Public Housing: HUD Takes Over the Housing Authority of New Orleans
(Letter Report, 05/03/96, GAO/RCED-96-67).

Pursuant to a congressional request, GAO reviewed the Housing Authority
of New Orleans (HANO), focusing on: (1) its major operational
difficulties; (2) the causes of those problems; and (3) the Department
of Housing and Urban Development's (HUD) corrective actions and the
effects of those actions.

GAO found that: (1) HANO has been unable to implement and maintain
effective maintenance, modernization, and rehabilitation programs; (2)
in 1994, none of the 150 HANO housing units that HUD sampled met HUD
housing quality standards; (3) although HANO has over $200 million in
unspent modernization grants that have accumulated over the past decade,
its housing units continue to deteriorate and unit vacancies remain at
over 25 percent; (4) the HANO board of commissioners has not effectively
governed HANO and has interfered with its day-to-day operations, hiring,
and contracting; (5) this interference has slowed HANO management
improvements, prevented its staff from performing effectively, and
resulted in the cancellation of modernization contracts; (6) HUD and its
New Orleans Field Office have not helped to improve HANO operations; (7)
unsuccessful HUD attempts to correct HANO mismanagement have included
punitive actions, imposing private management, and limiting the board of
commissioners' authority; (8) in 1994, HUD entered into a partnership
with New Orleans to avoid a federal takeover of HANO, hold local
officials responsible for HANO performance, and improve management and
housing conditions; and (9) in February 1996, HUD declared HANO in
breach of its contract and entered into a new partnership with New

--------------------------- Indexing Terms -----------------------------

     TITLE:  Public Housing: HUD Takes Over the Housing Authority of New 
      DATE:  05/03/96
   SUBJECT:  Program management
             Declining neighborhoods
             Municipal governments
             Public housing
             Low income housing
             Federal aid to cities
             Housing repairs
             Disadvantaged persons
             Maintenance (upkeep)
IDENTIFIER:  New Orleans (LA)
             HUD Public Housing Management Assessment Program
             HUD HOPE VI Program
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================================================================ COVER

Report to the Honorable
Richard H.  Baker, House of Representatives

May 1996



Housing Authority of New Orleans


=============================================================== ABBREV

  GAO - General Accounting Office
  HANO - Housing Authority of New Orleans
  HUD - Department of Housing and Urban Development
  MOA - Memorandum of Agreement
  ODTHR - Office of Distressed and Troubled Housing Recovery
  OIG - Office of the Inspector General
  PHMAP - Public Housing Management Assessment Program

=============================================================== LETTER


May 3, 1996

The Honorable Richard H.  Baker
House of Representatives

Dear Mr.  Baker: 

Operating over 13,000 housing units and providing homes to over
24,000 people, the Housing Authority of New Orleans (HANO) is one of
the nation's largest public housing authorities.  However, for nearly
two decades, HANO has been one of the country's poorest performing
housing authorities and currently ranks the lowest among the large
housing authorities in the Department of Housing and Urban
Development's (HUD) performance measurement system.  Moreover, HANO's
performance has improved only marginally in recent years, despite
large federal grants to HANO, hands-on management assistance from
professional property managers, the Secretary of HUD's personal
involvement with HANO, and substantial technical assistance to HANO
from a new office in HUD established for that purpose. 

HUD's relationship with HANO, as with all housing authorities, is a
contractual one governed by statute and regulation.  In return for
federal grants and subsidies from HUD, housing authorities agree to
efficiently manage and operate decent low-income housing for their
residents.  Although most housing authorities meet HUD's performance
standards, about 3 percent do not and are classified as "troubled."
To encourage improved performance at troubled housing authorities,
HUD uses a variety of administrative tools, including memorandums of
agreement, budget limitations, sanctions against the housing
authorities' governing boards, and declarations of a breach of
contract.  Declaring a breach is a rare legal step that HUD has used
in a limited number of cases.  It can lead to HUD's takeover of a
housing authority's assets and ultimately propel the housing
authority into receivership.\1

In your letter to us of January 23, 1996, you stated that the causes
of HANO's problems needed to be determined and the solutions
identified.  You asked us to determine

  -- HANO's major operational problems,

  -- the underlying causes of HANO's problems, and

  -- the actions that HUD has taken to help improve HANO's
     performance and what success these actions have had. 

Since we received your letter, HUD declared on February 8, 1996, that
HANO was in breach of its contract, claimed possession of HANO's
assets, and dissolved HANO's board of commissioners.  In place of a
contract between HUD and HANO is a "cooperative endeavor agreement"
between the Secretary of HUD and the Mayor of New Orleans. 

