HUD operates a variety of project-based rental assistance programs through which it pays subsidies, or housing assistance payments, to private owners of multifamily housing that help make this housing affordable for lower income households. In some cases, HUD subsidized the construction of the housing (or substantial rehabilitation of existing properties) through means such as discounted mortgages insured by HUD’s Federal Housing Administration; in others, such as the Section 202 Supportive Housing for the Elderly Program, HUD provided grants to construct the housing. HUD entered into long-term contracts, often 20 to 40 years, committing it and the property owners to providing long-term affordable housing. Under these contracts, tenants generally pay 30 percent of their adjusted income toward their rents, with the HUD subsidy equal to the difference between what the tenants pay and the contract rents that HUD and the owners negotiate in advance. In the mid- to late-1990s, Congress and HUD made several important changes to the duration of housing assistance contract terms (and the budgeting for them), the contract rents owners would receive relative to local market conditions, and the manner in which HUD administers its ongoing project-based housing assistance contracts. Specifically: Because of budgetary constraints, HUD shortened the terms of subsequent renewals, after the initial 20- to 40-year terms began expiring in the mid-1990s. HUD reduced the contract terms to 1 or 5 years, with the funding renewed annually subject to appropriations. Second, in 1997, Congress passed the Multifamily Assisted Housing Reform and Affordability Act (MAHRA), as amended, in an effort, among other things, to ensure that the rents HUD subsidizes remain comparable with market rents. Over the course of the initial longer term agreements with owners, contract rents in some cases came to substantially exceed local market rents. MAHRA required an assessment of each project when it neared the end of its original contract term to determine whether the contract rents were comparable to current market rents and whether the project had sufficient cash flow to meet its debt as well as daily and long-term operating expenses. If the expiring contract rents were below market rates, HUD could increase the contract rents to market rates upon renewal (i.e., “mark up to market”). Conversely, HUD could decrease the contract rents upon renewal if they were higher than market rents (i.e., “mark down to market”). Finally, in 1999, because of staffing constraints (primarily in HUD’s field offices) and the workload involved in renewing the increasing numbers of rental assistance contracts reaching the end of their initial terms, HUD began an initiative to contract out the oversight and administration of most of its project-based contracts. The entities that HUD hired— typically public housing authorities or state housing finance agencies— are responsible for conducting on-site management reviews of assisted properties; adjusting contract rents; reviewing, processing, and paying monthly vouchers submitted by owners; renewing contracts with property owners; and responding to health and safety issues at the properties. These performance-based contract administrators (PBCA) now administer the majority of contracts—over 13,000 of approximately 23,000 contracts in fiscal year 2004. According to HUD officials, the department has not yet transferred all of its rental assistance contracts to the PBCAs. HUD plans to have traditional, or nonperformance-based contractors, continue to administer the approximately 5,000 contracts that they were administering until these contracts expire; at which time, these contracts will be assigned to the PBCAs. The traditional contract administrators are, often, local public housing authorities handling a very limited number of contracts. HUD itself also administers the contracts under certain programs, such as the Section 202 Supportive Housing for the Elderly Program and the Section 811 Supportive Housing for Persons with Disabilities Program. HUD announced in April 2004 that it was conducting a competitive sourcing effort to determine the most efficient and cost-effective means to administer some of these contracts. At the conclusion of this effort, HUD will seek new budget authority to pay for contract administration services. Consequently, while the PBCAs handle most of HUD’s project-based housing, three types of administrators are involved in day-to-day program oversight and administration, including tasks involved in processing monthly housing assistance payments. To receive their monthly housing assistance payments, owners must submit monthly vouchers to account for changes in occupancy and tenants’ incomes that affect the actual amount of subsidy due. However, the manner in which the owners submit these vouchers and the process by which they get paid varies depending on which of the three types of contract