Public Housing: HUD Has Several Opportunities to Promote Private
Management (Letter Report, 07/26/1999, GAO/RCED-99-210).
Americans want government that is more businesslike and better
managed--a government that can cut costs without curtailing services. To
meet this demand for economy and efficiency, governments at all levels
are looking at ways to manage their assets as a business, including the
use of private management to maximize their return on buildings and
facilities. The nation's 1.3 million public housing units, which each
year receive nearly $6 billion in federal funding, are a good candidate
for such review. This report answers the following questions: What is
the basis for the Office of Management and Budget's 1998 assertion that
privatizing public housing management could save $200 million annually
and for the belief of housing personnel and experts that adopting
private management for public housing could lead to more cost-effective
use of public housing resources? To what extent have housing authorities
adopted private management strategies, what experiences have they had in
implementing these strategies, and what primary obstacles have they met
in adopting private management? Do opportunities exist for the
Department of Housing and Urban Development to encourage housing
authorities to make more cost-effective use of their resources by
considering private management as an alternative to in-house management?
--------------------------- Indexing Terms -----------------------------
REPORTNUM: RCED-99-210
TITLE: Public Housing: HUD Has Several Opportunities to Promote
Private Management
DATE: 07/26/1999
SUBJECT: Privatization
Cost control
Performance measures
Public housing
Low income housing
Housing programs
Cost effectiveness analysis
IDENTIFIER: HUD Public Housing Management Assessment Program
HUD Hope VI Urban Revitalization Demonstration Program
******************************************************************
** This file contains an ASCII representation of the text of a **
** GAO report. This text was extracted from a PDF file. **
** Delineations within the text indicating chapter titles, **
** headings, and bullets have not been preserved, and in some **
** cases heading text has been incorrectly merged into **
** body text in the adjacent column. Graphic images have **
** not been reproduced, but figure captions are included. **
** Tables are included, but column deliniations have not been **
** preserved. **
** **
** Please see the PDF (Portable Document Format) file, when **
** available, for a complete electronic file of the printed **
** document's contents. **
** **
** A printed copy of this report may be obtained from the GAO **
** Document Distribution Center. For further details, please **
** send an e-mail message to: **
** **
** **
** **
** with the message 'info' in the body. **
******************************************************************
United States General Accounting Office GAO Report
to the Subcommittee on VA, HUD, and Independent Agencies,
Committee on Appropriations, U.S. Senate July 1999 PUBLIC
HOUSING HUD Has Several Opportunities to Promote Private
Management GAO/RCED-99-210 GAO United States General
Accounting Office Washington, D.C. 20548 Resources, Community, and
Economic Development Division B-281054 July 26, 1999 The Honorable
Christopher S. Bond Chairman The Honorable Barbara A. Mikulski
Ranking Minority Member Subcommittee on VA, HUD, and Independent
Agencies Committee on Appropriations United States Senate
Americans want government that is more businesslike and better
managed, according to the Third Report of the National Performance
Review-government that can limit costs without reducing services.
To meet this demand for economy and efficiency, federal, state,
and local agencies are taking a growing interest in managing their
assets as a business, including exploring private management as a
means of maximizing their return on buildings and facilities. The
nation's 1.3 million public housing units, which annually receive
appropriations of nearly $6 billion, including almost $3 billion
to subsidize the operating budgets of nearly 3,200 local public
housing authorities, are a major asset worthy of such examination.
To determine whether the resources provided to public housing
authorities could be used more efficiently and effectively, you
asked us to review the use of private contractors in the public
housing industry. As agreed with your offices, this report answers
the following questions: * What is the basis for the Office of
Management and Budget's (OMB) 1998 assertion that privatizing
public housing management could save $200 million annually and for
housing practitioners' and experts' belief that adopting private
management for public housing could lead to the more cost-
effective use of public housing resources? * To what extent have
housing authorities adopted private management strategies, what
experiences have they had in implementing these strategies, and
what primary obstacles have they encountered in adopting private
management? * Are there opportunities for the Department of
Housing and Urban Development (HUD) to encourage housing
authorities to make more cost-effective use of their resources by
considering private management as an alternative to in-house
management? Page 1 GAO/RCED-99-210 Private
Management for Public Housing B-281054 To address these
objectives, we sent a mail survey to a sample of about 1,200
housing authorities that included all of the approximately 500
very large, large, and medium-sized authorities and a random
sample of 700 of the small and very small authorities. (See app. I
for detailed information on the results of our survey.) When the
results of our survey are generalized to all public housing
authorities, the sampling error is plus or minus 5 percent (see
app. II.). We also met with public housing experts, private
management companies, public housing residents, and officials of
HUD and OMB to discuss private management efforts in public
housing. To gain housing authorities' perspectives on the issues
associated with privatizing the management of their housing, we
visited authorities in Atlanta, Boston, Chicago, and Washington,
D.C. (see app. III). We selected these cities because of their
broad but varying experiences with private management. Results in
Brief OMB does not have quantitative support for its assertion
that allowing the private sector to bid on contracts for managing
all 3,200 public housing authorities could save as much as $200
million annually. However, OMB staff, private management firms,
and several housing authorities told us they believe private
management could achieve significant savings. In their view,
minimizing costs is not a priority in the public housing
management community, and introducing competition into the public
housing industry should stimulate more efficient and therefore
less costly operations and higher-quality services. Moreover, OMB
staff believe that a more cost-effective use of public housing
resources could be achieved by establishing measurable performance
standards and by privatizing the management of housing
developments or authorities that do not meet the standards.
Currently, most housing authorities employ contractors to provide
at least some services or perform tasks such as grounds-keeping
and maintenance. However, only about 18 percent of the very large
and large and only a handful of the medium-sized, small, and very
small housing authorities we surveyed have contracted with private
property managers to operate entire developments. For the most
part, according to these authorities, private management has
increased rental revenues, operating efficiencies, and the quality
of housing services. The housing authorities believe that private-
sector property managers achieve these gains by (1) aggressively
and effectively collecting rents and evicting problem residents,
(2) focusing on keeping buildings and grounds attractive, and Page
2 GAO/RCED-99-210 Private Management for
Public Housing B-281054 (3) responding to residents' needs.
Following the private managers' example, many in-house managers in
housing authorities that have privatized developments have also
improved their performance. Before implementing private
management, housing authorities have had to overcome a number of
obstacles, including their historical reliance on in-house
management and on centralized-rather than project-based-budgeting
and accounting systems, the possibility that contractors would
displace their employees, and the fears of residents about changes
in their quality of life under private management. HUD has
multiple opportunities to encourage the more cost-effective use of
public housing resources through strategies such as private
management. The gains in operating efficiency and service quality
reported by housing authorities that have contracted with the
private sector suggest that HUD could take advantage of
opportunities to promote private management's potential as a
public housing management option. Over the next few months, HUD
will have occasions to encourage housing authorities to adopt
cost-conscious operating strategies, including private management,
as the Department develops regulations to implement public housing
reform legislation enacted in 1998 and as it introduces its new
public housing assessment system. In addition, HUD has begun to
develop outcome and output indicators for its annual performance
plan that would allow it to measure whether housing authorities
are adopting cost-conscious management approaches. Taking
advantage of these opportunities would complement other recent
efforts by the Department to establish performance measures (e.g.,
a new public housing assessment system) and incentives (e.g.,
mandatory receivership for long-troubled housing authorities) for
public housing authorities. In total, these activities would
indicate to housing authorities that HUD considers the cost-
effective use of resources a high priority and supports the
authorities' adoption of new strategies, such as private
management, to lower costs and improve quality. In this report, we
recommend that HUD take actions to ensure that the benefits of
private management are adequately considered by housing
authorities as they plan their operating strategies for using
federal funds to provide housing services for low-income
households. Background Under the Housing Act of 1937, as
amended, the Congress created the federal public housing program
to assist communities in providing decent, safe, and sanitary
dwellings for low-income families. Today, about 3,200 Page 3
GAO/RCED-99-210 Private Management for Public Housing B-281054
public housing authorities own approximately 1.3 million units of
public housing. Public housing authorities are typically
municipal, county, or state agencies created under state law to
develop and manage public housing units. Over 100,000 employees
work for housing authorities that range in size from the very
large (about 158,000 public housing units in New York City) to the
very small (6 public housing units in Tioga, Texas). Table 1 shows
the distribution of public housing authorities, units, operating
funds, and capital funds by housing authority size. Table 1:
Characteristics of Public Housing Authorities, by Size
Number of Share of Share of public Share of public
public public housing housing Size of
housing housing housing operating
capital authority authorities units
funds funds Very large (more than 6,599 units)
16 31% 45% 41% Large
(1,250-6,599 units) 131
27% 28% 26% Medium (500-1,249 units)
249 15% 12% 12% Small (100-
499 units) 1,276 22% 12%
16% Very small (fewer than 100 units)
1,500 5% 2% 5% Source:
GAO's analysis of HUD's data. Annually, the Congress appropriates
funds to HUD to be allocated to public housing authorities for the
operation, improvement, and upgrade of public housing communities.
Most housing agencies receive operating subsidies to cover the
shortfall between tenants' rents and operating expenses. These
subsidies help housing authorities meet operating and maintenance
expenses. HUD also provides capital funds in the form of
modernization grants to housing authorities to improve the
physical condition and to upgrade the management and operation of
existing public housing developments. Figure 1 shows the federal
funding from fiscal year 1989 through fiscal year 1999. Page 4
GAO/RCED-99-210 Private Management for Public Housing B-281054
Figure 1: Federal Funding for Public Housing $4,000 Dollars in
millions $3,500 $3,000 $2,500 $2,000 $1,500 $1,000 $500 $0 1989
1990 1991 1992 1993 1994 1995
1996 1997 1998 1999 Fiscal Year Public Housing
Capital Funds Public Housing Operating Funds Note: Funding is in
constant 1999 dollars. Source: HUD budget documents. The Quality
Housing and Work Responsibility Act of 1998 gives housing
authorities "that perform well the maximum feasible authority,
discretion, and control with appropriate accountability to public
housing residents, localities, and the general public." Moreover,
one of the act's purposes is to increase the accountability and
reward the effective management of public housing agencies. To
monitor the performance of public housing managers and hold them
accountable for the funding they receive, HUD has two tools: (1)
the authorities' annual and 5-year plans and (2) the Department's
Public Housing Management Assessment Program (PHMAP). Under the
act, all housing authorities must submit plans for addressing the
housing needs of low-income households in their metropolitan area.
