HUD and Treasury Programs: More Information on Leverage Measures'
Accuracy and Linkage to Program Goals Is Needed in Assessing	 
Performance (18-JAN-08, GAO-08-136).				 
                                                                 
This is the second of two reports on the leveraging of federal	 
funds in housing and community and economic development programs.
Leveraging involves using a source of funds to attract other	 
funds or combining multiple sources of funds. This report	 
examines (1) the leverage measures and the transparency of the	 
data and methods used to calculate them, and (2) the relevance of
such measures in assessing performance that the Department of	 
Housing and Urban Development (HUD) and the Department of the	 
Treasury (Treasury) reported for six selected programs. To	 
complete this work, GAO reviewed agency policies and reports,	 
interviewed officials, and analyzed agency data.		 
-------------------------Indexing Terms------------------------- 
REPORTNUM:   GAO-08-136 					        
    ACCNO:   A79974						        
  TITLE:     HUD and Treasury Programs: More Information on Leverage  
Measures' Accuracy and Linkage to Program Goals Is Needed in	 
Assessing Performance						 
     DATE:   01/18/2008 
  SUBJECT:   Data integrity					 
	     Economic development				 
	     Federal funds					 
	     Financial management				 
	     Funds management					 
	     Government information dissemination		 
	     Housing						 
	     Housing programs					 
	     Information disclosure				 
	     Interagency relations				 
	     Internal controls					 
	     Performance appraisal				 
	     Performance measures				 
	     Program evaluation 				 
	     Program management 				 
	     Reporting requirements				 
	     Leverage (financial)				 
	     Program goals or objectives			 
	     Transparency					 
	     Community Development Financial			 
	     Institutions Fund					 
                                                                 
	     HUD Community Development Block Grant		 
	     Program						 
                                                                 
	     HUD Home Investment Partnership Program		 
	     HUD HOPE VI Program				 
	     New Markets Tax Credit Program			 
	     Treasury Low Income Housing Tax Credit		 
	     Program						 
                                                                 

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GAO-08-136

Contents: 

Letter: 

Results in Brief: 

Background: 

Reported Leverage Measures Lacked Transparency Because Agencies 
Generally Did Not Disclose Data Limitations or Calculation Methods: 

Leverage Measures Provide Basic Financial Information, but the Extent 
to Which They Are Relevant for Assessing Program Performance Varies: 

Conclusions: 

Recommendations for Executive Action: 

Agency Comments and Our Evaluation: 

Appendix I: Objectives, Scope, and Methodology: 

Appendix II: Transactions Structures for the Selected Treasury 
Programs: 

Appendix III: Agency-reported Leverage Measures and Our Recalculations: 

Appendix IV: Housing and Community and Economic Development Project 
Profiles: 

Appendix V: Comments from the Department of Housing and Urban 
Development, Office of Community Planning and Development: 

Appendix VI: Comments from the Department of the Treasury, Community 
Development Financial Institutions Fund: 

Appendix VII: GAO Contact and Staff Acknowledgments: 

Related GAO Products: 

Tables: 

Table 1: Limitations of Agencies' Leveraging Data and Potential Effect 
on Reported Leverage Measures: 

Table 2: HUD's Use of Leverage Measures in Performance Assessment and 
Other Documents: 

Table 3: Treasury's Use of Leverage Measures in Performance Assessment 
and Other Documents: 

Table 4: Agency-reported Leverage Measures by Program: 

Figures: 

Figure 1: Calculation Scenarios for a Hypothetical Program: 

Figure 2: Performance Measurement Model: 

Figure 3: CDFI Transaction Structure: 

Figure 4: Low-Income Housing Tax Credit Syndication Transaction 
Structure: 

Figure 5: New Markets Tax Credit Basic Transaction Structure: 

Figure 6: New Markets Tax Credit Leveraged Transaction Structure: 

Figure 7: Recalculated Leverage Measures for the CDBG Program: 

Figure 8: Recalculated Leverage Measures for the HOME Program: 

Figure 9: Recalculated Leverage Measures for the HOPE VI Program: 

Figure 10: Institutional and Project Leverage in the CDFI Program: 

Figure 11: Institutional and Project Leverage in the New Markets Tax 
Credit Program: 

Figure 12: Hilltop Oaks Apartments, San Antonio, Texas: 

Figure 13: Near North Apartments, Chicago, Illinois: 

Figure 14: New Columbia, Portland, Oregon: 

Figure 15: ACCION Texas, San Antonio, Texas: 

Figure 16: Avenue North, Philadelphia, Pennsylvania: 

Figure 17: Gerding Theater at the Armory, Portland, Oregon: 

Figure 18: New Hampshire Community Loan Fund Manufactured Housing 
Program: Exeter River Cooperative, Exeter, New Hampshire: 

Figure 19: Seattle Cooperative Children's Center, Seattle, Washington: 

Figure 20: Shoalwater Bay Wellness Center, Tokeland, Washington: 

Abbreviation: 

CDBG: Community Development Block Grant: 

CDE: Community Development Entity: 

CDFI: Community Development Financial Institution: 

GPRA: Government Performance and Results Act of 1993: 

HOME: HOME Investment Partnerships: 

HUD: Department of Housing and Urban Development: 

IDIS: Integrated Disbursement and Information System: 

LEED: Leadership in Energy and Environmental Design: 

OMB: Office of Management and Budget: 

PART: Program Assessment Rating Tool: 

PHA: public housing agency: 

SAAHC: San Antonio Alternative Housing Corporation: 

Treasury: Department of the Treasury: 

United States Government Accountability Office: 

Washington, DC 20548: 

January 18, 2008: 

The Honorable Maxine Waters: 
Chairwoman Subcommittee on Housing and Community Opportunity: 
Committee on Financial Services: 
House of Representatives: 

Dear Madam Chairwoman: 

In a period of increasingly tight budgets for federal housing and 
community and economic development programs, congressional, executive, 
and agency decision makers have focused on how best to distribute 
scarce federal resources to achieve the greatest benefits--in 
particular, the extent to which federal programs leverage private and 
other public funds. In response, federal agencies often cite leverage 
measures in strategic planning, performance, and budget reports, and on 
their Web sites to demonstrate how successful they have been at 
attracting other funds to carry out program goals.[Footnote 1] 

Under the provisions of the Government Performance and Results Act of 
1993 (GPRA), federal agencies are required to measure and report the 
performance of their programs.[Footnote 2] GPRA was designed to inform 
congressional and executive decision making by providing objective 
information on the relative efficiency and effectiveness of federal 
programs and spending. A key provision of the act is to create closer 
and clearer links between the process of allocating scarce resources 
and the expected results to be achieved with these resources, which can 
increase the government's capacity to assess competing claims for 
federal dollars. Under GPRA, agencies also must complete strategic 
plans in which they define their missions, establish results-oriented 
goals, and identify strategies to achieve those goals; prepare annual 
performance plans that articulate goals aligned with long-term 
strategies; and issue annual performance reports in which they report 
on actions taken to achieve these goals.[Footnote 3] However, federal 
agencies have faced challenges in identifying program goals and 
performance measures that go beyond summarizing program activities--for 
example, the number of clients served--to distinguishing desired 
outcomes or results--for example, improving economic self-sufficiency 
among clients served.[Footnote 4] 

Further, the current administration has made integrating performance 
information into budget deliberations a priority under the President's 
Management Agenda.[Footnote 5] The Program Assessment Rating Tool 
(PART), which the Office of Management and Budget (OMB) designed, is a 
central element of this initiative and consists of a standard series of 
questions meant to serve as a diagnostic tool. PART draws on available 
program performance and evaluation information, including leverage 
measures, to form conclusions about program results and develop follow- 
on actions intended to improve those results. As we have reported 
previously, access to credible information on program performance is 
critical to the success of any program assessment effort, including 
PART.[Footnote 6] 

As discussed in a May 2007 report on leveraging federal funds for 
housing and community and economic development, leveraging can be 
defined in two ways: (1) using a relatively small amount of federal 
funds to attract private investment and (2) combining or layering 
program funds with other federal, state, local, and private sources of 
funds.[Footnote 7] Leveraging also can occur at the institutional or 
project level--at the institutional level, an entity pools funds from 
multiple sources, which later are used to finance a portfolio of 
projects; at the project level, an entity leverages funds as necessary 
for discrete projects. Further, while leveraging may be useful and 
stretch scarce resources, the extent of its use can depend upon local 
economic conditions and may have unintended consequences, such as the 
substitution of federal funds for private funds that otherwise would 
have been contributed to a program or project. Despite differences in 
how and under what circumstances programs leverage, little scrutiny has 
been placed on the leverage measures these programs report and how 
agencies, OMB, and others use such measures to assess performance. 

This is the second of two reports undertaken in response to your 
request that we examine leveraging as it relates to federal housing and 
community and economic development programs.[Footnote 8] For this 
report, we examined the Department of Housing and Urban Development's 
(HUD) Community Development Block Grant (CDBG), HOME Investment 
Partnerships (HOME), and HOPE VI programs and the Department of the 
Treasury's (Treasury) Community Development Financial Institutions 
(CDFI) Financial Assistance, Low-Income Housing Tax Credit, and New 
Markets Tax Credit programs.[Footnote 9] Specifically, this report 
examines (1) the leverage measures HUD and Treasury reported for the 
selected housing and community and economic development programs and 
the transparency of the data and methods used to calculate them and (2) 
the relevance of leverage measures in assessing the performance of the 
selected programs. This report also provides examples of how federal 
funds have been leveraged in the selected programs (see app. II). 

To examine the leverage measures HUD and Treasury reported for each of 
the selected programs and the transparency of the data and methods used 
to calculate them, we reviewed relevant program regulations and 
guidance, our prior reports and reports of others, and interviewed 
agency officials and other stakeholders. Based on this information, we 
requested from HUD and Treasury data they use to measure the extent of 
leveraging (for example, data on sources and amounts of funds, or other 
financial data, commonly referred to as "leveraging data") in the CDBG, 
HOME, and HOPE VI programs and the CDFI and New Markets Tax Credit 
programs, respectively, and assessed their reliability in accordance 
with our standards.[Footnote 10] Because the Low-Income Housing Tax 
Credit program does not have a single, complete source of data on the 
extent of leveraging, we surveyed the housing finance agencies--those 
organizations that are responsible for administering the program--to 
determine what data they collect on the extent of leveraging that 
occurs in the program. To examine the relevance of leverage measures in 
assessing the performance of the selected housing and community and 
economic development programs, we reviewed our and OMB's reports on 
performance measurement; agency strategic plans and annual performance 
plans, performance and accountability reports, and budget 
justifications; and industry and other literature such as agency 
reports, press releases, and Web sites.[Footnote 11] We also 
interviewed federal agency officials and other individuals with 
knowledge of or experience in housing and community and economic 
development. As part of this work, we also conducted site visits in 
five states and collected information on how federal funds have been 
leveraged for a number of projects or initiatives that received funding 
from the programs included in our review. Appendix I contains a more 
detailed description of our scope and methodology. We conducted this 
performance audit in Chicago, Illinois; San Antonio and Laredo, Texas; 
Philadelphia and Chester, Pennsylvania; Portland and Salem, Oregon; 
Seattle and Tokeland, Washington; and Washington, D.C., from November 
2006 to January 2008 in accordance with generally accepted government 
auditing standards. Those standards require that we plan and perform 
the audit to obtain sufficient, appropriate evidence to provide a 
reasonable basis for our findings and conclusions based on our audit 
objectives. We believe that the evidence obtained provides a reasonable 
basis for our findings and conclusions based on our audit objectives. 

Results in Brief: 

The leverage measures HUD and Treasury reported for the selected 
programs lacked transparency because the agencies generally did not 
disclose the limitations of the data or the methods used to calculate 
them. We found that for reasons including incomplete reporting of data, 
the measures HUD and Treasury reported for the CDBG, HOME, HOPE VI, 
CDFI, and New Markets Tax Credit programs did not reflect the actual 
extent of leveraging that occurred in the programs. For example, 
Treasury lacked leveraging data for approximately 26 percent of New 
Markets Tax Credit projects, which could potentially result in an 
underestimation of the leveraging that occurred in the program. 
However, we found that when the agencies reported leverage measures for 
the selected programs in performance and budget reports, and in other 
sources, they neither fully disclosed these data limitations, nor 
consistently disclosed the method they used to calculate the measures. 
Based on our discussions with agency officials, we found that the 
agencies generally reported leverage measures that described the ratio 
of all other funds (other federal, state, local, and private funds) to 
program funds. However, these measures can be calculated in multiple 
ways to present different results, such as the extent to which federal 
funds are used with nonfederal funds. There is no agency-specific or 
governmentwide guidance on what agencies should disclose about the 
leverage measures they report or how they calculate them for the 
selected programs. We previously have reported that clearly 
communicating data limitations and their potential impact may foster 
appropriate use of data. Absent specific information on how the 
agencies calculated reported leverage measures for the selected 
programs and the limitations of those measures, decision makers do not 
have sufficient information to understand their meaning and how they 
can and should be used in performance assessment, budgeting, and other 
contexts. 

Leverage measures can provide basic financial information about the 
programs included in our review; however, their relevance in assessing 
the performance of the selected programs varies considerably. For all 
programs, leverage measures can describe inputs, or the resources used 
to support program activities, and may be useful for conveying basic 
financial information. To the extent that leveraging is a goal or core 
(expected) activity of a program, leverage measures generally can 
describe program outputs, or the products or services delivered (such 
as total leveraged funds) and may be used with other performance 
indicators to assess the efficiency and effectiveness of a program in 
meeting its goals. Among the programs we reviewed, leveraging is 
directly linked to the goals and activities of the CDFI, Low-Income 
Housing Tax Credit, and New Markets Tax Credit programs. Each of the 
three programs was designed to leverage in multiple ways--the CDFI 
program requires CDFIs to leverage additional funds as a condition of 
receiving program funds, while the tax credit programs automatically 
generate private investment for housing and community and economic 
development activities. As a result, OMB and Treasury's use of leverage 
measures to describe and assess the performance of these programs 
generally was appropriate. In contrast, leveraging is not linked 
directly to the program goals and core activities of the selected HUD 
programs (CDBG, HOME, and HOPE VI). Leveraging may be a strategy some 
funding recipients employ, either by choice or out of necessity, to 
meet these programs' goals. Thus, using leveraging to assess impact or 
success in meeting goals may create adverse or conflicting incentives 
for the agency and funding recipients; for example, giving funding 
priority to projects that leverage more over those that leverage less, 
but which may fill a greater or more immediate need within a community. 
Specifically, emphasizing the importance of leveraging in a program 
that provides housing for low-income communities could result in 
providing relatively more federal funding to projects that serve higher-
income households and less funding to needier communities, which may 
experience difficulty in attracting other funding. Despite the limited 
relevance of leveraging to the goals of the CDBG, HOME, and HOPE VI 
programs, we found that OMB and HUD often cited leverage measures for 
the programs in performance-and budget-related reviews and documents, 
including PART reviews. 

To ensure that leverage measures provide accurate, relevant, and useful 
information to Congress and others, this report makes recommendations 
to the Secretaries of HUD and Treasury to disclose information on the 
completeness and accuracy of the data and the methods used to calculate 
such measures, and if used as a performance indicator, how such 
measures link to program goals and core activities. This report further 
recommends that the Director of OMB provide guidance to help agencies 
determine how to calculate, describe, and use leverage measures in a 
manner that is consistent with their programs' design, and re-evaluate 
the use of such measures and disclose their relevance to program goals 
and activities in future PART or other performance reviews of the 
selected programs. 

We received written comments on a draft of this report from HUD and 
Treasury, which are included in appendixes V and VI, respectively. We 
also provided a draft of this report to OMB for review, but no comments 
were provided. In a letter from the Acting Deputy Assistant Secretary 
for Grant Programs, HUD noted that it was pleased with the results 
presented in our draft report, but provided several detailed comments 
on and suggested changes to our findings related to the CDBG and HOME 
programs (see app. V). For example, HUD expressed concern that the 
draft report did not sufficiently emphasize that the CDBG and HOME 
programs do not have statutory or regulatory leveraging requirements or 
that the agency currently does not publish a leverage measure for the 
CDBG program. We incorporated language into the report to address these 
comments. In addition, HUD said that it would work to improve the 
quality of leveraging data CDBG grantees report to the agency, an 
effort that would, in part, address one of our recommendations to the 
agency. HUD's Office of Public and Indian Housing also provided 
technical comments related to the HOPE VI program, which we 
incorporated as appropriate. 

In a letter from the Director of the Community Development Financial 
Institutions Fund, Treasury expressed appreciation for our finding that 
each of the agency's programs included in our review was designed to 
leverage. Although Treasury did not specifically comment on our 
recommendations, it provided several detailed comments related to the 
agency's calculation of leverage measures for the CDFI and New Markets 
Tax Credit programs (see app. VI). For example, while Treasury agreed 
with our description of the limitations of the data used to calculate 
leverage measures for the CDFI and New Markets Tax Credit programs, it 
stated that the calculated measures provided reasonable approximations 
of the leveraging that occurs in the programs despite these 
limitations. However, we continue to believe that these limitations 
(which are described in our report and Treasury's comment letter) 
potentially could have an impact on the accuracy of the leverage 
measures Treasury calculated for the programs and thus should be 
adequately disclosed. Accordingly, we did not change the report in 
response to these comments. Consistent with our findings and 
recommendations, in its comment letter, Treasury acknowledged the 
importance of disclosing data limitations and calculation 
methodologies, noting that it has done so on numerous occasions with 
respect to the CDFI program and stating that it would make every effort 
to include such information in any publication of a leverage measure 
for the New Markets Tax Credit program.[Footnote 12] HUD's and 
Treasury's comments are discussed in greater detail at the end of this 
letter. 

