HUD and Treasury Programs: More Information on Leverage Measures' Accuracy and Linkage to Program Goals Is Needed in Assessing Performance
Published: 2008-01-18T00:00:00

Fast Facts:

Highlights:
section_title: Why GAO Did This Study
paragraphs: This is the second of two reports on the leveraging of federal funds in housing and community and economic development programs. Leveraging involves using a source of funds to attract other funds or combining multiple sources of funds. This report examines (1) the leverage measures and the transparency of the data and methods used to calculate them, and (2) the relevance of such measures in assessing performance that the Department of Housing and Urban Development (HUD) and the Department of the Treasury (Treasury) reported for six selected programs. To complete this work, GAO reviewed agency policies and reports, interviewed officials, and analyzed agency data.
section_title: What GAO Found
paragraphs: The leverage measures (such as ratios) HUD and Treasury reported for the selected programs in performance, budget, and other documents lacked transparency because the agencies generally did not disclose the limitations of the data or the methods used to calculate them. Based on its review of available leveraging data and interviews with HUD and Treasury officials, GAO found that the leverage measures the agencies reported for the selected programs were based on incomplete data and thus did not capture the actual extent of leveraging in the programs. GAO also found that while the agencies generally reported measures that described the ratio of all other funds (federal, state, local, and private funds) to program funds, alternative measures that described the total federal investment or total private investment in a program provided considerably different results--also potentially of value to decision makers--about the extent of leveraging in a program. GAO regularly has reported that clearly communicating data limitations and their potential impact may foster appropriate use of data; however, no agency-specific or governmentwide guidance directs what agencies should disclose about the leverage measures they report for the selected programs. Consequently, absent specific information on how these measures were calculated and their limitations, decision makers would not have sufficient information to understand their meaning and determine how they could and should be used in performance assessment, budgeting, and other contexts. Leverage measures can provide basic information about the programs GAO reviewed; however, their relevance in assessing the performance of these programs varies considerably. For all of the programs GAO reviewed, leverage measures can describe inputs, or the resources used to support program activities, and may be useful for conveying basic financial information. To the extent that leveraging is a goal or expected activity of a program (as in the three Treasury programs), leverage measures generally can describe program outputs, or the products or services delivered (such as total leveraged funds), and may be used along with other performance indicators to assess the efficiency and effectiveness of a program in meeting its goals. In cases where leveraging is not clearly and appropriately linked to program goals and activities (as in the three HUD programs), use of such measures to describe program outputs could be misleading and result in adverse consequences. Although leveraging had limited relevance to the goals and activities of the selected HUD programs, GAO found that the Office of Management and Budget (OMB) and the agency often cited leverage measures for the programs in performance- and budget-related reviews and documents. Their continued use of leverage measures in these contexts could unnecessarily encourage HUD to place more importance on leveraging than meeting the stated goals of the selected programs.

section_title: Letter
paragraphs: In a period of increasingly tight budgets for federal housing and  In a period of increasingly tight budgets for federal housing and  community and economic development programs, congressional,  community and economic development programs, congressional,  executive, and agency decision makers have focused on how best to  executive, and agency decision makers have focused on how best to  distribute scarce federal resources to achieve the greatest benefits—in  distribute scarce federal resources to achieve the greatest benefits—in  particular, the extent to which federal programs leverage private and other  particular, the extent to which federal programs leverage private and other  public funds. In response, federal agencies often cite leverage measures in  public funds. In response, federal agencies often cite leverage measures in  strategic planning, performance, and budget reports, and on their Web  strategic planning, performance, and budget reports, and on their Web  sites to demonstrate how successful they have been at attracting other  sites to demonstrate how successful they have been at attracting other  funds to carry out program goals.funds to carry out program goals.
GPRA was designed to inform  performance of their programs.
Leverage measures—for example, leverage ratios, total dollars leveraged, and leverage  factors—provide information on the extent to which a program or project has been  successful in attracting or combining other funds.
Pub. L. No. 103-62, 31 U.S.C. 1115 et seq. these goals. However, federal agencies have faced challenges in  identifying program goals and performance measures that go beyond  summarizing program activities—for example, the number of clients  served—to distinguishing desired outcomes or results—for example,  improving economic self-sufficiency among clients served.
Further, the current administration has made integrating performance  information into budget deliberations a priority under the President’s  Management Agenda. The Program Assessment Rating Tool (PART),  which the Office of Management and Budget (OMB) designed, is a central  element of this initiative and consists of a standard series of questions  meant to serve as a diagnostic tool. PART draws on available program  performance and evaluation information, including leverage measures, to  form conclusions about program results and develop follow-on actions  intended to improve those results. As we have reported previously, access  to credible information on program performance is critical to the success  of any program assessment effort, including PART.
As discussed in a May 2007 report on leveraging federal funds for housing  and community and economic development, leveraging can be defined in  two ways: (1) using a relatively small amount of federal funds to attract  private investment and (2) combining or layering program funds with  other federal, state, local, and private sources of funds. Leveraging also  can occur at the institutional or project level—at the institutional level, an  entity pools funds from multiple sources, which later are used to finance a  portfolio of projects; at the project level, an entity leverages funds as  necessary for discrete projects. Further, while leveraging may be useful  and stretch scarce resources, the extent of its use can depend upon local  economic conditions and may have unintended consequences, such as the  substitution of federal funds for private funds that otherwise would have  been contributed to a program or project. Despite differences in how and  under what circumstances programs leverage, little scrutiny has been  placed on the leverage measures these programs report and how agencies,  OMB, and others use such measures to assess performance.
This is the second of two reports undertaken in response to your request  that we examine leveraging as it relates to federal housing and community  and economic development programs. For this report, we examined the  Department of Housing and Urban Development’s (HUD) Community  Development Block Grant (CDBG), HOME Investment Partnerships  (HOME), and HOPE VI programs and the Department of the Treasury’s  (Treasury) Community Development Financial Institutions (CDFI)  Financial Assistance, Low-Income Housing Tax Credit, and New Markets  Tax Credit programs. Specifically, this report examines (1) the leverage  measures HUD and Treasury reported for the selected housing and  community and economic development programs and the transparency of  the data and methods used to calculate them and (2) the relevance of  leverage measures in assessing the performance of the selected programs.  This report also provides examples of how federal funds have been  leveraged in the selected programs (see app. II).
To examine the leverage measures HUD and Treasury reported for each of  the selected programs and the transparency of the data and methods used  to calculate them, we reviewed relevant program regulations and  guidance, our prior reports and reports of others, and interviewed agency  officials and other stakeholders. Based on this information, we requested  from HUD and Treasury data they use to measure the extent of leveraging  (for example, data on sources and amounts of funds, or other financial  data, commonly referred to as “leveraging data”) in the CDBG, HOME, and  HOPE VI programs and the CDFI and New Markets Tax Credit programs,  respectively, and assessed their reliability in accordance with our  standards. Because the Low-Income Housing Tax Credit program does  not have a single, complete source of data on the extent of leveraging, we  surveyed the housing finance agencies—those organizations that are  responsible for administering the program—to determine what data they  collect on the extent of leveraging that occurs in the program. To examine  the relevance of leverage measures in assessing the performance of the  selected housing and community and economic development programs,  we reviewed our and OMB’s reports on performance measurement; agency  strategic plans and annual performance plans, performance and  accountability reports, and budget justifications; and industry and other  literature such as agency reports, press releases, and Web sites. We also  interviewed federal agency officials and other individuals with knowledge  of or experience in housing and community and economic development.  As part of this work, we also conducted site visits in five states and  collected information on how federal funds have been leveraged for a  number of projects or initiatives that received funding from the programs  included in our review. Appendix I contains a more detailed description of  our scope and methodology. We conducted this performance audit in  Chicago, Illinois; San Antonio and Laredo, Texas; Philadelphia and  Chester, Pennsylvania; Portland and Salem, Oregon; Seattle and Tokeland,  Washington; and Washington, D.C., from November 2006 to January 2008  in accordance with generally accepted government auditing standards.  Those standards require that we plan and perform the audit to obtain  sufficient, appropriate evidence to provide a reasonable basis for our  findings and conclusions based on our audit objectives. We believe that  the evidence obtained provides a reasonable basis for our findings and  conclusions based on our audit objectives.
