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Cara Gillette

Finance for the Public Housing Director. Cara Gillette. Today’s Topics. Overview of the new operating fund formula Stop-loss provision Project-based accounting Basic financial concepts and reports Excess cash and fungibility. Building Blocks. Project-based performance assessment.

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Cara Gillette

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  1. Finance for the Public Housing Director Cara Gillette

  2. Today’s Topics • Overview of the new operating fund formula • Stop-loss provision • Project-based accounting • Basic financial concepts and reports • Excess cash and fungibility

  3. Building Blocks Project-based performance assessment Project-based management Project-based accounting Project-based budgeting Project-based funding

  4. The New Formula • Requires PHAs with 400 or more PH units to transition to project-based accounting, budgeting, and management • Threshold of 400 doesn’t apply to stop-loss PHAS • Is based on HUD’s multifamily industry • Will force the PH program to become more property-based

  5. Hot Off the Press • PIH Notice 2008-16(HA) • PHAs with 250-400 units can exempt themselves • But the election for exemption is only authorized for CY 2008 • PHAs that elect the exemption aren’t “grandfathered” in for future years • And there are lots of requirements

  6. Key Implementation Dates • Project-Based Budgeting/Accounting – Begins with PHA FYs July 1, 2007 and forward • Subsidy is fully fungible in CY 2008 • Cost Reasonableness – Begins in Fiscal Year 2009 • Determination of Asset Management Projects (AMPs) – CY 2006 • Implementation of new Operating Fund Formula – CY 2007 • Operating Subsidy by AMPs – Begins in CY 2008

  7. The New Model for PH • Fundamental shift for public housing • Historically, operating subsidy was calculated on an aggregate level • Op sub was allocated to the central office, which decided where the subsidy went • Now, subsidy is calculated for and allocated to each project

  8. The New Model for PH • Funding goes to the projects, and projects pay for everything else • Any service to the project not at the project will come from a cost center • Every PHA will have a central office cost center • Direct, indirect, and allocated services

  9. The New Model for PH • Two main components • Project-based management is decentralized property services tailored to the needs of each property, given the resources available to each property • Asset management is strategic oversight and centralized services tailored to the needs of the portfolio as a whole

  10. AMPs – the Economic Engine of PH • Your PHA defined its asset management projects (AMPs) for purposes of project-based accounting, budgeting, and management • Each AMP has its own budget, financial statements, staffing, subsidy, capital plan, and will have its own performance scoring Not in book

  11. AMPS – the Economic Engine • The PHA’s decision on the grouping of AMPS is based on: • Geographic location • Organizational structure • Size of the PHA • Housing stock • Resident population • Delivery systems • Maintenance delivery Not in book

  12. Compliance with Asset Management • Best definition of compliance so far is notice to stop-loss agencies, since they have to comply early

  13. Notice 2006-14(HA) • Even though these are the instructions for stop-loss agencies, this notice, and the Stop Loss Kit, is the clearest roadmap for all PHAs • The difference is in the deadline

  14. Seven Criteria for Compliance with Asset Management • Project-based accounting • Monthly operating statements for each project – revenues and expenses vs. budget levels, including all fees from the COCC and Capital Fund • Must reasonably reflect the financial performance of each project

  15. Seven Criteria for Compliance with Asset Management • Project-based management • Property management services are arranged or provided in the best interest of the property considering needs, cost, and responsiveness, relative to local market standards

  16. Seven Criteria for Compliance with Asset Management • Central office cost center (COCC) must charge reasonable fees to the AMPs • COCC must operate on the allowable fees and other permitted reimbursements from its PH and S8 programs • In other words, the COCC must support itself

  17. Seven Criteria for Compliance with Asset Management • Centralized services that directly support projects are funded using a fee-for-service approach or through other allowable charge-backs • Each project is charged for actual services received - must be reasonable compared to local market

  18. Seven Criteria for Compliance with Asset Management • Review of project performance • PHA systematically reviews financial, physical, and management performance of each project, and identifies non-performing properties

  19. Seven Criteria for Compliance with Asset Management • Review of project performance – a non-performing property has: • PHAS physical score below 70 • Significant crime and drug problems • Below 95% occupancy • TARS that exceed 7% of monthly rent roll

  20. Seven Criteria for Compliance with Asset Management • Review of project performance – a non-performing property has: • PHAS grade of “D” or below for vacant unit turnaround and work orders • Utility consumption more than 120% of agency average • Other major management problems Turnaround = D more than 30 days WOs = D more than 40 days

  21. Seven Criteria for Compliance with Asset Management • Review of project performance • Long-term prospects for each property: • Maintain project as is • Identify capital improvements needed • Dispose of property (demo, sale, etc) • Financial condition of each project Stop-Loss FAQs 9/1/06

  22. Seven Criteria for Compliance with Asset Management • Capital planning • Physical needs assessment and a five-year plan for each project • Five-year plan needs to consider revenue sources, market, tenancy, and project needs • Long-range energy consumption reduction

  23. Seven Criteria for Compliance with Asset Management • Risk management responsibilities related to regulatory compliance • PHA not carrying out responsibilities if: • Designated troubled under PHAS • Any outstanding FHEO findings or voluntary compliance agreement not implemented…

