HUD’s Office of the Inspector General (OIG) issued a report, “HUD Has Not Referred Troubled Public Housing Agencies as the Law and Regulations Require,” on February 4. The OIG concluded the HUD Office of Public and Indian Housing (PIH) has not referred troubled public housing agencies (PHAs) that have failed to improve after two years to the PIH assistant secretary to appoint a receiver or take possession, as required by law and regulation. Consequently, a PHA could remain troubled for an indefinite period while conditions stagnate or deteriorate. A troubled PHA is one that has a Public Housing Assessment System (PHAS) score of 59% or lower. The OIG identified 18 PHAs remaining troubled for more than two years without being referred.
Law and regulation require a troubled PHA to be referred to the PIH assistant secretary either one year or two years after being designated as troubled, depending on the PHA’s scores on PHAS, as explained below. The OIG reports that the PIH Office of Field Operations (OFO) has no process to make such a referral, and OFO officials admit that referrals were never made to the assistant secretary.
Instead of making referrals, PIH allows a troubled PHA to remain troubled longer than the two-year recovery period because some troubled PHAs with severe problems could not reasonably recover within two years. PIH gives such PHAs more than two years to recover as long as the PHA is improving and complying with a recovery agreement established with PIH. During this time PIH heightens monitoring and provides technical assistance. The OIG expressed concern that, if PIH does not refer a troubled PHA to the assistant secretary after the two-year recovery period, conditions could stagnate or deteriorate.
PHAS and REAC Scores
PIH’s Real Estate Assessment Center (REAC) measures the performance of PHAs using the Public Housing Assessment System (PHAS). One goal of PHAS is to ensure that homes are decent, safe, sanitary, and in good repair. Using PHAS, REAC scores a PHA’s performance using four indicators – physical condition, financial condition, management operations, and the Public Housing Capital Fund program. REAC then compiles the scores into an overall PHAS score for the PHA. PHAs scoring 59 (on a scale of 100) or lower are designated as “troubled.” PHAs scoring 90 or higher are designated as “high performing,” and those with scores of 60-89 are considered to be “standard” or “substandard.”
Troubled PHAs Are Allowed a Maximum of Two Years to Recover
When REAC gives a PHA a PHAS score lower than 60, it notifies the PHA of its troubled status immediately by sending an automated email. According to law and regulation, upon receiving this notice, a PHA has a maximum of two years to improve its overall PHAS score. After the initial notice of a troubled designation, a PHA has until its next PHAS assessment, which is at least 12 months after the initial troubled designation, to improve its performance by at least 50% of the difference between the initial PHAS assessment score and the score necessary to remove the PHA’s designation as a troubled performer. For example, if a PHA’s initial score was 50, its PHAS score 12 months later should be at least 55 because 60 would remove the troubled designation. If a PHA does not improve its performance by the required score percentage at the one-year mark, law and regulations require the PHA be referred to the PIH assistant secretary rather than allowing the PHA the full two-year period. A PHA must have an overall PHAS score of at least 60 by the next PHAS assessment, which is at least 24 months after the initial notice of the troubled performer designation.
Actions the PIH Assistant Secretary Must Take
Once the PIH refers a PHA to the PIH assistant secretary for action, the following are required:
- For a troubled PHA with 1,250 or more public housing units, the assistant secretary must declare a “substantial default” and petition for the appointment of an administrative receiver.
- For a troubled PHA with fewer than 1,250 public housing units, the assistant secretary must either petition for the appointment of an administrative receiver or take possession of the PHA and appoint an administrative receiver to assume the responsibilities of the HUD secretary for the administration of all or part of the PHA.
Under administrative receivership, HUD takes possession of a PHA and appoints one or more HUD staff members or an outside contractor to serve as an administrative receiver. An administrative receiver works on site at the PHA to manage and operate the PHA’s housing operations and affairs. The OIG limited its evaluation to administrative receiverships because judicial receiverships are established, monitored, and supervised by federal courts.
18 PHAs Remained Troubled for More than Two Years without Being Referred
PIH determined that five PHAs failed to meet the two-year recovery requirements as of April 2019. Of the five PHAs, the Alexander County Housing Authority (Cairo, IL) and the Gary Housing Authority (IN) are under HUD receivership for reasons unrelated to meeting the two-year recovery requirements. The other three PHAs, Bridgeport Housing Authority (CT), Irvington Housing Authority (NJ), and Hoboken Housing Authority (NJ), were not referred to the assistant secretary or placed under HUD receivership.
The OIG analyzed the list of troubled PHAs from FY11 to FY18 and identified 13 additional PHAs that had failed to meet either the one- or two-year recovery requirements and were not referred. They are: Alexandria Housing Authority (LA), Emery County Housing Authority (UT), Floydada Housing Authority (TX), Gallup Housing Authority (NM), Highland Park Housing Commission (MI), New Iberia Housing Authority (LA), New Rochelle Housing Authority (NY), Peekskill Housing Authority (NY), Pontiac Housing Commission (MI), San Francisco Housing Authority (CA), Tulia Housing Authority (TX), Village of Hempstead Housing Authority (NY), and Wicomico County Housing Authority (MD).
Of the 13 PHAs, 9 had recovered from their troubled status but not before the law and regulations required them to be referred for receivership, and the Emery County, Highland Park, Pontiac, and Wicomico County housing authorities remained troubled at the conclusion of the OIG’s fieldwork.
PIH Drafted a Referral Process, But It Would Need Legislative Changes
The OIG reports that in 2017 PIH began creating a process to refer long-term troubled PHAs to the assistant secretary, giving the assistant secretary four recovery options:
PIH continues to work through the current recovery agreement with an estimated recovery date;
PIH provides technical assistance needed for either a continuation or a transition;
PIH repositions the PHA (for example, placing the PHA under the Rental Assistance Demonstration, transferring the PHA to another housing agency, consolidating the PHAs, or placing the PHA under an alternate management); or
PIH declares the PHA is in substantial default and places the PHA under receivership or HUD’s possession.
The OIG notes, however, that if HUD would like to consider receivership as a “last-resort option” as proposed, it should petition Congress for a legislative change to existing law that requires HUD to petition for the appointment of a receiver or take possession of a public housing agency in certain circumstances.
Current Process Could Extend Troubled Status to Three Years
OFO defines the two-year recovery period differently than the law and regulations by using a PHA’s fiscal year because PHAS data are submitted on a fiscal-year basis. OFA asserts that the recovery period should begin in a PHA’s first full fiscal year after it receives its initial troubled designation so that the PHA has time to address the troubled designation and use the data subsequently submitted to reflect those efforts. The OIG notes, however, that calculating the recovery period based on the PHA’s first full fiscal year after notification may allow a troubled PHA more than the maximum two-year period to recover. If a PHA receives its initial designation of troubled status shortly after its fiscal year-end, the PHA’s recovery period would not start until the PHA’s next fiscal year, allowing the PHA almost three years to recover. For example, if a PHA with a fiscal year-end of March 31 receives its troubled designation on May 1, the PHA’s recovery period would not start until April 1 of the following year. As a result, the PHA would receive 11 more months to recover than the law allows.
The HUD Office of the Inspector General’s report, “HUD Has Not Referred Troubled Public Housing Agencies as the Law and Regulations Require” is at: https://bit.ly/2tJzDqX
More about public housing is on page 4-25 of NLIHC’s 2019 Advocates’ Guide.