In Page 5 GAO/RCED-99-210 Private
Management for Public Housing B-281054 their plans, they must
describe their financial resources and their planned uses of those
resources. In addition, the authorities must specify how they will
carry out asset management functions, including how they will plan
for the long-term operating, capital investment, rehabilitation,
modernization, disposition, and other needs of their public
housing inventory. Once the plans are submitted to HUD, the
Department is required to review them for compliance with the law.
HUD published an interim rule in February 1999 that provides
initial implementing guidance for housing authorities and will
issue a final rule after considering public comments. Under PHMAP,
HUD uses a set of operational indicators to evaluate housing
authorities' performance. HUD bases its performance scores for
these indicators on a housing authority's ability to (1) perform
modernization, maintenance, inspections, and other tasks to
maintain the overall physical condition of buildings; (2) collect
rents; (3) prepare vacated units for occupancy; and (4) work with
residents to provide programs, opportunities, and safe, drug-free
environments. HUD field offices depend on each public housing
authority to submit and certify to the accuracy of about half the
data that lead to the overall PHMAP score; the balance of the
information HUD uses comes from its existing information system
for tracking expenditures from major grants. HUD classifies
housing authorities as troubled if they score below 60 out of 100
possible points. The Department is now required to impose
receivership on housing authorities that are classified as
troubled for 2 years. HUD has also designed and is now
implementing a new performance assessment system-the Public
Housing Assessment System. This system is broader than and
subsumes PHMAP. Besides assessing management performance, the new
system includes measures of physical condition, financial
management, and residents' satisfaction. In May 1997, HUD
published a guidebook on privatizing public housing. According to
the acting assistant secretary at the time, the guidebook, along
with case studies presented as appendixes, is intended to help
housing authority officials who have decided to consider private
management for at least some of their developments. The guidebook
was prepared under a HUD contract by a consulting firm that
advises housing authorities interested in pursuing private
management. The guidebook is available directly from HUD or can be
downloaded from HUD's home page on the Internet. Page 6
GAO/RCED-99-210 Private Management for Public Housing B-281054
Benefits of OMB staff told us that they had no
quantitative basis for asserting in Competition Support
November 1997 that $200 million could be saved annually if the
private sector were allowed to bid on contracts for operating
public housing. In its the Belief That Public November 1997
passback1 on HUD's fiscal year 1999 budget request, OMB Housing
Resources proposed that the management of all housing
authorities be opened up to bids from private management
companies, nonprofit agencies, and other Could Be Used More
well-managed housing authorities. We recognize that the savings
from Cost-Effectively private management would be
difficult to quantify because most housing authorities have not
developed the project-based budgeting and accounting systems
needed to determine the true costs of operating individual housing
developments. In addition, baseline data for individual projects
would be needed before overall savings could be estimated.
Nevertheless, as we have reported in the past, introducing
competition into the management of government activities typically
results in lower costs and higher-quality services. OMB and others
continue to advocate the private sector's involvement in public
housing. This view is not widespread, however, among public
housing authorities-very few of the over 3,000 very small, small,
and medium-sized authorities use private contractors to provide
more than a few services. Currently, most housing authorities have
little incentive to change their views. Their income is relatively
stable and certain, and the demand for their housing is high. They
would derive little benefit from increasing their revenues because
such increases generally lead to corresponding reductions in the
subsidy payments they receive from HUD. To foster a more
competitive and cost-sensitive environment within public housing,
OMB staff, some housing authority officials, and several private-
sector contractors believe that housing authorities could use
private management to lower costs, increase revenues, and deliver
services more efficiently. We have made similar observations in
evaluating other federal programs. For example, in an October 1997
report on privatizing social services, we reported that
"Competition has long been held as a principle central to the
efficient and effective working of businesses in a free-market
economy. In a competitive market, multiple parties attempt to
secure the business of a customer by offering the most favorable
terms. Competition in relation to government activities can occur
when private-sector entities compete among themselves or when
public-sector entities compete with the private 1Before HUD and
other agencies send their budget requests to the Congress, OMB
reviews the requests and provides the agencies with guidance and
alternative recommended program funding levels. These comments are
contained in internal negotiation documents called "passbacks."
Agencies are allowed to appeal the recommendations in their
passback. Page 7 GAO/RCED-99-210
Private Management for Public Housing B-281054 sector to conduct
government business. In either case, competition for government
business attempts to bring the advantages of a competitive market
economy-lower prices and higher-quality goods or services-to the
public sector."2 In OMB's November 1998 passback on HUD's fiscal
year 2000 budget proposal, OMB staff questioned whether all
housing authorities are using operating subsidies and capital
grants cost-effectively. OMB staff stated that establishing
measurable performance standards and incentives to meet such
standards could enhance good management and cost-effectiveness in
the use of public housing resources. In this passback, OMB staff
noted that HUD's relationship to housing authorities is
contractual and should be contingent on performance. Moreover, to
ensure that housing authorities were successful, HUD would need to
measure their actual performance against its performance
standards. Furthermore, OMB staff characterized private management
as one remedy that HUD could use for housing authorities whose
performance fell short of the Department's standards. In 1998, OMB
suggested, as it did in 1997, that HUD invite bids from private
management companies, nonprofit entities, and well-managed housing
authorities to manage poorly performing authorities. The prospect
of losing managerial control in this manner could give housing
authorities an incentive to improve their performance. Private
Management Private management in public housing ranges from
hiring contractors for Generally Has individual
services and functions to hiring them to manage entire
developments or an entire housing agency. While most housing
authorities Benefited Housing contract for some individual
services, such as pest control, landscaping, or Authorities That
Have applicants' background checks, only a small percentage
have contracted for the day-to-day management of their properties.
Recently, however, Overcome Obstacles more authorities have
begun to explore private management as an option to Implementation
for their properties. The housing authorities that have adopted
private management have generally reported operating efficiencies
or higher- quality service. However, these authorities had to
overcome obstacles before they could implement private management.
2Social Service Privatization: Expansion Poses Challenges in
Ensuring Accountability for Program Results (GAO/HEHS-98-6, Oct.
20, 1997). Page 8 GAO/RCED-99-210
Private Management for Public Housing B-281054 Contracting for
Individual Housing authorities that are contracting for certain
individual services or Services and Functions functions
report that they often save money and improve service delivery.
Often Lowers Costs or Seventy-six percent of housing
authorities contract with a private Improves Service Delivery
company for at least one housing management function. Most
frequently, housing authorities contract for pest control (61
percent), trash collection (53 percent), bookkeeping or accounting
(53 percent), vehicle maintenance (27 percent), and
landscaping/grounds-keeping (24 percent). Seventy-nine percent of
the housing authority managers we surveyed who have contracted for
at least one housing management service or activity reported
improved operations. Some cited lower costs, primarily for
salaries and equipment. For instance, the Anne Arundel County
Housing Authority in Maryland reported saving over $100,000 per
year by contracting for lawn care, vacant unit painting, and
cleaning services for 1,026 units in eight developments. In
addition, it avoided a capital cost of $46,500 for lawn care
equipment. However, some housing authorities reported that they
performed the services themselves, achieving better results. For
example, the Eutowah Area Consolidated Housing Authority in
Georgia performs the vehicle maintenance and routine and
preventive maintenance work for its 358 units in two neighboring
towns. According to the Eutowah Area's executive director, he
achieves more value and better quality by doing the work with in-
house staff rather than contracting for the work. Some Very Large,
Large, Our survey found that about 9 percent of all public
housing units-over and Very Small Housing 100,000 units-are
under private management. Although housing Authorities Report
authorities of all sizes have privatized the management of
individual Benefits From Using housing developments to
some extent, most of the privately managed units Private
Management for are owned by the very large and large (1,250
units or more) housing authorities. Typically, the goal of these
authorities is to reduce the size of Entire Housing
the housing portfolio they manage on a daily basis. At the other
extreme, Developments we found that some very
small housing authorities (owning fewer than 100 units) are also
hiring private managers, often to save money by combining their
portfolio with those of other very small housing authorities.
Despite their small size, these authorities say they must address
many of the same management issues as the large authorities. In
general, the housing authorities that are using private firms to
manage individual developments identified positive and significant
results. For example, at all four of the housing authorities we
visited-in Atlanta, Boston, Chicago, and Washington, D.C.-
officials told us that private Page 9
GAO/RCED-99-210 Private Management for Public Housing B-281054
management contributed to improvements, efficiencies, and savings.
We found that private management helped to (1) improve the
financial management and operating efficiency of public housing
authorities, (2) improve customer service through the provision of
more responsive property management functions, (3) introduce
private-sector business practices into public housing management
and make the benefits of the practices well-known, and (4) provide
economies of scale that reduce costs and improve operating
efficiency. However, we also found that savings are difficult to
quantify because none of the housing authorities have fully
developed property-based budgeting and accounting systems. Such
property-based systems are needed if traditional housing authority
managers are to become successful asset managers focused on
cutting costs and developing strategies for adding revenues in
their public housing real estate portfolios. Improved Financial
Of the housing authorities that answered our questionnaire, 43
percent of Management and Operating those using private
management believe that their overall financial Efficiency
management improved with private management. Forty percent
reported no change. Fewer than 5 percent reported that their
financial management became worse after private management was
introduced. Over 60 percent reported lower vacancy rates, more
timely rent collection, and stronger lease enforcement because of
private management. Such improvements increased the authorities'
PHMAP scores. For example, Atlanta Housing Authority officials
told us that their vacancy rate declined with private management.
Atlanta Housing Authority officials also believe that the private
managers were instrumental in improving the authority's financial
management practices by facilitating the comparison of budgeted
amounts with actual expenditures for each development. Atlanta did
not have such a system before it introduced private management. In
addition, housing authority officials in Washington, D.C., credit
the private management companies with increasing rent collections,
reducing unit turnover time, developing effective unit inspection
programs, and increasing efficiency in other ways that helped the
housing authority achieve a passing PHMAP score. Small housing
authorities have also benefited from private management. The
housing authority of Konawa, Oklahoma, for example, contracted
with a private company to handle the day-to-day management of its
38 public housing units. According to the chairman of the board of
commissioners, private management saves the city about $6,500 per
year. Page 10 GAO/RCED-99-210 Private
Management for Public Housing B-281054 Improved Customer Service
Private management companies have improved housing services to
residents by providing fundamental property management functions.
Of the housing authorities we surveyed that were using private
management, 62 percent reported that the exterior appearance, or
"curb appeal," of their properties improved; 74 percent saw
improvement in the day-to-day management of their developments; 65
percent said that private management companies improved day-to-day
maintenance activities; and 59 percent believed that residents'
satisfaction increased. Housing authority officials in Atlanta,
Chicago, Boston, and Washington, D.C., agreed that private
management companies excel at improving the curb appeal of public
housing properties, which could help housing authorities attract
more working families to public housing.3 When private management
companies take over properties, their first priorities usually
include awarding landscaping contracts, putting up new signs,
discouraging graffiti and trash dumping through daily cleanups,
and repainting entrances and other public areas (see fig. 2).
