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Working with sequestration in the HCV program: Part I

Posted by NMA on Mar 28, 2013 4:23:37 PM

Teri RobertsonSequester or no sequester, housing authorities have a business to run. And a complicated business it is! The HCV and public housing programs have so many moving parts — and so many regulatory requirements — that it has to be one of the most demanding businesses to be in. Reduced funding simply makes a challenging job that much more challenging.

One of the challenges in working at a housing authority is finding the balance: How large should caseload sizes be to ensure efficiency without sacrificing effectiveness? How often should we purge our waiting list to offset the cost of the work with the benefit of having only people still interested in the program at the top of the waiting list? And, critical in these times, how do we maintain a healthy program size while dealing with reduced administrative fees?

Reducing our per-unit costs (PUC)

Why should we reduce PUC? Because, despite sequestration, we still need to lease up as many families as we can afford, with "afford" meaning we have implemented actions that reduce PUC as appropriate. It's a fact that, for the average agency, Congress has not been allocating enough in HAP funding to allow leasing up to full voucher allocation. Local rents are simply too high. But good business management requires us to look at all the means we have at our disposal to legally (in accordance with regulations) decrease costs so that we can lease up as close to our voucher allocation as possible.

The survival of any business depends on healthy revenues. In the voucher program, our revenue stream is our administrative fees. We all know that our administrative fees are earned based on the number of units under lease as of the first of each month. So speaking from a purely financial perspective, we need to enter into as many HAP contracts as we can within our voucher allocation.

From a nonfinancial viewpoint, the question is whether we would like to provide fewer families with more assistance or more families with less assistance. Personally, I prefer to help more families in my community. Knowing that this approach supports the financial viability of my agency through the earning of more administrative fees simply strengthens my resolve to do what I can to lower my average PUC.

Here are a few things to think about that could have a nice impact on reducing your HAP costs.

Idea #1: Revise PHA interim policy.

Some PHAs have eliminated PHA-initiated interims altogether so as to ease administrative burden. Others set a dollar threshold, but acknowledge that determining whether an interim needs to take place is often as time-consuming as actually conducting an interim.

Here's a suggestion we've begun making to agencies when they contract with us to spend three days with them to facilitate a complete administrative plan or ACOP revision: consider adopting an interim policy that the family must report, and the PHA must conduct an interim, when the family begins receiving income from a new income source.

Typically, changes in the amounts of existing income sources are small and don't generate enough savings in HAP to be worth the time to complete the interim action. On the other hand, income from a new source is usually significant enough that the PHA will experience sufficient HAP savings to justify the time spent completing the interim.

Idea #2: Review both your subsidy standards and your payment standards.

If they need to be adjusted, change them both at the same time. Review your subsidy standards and determine if they're too generous. As you do so, think about how family members share bedrooms in unassisted families. You may not need to be as strict as "two people per bedroom regardless of age, gender, or relationship," but be aware that that is as strict as you are permitted to be. Perhaps you will allow a head of household or an elderly family member to have his or her own bedroom. Whatever you decide, make sure that you state your policy clearly and train your staff so that all apply it equally.

Review your payment standards. A PHA may establish its payment standards as anywhere from 90 percent to 110 percent of HUD's fair market rent (FMR). The payment standard for a given unit size represents the maximum possible subsidy that your agency will pay on behalf of a family. So, lowering the payment standard will result in reducing HAP. The rules on when you apply a lowered payment standard are complicated, though.

Once lowered, a payment standard applies equally to all new admissions, all families that move, and all families for which you enter into a new HAP contract. Families already under a HAP contract receive "payment standard protection." This means that the reduced payment standard generally does not apply to these families until their second annual reexamination after the reduction. That's not the case, however, if their voucher size has also changed, regardless of the reason.

For example, suppose I'm the head of an assisted household that includes my 21-year-old granddaughter and her 2-year-old child. There are two ways that my voucher size could change:

  1. Let's say that your agency issued me a two-bedroom voucher and we have been living in a two-bedroom unit. Now my granddaughter and her child move out, and you issue me a one-bedroom voucher. Payment standard protection no longer applies to me. At my next annual reexam, you will apply your one-bedroom payment standard — even if you've just lowered that payment standard.
  2. Instead, let's say that your agency issued me a three-bedroom voucher and we have been living in a three-bedroom unit. You decide to change your subsidy standards, and under the new standards I qualify only for a two-bedroom voucher. Again, payment standard protection no longer applies to me. At my next annual reexam, you will apply your two-bedroom payment standard — even if you've just lowered that payment standard.