\1 Receivers have been appointed to operate the Boston,
Massachusetts; Kansas City, Missouri; Chester, Pennsylvania; and
Washington, D.C., housing authorities.  HUD has taken control of the
East St.  Louis, Illinois, and the Chicago, Illinois, housing

------------------------------------------------------------ Letter :1

Two operational problems stand out as significant and continuing
obstacles to improving the performance of the Housing Authority of
New Orleans.  They are the absence of resources and effective
programs to (1) provide for routine maintenance--repairs to plumbing,
heating, and electrical systems--and consistent inspection and upkeep
of the housing authority's buildings and grounds and (2) ensure the
viability and safety of the housing authority's housing assets by
carrying out major modernization and rehabilitation work, such as
replacing roofs and heating systems or demolishing unsafe buildings. 
A 1994 audit report by HUD's Office of the Inspector General found
that none of the housing authority's 150 housing units in a random
sample met HUD's quality standards for housing, many of which are
safety related.\2 Over 25 percent of the housing authority's
apartments are vacant because of years of neglect and deteriorated
conditions.  Moreover, although housing conditions have deteriorated,
the housing authority has nearly $200 million in unspent
modernization grants and other federal funding, representing 82
percent of all such funding to the housing authority over the past

On the basis of our work and the findings of other reviews and audit
reports, we believe that many interrelated conditions underlie the
housing authority's lack of progress toward improving its operations. 
For example, in contradiction of HUD's guidelines, the housing
authority's policy-making body--its board of commissioners--has not
effectively governed the housing authority and has persisted in
adversely interfering in the housing authority's daily operations. 
Such behavior has resulted in canceled modernization contracts and
delays in HUD-mandated improvement actions.  In addition, even HUD
and HUD's oversight of the housing authority have, to date,
contributed little to solving the housing authority's severe
management and operational problems.  The housing authority remains
the nation's most troubled large housing authority, despite HUD's
repeated attempts to improve the housing authority's management. 

HUD has taken many actions over the last decade to stimulate
management improvements at the housing authority.  HUD has withheld
funding from the housing authority, twice required that the authority
be managed by a commercial property management firm, sanctioned the
board of commissioners, and negotiated directly with the Mayor in
1994 to establish a partnership between HUD and the City of New
Orleans to avoid declaring the authority to be in breach of its
contract.  These actions had little impact on housing conditions (a
November 1995 survey showed that over 90 percent of a random sample
of apartments did not meet quality standards for housing), and the
housing authority's operational performance is currently at its
lowest measured level.  As a result, in early February 1996, the
Secretary declared the housing authority to be in breach of its
contract and negotiated with the Mayor a cooperative endeavor
agreement to determine and accomplish the steps necessary to improve
the living conditions in the housing authority's public housing. 

\2 Housing Authority of New Orleans:  Public Housing Operations
(HUD/OIG/Southwest District-94-FW-201-1005, June 29, 1994). 

------------------------------------------------------------ Letter :2

Under the Housing Act of 1937, as amended, HUD contracts with housing
authorities to provide subsidies and grants for operating expenses
and modernizing deteriorated housing.  In return, housing authorities
agree to provide residents with decent, safe, and sanitary housing. 
These agreements are formalized in a contract between HUD and the
housing authority stipulating that housing authorities will operate
in a manner that promotes serviceability, efficiency, economy, and
stability.  In New Orleans, as in many other cities, the mayor
appoints a governing body or board of commissioners which, in turn,
hires the local housing authority's executive director and may
approve other top management positions.  The board provides for
policy guidance, while the executive director is responsible for the
day-to-day operations.\3 Both are responsible for complying with the
terms of the contract with HUD. 

In 1979, HUD began tracking housing authorities' performance and
providing corrective action for those that performed poorly.  HUD's
current monitoring system--the Public Housing Management Assessment
Program (PHMAP)--evaluates 12 performance indicators,\4 calculates a
numerical score for each, and relates the total score to a 100-point
scale.  Poor performers under PHMAP are classified as troubled, and
under current law, HUD must negotiate with them a Memorandum of
Agreement that includes performance targets for improving the poor
performers' operations.\5 This process establishes a joint
responsibility between HUD and the housing authority for improving
the performance.  However, if HUD determines that a troubled
authority cannot, within a reasonable time and with reasonable
resources, improve its operations, make effective use of federal
funds, and adequately house its residents, HUD can declare the
authority in breach of its contract.  This legal step allows HUD
either to take direct control of the housing authority's operations
and assets or to appoint (or petition a court to appoint) a receiver
to control and manage the housing authority. 