Figure 2: Exterior Amenities and Landscaping, Chicago, Illinois
Housing authority officials also agreed that private management
companies typically do a good job of eliminating maintenance
backorders and improving maintenance response times. For example,
private management companies in Washington, D.C., told us that
they eliminated backlogs of hundreds of work orders in their first
few weeks under 3Attracting more working families to public
housing is a goal of the Quality Housing and Work Responsibility
Act of 1998. Page 11 GAO/RCED-99-210
Private Management for Public Housing B-281054 contract. In
Boston, housing authority officials told us that private
management companies can perform many simple maintenance repairs
more efficiently and economically than their in-house maintenance
staff. For example, they said that a private firm can often send
one maintenance employee to perform a simple task, such as repair
a broken pipe in a wall, while labor agreements require the
housing authority to use a number of skilled tradespeople.
Individuals representing resident groups told us that tenants'
quality of life improved under private management. For example, a
private management company in Chicago built a laundry room for
residents, eliminating a 10-block trip to the closest laundromat.
A private management company in Washington, D.C., used operating
budget savings to fund improvements such as new carpeting in the
lobby, tables and chairs in the recreation room, and a new roof-
top card room (see fig. 3). Figure 3: New Roof-Top Card Room,
Washington, D.C. Private-Sector Business Contracting,
whether for landscaping and grounds-keeping at a few Practices
properties or for managing a few entire housing developments,
brings a degree of competition into a housing authority's
regulated management Page 12 GAO/RCED-99-210
Private Management for Public Housing B-281054 environment.
Officials at the four housing authorities we visited told us that
they now see the benefits of competition with the private sector.
For example, after noting the positive impact of improved curb
appeal at their privately managed properties, Boston Housing
Authority officials improved the curb appeal at properties managed
in-house (See fig. 4). Boston officials also began inviting
private managers to their management retreats to share management
practices. The severely troubled Chicago Housing Authority was
under HUD's management when it significantly expanded its private
management portfolio in 1995. Chicago has an asset manager to
oversee its privately managed portfolio and plans to give the
private management companies more autonomy in managing properties
in hopes that successful private-sector practices will influence
the housing authority's management. In Washington, D.C., the
receiver told us that that he no longer plans to place the housing
authority's entire portfolio under private management because he
believes that his in-house staff is adopting many private-sector
management techniques.4 He is satisfied with the current balance
of 12 privately managed and 44 housing-authority- managed
developments. The receiver plans to continue implementing private-
sector practices, including a project-based budgeting system, a
regionalized organizational structure, and a pay-for-performance
plan. He believes that these practices will allow in-house
managers to operate at a cost equal to or less than that of the
private management companies that receive a management fee. 4The
District of Columbia Housing Authority has been under the
management of a court receiver since May 1995. Page 13
GAO/RCED-99-210 Private Management for Public Housing B-281054
Figure 4: Improved Curb Appeal at a Property Managed by the Boston
Housing Authority Page 14 GAO/RCED-99-210 Private Management
for Public Housing B-281054 Cost-Effective Housing
Private management can help small authorities achieve economies of
scale Portfolio Size with reduced overhead, as
well as help make large authorities' portfolios more manageable.
In Northeast Texas, 13 housing authorities in three counties
managing portfolios ranging in size from 6 to 104 units contracted
with the Texoma Council of Governments to provide management
services. The Council acts as the managing agent and provides all
management services for the housing authorities. According to the
Council's director, reducing the number of audits, accounting
fees, insurance policies, and association memberships from 13 to 1
will save more than $30,000 each year. Additional savings from
reductions in staff time, postage, copies, and other
administrative costs are expected. Conversely, the Boston Housing
Authority eased its large workload by contracting for the
management of about one-quarter of its 44 housing developments for
the elderly. Boston reduced the typical workload of its site
managers to one to three developments, a level that is in line
with private-sector practices. Previously, the site managers of
Boston's housing developments for the elderly were responsible for
four to seven developments and, according to housing authority
officials, had time for collecting rents and providing basic
maintenance but not for providing services and outreach to
tenants. Housing Authorities Have On the basis of our
survey and our visits with housing authorities, we Overcome
Obstacles to identified six obstacles to the effective
use of private management Implementing Private
companies: (1) difficulty in departing from the status quo; (2) a
history of Management centralized operations,
budgeting, and accounting; (3) inexperience in monitoring
contractors' performance, (4) residents' fear of change; (5)
concerns about the impact of a change in management on housing
authority personnel; and (6) the disincentive to change created by
high PHMAP scores. We also found that some housing authorities
have overcome the obstacles and implemented effective private
management programs. Difficulty in Departing From Most housing
authorities told us that they are satisfied with how they have the
Status Quo operated in the past, contracting for
a few individual housing services, such as trash removal or pest
control, but using in-house staff to manage individual housing
developments. Fifty-seven percent of the housing authorities
believe their properties would not benefit from private
management. Forty-three percent believe that switching to private
management would be more costly than managing with in-house
personnel. The exceptions were typically the 2.2 percent of
housing authority directors who have contracted with private firms
to manage one Page 15 GAO/RCED-99-210 Private
Management for Public Housing B-281054 or more public housing
developments. These directors attributed management improvements
and cost savings to the private-sector's management style and
practices, not generally found in traditional public housing.
Centralized Management According to HUD's May 1997 "how to"
guidebook on using private firms to manage public housing, a key
difference between public and private management is the degree of
centralization. Most housing authorities manage their housing
operations from a central office with centralized budgeting and
accounting systems, while private firms rely on decentralized
management with property-based accounting, which, in turn,
provides the information necessary to prepare property-based
budgets. When consolidated, compared, and analyzed, this property-
based information provides a basis for deciding how to manage the
housing authority's assets.5 According to the Institute for Real
Estate Management, HUD is encouraging public housing authorities
to adopt decentralized management practices, including property-
based budgeting and accounting, which are common in the private
sector. However, most housing authorities have not transformed
their systems. Without property-based budgeting and accounting,
housing authorities have difficulty determining the true costs of
operating a housing development. Such information is necessary to
control costs, measure program efficiency, and make strategic
asset management decisions such as whether to privatize the
management of individual developments. All four housing
authorities we visited are decentralizing their operations,
although the level of decentralization varies. The District of
Columbia Housing Authority has decentralized its property
oversight by dividing itself into three nearly autonomous,
similarly sized regional housing agencies. The Boston Housing
Authority split its elderly and family housing portfolios and
placed a portion of each under private management. The New York
City Housing Authority, on the other hand, chose to privatize its
scattered-site housing program. In all three cases, the goal was
to devolve responsibility and accountability for individual
developments so that managers could focus on analyzing the
physical, structural, and marketing needs of their housing
portfolios. In addition, the use of private property managers has
instilled competition, and exchanges 5Whereas a traditional
housing authority director can be compared to a hands-on chief
operating officer, an asset manager is more like a chief executive
officer, supervising and implementing policy. More specifically,
asset management depends on systems and data, including project-
based budgeting and accounting systems, a property-based
performance-monitoring system, relevant market information, and
property-based data on physical needs. Page 16
GAO/RCED-99-210 Private Management for Public Housing B-281054
between private and in-house managers have enhanced performance
throughout entire agencies. Property-based budgeting and
accounting are common in private property management but rare in
public housing because of the program's unique funding
arrangement: HUD provides both capital and operating funds to a
housing authority as a single organizational unit, not to
individual developments under the authority's management. HUD's
regulations require housing authorities that manage over 500 units
to practice project-based or cost-centered accounting.6 Preparing
property-based budgets, which requires establishing and
maintaining appropriate accounting records at each property, can
improve efficiency and responsiveness because such budgets
accurately present the costs of operating each property. Knowing
costs at the project level enables management to determine how
much of an agency's operating resources are spent on the
properties themselves compared with central office overhead. It
can also provide information to guide capital expenditures and to
identify properties whose management would benefit from private
management. According to the former deputy assistant secretary,
property-based budgeting and accounting are the single most
effective tools for measuring the performance of a property;
without them, a housing authority cannot truly decentralize
operations because its internal controls will be inadequate. Of
the four housing authorities we examined in detail, Atlanta's came
closest to achieving a full property-based budgeting and
accounting system. Inexperience in Monitoring Delegating
property-management functions to private companies relieves
Contractors' Performance a housing authority of day-to-day
property management tasks; however, private management experts and
housing authority officials told us that to ensure success,
privatization efforts need clear and specific performance-based
standards and in-house staff able to run effective monitoring
programs. According to District of Columbia Housing Authority
officials, the private firms under performance-based standards
outperformed those without performance-based standards. Housing
authority officials in Atlanta also included performance measures
in private management contracts. Accordingly, Atlanta will pay
management companies that meet agreed-upon performance goals a
bonus over and above the monthly management fee. Conversely,
Atlanta plans to penalize management companies that fail to meet
its performance standards. 6Cost centers can be delineated by
administrative departments or divisions within a housing
authority, by office locations, by individual projects, or by
clusters or communities of projects that consist of one or more
contiguous buildings, an area of contiguous row houses, or
scattered-site buildings. Page 17
GAO/RCED-99-210 Private Management for Public Housing B-281054
Monitoring is also essential to ensure that contractors perform
effectively. HUD's private management guidebook describes property
management oversight activities as including monthly or quarterly
site visits, annual or semiannual reviews of management
procedures, monthly reviews of income and expense statements and
operating performance data, and reviews of audited financial
statements. All four authorities we reviewed require private
management companies to submit periodic management and financial
reports. Residents' Fears of Change Residents' fears, whether
real or perceived, can be major obstacles to successfully adopting
private management. Our survey results suggest that most housing
authority officials do not know how their residents view private
management. When asked if they believed residents favored private
management, 48 percent of the housing authority officials neither
agreed nor disagreed with the statement. Of those that responded,
those at housing authorities that have hired private firms to
manage at least one housing development were less concerned about
residents' fears of change. Only 8 percent of those at housing
authorities that have privatized at least one development
responded that they believe residents do not favor private
management, compared with over 35 percent of those at housing
authorities that have not privatized any developments. Effective
communication can help to avoid or overcome these problems. For
example, the residents at one Chicago development initially
thought that they would lose their homes under private management.