subsections: section_title: Background
paragraphs: HUD’s CDBG, HOME, and HOPE VI programs and Treasury’s CDFI, Low- Income Housing Tax Credit, and New Markets Tax Credit programs are  among a number of federal programs that fund housing and community  and economic development. In varying degrees, these programs leverage  other funds to help finance their initiatives and projects. As we reported in  a May 2007 report, some of these programs define leveraging as using one  source of funds to attract additional sources of funds, while others define  leveraging more broadly as the layering or combining of different sources  of funds. Further, and as described below, some of these programs  leverage at the institutional and project levels, while some leverage only at  the project level. At the institutional level, an organization (such as a  group of investors or a community or other development authority) pools  funds from multiple sources, which are then used to finance a portfolio of  projects. At the project level, an organization (such as a state or local  agency) leverages funds as necessary to finance discrete projects.
subsections: section_title: Housing and Community and Economic Development Program Overviews
paragraphs: We highlight below the purpose, structure, and activities of the three HUD  programs and three Treasury programs that we reviewed. Appendix II  describes in more detail how leveraging occurs in the selected Treasury  programs.
subsections: section_title: CDBG Program
paragraphs: The CDBG program is the federal government’s principal community  development program. It provides annual grants on a formula basis to  entitlement communities—principal cities of metropolitan statistical  areas, other metropolitan cities with populations of at least 50,000, and  qualified urban counties—and states to develop viable urban communities  by providing decent housing and a suitable living environment, and by  expanding economic opportunities, principally for low- and moderate- income persons. Under the CDBG program, communities and states  develop their own programs and funding priorities. However, all funded  activities must meet one of three national objectives: primarily benefit  low- and moderate-income persons, aid in the prevention or elimination of  slums and blight, or meet community development needs of particular  urgency (because existing conditions pose a serious and immediate threat  to the health or welfare of the community and other financial resources  are not available to meet such needs). Although the CDBG program has no  statutory or regulatory leveraging requirement, some projects funded  under the program use CDBG funds to leverage additional funds to finance  development costs. In fiscal year 2007, Congress appropriated  approximately $3.7 billion to the CDBG program for formula distribution,  and HUD allocated these funds to 1,133 entitlement communities, 49  states, and Puerto Rico.
section_title: HOME Program
paragraphs: HOME provides formula grants to states and localities—certain cities,  counties, or consortiums of cities and counties—to fund a wide range of  activities to benefit low-income people. Under the HOME program, states  and localities may use program funds to finance a broad range of  activities, such as providing eligible homeowners and new homebuyers  with home purchase or rehabilitation financing assistance and building or  rehabilitating housing for rent or ownership. States and localities also may  use HOME funds to provide tenant-based rental assistance. The program  requires states and localities to match 25 percent of expended program  funds with monetary or certain in-kind contributions, such as donated  materials or voluntary labor. This match requirement was designed to  elicit local resources in support of affordable housing. Like the CDBG  program, the HOME program has no statutory or regulatory leveraging  requirement; however, some projects funded under the program use  HOME funds to leverage additional funds to finance development costs. In  fiscal year 2007, Congress appropriated approximately $1.8 billion to the  HOME program, and HUD allocated these funds to 589 localities, the 50  states, and Puerto Rico.
section_title: HOPE VI Program
paragraphs: HOPE VI is part of HUD’s effort to transform public housing. By  providing funds for a combination of capital improvements and  community and supportive services, the HOPE VI revitalization grant  program seeks to (1) improve the living environment for residents of  severely distressed public housing through the demolition, rehabilitation,  reconfiguration, or replacement of obsolete units; (2) revitalize sites on  which such severely distressed public housing is located, and contribute to  the improvement of the surrounding neighborhood; (3) provide housing  that will avoid or decrease the concentration of very-low income families;  and (4) build sustainable communities. Any public housing agency (PHA)  that has severely distressed public housing units in its inventory is eligible  to apply for a HOPE VI revitalization grant. Recipients of revitalization  grants must match 5 percent of the grant with other funds, and HUD  awards PHAs that demonstrate an ability to leverage additional points in  the HOPE VI application process. In fiscal year 2006, HUD made four  HOPE VI revitalization grants totaling approximately $72 million.
section_title: CDFI Program
paragraphs: Through the CDFI program, Treasury’s CDFI Fund provides CDFIs with  financial assistance in the form of grants, loans, equity investments, and  deposits to enhance their ability to make loans and investments and  provide services for the benefit of designated investment areas, targeted  populations, or both. CDFIs must match (leverage) their financial  assistance awards dollar-for-dollar with funds of the same type (equity  investment, loan, deposit, or grant) from nonfederal sources. CDFI funds  can be used for economic development (job creation, business  development, and commercial real estate development), affordable  housing (housing development and homeownership), and community  development financial services (provision of basic banking services to  underserved communities and financial literacy training). In 2007,  Treasury made approximately $26 million in financial assistance awards to  49 CDFIs.
section_title: Low-Income Housing Tax Credit Program
paragraphs: Under the Low-Income Housing Tax Credit program, states are authorized  to allocate federal tax credits to private investors as an incentive to  develop rental housing for low-income households. The equity generated  by the sale of the credits is used to lower the financing costs of housing  developments by reducing the debt or equity the developer otherwise  would incur or contribute. Investors who purchase the tax credits may  claim the credits annually for 10 years. To receive Low-Income Housing  Tax Credit financing, properties must meet certain rent and tenant income  requirements: (1) at least 20 percent of the units in the property must be  reserved for individuals or families with incomes of 50 percent or less of  the area median income, or at least 40 percent of the units must be  reserved for individuals or families with incomes of 60 percent or less of  the area median income; and (2) rents for affordable units are restricted to  30 percent of the applicable income limit (that is, 50 percent or 60 percent  of the area median income). Each state receives an allocation of the  greater of $1.75 per capita or $2 million annually, adjusted by a cost of  living factor ($1.95 or $2.275 million in 2007). The program costs the  federal government an estimated $5 billion annually in forgone tax  revenue and is the government’s largest housing production program.
section_title: New Markets Tax Credit Program
paragraphs: The New Markets Tax Credit program permits taxpayers to receive a  credit against federal income taxes for making qualified equity  investments in designated Community Development Entities (CDE), which  must in turn make investments in low-income communities. Qualified  low-income community investments include (1) any capital or equity  investment in, or loan to, any qualified, active, low-income community  business; (2) the purchase from another CDE of any loan made by such  entity that is a qualified low-income community investment; (3) financial  counseling and other services to businesses located in, and residents of,  low-income communities; and (4) certain equity investments in, or loans  to, a CDE. The credit provided to the investor totals 39 percent of the cost  of the investment and is claimed over a 7-year period. In addition,  Treasury scores those applications in which CDEs demonstrate an ability  to leverage additional funds more favorably. In fiscal year 2007, Treasury  awarded $3.9 billion in New Markets Tax Credits (totaling approximately  $1.5 billion in forgone federal tax revenue) to 61 CDEs.
section_title: Reported Leverage Measures Lacked Transparency Because Agencies Generally Did Not Disclose Data Limitations or Calculation Methods
paragraphs: The leverage measures (such as ratios) HUD and Treasury reported for the  selected programs in performance, budget, and other documents lacked  transparency because the agencies generally did not disclose the  limitations of the data or the methods used to calculate them. Based on  our review of available leveraging data and interviews with HUD and  Treasury officials, we found that the leverage measures the agencies  reported for the selected programs were based on incomplete data and  thus did not capture the actual extent of leveraging in the programs. We  also found that while the agencies generally reported measures that  described the ratio of all other funds (federal, state, local, and private  funds) to program funds, alternative measures that described the total  federal investment or total private investment in a program provided  considerably different results—also potentially of value to decision  makers—about the extent of leveraging in a program. Further, no agency- specific or governmentwide guidance directs what agencies should  disclose about the leverage measures they report for the selected  programs; however, we regularly have reported that clearly  communicating data limitations and their potential impact may foster  appropriate use of data. Consequently, absent specific information on  how these measures were calculated and their limitations, decision  makers would not have sufficient information to understand their meaning  and determine how they could and should be used in performance  assessment, budgeting, and other contexts.
subsections: section_title: HUD and Treasury Did Not Always Disclose Limitations of Data Used to Determine Leverage Measures for the Selected Programs
paragraphs: Based on our review of available leveraging data and interviews with HUD  and Treasury officials, we found that the leverage measures the agencies  reported for the selected programs were based on incomplete data and did  not capture the actual extent of leveraging that may have occurred in each  of the programs. We also found that HUD and Treasury did not always  disclose these limitations when they published the measures. Table 1  describes the limitations associated with the underlying data used for  determining leverage measures for each of the selected programs.
