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

Letter

Background

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.

Grantees Had Projected A General Increase in Leveraged Funds, Primarily From Federal Sources

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.

HUD’s Oversight of Projects and Enforcement of Program Requirements Had Been Inconsistent

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.

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

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.

Most Original Residents Were Relocated to Other Public Housing, and About Half Were Expected to Return to Revitalized HOPE VI Sites

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.

Among 1996 Grant Sites, Resident Involvement in the HOPE VI Process Varied, While Supportive Services Yielded Some Positive Outcomes

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.

1996 HOPE VI Communities Experienced Positive Changes

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.

Contacts and Acknowledgments

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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