HUD's field offices and Office of Distressed and Troubled Housing
Recovery (ODTHR) use the results from PHMAP to oversee and assist
housing authorities.  HUD's field offices oversee troubled housing
authorities' performance, ensure that these authorities comply with
such agreements as the Memorandum of Agreement (MOA), and provide
them with technical assistance.  ODTHR, which was formed in 1994 to
focus resources on assisting large troubled housing authorities and
to administer a special grant program aimed at rehabilitating
distressed properties,\6 can marshal resources from city governments,
HUD, and housing authorities to improve the troubled authorities'
operations.  During 1995, ODTHR provided for the funding to support
and temporarily place experienced public housing officials and
independent consultants in the Atlanta, Chicago, Detroit, New
Orleans, and Puerto Rico housing authorities. 

On the basis of its size and need, HANO received over $245 million in
federal modernization grants and other subsidies during 1992 through
1994.  HANO has been designated as troubled since 1979 and is
currently ranked by HUD as the worst performing large housing
authority.  As a result, HANO operated under an MOA which HUD first
signed in 1988; a special partnership agreement with the Secretary
since September 1994; and, as of February 8, 1996, a new cooperative
agreement with the Secretary to help it improve its housing
conditions.  (See app.  I for an abbreviated time line for
significant events at HANO over the past 17 years.)

In the future, troubled housing authorities may not have as many
years as HANO has had to improve their performance before the
Secretary of HUD is legally compelled to declare the housing
authority in breach of its contract.  HUD and both houses of the
Congress have proposed reform legislation for public housing that
includes the stringent treatment of long-troubled housing
authorities.  In legislation proposed by HUD and in a bill passed by
the Senate, a 1-year period is proposed as the grace period within
which a housing authority would be allowed to demonstrate improvement
or suffer the mandatory declaration of a breach of contract.  A
pending House bill contains similar language but limits the grace
period to 180 days.  All three of these proposals are consistent with
a September 1993 report of the National Performance Review that
recommended that "HUD should make a hard-hitting, targeted effort to
resolve the severe difficulties of those few public housing agencies
identified as problem[s]."

\3 The responsibilities of HANO's board are outlined in the housing
authority's contract with HUD and in HUD's handbooks. 

\4 HUD is currently in the process of revising the 12 PHMAP

\5 Under the assessment program, a score of less than 60 on a
100-point scale earns a housing authority the performance
classification of "troubled"; a score of from 60 to 90 earns the
housing authority the classification of "standard performer"; and a
score over 90 earns the housing authority the classification of "high

\6 Public housing authorities that have more than 1,250 units are
considered large.  If they have distressed developments and meet
certain other criteria, they are eligible to apply for grants of up
to $50 million under HUD's HOPE VI program to rehabilitate severely
distressed public housing developments. 

------------------------------------------------------------ Letter :3

Over the past 12 years, the problems at HANO have been well
documented in numerous audit reports by HUD's Office of the Inspector
General (OIG), HUD's Office of Public and Indian Housing, and private
consultants.  The audit reports show a continuous decline in HANO's
management performance and the condition of HANO's housing stock. 
Among the many significant problems at HANO, the reports consistently
cite the lack of an effective maintenance program and HANO's
inability to operate a program to carry out major modernization and
rehabilitation projects. 

---------------------------------------------------------- Letter :3.1

The OIG's first review of HANO, released in December 1983, detailed
four operational and managerial deficiencies related to poor
maintenance of the housing stock.\7 These problems included the
deteriorating condition of two housing developments, an ineffective
maintenance operation, excessive utility costs, and poor tenant
selection and eviction procedures.  Five years later, a management
review of HANO--initiated at HUD's headquarters and implemented by an
interdisciplinary team of 31 people from HUD's headquarters and field
offices--reported 241 findings of deficiencies that reiterated many
of the same problems noted in the OIG's 1983 report. 

When the OIG auditors from HUD returned to HANO in 1994, they found
that the housing authority and its management contractor were still
not effectively administering the maintenance program and that, as a
result, HANO had breached its contract with HUD.  For example, the
OIG's June 1994 audit report stated that all 150 housing units
randomly selected for inspection failed to meet HUD's housing quality
standards in one or more areas.  Under these areas were structural
problems such as missing ceilings and holes in walls, loose and
peeling paint, steady leaks from faucets, and roach infestations.  In
addition, the report determined that HANO still had not established a
preventive maintenance program and that no maintenance improvements
had been realized at HANO in the past 10 years.  The report concluded
that a lack of preventive maintenance resulted in the continued
deterioration of the buildings and HANO's inability to "turn around"
vacant units in fewer than 140 calendar days.\8 In addition, the OIG
estimated that HANO had lost over $3 million in potential rental
income because vacant units were not occupied in a timely manner. 

\7 Housing Authority of New Orleans:  Low Income Housing Program
(HUD/OIG/Region VI-84-FW-201-1014/NO-84-26, Dec.  29, 1983). 

\8 HUD's guidelines state that a housing authority's average time to
make a vacant unit ready for a new tenant should be no more than 30
calendar days. 