Background: 

HUD's CDBG, HOME, and HOPE VI programs and Treasury's CDFI, Low-Income 
Housing Tax Credit, and New Markets Tax Credit programs are among a 
number of federal programs that fund housing and community and economic 
development. In varying degrees, these programs leverage other funds to 
help finance their initiatives and projects. As we reported in a May 
2007 report, some of these programs define leveraging as using one 
source of funds to attract additional sources of funds, while others 
define leveraging more broadly as the layering or combining of 
different sources of funds.[Footnote 13] Further, and as described 
below, some of these programs leverage at the institutional and project 
levels, while some leverage only at the project level. At the 
institutional level, an organization (such as a group of investors or a 
community or other development authority) pools funds from multiple 
sources, which are then used to finance a portfolio of projects. At the 
project level, an organization (such as a state or local agency) 
leverages funds as necessary to finance discrete projects. 

Housing and Community and Economic Development Program Overviews: 

We highlight below the purpose, structure, and activities of the three 
HUD programs and three Treasury programs that we reviewed. Appendix II 
describes in more detail how leveraging occurs in the selected Treasury 
programs. 

CDBG Program: 

The CDBG program is the federal government's principal community 
development program. It provides annual grants on a formula basis to 
entitlement communities--principal cities of metropolitan statistical 
areas, other metropolitan cities with populations of at least 50,000, 
and qualified urban counties--and states to develop viable urban 
communities by providing decent housing and a suitable living 
environment, and by expanding economic opportunities, principally for 
low-and moderate-income persons.[Footnote 14] Under the CDBG program, 
communities and states develop their own programs and funding 
priorities. However, all funded activities must meet one of three 
national objectives: primarily benefit low-and moderate-income persons, 
aid in the prevention or elimination of slums and blight, or meet 
community development needs of particular urgency (because existing 
conditions pose a serious and immediate threat to the health or welfare 
of the community and other financial resources are not available to 
meet such needs). Although the CDBG program has no statutory or 
regulatory leveraging requirement, some projects funded under the 
program use CDBG funds to leverage additional funds to finance 
development costs. In fiscal year 2007, Congress appropriated 
approximately $3.7 billion to the CDBG program for formula 
distribution, and HUD allocated these funds to 1,133 entitlement 
communities, 49 states, and Puerto Rico.[Footnote 15] 

HOME Program: 

HOME provides formula grants to states and localities--certain cities, 
counties, or consortiums of cities and counties--to fund a wide range 
of activities to benefit low-income people.[Footnote 16] Under the HOME 
program, states and localities may use program funds to finance a broad 
range of activities, such as providing eligible homeowners and new 
homebuyers with home purchase or rehabilitation financing assistance 
and building or rehabilitating housing for rent or ownership. States 
and localities also may use HOME funds to provide tenant-based rental 
assistance.[Footnote 17] The program requires states and localities to 
match 25 percent of expended program funds with monetary or certain in- 
kind contributions, such as donated materials or voluntary 
labor.[Footnote 18] This match requirement was designed to elicit local 
resources in support of affordable housing. Like the CDBG program, the 
HOME program has no statutory or regulatory leveraging requirement; 
however, some projects funded under the program use HOME funds to 
leverage additional funds to finance development costs. In fiscal year 
2007, Congress appropriated approximately $1.8 billion to the HOME 
program, and HUD allocated these funds to 589 localities, the 50 
states, and Puerto Rico. 

HOPE VI Program: 

HOPE VI is part of HUD's effort to transform public housing.[Footnote 
19] By providing funds for a combination of capital improvements and 
community and supportive services, the HOPE VI revitalization grant 
program seeks to (1) improve the living environment for residents of 
severely distressed public housing through the demolition, 
rehabilitation, reconfiguration, or replacement of obsolete units; (2) 
revitalize sites on which such severely distressed public housing is 
located, and contribute to the improvement of the surrounding 
neighborhood; (3) provide housing that will avoid or decrease the 
concentration of very-low income families; and (4) build sustainable 
communities. Any public housing agency (PHA) that has severely 
distressed public housing units in its inventory is eligible to apply 
for a HOPE VI revitalization grant. Recipients of revitalization grants 
must match 5 percent of the grant with other funds, and HUD awards PHAs 
that demonstrate an ability to leverage additional points in the HOPE 
VI application process.[Footnote 20] In fiscal year 2006, HUD made four 
HOPE VI revitalization grants totaling approximately $72 
million.[Footnote 21] 

CDFI Program: 

Through the CDFI program, Treasury's CDFI Fund provides CDFIs with 
financial assistance in the form of grants, loans, equity investments, 
and deposits to enhance their ability to make loans and investments and 
provide services for the benefit of designated investment areas, 
targeted populations, or both.[Footnote 22] CDFIs must match (leverage) 
their financial assistance awards dollar-for-dollar with funds of the 
same type (equity investment, loan, deposit, or grant) from nonfederal 
sources.[Footnote 23] CDFI funds can be used for economic development 
(job creation, business development, and commercial real estate 
development), affordable housing (housing development and 
homeownership), and community development financial services (provision 
of basic banking services to underserved communities and financial 
literacy training). In 2007, Treasury made approximately $26 million in 
financial assistance awards to 49 CDFIs.[Footnote 24] 

Low-Income Housing Tax Credit Program: 

Under the Low-Income Housing Tax Credit program, states are authorized 
to allocate federal tax credits to private investors as an incentive to 
develop rental housing for low-income households.[Footnote 25] The 
equity generated by the sale of the credits is used to lower the 
financing costs of housing developments by reducing the debt or equity 
the developer otherwise would incur or contribute.[Footnote 26] 
Investors who purchase the tax credits may claim the credits annually 
for 10 years. To receive Low-Income Housing Tax Credit financing, 
properties must meet certain rent and tenant income requirements: (1) 
at least 20 percent of the units in the property must be reserved for 
individuals or families with incomes of 50 percent or less of the area 
median income, or at least 40 percent of the units must be reserved for 
individuals or families with incomes of 60 percent or less of the area 
median income; and (2) rents for affordable units are restricted to 30 
percent of the applicable income limit (that is, 50 percent or 60 
percent of the area median income). Each state receives an allocation 
of the greater of $1.75 per capita or $2 million annually, adjusted by 
a cost of living factor ($1.95 or $2.275 million in 2007).[Footnote 27] 
The program costs the federal government an estimated $5 billion 
annually in forgone tax revenue and is the government's largest housing 
production program. 

New Markets Tax Credit Program: 

The New Markets Tax Credit program permits taxpayers to receive a 
credit against federal income taxes for making qualified equity 
investments in designated Community Development Entities (CDE), which 
must in turn make investments in low-income communities.[Footnote 28] 
Qualified low-income community investments include (1) any capital or 
equity investment in, or loan to, any qualified, active, low-income 
community business; (2) the purchase from another CDE of any loan made 
by such entity that is a qualified low-income community investment; (3) 
financial counseling and other services to businesses located in, and 
residents of, low-income communities; and (4) certain equity 
investments in, or loans to, a CDE. The credit provided to the investor 
totals 39 percent of the cost of the investment and is claimed over a 7-
year period. In addition, Treasury scores those applications in which 
CDEs demonstrate an ability to leverage additional funds more 
favorably.[Footnote 29] In fiscal year 2007, Treasury awarded $3.9 
billion in New Markets Tax Credits (totaling approximately $1.5 billion 
in forgone federal tax revenue) to 61 CDEs. 

Reported Leverage Measures Lacked Transparency Because Agencies 
Generally Did Not Disclose Data Limitations or Calculation Methods: 

The leverage measures (such as ratios) HUD and Treasury reported for 
the selected programs in performance, budget, and other documents 
lacked transparency because the agencies generally did not disclose the 
limitations of the data or the methods used to calculate them. Based on 
our review of available leveraging data and interviews with HUD and 
Treasury officials, we found that the leverage measures the agencies 
reported for the selected programs were based on incomplete data and 
thus did not capture the actual extent of leveraging in the programs. 
We also found that while the agencies generally reported measures that 
described the ratio of all other funds (federal, state, local, and 
private funds) to program funds, alternative measures that described 
the total federal investment or total private investment in a program 
provided considerably different results--also potentially of value to 
decision makers--about the extent of leveraging in a program. Further, 
no agency-specific or governmentwide guidance directs what agencies 
should disclose about the leverage measures they report for the 
selected programs; however, we regularly have reported that clearly 
communicating data limitations and their potential impact may foster 
appropriate use of data.[Footnote 30] Consequently, absent specific 
information on how these measures were calculated and their 
limitations, decision makers would not have sufficient information to 
understand their meaning and determine how they could and should be 
used in performance assessment, budgeting, and other contexts. 

HUD and Treasury Did Not Always Disclose Limitations of Data Used to 
Determine Leverage Measures for the Selected Programs: 

Based on our review of available leveraging data and interviews with 
HUD and Treasury officials, we found that the leverage measures the 
agencies reported for the selected programs were based on incomplete 
data and did not capture the actual extent of leveraging that may have 
occurred in each of the programs.[Footnote 31] We also found that HUD 
and Treasury did not always disclose these limitations when they 
published the measures. Table 1 describes the limitations associated 
with the underlying data used for determining leverage measures for 
each of the selected programs. 

Table 1: Limitations of Agencies' Leveraging Data and Potential Effect 
on Reported Leverage Measures: 

Program(s): CDBG and HOME; 
Data limitation: The database HUD used to collect leveraging data for 
the programs did not distinguish between nonresponses, which default to 
zero, and actual entries of zero (that is, $0).[B]; 
Effect of data limitation on leverage measure[A]: Assuming that some 
grantees failed to enter funding information (which would appear in the 
data as $0), the total amount of leveraging that occurred in each 
program potentially would be underestimated. 

Program(s): HOPE VI; 
Data limitation: HUD's database captures data on leveraging that 
occurred in completed phases of HOPE VI developments rather than data 
on leveraging that occurred in completed HOPE VI developments (which 
comprise multiple phases of development); 
Effect of data limitation on leverage measure[A]: To the extent that 
HOPE VI developments included in the calculation did not include all 
phases of construction, the total amount of leveraging that occurred in 
the program potentially would be underestimated. 

Program(s): CDFI; 
Data limitation: In its calculation of institutional leverage, Treasury 
assumed match leverage--that is, the ratio of nonfederal match funds to 
program funds--to be 1 to 1. According to Treasury officials, CDFIs may 
attract more than $1 in nonfederal funds for every $1 received in 
program funds; however, the agency does not collect data on match 
contributions that exceed the $1 requirement; 
Effect of data limitation on leverage measure[A]: To the extent that 
match funds exceeded the reported 1 to 1 ratio, the total amount of 
leveraging that occurred in the program potentially would be 
underestimated.[C]. 

Program(s): Low-Income Housing Tax Credit; 
Data limitation: Treasury does not collect leveraging data or report a 
leverage measure for the program.[D]; 
Effect of data limitation on leverage measure[A]: Not applicable. 

Program(s): New Markets Tax Credit; 
Data limitation: Treasury assumed that CDEs contribute 100 percent of 
available tax credit equity to qualified low-income community 
investments even though program regulations permit CDEs to retain up to 
15 percent of the equity for administrative and other purposes.[E]; 
Effect of data limitation on leverage measure[A]: To the extent one or 
more CDEs contributed less than 100 percent of available tax credit 
equity to qualified low-income community investments, the total amount 
of leveraging that occurred in the program potentially would be 
overestimated. 

Program(s): New Markets Tax Credit; 
Data limitation: Program(s)Data limitation: Project-level data were 
unavailable for 26 percent of the projects funded under the program; 
Effect of data limitation on leverage measure[A]: Program(s)Effect of 
data limitation on leverage measure[A]: To the extent projects for 
which data were unavailable leveraged additional funds at the project 
level, the total amount of leveraging that occurred in the program 
potentially would be underestimated. 

Source: GAO analysis of HUD and Treasury leveraging data. 

[A] As a result of the data limitations described in this table, we 
generally were unable to determine the extent to which agency-reported 
leverage measures for the selected programs were over-or 
underestimated. 

[B] According to HUD officials, the agency has no mechanism to 
determine whether zeros were nonresponses or $0 responses. Because it 
is not possible to distinguish between nonreponses and $0 responses, we 
were unable to determine the reliability of the leveraging data for the 
CDBG and HOME programs. Further, since HUD started collecting 
leveraging data for the CDBG program in December of 2005, only about 
half of all program administrators had reported relevant data to the 
agency. To the extent projects for which data were not available 
leveraged funds, the total amount of leveraging that occurred in the 
CDBG program potentially would be underestimated. See app. I for a more 
detailed discussion of our assessment of the reliability of the 
leveraging data for these programs. 

[C] Treasury's potential underestimation of match leverage in the 
program affects its calculation of institutional leverage (which 
comprises match leverage and debt leverage) and total program leverage. 
See app. III for a more detailed discussion on how Treasury calculated 
a leverage measure for the CDFI program. 

[D] Treasury only tracks taxpayers' compliance with rules for claiming 
Low-Income Housing Tax Credits. No agency or organization collects data 
that could be used to calculate leverage measures for the program. 

[E] See 26 C.F.R. 1.45D-1(c). According to Treasury officials, CDEs 
generally contribute more than the required minimum amount to qualified 
low-income community investments; however, data were not available to 
determine actual contributions. 

[End of table] 

In our assessment of HUD's and Treasury's use of leverage measures in 
strategic planning, annual performance and budget documents, on their 
Web sites, and in other published reports, we found that the agencies 
did not routinely disclose the limitations to the leveraging data 
(outlined in table 1) they used to compute leverage measures for the 
selected programs. For example, the only place in which Treasury 
included discussions of known limitations to the data used to calculate 
a leverage measure for the CDFI program was in periodic agency reports 
on the extent of leveraging in the program.[Footnote 32] Treasury's Web 
site and key performance and budgeting documents provide little to no 
information on data limitations associated with the CDFI program 
leverage measure. Similarly, while HUD cited leverage measures on its 
Web site and in budget documents for the HOME and HOPE VI programs, 
respectively, the agency did not disclose the limitations of the data 
used to compute the reported leverage measures for the 
programs.[Footnote 33] 

Further, no agency-specific or governmentwide guidance directs what 
agencies should disclose about the leverage measures they report for 
the selected programs; however, we regularly have reported on the need 
for agencies to collect and report on credible and reliable data for 
performance budgeting and other purposes.[Footnote 34] For example, 
cautioning decision makers and others about significant data 
limitations allows them to judge the credibility of the data and use 
them in appropriate ways. We also noted that all data have limitations 
that may hinder their use for certain purposes, and decision makers and 
others may not have enough familiarity with the data to recognize the 
significance of the shortcomings. Therefore, we concluded that 
appropriate use of data may be fostered by clearly communicating how 
and to what extent data limitations affect assessments of 
performance.[Footnote 35] OMB also has stressed the importance of 
making clear to policymakers and others what individual performance 
indicators measure. According to OMB, doing so helps decision makers 
understand what should be expected of an overall program.[Footnote 36] 
To the extent that HUD and Treasury were not clear about the 
limitations of the measures they calculated for the selected programs, 
they potentially misrepresented (either positively or negatively) the 
extent of leveraging that occurred in these programs. If decision 
makers are unaware of the limitations of the agencies' reported 
leverage measures and take them at face value, they could misuse them 
in making funding decisions or performance evaluations on the programs 
(which also may have implications on the budget process). 

Agencies Also Generally Did Not Disclose Methods Used to Calculate 
Leverage Measures Even Though Alternative Calculation Methods Can 
Provide Significantly Different Results: 

In our assessment of HUD's and Treasury's use of leverage measures in 
strategic planning, annual performance and budget documents, on their 
Web sites, and in other published reports, we also found that the 
agencies did not routinely disclose information on the methods they 
used to calculate leverage measures for the selected programs. For 
instance, in its fiscal year 2008 budget justification, HUD reported 
that the HOPE VI program leveraged $634 million over a 6-month period 
in 2007, without further explanation of how the measure was derived. 
Similarly, Treasury's Web site noted that on average CDFIs leveraged 
program funds 20 to 1, but did not explain what types of funds (public 
or private) were leveraged. 

Based on our discussions with agency officials, we found that the 
leverage measures HUD and Treasury calculated for each of the selected 
programs generally described the ratio of all other funds contributed 
to a program (including other federal, state, local, and private funds) 
to program funds.[Footnote 37] However, these measures can be 
calculated in multiple ways that describe leveraging from different 
perspectives, such as the extent that federal funds are used with 
nonfederal funds or public funds are used with private funds, which 
underscore the importance of disclosing the calculation methods used. 
As illustrated in figure 1, leverage measures for a single program 
could vary considerably depending on how funding categories were 
combined (that is, program funds, other federal funds, state and local 
funds, and private funds).[Footnote 38] 

Figure 1: Calculation Scenarios for a Hypothetical Program: 

This figure is a bar graph showing calculation scenarios for a 
hypothetical program. 

[See PDF for image] 

Source: GAO. 