To allay these fears, the property management company presented
its plans to the residents and subsequently held monthly meetings
to update them on the management transition. In Boston, the
authority included the residents in its review of the bidders'
qualifications. According to resident leaders at both authorities,
most of the residents now prefer private management and are
pleased with the additional social services and improved living
conditions provided by the private management companies. Concerns
About Displacing To implement private management, housing
authorities must be willing to Housing Authority Personnel
address concerns about displacing in-house staff. Housing
authorities use different approaches to mitigate the impact of
private management on existing personnel. HUD's privatization
guidebook identifies five approaches: (1) Choose properties for
private management that are new or recently modernized, thus
minimizing the displacement of existing staff; (2) rely on staff
attrition to cover the costs of and limit the need for reductions
in force; (3) freeze personnel vacancies for over a year in
anticipation of private management; (4) ask the private firms to
hire Page 18 GAO/RCED-99-210 Private
Management for Public Housing B-281054 existing staff for some
period; and (5) use the management improvement line item in HUD's
comprehensive grant modernization program as a source of
transitional funding, thereby giving the housing authority more
time to adjust its organization. The Atlanta Housing Authority
encouraged private managers to hire housing authority employees
who were assigned to a development, subject to the management
company's pre-employment requirements. The housing authority
stipulated that management companies that hire its employees must
recognize and honor each individual's respective years of service
in determining eligibility and benefit levels under the company's
group insurance and leave accrual plans. Furthermore, all staff
who took jobs with private management companies were eligible to
reapply to the housing authority within 1 year; however, few
people took advantage of this offer. The District of Columbia
Housing Authority, on the other hand, recognized that the low
performance level of its staff was part of the problem and did not
require or encourage private firms to hire its staff. The
Disincentive Created by In response to our survey question
asking why private management had High Management Assessment
not been considered as an option, executive directors often cited
their Scores high PHMAP scores and
interpreted those scores to mean that their programs were running
efficiently. Under PHMAP, however, high scores are common and
should not be the only measure of program efficiency. As of
February 1999, 99 percent of the housing authorities had passing
scores; over 75 percent scored over 90 out of 100, and HUD rated
them as "high performers." HUD's new Public Housing Assessment
System is designed to be more comprehensive. One of its four
components will measure the physical condition of public housing.
For that reason, the new assessment system may provide a better
measure of an authority's potential to make more effective use of
its resources by adopting asset management and other private
management strategies. In the past, HUD required some of the
troubled, primarily very large housing authorities, such as those
in Atlanta and Chicago, to incorporate private management, and the
results have been positive. Whether private management could
benefit housing authorities of all sizes, regardless of their
performance scores, is not known. Page 19
GAO/RCED-99-210 Private Management for Public Housing B-281054
Opportunities Exist Each year, HUD provides grants and
subsidies totaling nearly $6 billion to for HUD to Encourage
housing authorities. Because of this substantial funding, HUD
bears a responsibility to ensure that housing authorities focus
adequate attention More Cost-Effective on making cost-
effective use of their resources. To carry out this Use of
Resources responsibility, HUD has several
relatively new means of focusing housing authorities' attention on
strategies, including private management, for increasing revenue,
lowering costs, and improving the quality of services in public
housing. These means include (1) the Department's guidebook on
privatization; (2) new regulations that require periodic housing
agency plans, implementation of HUD's newly designed Public
Housing Assessment System, and adoption of new formulas for
providing annual grants and subsidies to housing authorities; and
(3) the Department's annual performance planning process. By
taking full advantage of each of these means of emphasizing cost-
efficiency in public housing, HUD can ensure that housing
authorities perceive that the cost-effective use of resources is a
high priority and that HUD supports the authorities' exploration
of strategies such as private management for using their resources
cost-effectively. HUD's Guidebook Could HUD has
recognized that private management can have positive results. HUD
Be Made More Accessible published a private management
guidebook and made it available on the Internet to help housing
authorities adopt this strategy. The cover letter to the 1997
guidebook, signed by the Secretary of Housing and Urban
Development, endorses private management-stating that "[w]ell-
structured private management programs have resulted in reduced
costs, improved performance, and higher quality of work". However,
the guidebook is not easily accessible from HUD's Internet Web
site because it does not have a separate link and will not appear
on a search of HUD's "guidebook" database. The user must search
for the words "private management" to access the document. In
contrast, HUD's HOPE VI Urban Revitalization Demonstration Program
has a prominent link on the Public and Indian Housing home page
with access to a separate Web site that collects and shares
information on best practices, a resource bank of sample requests
for proposals, requests for qualifications, contracts, and HUD
policies and regulations that affect the program. Housing
authority officials also seemed unsure of HUD's position on
private management. When asked to react to a statement about
whether HUD supports private management, 60 percent neither agreed
nor disagreed with the statement. We believe that this response
reflects a perception on the part of housing authority managers
that HUD has not taken a position Page 20
GAO/RCED-99-210 Private Management for Public Housing B-281054 on
private management. Housing authority employees attending HUD's
July 1999 conference on best practices would not have seen much
evidence that HUD supports the use of private management for
public housing. The topic was not covered in any of the nearly 100
workshops on best practices held at the 5-day conference. Only a
handful of the over 1,300 nominations for best practices submitted
for HUD's Public and Indian Housing programs covered some aspect
of private management. New Regulations and a The Quality
Housing and Work Responsibility Act of 1998 (title V, P.L. New
Performance 105-276) substantially amends the U.S.
Housing Act of 1937 and offers HUD Measurement System Offer
several opportunities to encourage greater cost-effectiveness in
public Opportunities for HUD to housing. For example, the act
requires housing authorities to develop Encourage the
annual and 5-year plans that describe, among other things, the
agencies' plans for implementing an asset management philosophy
for their public Cost-Effective Use of housing inventory.7
In addition, the act provides for entities other than Resources
housing authorities to administer public housing and for two or
more housing authorities to form consortia to administer any or
all of each agency's respective housing programs. In its initial
guidance-published on February 18, 1999-HUD stated that the two
provisions will require rulemaking. HUD's goal is for housing
authorities to plan strategically to make more efficient use of
federal assistance, more effectively operate their programs, and
better serve their residents. HUD's interim rule for developing
public housing planning documents-also published on February 18,
1999-stated that the purpose of both the annual and the 5-year
plans is to require housing authorities to examine their existing
operations and needs and to design short- and long-range
strategies to address those needs. Although the interim rule did
not explicitly refer to private management as a management option,
the Deputy Assistant Secretary, Office of Policy, Program, and
Legislative Initiatives, told us that the template HUD is
currently considering as a model for public housing plans contains
private management as an example in the section on asset
management. He also agreed that HUD should strongly encourage
small housing authorities to form consortia. HUD currently has
another opportunity to emphasize cost-effectiveness and provide
incentives for housing authorities to increase revenues as it
develops a new formula for providing operating subsidies to
housing authorities. The Quality Housing and Work Responsibility
Act of 1998 stipulates that housing authorities can benefit from
reductions in their 7The act specifies that asset management
functions include, but are not limited to, plans for long-term
operating and capital investment, rehabilitation, modernization,
and property disposition. Page 21
GAO/RCED-99-210 Private Management for Public Housing B-281054
utility and waste management costs and increases in the incomes
earned by residents. However, these incentives, though positive,
are not likely to generate much revenue for housing authorities,
at least not in the short term.8 Moreover, in our 1998 report on
HUD's current system of providing subsidies, we found that the
four large housing authorities we visited believed that they
needed incentives and flexibility to increase their revenues so
that they would be less dependent on HUD's operating subsidy.9 A
characteristic of private managers of public housing is that their
business practices, such as more aggressive evictions, timelier
rent collections, and faster preparation of vacated housing units
for occupancy, result in higher rental revenue. However, unless
housing authorities believe that they will not lose a portion of
their subsidy if they maximize income, they may not be motivated
to explore private management as a strategy to increase their
rental income. Therefore, as HUD develops a new operating subsidy
formula, it can consider a stronger performance incentive as part
of the new subsidy formula. Such an incentive would be consistent
with a broad provision in the act to create a performance
incentive in the public housing capital grant program. Finally,
HUD has an opportunity to emphasize cost-effectiveness in its new
Public Housing Assessment System. HUD will implement this system
on October 1, 1999, and its purpose is to measure housing
authorities' performance on the basis of standards that are
objective, uniform, and verifiable. HUD published a notice in the
May 13, 1999, Federal Register that details the new assessment
system's scoring process. While the new system includes financial
indicators, such as liquidity levels, receivables outstanding, and
expense controls, it does not include measures of program
efficiency, such as the number of households served per month per
unit of cost, that can be used to compare operating costs with
housing services provided. By referring to private management in
its new management regulations as a useful management tool or
strategy, HUD could help to build the concept into housing
authorities' strategic planning. HUD would then know that
authorities were at least aware that the Department supports
private management as an option for achieving greater productivity
through the 8While the earnings of former welfare recipients may
eventually benefit housing authorities, they are not likely to do
so during the first year. The act mandates that housing
authorities disregard for 12 months increases in income for
persons who (1) have been unemployed for 1 or more years and
obtain employment through participation in a family self-
sufficiency or job training program or (2) have received temporary
assistance for needy families within the last 6 months. After the
12-month period, the rent increase is phased in at no greater than
50 percent for the next 12-month period. 9Public Housing
Subsidies: Revisions to HUD's Performance Funding System Could
Improve Adequacy of Funding (GAO/RCED-98-174, June 19, 1998). To
prepare this report, we conducted in-depth interviews with housing
authorities in Baltimore, Kansas City, Los Angeles, and Miami.
Page 22 GAO/RCED-99-210 Private
Management for Public Housing B-281054 more cost-effective use of
resources, higher-quality services, or increased revenues. In
addition, once authorities start to consider private management in
their planning and asset management decisions, HUD could improve
its own performance plan, as discussed below. HUD's Performance
Plan To further encourage the cost-effective use of public
housing resources, Also Provides HUD has established
expectations for housing authorities in its fiscal year
Opportunities for 2000 annual performance plan. In this
plan, HUD expresses its expectations Fostering the for
itself and its partners as either outcome or programmatic output
Cost-Effective Use of indicators. In guidance issued to all
agencies on how to develop these indicators in annual performance
plans, OMB stated that "agencies are Resources
strongly encouraged to include, as appropriate, measures of
customer service and program efficiency." In its fiscal year 2000
performance plan, HUD specifies five strategic goals, one of which
is to increase the availability of decent, safe, and affordable
housing in American communities. To help achieve this goal, the
plan states, HUD will aid public housing authorities in analyzing
their housing markets, their most pressing needs, and their most
cost-effective responses through their operating plans. However,
under this strategic goal, the plan includes no outcomes or
outputs-for either HUD or housing authorities-to measure the
achievement of cost-effectiveness through joint HUD-housing
authority analyses of markets and needs. The Director of Policy
Development, Office of Policy Development and Research, said that
the plan did not focus on productivity measures because some
incentive to make cost-effective use of available resources
already exists in the public housing operating subsidy formula.