In our assessment of HUD’s and Treasury’s use of leverage measures in  strategic planning, annual performance and budget documents, on their  Web sites, and in other published reports, we found that the agencies did  not routinely disclose the limitations to the leveraging data (outlined in  table 1) they used to compute leverage measures for the selected  programs. For example, the only place in which Treasury included  discussions of known limitations to the data used to calculate a leverage  measure for the CDFI program was in periodic agency reports on the  extent of leveraging in the program. Treasury’s Web site and key  performance and budgeting documents provide little to no information on  data limitations associated with the CDFI program leverage measure.  Similarly, while HUD cited leverage measures on its Web site and in  budget documents for the HOME and HOPE VI programs, respectively, the  agency did not disclose the limitations of the data used to compute the  reported leverage measures for the programs.
Further, no agency-specific or governmentwide guidance directs what  agencies should disclose about the leverage measures they report for the  selected programs; however, we regularly have reported on the need for  agencies to collect and report on credible and reliable data for  performance budgeting and other purposes. For example, cautioning  decision makers and others about significant data limitations allows them  to judge the credibility of the data and use them in appropriate ways. We  also noted that all data have limitations that may hinder their use for  certain purposes, and decision makers and others may not have enough  familiarity with the data to recognize the significance of the shortcomings.  Therefore, we concluded that appropriate use of data may be fostered by  clearly communicating how and to what extent data limitations affect  assessments of performance. OMB also has stressed the importance of  making clear to policymakers and others what individual performance  indicators measure. According to OMB, doing so helps decision makers  understand what should be expected of an overall program. To the extent  that HUD and Treasury were not clear about the limitations of the  measures they calculated for the selected programs, they potentially  misrepresented (either positively or negatively) the extent of leveraging  that occurred in these programs. If decision makers are unaware of the  limitations of the agencies’ reported leverage measures and take them at  face value, they could misuse them in making funding decisions or  performance evaluations on the programs (which also may have  implications on the budget process).
section_title: Agencies Also Generally Did Not Disclose Methods Used to Calculate Leverage Measures Even Though Alternative Calculation Methods Can Provide Significantly Different Results
paragraphs: In our assessment of HUD’s and Treasury’s use of leverage measures in  strategic planning, annual performance and budget documents, on their  Web sites, and in other published reports, we also found that the agencies  did not routinely disclose information on the methods they used to  calculate leverage measures for the selected programs. For instance, in its  fiscal year 2008 budget justification, HUD reported that the HOPE VI  program leveraged $634 million over a 6-month period in 2007, without  further explanation of how the measure was derived. Similarly, Treasury’s  Web site noted that on average CDFIs leveraged program funds 20 to 1, but  did not explain what types of funds (public or private) were leveraged.
Based on our discussions with agency officials, we found that the leverage  measures HUD and Treasury calculated for each of the selected programs  generally described the ratio of all other funds contributed to a program  (including other federal, state, local, and private funds) to program funds.  However, these measures can be calculated in multiple ways that describe  leveraging from different perspectives, such as the extent that federal  funds are used with nonfederal funds or public funds are used with private  funds, which underscore the importance of disclosing the calculation  methods used. As illustrated in figure 1, leverage measures for a single  program could vary considerably depending on how funding categories  were combined (that is, program funds, other federal funds, state and local  funds, and private funds).
Scenario A in figure 1 generally represents how the agencies presented  leverage measures for the selected programs. The alternate leverage  measures presented in scenarios B and C provide additional information  that could be more useful to policymakers and investors than measures  that describe the ratio of all other funds to program funds. For example, to  help inform decisions made as part of the annual appropriations process,  policymakers may be interested in determining the extent of total federal  contributions made to projects funded under a particular program  (scenario B). Alternatively, to assess the potential risk of investing in a  federally sponsored development project in a low-income community, a  private investor might be interested in knowing the proportion of private  investment to public investment in the program (scenario C). Some private  investors might perceive a relatively low ratio as an indication that the  program carried a high level of investment risk and thus a higher potential  for losses. Further, more detailed information on all the different sources  of funding could be useful in describing the extent to which one federal  program is leveraging funds from another federal program (that is, the  extent to which federal programs cross-subsidize one another) and could  be particularly relevant to policymakers during annual budget  deliberations.
In addition, for the CDFI and New Markets Tax Credit programs (which  leverage at both the institutional and the project levels), disclosing  information on institutional and project-level leveraging could be more  useful to policymakers and investors than a total program leverage  measure. For example, providing such information would assist  policymakers and investors in understanding the extent to which  institutional leveraging could be used to manage project-level investment  risks—a program with a high institutional leverage ratio but a low project  leverage ratio might be one which invests in riskier projects than a  program with a low institutional leverage ratio but a high project leverage  ratio. As we discussed in our previous report on leveraging federal funds,  investments at the institutional level generally are isolated from the  investment risks associated with discrete projects.
In appendix II we present multiple calculation scenarios for each of the  selected programs. Consistent with our hypothetical demonstrations in  figure 1, our calculations show considerably different results between the  leverage measures the agencies reported (that is, the ratio of all other  funds to program funds) and measures that describe either (1) the ratios of  nonfederal funds to federal funds and private funds to public funds or (2)  institutional and project leverage ratios.
As a result of not having more specific information about how these  measures were calculated, decision makers would not have sufficient  information to understand their meaning and how they can and should be  used in performance assessment, budgeting, and other contexts. Further,  as previously discussed, there is no agency-specific or governmentwide  guidance on what agencies should report about how (or the extent to  which) leveraging occurs in their programs. However, in other contexts,  our prior work and that of OMB has stressed the value in agencies’  disclosing this type of information to ensure decision makers not only are  aware of what is being reported about a program, but how that  information can and should be used to inform their budget, performance,  and other decisions.
section_title: Leverage Measures Provide Basic Financial Information, but the Extent to Which They Are Relevant for Assessing Program Performance Varies
paragraphs: Leverage measures can provide basic financial information about the  programs included in our review; however, their relevance in assessing the  performance of these programs varies considerably. For all of the  programs we reviewed, leverage measures can describe inputs, or the  resources used to support program activities, and may be useful for  conveying basic financial information. To the extent that leveraging is a  goal or core (expected) activity of a program (as in the three Treasury  programs), leverage measures generally can describe program outputs, or  the products or services delivered (such as total leveraged funds), and may  be used along with other performance indicators to assess the efficiency  and effectiveness of a program in meeting its goals. In cases where  leveraging is not clearly and appropriately linked to program goals and  activities (as in the three HUD programs), use of such measures to  describe program outputs could be misleading and result in adverse  consequences, such as giving funding priority to projects that leverage  more over those that leverage less, but which may fill a greater or more  immediate need within a community. Although leveraging had limited  relevance to the goals and activities of the selected HUD programs, we  found that OMB and the agency often cited leverage measures for the  programs in performance- and budget-related reviews and documents.  Their continued use of leverage measures in these contexts could  unnecessarily encourage HUD to place more importance on leveraging  than meeting the stated goals of the CDBG, HOME, and HOPE VI  programs.
subsections: section_title: Leverage Measures Can Provide Basic Financial Information about a Program, and if Linked to Program Goals and Core Activities, More Detailed Performance Information
paragraphs: Leverage measures generally can be used to describe the sources and  amounts of funds contributed to a program, and if linked to a program’s  goals and core activities, they also can provide more detailed information  about the program’s performance. On a basic level and for all of the  programs we reviewed, leverage measures convey information on inputs— that is, the specific sources of funds used to implement program activities.  For example, leverage measures can provide information on the relative  contributions made by different types of investors (private and public) to a  program or project and the overall resources committed—this information  could be used to inform agency budgeting exercises or financial analyses.  To the extent that leveraging is a goal or core (expected) activity of a  program, leverage measures generally can describe program outputs (in  addition to program inputs) and be used with other performance  indicators to measure the efficiency or effectiveness of a program in  reaching its goals (see fig. 2). Previously we have reported that for  performance measures to be useful in assessing program performance,  they should be linked or aligned with program goals and cover the  activities that an entity is expected to perform to support the intent of the  program. Generally, leveraging would not be an outcome measure for any  of the selected programs—outcomes describe program benefits or  consequences (such as the impact of leveraging on community  development), whereas outputs generally measure quantities produced  (total dollars leveraged).
section_title: The Importance of Leverage Measures in Assessing the Performance of the Selected Programs Varies
paragraphs: Leverage measures can be used to assess the performance of programs  that were designed to leverage (that is, in which leveraging is directly  related to the goals and core activities of the program), but are less  meaningful in assessing the performance programs that do not have  explicit leverage requirements. Each of the three Treasury programs was  designed to leverage other funds in a number of ways and, as a result,  leveraging directly relates to each program’s goals and core activities and  leverage measures can be used to describe program outputs. Under the  CDFI program, CDFIs must match federal program funds at least dollar- for-dollar with nonfederal funds as a condition of receiving program funds.  The match requirement is intended to increase the sustainability of CDFIs  (by increasing private-sector investment in them) as well as their ability to  make investments serving low-income individuals and communities.  Although not required to do so, CDFIs use program and match funds to  leverage debt and further increase their lending resources. Funding  recipients (for example, small businesses) also may use their grants or  loans from CDFIs to leverage additional funds to help finance their  projects. In this way, leveraging at the project level also relates closely to  the CDFI program’s goal of increasing investment in low-income  individuals and communities.