[End of figure] 

Scenario A in figure 1 generally represents how the agencies presented 
leverage measures for the selected programs. The alternate leverage 
measures presented in scenarios B and C provide additional information 
that could be more useful to policymakers and investors than measures 
that describe the ratio of all other funds to program funds. For 
example, to help inform decisions made as part of the annual 
appropriations process, policymakers may be interested in determining 
the extent of total federal contributions made to projects funded under 
a particular program (scenario B). Alternatively, to assess the 
potential risk of investing in a federally sponsored development 
project in a low-income community, a private investor might be 
interested in knowing the proportion of private investment to public 
investment in the program (scenario C). Some private investors might 
perceive a relatively low ratio as an indication that the program 
carried a high level of investment risk and thus a higher potential for 
losses.[Footnote 39] Further, more detailed information on all the 
different sources of funding could be useful in describing the extent 
to which one federal program is leveraging funds from another federal 
program (that is, the extent to which federal programs cross-subsidize 
one another) and could be particularly relevant to policymakers during 
annual budget deliberations. 

In addition, for the CDFI and New Markets Tax Credit programs (which 
leverage at both the institutional and the project levels), disclosing 
information on institutional and project-level leveraging could be more 
useful to policymakers and investors than a total program leverage 
measure.[Footnote 40] For example, providing such information would 
assist policymakers and investors in understanding the extent to which 
institutional leveraging could be used to manage project-level 
investment risks--a program with a high institutional leverage ratio 
but a low project leverage ratio might be one which invests in riskier 
projects than a program with a low institutional leverage ratio but a 
high project leverage ratio. As we discussed in our previous report on 
leveraging federal funds, investments at the institutional level 
generally are isolated from the investment risks associated with 
discrete projects.[Footnote 41] 

In appendix II we present multiple calculation scenarios for each of 
the selected programs. Consistent with our hypothetical demonstrations 
in figure 1, our calculations show considerably different results 
between the leverage measures the agencies reported (that is, the ratio 
of all other funds to program funds) and measures that describe either 
(1) the ratios of nonfederal funds to federal funds and private funds 
to public funds or (2) institutional and project leverage 
ratios.[Footnote 42] 

As a result of not having more specific information about how these 
measures were calculated, decision makers would not have sufficient 
information to understand their meaning and how they can and should be 
used in performance assessment, budgeting, and other contexts. Further, 
as previously discussed, there is no agency-specific or governmentwide 
guidance on what agencies should report about how (or the extent to 
which) leveraging occurs in their programs. However, in other contexts, 
our prior work and that of OMB has stressed the value in agencies' 
disclosing this type of information to ensure decision makers not only 
are aware of what is being reported about a program, but how that 
information can and should be used to inform their budget, performance, 
and other decisions.[Footnote 43] 

Leverage Measures Provide Basic Financial Information, but the Extent 
to Which They Are Relevant for Assessing Program Performance Varies: 

Leverage measures can provide basic financial information about the 
programs included in our review; however, their relevance in assessing 
the performance of these programs varies considerably. For all of the 
programs we reviewed, leverage measures can describe inputs, or the 
resources used to support program activities, and may be useful for 
conveying basic financial information. To the extent that leveraging is 
a goal or core (expected) activity of a program (as in the three 
Treasury programs), leverage measures generally can describe program 
outputs, or the products or services delivered (such as total leveraged 
funds), and may be used along with other performance indicators to 
assess the efficiency and effectiveness of a program in meeting its 
goals. In cases where leveraging is not clearly and appropriately 
linked to program goals and activities (as in the three HUD programs), 
use of such measures to describe program outputs could be misleading 
and result in adverse consequences, such as giving funding priority to 
projects that leverage more over those that leverage less, but which 
may fill a greater or more immediate need within a community. Although 
leveraging had limited relevance to the goals and activities of the 
selected HUD programs, we found that OMB and the agency often cited 
leverage measures for the programs in performance-and budget-related 
reviews and documents. Their continued use of leverage measures in 
these contexts could unnecessarily encourage HUD to place more 
importance on leveraging than meeting the stated goals of the CDBG, 
HOME, and HOPE VI programs. 

Leverage Measures Can Provide Basic Financial Information about a 
Program, and if Linked to Program Goals and Core Activities, More 
Detailed Performance Information: 

Leverage measures generally can be used to describe the sources and 
amounts of funds contributed to a program, and if linked to a program's 
goals and core activities, they also can provide more detailed 
information about the program's performance. On a basic level and for 
all of the programs we reviewed, leverage measures convey information 
on inputs--that is, the specific sources of funds used to implement 
program activities. For example, leverage measures can provide 
information on the relative contributions made by different types of 
investors (private and public) to a program or project and the overall 
resources committed--this information could be used to inform agency 
budgeting exercises or financial analyses. To the extent that 
leveraging is a goal or core (expected) activity of a program, leverage 
measures generally can describe program outputs (in addition to program 
inputs) and be used with other performance indicators to measure the 
efficiency or effectiveness of a program in reaching its goals (see 
fig. 2). Previously we have reported that for performance measures to 
be useful in assessing program performance, they should be linked or 
aligned with program goals and cover the activities that an entity is 
expected to perform to support the intent of the program.[Footnote 44] 
Generally, leveraging would not be an outcome measure for any of the 
selected programs--outcomes describe program benefits or consequences 
(such as the impact of leveraging on community development), whereas 
outputs generally measure quantities produced (total dollars 
leveraged). 

Figure 2: Performance Measurement Model: 

This figure is a flowchart showing the performance measurement model. 

[See PDF for image] 

Source: Adapted from OMB. 

[End of figure] 

The Importance of Leverage Measures in Assessing the Performance of the 
Selected Programs Varies: 

Leverage measures can be used to assess the performance of programs 
that were designed to leverage (that is, in which leveraging is 
directly related to the goals and core activities of the program), but 
are less meaningful in assessing the performance programs that do not 
have explicit leverage requirements. Each of the three Treasury 
programs was designed to leverage other funds in a number of ways and, 
as a result, leveraging directly relates to each program's goals and 
core activities and leverage measures can be used to describe program 
outputs. Under the CDFI program, CDFIs must match federal program funds 
at least dollar-for-dollar with nonfederal funds as a condition of 
receiving program funds. The match requirement is intended to increase 
the sustainability of CDFIs (by increasing private-sector investment in 
them) as well as their ability to make investments serving low-income 
individuals and communities. Although not required to do so, CDFIs use 
program and match funds to leverage debt and further increase their 
lending resources. Funding recipients (for example, small businesses) 
also may use their grants or loans from CDFIs to leverage additional 
funds to help finance their projects. In this way, leveraging at the 
project level also relates closely to the CDFI program's goal of 
increasing investment in low-income individuals and communities. 

Similarly, the tax credit programs were designed to automatically 
generate private-sector equity investments in the production of 
affordable housing (in the case of the Low-Income Housing Tax Credit 
program) and community and economic development (in the case of the New 
Markets Tax Credit program).[Footnote 45] Further, the application 
processes for both programs were designed to encourage additional 
leveraging. Under the Low-Income Housing Tax Credit program, in order 
to limit the federal share of housing development project costs, states 
are to provide no more tax credits to projects than necessary for their 
financial viability.[Footnote 46] Under the New Markets Tax Credit 
program, Treasury considers CDEs' potential to leverage other sources 
of funds (in addition to the qualified low-income community investment 
they plan to make using the tax credit equity) for the projects they 
sponsor as a factor in scoring the tax credit allocation 
applications.[Footnote 47] 

In cases where leverage measures are not clearly and appropriately 
linked to program goals and core activities, use of such measures to 
describe program outputs could result in adverse consequences; for 
example, by encouraging agencies to place more importance on leveraging 
than on meeting their stated goals. This trade-off is directly apparent 
in the use of leverage measures as outputs for the CDBG and HOME 
programs.[Footnote 48] While leveraging may be a strategy some funding 
recipients employ (either by choice or out of necessity) to meet these 
programs' goals, none of these programs originally was designed to 
leverage (meaning, leveraging generally is not a goal or core activity 
in these programs). Thus, using leveraging to assess the success or 
impact of these programs in meeting their goals may result in agencies 
and funding recipients serving fewer lower-income communities or 
households (as originally intended by these programs) and more moderate-
income communities and households (those that are better able to 
attract additional funds because they pose relatively less risk to 
investors). 

HUD set a leveraging goal for the HOPE VI program in the agency's most 
recent strategic plan and its fiscal year 2007 annual performance plan 
and fiscal year 2008 budget justification. According to HUD officials, 
while leveraging has long been a rating factor in the program's 
application process, its relative importance in financing HOPE VI 
developments has increased over time as program appropriations have 
declined. While leveraging may help HUD meet the HOPE VI program goal 
to create mixed-income communities, its use may involve trade-offs, as 
it may conflict with another program goal--providing housing for 
extremely-low, very-low, and low-income households.[Footnote 49] For 
example, increased reliance on leveraged funds from other programs or 
sources that may have different requirements (such as higher income 
limits) potentially could affect the demographic composition of HOPE VI 
developments. 

Previously, we have reported several limitations to the usefulness of 
leverage measures in providing detailed information about federal 
programs and the projects they fund (regardless of whether or not those 
programs were designed to leverage).[Footnote 50] Although leveraging 
can be a useful tool and public-and private-sector officials regard it 
favorably, according to many of the officials we contacted, if 
considered independently of other information, leverage measures can 
provide misleading information about the success or impact of a program 
or project. For example, many said that factors such as the local 
economy or availability of investors within a certain geographic area 
could have a positive or negative impact on a project's ability to 
leverage additional funds, and thus its leverage ratio. That is, 
projects in vibrant communities likely may have higher leverage ratios 
than those in distressed communities. As a result, leverage measures 
are not sufficient to make judgments about the relative success of 
projects or programs without other descriptive information. Leverage 
measures also do not account for the level of substitution of federal 
funds for otherwise available private funds that might occur in 
programs or projects. Although difficult to measure, information on 
substitution might be useful in assessing how effectively federal funds 
were utilized in a program or project. Officials we contacted noted 
that having information on the risk position of different contributions 
to a project might be useful in assessing the extent of substitution 
that occurred. For instance, the level of substitution in a project in 
which the federal government assumed more risk (by taking a subordinate 
position) than nonfederal investors could be lower than the level of 
substitution in a project in which the federal government assumed less 
risk (by taking a senior position).[Footnote 51] 

OMB and the Agencies Did Not Always Link Leveraging to Program Goals 
and Core Activities in Performance-related Reviews and Reports: 

When OMB and the agencies cited leverage measures in performance-and 
budget-related reviews and documents, they did not always link 
leveraging to program goals and core activities--in some cases, OMB and 
the agencies used leveraging to assess the performance of the selected 
programs despite its limited relevance to program goals and core 
activities. According to OMB officials, the agency considers leveraging 
to be an output measure for each of the selected HUD programs. 
Consistent with this view, OMB used leveraging as an output measure in 
its PART reviews of these programs, although leveraging generally was 
not linked to the goals and core activities of the programs.[Footnote 
52] For example, in its 2003 PART review of the CDBG program, OMB 
recommended that HUD implement a new performance measurement system 
that included information on the amount of money leveraged from other 
sources.[Footnote 53] The agency developed steps to address this 
recommendation in the program improvement plan it developed with OMB in 
2006 (in response to the PART assessment's finding that the program 
lacked specific annual performance measures that demonstrated progress 
on achieving long-term goals).[Footnote 54] We have noted that federal 
programs, in particular federal block grant programs, have faced 
difficulties but could benefit from defining program goals and 
performance measures that go beyond describing program activities to 
describe outcomes or results.[Footnote 55] However, because leveraging 
is not a required activity or explicit goal of the CDBG program (as 
discussed previously), its value in evaluating the performance of the 
program is limited. Further, in its PART review of the HOME program, 
OMB used leverage measures to compare the performance of the HOME 
program with that of the CDBG program. Such a comparison does not 
facilitate evaluations of these programs in the context of their 
intended goals (neither of which is to leverage). 

While using leveraging as an output measure for the CDFI and New 
Markets Tax Credit programs is consistent with the programs' goals and 
core activities as discussed above, OMB identified leveraging as an 
outcome measure for the CDFI program in its 2004 PART review despite 
the fact that, as discussed previously, leveraging cannot be used to 
measure the impact of the program.[Footnote 56] Further, the agency 
equated leveraging with program effectiveness in its 2004 PART review 
of the New Markets Tax Credit program. (As described in fig. 2, outcome 
measures are used to assess the effectiveness of programs in achieving 
desired results. As we have discussed throughout this report, outcome 
measures should be designed to assess the benefits or consequences of a 
program--leverage measures by themselves cannot provide information on 
the impact these programs have had on their targeted populations and 
communities.) 

As we observed in our 2004 review of OMB's PART process, the goals and 
measures OMB defines in its PART reviews are designed to meet the needs 
of executive decision makers during the budget formulation process, and 
thus may be inconsistent with the goals and measures federal agencies 
have developed in response to GPRA, which may be developed at a higher, 
strategic level and less relevant to OMB's budget decision-making 
process.[Footnote 57] As a result of OMB's focus on the budget process, 
we found that its judgment about appropriate goals and measures for a 
program may be substituted for agency judgments. These findings 
generally are consistent with our observations on OMB's use of leverage 
measures in the PART reviews of the selected programs we reviewed for 
this report. We observed that the agencies identified leveraging as a 
performance measure in their performance-and budget-related reports for 
some of the selected programs despite its sometimes limited relevance 
to program goals and core activities. 

Table 2 describes HUD's use of leverage measures for the HOME and HOPE 
VI programs in its strategic planning and other performance-and budget- 
related documents or contexts.[Footnote 58] In the case of the HOME 
program, although leveraging was not linked to the program's goals and 
core activities, HUD equated more leveraging with better performance by 
ranking states and localities on their ability to leverage other 
sources of funds. For the HOPE VI program, HUD primarily used 
leveraging as a measure for its goal of providing decent, affordable 
housing through the improvement of the physical quality of public 
housing. However, HUD generally did not discuss how leveraging would 
help the agency in achieving this goal. HUD also linked leveraging to 
the HOPE VI goal of creating mixed-income housing. Although increased 
leveraging in a program designed to provide affordable housing could 
result in trade-offs, HUD's performance-and budget-related documents 
did not discuss the impact of (or the potential unintended consequences 
of) leveraging on the ability of the program to meet this goal. 

Table 2: HUD's Use of Leverage Measures in Performance Assessment and 
Other Documents: 

Program and document: CDBG: None; 
Measure and linkage to program goals: Not applicable. 

Program and document: HOME: Performance Snapshot Reports; 
Measure and linkage to program goals: Measure: According to HUD's 
explanation of performance categories presented in the snapshot 
reports, a leveraging ratio of 4 to 1 is considered indicative of 
significant leveraging. Therefore, any state or locality with a 
leveraging ratio of 4 to 1 and greater would receive a designation of 
100 percent (a ranking of 1). Any state or locality with a leveraging 
ratio of less than 4 to 1 would receive a lower score. For example, a 
leveraging ratio of 2 to 1 (half of 4 to 1) would receive a designation 
of 50 percent; 
Linkage: Although used to make performance-related comparisons among 
grantees, HUD does not link leveraging to HOME program goals in these 
reports. 

Program and document: HOPE VI: 2006-2011 Strategic Plan; 
Measure and linkage to program goals: The HOPE VI program will leverage 
$4 billion in private financing between 2006 and 2011; 
Linkage: Leveraging in the HOPE VI program is linked to HUD's mission 
to promote decent, affordable housing. Programmatic strategic goals 
under this mission include, among other things, (1) expanding access to 
and availability of decent, affordable rental housing; (2) improving 
the physical quality of public and assisted housing; and (3) 
facilitating more effective delivery of affordable housing by reforming 
public housing. However, the plan does not provide details on how 
leveraging in the HOPE VI program facilitates HUD meeting the mission 
and related strategic goals. 

Program and document: HOPE VI: Fiscal Year 2007 Annual Performance 
Plan; 
Measure and linkage to program goals: Measure: The HOPE VI program will 
leverage $800 million in other financing in fiscal year 2007; 
Linkage: Leveraging in the HOPE VI program is linked to HUD's mission 
to promote decent, affordable housing and more specifically to the 
agency's strategic goal of improving the physical quality of public 
housing. However, in HUD's more detailed discussion of how leveraging 
would help achieve this mission and its related goal, the agency links 
leveraging to the creation of mixed-income communities, rather than the 
stated goal (improving the physical quality of public housing). 

Program and document: HOPE VI: Fiscal Year 2008 Budget Justification; 
Measure and linkage to program goals: Measure: The HOPE VI program will 
leverage $800 million in other financing in fiscal year 2008; 
Linkage: Leveraging is linked to the creation of mixed-income 
communities. HUD specifically asserts that the formation of new public 
and private partnerships is key in ensuring the long-term 
sustainability of public housing development and the leveraging of 
public and private resources to transform isolated public housing 
communities into sustainable, mixed-income communities with a wide 
range of family incomes. HUD provides no discussion of how leveraging 
links to or positively or negatively affects another of the program's 
missions--to promote decent, affordable housing--or strategic goals--to 
improve the physical quality of public housing. 

Source: HUD publications. 

Note: According to HUD officials, the $800 million HOPE VI leverage 
goal reported in the agency's fiscal year 2007 annual performance plan 
and fiscal year 2008 budget justification recently was revised to $650 
million. In comments on a draft of this report, HUD officials noted 
that the agency posted revised performance documents on its Web site 
reflecting this change. 

[End of table] 

Finally, as described in table 3, Treasury generally linked leveraging 
with the goals and core activities of the CDFI and New Markets Tax 
Credit programs.[Footnote 59] For example, Treasury noted that 
leveraging in the CDFI program helps build CDFIs' capacity to make 
loans and other investments in low-income communities. Because Treasury 
to date has not reported publicly the extent of leveraging in the New 
Markets Tax Credit program, the agency's performance-and budget-related 
documents only discuss the extent of institutional leverage in the 
program. As with the CDFI program, Treasury linked institutional 
leveraging to the program's goal of attracting private-sector capital 
to low-income communities. 

