Under the Housing Act of 1937, as amended, HUD contracts with housing authorities to provide subsidies and grants for operating expenses and modernizing deteriorated housing. In return, housing authorities agree to provide residents with decent, safe, and sanitary housing. These agreements are formalized in a contract between HUD and the housing authority stipulating that housing authorities will operate in a manner that promotes serviceability, efficiency, economy, and stability. In New Orleans, as in many other cities, the mayor appoints a governing body or board of commissioners which, in turn, hires the local housing authority’s executive director and may approve other top management positions. The board provides for policy guidance, while the executive director is responsible for the day-to-day operations. Both are responsible for complying with the terms of the contract with HUD. In 1979, HUD began tracking housing authorities’ performance and providing corrective action for those that performed poorly. HUD’s current monitoring system—the Public Housing Management Assessment Program (PHMAP)—evaluates 12 performance indicators, calculates a numerical score for each, and relates the total score to a 100-point scale. Poor performers under PHMAP are classified as troubled, and under current law, HUD must negotiate with them a Memorandum of Agreement that includes performance targets for improving the poor performers’ operations. This process establishes a joint responsibility between HUD and the housing authority for improving the performance. However, if HUD determines that a troubled authority cannot, within a reasonable time and with reasonable resources, improve its operations, make effective use of federal funds, and adequately house its residents, HUD can declare the authority in breach of its contract. This legal step allows HUD either to take direct control of the housing authority’s operations and assets or to appoint (or petition a court to appoint) a receiver to control and manage the housing authority. HUD’s field offices and Office of Distressed and Troubled Housing Recovery (ODTHR) use the results from PHMAP to oversee and assist housing authorities. HUD’s field offices oversee troubled housing authorities’ performance, ensure that these authorities comply with such agreements as the Memorandum of Agreement (MOA), and provide them with technical assistance. ODTHR, which was formed in 1994 to focus resources on assisting large troubled housing authorities and to administer a special grant program aimed at rehabilitating distressed properties, can marshal resources from city governments, HUD, and housing authorities to improve the troubled authorities’ operations. During 1995, ODTHR provided for the funding to support and temporarily place experienced public housing officials and independent consultants in the Atlanta, Chicago, Detroit, New Orleans, and Puerto Rico housing authorities. On the basis of its size and need, HANO received over $245 million in federal modernization grants and other subsidies during 1992 through 1994. HANO has been designated as troubled since 1979 and is currently ranked by HUD as the worst performing large housing authority. As a result, HANO operated under an MOA which HUD first signed in 1988; a special partnership agreement with the Secretary since September 1994; and, as of February 8, 1996, a new cooperative agreement with the Secretary to help it improve its housing conditions. (See app. I for an abbreviated time line for significant events at HANO over the past 17 years.) In the future, troubled housing authorities may not have as many years as HANO has had to improve their performance before the Secretary of HUD is legally compelled to declare the housing authority in breach of its contract. HUD and both houses of the Congress have proposed reform legislation for public housing that includes the stringent treatment of long-troubled housing authorities. In legislation proposed by HUD and in a bill passed by the Senate, a 1-year period is proposed as the grace period within which a housing authority would be allowed to demonstrate improvement or suffer the mandatory declaration of a breach of contract. A pending House bill contains similar language but limits the grace period to 180 days. All three of these proposals are consistent with a September 1993 report of the National Performance Review that recommended that “HUD should make a hard-hitting, targeted effort to resolve the severe difficulties of those few public housing agencies identified as problem.” Over the past 12 years, the problems at HANO have been well documented in numerous audit reports by HUD’s Office of the Inspector General (OIG), HUD’s Office of Public and Indian Housing, and private consultants. The audit reports show a continuous decline in HANO’s management performance and the condition of HANO’s housing stock. Among the many significant problems at HANO, the reports consistently cite the lack of an effective