Similarly, the tax credit programs were designed to automatically generate  private-sector equity investments in the production of affordable housing  (in the case of the Low-Income Housing Tax Credit program) and  community and economic development (in the case of the New Markets  Tax Credit program). Further, the application processes for both  programs were designed to encourage additional leveraging. Under the  Low-Income Housing Tax Credit program, in order to limit the federal  share of housing development project costs, states are to provide no more  tax credits to projects than necessary for their financial viability. Under  the New Markets Tax Credit program, Treasury considers CDEs’ potential  to leverage other sources of funds (in addition to the qualified low-income  community investment they plan to make using the tax credit equity) for  the projects they sponsor as a factor in scoring the tax credit allocation  applications.
In cases where leverage measures are not clearly and appropriately linked  to program goals and core activities, use of such measures to describe  program outputs could result in adverse consequences; for example, by  encouraging agencies to place more importance on leveraging than on  meeting their stated goals. This trade-off is directly apparent in the use of  leverage measures as outputs for the CDBG and HOME programs. While  leveraging may be a strategy some funding recipients employ (either by  choice or out of necessity) to meet these programs’ goals, none of these  programs originally was designed to leverage (meaning, leveraging  generally is not a goal or core activity in these programs). Thus, using  leveraging to assess the success or impact of these programs in meeting  their goals may result in agencies and funding recipients serving fewer  lower-income communities or households (as originally intended by these  programs) and more moderate-income communities and households  (those that are better able to attract additional funds because they pose  relatively less risk to investors).
HUD set a leveraging goal for the HOPE VI program in the agency’s most  recent strategic plan and its fiscal year 2007 annual performance plan and  fiscal year 2008 budget justification. According to HUD officials, while  leveraging has long been a rating factor in the program’s application  process, its relative importance in financing HOPE VI developments has  increased over time as program appropriations have declined. While  leveraging may help HUD meet the HOPE VI program goal to create  mixed-income communities, its use may involve trade-offs, as it may  conflict with another program goal—providing housing for extremely-low,  very-low, and low-income households. For example, increased reliance  on leveraged funds from other programs or sources that may have  different requirements (such as higher income limits) potentially could  affect the demographic composition of HOPE VI developments.
Previously, we have reported several limitations to the usefulness of  leverage measures in providing detailed information about federal  programs and the projects they fund (regardless of whether or not those  programs were designed to leverage). Although leveraging can be a useful  tool and public- and private-sector officials regard it favorably, according  to many of the officials we contacted, if considered independently of other  information, leverage measures can provide misleading information about  the success or impact of a program or project. For example, many said  that factors such as the local economy or availability of investors within a  certain geographic area could have a positive or negative impact on a  project’s ability to leverage additional funds, and thus its leverage ratio.  That is, projects in vibrant communities likely may have higher leverage  ratios than those in distressed communities. As a result, leverage measures  are not sufficient to make judgments about the relative success of projects  or programs without other descriptive information. Leverage measures  also do not account for the level of substitution of federal funds for  otherwise available private funds that might occur in programs or projects.  Although difficult to measure, information on substitution might be useful  in assessing how effectively federal funds were utilized in a program or  project. Officials we contacted noted that having information on the risk  position of different contributions to a project might be useful in assessing  the extent of substitution that occurred. For instance, the level of  substitution in a project in which the federal government assumed more  risk (by taking a subordinate position) than nonfederal investors could be  lower than the level of substitution in a project in which the federal  government assumed less risk (by taking a senior position).
section_title: OMB and the Agencies Did Not Always Link Leveraging to Program Goals and Core Activities in Performance-related Reviews and Reports
paragraphs: When OMB and the agencies cited leverage measures in performance- and  budget-related reviews and documents, they did not always link leveraging  to program goals and core activities—in some cases, OMB and the  agencies used leveraging to assess the performance of the selected  programs despite its limited relevance to program goals and core  activities. According to OMB officials, the agency considers leveraging to  be an output measure for each of the selected HUD programs. Consistent  with this view, OMB used leveraging as an output measure in its PART  reviews of these programs, although leveraging generally was not linked to  the goals and core activities of the programs. For example, in its 2003  PART review of the CDBG program, OMB recommended that HUD  implement a new performance measurement system that included  information on the amount of money leveraged from other sources. The  agency developed steps to address this recommendation in the program  improvement plan it developed with OMB in 2006 (in response to the  PART assessment’s finding that the program lacked specific annual  performance measures that demonstrated progress on achieving long-term  goals). We have noted that federal programs, in particular federal block  grant programs, have faced difficulties but could benefit from defining  program goals and performance measures that go beyond describing  program activities to describe outcomes or results. However, because  leveraging is not a required activity or explicit goal of the CDBG program  (as discussed previously), its value in evaluating the performance of the  program is limited. Further, in its PART review of the HOME program,  OMB used leverage measures to compare the performance of the HOME  program with that of the CDBG program. Such a comparison does not  facilitate evaluations of these programs in the context of their intended  goals (neither of which is to leverage).
While using leveraging as an output measure for the CDFI and New  Markets Tax Credit programs is consistent with the programs’ goals and  core activities as discussed above, OMB identified leveraging as an  outcome measure for the CDFI program in its 2004 PART review despite  the fact that, as discussed previously, leveraging cannot be used to  measure the impact of the program. Further, the agency equated  leveraging with program effectiveness in its 2004 PART review of the New  Markets Tax Credit program. (As described in fig. 2, outcome measures  are used to assess the effectiveness of programs in achieving desired  results. As we have discussed throughout this report, outcome measures  should be designed to assess the benefits or consequences of a program— leverage measures by themselves cannot provide information on the  impact these programs have had on their targeted populations and  communities.)
As we observed in our 2004 review of OMB’s PART process, the goals and  measures OMB defines in its PART reviews are designed to meet the needs  of executive decision makers during the budget formulation process, and  thus may be inconsistent with the goals and measures federal agencies  have developed in response to GPRA, which may be developed at a higher,  strategic level and less relevant to OMB’s budget decision-making  process. As a result of OMB’s focus on the budget process, we found that  its judgment about appropriate goals and measures for a program may be  substituted for agency judgments. These findings generally are consistent  with our observations on OMB’s use of leverage measures in the PART  reviews of the selected programs we reviewed for this report. We observed  that the agencies identified leveraging as a performance measure in their  performance- and budget-related reports for some of the selected  programs despite its sometimes limited relevance to program goals and  core activities.
Table 2 describes HUD’s use of leverage measures for the HOME and  HOPE VI programs in its strategic planning and other performance- and  budget-related documents or contexts. In the case of the HOME program,  although leveraging was not linked to the program’s goals and core  activities, HUD equated more leveraging with better performance by  ranking states and localities on their ability to leverage other sources of  funds. For the HOPE VI program, HUD primarily used leveraging as a  measure for its goal of providing decent, affordable housing through the  improvement of the physical quality of public housing. However, HUD  generally did not discuss how leveraging would help the agency in  achieving this goal. HUD also linked leveraging to the HOPE VI goal of  creating mixed-income housing. Although increased leveraging in a  program designed to provide affordable housing could result in trade-offs,  HUD’s performance- and budget-related documents did not discuss the  impact of (or the potential unintended consequences of) leveraging on the  ability of the program to meet this goal.