administrators handles their contract (see fig. 1). For HUD-administered contracts, the owner submits a monthly voucher to HUD for verification, and HUD in turn pays the owner based on the amount in the voucher. For PBCA-administered contracts, the owner submits a monthly voucher to the PBCA, which verifies the voucher and forwards it to HUD for payment. HUD then transfers the amount verified on the voucher to the PBCA, which in turn pays the owner. In contrast, for traditionally administered contracts, HUD and the contract administrator develop a yearly budget, and HUD pays the contract administrator set monthly payments. The owner submits monthly vouchers to the contract administrator for verification, and the contract administrator pays the amount approved on the voucher. At the end of the year, HUD and the contract administrator reconcile the payments HUD made to the contract administrator with the amounts the contract administrator paid to the owner, exchanging payment as necessary to settle any difference. HUD has an ongoing effort to improve its rental assistance programs’ business processes and make better use of information technology related to those programs. In 2004, HUD launched a Business Process Reengineering (BPR) initiative to, among other things, improve inefficient and redundant processes, as identified by HUD’s contractor for this effort, and to integrate HUD’s data systems. HUD expects its contractor to identify its recommended changes by June 2006. According to HUD officials, HUD does not currently have the funding in place to implement the BPR. Between fiscal years 1995 and 2004, HUD disbursed three-fourths of its monthly housing assistance payments by the due date, but thousands of payments each year were late, affecting many property owners. For this 10-year period, about 8 percent of all payments were delayed by 2 weeks or more, a time frame we characterize as significant. On average, about one- third of housing assistance contracts experienced at least 1 payment per year that was delayed by 2 weeks or more. Furthermore, the timeliness of housing assistance payments has varied, with a decrease in 1998, but with a gradual improvement since 2001. Timeliness also varied by type of contract administrator, with payments for HUD-administered contracts more likely to be late, based on our analysis of fiscal year 2004 payment data. Timeliness varied considerably by state as well. Overall, from fiscal years 1995 through 2004, HUD disbursed by the due date 75 percent of the 3.2 million monthly housing assistance payments on all types of contracts (see fig. 2). However, 8 percent of payments, averaging 25,000 per year, were significantly late—that is, they were delayed by 2 weeks or more and therefore could have negative effects on owners who relied on HUD’s subsidy to pay their mortgages. During this period, 6 percent of the total payments (averaging 18,000 per year) were 4 weeks or more late, including about 10,000 payments per year that were 8 weeks or more late. HUD does not have an overall timeliness standard by which it makes payments to owners or its contract administrators, based in statute, regulation, or HUD guidance. However, HUD contractually requires the PBCAs (which administer the majority of contracts) to pay owners no later than the 1st business day of the month. HUD officials said that they also use this standard informally to determine the timeliness of payments on HUD-administered and traditionally administered contracts. Therefore, we considered payments to be timely if they were disbursed by the 1st business day of the month. Based on our discussions with project owners who reported that they relied on HUD’s assistance to pay their mortgages before they incurred late fees (generally, after the 15th day of the month), we determined that a payment delay of 2 weeks or more was significant. The timeliness of housing assistance payments over the 10-year period (fiscal years 1995 through 2004) has shown some variation (see fig. 3). The percentage of payments that were significantly late increased in 1998, which HUD and PBCA officials indicated likely had to do with HUD’s initial implementation of MAHRA and new contract renewal procedures and processing requirements for project owners. Timeliness has gradually improved since 2001, shortly after HUD first began using the PBCAs to administer contracts. The percentage of contracts experiencing significantly late payments over the course of the year showed a similar variation over the 10-year period, rising to 43 percent in fiscal year 1998 and decreasing to 30 percent in fiscal year 2004 (see fig. 4). As with the percentage of late payments, the percentage of contracts with late payments increased in fiscal year 1998 when HUD implemented requirements pursuant to MAHRA. Over the 10-year period, about one-third of approximately 26,000 contracts experienced at least 1 payment per year that was delayed by 2 weeks or more.