraphs: Our May 2003 report found that a variety of factors diminished HUD’s  ability to oversee HOPE VI grants. In particular, the limited numbers of  grant managers, a shortage of field office staff, and confusion about the  role of field offices had diminished the agency’s ability to oversee HOPE VI  grants. Our site visits showed that HUD field staff was not systematically  performing required annual reviews. For example, for revitalization grants  awarded in 1996, some never received an annual review and no grant had  had an annual review performed each year since the grant award. From  our interviews with field office managers, we determined that there were  two reasons why annual reviews were not performed. First, many of the  field office managers we interviewed stated that they simply did not have  enough staff to get more involved in overseeing HOPE VI grants. Second,  some field offices did not seem to understand their role in HOPE VI  oversight. For instance, one office thought that the annual reviews were  primarily the responsibility of the grant managers. Others stated that they  had not performed the reviews because construction had not yet started at  the sites in their jurisdiction or because they did not think they had the  authority to monitor grants.
As a result of our findings, we recommended that HUD clarify the role of  HUD field offices in HOPE VI oversight and ensure that the offices  conducted required annual reviews. In response to this recommendation,  HUD published new guidance in March 2004 that clarified the role of HUD  field offices in HOPE VI oversight and the annual review requirements.  According to the guidance, HUD field office responsibilities include  conducting an annual risk assessment, which should consider such factors  as missed deadlines and adverse publicity and should be used to  determine whether an on-site review should be conducted and which  areas of the HOPE VI grant should be reviewed. The published guidance  included a risk assessment form and sample monitoring review reports.  While HUD’s action was responsive to our recommendation, we have not  examined the extent to which it has corrected the problems we identified  in our 2003 report.
Our 2003 report also noted that the status of work at HOPE VI sites varied,  and that the majority of grantees had missed one or more of three major  deadlines specified in their grant agreements: the submission of a  revitalization plan to HUD, the submission of a community and supportive  services plan to HUD, and completion of construction. We made  recommendations to HUD designed to ensure better compliance with  grant agreements. More specifically:    Of the 165 sites that received revitalization grants through fiscal year 2001,  15 had completed construction at the time of our review. Overall, at least  some units had been constructed at 99 of the 165 sites, and 47 percent of  all HOPE VI funds had been expended. In general, we found that the more  recently awarded grants were progressing more quickly than earlier  grants. For example, fiscal year 1993 grantees had taken an average of 31  months to start construction. In contrast, the fiscal year 2000 grantees  started construction an average of 10 months after their grant agreement  was executed. HUD cited several reasons that may explain this  improvement, such as later grantees having more capacity than the earlier  grantees, the applications submitted in later years being more fully  developed to satisfy NOFA criteria, and HUD placing greater emphasis on  reporting and accountability.
To further improve its selection of HOPE VI grantees, we recommended  that HUD continue to include past performance as an eligibility  requirement in each year’s NOFA—that is, to take into account how  housing authorities had performed under any previous HOPE VI grant  agreements. In response to this recommendation, HUD stated in its fiscal  year 2004 NOFA that a HOPE VI application would not be rated or ranked,  and would be ineligible for funding, if the applicant had an existing HOPE  VI revitalization grant and (1) development was delinquent due to actions  or inactions that were not beyond the control of the grantee and (2) the  grantee was not making substantial progress towards eliminating the  delinquency. According to the fiscal year 2006 NOFA, the ratings of  applicants that received HOPE VI grants between 1993 and 2003 can be  lowered for failure to achieve adequate progress.
For at least 70 percent of the grants awarded through fiscal year 1999,  grantees had not submitted their revitalization plans or community and  supportive services plans to HUD on time. Moreover, the large majority  of grantees had also missed their construction deadlines; in the case of 9  grants, no units had been constructed as of the end of December 2002.  HUD had taken some steps to encourage adherence to its deadlines; for  example, HUD began requiring applicants to provide a certification stating  that they had either procured a developer for the first phase of  development, or that they would act as their own developer.
However, HUD did not have an official enforcement policy to deal with  grantees that missed deadlines. As a result, we recommended that HUD  develop a formal, written enforcement policy to hold public housing  authorities accountable for the status of their grants. HUD agreed with this  recommendation, and in December, 2003 notified several grantees that  they were nearing deadlines and that failure to meet these deadlines could  result in HUD placing the grant in default.  According to the 2006 NOFA,  HUD may withdraw funds from grantees that have not proceeded within a  reasonable timeframe, as outlined in their program schedule.