maintenance program and HANO’s inability to operate a program to carry out major modernization and rehabilitation projects. The OIG’s first review of HANO, released in December 1983, detailed four operational and managerial deficiencies related to poor maintenance of the housing stock. These problems included the deteriorating condition of two housing developments, an ineffective maintenance operation, excessive utility costs, and poor tenant selection and eviction procedures. Five years later, a management review of HANO—initiated at HUD’s headquarters and implemented by an interdisciplinary team of 31 people from HUD’s headquarters and field offices—reported 241 findings of deficiencies that reiterated many of the same problems noted in the OIG’s 1983 report. When the OIG auditors from HUD returned to HANO in 1994, they found that the housing authority and its management contractor were still not effectively administering the maintenance program and that, as a result, HANO had breached its contract with HUD. For example, the OIG’s June 1994 audit report stated that all 150 housing units randomly selected for inspection failed to meet HUD’s housing quality standards in one or more areas. Under these areas were structural problems such as missing ceilings and holes in walls, loose and peeling paint, steady leaks from faucets, and roach infestations. In addition, the report determined that HANO still had not established a preventive maintenance program and that no maintenance improvements had been realized at HANO in the past 10 years. The report concluded that a lack of preventive maintenance resulted in the continued deterioration of the buildings and HANO’s inability to “turn around” vacant units in fewer than 140 calendar days. In addition, the OIG estimated that HANO had lost over $3 million in potential rental income because vacant units were not occupied in a timely manner. In addition to day-to-day maintenance deficiencies, the OIG’s 1994 audit found that HANO and the private firm that was hired in accordance with the MOA to manage HANO did not follow certain federal regulations and standards in contracting for modernization work on HANO’s properties. For example, the private manager approved the construction of private balconies, which are prohibited in public housing, and the disposal of valuable steel railings without recouping the salvage value of at least $50,000. In its report, the OIG recommended that HUD recover nearly $5 million in federal payments. In addition, the OIG discovered HANO modernization projects whose costs exceeded the upper limits established by HUD. Moreover, HANO had failed to follow proper procurement procedures, such as obtaining competitive bids for major expenditures and price quotes for small purchases. HANO also did not expend its modernization funding—between $20 million and $30 million per year—in a timely manner or within about 3 years after HUD obligated the funds to the housing authority. On the basis of these findings, the OIG concluded that HANO was incapable of carrying out an effective modernization program. Since the OIG’s report, HANO’s ability to use its modernization funding efficiently has not improved. HANO currently has nearly $200 million in unexpended funds. Furthermore, an independent consultant hired by HUD to review HANO’s performance cited ineffective maintenance and modernization programs as serious problems. The consultant’s review shows that HANO’s PHMAP score dropped from 47 in 1993 to 26 in 1994, despite the presence of a property management contractor hired to operate HANO as specified in the housing authority’s MOA with HUD. According to the Director of HUD’s Office of Troubled Housing, the 1994 score rose marginally in 1995 to 29. As highlighted earlier, HANO’s board had a long history of problems in governing HANO. Also, the continued decline in HANO’s overall performance suggests that HUD’s New Orleans Field Office has not fulfilled its responsibility to provide for the effective oversight of HANO. Although the field office, together with headquarters staff, has tried various options available under the 1937 act to intervene in HANO’s management, little has improved. Over the years, HANO’s board of commissioners has tended to interfere with HANO’s day-to-day operations. In response, HUD exercised sanctions against the board, often to no avail. Thus, when the Mayor appointed HANO’s most recent seven-member board—four of whom were HANO residents—in May 1994, HUD staff conducted a 1.5-day briefing session for the board at the Mayor’s request. The topics covered during the training included a review of the 1937 Housing Act, HANO’s contract with HUD, HANO’s by-laws, the provisions of the MOA, and the state’s enabling legislation. In addition, the briefing session detailed the board’s responsibility to develop policies and procedures to ensure that HANO operates efficiently and economically and provides for housing in accordance with the existing laws and regulations.