Table 3: Treasury's Use of Leverage Measures in Performance Assessment 
and Other Documents: 

Program and document: CDFI: Fiscal Year 2006 Performance and 
Accountability Report; 
Measure and linkage to program goals: Measure: 186 CDFIs leveraged $1.4 
billion in fiscal year 2005; 
Linkage: Total leveraging is used to measure progress in meeting the 
program's goal to build the capacity and coverage of CDFIs to provide 
credit, capital, and related services to otherwise underserved markets. 
According to the report, Treasury provides financial assistance through 
the CDFI program in the form of grants, loans, and equity investments 
to CDFIs. Financial assistance awards are made to CDFIs that have 
comprehensive business plans for creating community development impact 
and that demonstrate an ability to leverage private-sector sources of 
capital. 

Program and document: CDFI: Fiscal Year 2006 Justification for 
Appropriations and Performance Plans (CDFI Fund breakout); 
Measure and linkage to program goals: Measure: The approximately $12.4 
million in fiscal year 2008 program funds should result in an 
additional $335 million raised and deployed in low-income communities; 
Linkage: Same as above. 

Program and document: Low-Income Housing Tax Credit: None; 
Measure and linkage to program goals: Not applicable. 

Program and document: New Markets Tax Credit: Fiscal Year 2006 
Performance and Accountability Report; 
Measure and linkage to program goals: Measure: Treasury awarded $4.1 
billion dollars to 63 CDEs in fiscal year 2006 (institutional 
leverage); 
Linkage: Equity investments (or funds leveraged at the institutional 
level) are used to measure progress in meeting the program's goal to 
attract private-sector capital into low-income communities through 
CDEs. The New Markets Tax Credit program is intended to spur private-
sector capital into low-income areas through CDEs, which in turn make 
loans and equity investments in businesses and real estate projects in 
low-income communities. By making an equity investment in a CDE, 
individual and corporate investors can receive a tax credit against 
their federal income taxes worth 39 percent of the value of the amount 
invested in the CDE over 7 years. 

Program and document: New Markets Tax Credit: Fiscal Year 2006 
Justification for Appropriations and Performance Plans (CDFI Fund 
breakout); 
Measure and linkage to program goals: Measure: The fiscal year 2008 
allocation round will provide tax credit allocations supporting $3.5 
billion in investor capital (institutional leverage); 
Linkage: Same as above. 

Source: Treasury publications. 

[End of table] 

Conclusions: 

With the increased focus of federal agencies on performance management, 
budgeting, and financial reporting, leveraging has come to be seen as 
an effective and efficient means of delivering more impact per dollar 
of federal investment, particularly in a period of increasingly tight 
budgets and competing funding priorities. While agencies have collected 
and presented leveraging information in strategic planning, 
performance, and budget reports, and on their Web sites, agencies 
disclose little or no information on methods of data collection or how 
leverage measures were calculated, in part because there is no agency- 
specific or governmentwide guidance on how to calculate, describe, and 
use leverage measures in a manner that is consistent with the programs' 
design. Information on methodology is important in the leveraging 
context because of the limitations of leveraging measures and data 
collection issues. For example, in the case of the CDBG and HOME 
programs, leveraging may be underestimated because HUD's database does 
not distinguish between zero responses (for example, where no 
leveraging occurred) and blank responses (for example, where leveraging 
data may be incomplete). Moreover, measures such as ratios may not 
disclose the details necessary to understand which component funding 
sources were being compared, and as demonstrated, the ratios can vary 
considerably depending on what information an agency is trying to 
convey about a program (for example, the extent of public or private 
investment in a program). Further, data collection and completeness are 
issues because not all the programs are required to report leveraging, 
and in many cases agencies are unable to capture data on all leveraging 
that may be occurring in a program (for example, project leveraging). 
Absent specific information on how leverage measures were calculated 
and their potential limitations, decision makers do not have sufficient 
information to understand their meaning and how they can and should be 
used in performance assessment, budgeting, and other contexts. 

Moreover, the relevance of leveraging to performance measurement is 
dependent on the context of the program being analyzed. Because 
leveraging is not an intended activity carried out to achieve program 
goals or a goal unto itself for some of the selected housing and 
community and economic development programs in our review, measures 
such as ratios are not indicative of program or project performance 
(outcomes and impact). Rather, such measures are indicative only of 
resource utilization. Nevertheless, even in cases where they were not 
reflective of program performance, agencies presented leverage measures 
in strategic plans, annual performance plans, performance and 
accountability reports, and budget justifications. The use of leverage 
measures in such contexts could lead decision makers to presuppose that 
the information was indicative of program impacts in cases where 
leveraging actually might say very little about the success of a 
program, such as the ability of a program to improve the living 
conditions of the urban poor. 

Despite the issues surrounding the utility of leverage measures, we 
note the valid and useful purposes for which the measures may be used, 
particularly in instances where leveraging is an intended activity or 
goal. For instance, decision makers and practitioners in the area of 
affordable housing and community and economic development may utilize 
leverage measures to report basic information on how federal funds were 
combined with other funds for a program or project. Such information 
could be instructive in ascertaining trends in the involvement of 
private-sector investors or local governments in federally sponsored 
initiatives, or identifying demographic trends that could adversely or 
positively affect the ability of program funds to attract other funds. 
Additionally, the measures may aid management and Congress in their 
oversight of programs and strategic planning for future budgets. 
Further, when directly linked to program goals and activities and 
considered with other performance measures, leverage measures also 
could provide insight into the success of a program, including its 
impact on targeted populations and communities. 

The valid and useful purposes to which leverage measures may be put 
underline the importance of transparency for federal agencies in 
communicating the limitations of such measures and how they are 
calculated. The agencies administering the housing and community and 
economic development programs we reviewed could improve the 
transparency of the leverage measures they use by including information 
about the completeness and accuracy of the data and methods used to 
compute the measures. Further, the agencies could discuss the relevance 
of leveraging to a program's stated goals and activities. The 
publication of such information in conjunction with the measures 
themselves would increase the accuracy of the information being 
conveyed and provide perspectives that would allow various users to 
assess the potential of the measures to serve as relevant and accurate 
indicators of program or project outputs and, in some cases, outcomes 
or impact. However, the opportunities to better describe, assess, and 
report the role of leveraging in housing and community and economic 
development programs do not rest solely with the agencies administering 
those programs. OMB, because it plays a key role in assessing the 
performance of federal agencies and developing and tracking compliance 
with performance goals, has an opportunity to refine its understanding 
and use of leverage measures in future PART and other performance 
reviews by carefully considering the role of leveraging in carrying out 
program goals and activities. Specifically, in its performance 
assessments of the selected programs, OMB could provide information on 
how leveraging may support or conflict with a program's intended 
purpose. This is particularly important because the accuracy of 
measures and the relationship of leveraging to program goals and thus 
performance can vary considerably across the housing and community and 
economic development programs we reviewed. 

Recommendations for Executive Action: 

To ensure that leverage measures provide accurate, useful, and relevant 
information to Congress and others, we recommend that the Secretaries 
of HUD and the Treasury consider disclosing the following when they 
publish such measures for the programs included in our review: 

* Presentation of leverage measures should be accompanied by 
information about the completeness and accuracy of the data and the 
method(s) used to calculate the measures (for example, with leverage 
ratios, information on what sources of funds were compared, such as 
private funds to public funds or nonfederal funds to federal funds). 

* Presentation of leverage measures should be accompanied by a 
discussion of the relevance of the measure in assessing the program's 
performance. For example, the agencies should discuss the extent to 
which leverage measures are linked to program goals and core 
activities. 

We further recommend that the Director of OMB: 

* provide guidance to help agencies determine how to calculate, 
describe, and use leverage measures in a manner consistent with the 
programs' design; and: 

* re-evaluate the use of leverage measures and disclose their relevance 
to program goals and activities in future PART or other performance 
reviews of the selected programs. 

Agency Comments and Our Evaluation: 

We received written comments on a draft of this report from HUD and 
Treasury, which are included in appendixes V and VI, respectively. 
HUD's Office of Public and Indian Housing also provided technical 
comments related to the HOPE VI program, which we incorporated as 
appropriate. We also provided a draft of this report to OMB for review, 
but no comments were provided. 

In a letter from the Acting Deputy Assistant Secretary for Grant 
Programs, HUD noted that it was pleased with the results presented in 
our draft report, but provided several detailed comments on and 
suggested changes to our findings related to the CDBG and HOME programs 
(see app. V). Specifically, HUD expressed concern that the draft report 
(1) did not sufficiently emphasize that the CDBG and HOME programs do 
not have statutory or regulatory leveraging requirements; (2) did not 
sufficiently emphasize that the agency currently does not publish a 
leverage measure for the CDBG program; (3) incorrectly stated that the 
agency did not disclose limitations to the data or methods used to 
calculate leverage measures for the HOME program, which are reported on 
HUD's Web site; and (4) contends that leveraging affects the funding 
decisions HUD makes for CDBG and HOME (HUD noted that all funding 
decisions are made at the state or local level and are not approved by 
the agency). 

With respect to HUD's first two concerns, we incorporated additional 
language into the report to further emphasize that the CDBG and HOME 
programs do not have leveraging requirements and that the agency does 
not publish a leverage measure for the CDBG program. In its letter, HUD 
agreed to work to improve the quality of leveraging data CDBG grantees 
report to the agency, which would address, in part, our recommendation 
that the agencies disclose information about the completeness and 
accuracy of the data and the method(s) used to calculate leverage 
measures. 

Concerning HUD's comment that the draft report incorrectly stated that 
the agency did not disclose limitations to the data or methods used to 
calculate leverage measures for the HOME program, which are reported on 
HUD's Web site, we acknowledge that HUD's Web site included information 
on the method used to calculate leverage measures for the HOME program 
(that is, the ratio of other funds to program funds). However, HUD has 
not provided information on the limitations to the data used to 
calculate those measures. Specifically, the database HUD used to 
collect leveraging data for the program did not distinguish between 
nonresponses, which default to zero, and actual entries of zero; 
assuming that some grantees failed to enter funding information, the 
total amount of leveraging that occurred in the program (or in a 
specific state or locality) potentially would be underestimated. 
Accordingly, we did not change the report. 

Finally, with respect to HUD's concern that the draft report contends 
that leveraging affects the funding decisions HUD makes for CDBG and 
HOME, our report did not state that HUD or grantees make funding 
decisions based on leveraging; rather, the report noted the potential 
consequences of using leveraging as a performance indicator for 
programs that were not designed to leverage. Specifically, we found 
that leveraging may be a strategy some funding recipients employ, 
either by choice or out of necessity, to meet the goals of the CDBG and 
HOME programs. Thus, using a leverage measure to assess the impact or 
success in meeting goals may create adverse or conflicting incentives 
for the agency and its grantees as well as Congress and other decision 
makers; for example, by giving funding priority to projects that 
leverage more over those that leverage less, but which may fill a 
greater or more immediate need within a community. In response to this 
comment, we added language to the report to emphasize that HUD has not 
identified leveraging as a performance measure for either program. 

In a letter from the Director of the Community Development Financial 
Institutions Fund, Treasury expressed appreciation for our finding that 
each of the agency's programs included in our review was designed to 
leverage. Although Treasury did not specifically comment on our 
recommendations, it provided several detailed comments primarily 
related to the agency's calculation of leverage measures for the CDFI 
and New Markets Tax Credit programs (see app. VI). Specifically, 
Treasury commented on our findings that (1) the leverage measures 
Treasury reported for its programs lacked transparency because the 
agency did not disclose the limitations of the data or the methods used 
to calculate them; (2) the leverage measures did not reflect the actual 
extent of leveraging in the CDFI program due to incomplete data; (3) 
missing project-level data for the New Markets Tax Credit program 
potentially led to misestimations of leveraging in the program; and (4) 
the leverage measure Treasury calculated for the New Markets Tax 
program was a multiplier ratio, not a leverage ratio. 

With respect to its first comment on our findings, Treasury stated that 
on multiple occasions the agency has publicly disclosed its calculation 
method for the CDFI program. In the report, we listed two publications 
in which Treasury disclosed its calculation methodologies and 
limitations to the data it used to compute a leverage ratio for the 
CDFI program.[Footnote 60] To this list, we added the additional report 
Treasury cited in its letter.[Footnote 61] However, we continue to 
believe that disclosure of the methodologies and limitations of the 
data used to calculate the leverage measures is important, particularly 
in key budget and performance documents, which policymakers often rely 
on to make funding and management decisions. As discussed in the 
report, Treasury did not disclose such information about its leverage 
calculation for the CDFI program in these key documents. For example, 
in the fiscal year 2006 Performance and Accountability Report and 
Justification for Appropriations and Performance Plans, Treasury 
reported leverage ratios for the CDFI program and emphasized its 
importance in achieving program goals, but did not include any 
discussions of the measures' data limitations or calculation methods. 
Accordingly, we did not change our finding that Treasury's reporting of 
such information was inconsistent and that it should further disclose 
its data limitations and calculation methods in key budget and 
performance documents. 

Concerning Treasury's comment on our finding that the leverage measure 
the agency calculated for the CDFI program did not reflect the actual 
extent of leveraging due to incomplete data, Treasury stated that 
although it was aware that the match leverage--that is, the ratio of 
nonfederal match funds to program funds--may actually exceed the 
statutory requirement of a 1 to 1 ratio, it is not appropriate or 
necessary to include excess matching funds that exceed the requirement. 
We continue to believe that excluding excess matching funds from the 
leverage calculation (which typically includes all other sources of 
funds) understates the actual extent of leveraging that occurs in the 
program. Accordingly, we did not change the report in this regard. If 
Treasury chooses to continue to exclude such amounts from future, 
published leverage calculations for the program, we believe that it 
should disclose this and its potential impact on the leverage measure, 
consistent with the recommendations included in this report. 

Concerning Treasury's comment on our finding that missing project-level 
data for the New Markets Tax Credit program potentially led to 
misestimations of leveraging in the program, Treasury stated in its 
letter that the leverage measure for the program would not 
substantially be different if complete data were available and that the 
calculated measures provided a reasonable approximation of the 
leveraging that occurs in the program. We reported that (1) leverage 
data were not available for 26 percent of New Markets Tax Credit 
projects and (2) Treasury assumed that CDEs contribute 100 percent of 
tax credit equity to qualified low-income community investments, even 
though CDEs are permitted to retain up to 15 percent of such equity for 
administrative and other purposes. We noted that the former case could 
lead to an underestimation of the extent of leveraging and the latter 
an overestimation of the extent of leveraging that occurred in the 
program. As discussed above with respect to the CDFI program, these 
data limitations potentially could have an impact on the leverage 
measure Treasury calculated for the program. In its letter, Treasury 
agreed with our description of these limitations, but did not provide 
any specific evidence of the impact of missing project-level data on 
these measures. Treasury also acknowledged the importance of disclosing 
such information, stating it would make every effort to include a 
discussion of these and other data limitations, as well as its 
calculation methodologies, when and if it publishes leverage measure 
for the program.[Footnote 62] In response to these comments, we did not 
change the report. 

Finally, with respect to our finding that the leverage measure Treasury 
calculated for the New Markets Tax Credit program for purposes of this 
report was a multiplier ratio, Treasury stated that the measure was a 
leverage ratio, calculated consistent with GAO guidance outlined in the 
report. However, we reported the measure Treasury reported for the New 
Markets Tax Credit program was not a leverage ratio, but rather a money 
multiplier or multiplier ratio. A multiplier ratio measures the total 
amount of investment $1 in tax credits potentially can generate in low- 
income communities, whereas a leverage ratio measures the additional 
amount of investment relative to a source of funds (such as program 
funds). According to Treasury officials with whom we spoke, the agency 
included the cost of the credit ($0.25) on "both sides of the ratio," 
consistent with the calculation of a multiplier ratio, but overstating 
the extent of leveraging that occurred in the program. Our purpose in 
making a distinction between leverage ratios and multiplier ratios was 
to highlight the need for adequate disclosure of calculation methods 
and data limitations so that decision makers understand how to 
interpret these measures and how these measures compare with those 
reported by other programs. Without such information, it would not be 
possible for decision makers to assess the reliability of the measures 
or the comparability of the measures reported by other programs. If 
Treasury publishes the measure it calculated for the New Markets Tax 
Credit program, we believe it is incumbent upon the agency to provide a 
discussion as to how the measure was calculated in an attempt to 
provide complete information to decision makers (see app. III). 
Further, Treasury acknowledged in its letter it would do so, stating it 
would "make every effort to include a discussion of data methodologies 
and limitations" when it publishes leverage measure for the program. 
Accordingly, we did not change the report in response to this comment. 

HUD's and Treasury's letters also included several comments that were 
technical in nature, which we incorporated as appropriate. 

As agreed with your office, unless you publicly announce the contents 
of this report earlier, we plan no further distribution until 30 days 
from the report date. At that time, we will send copies of this report 
to the Ranking Member, Subcommittee on Housing and Community 
Opportunity, Committee on Financial Services, the Secretaries of 
Housing and Urban Development and the Department of the Treasury, the 
Director of the Office of Management and Budget, and other interested 
congressional committees. We also will make copies available to others 
upon request. In addition, the report will be available at no charge on 
the GAO Web site at [hyperlink, http://www.gao.gov]. 

If you or your staff have any questions concerning this report, please 
contact me at (202) 512-8678 or at [email protected]. Contact points for 
our Office of Congressional Relations and Public Affairs may be found 
on the last page of this report. Key contributors to this report are 
listed in appendix VII. 