---------------------------------------------------------- Letter :3.2

In addition to day-to-day maintenance deficiencies, the OIG's 1994
audit found that HANO and the private firm that was hired in
accordance with the MOA to manage HANO did not follow certain federal
regulations and standards in contracting for modernization work on
HANO's properties.  For example, the private manager approved the
construction of private balconies, which are prohibited in public
housing, and the disposal of valuable steel railings without
recouping the salvage value of at least $50,000.  In its report, the
OIG recommended that HUD recover nearly $5 million in federal
payments.  In addition, the OIG discovered HANO modernization
projects whose costs exceeded the upper limits established by HUD. 
Moreover, HANO had failed to follow proper procurement procedures,
such as obtaining competitive bids for major expenditures and price
quotes for small purchases.  HANO also did not expend its
modernization funding--between $20 million and $30 million per
year--in a timely manner or within about 3 years after HUD obligated
the funds to the housing authority. 

On the basis of these findings, the OIG concluded that HANO was
incapable of carrying out an effective modernization program.  Since
the OIG's report, HANO's ability to use its modernization funding
efficiently has not improved.  HANO currently has nearly $200 million
in unexpended funds.  Furthermore, an independent consultant hired by
HUD to review HANO's performance cited ineffective maintenance and
modernization programs as serious problems.  The consultant's review
shows that HANO's PHMAP score dropped from 47 in 1993 to 26 in 1994,
despite the presence of a property management contractor hired to
operate HANO as specified in the housing authority's MOA with HUD.\9

According to the Director of HUD's Office of Troubled Housing, the
1994 score rose marginally in 1995 to 29. 

\9 Quadel Consulting Corporation, Final Report on the Independent
PHMAP Assessment of the Housing Authority of New Orleans Conducted
July 24-28, 1995 (Washington, D.C.:  Oct.  23, 1995). 

------------------------------------------------------------ Letter :4

As highlighted earlier, HANO's board had a long history of problems
in governing HANO.  Also, the continued decline in HANO's overall
performance suggests that HUD's New Orleans Field Office has not
fulfilled its responsibility to provide for the effective oversight
of HANO.  Although the field office, together with headquarters
staff, has tried various options available under the 1937 act to
intervene in HANO's management, little has improved. 

---------------------------------------------------------- Letter :4.1

Over the years, HANO's board of commissioners has tended to interfere
with HANO's day-to-day operations.  In response, HUD exercised
sanctions against the board, often to no avail.  Thus, when the Mayor
appointed HANO's most recent seven-member board--four of whom were
HANO residents--in May 1994, HUD staff conducted a 1.5-day briefing
session for the board at the Mayor's request.  The topics covered
during the training included a review of the 1937 Housing Act, HANO's
contract with HUD, HANO's by-laws, the provisions of the MOA, and the
state's enabling legislation.  In addition, the briefing session
detailed the board's responsibility to develop policies and
procedures to ensure that HANO operates efficiently and economically
and provides for housing in accordance with the existing laws and

Despite the emphasis on the board's expected role, HUD's headquarters
and field office staff began in June 1994 to document inappropriate
actions by the board.  For example, the board overstepped its bounds
by directing HANO's private manager to hire and fire staff, stop
payment on contracts, and disregard proper procurement procedures. 
In addition, the minutes of board meetings documented that board
members, contrary to their governance role, directed HANO staff to
move tenants from one housing unit to another as well as into larger
units without regard to HANO's waiting list for potential tenants. 
HUD's OIG recently documented additional inappropriate involvement by
the current board in HANO's contracting activities.  The OIG
concluded that because of the board's inappropriate involvement in
modernization activities, including canceling several contracts, HANO
is susceptible to multimillion-dollar lawsuits, and partially
completed units have remained unoccupied and exposed to the weather
for an extended period.  The OIG also concluded that current board
members (1) directed the preferential placement of individuals into
subsidized units ahead of hundreds of people on the waiting lists or
(2) were involved in this activity. 

During the confirmatory review of HANO's 1994 PHMAP score, an
independent consultant who specializes in public housing management
and assessment and was hired by HUD also cited the board's intrusion
into HANO's day-to-day operations, hiring, and contracting.  The
review concluded that this behavior impeded HANO's recovery and that
the board was preventing effective performance by HANO staff.  In
August 1995, HUD sent an official to HANO to help revise the housing
authority's by-laws to (1) better define the board's policy and
monitoring role and (2) include a clause describing the ethical
conduct expected of the board.  According to the OIG, the board had
not adopted the revisions as of December 8, 1995. 