She said that a housing authority's allowable expenses are
predetermined for a given year; therefore, if an authority can
reduce its costs through efficiencies, it will have some extra
funds for discretionary uses that year. Having these extra funds,
therefore, would be an incentive to operate more efficiently.
However, our 1998 report on HUD's current system of operating
subsidies, while limited in scope to four large housing
authorities, found that housing authorities did not recognize this
incentive, nor were they gaining discretionary income by becoming
more operationally efficient. Instead, these four housing
authorities reduced or deferred their maintenance or used other
grants to defray operating costs to cope with what they considered
inadequate funding. The Director of Policy Development noted Page
23 GAO/RCED-99-210 Private Management for
Public Housing B-281054 that to create more incentives to operate
efficiently, a negotiated rulemaking panel that is currently
developing a new formula for operating subsidies might build some
incentives for cost-effectiveness into the new formula. Two of
HUD's five strategic goals are partially related to providing safe
public housing. In turn, parts of key objectives within these
goals specify that housing should be safe and that housing
authorities should be held accountable for results. HUD's
performance plan discusses several means of achieving these
objectives, including rating housing authorities on their
administration, regularly inspecting the physical quality of
public housing, and subsequently enforcing contracts that require
housing to be kept in standard condition. To measure public
housing safety, the performance plan contains indicators related
to tenants' satisfaction, housing quality standards, and life-
threatening health and safety deficiencies. However, the plan does
not similarly emphasize and include indicators for the cost-
effective use of resources. Moreover, it does not link the safety
indicators with incentives such as funding or with consequences
for not achieving minimum performance, as OMB suggested in its
November 1998 passback. Therefore, without cost indicators or a
linkage between performance and incentives, housing authorities
may perceive that the cost-effective use of resources is not
important to HUD and that exploring strategies such as private
management to reduce costs is not encouraged. Conclusions The
public housing authorities we reviewed have not widely embraced
private management, but where they have, the results generally
have been positive and demonstrate that private management can be
a catalyst for change and improvement. Because many housing
authorities have not considered private management as an
alternative housing management strategy, we believe that they may
have been depriving themselves and their residents of private
management's potential benefits. In addition, to the extent that
private management could help to raise public housing revenues,
excessive subsidies could be avoided and services could be
increased. Because private management is not an irreversible
change in management style, we believe that more housing
authorities could afford to consider it before concluding that it
would not work for them. Although HUD has required some troubled
housing authorities to implement private management, the
Department has not actively promoted this approach. For example,
it did not include private management in public housing on the
agenda for its recent conference on Page 24
GAO/RCED-99-210 Private Management for Public Housing B-281054
best practices. In addition, HUD's guidebook on private management
is hard to find on the Internet. Nevertheless, HUD currently has
several opportunities to encourage housing authorities to focus on
operational efficiency by considering options such as asset
management and private management. These opportunities include the
framing of new regulations that will implement HUD's new Public
Housing Assessment System and the 1998 public housing reform
legislation. This legislation mandates a new operating subsidy
formula and requires housing authorities to prepare annual and 5-
year plans. In addition, HUD has an opportunity to develop outcome
and output indicators for its performance plan that would enable
the Department to measure whether housing authorities are adopting
cost-conscious management approaches. Recommendations To
implement provisions of the Quality Housing and Work
Responsibility Act of 1998, clarify the Department's position on
private management, and foster the cost-effective use of federal
resources, we recommend that the Secretary of Housing and Urban
Development * make the 1997 guidebook on private management more
readily accessible on HUD's Internet Web site and expand the site
to include additional information, such as a resource bank of
important private management documents, best practices, and
pertinent experiences, that housing authorities can share; *
ensure that the regulations HUD develops to implement provisions
of the 1998 public housing reform legislation (1) encourage
housing authorities through their planning process to consider and
adopt asset management principles, including project-based
budgeting and accounting; (2) encourage small housing authorities
to look for opportunities to achieve efficiencies by forming
consortia or joint ventures that could include third parties; and
(3) provide incentives for housing authorities to make more cost-
effective use of their resources; * develop outcome and output
indicators in the Department's annual performance plan that can be
used to measure whether housing authorities are adopting cost-
conscious management approaches. Agency Comments We
provided copies of a draft of this report to HUD and OMB for
review and and Our Evaluation comment. Later, we met with
HUD's Deputy Assistant Secretary for Policy, Programs, and
Legislative Initiatives and Deputy Assistant Secretary for
Community Relations and Involvement and OMB's Housing Branch Chief
to Page 25 GAO/RCED-99-210 Private Management
for Public Housing B-281054 obtain their comments. We also sent
each of the case studies in appendix III to the appropriate
housing authority for review and comment. HUD generally agreed
with the report and all but one of our recommendations and said
that the report provided new and useful information that should
benefit housing authorities as they consider hiring private-sector
contractors to help operate and maintain their properties. In
several areas, however, HUD disagreed with the draft report. In
particular, the draft report included a proposed recommendation
that HUD consider adding an indicator to its new Public Housing
Assessment System that would measure changes in program
efficiency. Although HUD believes that such an indicator would be
useful, it also believes that the Department's new assessment
system contains several similar indicators. Moreover, HUD said
that because the resources available to public housing authorities
are not equal across the board, developing an equitable indicator
of efficiency is not technically feasible at this time. We agreed
and withdrew our proposed recommendation for such an indicator.
HUD also differed with our characterization of the Department as
neutral toward privatization because of the disclaimer printed in
its privatization guidebook. According to the Department, the
disclaimer meets a legal requirement and does not represent HUD's
position. HUD believes it is positive rather than neutral about
the benefits of using private contractors to operate public
housing. We revised the report to reflect HUD's position. OMB
officials also agreed with the report's conclusions and
recommendations, and they provided several suggestions to enhance
clarity, which we have incorporated as appropriate. Scope and
To assess OMB's basis for estimating HUD's potential savings from
Methodology implementing private management, we met with OMB
staff to obtain supporting documentation. We also reviewed
correspondence between the Council of Large Public Housing
Authorities and OMB concerning OMB's support. In addition, we
reviewed studies and published articles on privatizing public
housing and other social services. To determine the extent to
which housing authorities have adopted private management
strategies in their public housing programs, we mailed a survey to
1,182 housing authorities to obtain their views on contracting
with private companies. We drew our sample from HUD's Public
Housing Page 26 GAO/RCED-99-210 Private
Management for Public Housing B-281054 Authority Profiles database
that we downloaded from the Department's home page on the
Internet. For assistance in designing our survey, we obtained
input on the content of the questionnaire from officials of the
National Association of Housing and Redevelopment Officials,
private management companies, and housing experts. We pretested
the questionnaire with officials of six housing authorities in
Maryland, Virginia, and Georgia. Each pretest consisted of a visit
by our staff to a housing authority. During these visits, we
simulated the actual survey experience by asking housing authority
officials to fill out the questionnaire. We also interviewed
housing authority officials after they had completed the
questionnaire to ensure that (1) the questions in the survey were
readable and clear, (2) the terms used in the survey were precise,
(3) the survey did not place an undue burden on housing authority
officials, and (4) the survey was independent and unbiased in its
point of view. We used HUD's size classification categories for
public housing agencies and mailed 1,182 surveys addressed to
executive directors-401 surveys to all of the very large, large,
and medium-sized housing authorities, 399 surveys to a random
sample of the small housing authorities, and 382 surveys to a
random sample of the very small housing authorities. We received
1,065 completed, useable questionnaires-a response rate of 90
percent. To identify housing authorities' views on and experiences
with hiring contractors to manage specific housing developments
and perform discrete housing management functions, we visited
housing authorities in Atlanta, Boston, Chicago, and Washington,
D.C. Case study analyses of these four locations enabled us to
gain an in-depth understanding of issues associated with
privatizing the management of public housing developments in these
jurisdictions. We selected these cities because of their varying
experiences with private management. We also met with public
housing experts, private management companies, public housing
residents, HUD officials, and OMB staff to obtain their
perspectives on the use of private management for public housing.
In addition, we evaluated a significant study done in October 1998
that attempted to measure differences in efficiency and
effectiveness between privately and publicly managed public
housing properties in Dade County, Florida. Finally, to evaluate
HUD's role in fostering successful private management efforts at
housing authorities, we met with officials from two HUD Page 27
GAO/RCED-99-210 Private Management for Public Housing B-281054
offices-Public and Indian Housing, and Policy Development and
Research. We also spoke with officials from HUD's Atlanta, Boston,
Chicago, and Washington, D.C., field offices. In addition, we
discussed HUD's role with public housing experts, housing
authority officials, and private management companies. We
conducted our review from July 1998 through June 1999 in
accordance with generally accepted government auditing standards.
We are sending copies of this report to the Chairs and Ranking
Minority Members of the Senate and House Committees with
responsibility for public housing; to Andrew Cuomo, Secretary of
Housing and Urban Development; and to Jacob Lew, Director, Office
of Management and Budget. We will make copies available to others
on request. Please contact me at (202) 512-7631 if you or your
staff have any questions. Key contributors to this report are
listed in appendix IV. Judy A. England-Joseph Director, Housing
and Community Development Issues Page 28
GAO/RCED-99-210 Private Management for Public Housing Page 29
GAO/RCED-99-210 Private Management for Public Housing Contents
Letter
1 Appendix I
32 Survey Results Most Housing Authorities Contract With
Private Companies for 32 Some Management
Services or Functions Contracts for Management Services Are Small
Compared With 33 Housing Authorities'