Sincerely, 

Signed by: 

William B. Shear: 

Director, Financial Markets and Community Investment: 

[End of section] 

Appendix I: Objectives, Scope, and Methodology: 

The objectives of this report were to examine (1) the leverage measures 
the Department of Housing and Urban Development (HUD) and the 
Department of the Treasury (Treasury) reported for the selected housing 
and community and economic development programs and the transparency of 
the data and methods used to calculate them and (2) the relevance of 
leverage measures in assessing the performance of the selected 
programs. Our review focused on HUD's Community Development Block Grant 
(CDBG), HOME Investment Partnership (HOME), and HOPE VI programs and 
the Treasury's Community Development Financial Institutions (CDFI), Low-
Income Housing Tax Credit, and New Markets Tax Credit programs. 

To examine the leverage measures HUD and Treasury reported for each of 
the selected programs and the transparency of the data and methods used 
to calculate them, we reviewed relevant program regulations and 
guidance, our prior reports, and reports of others, and interviewed 
agency officials and other stakeholders. Based on this information, we 
requested from HUD and Treasury data they use to measure the extent of 
leveraging (for example, data on the sources and amounts of funds, or 
other financial data, commonly referred to as "leveraging data") in the 
CDBG, HOME, and HOPE VI programs and the CDFI and New Markets Tax 
Credit programs, respectively. We did not request Low-Income Housing 
Tax Credit data from HUD or Treasury because neither maintains a 
database with detailed information on leveraging.[Footnote 63] 

* For both the CDBG and HOME programs, we requested leveraging data on 
completed program activities that were aggregated at the local level 
from HUD's Integrated Disbursement and Information System (IDIS), which 
contains information on activities funded by a number of grant programs 
(including the CDBG and HOME programs).[Footnote 64] The CDBG data were 
from December 1, 2005, and May 1, 2007, and the HOME data were from 
October 1, 2005, and September 30, 2006.[Footnote 65] To assess the 
reliability of the data for both programs we (1) performed basic 
electronic testing of data elements associated with the financing used 
by state and local agencies that administer the programs--for example, 
we checked for missing data; (2) reviewed existing information about 
the data and IDIS; (3) replicated the leverage measure that HUD 
reported for each program; and (4) interviewed agency officials 
knowledgeable about the data. As a result of these tests, we found 
several limitations with these data, specifically that they were 
largely self-reported by program administrators and were not validated. 
In addition, IDIS does not distinguish between nonresponses, which 
default to zero, and actual zero (that is, $0) responses; as such, the 
data may underreport the total amount of leveraging that occurred in 
the programs. Further, the data may be incomplete because HUD does not 
require state and local agencies to report leveraging data because 
leveraging is not a required activity in either the CDBG or the HOME 
program, and HUD only started collecting leveraging data for the CDBG 
program in December 2005 (only about half of all program administrators 
have reported relevant data to the agency). Due to these limitations, 
we were unable to determine the reliability of the precise dollar 
amounts that were used in combination with the CDBG and HOME funds. We 
use the leverage measures that HUD derived from the data to illustrate 
how leverage measures can be calculated in different ways, but the 
values should not be used to represent actual dollars leveraged. 

* To assess the reliability of HUD's HOPE VI program leveraging data on 
the 55 HOPE VI projects completed (that is, projects in which all 
phases of construction were fully completed and actual funding amounts 
were reported) as of March 2006, we (1) performed basic electronic 
testing of data elements associated with the financing used by the 
public housing agencies that administer the program; (2) reviewed 
existing information about the data and HUD's HOPE VI Internet-based 
Grant Management Reporting System Prototype (HOPE VI database); and (3) 
interviewed HUD officials knowledgeable about the data.[Footnote 66] In 
addition, we interviewed officials from five randomly selected public 
housing agencies (PHA) that received a HOPE VI grant to determine the 
accuracy and completeness of the data in the HOPE VI database as it 
pertained to the PHAs' specific HOPE VI project. We determined that the 
data were sufficiently reliable for the purpose of this 
report.[Footnote 67] 

* For the CDFI program, we discussed with agency officials the 
calculation method used to compute the program's leverage measure, 
including any assumptions made, the completeness and accuracy of the 
data used in the calculation, and any other known limitations to the 
measure or the data used to calculate it. Unlike the CDBG, HOME, and 
HOPE VI programs, we did not request project-level data Treasury uses 
to calculate a leverage measure for the program.[Footnote 68] Rather, 
Treasury provided us with a spreadsheet containing the calculation 
method and nationally aggregated data used to calculate leverage 
measures for each of the last 6 reporting years. We determined that 
Treasury's calculation method was appropriate and supporting data were 
sufficiently reliable for the purpose of calculating an approximation 
of the funds being leveraged in the program. However, based on our 
conversations with agency officials, we also noted several limitations 
in Treasury's calculation method and the supporting data. Specifically 
(1) the data were largely self-reported by CDFIs and were not validated 
and (2) Treasury assumed that matching contributions do not exceed $1 
for every $1 in program funds, which likely understates the extent of 
institutional-level leveraging in the program (because many of the 
CDFIs exceed the match requirement, according to Treasury officials). 

* To assess the reliability of the data Treasury provided on project- 
level leveraging in the New Markets Tax Credit program, we (1) 
performed basic electronic tests of the data elements associated with 
the financing used by Community Development Entities (CDE), (2) 
reviewed existing information about the data, (3) replicated the 
project-level leverage measure Treasury calculated for the program, and 
(4) interviewed agency officials knowledgeable about the data. We 
determined that the project-level data were sufficiently reliable for 
purposes of calculating a project-level leverage measure for the 
program. However, we also noted some limitations in the project-level 
data, specifically that (1) they were largely self-reported by CDEs and 
were not validated, and (2) about 26 percent (139 out of 538) of the 
CDEs that were awarded New Markets Tax Credits did not report data. 

* To determine what leveraging data were available for the Low-Income 
Housing Tax Credit program at the state level and whether such data 
were maintained electronically, we conducted a telephone survey of the 
entire population of 57 allocating agencies, which included 50 state 
agencies, the District of Columbia, Puerto Rico, and the Virgin 
Islands; one suballocating agency in the District of Columbia; two 
suballocating agencies in the State of New York; and a suballocating 
agency in Chicago.[Footnote 69] Our pretested survey achieved a 79 
percent response rate. On the basis of 45 responses to the following 
questions--(1) Does your agency have data in its database on the 
specific types of financing sources that are used in each Low-Income 
Housing Tax Credit project? and (2) Does your agency have the dollar 
amounts contributed by each financing source used in the project in the 
database?--we found that 25 allocating agencies collect the dollar 
amounts contributed by specific financing sources and keep that data 
electronically.[Footnote 70] Because not all allocating agencies 
collected leveraging data and those that did used different software 
applications to maintain their data, we determined that it would be 
difficult to collect aggregate data to report a national leverage 
measure for the program. 

To examine the relevance of leverage measures in assessing the 
performance of the selected programs, we reviewed our reports and those 
of the Office of Management and Budget (OMB) on performance 
measurement; agency strategic plans and annual performance plans, 
budget justifications and performance and accountability reports; and 
industry, and other literature such as agency press releases and Web 
sites. We also interviewed representatives from Treasury, HUD, and OMB. 
Additionally, we interviewed representatives of the following industry 
groups and other organizations involved in housing and community and 
economic development initiatives: 

* City of Chicago Department of Housing; 

* Coalition of Community Development Financial Institutions; 

* Coastal Enterprises, Inc; 

* Community First Fund; 

* Council of State Community and Economic Development Agencies; 

* Enterprise Community Partners; 

* International Economic Development Council; 

* Harvard University's Joint Center for Housing Studies; 

* John D. and Catherine T. MacArthur Foundation; 

* Living Cities: The National Community Development Initiative; 

* Local Initiatives Support Corporation; 

* National Association of Affordable Housing Lenders; 

* National Association of Development Organizations; 

* National Association of Housing and Redevelopment Officials; 

* National Community Development Association; 

* National Community Investment Fund; 

* National Council of State Housing Agencies; 

* National Development Council; 

* National Urban League; 

* NeighborWorks America; 

* New Hampshire Community Loan Fund; 

* New Markets Tax Credit Coalition; 

* Reinvestment Fund; and: 

* Western Massachusetts Enterprise Fund, Inc. 

Further, as part of this work, we conducted site visits and collected 
information on how federal funds have been leveraged in housing and 
community and economic development projects, 20 of which we toured. 
Specifically, we conducted site visits in Chicago, Illinois; Laredo and 
San Antonio, Texas; Chester and Philadelphia, Pennsylvania; Portland 
and Salem, Oregon; and Seattle and Tokeland, Washington. We selected 
these areas to obtain perspectives from a variety of regions with 
attributes such as difficult-to-develop areas, rural and urban 
classifications, and lower-and higher-cost areas that affect the extent 
of leveraging. We used a nongeneralizable, illustrative sampling 
approach to select a range of housing and community and economic 
development projects or initiatives to tour. More specifically, our 
criteria were (1) projects were substantially completed in the last 5 
years, (2) funds of each of the programs in our review were utilized in 
at least one of the projects selected, and (3) projects had two or more 
funding sources. In the cases where program officials maintained 
comprehensive lists of projects, we used such lists to randomly select 
projects; otherwise, we used available project information (for 
example, from program administrator Web sites) in conjunction with 
information from program administrators to select projects that 
generally met our criteria. In selecting the projects we illustrate in 
this report, we further considered several factors including the 
availability and completeness of leveraging data, the creativity in the 
projects' financing and design, the type of development or initiative, 
whether the project was located in a rural area, and the general 
geographic location of the project. Appendix II provides examples of 
how federal funds have been leveraged in the selected programs. 

We conducted this performance audit in Chicago, Illinois; San Antonio 
and Laredo, Texas; Philadelphia and Chester, Pennsylvania; Portland and 
Salem, Oregon; Seattle and Tokeland, Washington; and Washington, D.C., 
from November 2006 to January 2008 in accordance with generally 
accepted government auditing standards. Those standards require that we 
plan and perform the audit to obtain sufficient, appropriate evidence 
to provide a reasonable basis for our findings and conclusions based on 
our audit objectives. We believe that the evidence obtained provides a 
reasonable basis for our findings and conclusions based on our audit 
objectives. 

[End of section] 

Appendix II: Transactions Structures for the Selected Treasury 
Programs: 

Figures 3 through 6 describe how the CDFI, Low-Income Housing Tax 
Credit, and New Markets Tax Credit programs leverage funds for housing 
and community and economic development.[Footnote 71] 

CDFI Program: 

As illustrated in figure 3, CDFIs must match CDFI program funds dollar- 
for-dollar with funds from nonfederal sources such as local governments 
or private foundations (match leverage). CDFIs use these program and 
match funds to attract private debt from lenders (debt leverage). 
Together, match and debt leverage represent institutional leverage in 
the CDFI program. CDFIs use the pooled equity and debt to make loans to 
a number of development projects. Additional leverage also may occur at 
the project level--individual projects may use their CDFI funds to 
leverage funding (equity or debt) from other investors, such as 
foundations, nonprofits, banks, and local governments. Projects 
(borrowers) repay principal and interest to their investors, including 
the CDFI. CDFIs use these payments to make subsequent loans to 
additional projects and repay lenders. 

Figure 3: CDFI Transaction Structure: 

This figure is a flowchart showing CDFI transaction structure. 

[See PDF for image] 

Source: GAO. 

[End of figure] 

Low-Income Housing Tax Credit Program: 

As illustrated in figure 4, states, through their state housing finance 
agencies, are authorized to allocate Low-Income Housing Tax Credits to 
housing projects. Project developers can sell their tax credits 
directly to an investor(s) or a syndicator (which assembles a group of 
investors and acts as the group's representative). The money investors 
pay for the tax credits is paid into the projects as equity financing. 
Generally, investors (including individuals, foundations, and state and 
local governments) contribute this equity, which is combined with non- 
tax credit financing sources (such as mortgages) in individual projects 
to fund development costs. 

Figure 4: Low-Income Housing Tax Credit Syndication Transaction 
Structure: 

This figure is a flowchart showing low-income housing tax credit 
syndication transaction structure. 

[See PDF for image] 

Source: GAO. 

[End of figure] 

New Markets Tax Credit Program: 

As illustrated in figure 5, under the New Markets Tax Credit program, 
Treasury competitively awards tax credits to CDEs (such as a financial 
institution or nonprofit organization), which offer the credits to 
investors (including individuals, groups of investors, or 
corporations). The equity or debt generated from such an offering is 
used to finance eligible investments or projects, as described above. 
In turn, these investments and projects may use New Markets Tax Credit 
equity to leverage additional equity and debt to finance development or 
related costs. 

Figure 5: New Markets Tax Credit Basic Transaction Structure: 

This figure is a flowchart showing new markets tax credit basic 
transaction structure. 

[See PDF for image] 

Source: GAO. 

[End of figure] 

As illustrated in figure 6, rather than offering tax credits directly 
to investors, under a leveraged transaction structure, a CDE may offer 
credits to an investment fund. The investment fund pools equity 
generated from the credit offering with other equity and debt, and 
loans the funds to the CDE, which in turn makes qualified low-income 
community investments. 

Figure 6: New Markets Tax Credit Leveraged Transaction Structure: 

This figure is a flowchart showing new markets tax credit leveraged 
transaction structure. 

[See PDF for image] 

Source: GAO. 

[End of figure] 

[End of section] 

Appendix III: Agency-reported Leverage Measures and Our Recalculations: 

Table 4 outlines the leverage measures HUD and Treasury calculated for 
the CDBG, HOME, HOPE VI, CDFI, Low-Income Housing Tax Credit, and New 
Markets Tax Credit programs. Following table 4, we present several 
leverage measure calculation scenarios for the selected programs. 

Table 4: Agency-reported Leverage Measures by Program: 

Program: HUD: CDBG; 
Reported leverage measure[A, B]: 4.98:1[C]. 

Program: HUD: HOME; 
Reported leverage measure[A, B]: 3.54:1. 

Program: HUD: HOPE VI; 
Reported leverage measure[A, B]: $634 million[D]. 

Program: Treasury: CDFI; 
Reported leverage measure[A, B]: 26.82:1. 

Program: Treasury: Low-Income Housing Tax Credits; 
Reported leverage measure[A, B]: None[E]. 

Program: Treasury: New Markets Tax Credits; 
Reported leverage measure[A, B]: 13.12:1[F]. 

Source: HUD and Treasury data. 

[A] While HUD and Treasury generally reported leverage measures that 
reflected the ratio of all other funds to program funds for each of the 
selected programs, the data used to calculate them varied by program 
and covered different periods because the programs have different 
reporting schedules and requirements for funding recipients. The CDBG 
ratio is based on data from Dec. 1, 2005, through May 1, 2007; the HOME 
ratio is based on data from fiscal year 1992 through Aug. 31, 2007; the 
HOPE VI measure is based on data from July 1, 2005, to Mar. 31, 2006; 
the CDFI ratio is based on fiscal year 2005 data; and the New Markets 
Tax Credit ratio is based on data from calendar years 2001 through 
2005. 

[B] All reported measures represent total program leverage. Treasury 
also reports institutional and project measures for the CDFI and New 
Markets Tax Credit programs--5.50 to 1 and 21.31 to 1, respectively, 
for the CDFI program and 4.00 to 1 and 3.28 to 1, respectively, for the 
New Markets Tax Credit program. 

[C] HUD currently does not publicly report the leverage ratio it 
reported to us for purposes of this report. 

[D] Data on the amount of HOPE VI funding PHAs expended between July 1, 
2005, and Mar. 31, 2006, were not available; therefore, we could not 
convert the $634 million measure HUD reported into a leverage ratio. 

[E] No agency collects leveraging data that could be used to calculate 
a leverage measure for the Low-Income Housing Tax Credit program. As a 
result, we contacted the housing finance agencies--the agencies that 
are responsible for administering the program--to determine if they 
collected leveraging data and whether they maintained their records 
electronically. Of the 45 housing finance agencies that responded (79 
percent response rate), 25 collect the dollar amounts contributed by 
specific funding sources and keep that data electronically. We did not 
review available data to determine its reliability or calculate an 
estimated leverage measure for the program. 

[F] Treasury currently does not publicly report the leverage measure it 
reported to us for purposes of this report. The measure Treasury 
reported for the New Markets Tax Credit program is not a leverage 
ratio, but rather a money multiplier or multiplier ratio. A multiplier 
ratio measures the total amount of investment $1 in tax credits 
potentially can generate in low-income communities, whereas a leverage 
ratio measures the additional amount of investment relative to a source 
of funds (in this case, program funds, or the cost of the credit). 

[End of table] 

Recalculations of Agency-reported Leverage Measures: 

Figures 7, 8, and 9 illustrate the leverage ratios HUD reported for the 
CDBG, HOME, and HOPE VI programs, respectively (scenario A), and our 
recalculations of the those measures to convey the ratio of nonfederal 
funds to federal funds (scenario B) and public funds to private funds 
(scenario C).[Footnote 72] 

Based on cumulative data from December 1, 2005, to May 1, 2007, HUD 
estimated the leverage ratio for the CDBG program to be 4.98 to 1 
(other funds to CDBG program funds). However, we could not determine in 
which category some CDBG funding data belonged; thus, we excluded these 
data and revised the 4.98 to 1 ratio to 4.04 to 1 (scenario A in fig. 
7). Using the revised dataset, we then recalculated the measure to 
convey the ratio of nonfederal funds to federal funds (1.84 to 1, 
scenario B in fig. 7) and the ratio of private funds to public funds 
(0.55 to 1, scenario C in fig. 7). 