  24. Seven Criteria for Compliance with Asset Management • Regulatory noncompliance if: • No current energy audit… • Outstanding IG audit findings w/no progress • Not in compliance with ACOP • Unsatisfactory progress under RHIIP/RIM • PIC (50058) reporting rate under 95% • Any other major compliance deficiency

  25. The Deal with Stop-Loss • Under the new op sub formula, about a third of PHAs gained, a third stayed the same, and a third lost op sub

  26. The Deal with Stop-Loss • The PHAs who are “losers” under the new formula can stop the loss of subsidy by early conversion to asset management

  27. Stop-Loss Provision • Deadline for Year 1 was October 15, 2007 • If PHA demonstrated conversion by that date, the reduction of subsidy stopped at 5% of the difference for CY 2007 • That means that 95% of the PUM difference will be added to the lower op sub level under the final rule

  28. Stop-Loss Provision • For subsequent years, the % of loss goes up

  29. Stop-Loss Provision • There will be additional requirements for subsequent years • Year 2 has more requirements than Year 1 • HUD staff will have to monitor

  30. Per Unit Month (PUM) • Budgeted income and expense items are shown in a monthly and yearly total dollar amount – and also in a per unit per month (PUM) Page 6-3

  31. Per Unit Month (PUM) • PUM is an important concept • PUM applies to any line item ($) that: • Was spent, is being spent, or will be spent • Was earned, is being earned, or will be earned • Formula is: Any line item $ ÷ EUM = PUM

  32. Per Unit Month (PUM) • PUM also allows the portfolio to be tracked over time as the number of units change • Example: • Last year the PHA had 1200 units • This year, due to demo/dispo, there are 1100 units

  33. Per Unit Month (PUM) • PUM also allows sites to be compared – even if they aren’t of similar size type and age • If one AMP’s landscape cost is $26.82 and another’s of similar common grounds is $10.45, costs may need to be analyzed

  34. Operating Subsidy Formula The Money is Driving the Changes Page 6-4

  35. The New Operating Subsidy • The old op sub was aggregate - AEL • Under the new formula, subsidy is calculated and allocated by project - PEL • The op sub will go directly to the projects, and all other activities will be supported by fees paid by the projects • We see these in PUM (per unit month) figures

  36. The New Operating Subsidy • Operating subsidy formula: Project expense level (PEL) + Utility expense level • Formula income frozen at 2004 level + Applicable add-ons = Operating subsidy

  37. The New Operating Subsidy • Ten components used to calculate PEL: • Geographic variable – one of the two most significant variables – where you are in the country • Central city variable • Clientele (occupancy) variable – family properties tend to cost 6% more Page 6-5

  38. The New Operating Subsidy • Ten variables used to calculate op sub: • Property size variable – number of units • Building type variable – high-rise, garden walk-up, single family home, etc. • Bedroom mix variable – the other most significant variable

  39. The New Operating Subsidy • Ten variables used to calculate op sub: • Percent assisted variable – 100% subsidized tends to cost 6% more • Property age variable • Neighborhood poverty variable • Ownership type variable – for-profits have costs that are 6% less

  40. The New Operating Subsidy • National floor of $200 PUM for senior properties and $215 PUM for family properties • National ceiling of $420 PUM and 4% reduction for PUMs over $325

  41. The New Operating Subsidy • Add-ons – the PHA determines which are applicable: • Self-sufficiency • Energy loan amortization • PILOT • Audit cost – actual most recent • Resident participation - $25 per unit per yr Page 6-6

  42. The New Operating Subsidy • Add-ons – the PHA determines: • Asset management fee • $4 PUM for PHAs with 250 or more • $2 PUM for smaller PHAS who transition to PBM who have a COCC

  43. The New Operating Subsidy • Add-ons – the PHA determines: • Information technology fee • $2 PUM • Asset repositioning fee (demo or dispo) • Costs attributable to changes in federal law, regulation, or economy

  44. The New Operating Subsidy • Approved vacancies – still get op sub: • Units undergoing mod (if on schedule) • Units approved for resident services • Units in court litigation • Units undergoing casualty loss settlement • Units vacant due to disaster (federal or state)… Page 6-7

  45. The New Operating Subsidy • Approved vacancies – still get op sub: • Units vacant due to changing market conditions • Up to a 3% vacancy • The PHA will enter types of vacancies into PIC

  46. Costs Page 6-12

  47. Costs • All budget costs and expenses will fall into one of three general categories: • Direct cost (at the project) • Central office cost center (COCC) • Indirect services • Other cost centers (optional) • For direct and allocated services

  48. Cost Centers • Every PHA will have at least one cost center, the central office cost center (COCC) • Centralized maintenance may also be a cost center

  49. Frontline (Direct) Costs • These are expenses of the project: • Personnel costs of staff assigned to project • Repair and maintenance costs including supplies, contracted repairs, make-readies, preventive maintenance, etc. • Utility costs • Costs related to the site office – phones, office supplies, computers, postage, etc.

  50. Frontline (Direct) Costs • These are expenses of the project: • Advertising including procurement and employment notices • Costs of employee recruiting and screening • PILOT • Insurance (allocated) • Legal fees

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