Finally, as described in table 3, Treasury generally linked leveraging with  the goals and core activities of the CDFI and New Markets Tax Credit  programs. For example, Treasury noted that leveraging in the CDFI  program helps build CDFIs’ capacity to make loans and other investments  in low-income communities. Because Treasury to date has not reported  publicly the extent of leveraging in the New Markets Tax Credit program,  the agency’s performance- and budget-related documents only discuss the  extent of institutional leverage in the program. As with the CDFI program,  Treasury linked institutional leveraging to the program’s goal of attracting  private-sector capital to low-income communities.
section_title: Conclusions
paragraphs: With the increased focus of federal agencies on performance management,  budgeting, and financial reporting, leveraging has come to be seen as an  effective and efficient means of delivering more impact per dollar of  federal investment, particularly in a period of increasingly tight budgets  and competing funding priorities. While agencies have collected and  presented leveraging information in strategic planning, performance, and  budget reports, and on their Web sites, agencies disclose little or no  information on methods of data collection or how leverage measures were  calculated, in part because there is no agency-specific or governmentwide  guidance on how to calculate, describe, and use leverage measures in a  manner that is consistent with the programs’ design. Information on  methodology is important in the leveraging context because of the  limitations of leveraging measures and data collection issues. For  example, in the case of the CDBG and HOME programs, leveraging may be  underestimated because HUD’s database does not distinguish between  zero responses (for example, where no leveraging occurred) and blank  responses (for example, where leveraging data may be incomplete).  Moreover, measures such as ratios may not disclose the details necessary  to understand which component funding sources were being compared,  and as demonstrated, the ratios can vary considerably depending on what  information an agency is trying to convey about a program (for example,  the extent of public or private investment in a program). Further, data  collection and completeness are issues because not all the programs are  required to report leveraging, and in many cases agencies are unable to  capture data on all leveraging that may be occurring in a program (for  example, project leveraging). Absent specific information on how leverage  measures were calculated and their potential limitations, decision makers  do not have sufficient information to understand their meaning and how  they can and should be used in performance assessment, budgeting, and  other contexts.
Moreover, the relevance of leveraging to performance measurement is  dependent on the context of the program being analyzed. Because  leveraging is not an intended activity carried out to achieve program goals  or a goal unto itself for some of the selected housing and community and  economic development programs in our review, measures such as ratios  are not indicative of program or project performance (outcomes and  impact). Rather, such measures are indicative only of resource utilization.  Nevertheless, even in cases where they were not reflective of program  performance, agencies presented leverage measures in strategic plans,  annual performance plans, performance and accountability reports, and  budget justifications. The use of leverage measures in such contexts could  lead decision makers to presuppose that the information was indicative of  program impacts in cases where leveraging actually might say very little  about the success of a program, such as the ability of a program to  improve the living conditions of the urban poor.
Despite the issues surrounding the utility of leverage measures, we note  the valid and useful purposes for which the measures may be used,  particularly in instances where leveraging is an intended activity or goal.  For instance, decision makers and practitioners in the area of affordable  housing and community and economic development may utilize leverage  measures to report basic information on how federal funds were  combined with other funds for a program or project. Such information  could be instructive in ascertaining trends in the involvement of private- sector investors or local governments in federally sponsored initiatives, or  identifying demographic trends that could adversely or positively affect  the ability of program funds to attract other funds. Additionally, the  measures may aid management and Congress in their oversight of  programs and strategic planning for future budgets. Further, when directly  linked to program goals and activities and considered with other  performance measures, leverage measures also could provide insight into  the success of a program, including its impact on targeted populations and  communities.
The valid and useful purposes to which leverage measures may be put  underline the importance of transparency for federal agencies in  communicating the limitations of such measures and how they are  calculated. The agencies administering the housing and community and  economic development programs we reviewed could improve the  transparency of the leverage measures they use by including information  about the completeness and accuracy of the data and methods used to  compute the measures. Further, the agencies could discuss the relevance  of leveraging to a program’s stated goals and activities. The publication of  such information in conjunction with the measures themselves would  increase the accuracy of the information being conveyed and provide  perspectives that would allow various users to assess the potential of the  measures to serve as relevant and accurate indicators of program or  project outputs and, in some cases, outcomes or impact. However, the  opportunities to better describe, assess, and report the role of leveraging  in housing and community and economic development programs do not  rest solely with the agencies administering those programs. OMB, because  it plays a key role in assessing the performance of federal agencies and  developing and tracking compliance with performance goals, has an  opportunity to refine its understanding and use of leverage measures in  future PART and other performance reviews by carefully considering the  role of leveraging in carrying out program goals and activities. Specifically,  in its performance assessments of the selected programs, OMB could  provide information on how leveraging may support or conflict with a  program’s intended purpose. This is particularly important because the  accuracy of measures and the relationship of leveraging to program goals  and thus performance can vary considerably across the housing and  community and economic development programs we reviewed.
section_title: Recommendations for Executive Action
paragraphs: To ensure that leverage measures provide accurate, useful, and relevant  information to Congress and others, we recommend that the Secretaries of  HUD and the Treasury consider disclosing the following when they  publish such measures for the programs included in our review:    Presentation of leverage measures should be accompanied by information  about the completeness and accuracy of the data and the method(s) used  to calculate the measures (for example, with leverage ratios, information  on what sources of funds were compared, such as private funds to public  funds or nonfederal funds to federal funds).
Presentation of leverage measures should be accompanied by a discussion  of the relevance of the measure in assessing the program’s performance.  For example, the agencies should discuss the extent to which leverage  measures are linked to program goals and core activities.
We further recommend that the Director of OMB    provide guidance to help agencies determine how to calculate, describe,  and use leverage measures in a manner consistent with the programs’  design; and re-evaluate the use of leverage measures and disclose their relevance to  program goals and activities in future PART or other performance reviews  of the selected programs.
section_title: Agency Comments and Our Evaluation
paragraphs: We received written comments on a draft of this report from HUD and  Treasury, which are included in appendixes V and VI, respectively. HUD’s  Office of Public and Indian Housing also provided technical comments  related to the HOPE VI program, which we incorporated as appropriate.  We also provided a draft of this report to OMB for review, but no  comments were provided.
In a letter from the Acting Deputy Assistant Secretary for Grant Programs,  HUD noted that it was pleased with the results presented in our draft  report, but provided several detailed comments on and suggested changes  to our findings related to the CDBG and HOME programs (see app. V).  Specifically, HUD expressed concern that the draft report (1) did not  sufficiently emphasize that the CDBG and HOME programs do not have  statutory or regulatory leveraging requirements; (2) did not sufficiently  emphasize that the agency currently does not publish a leverage measure  for the CDBG program; (3) incorrectly stated that the agency did not  disclose limitations to the data or methods used to calculate leverage  measures for the HOME program, which are reported on HUD’s Web site;  and (4) contends that leveraging affects the funding decisions HUD makes  for CDBG and HOME (HUD noted that all funding decisions are made at  the state or local level and are not approved by the agency).
With respect to HUD’s first two concerns, we incorporated additional  language into the report to further emphasize that the CDBG and HOME  programs do not have leveraging requirements and that the agency does  not publish a leverage measure for the CDBG program. In its letter, HUD  agreed to work to improve the quality of leveraging data CDBG grantees  report to the agency, which would address, in part, our recommendation  that the agencies disclose information about the completeness and  accuracy of the data and the method(s) used to calculate leverage  measures.
Concerning HUD’s comment that the draft report incorrectly stated that  the agency did not disclose limitations to the data or methods used to  calculate leverage measures for the HOME program, which are reported  on HUD’s Web site, we acknowledge that HUD’s Web site included  information on the method used to calculate leverage measures for the  HOME program (that is, the ratio of other funds to program funds).  However, HUD has not provided information on the limitations to the data  used to calculate those measures. Specifically, the database HUD used to  collect leveraging data for the program did not distinguish between  nonresponses, which default to zero, and actual entries of zero; assuming  that some grantees failed to enter funding information, the total amount of  leveraging that occurred in the program (or in a specific state or locality)  potentially would be underestimated. Accordingly, we did not change the  report.
Finally, with respect to HUD’s concern that the draft report contends that  leveraging affects the funding decisions HUD makes for CDBG and HOME,  our report did not state that HUD or grantees make funding decisions  based on leveraging; rather, the report noted the potential consequences  of using leveraging as a performance indicator for programs that were not  designed to leverage. Specifically, we found that leveraging may be a  strategy some funding recipients employ, either by choice or out of  necessity, to meet the goals of the CDBG and HOME programs. Thus,  using a leverage measure to assess the impact or success in meeting goals  may create adverse or conflicting incentives for the agency and its  grantees as well as Congress and other decision makers; for example, by  giving funding priority to projects that leverage more over those that  leverage less, but which may fill a greater or more immediate need within  a community. In response to this comment, we added language to the  report to emphasize that HUD has not identified leveraging as a  performance measure for either program.