Figure 7: Recalculated Leverage Measures for the CDBG Program: 

This figure is a bar chart showing recalculated leverage measures for 
the CDBG program. 

[See PDF for image] 

Source: GAO analysis of HUD calculations. 

Notes: The agency-reported leverage ratio (4.98 to 1) shown in table 4 
includes funds recorded in an "other funds" category, which represents 
approximately 18 percent of all non-CDBG funds. According to HUD 
officials, CDBG grantees use the other funds category for all financing 
sources that do not have a specific data field, including Low-Income 
Tax Credit equity. We excluded this category from our analysis in this 
figure because it was not clear in which category(ies)--other federal, 
state and local, or private--these funds actually belonged. Thus, for 
purposes of this illustration, the leverage measure for the program is 
4.04 to 1. The leverage ratios presented in this figure are for 
illustrative purposes and do not represent actual leveraging values. 

[End of figure]

Based on data on HOME activities completed in fiscal year 2006, HUD 
estimated the leverage ratio for the HOME program to be 4.00 to 1 (all 
other funds to HOME program funds). Using these same data, we 
recalculated the measure to convey the ratio of nonfederal funds to 
federal funds (1.15 to 1, scenario B in fig. 8), and the ratio of 
private funds to public funds (0.62 to 1, scenario C in fig. 
8).[Footnote 73] 

Figure 8: Recalculated Leverage Measures for the HOME Program: 

This figure is a bar chart showing recalculated leverage measures for 
the HOME program. 

[See PDF for image] 

Source: GAO analysis of HUD calculations. 

Note: For purposes of this analysis, we included Low-Income Housing Tax 
Credit equity in the other federal funds category because the equity 
represents forgone federal income and, therefore, is a direct cost to 
the federal government. However, states and localities report Low- 
Income Housing Tax Credit data and other federal funds data in separate 
fields in HUD's database. The leverage ratios presented in this figure 
are for illustrative purposes and do not represent actual leveraging 
values. 

[End of figure] 

Using data on the 55 HOPE VI projects completed (that is, projects in 
which all phases of construction were fully completed) as of March 31, 
2006, we determined the leverage ratio of other funds to program funds 
to be 1.13 to 1 (scenario A in fig. 9).[Footnote 74] Using the same 
data, we recalculated the measure to convey the ratio of nonfederal 
funds to federal funds (0.67 to 1, scenario B in fig. 9). 

Figure 9: Recalculated Leverage Measures for the HOPE VI Program: 

This figure is a bar chart showing recalculated leverage measures for 
the HOPE VI program. 

[See PDF for image] 

Source: GAO analysis of HUF data. 

Notes: We were unable to calculate a measure to express the ratio of 
public to private funds in the HOPE VI program because the HOPE VI 
database does not distinguish between private funds and other 
nonfederal funds. 

[End of figure] 

In scenario B, Low-Income Housing Tax Credit equity is included in the 
nonfederal funds category because the HOPE VI database tracks tax 
credit equity in the nonfederal funds category. We generally consider 
such equity as federal funds because it represents forgone federal 
income and, therefore, a direct cost to the federal government--thus, 
the extent of the federal investment in the program, as illustrated in 
scenario B, is likely underestimated. We previously have found that Low-
Income Housing Tax Credit equity can account for a substantial 
percentage of leveraged funds in a HOPE VI development. See GAO, Public 
Housing: HOPE VI Leveraging Has Increased, but HUD Has Not Met Annual 
Reporting Requirement, GAO-03-91 (Washington, D.C.: Nov. 15, 2002). 

Unlike the HUD programs, we generally were not able to recalculate the 
leverage measures Treasury reported for the CDFI and New Markets Tax 
credit programs to convey the extent of public and private investment 
in them because available leveraging data did not distinguish between 
or correctly categorize public and private contributions in either 
program. However, we were able to deconstruct the measures to 
approximate the extent of institutional and project leverage in them 
(see figs. 10 and 11).[Footnote 75] 

In the CDFI program, match leverage (that is, the ratio of nonfederal 
match funds to program funds) represented approximately one-fifth of 
total institutional leverage, while debt leverage (that is, additional 
private debt CDFIs were able to attract with program funds and matched 
funds combined) represented four-fifths of total institutional 
leverage, according to Treasury data.[Footnote 76] A majority of the 
total leverage that occurred in the CDFI program in fiscal year 2005 
occurred at the project level--according to Treasury data, for every $1 
of federal funds the agency contributed to CDFIs, they were able to 
leverage an additional $21.31 at the project level (see fig. 
10).[Footnote 77] 

Figure 10: Institutional and Project Leverage in the CDFI Program: 

This figure is a bar chart showing institutional and project leverage 
in the CDFI program. 

[See PDF for image] 

Source: GAO analysis of Treasury data. 

Notes: Treasury assumed match leverage to be 1 to 1, even though CDFIs 
may attract more than $1 in nonfederal funds for every $1 received in 
program funds. Because match data were not complete, this calculation 
only approximates the extent of leveraging in the program. 

Match leverage is the ratio of match funds to program funds. Debt 
leverage is equal to liabilities/net assets multiplied by match 
leverage. Project leverage is equal to (match leverage + debt leverage) 
x (total project costs/total loan origination amounts). 

[End of figure] 

In the New Markets Tax Credit program, institutional leverage (that is, 
net equity generated through the offering of the credits) represented 
approximately 58 percent of total leveraging that occurred in the 
program, while project leverage represented approximately 42 percent of 
total leveraging (see fig.11).[Footnote 78] 

Figure 11: Institutional and Project Leverage in the New Markets Tax 
Credit Program: 

This figure is a bar chart showing institutional and project leverage 
in the new markets tax credit program. 

[See PDF for image] 

Source: GAO. 

Note: Of the 538 projects for which Treasury had project-level 
leveraging data, 399, or 74 percent reported data in the public sources 
field (either $0 or a positive amount); 139, or 26 percent left the 
field blank. Because the public sources of data were not complete, this 
calculation only approximates the extent of public investment in the 
program. 

The leverage measure(s) reported in the figure differs from Treasury's 
reported measure in table 1--the 13.12 to 1 ratio Treasury computed for 
the New Markets Tax Credit program overstates the extent of leveraging 
that occurred in the program because it describes the total amount of 
investment $1 in tax credits potentially can generate in low-income 
communities, rather than the additional amount of investment directly 
acquired as a result of receiving other sources of funding (for 
example, program funds, or in the case of the New Markets Tax Credit 
program, the cost of the credit or forgone federal revenue). Using 
Treasury data, we computed a leverage measure for the program, which is 
presented in the figure. 

[End of figure] 

[End of section] 

Appendix IV: Housing and Community and Economic Development Project 
Profiles: 

To determine how federal funds have been leveraged in HUD's CDBG, HOME, 
and HOPE VI programs and Treasury's CDFI, Low-Income Housing Tax 
Credit, and New Markets Tax Credit programs, we toured and obtained 
information on a number of projects that used funds from the selected 
programs in combination with other federal, state, local, and private 
funds for housing and community and economic development. Appendix I 
describes how we selected the communities to visit and the projects to 
include in this report. 

HUD's CDBG, HOME, and HOPE VI programs and Treasury's CDFI, Low-Income 
Housing Tax Credit, and New Markets Tax Credit programs are among a 
number of federal programs that fund housing and community and economic 
development.[Footnote 79] Specific information about the features of 
these programs follows: 

* CDBG provides annual grants on a formula basis to entitlement 
communities and states to develop viable urban communities by providing 
decent housing and a suitable living environment, and by expanding 
opportunities, principally for low-and moderate-income persons. Under 
CDBG, communities and states develop their own programs and funding 
priorities. 

* HOME provides formula grants to states and localities to fund a range 
of activities that buy, build, and rehabilitate affordable housing for 
rent or homeownership or provide direct rental assistance to low-income 
households. 

* HOPE VI is part of HUD's effort to transform public housing by 
providing grants that fund the demolition of severely distressed public 
housing; the capital costs of major rehabilitation, new construction, 
and other physical improvements; and other resident-related services. 

* Through the CDFI program, Treasury provides CDFIs with financial 
assistance in the form of grants, loans, equity investments, and 
deposits to enhance their ability to make loans and investments and 
provide services for the benefit of low-income communities and persons. 
CDFI funds can be used for economic development, affordable housing, 
and community development financial services. 

* Under the Low-Income Housing Tax Credit program, states are 
authorized to allocate federal tax credits as an incentive to private 
investors to develop rental housing for low-income households. The 
equity generated by the sale of tax credits is used to lower the 
financing costs of housing developments by reducing the debt or equity 
the developer otherwise would incur or contribute. 

* The New Markets Tax Credit program permits taxpayers to receive a 
credit against federal income taxes for making qualified equity 
investments in CDEs. CDEs use the equity generated by the sale of the 
credits to make investments in qualified low-income businesses. 

Figures 12 through 14 illustrate several projects that leveraged 
federal funds for the development of affordable housing. Figures 15 
through 20 illustrate several projects that leveraged federal funds for 
community and economic development activities. 

Figure 12: Hilltop Oaks Apartments, San Antonio, Texas: 

This figure is a photograph of Hilltop Oaks Apartments in San Antonio, 
Texas with text. 

[See PDF for image] 

Sources: SAAHC (information); GAO (analysis, photo). 

[A] All units in the development are reserved for individuals and 
families who earn 60 percent or less of the area median income. 

[B] SAAHC used 4 percent Low-Income Housing Tax Credits to help finance 
the Hilltop Oaks Apartments project. 

[C] The City of San Antonio Rental Rehabilitation loan primarily 
consists of HOME funds. 

[End of figure] 

Figure 13: Near North Apartments, Chicago, Illinois: 

This figure is a photograph with text of Near North Apartments in 
Chicago, Illinois. 

[See PDF for image] 

Sources: City of Chicago Department of Housing (information); GAO 
analysis, photo). 

[A] The Shelter Plus Care program provides rental assistance for hard- 
to-serve homeless persons with disabilities in conjunction with 
supportive services funded from sources outside the program. Project- 
based Section 8 vouchers are a component of a public housing agency's 
Housing Choice Voucher program. A housing agency can attach up to 20 
percent of its voucher assistance to specific housing units if the 
owner agrees to either rehabilitate or construct the units, or set 
aside a portion of the units in an existing development. 

[B] The Leadership in Energy and Environmental Design (LEED) Green 
Building Rating System is the nationally accepted benchmark for the 
design, construction, and operation of high-performance green 
buildings. To earn certification, a building project must meet certain 
prerequisites and performance benchmarks (credits) within each 
category. Projects are awarded Certified, Silver, Gold, or Platinum 
certification depending on the number of credits they achieve. 

[C] This amount represents the total development cost minus the 
donations made by the city of Chicago and suppliers. 

[D] This amount represents the value of the donation. The city of 
Chicago sold the land to the developer for $1. 

[E] This amount represents the value of the donation. 

[F] The total includes the value of all donations. Total development 
costs less donations were equal to $13,664,000. 

[G] Percentages do not add to 100 due to rounding. 

[End of figure] 

Figure 14: New Columbia, Portland, Oregon: 

This figure is a photograph of three apartment complexes in New 
Columbia, Portland Oregon. 

[See PDF for image] 

Sources: The Housing Authority of Portland and Enterprise Community 
Partners Inc (information); GAO (analysis, photos).

[A] The Leadership in Energy and Environmental Design (LEED) Green 
Building Rating System is the nationally accepted benchmark for the 
design, construction, and operation of high-performance green 
buildings. To earn certification, a building project must meet certain 
prerequisites and performance benchmarks (credits) within each 
category. Projects are awarded Certified, Silver, Gold, or Platinum 
certification depending on the number of credits they achieve. 

[B] Percentages do not add to 100 due to rounding. 

[C] Enterprise Community Partners, Inc. formed a partnership with Bank 
of America to facilitate the allocation of the New Markets Tax Credits. 

[End of figure] 

Figure 15: ACCION Texas, San Antonio, Texas: 

This figure is a combination of photographs with text from ACCION 
Texas, San Antonio, Texas. 

[See PDF for image] 

Source: ACCION Texas (information); GAO (analysis, photos). 

[A] The average credit score for ACCION Texas's clients is 570, which 
generally is below what is required to obtain credit in the commercial 
market. 

[B] A colonia is an unincorporated community along the U.S.-Mexico 
border. 

[End of figure] 

Figure 16: Avenue North, Philadelphia, Pennsylvania: 

This figure is a combination of photographs with text showing Avenue 
North, Philadelphia, Pennsylvania. 

[See PDF for image] 

Sources: The Reinvestment Fund and GAO (analysis, photographs). 

[A] The Reinvestment Fund is a certified CDE and CDFI. The Fund 
received New Markets Tax Credit allocations in 2003 and 2006 totaling 
approximately $113.5 million. 

[B] The Reinvestment Fund provided the New Markets Tax Credit 
allocation, and Citizens Bank was the New Markets Tax Credit investor. 
Citizens Bank agreed to assume The Reinvestment Fund's debt after the 7-
year tax credit term expired and also agreed to keep its loans below 
the market rate for 15 years. 

[End of figure] 

Figure 17: Gerding Theater at the Armory, Portland, Oregon: 

This figure is a picture with text of Gerding Theater at the Armory, 
Portland, Oregon. 

[See PDF for image] 

Sources: The Reinvestment Fund and GAO (analysis, photographs). 

[A] The Enterprise Community program (part of the larger Empowerment 
Zone/Enterprise Community program) is a large-scale federal effort 
directed at the revitalization of impoverished rural and urban 
communities. The program provides grants to public and private entities 
for social services and community redevelopment and tax benefits to 
local businesses to attract or retain jobs and businesses in distressed 
communities. The State of Oregon's Urban Renewal program is a state- 
authorized redevelopment and finance program designed to help 
communities improve and redevelop areas that are physically 
deteriorated, suffering economic stagnation, unsafe, or poorly planned. 

[B] The Leadership in Energy and Environmental Design (LEED) Green 
Building Rating System is the nationally accepted benchmark for the 
design, construction, and operation of high-performance green 
buildings. To earn certification, a building project must meet certain 
prerequisites and performance benchmarks (credits) within each 
category. Projects are awarded Certified, Silver, Gold, or Platinum 
certification depending on the number of credits they achieve. 

[C] Percentages do not add to 100 due to rounding. 

[End of figure] 

Figure 18: New Hampshire Community Loan Fund Manufactured Housing 
Program: Exeter River Cooperative, Exeter, New Hampshire: 

This figure is a photograph with text of New Hampshire Community Loan 
Fund Manufactured Housing Program, Exeter River Cooperative, Exeter, 
New Hampshire. 

[See PDF for image] 

Source: The New Hampshire Community Loan Fund (information); GAO 
(analysis, photo). 

[A] As a certified CDFI, the New Hampshire Community Loan Fund has 
received assistance from Treasury. As required under the CDFI program, 
the Loan Fund matched (leveraged) this assistance with nonfederal 
funds. 

[B] N.H. Rev. Stat. sec. 205-A:21. 

[C] Percentages do not add to 100 due to rounding. 

[End of figure] 

Figure 19: Seattle Cooperative Children's Center, Seattle, Washington: 

This figure is a photograph with text of Seattle Cooperative Children's 
Center in Seattle Washington. 

[See PDF for image] 

Source: Shorebank Enterprise Cascadia (information); GAO analysis, 
photo). 

[A] As a certified CDFI, Shorebank Enterprise Cascadia has received 
assistance from Treasury. As required under the CDFI program, Shorebank 
Enterprise Cascadia matched (leveraged) this assistance with nonfederal 
funds. 

[End of figure] 

Figure 20: Shoalwater Bay Wellness Center, Tokeland, Washington: 

This figure is a photograph with text of the Shoalwater Bay Wellness 
Center in Tokeland Washington. 

[See PDF for image] 

Source: Shorebank Enterprise Cascadia (information); GAO (analysis, 
photos). 

[A] The Shoalwater Bay Tribe resides on the coast of Washington at 
Willapa Bay, near Tokeland, Washington. The original Shoalwater 
Reservation was established on September 22, 1866; the tribe gained 
federal recognition on March 10, 1971, and adopted a constitution and 
elected a tribal council shortly thereafter. 

[End of figure] 

[End of section] 

Appendix V Comments from the Department of Housing and Urban 
Development, Office of Community Planning and Development: 

U.S. Department Of Housing And Urban Development: 
Washington, DC 20410-7000: 

Office Of Community Planning And Development: 

December 6, 2007: 

Mr. William B. Shear: 
Director, Financial Markets and Community Investment: 
U.S. Government Accountability Office 441 G Street, NW: 
Washington, DC 21548: 

Dear Mr. Shear: 

This letter provides the comments of HUD's Office of Community Planning 
and Development (CPD) on the draft GAO report entitled "More 
Information on Leverage Measures' Accuracy and Linkage to Program Goals 
Is Needed in Assessing Performance" (GAO-08-136). The Department 
appreciates this opportunity to respond to the draft report. 

In general, CPD is pleased with the results presented in the draft 
report but does have several comments that should be incorporated in 
order to highlight certain facts. CPD requests that a strong statement 
be made early in the report that neither the Community Development 
Block Grant (CDBG) nor HOME Investment Partnerships (HOME) programs 
have statutory or regulatory provisions requiring leverage of other 
funding sources. Ideally this statement would be included on page four, 
paragraph two, where the CDBG and HOME programs are identified as 
subjects of the draft report. We recognize that such statements are 
made at various points in the draft report but desire to ensure that 
this critical fact is conveyed as early as possible and as often as 
possible. 