I'll provide more for you to think about in Part II. In the meantime, did you sit in on one of NMA's free "Ask the Experts" sessions on 2013 HCV Funding: How to Respond to Sequestration? If not, and you would like us to repeat the session, email teri@nanmckay.com. With enough requests, we'll schedule another session. Although the session was focused on HCV, there were many ideas that could be adopted for public housing, as well.

NMA senior consultant Teri Robertson is nationally recognized as a leading expert in HCV/Section 8 and public housing. She has previously written for the NMA blog about HCV administrative fees and how to maximize your agency’s performance rating.

If you find that you need staffing help during sequestration, NMA can assist your agency with recertifications (done remotely), quality control, hearing officer staff, HQS inspections, and more. Email sales@nanmckay.com for more information.

Topics: Ask the Experts, budget cuts, FMR, recertification, seniors and elderly, sequestration

NLIHC calls for "Day of Action" tomorrow to stop sequestration

Posted by NMA on Mar 5, 2013 2:27:30 PM

The National Low-Income Housing Coalition (NLIHC) has called for a “day of action” tomorrow to stop sequestration. In case you’re interested in participating, here’s NLIHC’s announcement:

Please join us on Wednesday, March 6, for NLIHC’s National Call-in Day. Tell your members of Congress that the budget stalemate is unacceptable and that sequestration must end immediately. Share any impacts you have on the loss of HUD and U.S. Department of Agriculture (USDA) resources.

To get your members’ contact information, (1) call the congressional switchboard toll-free at 877-210-5351 or (2) visit NLIHC's Web site and enter your ZIP code in the “contact Congress” box on the right. When you reach your member’s office, ask to be connected to his or her housing staffer.

For months, both sides of the budget battle agreed that sequestration was a last resort because it would cause significant harm and disruption to critical public services and our economy. To learn more about the negative impact on your state, see this Center on Budget and Policy Priorities’ paper.

The timing of sequestration could not be worse. New NLIHC analysis shows that the rental housing stock available and affordable to extremely low-income people is at a shortage of 4.6 million, a 300,000 increase over the prior year. This is the time for greater federal commitment to affordable housing, not less.

Make sure your voice is heard! On Wednesday, call your senators and representative and remind them that every decision they make is a choice with a real impact. Urge them to choose the needs of low-income families who deserve decent and affordable homes over loopholes for the wealthiest Americans.

Are you concerned about the impact of sequestration on your agency? Join us for the next episode of NMA's phone series, “Ask the Experts.”  The upcoming session will focus on reducing administrative burdens and is scheduled for Friday, March 15, 10AM Pacific Time. To register, email marketing@nanmckay.com. To stay updated on the latest program information, subscribe to the PIH Alert and Housing Resource Newsletter.

Topics: Ask the Experts, budget cuts, PIH notices, sequestration

Ask the Experts: Join us next week to discuss sequestration

Posted by NMA on Mar 4, 2013 1:06:33 PM

Teri RobertsonNext week, NMA's Teri Robertson will be hosting a telephone conference to discuss sequestration. (For some background, browse the #sequestration tag.) The session will cover:

  • Update on sequestration
  • Reducing HAP expenses
  • Reducing administrative burdens
  • The latest on Notices PIH 2013-03 and 2013-04
  • Other potential solutions to address 2013 funding issues
  • Outsourcing as an option to reduce expenses while still meeting program requirements

There's no cost to participate, but you'll need to register in advance by emailing us at marketing@nanmckay.com. Space is limited, so sign up now! We hope you'll be able to join us.

2013 HCV Funding: How to Respond to Sequestration

Friday, March 15 (or Tuesday, March 19 if you can't attend Friday's session)

10AM Pacific Time / 1PM Eastern Time

Email marketing@nanmckay.com to register

NMA senior consultant Teri Robertson is nationally recognized as a leading expert in HCV/Section 8 and public housing. She has previously written for the NMA blog about HCV administrative fees and how to maximize your agency's performance rating.

If you find that you need staffing help during sequestration, NMA can assist your agency with recertifications (done remotely), quality control, hearing officer staff, HQS inspections, and more. Email sales@nanmckay.com for more information.