Finally, the board had not ensured that HANO has sound policies and
procedures for improving its management operations and housing stock,
as illustrated by the following example.  One of the board's first
actions was to commission, with HUD approval, a strategic plan for
HANO that (1) would address its operational deficiencies and (2)
develop a plan for improving physical and other living conditions in
the housing developments.  HUD's field office believed that this
strategic plan also could provide the information needed to resolve
many of the recommendations in the OIG's June 1994 audit report on
HANO.  The final plan, as accepted by the board from the contractor,
was a large document costing approximately $490,000.  But our review
showed that the plan did not contain the necessary policies and
procedures contracted for and that we believe would help improve
HANO's day-to-day maintenance operations and the long-term condition
of the housing units.  Similarly, the independent consultant's
confirmatory review stated that although the plan was a good guide
for HANO's future, it did not address HANO's operational

---------------------------------------------------------- Letter :4.2

HUD's field offices are responsible for enforcing compliance with the
federal housing regulations, monitoring the performance of all
housing authorities, and providing housing authorities with technical
assistance.  For troubled authorities, the field offices' additional
responsibilities include administering the MOA and conducting on-site
reviews of the housing units.  However, on the basis of HANO's
long-standing problems--as documented in the OIG's audit reports,
random inspections of housing units, and the consultant's
confirmatory review of HANO's performance assessment--we believe that
HUD's oversight of HANO has contributed little to improving HANO's
performance.  In addition, even as the OIG's 1994 report called for
specific corrective actions by HANO and close monitoring of HANO by
HUD, the OIG concluded that this "course of action had failed in the
past." This judgment suggests to us that HUD's field office in New
Orleans has not provided for the necessary and effective oversight of

------------------------------------------------------------ Letter :5

To deal with the problems identified by the numerous audit reports
and the poor performance results as measured by HUD's Public Housing
Management Assessment Program, HUD has unsuccessfully attempted on
several occasions to improve HANO's management, including a September
1994 partnership between the Secretary of HUD and the then-Mayor of
New Orleans.  The partnership's purposes were to avoid a federal
takeover of HANO, hold the Mayor and the New Orleans City Council
accountable for progress, and ultimately solve New Orleans' public
housing crisis and improve the residents' housing conditions. 
However, a consultant's estimate of HANO's 1995 PHMAP score and a
recent housing quality inspection by HUD show that HANO has not
fulfilled its obligations under the 1994 partnership nor made
significant management and operational improvements.  For these
reasons, HUD declared HANO to be in breach of its contract and
entered into a second agreement with the Mayor on February 8, 1996. 

---------------------------------------------------------- Letter :5.1

Over the last decade, HUD has tried many approaches to find a
satisfactory means of improving HANO's performance, including the

  -- In 1984, HUD withheld HANO's annual share (approximately $10
     million) of HUD's appropriation for modernization grants because
     no improvement had occurred in HANO's performance.  HUD believed
     that withholding funding would motivate HANO's management to
     improve its performance.  Although HANO remained on HUD's
     troubled list, HUD reinstated modernization funding the next

  -- After the 1988 management review revealed 241 findings of
     deficiencies, HUD required HANO's board of commissioners to
     enter into an MOA that placed HANO under a private manager until
     HUD determined that HANO was no longer troubled.  As discussed
     earlier, the private management of HANO did not prove effective
     and resulted in few lasting improvements over its 5-year

  -- In 1991, HUD attempted to prevent HANO's board of commissioners
     from interfering with the private manager's activities by
     issuing a "limited denial of participation" against HANO's board
     of commissioners.\10

HUD rescinded the denial a year later when the board agreed to resign
and the Mayor appointed a new board.  In March 1993, however, under
pressure from HUD, HANO's board chairman resigned because of
allegations that he interfered with and impeded the private manager's
effort to improve HANO. 

\10 A limited denial is a temporary enforcement action effective for
1 year at most to prevent local officials from participating in all
or part of a housing authority's activities. 

---------------------------------------------------------- Letter :5.2

The 1994 OIG report stated that under the private manager's tenure,
little improvement had occurred in the condition of HANO's properties
or its management capacity.  The OIG concluded that HANO had breached
its contract with HUD and that HUD should declare the breach and take
control of the housing authority's properties and assets.  In
response to the report and to avoid declaring a breach, the Secretary
of HUD entered into a partnership agreement with the Mayor and the
city, which the Secretary confirmed in a letter of August 1, 1994, to
the Mayor.  As part of the partnership, the Secretary and the Mayor
of New Orleans agreed to form an executive council that would provide
policy guidance for HANO's board, maintain the private manager on a
month-to-month basis for continuity in critical operations until a
permanent executive director could be hired, and develop a 6-month
strategic plan.\11 However, because the board allowed the private
management contract to expire and had not hired necessary top
managers at HANO, HUD subsequently revised the partnership agreement
with the Mayor to include a transitional management structure. 