In a letter from the Director of the Community Development Financial  Institutions Fund, Treasury expressed appreciation for our finding that  each of the agency’s programs included in our review was designed to  leverage. Although Treasury did not specifically comment on our  recommendations, it provided several detailed comments primarily related  to the agency’s calculation of leverage measures for the CDFI and New  Markets Tax Credit programs (see app. VI). Specifically, Treasury  commented on our findings that (1) the leverage measures Treasury  reported for its programs lacked transparency because the agency did not  disclose the limitations of the data or the methods used to calculate them;  (2) the leverage measures did not reflect the actual extent of leveraging in  the CDFI program due to incomplete data; (3) missing project-level data  for the New Markets Tax Credit program potentially led to misestimations  of leveraging in the program; and (4) the leverage measure Treasury  calculated for the New Markets Tax program was a multiplier ratio, not a  leverage ratio.
With respect to its first comment on our findings, Treasury stated that on  multiple occasions the agency has publicly disclosed its calculation  method for the CDFI program. In the report, we listed two publications in  which Treasury disclosed its calculation methodologies and limitations to  the data it used to compute a leverage ratio for the CDFI program. To this  list, we added the additional report Treasury cited in its letter. However,  we continue to believe that disclosure of the methodologies and  limitations of the data used to calculate the leverage measures is  important, particularly in key budget and performance documents, which  policymakers often rely on to make funding and management decisions.  As discussed in the report, Treasury did not disclose such information  about its leverage calculation for the CDFI program in these key  documents. For example, in the fiscal year 2006 Performance and  Accountability Report and Justification for Appropriations and  Performance Plans, Treasury reported leverage ratios for the CDFI  program and emphasized its importance in achieving program goals, but  did not include any discussions of the measures’ data limitations or  calculation methods. Accordingly, we did not change our finding that  Treasury’s reporting of such information was inconsistent and that it  should further disclose its data limitations and calculation methods in key  budget and performance documents.
Concerning Treasury’s comment on our finding that the leverage measure  the agency calculated for the CDFI program did not reflect the actual  extent of leveraging due to incomplete data, Treasury stated that although  it was aware that the match leverage—that is, the ratio of nonfederal  match funds to program funds—may actually exceed the statutory  requirement of a 1 to 1 ratio, it is not appropriate or necessary to include  excess matching funds that exceed the requirement. We continue to  believe that excluding excess matching funds from the leverage  calculation (which typically includes all other sources of funds)  understates the actual extent of leveraging that occurs in the program.  Accordingly, we did not change the report in this regard. If Treasury  chooses to continue to exclude such amounts from future, published  leverage calculations for the program, we believe that it should disclose  this and its potential impact on the leverage measure, consistent with the  recommendations included in this report.
Concerning Treasury’s comment on our finding that missing project-level  data for the New Markets Tax Credit program potentially led to  misestimations of leveraging in the program, Treasury stated in its letter  that the leverage measure for the program would not substantially be  different if complete data were available and that the calculated measures  provided a reasonable approximation of the leveraging that occurs in the  program. We reported that (1) leverage data were not available for 26  percent of New Markets Tax Credit projects and (2) Treasury assumed  that CDEs contribute 100 percent of tax credit equity to qualified low- income community investments, even though CDEs are permitted to retain  up to 15 percent of such equity for administrative and other purposes. We  noted that the former case could lead to an underestimation of the extent  of leveraging and the latter an overestimation of the extent of leveraging  that occurred in the program. As discussed above with respect to the CDFI  program, these data limitations potentially could have an impact on the  leverage measure Treasury calculated for the program. In its letter,  Treasury agreed with our description of these limitations, but did not  provide any specific evidence of the impact of missing project-level data  on these measures. Treasury also acknowledged the importance of  disclosing such information, stating it would make every effort to include  a discussion of these and other data limitations, as well as its calculation  methodologies, when and if it publishes leverage measure for the  program. In response to these comments, we did not change the report.
Finally, with respect to our finding that the leverage measure Treasury  calculated for the New Markets Tax Credit program for purposes of this  report was a multiplier ratio, Treasury stated that the measure was a  leverage ratio, calculated consistent with GAO guidance outlined in the  report. However, we reported the measure Treasury reported for the New  Markets Tax Credit program was not a leverage ratio, but rather a money  multiplier or multiplier ratio. A multiplier ratio measures the total amount  of investment $1 in tax credits potentially can generate in low-income  communities, whereas a leverage ratio measures the additional amount of  investment relative to a source of funds (such as program funds).  According to Treasury officials with whom we spoke, the agency included  the cost of the credit ($0.25) on “both sides of the ratio,” consistent with  the calculation of a multiplier ratio, but overstating the extent of  leveraging that occurred in the program. Our purpose in making a  distinction between leverage ratios and multiplier ratios was to highlight  the need for adequate disclosure of calculation methods and data  limitations so that decision makers understand how to interpret these  measures and how these measures compare with those reported by other  programs. Without such information, it would not be possible for decision  makers to assess the reliability of the measures or the comparability of the  measures reported by other programs. If Treasury publishes the measure it  calculated for the New Markets Tax Credit program, we believe it is  incumbent upon the agency to provide a discussion as to how the measure  was calculated in an attempt to provide complete information to decision  makers (see app. III). Further, Treasury acknowledged in its letter it would  do so, stating it would “make every effort to include a discussion of data  methodologies and limitations” when it publishes leverage measure for the  program. Accordingly, we did not change the report in response to this  comment.
HUD’s and Treasury’s letters also included several comments that were  technical in nature, which we incorporated as appropriate.
As agreed with your office, unless you publicly announce the contents of  this report earlier, we plan no further distribution until 30 days from the  report date. At that time, we will send copies of this report to the Ranking  Member, Subcommittee on Housing and Community Opportunity,  Committee on Financial Services, the Secretaries of Housing and Urban  Development and the Department of the Treasury, the Director of the  Office of Management and Budget, and other interested congressional  committees. We also will make copies available to others upon request. In  addition, the report will be available at no charge on the GAO Web site at  http://www.gao.gov.
If you or your staff have any questions concerning this report, please  contact me at (202) 512-8678 or at shearw@gao.gov. Contact points for our  Office of Congressional Relations and Public Affairs may be found on the  last page of this report. Key contributors to this report are listed in  appendix VII.
section_title: Appendix I: Objectives, Scope, and Methodology
paragraphs: The objectives of this report were to examine (1) the leverage measures  the Department of Housing and Urban Development (HUD) and the  Department of the Treasury (Treasury) reported for the selected housing  and community and economic development programs and the  transparency of the data and methods used to calculate them and (2) the  relevance of leverage measures in assessing the performance of the  selected programs. Our review focused on HUD’s Community  Development Block Grant (CDBG), HOME Investment Partnership  (HOME), and HOPE VI programs and the Treasury’s Community  Development Financial Institutions (CDFI), Low-Income Housing Tax  Credit, and New Markets Tax Credit programs.
To examine the leverage measures HUD and Treasury reported for each of  the selected programs and the transparency of the data and methods used  to calculate them, we reviewed relevant program regulations and  guidance, our prior reports, and reports of others, and interviewed agency  officials and other stakeholders. Based on this information, we requested  from HUD and Treasury data they use to measure the extent of leveraging  (for example, data on the sources and amounts of funds, or other financial  data, commonly referred to as “leveraging data”) in the CDBG, HOME, and  HOPE VI programs and the CDFI and New Markets Tax Credit programs,  respectively. We did not request Low-Income Housing Tax Credit data  from HUD or Treasury because neither maintains a database with detailed  information on leveraging.
For both the CDBG and HOME programs, we requested leveraging data on  completed program activities that were aggregated at the local level from  HUD’s Integrated Disbursement and Information System (IDIS), which  contains information on activities funded by a number of grant programs  (including the CDBG and HOME programs). The CDBG data were from  December 1, 2005, and May 1, 2007, and the HOME data were from  October 1, 2005, and September 30, 2006. To assess the reliability of the  data for both programs we (1) performed basic electronic testing of data  elements associated with the financing used by state and local agencies  that administer the programs—for example, we checked for missing data;  (2) reviewed existing information about the data and IDIS; (3) replicated  the leverage measure that HUD reported for each program; and (4)  interviewed agency officials knowledgeable about the data. As a result of  these tests, we found several limitations with these data, specifically that  they were largely self-reported by program administrators and were not  validated. In addition, IDIS does not distinguish between nonresponses,  which default to zero, and actual zero (that is, $0) responses; as such, the  data may underreport the total amount of leveraging that occurred in the  programs. Further, the data may be incomplete because HUD does not  require state and local agencies to report leveraging data because  leveraging is not a required activity in either the CDBG or the HOME  program, and HUD only started collecting leveraging data for the CDBG  program in December 2005 (only about half of all program administrators  have reported relevant data to the agency). Due to these limitations, we  were unable to determine the reliability of the precise dollar amounts that  were used in combination with the CDBG and HOME funds. We use the  leverage measures that HUD derived from the data to illustrate how  leverage measures can be calculated in different ways, but the values  should not be used to represent actual dollars leveraged.