section_title: About Half of Public Housing Residents Were Expected to Return to Revitalized Sites, while Evidence Suggested That Communities Surrounding Some HOPE VI Sites Had Improved
paragraphs: In our November 2003 report, we found that most residents at HOPE VI  sites had been relocated to other public housing, or other subsidized  housing, and that grantees expected that about half of the original  residents would return to the revitalized sites. In our examination of sites  that had received HOPE VI grants in 1996, we found that the housing  authorities had involved public housing residents in the planning and  implementation process to varying degrees. Further, HUD data and  information obtained during our site visits suggested that the supportive  services provided public housing residents yielded at least some positive  outcomes. Finally, according to our analysis of census and other data, the  neighborhoods in which 1996 HOPE VI sites are located had generally  experienced positive improvements in educational attainment levels,  average household income, and percentage of people in poverty, although  we were unable to determine the extent to which the HOPE VI program  contributed to these changes.
subsections: section_title: Most Original Residents Were Relocated to Other Public Housing, and About Half Were Expected to Return to Revitalized HOPE VI Sites
paragraphs: According to HUD data, approximately 50 percent of the almost 49,000  residents that had been relocated as of June 30, 2003, had been relocated  to other public housing; about 31 percent had used vouchers to rent  housing in the private market; approximately 6 percent had been evicted;  and about 14 percent had moved without giving notice or vacated for other  reasons. However, because HUD did not require grantees to report the  location of original residents until 2000, grantees had lost track of some  original residents. Although grantees, overall, expected that 46 percent of  all the residents that occupied the original sites would return to the  revitalized sites, the percentage varied greatly from site to site. A variety of  factors may have affected the expected return rates, such as the numbers  and types of units to be built at the revitalized site and the criteria used to  select the occupants of the new public housing units.
section_title: Among 1996 Grant Sites, Resident Involvement in the HOPE VI Process Varied, While Supportive Services Yielded Some Positive Outcomes
paragraphs: We found that the extent to which the 1996 grantees involved residents in  the HOPE VI process varied. Although all of the 1996 grantees held  meetings to inform residents about revitalization plans and solicit their  input, some of them took additional steps to involve residents in the HOPE  VI process. For example, in Tucson, Arizona, the housing authority waited  until the residents had voted their approval before submitting the  revitalization plan for the Connie Chambers site to the city council. In  other cases, litigation or the threat of litigation ensured resident  involvement. For instance, under a settlement agreement, the Chicago  Housing Authority’s decisions regarding the revitalization of Henry Horner  Homes were subject to the approval of the Horner Resident Committee.
Overall, based on the information available at the time of our 2003 report,  grantees had provided a variety of community and supportive services,  including case management and direct services such as computer and job  training programs. Grantees had also used funds set aside for community  and supportive services to construct facilities where services were  provided by other entities. Information we collected during our visits to  the 1996 sites, as well as limited HUD data on all 165 grants awarded  through fiscal year 2001, indicated that HOPE VI community and  supportive services had achieved or contributed to positive outcomes. For  example, 31 of 49 participants in a Housing Authority of Pittsburgh health  worker training program had obtained employment, while 114 former  project residents in Louisville, Kentucky had enrolled in homeowner  counseling and 34 had purchased a home.
section_title: 1996 HOPE VI Communities Experienced Positive Changes
paragraphs: According to our analysis of census and other data, the neighborhoods in  which 1996 HOPE VI sites are located generally have experienced  improvements in a number of indicators used to measure neighborhood  change, such as educational attainment levels, average housing values, and  percentage of people in poverty. For example, our analysis showed that in  18 of 20 HOPE VI neighborhoods, the percentage of the population with a  high school diploma increased, in 13 neighborhoods average housing  values increased, and in 14 neighborhoods the poverty rate decreased  between 1990 and 2000. For a number of reasons—such as relying on 1990  and 2000 census data even though HOPE VI sites were at varying stages of  completion—we could not determine the extent to which HOPE VI  contributed to these changes. However, we found that several studies  conducted by universities and private institutions also showed that the  neighborhoods in which HOPE VI sites are located had experienced  positive changes in income, employment, community investment, and  crime indicators. For example, one study found that per capita income in  eight selected HOPE VI neighborhoods increased an average of 71 percent,  compared with 14.5 percent for the cities in which these sites are located,  between 1989 and 1999.
We also observed that the HOPE VI program also may influence changes in  neighborhood indicators by demolishing older, distressed public housing  alone. For example, in the 6 HOPE VI neighborhoods where the original  public housing units were demolished, but no on-site units had been  completed, measured educational attainment and income levels increased.
Mr. Chairman, this concludes my prepared statement. I would be happy to  answer any questions at this time.
section_title: Contacts and Acknowledgments
paragraphs: For further information on this testimony, please contact David G. Wood  at (202) 512-8678. Individuals making key contributions to this testimony  included Alison Gerry, John McGrail, Lisa Moore, Paul Schmidt, and Mijo  Vodopic.
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