The following are highlights of the events that occurred under the
partnership and transitional management: 

  -- The transitional management team, formed by ODTHR and staff from
     the city, remained at HANO from October 1, 1994, through April
     4, 1995.  The team comprised more than 15 individuals--both
     full- and part-time--from a variety of sources, including
     well-performing housing authorities, HUD offices, and city
     offices.  HUD provided over $220,000 to pay for the salaries and
     living expenses of the transitional staff loaned from other
     housing authorities and to cover the expenses of HUD staff.  In
     addition, HANO provided over $260,000 to compensate nine city

  -- The transitional management team stabilized, to some extent,
     HANO's critical operations by addressing two-thirds of the
     authority's 21,000 outstanding work orders for routine repairs
     and implementing standard contracting procedures for HANO.  The
     team did not, however, address HANO's vacancy rate in this

  -- The partnership agreement also required HANO to develop the
     6-month strategic plan within 45 days.  However, the board did
     not approve the strategic plan--which would become the
     foundation of a new MOA--for submittal to HUD until November
     1995, about 10 months later. 

  -- The partnership agreement also provided for HANO to hire a
     permanent executive director within 90 days.  HUD helped HANO to
     obtain waivers from Louisiana's Civil Service System to hire the
     executive director and upper-level managers at salaries higher
     than the system allowed.  However, the new executive director,
     who was formerly a member of HANO's transitional management team
     and has significant experience in managing public housing, was
     not hired until April 1995, about 4 months later than agreed. 

As part of a routine confirmation of HANO's 1994 PHMAP score, an
independent private consultant estimated that HANO's performance
scores for 1995 would be low.\12

HUD officials also estimated that the score would be low--about
29--and now note that their estimate is being confirmed.  Thus,
according to these estimates, HANO made little improvement on PHMAP
indicators from September 1994--when the partnership was first
initiated--to the time of the consultant's June 1995 confirmatory
review.  The confirmatory review found modernization to be one of
HANO's most troubled areas and cited HANO's inability to spend
backlogged funds and obtain quality work.  Our review of HUD's
records found that since the new board took control of HANO in May
1994, HUD's New Orleans field office has ordered HANO twice to take
corrective actions for failing to submit contracts and a 5-year
modernization plan for HUD's approval. 

A November 1995 inspection of housing quality by HUD's field office
further substantiates the lack of improvement at HANO over the last
year.  The inspection found that 93 percent (70 out of 75) of the
occupied units that were randomly selected from HANO's 10
developments failed HUD's quality standards for housing.  The
inspectors described the conditions as "deplorable, unsafe, and in
many instances unfit for human habitation." The results of the
inspection mirrored the earlier findings in the OIG's 1994
inspections of housing quality.  Furthermore, the inspectors said
that they found no visible indication that maintenance staff were
deployed on-site, that they were responding to scheduled maintenance,
or that recent maintenance work had been done in any of the units,
even though many of the tenants reported broken space heaters and
other problems that should have been addressed. 

\11 Despite the terms of HANO's MOA specifying private management in
lieu of a more typical management structure headed by a permanent
executive director, HUD agreed to the city's and HANO's request to
hire an executive director.  In addition, the MOA's quarterly
performance targets had expired in March 1994 and had not been
renegotiated at the time of the partnership. 

\12 The consultant could not estimate the value for two
indicators--energy consumption and operating reserves.  Operating
reserves could not be estimated because the $3.3 million in
insupportable modernization costs identified by the OIG had not been
resolved.  If HANO were directed to repay the money, its PHMAP scores
under this indicator would decrease. 

---------------------------------------------------------- Letter :5.3

In a December 4, 1995 memorandum, HUD's then-Deputy Assistant
Secretary for Distressed and Troubled Housing Recovery advised the
Secretary that HUD should take control of HANO and declared HANO to
be in breach of its contract, if necessary.  The memorandum stated
that the actions by HANO's current board and the Mayor had been "too
little, too late and fall far short of reversing HANO's decline in
performance." In documenting his decision to declare HANO in breach
of its contract, the Secretary said that multiple disputes, conflicts
of interests, confrontations, and standoffs between the board and
HANO staff had hindered critical decision-making for operations and
improvements.  The Secretary also noted that as of June 1995, unspent
balances for operating subsidies and grants at HANO reached almost
$200 million, or 82 percent of all funding provided for HANO under
its public housing programs. 

On February 8, 1996, the Secretary of HUD declared HANO to be in
breach of its contract and entered into a cooperative endeavor
agreement with the Mayor of New Orleans for improving HANO's
performance.  The highlights of the agreement include the following: 

  -- HANO's board of commissioners has been dissolved, and HUD's
     Acting Assistant Secretary of Public and Indian Housing will
     fulfill the duties of the board. 

  -- HUD and the City of New Orleans will provide joint
     administrative oversight of HANO. 

