Public Housing Authorities Directors Association
July 3, 2006
Honorable Orlando Cabrera
Assistant Secretary, Office of Public & Indian Housing
U.S. Department of Housing & Urban Development
451 7 Street, SW Room 4100
Washington, D.C. 20410
Re: Current $600 million operating fund shortfall
Dear Mr. Assistant Secretary:
This correspondence follows our June 30 meeting regarding HUD’s newly
disclosed $600 million public housing operating fund shortfall for the
current fiscal year. PHADA appreciated the opportunity to
discuss this very serious situation with you and Gregory Byrne,
HUD-REAC’s Director of Financial Management.
Earlier this year, the Department announced that housing agencies would
receive approximately 92 percent of their 2005 eligibility for the
first six months of 2006. Last week, though, HUD began informing
agencies the 92 percent figure must be lowered due to rising utility
costs. As a result of a 17 percent increase in those prices, the
Department has determined that formula eligibility is now $4.15 billion
while there is only $3.56 billion available for distribution.
Consequently, HUD’s revised 2006 operating fund proration is 85.5
percent, a reduction of almost 7 percent from its previously announced
estimate.
As I mentioned during our meeting, PHADA is seriously concerned about
this huge shortfall. Just as worrisome is the fact that PHAs were
not provided advance warning of the budget gap’s magnitude.
During our meeting, we suggested specific recommendations to deal with
the problem. To recap, our suggestions include the following:
• The Bush Administration should
propose and help secure supplemental operating fund appropriations for
FY 2006. Even prior to HUD’s latest announcement, many agencies
were struggling to meet their current year operating needs. The
situation is exacerbated by the fact that new cuts will be made
retroactive to this past January. HUD has determined that those
agencies that were paid “too much” in the first half of 2006 will
receive significantly less money in the year’s second half, forcing
them to deal with unanticipated and severe funding shortfalls through
the remainder of 2006. Indeed, as a result of the new proration,
PHADA has heard from some PHAs that are facing cuts in the 30-40
percent range over the next six months. PHADA therefore requests that
you work with the Department’s leadership, the Office and Management
and Budget, and Congress to secure supplemental operating funding in FY
‘06. I understand you intend to pursue this possibility with
other HUD officials soon.
• Due to this dire fiscal
situation, HUD should loosen its rigid asset management guidelines for
“stop loss” PHAs. Given the $600 million funding gap and the fact
that many agencies are only now being informed of additional cuts
which, again, are retroactive to January, we believe it is unrealistic
for HUD to require PHAs to completely change their management systems
and modes of operation. Nevertheless, the “stop-loss” agencies
must do exactly that in less than 90 days if they want to hold their
losses to no more than 5 percent under the new operating fund
rule. PHADA believes HUD should delay stop loss requirements for
at least one year, and instead impose only a 5% reduction to
“decliners” under the new formula. I would point out that this
recommendation, sent to you previously under separate cover, would
still allow HUD to implement the new operating fund formula in January,
2007. Moreover, we estimate the maximum impact on “gainer” PHAs to be
about $30-$40 million in 2007.
• HUD needs to recognize that the
shortfall will negatively affect the ability of all PHAs to transition
to asset management beginning in 2007. Up to this point, the
Department projected that is its 2007 budget would fund housing
agencies at 85 percent of formula eligibility. In light of
present utility costs, the Department’s forecast is now wildly
optimistic. HUD’s ‘07 utilities budget is only 2.4 percent higher
than the amount housing authorities spent in 2005. Thus, the 2007
estimate is about 15 percent lower than the amount PHAs actually needed
in 2006. If utility prices continue to go up - a likely scenario
- then HUD’s 2007 budget estimate is even less credible. PHADA
estimates that HUD’s 2007 budget proposal – which has already been
approved by the U.S. House of Representatives – would fund PHAs at only
75-76 percent of formula eligibility next year. Again, PHADA
believes it is completely unrealistic and inequitable for HUD to
require agencies to completely transform their operations in such a
chaotic budgetary context. Simply put, if HUD is not willing to
come even remotely close to requesting adequate operating funding, then
it should at least be willing to loosen its overly prescriptive
asset management guidelines, as well as other discretionary regulations
and requirements.
• Finally, Mr. Byrne acknowledged
at the meeting that HUD's 2007 budget request would require at least an
80 percent proration. Since the Department is considering asking
for a 2006 supplemental with an 85 percent proration, PHADA also urges
HUD to revise its even more inadequate 2007 budget request in light of
the 2006 utility costs and return to Congress with an accurate amount
for the 2007 operating fund.
In the coming days, PHADA will be exploring
other options and suggestions both internally and in concert with other
industry advocates. We will forward you other ideas as soon as
possible. In the meantime, we ask that you move forward and adopt
these recommendations. We believe this unprecedented budgetary
shortfall requires the Department’s urgent attention. Please do
not hesitate to contact me should you have any questions or require
additional information concerning this matter. Thank you for your
consideration.
Sincerely,
/s/
Timothy G. Kaiser
Executive Director