To assess the reliability of HUD’s HOPE VI program leveraging data on the  55 HOPE VI projects completed (that is, projects in which all phases of  construction were fully completed and actual funding amounts were  reported) as of March 2006, we (1) performed basic electronic testing of  data elements associated with the financing used by the public housing  agencies that administer the program; (2) reviewed existing information  about the data and HUD’s HOPE VI Internet-based Grant Management  Reporting System Prototype (HOPE VI database); and (3) interviewed  HUD officials knowledgeable about the data. In addition, we interviewed  officials from five randomly selected public housing agencies (PHA) that  received a HOPE VI grant to determine the accuracy and completeness of  the data in the HOPE VI database as it pertained to the PHAs’ specific  HOPE VI project. We determined that the data were sufficiently reliable  for the purpose of this report.
For the CDFI program, we discussed with agency officials the calculation  method used to compute the program’s leverage measure, including any  assumptions made, the completeness and accuracy of the data used in the  calculation, and any other known limitations to the measure or the data  used to calculate it. Unlike the CDBG, HOME, and HOPE VI programs, we  did not request project-level data Treasury uses to calculate a leverage  measure for the program. Rather, Treasury provided us with a  spreadsheet containing the calculation method and nationally aggregated  data used to calculate leverage measures for each of the last 6 reporting  years. We determined that Treasury’s calculation method was appropriate  and supporting data were sufficiently reliable for the purpose of  calculating an approximation of the funds being leveraged in the program.  However, based on our conversations with agency officials, we also noted  several limitations in Treasury’s calculation method and the supporting  data. Specifically (1) the data were largely self-reported by CDFIs and  were not validated and (2) Treasury assumed that matching contributions  do not exceed $1 for every $1 in program funds, which likely understates  the extent of institutional-level leveraging in the program (because many  of the CDFIs exceed the match requirement, according to Treasury  officials).
To assess the reliability of the data Treasury provided on project-level  leveraging in the New Markets Tax Credit program, we (1) performed  basic electronic tests of the data elements associated with the financing  used by Community Development Entities (CDE), (2) reviewed existing  information about the data, (3) replicated the project-level leverage  measure Treasury calculated for the program, and (4) interviewed agency  officials knowledgeable about the data. We determined that the project- level data were sufficiently reliable for purposes of calculating a project- level leverage measure for the program. However, we also noted some  limitations in the project-level data, specifically that (1) they were largely  self-reported by CDEs and were not validated, and (2) about 26 percent  (139 out of 538) of the CDEs that were awarded New Markets Tax Credits  did not report data.
To determine what leveraging data were available for the Low-Income  Housing Tax Credit program at the state level and whether such data were  maintained electronically, we conducted a telephone survey of the entire  population of 57 allocating agencies, which included 50 state agencies, the  District of Columbia, Puerto Rico, and the Virgin Islands; one  suballocating agency in the District of Columbia; two suballocating  agencies in the State of New York; and a suballocating agency in Chicago.  Our pretested survey achieved a 79 percent response rate. On the basis of  45 responses to the following questions—(1) Does your agency have data  in its database on the specific types of financing sources that are used in  each Low-Income Housing Tax Credit project? and (2) Does your agency  have the dollar amounts contributed by each financing source used in the  project in the database?—we found that 25 allocating agencies collect the  dollar amounts contributed by specific financing sources and keep that  data electronically. Because not all allocating agencies collected  leveraging data and those that did used different software applications to  maintain their data, we determined that it would be difficult to collect  aggregate data to report a national leverage measure for the program.
To examine the relevance of leverage measures in assessing the  performance of the selected programs, we reviewed our reports and those  of the Office of Management and Budget (OMB) on performance  measurement; agency strategic plans and annual performance plans,  budget justifications and performance and accountability reports; and  industry, and other literature such as agency press releases and Web sites.  We also interviewed representatives from Treasury, HUD, and OMB.  Additionally, we interviewed representatives of the following industry  groups and other organizations involved in housing and community and  economic development initiatives:    City of Chicago Department of Housing;    Coalition of Community Development Financial Institutions;    Coastal Enterprises, Inc.;    Council of State Community and Economic Development Agencies;  International Economic Development Council;    Harvard University’s Joint Center for Housing Studies;    John D. and Catherine T. MacArthur Foundation;    Living Cities: The National Community Development Initiative;    Local Initiatives Support Corporation;    National Association of Affordable Housing Lenders;    National Association of Development Organizations;    National Association of Housing and Redevelopment Officials;    National Community Development Association;    National Community Investment Fund;    National Council of State Housing Agencies;    New Hampshire Community Loan Fund;    New Markets Tax Credit Coalition;    Western Massachusetts Enterprise Fund, Inc.
Further, as part of this work, we conducted site visits and collected  information on how federal funds have been leveraged in housing and  community and economic development projects, 20 of which we toured.  Specifically, we conducted site visits in Chicago, Illinois; Laredo and San  Antonio, Texas; Chester and Philadelphia, Pennsylvania; Portland and  Salem, Oregon; and Seattle and Tokeland, Washington. We selected these  areas to obtain perspectives from a variety of regions with attributes such  as difficult-to-develop areas, rural and urban classifications, and lower-  and higher-cost areas that affect the extent of leveraging. We used a  nongeneralizable, illustrative sampling approach to select a range of  housing and community and economic development projects or initiatives  to tour. More specifically, our criteria were (1) projects were substantially  completed in the last 5 years, (2) funds of each of the programs in our  review were utilized in at least one of the projects selected, and (3)  projects had two or more funding sources. In the cases where program  officials maintained comprehensive lists of projects, we used such lists to  randomly select projects; otherwise, we used available project information  (for example, from program administrator Web sites) in conjunction with  information from program administrators to select projects that generally  met our criteria. In selecting the projects we illustrate in this report, we  further considered several factors including the availability and  completeness of leveraging data, the creativity in the projects’ financing  and design, the type of development or initiative, whether the project was  located in a rural area, and the general geographic location of the project.  Appendix II provides examples of how federal funds have been leveraged  in the selected programs.
We conducted this performance audit in Chicago, Illinois; San Antonio and  Laredo, Texas; Philadelphia and Chester, Pennsylvania; Portland and  Salem, Oregon; Seattle and Tokeland, Washington; and Washington, D.C.,  from November 2006 to January 2008 in accordance with generally  accepted government auditing standards. Those standards require that we  plan and perform the audit to obtain sufficient, appropriate evidence to  provide a reasonable basis for our findings and conclusions based on our  audit objectives. We believe that the evidence obtained provides a  reasonable basis for our findings and conclusions based on our audit  objectives.
section_title: Appendix II: Transactions Structures for the Selected Treasury Programs
paragraphs: Figures 3 through 6 describe how the CDFI, Low-Income Housing Tax  Credit, and New Markets Tax Credit programs leverage funds for housing  and community and economic development.
subsections: section_title: CDFI Program
paragraphs: As illustrated in figure 3, CDFIs must match CDFI program funds dollar- for-dollar with funds from nonfederal sources such as local governments  or private foundations (match leverage). CDFIs use these program and  match funds to attract private debt from lenders (debt leverage). Together,  match and debt leverage represent institutional leverage in the CDFI  program. CDFIs use the pooled equity and debt to make loans to a number  of development projects. Additional leverage also may occur at the project  level—individual projects may use their CDFI funds to leverage funding  (equity or debt) from other investors, such as foundations, nonprofits,  banks, and local governments. Projects (borrowers) repay principal and  interest to their investors, including the CDFI. CDFIs use these payments  to make subsequent loans to additional projects and repay lenders.
section_title: Low-Income Housing Tax Credit Program
paragraphs: As illustrated in figure 4, states, through their state housing finance  agencies, are authorized to allocate Low-Income Housing Tax Credits to  housing projects. Project developers can sell their tax credits directly to  an investor(s) or a syndicator (which assembles a group of investors and  acts as the group’s representative). The money investors pay for the tax  credits is paid into the projects as equity financing. Generally, investors  (including individuals, foundations, and state and local governments)  contribute this equity, which is combined with non-tax credit financing  sources (such as mortgages) in individual projects to fund development  costs.
section_title: New Markets Tax Credit Program
paragraphs: As illustrated in figure 5, under the New Markets Tax Credit program,  Treasury competitively awards tax credits to CDEs (such as a financial  institution or nonprofit organization), which offer the credits to investors  (including individuals, groups of investors, or corporations). The equity or  debt generated from such an offering is used to finance eligible  investments or projects, as described above. In turn, these investments  and projects may use New Markets Tax Credit equity to leverage  additional equity and debt to finance development or related costs.