Operating Budgets Most Housing Authorities Are Not Contracting for
the 33 Management of Entire Public
Housing Developments Very Large or Very Small Housing Authorities
Are More Likely to 33 Use Private Management for
Their Developments Housing Authorities Are Not Clear as to HUD's
or Residents' 37 Views on Private Management
Appendix II
38 Sampling Errors and Confidence Intervals for Estimates Appendix
III
45 Very Large Housing Housing Authority of the City of
Atlanta 45 District of
Columbia Housing Authority
50 Authorities' Chicago Housing Authority
55 Experiences With Boston Housing Authority
61 Private Management Appendix IV
67 GAO Contacts and Staff Acknowledgments Tables
Table 1: Characteristics of Public Housing Authorities, by Size
4 Table I.1: Management Services Most Often Provided by Private
32 Contractors Table I.2: Housing Authorities' Use of Private
Companies to 33 Manage Developments Page 30
GAO/RCED-99-210 Private Management for Public Housing Contents
Table I.3: Housing Authorities Using Private Management
34 Companies to Manage Housing Developments Table II.4: Housing
Authority Managers' Beliefs About the 37
Benefits of Private Management for Authorities That Have and Have
Not Privatized Housing Developments Table II.1: Sampling Errors
and Confidence Intervals for 38 Estimates
Derived From Responses to Selected Survey Questions Figures
Figure 1: Federal Funding for Public Housing
5 Figure 2: Exterior Amenities and Landscaping, Chicago, Illinois
11 Figure 3: New Roof-Top Card Room, Washington, D.C.
12 Figure 4: Improved Curb Appeal at a Property Managed by the
14 Boston Housing Authority Figure II.1: Percentage of Responding
Housing Authorities, by 35 Size, Agreeing That
Their Properties Would Not Benefit From Private Management Figure
II.2: Percentage of Responding Housing Authorities, by
36 Size, Agreeing That Private Management Is More Costly Than
Managing With In-House Staff Abbreviations AHA Housing
Authority of the City of Atlanta BHA Boston Housing
Authority CHA Chicago Housing Authority DCHA
District of Columbia Housing Authority HUD Department of
Housing and Urban Development OMB Office of Management
and Budget PHA Public Housing Authority PHMAP
Public Housing Management Assessment Program VA
Department of Veterans Affairs Page 31
GAO/RCED-99-210 Private Management for Public Housing Appendix I
Survey Results This appendix summarizes the results of our survey
of 1,182 housing public authorities. We drew our sample of housing
authorities from the Department of Housing and Urban Development's
(HUD) Public Housing Authority Profiles database, which we
downloaded from HUD's home page on the Internet. We mailed
questionnaires to the executive directors of (1) all 401 housing
authorities classified by HUD as very large, large, and medium-
sized; (2) a random sample of 399 housing authorities classified
as small; and (3) a random sample of 382 housing authorities
classified as very small. We received completed, useable
questionnaires from 1,065 housing authorities-a response rate of
90 percent. This appendix summarizes our analysis of the responses
we received. Most Housing We
found that 76 percent of housing authorities contract for at least
one Authorities Contract housing
management service with a private company. In most cases, housing
authority managers responded that the shift from in-house With
Private management to private
management improved operations. Table I.1 Companies for Some
identifies the 10 services that, according to respondents, are
most often provided by private companies, the percentage of
housing authorities Management Services
using private companies, and housing authority managers' views on
the or Functions results of
using these companies. Table I.1: Management Services Most Often
Provided by Private Contractors Reported change resulting from
using private company Percentage of housing
(in percent) authorities that Type of service
contract for that service Became worse Did
not change Became better Pest control
81 3 19
65 Trash collection
73 4 35
37 Bookkeeping/accounting (excluding audit)
57 2 17
54 Vehicle maintenance
43 2 31
49 Training housing authority employees
39 0 14
77 Landscaping/grounds-keeping
38 5 24
69 Processing evictions and other legal services
30 3 25
57 Providing training and social services for residents
20 4 19
65 Conducting background checks
18 2 17
70 Administration of modernization programs
18 5 11
71 Source: GAO's analysis of survey responses. Page 32
GAO/RCED-99-210 Private Management for Public Housing Appendix I
Survey Results Contracts for The costs
of contracts for individual management services or functions
Management Services typically represent a
small percentage of a housing authority's operating budget. About
70 percent of the housing authorities that contract for Are Small
Compared individual services or functions
reported that they spend 10 percent or less With Housing
of their operating funds for private firms to perform individual
services. Twenty-one percent reported paying 11 to 20 percent to
outside firms, and Authorities' Operating 10 percent reported
paying more than 20 percent. Savings usually result Budgets
from lower costs for salaries and equipment. Most Housing
The percentage of housing authorities that have hired private
companies Authorities Are Not to manage
entire developments is low (fewer than 3 percent of all housing
authorities), according to our survey results. Table I.2 shows the
Contracting for the breakdown, by size, of
the housing authorities that are using private Management of
Entire management companies. Public Housing Developments Table
I.2: Housing Authorities' Use of Private Companies to Manage
Percentage using private management Developments
Size of housing authority
companies Very large
86 Large
10 Medium
1 Small
1 Very small
3 Very Large or Very Because very large
housing authorities own most of the units being Small Housing
privately managed, about 9 percent of all public housing, or over
100,000 units, is under private management. In addition, very
small housing Authorities Are More
authorities are hiring private managers to manage some or all of
their Likely to Use Private housing
developments, although this activity accounts for only a small
fraction of the total public housing stock. Table I.3 identifies
the housing Management for Their authorities responding to our
survey that are using private contractors or Developments
resident managers to manage some or all of their housing
developments and indicates how many units are under private
management. Page 33 GAO/RCED-99-210 Private
Management for Public Housing Appendix I Survey Results Table I.3:
Housing Authorities Using Private Management Companies to
Total number Manage Housing Developments
Total number of units under of public private
Size/name of housing authority housing units
management Very large Puerto Rico
56,836 56,836 Chicago, IL
35,087 17,252 Atlanta, GA
14,308 4,492 New York City, NY
157,757 4,100 Boston, MA
12,600 3,456 Washington, D.C.
11,780 2,438 Dade County, FL
10,348 1,772 Philadelphia, PA
20,692 1,572 New Orleans, LA
11,678 1,546 Baltimore, MD
16,951 324 Cuyahoga, OH
11,112 36 Large Hawaii
5,367 2,023 St. Louis, MO
5,107 1,561 Jersey City, NJ
3,605 1,438 San Bernardino, CA
1,731 815 Seattle, WA
6,500 700 Houston, TX
3,414 500 Kansas City, MO
1,308 232 Milwaukee, WI
4,752 370 Charlotte, NC
3,714 290 Newark, NJ
9,319 206 San Francisco, CA
6,064 85 Minneapolis, MN
6,361 42 Medium St. Petersburg, FL
891 555 Stamford, CT
841 242 Small San Diego County, CA
121 121 Winnebago County, IL
325 100 Very small Dane County, WI
86 86 Stuart, FLA
70 70 Pleasonton, CA
50 50 Mount Holly, NC
46 46 (continued) Page 34
GAO/RCED-99-210 Private Management for Public Housing Appendix I
Survey Results Total number Total number of units under of
public private Size/name of housing authority
housing units management Konawa, OK
38 38 Welsh, LA
36 36 Caddo Electric Coop, OK
34 34 Bancroft, LA
28 28 Cheyenne, OK
22 22 Emmons, ND
15 15 Fewer than 10 percent of the housing
authorities responding to our survey disagreed with the statement
that their properties would not benefit from private management. A
slightly higher percentage (11 percent) disagreed with the
statement that private management is more costly than managing
with in-house staff. As figures I.1 and I.2 indicate, support for
private management increases with the size of the housing
authority. Figure II.1: Percentage of Responding Housing
Authorities, by Size, Agreeing 80 PHA size That Their
Properties Would Not Benefit From Private Management 70
60 50 40 30 20 10 0 Very small Small Medium Large/ very
large Page 35 GAO/RCED-99-210 Private
Management for Public Housing Appendix I Survey Results Figure
II.2: Percentage of Responding Housing Authorities, by Size,
Agreeing 80 PHA size That Private Management Is More Costly
Than Managing With In-House Staff
70 60 50 40 30 20 10 0 Very small Small Medium Large/
very large Housing authority directors who have and have not tried
private management responded differently to these and other
statements about private management. Table II.4 compares the
opinions of the two groups of respondents. Page 36
GAO/RCED-99-210 Private Management for Public Housing Appendix I
Survey Results Table II.4: Housing Authority Managers' Beliefs
About the Benefits Percentage of respondents that agreed of
Private Management for Authorities
Housing authorities with That Have and Have Not Privatized
Statement about the use of one or more privately
Housing authorities with Housing Developments
private management for managed housing no
privately managed individual developments
developments housing developments Properties would not
benefit from private management 8
66 Private management is more costly than managing with in-house
staff 16
47 The way to begin implementing private management is unclear
16 41 Current housing authority employees
may be displaced if private management is used
57 78 Contractor performance is difficult
to monitor 16
44 There is a lack of competent management firms in your area
25 45 Housing Authorities
Seventy-two percent of the housing authorities responding to our
survey Are Not Clear as to indicated that
they neither agreed nor disagreed with the statement that "HUD
does not support private management." The percentage that HUD's or
Residents' disagreed was significantly higher
for housing authorities that have Views on Private
contracted for the management of one or more developments (65
percent) than for housing authorities that have not (20 percent).
Management Sixty percent of the
housing authorities responded that they neither agreed nor
disagreed with the statement that "Residents in your [housing
authority] are not in favor of private management." Eight percent
of the responding housing authorities that have contracted for the
management of one or more developments agreed with the statement,
compared with 35 percent of the responding housing authorities
that have not. Page 37 GAO/RCED-99-210
Private Management for Public Housing Appendix II Sampling Errors
and Confidence Intervals for Estimates This appendix presents (1)
estimates of the responses we would have received to selected
questions in our survey of public housing authorities (PHA) if we
had surveyed the executive directors of all of the nation's PHAs
and (2) sampling errors and confidence intervals for these
estimates. Although we surveyed all very large, large, and medium-
sized housing authorities, we used a sample (called a probability
sample) of the small and very small housing authorities. Our
survey results are, therefore, estimates, each of which has a
measurable precision, or sampling error, that may be expressed as
a plus/minus figure. By adding the sampling error to and
subtracting it from the estimate, we can develop upper and lower
bounds for each estimate. The range between these bounds is called
the confidence interval. Sampling errors and confidence intervals
are stated at a certain confidence level-in this case 95 percent.