  -- HUD reserves its right under law to seek the appointment of a
     receiver for HANO if the requirements of the agreement are not

  -- The general counsel of Tulane and Xavier Universities will act
     for HUD as an "executive monitor" of the agreement, subject to
     the Acting Assistant Secretary's oversight. 

  -- HUD and the City of New Orleans agreed to a series of specific
     actions, which include developing and beginning to implement by
     May 1, 1996, a 24-month action plan to complete the tasks and
     strategies needed to (1) establish adequate maintenance of
     HANO's properties, (2) address quantifiable short- and long-term
     targets for PHMAP, (3) accomplish other necessary management
     improvements, and (4) specify reporting milestones. 

According to the Director of HUD's Office of Troubled Housing, the
relationship between HUD's field office in New Orleans and HANO has
changed to reflect the declaration of the breach.  She said that as
of the end of March 1996, an 11-member HUD team has been on-site at
HANO to guide the housing authority as it tries to correct the
deficiencies that led to the breach.  She also said that HUD has
approved a plan to guide HANO's operations over the next 120 days and
that the 24-month plan should be ready for approval by May 1996. 

On the basis of the current experiences of other large housing
authorities taken over by HUD or in receivership, we believe that it
could take 6 months to 1 year to determine whether this agreement
will have a lasting, positive impact on HUD.  The Secretary has
reserved his right to appoint a receiver if the agreement does not
work out, and he could exercise this right if the quantifiable
performance targets that are to be set as part of the 24-month plan
are not achieved within the time frames established.  We believe that
this would be consistent with earlier proposals by HUD and pending
legislation in the Congress to resolve the severe difficulties of
long-troubled housing authorities. 

------------------------------------------------------------ Letter :6

On February 15, 1996, we provided the Secretary of HUD with a copy of
a draft of this report for his review and comment.  Within several
days thereafter, we provided the Mayor of New Orleans and the acting
executive director of HANO with copies of a draft of this report.  We
met with the Mayor and the acting executive director in New Orleans
to discuss their comments.  The acting executive director provided us
with comments that both clarified and updated certain portions of the
draft, which we have incorporated into the report. 

In providing informal comments to us, the Director of HUD's Office of
Troubled Housing said she believes that our report incorrectly
describes the 1994 partnership agreement between the Mayor of New
Orleans and the Secretary of HUD.  She said that rather than
providing a significant level of technical assistance, the 1994
partnership was an effort to hold things together at HANO until
permanent management staff could be hired.  However, we believe that
the effort was significant because of the resources applied to carry
out the partnership.  During the 6-month period from October 1994
through April 1995, an executive council was formed to provide policy
guidance for HANO, a 15-member transitional team of consultants and
other staff was formed and put in place to manage HANO, and nearly $1
million dollars was spent for the transition team's salaries and for
a contractor to prepare a strategic plan.  The Troubled Housing
Office's Director provided other clarifying comments, which we have
incorporated into the report.  Subsequent to these comments, we
received written comments from HUD on April 16, 1996, and they are
included as appendix II. 

The Mayor of New Orleans raised two concerns about our report. 
First, he was concerned about our conclusion that the
contractor-prepared strategic plan should have contained policies and
procedures with which to manage HANO.  The Mayor stated that the
board of commissioners did not intend for the plan to include such
material.  This statement is not supported, however, by the contract
and the statement of work for preparing the strategic plan. 
According to the contract's statement of work, the strategic plan
should have contained policies and procedures for operating HANO. 

Second, the Mayor believed that our report--and those of HUD's
OIG--are too limited because they do not contain information obtained
from stakeholders other than the staff of HUD and HANO.  He stated
that residents, for example, should have been interviewed because
they are the consumers and have definite opinions on the services
that they should be receiving.  To address our objectives, we relied
on our analysis of the documented historical record of housing
conditions and management problems at HANO.  Included in that record
are minutes of scheduled meetings held by HANO's board of
commissioners at which residents and other interested parties were
given the opportunity to participate and share their views and
concerns.  We also relied on the record of numerous and varied
actions taken to resolve and remedy those problems.  We supplemented
our analysis with discussions with HUD, OIG, and HANO officials. 

The Mayor made a number of other comments that were not directly
related to the accuracy of our report but which were germane to HUD's
oversight of public housing and the measurement of HANO's
performance.  For example, he believes that HUD has too many approval
layers and that this review process caused significant delays to
HANO's modernization program.  The Mayor, however, was pleased with
the approach that the Secretary is taking toward public housing and
his willingness to try innovative funding methods in areas such as

In connection with performance measurement, the Mayor does not
believe that the PHMAP system measures critical actions taken by
housing authorities to improve the quality of residents' lives.  To
illustrate, he said that by using police substations located within
public housing, HANO has reduced the murder rate by 80 percent in its
Desire Development.  He noted, however, that HANO has received no
recognition for improving this important facet of HANO's mission. 
Nevertheless, on the basis of this success, the Mayor said that HANO
is planning to implement the police substation concept in HANO's
other housing developments. 