As CPD does not have a formal leverage measure for the CDBG program, we 
are concerned with the language on page six, paragraph one, sentence 
one, that "[T]he leverage measures . lacked transparency because the 
agencies generally did not disclose the limitations of the data or 
methods used to calculate them." Further, the draft report contains, in 
multiple places, similar language which leaves the impression that HUD 
provides a CDBG leverage measure. CPD asks that all such instances be 
revised in some manner to reflect that CPD does not report a CDBG 
leverage measure. 

CPD is also concerned with the same language regarding the HOME 
program. HOME participating jurisdictions may voluntarily report 
leveraging on a project-level basis to demonstrate the program's 
ability to leverage other public and private funding. The results of 
this reporting are found on the HOME Program National Production Report 
and SNAPSHOT of HOME Program Performance. CPD identifies the source of 
the data and limitations of the calculations used to determine the 
amount of leverage on the National Production Report and the SNAPSHOT 
report's accompanying "Explanation of Performance Categories." 

Page 7 of the report contends that some funding recipients use 
leveraging to prioritize funding decisions "giving funding priority to 
projects that leverage more over those that leverage less, but which 
may fill a greater or more immediate need within a community". CPD 
formula programs emphasize local decision making, meaning CPD does not 
approve CDBG grantees' or HOME participating jurisdictions' project 
funding decisions. Moreover, CDBG has no leveraging measure on which to 
base local funding decisions and while HOME does report leveraging 
ratios for individual participating jurisdictions, the ratio is based 
solely on completed rental projects, which is one of the four eligible 
activity types of HOME. Therefore, CPD requests that the language on 
page 7 and all other instances where it is implied or stated that 
leveraging affects funding decisions for CDBG and HOME be modified to 
indicate that funding decisions are made locally and that leveraged 
funds on a project level basis are not approved by CPD. 

Footnote 32 on page 18 of the draft report indicates that HUD will 
publish a CDBG leverage measure by the end of calendar year 2007. This 
statement is repeated in footnote 54 on page 28. It was CPD's intent to 
convey that, beginning with program year 2006 CDBG grantees profiles, 
CPD would post the leverage amount reported by each grantee. These 
grantee profiles, posted on HUD's website, provide summary information 
with respect to grantee uses of CDBG funds during the program year. 
More than 80 percent of program year 2006 profiles for CDBG grantees 
will be posted as of December 31, 2007 and will reflect funds leveraged 
as reported by the grantees. In some cases, the amount leveraged may be 
zero as grantees either failed to report or did not leverage other 
funding sources. 

Further, it is CPD's intent to continue to work during FY 2008 to 
increase the percentage of CDBG grantees that voluntarily report 
leverage data and other program information through IDIS. Concurrently, 
CPD will attempt to improve the quality of leverage data through closer 
analysis of the data provided by grantees. CPD proposes to follow upon 
this GAO report to produce a program-wide leverage measure for the CDBG 
program in the fall of 2008. This effort will build upon improvements 
in the level and quality of grantee reporting during FY 2008. This 
effort would, in part, address the Recommendations for Executive Action 
presented on page 36 of the draft report. 

Footnote 54 on page 28 addresses HUD's view on the value of leveraging 
measures to assess program performance. CPD recommends that the opening 
clause of the first sentence be deleted because it is not relevant to 
the point being made. 

CPD also finds GAO's recalculation of HOME leveraging data in Appendix 
III, purportedly based on 2006 data provided by the Office of 
Affordable Housing Programs, unclear. Different results may be obtained 
depending on the specific criteria applied to the data in performing 
the 3
recalculation. Specifically, it is not evident from the report if data 
on HOME projects funded in 2006, completed in 2006, or funded with 2006 
HOME dollars was used in the recalculation. CPD asks that GAO clarify 
the data criteria used in the recalculation. 

If you have any questions regarding this response, please contact me at 
(202) 708-3587. 

Sincerely,

Signed by: 

Richard J. Kennedy: 
Acting Deputy Assistant Secretary for Grant Programs: 

[End of section] 

Appendix VI: Comments from the Department of the Treasury, Community 
Development Financial Institutions Fund: 

Department Of The Treasury: 
Community Development Financial Institutions Fund: 
601 Thirteenth Street, NW, Suite 200 South: 
Washington, DC 20005: 

December 11, 2007: 

Mr. William B. Shear: 
Director, Financial Markets and Community Investments: 
U.S. Government Accountability Office: 
441 G Street, N.W.: 
Washington, D.C. 20548: 

Dear Mr. Shear: 

Thank you for providing the Community Development Financial 
Institutions (CDFI) Fund, an office within the U.S. Department of 
Treasury, with the opportunity to comment on the draft Government 
Accountability Office (GAO) report, "HUD and Treasury Programs: More 
Information on Leverage Measures' Accuracy and Linkage to Program Goals 
Is Needed in Assessing Performance." 

Before addressing specific elements of the draft report, I want to 
acknowledge the professionalism of the GAO staff; particularly the 
efforts that they have made to understand our programs. We appreciate 
the GAO's finding that each of the three Treasury programs (the Low- 
Income Housing Tax Credit Program; the New Markets Tax Credit Program; 
the CDFI Program) was "designed to leverage other funds in a number of 
ways and, as a result, leveraging directly relates to each program's 
goals and core activities and leverage measures can be used to describe 
program outputs." We share your belief that this leveraging component 
sets these programs apart from other programs that you may have 
evaluated and, indeed, from many other Federal government programs. 

With respect to other elements and findings of your report, we do have 
several comments to offer: 

1. Disclosure of methodology for determining leverage figures. The GAO 
draft report states that, when presenting leverage measures for the 
selected programs in performance and budget reports, and in other 
resources, "The leverage measures HUD and Treasury reported for the 
selected programs lacked transparency because the agencies generally 
did not disclose the limitations of the data or the methods used to 
calculate them" (page 6). The CDFI Fund cannot comment on the data 
collection or disclosure practice of the other agencies participating 
in this study. However, with respect to the CDFI Program, the CDFI Fund 
has publicly disclosed its methodologies on multiple occasions -- 
including reports issued as early as March of 2005 ("CDFIs Leverage 
CDFI Program Awards Nearly $20 to $1"), and as recently as July of 2007 
("Growth, Diversity, Impact: A Snapshot of CDFIs in FY 2003"). 

With respect to the NMTC Program, the CDFI Fund has not provided 
information relating to the leveraging of program dollars in 
performance and budget reports or in any other public sources. It is 
therefore inappropriate to include the NMTC Program as part of this 
report's findings relating to the public disclosure of data limitations 
or methodologies ï¿½ since NMTC leverage data has never before been 
publicly released by the CDFI Fund. That being said, to the extent the 
CDFI Fund does release leveraging figures in the future, it will make 
every effort to include a discussion of data methodologies and 
limitations. 

2. Incomplete Reporting of Data. The draft GAO report states that "the 
leverage measures the agencies reported for the selected programs were 
based on incomplete data and thus did not capture the actual extent of 
leveraging in the programs." (pg. 15). With respect to the CDFI 
Program, the draft report notes that there may actually be additional 
leveraging at the institutional level that occurs beyond the 1:1 match 
of CDFI Program award dollars, since many awardees procure nonfederal 
funds that exceed their final award amounts. The statutory requirement 
of the CDFI Program is that awardees produce 1:1 ratio of nonfederal 
matching funds for CDFI Program awards. Therefore, the CDFI Fund 
collects the matching fund data necessary to ensure that this statutory 
requirement is satisfied. The CDFI Fund is aware that the actual 
leveraging of CDFI Program awards may exceed the 1:1 ratio, but does 
not feel it is appropriate to include excess matching fund sources as 
part of the CDFI Fund's leveraging calculations. 

The draft GAO report includes two observations with respect to the CDFI 
Fund's reporting of NMTC leveraging data: 

a. Project-level data was unavailable for 26 percent of NMTC projects, 
which could lead to a potential underestimation of total leveraging 
(page 16). The CDFI Fund collects project-level data on every NMTC 
transaction. NMTC Program participants are asked to indicate the total 
project costs, including both NMTC contributions and other 
contributions. Through the initial four years of data collection under 
the NMTC Program, this project cost data field was optional, not 
mandatory (the requirements for data submissions have since been 
changed to make this a mandatory field). The draft GAO report indicates 
that the missing project data values from the earlier years could 
result in underestimating total leverage across all of the years of the 
program. However, the CDFI Fund believes that the 74 percent of 
projects for which data was available is sufficiently representative of 
the entire pool of NMTC transactions to support its determination that, 
on average, each $1 of NMTC investment proceeds supports a total 
investment of $3.28 at the project level. 

b. Treasury assumed that CDEs contribute 100 percent of tax credit 
equity to qualified low-income community investments, even though CDEs 
are permitted to retain up to 15 percent for administrative and other 
purposes (page 16). This is a valid observation. However, the CDFI Fund 
does not believe that its: 

c. leveraging calculations would be substantially different if the non-
invested proceeds were excluded. In order to increase the likelihood of 
receiving an allocation award, most CDEs commit to investing 
significantly more than the minimally required 85 percent of tax credit 
proceeds into projects. In the 2007 allocation round, for example, 60 
of the 61 awardees indicated that at least 95 percent of their tax 
credit proceeds would be invested in qualified projects, including 49 
that committed to investing at least 97 percent of their proceeds into 
qualifying projects. 

3. The NMTC leveraging ratio of 13.12:1 is not a "leverage" ratio, but 
rather a "multiplier" ratio. The CDFI Fund believes that its 
presentation of the NMTC leverage is appropriate and consistent with 
GAO guidance. As stated in the draft GAO report, leveraging can be 
defined as "using a relatively small amount of federal funds to attract 
private investment." (page 3). In the context of a tax credit program, 
where federal funds are not directly provided to a project, the federal 
funds are represented by foregone tax revenue. In the case of the NMTC 
Program, it has been estimated that each $1 of equity invested in a 
project results in a net tax revenue loss to the Federal government of 
25 cents [Footnote 80]. As stated above, this 25 cent investment, on 
average, results in a total of $3.28 invested at the project level ï¿½ 
for a true leveraging ratio of over 13:1 [$3.28/.25 = 13.12]. 

We thank you for the opportunity to share these comments with you, and 
hope that they will inform your preparation of the final report. 

Sincerely, 

Signed by: 

Donna Gambrell: 
Director: 

[End of section] 

Appendix VII: GAO Contact and Staff Acknowledgments: 

GAO Contact: 

William B. Shear, (202) 512-8678 or [email protected]: 

Acknowledgments: 

In addition to the contact named above Marianne Anderson, William 
Bates, Elizabeth Curda, Daniel Garcia-Diaz, Terence Lam, Alison Martin, 
John McGrail, Jackie Nowicki, Josephine Perez, Barbara Roesmann, Cory 
Roman, and Charles Wilson Jr. made key contributions to this report. 

[End of section] 

Related GAO Products: 

Leveraging Federal Funds for Housing, Community, and Economic 
Development. GAO-07-768R. Washington, D.C.: May 25, 2007. 

Performance Budgeting: PART Focuses Attention on Program Performance, 
but More Can Be Done to Engage Congress. GAO-06-28. Washington, D.C.: 
October 28, 2005. 

Performance Budgeting: Observations of the Use of OMB's Program 
Assessment Rating Tool for the Fiscal Year 2004 Budget. GAO-04-174. 
Washington, D.C.: January 30, 2004. 

Tax Administration: IRS Needs to Further Refine Its Tax Filing Season 
Performance Measures. GAO-03-143. Washington, D.C.: November 22, 2002. 

Public Housing: HOPE VI Leveraging Has Increased, but HUD Has Not Met 
Annual Reporting Requirement. GAO-03-91. Washington, D.C.: November 15, 
2002. 

Performance Reporting: Few Agencies Reported on the Completeness and 
Reliability of Performance Data. GAO-02-372. Washington, D.C.: April 
26, 2002. 

Managing for Results: Challenges Agencies Face in Producing Credible 
Performance Information. GAO/GGD-00-52. Washington, D.C.: February 4, 
2000. 

Performance Plans: Selected Approaches for Verification and Validation 
of Agency Performance Information. GAO/GGD-99-139. Washington, D.C.: 
July 30, 1999. 

Agency Performance Plans: Examples of Practices that Can Improve 
Usefulness to Decisionmakers. GAO/GGD/AIMD-99-69. Washington, D.C.: 
February 26, 1999. 

Grant Programs: Design Features Shape Flexibility, Accountability, and 
Performance Information. GAO/GGD-98-137. Washington, D.C.: June 22, 
1998. 

Managing for Results: Analytic Challenges in Measuring Performance. 
GAO/HEHS/GGD-97-138. Washington, D.C.: May 30, 1997. 

[End of section] 

Footnotes:  

[1] Leverage measures--for example, leverage ratios, total dollars 
leveraged, and leverage factors--provide information on the extent to 
which a program or project has been successful in attracting or 
combining other funds. 

[2] Pub. L. No. 103-62, 31 U.S.C. 1115 et seq. 

[3] As mentioned previously, it is in these types of reports that 
agencies often report leverage measures for their programs. 

[4] See GAO, Managing for Results: Analytic Challenges in Measuring 
Performance, GAO/HEHS/GGD-97-138 (Washington, D.C.: May 30, 1997). 

[5] See Executive Office of the President, Office of Management and 
Budget, The President's Management Agenda (Washington, D.C., 2002). 

[6] See GAO, Performance Budgeting: PART Focuses Attention on Program 
Performance, but More Can Be Done to Engage Congress, GAO-06-28 
(Washington, D.C.: Oct. 28, 2005). 

[7] See GAO, Leveraging Federal Funds for Housing, Community, and 
Economic Development, GAO-07-768R (Washington, D.C.: May 25, 2007). 

[8] Our first report, GAO-07-768R, discussed stakeholder perspectives 
on the use, measurement, and implications of leveraging federal funds 
for housing and community and economic development as well as the types 
of data the Department of Housing and Urban Development collects that 
could be used to measure the extent of leveraging in its Section 108 
Loan Guarantee program. 

[9] The background section of this report provides information on the 
purpose and scope of these programs. Throughout this report, we refer 
to the CDFI Financial Assistance program as the CDFI program. As 
discussed in the background section of this report, the CDBG and HOME 
programs do not have statutory or regulatory leveraging requirements. 

[10] See GAO, Assessing the Reliability of Computer-Processed Data, GAO-
02-15G (Washington, D.C.: Sept. 2002). As explained in further detail 
in app. I, we were unable to determine the reliability of HUD's CDBG 
and HOME leveraging data. 

[11] A budget justification is the set of documents an agency submits 
to congressional appropriation committees in support of its budget 
request. 

[12] We and Treasury both noted that the agency currently does not 
publish a measure for the New Markets Tax Credit program. 

[13] See GAO-07-768R. 

[14] The CDBG program was authorized under Title I of the Housing and 
Community Development Act of 1974 (Pub. L. 93-383, as amended, 42 
U.S.C. 5301 et seq.) In 1981, Congress amended the act to allow states 
the opportunity to administer CDBG funds for nonentitlement 
communities--units of general local government that do not receive CDBG 
funds directly from HUD as part of the entitlement program. 

[15] The State of Hawaii permanently has elected not to receive CDBG 
program funding. As a result, HUD awards these state-level funds 
directly to Hawaii's three nonentitlement communities. 

[16] HOME was authorized under Title II of the Cranston-Gonzalez 
National Affordable Housing Act of 1990, as amended (Pub. L. 101-625, 
42 U.S.C. 12721, et seq.) States administer HOME funds for localities 
that do not qualify to receive allocations directly from HUD. 

[17] Under a tenant-based rental assistance program, states and 
localities allocate HOME funds to eligible households for the payment 
of rent on units of their choosing. 

[18] HOME matching contribution requirements are outlined in 24 C.F.R. 
92.218-92.222. See also, U.S. Department of Housing and Urban 
Development Community Development and Planning, HOME Program Match 
Guidance, Notice: CPD 97-03 (Washington, D.C., Mar. 27, 1997). 

[19] In 1989, Congress created the National Commission on Severely 
Distressed Public Housing (Pub. L. 101-235) to assess the state of the 
nation's public housing and make recommendations for its improvement. 
The commission's 1992 report to Congress--see National Commission of 
Severely Distressed Public Housing, Final Report of the National 
Commission on Severely Distressed Public Housing (Washington, D.C., 
Aug. 1992)--recommended the establishment of a demonstration program to 
implement its proposals for change, which included addressing the needs 
of public housing residents and improving the physical conditions of 
public housing. Congress authorized and funded the Urban Revitalization 
Demonstration Program, or HOPE VI, through annual appropriations bills 
until 1998, when HOPE VI was authorized through fiscal year 2002 under 
ï¿½ 535 of the Quality Housing and Work Responsibility Act of 1998, as 
amended (42 U.S.C. 1437v), and subsequently reauthorized through fiscal 
year 2008. 

[20] HUD outlines HOPE VI match and leverage requirements in annual 
notices of funding availability. For example, see "Supplement to the 
Fiscal Year (FY) 2006 SuperNOFA for HUD's Discretionary Programs: NOFAs 
for the HOPE VI Revitalization Grants Program and HOPE VI Main Street 
Grants Program; Notice," 71 Federal Register 18496-18560 (Apr. 11, 
2006). Leverage is one of several rating factors HUD considers in the 
HOPE VI application process. Other rating factors include capacity of 
the development team, need, resident and community involvement, 
community and supportive services, relocation, fair housing and equal 
opportunity, well-functioning communities, and soundness of approach. 