As illustrated in figure 6, rather than offering tax credits directly to  investors, under a leveraged transaction structure, a CDE may offer credits  to an investment fund. The investment fund pools equity generated from  the credit offering with other equity and debt, and loans the funds to the  CDE, which in turn makes qualified low-income community investments.
section_title: Appendix III: Agency-reported Leverage Measures and Our Recalculations
paragraphs: Table 4 outlines the leverage measures HUD and Treasury calculated for  the CDBG, HOME, HOPE VI, CDFI, Low-Income Housing Tax Credit, and  New Markets Tax Credit programs. Following table 4, we present several  leverage measure calculation scenarios for the selected programs.
subsections: section_title: Recalculations of Agency- reported Leverage Measures
paragraphs: Figures 7, 8, and 9 illustrate the leverage ratios HUD reported for the  CDBG, HOME, and HOPE VI programs, respectively (scenario A), and our  recalculations of the those measures to convey the ratio of nonfederal  funds to federal funds (scenario B) and public funds to private funds  (scenario C).
Based on cumulative data from December 1, 2005, to May 1, 2007, HUD  estimated the leverage ratio for the CDBG program to be 4.98 to 1 (other  funds to CDBG program funds). However, we could not determine in  which category some CDBG funding data belonged; thus, we excluded  these data and revised the 4.98 to 1 ratio to 4.04 to 1 (scenario A in fig. 7).  Using the revised dataset, we then recalculated the measure to convey the  ratio of nonfederal funds to federal funds (1.84 to 1, scenario B in fig. 7)  and the ratio of private funds to public funds (0.55 to 1, scenario C in   fig. 7).
Based on data on HOME activities completed in fiscal year 2006, HUD  estimated the leverage ratio for the HOME program to be 4.00 to 1 (all  other funds to HOME program funds). Using these same data, we  recalculated the measure to convey the ratio of nonfederal funds to federal  funds (1.15 to 1, scenario B in fig. 8), and the ratio of private funds to  public funds (0.62 to 1, scenario C in fig. 8).
Using data on the 55 HOPE VI projects completed (that is, projects in  which all phases of construction were fully completed) as of March 31,  2006, we determined the leverage ratio of other funds to program funds to  be 1.13 to 1 (scenario A in fig. 9). Using the same data, we recalculated the  measure to convey the ratio of nonfederal funds to federal funds (0.67 to 1,  scenario B in fig. 9).
Unlike the HUD programs, we generally were not able to recalculate the  leverage measures Treasury reported for the CDFI and New Markets Tax  credit programs to convey the extent of public and private investment in  them because available leveraging data did not distinguish between or  correctly categorize public and private contributions in either program.  However, we were able to deconstruct the measures to approximate the  extent of institutional and project leverage in them (see figs. 10 and 11).
In the CDFI program, match leverage (that is, the ratio of nonfederal  match funds to program funds) represented approximately one-fifth of  total institutional leverage, while debt leverage (that is, additional private  debt CDFIs were able to attract with program funds and matched funds  combined) represented four-fifths of total institutional leverage, according  to Treasury data. A majority of the total leverage that occurred in the  CDFI program in fiscal year 2005 occurred at the project level—according  to Treasury data, for every $1 of federal funds the agency contributed to  CDFIs, they were able to leverage an additional $21.31 at the project level  (see fig. 10).
In the New Markets Tax Credit program, institutional leverage (that is, net  equity generated through the offering of the credits) represented  approximately 58 percent of total leveraging that occurred in the program,  while project leverage represented approximately 42 percent of total  leveraging (see fig.11).
section_title: Appendix IV: Housing and Community and Economic Development Project Profiles
paragraphs: To determine how federal funds have been leveraged in HUD’s CDBG,  HOME, and HOPE VI programs and Treasury’s CDFI, Low-Income Housing  Tax Credit, and New Markets Tax Credit programs, we toured and  obtained information on a number of projects that used funds from the  selected programs in combination with other federal, state, local, and  private funds for housing and community and economic development.  Appendix I describes how we selected the communities to visit and the  projects to include in this report.
HUD’s CDBG, HOME, and HOPE VI programs and Treasury’s CDFI, Low- Income Housing Tax Credit, and New Markets Tax Credit programs are  among a number of federal programs that fund housing and community  and economic development. Specific information about the features of  these programs follows:    CDBG provides annual grants on a formula basis to entitlement  communities and states to develop viable urban communities by providing  decent housing and a suitable living environment, and by expanding  opportunities, principally for low- and moderate-income persons. Under  CDBG, communities and states develop their own programs and funding  priorities.
HOME provides formula grants to states and localities to fund a range of  activities that buy, build, and rehabilitate affordable housing for rent or  homeownership or provide direct rental assistance to low-income  households.
HOPE VI is part of HUD’s effort to transform public housing by providing  grants that fund the demolition of severely distressed public housing; the  capital costs of major rehabilitation, new construction, and other physical  improvements; and other resident-related services.
Through the CDFI program, Treasury provides CDFIs with financial  assistance in the form of grants, loans, equity investments, and deposits to  enhance their ability to make loans and investments and provide services  for the benefit of low-income communities and persons. CDFI funds can  be used for economic development, affordable housing, and community  development financial services.
Under the Low-Income Housing Tax Credit program, states are authorized  to allocate federal tax credits as an incentive to private investors to  develop rental housing for low-income households. The equity generated  by the sale of tax credits is used to lower the financing costs of housing  developments by reducing the debt or equity the developer otherwise  would incur or contribute.
The New Markets Tax Credit program permits taxpayers to receive a  credit against federal income taxes for making qualified equity  investments in CDEs. CDEs use the equity generated by the sale of the  credits to make investments in qualified low-income businesses.
Figures 12 through 14 illustrate several projects that leveraged federal  funds for the development of affordable housing. Figures 15 through 20  illustrate several projects that leveraged federal funds for community and  economic development activities.
section_title: Appendix V: Comments from the Department of Housing and Urban Development, Office of Community Planning and Development
section_title: Appendix VI: Comments from the Department of the Treasury, Community Development Financial Institutions Fund
section_title: Appendix VII: GAO Contact and Staff Acknowledgments
subsections: section_title: Acknowledgments
paragraphs: In addition to the contact named above Marianne Anderson, William  Bates, Elizabeth Curda, Daniel Garcia-Diaz, Terence Lam, Alison Martin,  John McGrail, Jackie Nowicki, Josephine Perez, Barbara Roesmann, Cory  Roman, and Charles Wilson Jr. made key contributions to this report.
section_title: Related GAO Products
paragraphs: Leveraging Federal Funds for Housing, Community, and Economic  Development. GAO-07-768R. Washington, D.C.: May 25, 2007.
Performance Budgeting: PART Focuses Attention on Program  Performance, but More Can Be Done to Engage Congress. GAO-06-28.  Washington, D.C.: October 28, 2005.
Performance Budgeting: Observations of the Use of OMB’s Program  Assessment Rating Tool for the Fiscal Year 2004 Budget. GAO-04-174.  Washington, D.C.: January 30, 2004.
Tax Administration: IRS Needs to Further Refine Its Tax Filing Season  Performance Measures. GAO-03-143. Washington, D.C.: November 22,  2002.
Public Housing: HOPE VI Leveraging Has Increased, but HUD Has Not  Met Annual Reporting Requirement. GAO-03-91. Washington, D.C.:  November 15, 2002.
Performance Reporting: Few Agencies Reported on the Completeness and  Reliability of Performance Data. GAO-02-372. Washington, D.C.: April 26,  2002.
Managing for Results: Challenges Agencies Face in Producing Credible  Performance Information. GAO/GGD-00-52. Washington, D.C.: February  4, 2000.
Performance Plans: Selected Approaches for Verification and Validation  of Agency Performance Information. GAO/GGD-99-139. Washington, D.C.:  July 30, 1999.
Agency Performance Plans: Examples of Practices that Can Improve  Usefulness to Decisionmakers. GAO/GGD/AIMD-99-69. Washington, D.C.:  February 26, 1999.
Grant Programs: Design Features Shape Flexibility, Accountability, and  Performance Information. GAO/GGD-98-137. Washington, D.C.: June 22,  1998.
Managing for Results: Analytic Challenges in Measuring Performance.  GAO/HEHS/GGD-97-138. Washington, D.C.: May 30, 1997.