------------------------------------------------------------ Letter :7

To identify HANO's major operational problems, HUD's actions to
address these problems, and the problems' underlying causes, we
collected data from many sources.  We reviewed pertinent legislation,
documentation on the housing program, minutes of HANO's board
meetings, and HUD's regulations on the operation of public housing
authorities.  We discussed management and oversight issues with HUD
officials in Washington, D.C., including officials at the Office of
Public and Indian Housing, the Office of Distressed and Troubled
Housing Recovery, the Office of the Inspector General, and the Office
of General Counsel.  We also spoke with HUD officials in HUD's Office
of the Inspector General, Southwest District.  We interviewed
officials and reviewed documentation from HUD's New Orleans Office,
Region VI, and Office of Public Housing, and from consultants and
contractors.  Our discussions and data-gathering activities focused
on HUD's oversight of HANO's management. 

We also visited New Orleans to discuss HANO's operational problems
with members of the transitional management team, the executive
director, and other key management officials.  To observe conditions
and gain perspective on HANO's problems, we visually observed the
HANO developments.  This report is based on work we conducted from
March 1995 through March 1996 in accordance with generally accepted
government auditing standards. 

---------------------------------------------------------- Letter :7.1

As arranged with your office, unless you publicly announce its
contents earlier, we plan no further distribution of this report
until 14 days after the date of this letter.  At that time, we will
send copies of this report to the appropriate Senate and House
committees; the Secretary of HUD; and the Director, Office of
Management and Budget.  We will make copies available to others on

Please call me at (202) 512-7631 if you or your staff have any
questions.  Major contributors to this report are listed in appendix

Sincerely yours,

Judy A.  England-Joseph
Director, Housing and Community
 Development Issues

=========================================================== Appendix I

Date                                      Event
----------------------------------------  ----------------------------
June 26, 1979                             HUD designates HANO as
                                          troubled for the first time.
                                          From 1979 to the present,
                                          HANO remains on HUD's
                                          troubled list, where it is
                                          currently ranked as the
                                          lowest performing large
                                          housing authority.

Oct. 7, 1988                              HUD releases a Comprehensive
                                          Management Review of HANO
                                          containing 241 findings;
                                          many are similar to the
                                          issues raised in a 1983 OIG

Oct. 27, 1988                             HUD and HANO enter into a
                                          memorandum of understanding
                                          requiring HANO to contract
                                          with a private firm to
                                          manage the housing
                                          authority's day-to-day

Sept. 9, 1991                             HUD issues a Limited Denial
                                          of Participation to every
                                          member of HANO's board of
                                          commissioners for
                                          inappropriately interfering
                                          with HANO's day-to-day
                                          operations. New Orleans'
                                          Mayor and HUD agree that the
                                          Mayor should appoint a new

Mar. 1993                                 HUD pressures HANO's board
                                          chairman into resigning
                                          because he interfered with
                                          and impeded the private
                                          manager's efforts to manage
                                          the housing authority.

June 29, 1994                             HUD's OIG releases an audit
                                          report of HANO stating that
                                          HANO is in breach of its
                                          contract with HUD to provide
                                          decent, safe, and sanitary
                                          housing because all 150
                                          housing units chosen at
                                          random failed to meet
                                          housing quality standards.

Oct. 1, 1994                              HUD's Secretary enters into
                                          a partnership with New
                                          Orleans' Mayor to avoid
                                          declaring HANO in breach of
                                          its contract. The
                                          partnership states that HANO
                                          will hire an executive
                                          director and develop a
                                          strategic plan with
                                          performance targets
                                          detailing management

Dec. 11, 1995                             HUD's Secretary agrees to
                                          declare HANO in breach of
                                          its contract and take
                                          control of the housing
                                          authority and its

Feb. 8, 1996                              HUD's Secretary declares
                                          HANO in breach of its
                                          contract and enters into a
                                          cooperative endeavor
                                          agreement with the Mayor.

HANO = Housing Authority of New Orleans

HUD = Department of Housing and Urban Development

OIG = Office of the Inspector General

(See figure in printed edition.)Appendix II
=========================================================== Appendix I

(See figure in printed edition.)

(See figure in printed edition.)

(See figure in printed edition.)

(See figure in printed edition.)

========================================================= Appendix III


Eric A.  Marts, Assistant Director
Carol Anderson-Guthrie, Evaluator-in-Charge
Kirk Menard, Senior Evaluator
Terri Russell, Evaluator

*** End of document. ***