[21] Applications for fiscal year 2007 HOPE VI funding were due Nov. 7, 
2007. 

[22] The CDFI Fund within Treasury administers the CDFI program. The 
Fund was established as a bipartisan initiative under the Riegle 
Community Development and Regulatory Improvement Act of 1994 (Pub. L. 
103-325, 12 U.S.C. 4701 et seq.) to promote economic revitalization and 
community development through investment in and assistance to CDFIs 
through several programs, including the CDFI and Bank Enterprise Award 
programs. Investment areas and targeted populations are defined in 12 
C.F.R. ï¿½ 1805.201(b)(3). CDFIs are private profit-making and nonprofit 
financial institutions that provide financial services to distressed 
geographic areas and populations that are underserved by conventional 
lenders and investors. Common types of CDFI organizations include 
community development banks, community development credit unions, 
nonprofit community development loan funds, microenterprise loan funds, 
and community development venture capital funds. 

[23] CDFIs also may use their program and match funds to leverage 
additional debt from banks and other lending institutions. Together, 
program funds, match funds, and debt comprise institutional leverage in 
the program. At the project level, funding recipients may use grants or 
loans from CDFIs to leverage funds from other public and private 
sources to finance project costs. App. II describes in more detail how 
leveraging occurs in the CDFI program. 

[24] Before receiving any financial assistance through the CDFI 
program, a CDFI must be certified by Treasury; that is, meet six 
statutory and regulatory criteria: (1) have a primary mission of 
promoting community development; (2) principally serve an investment 
area or targeted population; (3) be an insured depository institution, 
or make loans or development investments as its predominant business 
activity; (4) provide development services--such as technical 
assistance or counseling--with its financing activity; (5) maintain 
accountability to its target market; and (6) be a nongovernmental 
entity and not be controlled by any governmental entities. 

[25] The Tax Reform Act of 1986 (Pub. L. No. 99-514, 26 U.S.C. 42) 
authorized the Low-Income Housing Tax Credit program. 

[26] App. II describes in more detail how leveraging occurs in the Low- 
Income Housing Tax Credit program. 

[27] See 26 U.S.C. 42(h)(3)(C) and Rev. Proc. 2006-53, 2006-48 I.R.B. 
996. Low-Income Housing Tax Credits are offered at two rates, 9 percent 
and 4 percent. Most new construction and substantial rehabilitation 
projects are eligible for 9 percent credits. Projects that are financed 
through the issuance of tax-exempt bonds automatically may qualify for 
4 percent credits. Credits awarded to these projects are not subject to 
the per capita limit; however, the underlying bonds are subject to the 
state private activity bond cap. 

[28] The Community Renewal Tax Relief Act of 2000 (Pub. L. No. 106-554, 
26 U.S.C. 45D) authorized the New Markets Tax Credit program, which 
Treasury's CDFI Fund administers. A CDE is a domestic corporation or 
partnership that is an intermediary vehicle for the provision of loans, 
investments, or financial counseling in low-income communities through 
the New Markets Tax Credit program. CDEs must be certified as such by 
Treasury. App. II describes in more detail how leveraging occurs in the 
New Markets Tax Credit program. 

[29] See "Notice of Allocation Availability Inviting Applicants for the 
CY 2007 Allocation Round of the New Markets Tax Credit Program," 71 
Federal Register, 70835, 70841 (Dec. 6, 2006). 

[30] For additional information on the effect of data limitations on 
performance measurement, see GAO, Performance Reporting: Few Agencies 
Reported on the Completeness and Reliability of Performance Data, GAO-
02-372 (Washington, D.C.: Apr. 26, 2002); Managing for Results: 
Challenges Agencies Face in Producing Credible Performance Information, 
GAO/GGD-00-52 (Washington, D.C.: Feb. 4, 2000); Performance Plans: 
Selected Approaches for Verification and Validation of Agency 
Performance Information, GAO/GGD-99-139 (Washington, D.C.: July 30, 
1999); and Agency Performance Plans: Examples of Practices That Can 
Improve Usefulness to Decisionmakers, GAO/GGD/AIMD-99-69 (Washington, 
D.C.: Feb. 26, 1999). 

[31] App. III describes the leverage measures HUD and Treasury reported 
for each of the selected programs. HUD and Treasury currently do not 
publish leverage measures for the CDBG and New Markets Tax Credit 
programs, respectively; however, officials from both agencies said that 
they plan to publish measures for the programs in the near future. In 
comments on this report, HUD clarified that the agency will post 
program year 2006 leveraging and other CDBG data on its Web site in 
grantee profiles by Dec. 31, 2007. According to HUD, these profiles 
will reflect funds leveraged as reported by CDBG grantees. In some 
cases, the amount leveraged may be zero as grantees either failed to 
report or did not leverage other funding sources. 

[32] See The Community Development Financial Institutions Fund, U.S. 
Department of the Treasury, "CDFIs Leverage CDFI Program Awards Nearly 
$27 to $1" (Washington, D.C., Feb. 13, 2007) and The Community 
Development Financial Institutions Fund, U.S. Department of the 
Treasury, "CDFIs Leverage CDFI Program Awards Nearly $20 to $1!" 
(Washington, D.C., Mar. 2005). In comments on this report, Treasury 
noted that the agency also disclosed data limitations in Community 
Development Financial Institutions Fund, "Growth, Diversity, Impact: A 
Snapshot of CDFIs in FY 2003" (Washington, D.C., June 1, 2007). 

[33] HUD and Treasury currently do not publish leverage measures for 
the CDBG and New Markets Tax Credit programs, respectively; however, 
officials from both agencies said that they plan to publish measures 
for the programs in the near future. 

[34] For example, see GAO-02-372, GAO/GGD-00-52, GAO/GGD-99-139, and 
GAO/GGD/AIMD-99-69. 

[35] See GAO/GGD-99-139. 

[36] For example, see Office of Management and Budget, Performance 
Measurement Challenges and Strategies (Washington, D.C., June 18, 
2003). Federal agencies also are expected to adhere to OMB guidelines 
for ensuring and maximizing the quality of the data they report to the 
public. See "Guidelines for Ensuring and Maximizing the Quality, 
Objectivity, Utility, and Integrity of Information Disseminated by 
Federal Agencies; Notice; Republication," 67 Federal Register 8452-8460 
(Feb. 22, 2002). 

[37] According to agency officials, Treasury plans to report a measure 
for the New Markets Tax Credit program that describes the total 
potential amount of investment generated by tax credits. However, 
Treasury's approach for calculating this measure is different from the 
approach used by other programs when measuring leveraging. App. III 
discusses the differences in Treasury's approach. 

[38] App. III describes the leverage measures HUD and Treasury reported 
for each of the selected programs. 

[39] Investment risk is the potential for fluctuation in the value of 
an investment, which could result in loss of principal. 

[40] The background section and app. II provide information on how 
these programs leverage. 

[41] See GAO-07-768R. At the institutional level, a CDFI, for example, 
groups together projects with varying levels of risk in a diversified 
portfolio, which hedges risks associated with any particular project or 
type of project. 

[42] HUD's and Treasury's ability to recalculate leverage measures in 
the manner described in fig. 1 depends on how they collect leveraging 
data and on their method of calculation. As described in app. III, we 
were not able to recalculate the leverage measures of some of the 
selected programs to reflect all of the scenarios in fig. 1. 

[43] For example, see GAO-02-372, GAO/GGD-00-52, GAO/GGD-99-139, and 
GAO/GGD/AIMD-99-69, and Office of Management and Budget, Performance 
Challenges and Strategies (Washington, D.C., June 18, 2003). 

[44] See GAO, Tax Administration: IRS Needs to Further Refine Its Tax 
Filing Season Performance Measures, GAO-03-143 (Washington, D.C.: Nov. 
22, 2002). We also noted that measures should be clearly stated, 
consistent with the methodologies used to calculate them, and balanced. 
(Typically, agencies develop a suite of goals and measures covering the 
various priorities of their programs. Balance exists when the suite of 
measures covers those priorities.) 

[45] For measurement purposes, all or a portion of tax credit equity is 
considered a federal source of funds, as (all or a portion of) the 
equity represents forgone federal tax revenue. However, the equity 
gained through the sale or offering of tax credits likely would not be 
contributed to projects funded under these programs in the absence of 
the credit, and therefore may be considered leveraged funds. 

[46] The Internal Revenue Code provides broad guidance to states for 
allocating tax credit awards, requiring them to consider, among other 
things, the extent of a project's financing gap, or the difference 
between the cost of a project and the amount of nontax credit financing 
that a project can raise to cover those development costs (that is, 
leveraged funds). See 26 U.S.C. 42(m)(2). 

[47] See 71 Federal Register, 70835, 70841 (Dec. 6, 2006). 

[48] HUD distinguishes between matched funds and leveraged funds in the 
HOME and HOPE VI programs. Thus, for purposes of our discussion on 
performance measurement, we consider match and leverage to be distinct 
activities in these programs. As discussed later in this report, HUD 
has not identified leveraging as a performance measure for CDBG or HOME 
programs. 

[49] Extremely-low-income households earn 30 percent or less of the 
area median income; very-low-income households earn 50 percent or less; 
and low-income households earn 80 percent or less. Although income 
limits vary by location, all residents of public housing must be at 
least low income. 

[50] See GAO-07-768R. 

[51] Senior debt must be repaid before subordinated debt receives any 
payment in the event of default. 

[52] PART asks a series of questions about a program's performance and 
management; OMB assigns programs an overall rating--effective, 
moderately effective, adequate, ineffective, or results not 
demonstrated--based on the results of its PART reviews. OMB conducted 
PART reviews of the three HUD programs in 2003. 

[53] In its 2003 PART review of the CDBG program, OMB rated the program 
"ineffective." 

[54] HUD started collecting leveraging data for the program and plans 
to publish measures on its Web site by the end of calendar year 2007. 
HUD does not plan to cite leverage goals or measures in any of its 
performance and budget documents. 

[55] Specifically, we found that program design has implications for 
the availability of performance information. Among the programs 
reviewed, relatively few collected uniform data on outcomes of state or 
local activities. Collecting such data requires conditions--uniformity 
of activities, objectives, and measures--that do not always exist under 
many flexible program designs. See GAO/HEHS/GGD-98-137 and GAO, Grant 
Programs: Design Features Shape Flexibility, Accountability, and 
Performance Information, GAO/GGD-98-137 (Washington, D.C.: June 22, 
1998). 

[56] OMB conducted PART reviews of the CDFI program and the Internal 
Revenue Service's administration of the New Markets Tax Credit program 
in 2004. To date, OMB has not conducted a PART review of the Low-Income 
Housing Tax Credit program. 

[57] See GAO, Performance Budgeting: Observations on the Use of OMB's 
Program Assessment Rating Tool for the Fiscal Year 2004 Budget, GAO-04-
174 (Washington, D.C.: Jan. 30, 2004). 

[58] HUD does not publish a leverage measure for the CDBG program. 

[59] Treasury does not collect or report leverage data for the Low- 
Income Housing Tax Credit program. 

[60] See The Community Development Financial Institutions Fund, U.S. 
Department of the Treasury, "CDFIs Leverage CDFI Program Awards Nearly 
$27 to $1" (Washington, D.C., Feb. 13, 2007) and The Community 
Development Financial Institutions Fund, U.S. Department of the 
Treasury, "CDFIs Leverage CDFI Program Awards Nearly $20 to $1!" 
(Washington, D.C., Mar. 2005). 

[61] See Community Development Financial Institutions Fund, "Growth, 
Diversity, Impact: A Snapshot of CDFIs in FY 2003" (Washington, D.C., 
June 1, 2007). 

[62] As discussed throughout this report, Treasury currently does not 
publish a leverage measure for the New Markets Tax Credit program. 

[63] HUD maintains the National Low-Income Housing Tax Credit database 
that collects information on different funding sources used in tax 
credit projects (such as tax-exempt bond financing, Rural Housing 
Service Section 515 or Federal Housing Administration loans, and HUD 
funds), but not the dollar amounts of these sources. As a result, we 
did not use the data in HUD's database to assess the extent of 
leveraging in the program. 

[64] The CDBG program provides formula-based grants to metropolitan 
cities and urban counties, known as entitlement communities, and to 
states for distribution to nonentitlement communities, which may carry 
out activities directly or award funds to subrecipients. Similarly, the 
HOME program provides formula-based grants to states and localities 
(certain cities, counties, or consortiums of cities and counties), 
which can administer these grants on their own, or with or through 
third parties or subgrantees. 

[65] HUD uses data from fiscal year 1992 through the most recent month 
to calculate the leverage measure it publishes for the HOME program. 
However, because HUD officials raised questions about the quality of 
the pre-2004 HOME data, we used fiscal year 2006 data in our 
calculations of the program's leverage measure. 

[66] The HOPE VI program provides grants to public housing agencies to 
replace severely distressed public housing units with attractive, 
economically viable communities that often combine public housing with 
other affordable or market-priced housing units. HUD's HOPE VI data 
collection contract expired on Mar. 31, 2006, due to the delayed 
approval of the agency's technical assistance plan. Since that date, 
HUD has not been able to collect subsequent quarters' data in its 
online database. 

[67] HUD's reported leverage measure is based on all leveraging that 
occurred between Oct. 1, 2005, and May 31, 2006, and does not 
necessarily include all phases of all development projects. Because 
substantial leveraging can occur in a development from the time HUD 
makes a HOPE VI grant to the time all phases of construction are 
completed, we determined that data on completed projects would more 
accurately reflect the extent of leveraging that occurred in the 
program. 

[68] Treasury uses CDFIs' audited financial data (including net assets 
and liabilities) to calculate the extent of leveraging in the program. 

[69] Fifty-nine agencies receive a Low-Income Housing Tax Credit 
allocation; however, we excluded 2, suballocating agencies (the 
California Housing Finance Agency and the Massachusetts Housing Finance 
Agency) because officials of these agencies told us to contact the 
primary Low-Income Housing Tax Credit allocating agency in their state. 
A suballocating agency receives a portion of its state's Low-Income 
Housing Tax Credit allocation from the primary allocating agency in the 
state. 

[70] We did not review available data to determine their reliability 
and calculate an estimated leverage measure for the program. 

[71] The background section of this report provides information on the 
purpose and scope of these programs. 

[72] We use HUD's CDBG and HOME leverage ratios for illustrative 
purposes to demonstrate measurement alternatives; however, the values 
presented in the related figures should not be construed as 
representing actual leveraging. We discuss the limitations of the 
leveraging data the agencies and we used to calculate these leverage 
measures earlier in this report. App. I contains more detailed 
descriptions of our assessments of the reliability of the agencies' 
leveraging data. 

[73] The program leverage measure HUD publishes on its Web site is 
cumulative from fiscal year 1992 through the most recent month; thus, 
it may differ slightly from the leverage measure presented in this 
report. We used fiscal year 2006 data to calculate this measure 
because, according to HUD officials, fiscal year 2003 and earlier data 
are not as complete as later data. Further, while HUD's and our program 
leverage measures account for all completed HOME activities (rental and 
homeownership), the measures for states and localities on HUD's Web 
site only account for completed rental activities. 

[74] HUD's reported leverage measure (see table 4) is based on all 
leveraging that occurred between Oct. 1, 2005, and May 31, 2006, rather 
than on data for completed developments or completed phases of 
developments. Because substantial leveraging can occur in a development 
from the time HUD makes a HOPE VI grant to the time all phases of 
construction are completed, we determined that data on completed 
projects would more accurately reflect the extent of leveraging that 
occurred in the program. Therefore, we used data on completed projects 
for purposes of this analysis. HUD's HOPE VI data collection contract 
expired on Mar. 31, 2006--as of that date, HUD stopped collecting HOPE 
VI data in its online Grant Management Reporting System Prototype 
database. Therefore, our calculation includes HOPE VI developments 
completed as of Mar. 31, 2006. 

[75] At the institutional level, an organization (such as a group of 
investors or a community or other development authority) pools funds 
from multiple sources, which then are used to finance a portfolio of 
projects. At the project level, an organization (such as a state or 
local agency) leverages funds as necessary for discrete projects. 

[76] The background section and app. II provide more information on how 
leveraging occurs in the CDFI program. 

[77] Treasury has reported that project leverage in the CDFI program 
can vary considerably by loan purpose--for example, in fiscal year 2003 
the highest median project leverage ratios were for multifamily housing 
rehabilitation (8.53 to 1) and construction (5.35 to 1), while the 
lowest were for business loans (between 0.60 to 1 and 0.81 to 1). See 
The Community Development Financial Institutions Fund, U.S. Department 
of the Treasury, CDFIs Leverage CDFI Program Awards Nearly $20 to $1! 
(Washington, D.C., Mar. 2005). 

[78] The calculations of institutional and total leverage are based on 
the after-tax value of the credit ($0.25). Using the nominal cost of 
the credit ($0.39) as the other selected programs generally used, 
institutional leverage would be 1.56 to 1 and total leverage would be 
3.84 to 1. The background section and app. II provide more information 
on how leveraging occurs in the New Markets Tax Credit program. 

[79] The background section of this report provides more detailed 
information on the selected programs. 

[80] While initially the tax credit would appear to represent lost tax 
revenue to the Federal government of 39 cents for each dollar invested, 
the cost basis of the investment is reduced by the amount of the 
credits claimed. Therefore, the investor has to pay taxes (generally at 
a corporate tax rate of 35%) on the 39 cents of credits claimed, which 
reduces the cost of the credit to the Federal government from 39 cents 
to approximately 25 cents [.39 * (1-.35) = .2535].

*** End of document. ***