For example, a confidence interval at the 95-percent confidence
level means that in 95 out of 100 instances, the sampling
procedure we use would produce a confidence interval containing
the value we are estimating. Table II.1 lists the sampling errors
and confidence intervals for selected estimates. Table II.1:
Sampling Errors and Confidence Intervals for Estimates
Confidence interval Estimate Sampling Derived From
Responses to Selected Survey topic (in
percent) error From To Survey
Questions Public housing units managed by a
private company or resident management corporation
8.70 .001 8.70 8.70 Type of service
provided wholly or partially by a private company and the change
resulting from using the private company Bookkeeping/accounting
(excluding audit) Used 52.77
1.30 50.22 55.32 Not Used
22.24 0.93 20.42 24.06 Became worse
0.85 0.24 0.38 1.32 Did not change
8.48 0.78 6.95 10.01 Became better
25.67 1.20 23.32 28.02 Don't know
13.99 0.98 12.07 15.91 Contracting and
procurement Used 6.01
0.66 4.72 7.30 Not Used
65.17 1.28 62.66 67.68 Became worse
0.74 0.23 0.29 1.19 Did not change
1.11 0.30 0.52 1.70 (continued) Page
38 GAO/RCED-99-210 Private Management for
Public Housing Appendix II Sampling Errors and Confidence
Intervals for Estimates Confidence interval Estimate
Sampling Survey topic (in percent)
error From To Became better
3.41 0.50 2.43 4.39 Don't know
0.38 0.17 0.05 0.71 Collection of rents
Used 2.83 0.39
2.07 3.59 Not Used 70.66
1.22 68.27 73.05 Became worse
0.33 0.12 0.09 0.57 Did not change
0.79 0.21 0.38 1.20 Became better
1.32 0.26 0.81 1.83 Don't know
0.09 0.00 0.09 0.09 Economic development
Used 1.69 0.30
1.10 2.28 Not Used 69.94
1.23 67.53 72.35 Became worse
0.03 0.00 0.03 0.03 Did not change
0.26 0.08 0.10 0.42 Became better
0.86 0.23 0.41 1.31 Don't know
0.26 0.08 0.10 0.42 Marketing properties
Used 1.98 0.29
1.41 2.55 Not used 70.05
1.22 67.66 72.44 Became worse
0.20 0.12a 0.04 0.44 Did not change
0.41 0.14 0.14 0.68 Became better
1.01 0.19 0.64 1.38 Don't know
0.23 0.08 0.07 0.39 Processing new public
housing applications Used
2.14 0.40 1.36 2.92 Not Used
70.90 1.22 68.51 73.29 Became worse
0.03 0.00 0.03 0.03 Did not change
0.50 0.18 0.15 0.85 Became better
1.38 0.33 0.73 2.03 Don't know
0.10 0.08a 0.06 0.26 Recertifying
residents Used 1.62
0.35 0.93 2.31 Not Used
71.81 1.21 69.44 74.18 Became worse
0.00 0.00 0.00 0.00 Did not change
0.39 0.16 0.08 0.70 Became better
0.95 0.28 0.40 1.50 Don't know
0.15 0.11a 0.07 0.37 (continued) Page 39
GAO/RCED-99-210 Private Management for Public Housing Appendix II
Sampling Errors and Confidence Intervals for Estimates Confidence
interval Estimate Sampling Survey topic
(in percent) error From To Conducting
background checks Used 10.84
0.77 9.33 12.35 Not Used
62.78 1.29 60.25 65.31 Became worse
0.16 0.08 0.00 0.32 Did not change
1.79 0.34 1.12 2.46 Became better
6.89 0.63 5.66 8.12 Don't know
1.32 0.29 0.75 1.89 Providing training
and social services for residents Used
9.60 0.65 8.33 10.87 Not Used
62.53 1.28 60.02 65.04 Became worse
0.38 0.14 0.11 0.65 Did not change
1.74 0.29 1.17 2.31 Became better
5.84 0.51 4.84 6.84 Don't know
1.01 0.21 0.60 1.42 Processing evictions
and other legal services Used
19.42 0.98 17.5 21.34 Not Used
53.69 1.33 51.08 56.30 Became worse
0.64 0.21 0.23 1.05 Did not change
4.81 0.55 3.73 5.89 Became better
10.22 0.75 8.75 11.69 Don't know
2.38 0.37 1.65 3.11 Training PHA
employees Used 22.89
1.02 20.89 24.89 Not Used
49.96 1.33 47.35 52.57 Became worse
0.00 0.00 0.00 0.00 Did not change
3.05 0.41 2.25 3.85 Became better
17.33 0.92 15.53 19.13 Don't know
2.24 0.37 1.51 2.97 Administration of
modernization programs Used
15.23 0.99 13.29 17.17 Not Used
57.36 1.33 54.75 59.97 Became worse
0.82 0.26 0.31 1.33 Did not change
1.59 0.35 0.90 2.28 Became better
9.89 0.82 8.28 11.50 Don't know
2.20 0.42 1.38 3.02 (continued) Page 40
GAO/RCED-99-210 Private Management for Public Housing Appendix II
Sampling Errors and Confidence Intervals for Estimates Confidence
interval Estimate Sampling Survey topic
(in percent) error From To
Landscaping/grounds- keeping Used
23.75 1.08 21.63 25.87 Not Used
49.95 1.34 47.32 52.58 Became worse
1.30 0.30 0.71 1.89 Did not change
5.57 0.58 4.43 6.71 Became better
15.15 0.90 13.39 16.91 Don't know
0.55 0.18 0.20 0.90 Trash collection Used
52.81 1.34 50.18 55.44 Not Used
20.40 1.07 18.30 22.50 Became worse
1.71 0.33 1.06 2.36 Did not change
16.50 0.99 14.56 18.44 Became better
17.40 1.00 15.44 19.36 Don't know
11.63 0.85 9.96 13.30 Routine and
preventive maintenance Used
9.91 0.79 8.36 11.46 Not Used
62.96 1.29 60.43 65.49 Became worse
0.52 0.18 0.17 0.87 Did not change
2.54 0.39 1.78 3.30 Became better
5.32 0.60 4.14 6.50 Don't know
1.21 0.31 0.60 1.82 Protective services
Used 15.75 0.80
14.18 17.32 Not Used
56.78 1.30 54.23 59.33 Became worse
0.52 0.18 0.17 0.87 Did not change
2.79 0.37 2.06 3.52 Became better
9.40 0.62 8.18 10.62 Don't know
2.02 0.31 1.41 2.63 Employee benefit Used
13.58 0.91 11.80 15.36 Not Used
59.24 1.32 56.65 61.83 Became worse
0.33 0.16 0.02 0.64 Did not change
3.17 0.47 2.25 4.09 Became better
6.28 0.63 5.05 7.51 Don't know
2.93 0.47 2.01 3.85 Annual unit
inspections (continued) Page 41 GAO/RCED-
99-210 Private Management for Public Housing Appendix II Sampling
Errors and Confidence Intervals for Estimates Confidence interval
Estimate Sampling Survey topic (in
percent) error From To Used
4.17 0.53 3.13 5.21 Not Used
69.27 1.24 66.84 71.70 Became worse
0.20 0.12a 0.04 0.44 Did not change
0.96 0.23 0.51 1.41 Became better
1.99 0.39 1.23 2.75 Don't know
0.50 0.20 0.11 0.89 Program evaluation
Used 4.18 0.46
3.28 5.08 Not Used 67.11
1.25 64.66 69.56 Became worse
0.00 0.00 0.00 0.00 Did not change
0.74 0.18 0.39 1.09 Became better
2.48 0.36 1.77 3.19 Don't know
0.70 0.19 0.33 1.07 Pest control Used
60.81 1.31 58.24 63.38 Not Used
14.39 0.93 12.57 16.21 Became worse
1.46 0.30 0.87 2.05 Did not change
11.11 0.84 9.46 12.76 Became better
36.97 1.29 34.44 39.50 Don't know
7.62 0.69 6.27 8.97 Vehicle maintenance
Used 26.62 1.10
24.46 28.78 Not Used
45.31 1.33 42.70 47.92 Became worse
0.26 0.08 0.10 0.42 Did not change
8.16 0.68 6.83 9.49 Became better
12.11 0.81 10.52 13.70 Don't know
4.96 0.55 3.88 6.04 Extent to which PHAs
agree or disagree with statements about the use of private
management for developments and/or scattered site housing The way
to begin implementing private management is unclear. Strongly
disagree/disagree 15.06 0.87 13.35
16.77 Neither agree nor disagree 31.75 1.25
29.30 34.20 Agree/strongly agree
35.99 1.29 33.46 38.52 (continued) Page 42
GAO/RCED-99-210 Private Management for Public Housing Appendix II
Sampling Errors and Confidence Intervals for Estimates Confidence
interval Estimate Sampling Survey topic
(in percent) error From To Current PHA
employees may be displaced if private management is used. Strongly
disagree/disagree 8.52 0.76 7.03
10.01 Neither agree nor disagree 11.64
0.87 9.93 13.35 Agree/strongly agree
63.70 1.29 61.17 66.23 Performance of
contractors is difficult to monitor. Strongly disagree/disagree
24.03 1.07 21.93 26.13 Neither agree nor
disagree 18.97 1.06 16.89
21.05 Agree/strongly agree 40.35
1.32 37.76 42.94 Your PHA's properties would not
benefit from private management. Strongly disagree/disagree
6.50 0.61 5.30 7.70 Neither agree nor
disagree 19.62 1.02 17.62
21.62 Agree/strongly agree 57.23
1.31 54.66 59.80 There is a lack of competent
management firms in your area. Strongly disagree/disagree
10.41 0.73 8.98 11.84 Neither agree nor
disagree 30.83 1.21 28.46
33.20 Agree/strongly agree 42.75
1.33 40.14 45.36 Private management is more costly
than managing with in-house staff. Strongly disagree/disagree
6.96 0.61 5.76 8.16 Neither agree nor
disagree 33.44 1.23 31.03
35.85 Agree/strongly agree 43.33
1.33 40.72 45.94 Property management is a PHA
responsibility. Strongly disagree/disagree 2.60
0.41 1.80 3.40 Neither agree nor disagree
10.97 0.82 9.36 12.58 Agree/strongly agree
70.36 1.21 67.99 72.73 HUD's procurement
processes make using private management difficult. Strongly
disagree/disagree 9.76 0.70 8.39
11.13 Neither agree nor disagree 44.12
1.33 41.51 46.73 Agree/strongly agree
29.52 1.22 27.13 31.91 (continued) Page 43
GAO/RCED-99-210 Private Management for Public Housing Appendix II
Sampling Errors and Confidence Intervals for Estimates Confidence
interval Estimate Sampling Survey topic
(in percent) error From To
HUD does not support private management. Strongly
disagree/disagree 14.51 0.86
12.82 16.20 Neither agree or disagree
60.22 1.30 57.67 62.77
Agree/strongly agree 7.77
0.74 6.32 9.22 Residents in your PHA are not in
favor of private management. Strongly disagree/disagree
2.72 0.42 1.90 3.54 Neither agree
or disagree 48.46 1.32
45.87 51.05 Agree/strongly agree
32.29 1.27 29.80 34.78 aBecause the
lower bound of the confidence interval falls below zero, this
sampling error and the associated confidence interval should not
be considered reliable. Page 44
GAO/RCED-99-210 Private Management for Public Housing Appendix III
Very Large Housing Authorities' Experiences With Private
Management This appendix includes case study analyses of four very
large housing authorities' views on and experiences with private
management. We visited these four housing authorities-in Atlanta,
Boston, Chicago, and Washington, D.C.-to gain an in-depth
understanding of issues associated with hiring contractors to
manage specific housing developments and perform discrete housing
management functions in these jurisdictions. We selected these
four housing authorities because of their varying experiences with
private management. Housing Authority of The Housing Authority
of the City of Atlanta (AHA) operates over 14,000 the City of
Atlanta units of public housing in Atlanta, Georgia. To
address long-standing management problems, including excessive
vacancies and poor maintenance, AHA developed and implemented over
the past 4 years a comprehensive site-based housing management
system, which merged management and maintenance functions at the
site level. During this period, AHA also implemented a plan for
private management. In 1996, AHA executed contracts with four
private management companies to administer and operate 16
properties for families and the elderly-approximately one-third of
its public housing stock. As a result, AHA officials believe that
they have experienced a wide range of changes, most of which are
positive and include improvements in the properties' overall
financial management, day-to-day physical maintenance, curb
appeal, and occupancy rates. Moreover, AHA officials believe that
the majority of the residents living in privately managed
developments now have a favorable opinion of private management.