Topics: Ask the Experts, budget cuts, HCV utilization, hearing officer, HQS, Notice PIH 2013-03, PIH notices, quality control, recertification, sequestration

Final thoughts on the RAD final notice

Posted by NMA on Aug 30, 2012 3:51:56 PM

Carrol VaughanWe recently hosted a followup “Ask the Experts” call with Greg Klaas from Signet Partners in Denver to discuss the RAD final notice. As September 28 (the date when HUD will begin accepting applications) draws near, Greg and I have a few closing thoughts we'd like to share with you.

Identifying RAD projects: Don't lose sight of the following!

  1. RAD is a demonstration program. It may not be a good solution for properties that are suffering from obsolescence or that have unusual, one-of-a-kind, or unique issues.
  2. RAD is an acknowledgement that Capital Fund program allocations are insufficient to address capital replacement needs at most public housing properties.
  3. RAD allows a public housing property to acquire debt financing to address its unmet capital replacement needs.
  4. The debt financing obtained must be sufficient to address both the property's immediate and future capital replacement needs.
  5. The amount of rehab that can be performed is constrained by the size of the loan for which the property can qualify.
  6. Most public housing properties may not be able to qualify for large loans.
  7. RAD is likely to be a good fit for properties with very large capital replacement needs, but only if those properties have sophisticated development teams and access to additional funds such as tax credits.

Key considerations and drivers:

  1. Consider converting to a PBRA contract. The RAD program encourages conversion, and program rules provide more flexibility to projects that convert to PBRA.
  2. Hire a qualified GPCA contractor. RAD requires a specific and unique type of PCA. There are a limited number of contractors qualified to do this work, and they'll book up fast. Your PCA will be submitted to/reviewed by PIH. Submitting a GPCA which fails to meet the required Scope of Work may result in removal from the RAD program.
  3. The scope of the rehab is determined by the PCA!
  4. The new 1st mortgage loan must be big enough to address 100% of the property's immediate rehab needs, plus any initial deposit to the reserve account necessary to address future capital replacement needs. If you can't obtain a loan big enough to cover those two items, then you have a problem. You'll have to seek additional funding sources.
  5. The size of the new loan that you can obtain is constrained by the amount of cash flow available to service this debt. Cash flow is a function of income, less expenses and any required deposits to reserve. Income is primarily a function of rents, which are more or less a given. Thus, the only way to increase cash flow is to reduce/minimize expenses.
  6. If you'll be seeking an FHA-insured loan, the size of the loan you can obtain is also constrained by the loan program that you're required to select. Less rehab can often mean the ability to utilize a loan program that's simpler and less expensive. More rehab may require a loan type that's more complex, with more fees, more third-party reports, and more required escrows.
  7. The cost of the rehab is determined by the contractor bids that you obtain. However, these bids must be David Bacon and Section 3 compliant, which increases costs and reduces the amount of rehab that can be performed using loan proceeds.
  8. What source of funds will you use to pay general contractor fees, developer fees, relocation costs, etc.? Paying for them out of new loan proceeds reduces the amount available to perform rehab. Careful management of these fees is crucial to avoiding running short of sources.
  9. It may be necessary to obtain additional funding sources, such as tax credits, to cover costs that can't be paid for out of new loan proceeds and allow for the completion of additional upfront rehab. However, this adds more complexity to the project. Lenders may be wary of borrowers without previous experience or involvement in these types of developments.

With over 30 years of experience in the affordable housing industry, VP of Professional Services Carrol Vaughan ensures that NMA continues to help PHAs better serve their communities.

To learn more about how we can assist your agency with RAD applications, visit our website.

Topics: Ask the Experts, capital fund, PBRA, PIH notices, public housing conversion, RAD

Join us next week to discuss the RAD final notice

Posted by NMA on Aug 15, 2012 11:36:06 AM

Carrol Vaughan

Next week, NMA VP Carrol Vaughan and Greg Klaas of Signet Partners will be hosting a follow-up discussion of the RAD final notice. For some background, read yesterday's blog post for an in-depth analysis.

There's no cost to participate in the conference call, but you'll need to register in advance by emailing us at marketing@nanmckay.com. Space is limited, so sign up now! We hope you'll be able to join us.

RAD: What you need to know

Tuesday, August 21st

10AM Pacific Time / 1PM Eastern Time

Email marketing@nanmckay.com to register

With over 30 years of experience in the affordable housing industry, VP of Professional Services Carrol Vaughan ensures that NMA continues to help PHAs better serve their communities. To learn more about how we can assist your agency with RAD applications, visit our website.

Topics: Ask the Experts, RAD

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