Background AHA was organized in 1938 to provide safe
and sanitary dwellings to low-income people. As of January 1,
1998, AHA operated 14,308 units of public housing,1 located in 42
developments throughout the city. According to HUD's Office of
Inspector General, AHA had significant management problems for
years. Because of these problems, which included excessive and
lengthy vacancies, poor maintenance, and inadequate rent
collection, AHA consistently scored below 60 percent under HUD's
Public Housing Management Assessment Program (PHMAP) and was
classified as a troubled housing agency in November 1990. AHA's
troubled status, coupled with Atlanta's designation in September
1990 as the site of the 1996 Olympic Games, created a sense of
urgency for the authority to improve its operations and the
condition of its properties. 1Of the 14,308 public housing units
that AHA operates under its contract with HUD, 5,340 had been
demolished or approved for demolition by HUD as of Jan. 1, 1999.
Page 45 GAO/RCED-99-210 Private
Management for Public Housing Appendix III Very Large Housing
Authorities' Experiences With Private Management To address the
housing authority's long-standing problems, HUD and AHA entered
into a memorandum of agreement and a cooperative recovery
agreement on September 12, 1995. AHA desired to improve its
management performance and eliminate its troubled status by
accomplishing the goals and strategies outlined in the two
agreements. The memorandum of agreement, for instance, contained
an overall goal to reduce vacancies and increase occupancy. The
memorandum outlined several strategies and tasks for meeting this
goal, including (1) developing and implementing a comprehensive
site-based management system with merged management and
maintenance functions at the site level and (2) implementing a
plan for private management. In December 1995, AHA initiated an
extensive procurement process to place approximately one-third of
its conventional public housing stock under private management.
AHA officials considered several factors in selecting these sites,
including the properties' day-to-day operations and capital
improvement needs and the residents' social service needs. AHA
also sought and considered residents' input. Finally, AHA
officials chose some sites with severe challenges and some that
were easier to manage to encourage management agents to bid in
certain sectors. In April 1996, AHA executed contracts with four
private management companies to administer and operate 13 sites.
AHA also contracted with one company to provide interim management
services while residents were being relocated at a site that was
going to be demolished. Also in April 1996, AHA initiated a second
procurement process to place two additional sites under private
management. In June 1996, AHA executed contracts for these sites,
bringing the total number of developments under private management
to 16 out of the citywide total of 42 developments. These
developments included a mix of properties for families and the
elderly, and these initial contracts expired in June 1999. AHA
rebid the contracts in December 1998 and plans to enter into 2-
year contracts for a portfolio of 15 properties consisting of
4,144 units of public housing. AHA's Experience With AHA`s
experience with private management has been positive. Private
Private Management management companies have helped to
improve the financial management Companies and
operating efficiency of the developments. In addition, customer
service at the privately managed developments has improved.
Decentralization, combined with monitoring and appropriately
rewarding (or penalizing) the private management companies'
performance, has encouraged efficient operations and
responsiveness to residents' needs. Page 46
GAO/RCED-99-210 Private Management for Public Housing Appendix III
Very Large Housing Authorities' Experiences With Private
Management Planning for the transition to private management
helped to overcome residents' fears of change and concerns about
displacing housing authority personnel. Improved Financial
Private management helped to improve the authority's overall
financial Management and Operating management, according to
agency officials. Before private management, Efficiency
for example, AHA did not have available monthly reports that
compared the budgeted amounts for each development with the actual
expenditures. Private management companies submit these reports
each month for AHA to review. AHA's asset director will review any
line item that differs by more than 10 percent from the budgeted
amount. Although AHA officials believe overall financial
management improved, they do not believe operating costs changed
as a result of using private management. A senior private
management company official said that savings are difficult to
document because a significant portion of the benefits are costs
that the properties have avoided. For instance, the senior
official believed that one of the developments his company manages
would have been demolished if private management had not made it
viable. Private management also helped to improve the operating
efficiency and the revenue generated by the public housing
properties, as demonstrated by improvements in AHA's vacancy rate,
timeliness of rent collection, enforcement of lease provisions,
and results of unit inspections. Furthermore, AHA officials said
that the quality and timeliness of unit inspections improved
because of private management. Improved Customer Service
According to a vice president of one of AHA's private management
companies, pleasing public housing residents is of critical
importance. A regional property manager at another private
management company stated that private firms focus on customer
satisfaction. For example, that company requires its property
managers to contact three residents each week to obtain their
comments. The curb appeal of the developments improved as a result
of private management, according to AHA officials. Private
management companies installed fencing and gating at many of the
properties and landscaped the properties. AHA officials also
believe that the developments' day-to-day physical maintenance
improved under private management, as evidenced by decreases in
both the backlog of work orders and in the time needed to complete
them. An elected resident leader at one of the privately managed
developments told us that maintenance requests are filled more
quickly under private management. However, a resident leader at
another Page 47 GAO/RCED-99-210 Private
Management for Public Housing Appendix III Very Large Housing
Authorities' Experiences With Private Management development said
the quality of maintenance is about the same under both private
and housing authority management. AHA officials also believe that
services for residents improved under private management. One of
the private management companies, for example, provides a training
program to teach residents construction and business skills. That
company also trains residents in interviewing skills. Another
private management company implemented a welfare-to-work program
at one of its properties. More than 100 residents have graduated
from this program and most are still employed, according to one of
the company's senior managers. AHA's Deputy Executive Director for
Housing Operations pointed out that each private management
company has a resident services department or at least a strong
resident services coordinator. When resident services are
decentralized, service coordinators can focus on the needs at
individual properties. Decentralized Management As part of
its site-based management approach, AHA placed a portion of its
public housing stock under private management to achieve more
efficient operations. According to AHA's Deputy Executive Director
for Housing Operations, centralized management was not working.
Because AHA could not effectively manage 42 properties from a
central location, services were not being provided to the
residents. Monitoring of Contractors' AHA believes that it
gives its private management companies as much Performance
flexibility as possible in providing management services within
all applicable HUD regulations. As agreed with HUD, AHA included
performance measures in its private management contracts.
Management companies that meet agreed-upon performance goals may
receive a performance bonus over and above their monthly
management fee. However, management companies are also subject to
penalties for not meeting performance standards. To monitor
contractors' performance, AHA officials review monthly reports
submitted by the private management companies. According to AHA's
Deputy Executive Director for Housing Operations, the authority is
moving towards an automated reporting system that will tie into
its central computer. Site visits, which occur at least monthly,
are also part of AHA's monitoring activities. Residents' Fears of
Change According to AHA officials, residents initially feared
the idea of private management. Many believed that the rules would
change, rents would increase, and tenants would be evicted. AHA
recognized that these fears would present an obstacle to the
effective implementation of private management and took several
measures to mitigate the fears. For Page 48
GAO/RCED-99-210 Private Management for Public Housing Appendix III
Very Large Housing Authorities' Experiences With Private
Management example, AHA explained that the goal of private
management was to provide better services to the residents.
Furthermore, AHA would still own the properties, and the
management companies would be subject to the same federal public
housing requirements. Finally, before procuring private
management, AHA transported some resident leaders to Dade County,
Florida, to tour privately managed public housing developments and
talk with local resident leaders. AHA officials believe that the
majority of the residents now have a favorable opinion of private
management and want to retain private management for their
developments. In fact, AHA officials told us that some residents
are now concerned that they might lose their private management
company. We spoke with the resident leaders of two privately
managed developments. One of the leaders said that residents were
generally pleased with private management. According to that
resident leader, before private management one never knew when or
if AHA would cut the grass in front of one's unit. Now, the grass
is cut on schedule and never gets knee-high as it did before. The
other resident leader, however, did not notice a difference when
private management took over. Concerns About Displacing AHA
achieved a smooth conversion to private management, according to
Housing Authority Personnel AHA officials, because it planned
ahead for the change. AHA reduced its staff by 125 people when it
switched to private management. However, AHA encouraged the
private companies to hire these staff if they met the companies'
pre-employment requirements. More than 2 years later, about 75
percent of the former-AHA staff were still employed by the private
management companies. AHA directed the private companies hiring
AHA employees to recognize and honor each employee's years of
service in determining eligibility and benefit levels under the
companies' group insurance and leave accrual plans. Furthermore,
all staff who took jobs with the private management companies were
eligible to reapply to AHA within 1 year; however, according to
AHA officials, few people took advantage of this offer. According
to a senior official of one of AHA's private management companies,
the company hired all housing authority employees at the
development who passed the drug and background checks. Once hired,
the employees had to meet the company's work standards. HUD's
Views on AHA's Although AHA has been using private
management for over 2 years, HUD has Experience With Private
not reviewed AHA's experience and could not provide us with
detailed Management comments on it. Public
housing officials at the Georgia field office did tell Page 49
GAO/RCED-99-210 Private Management for Public Housing Appendix III
Very Large Housing Authorities' Experiences With Private
Management us, however, that they believe the curb appeal of the
developments has improved. In addition, HUD staff saw improvements
in rent collections. Lessons Learned The following
describes the lessons learned by AHA officials involved in the
private management effort. * Educating residents on a continual
basis about the goal of private management is very important. *
Hiring local private management companies with experience in
public housing is advantageous because the companies need time to
learn public housing regulations. * AHA would recommend private
management to other large housing agencies, especially those with
centralized operations. A partnership with private management can
promote effective and efficient management of the public housing
stock. District of Columbia The District of Columbia Housing
Authority (DCHA), under the Housing Authority management
of a court receiver since May 1995, has placed 12 of its 56
developments under private management. These 12 properties (5 for
families, 4 for the elderly, and 3 for both families and the
elderly) account for about 22 percent of the District's 11,338
public housing units. According to the receiver, these properties
include slightly more distressed than nondistressed developments.
With some exceptions, the privately managed companies have been
effective in reversing physical and financial decline at the
properties by implementing basic maintenance and financial systems
and controls. But DCHA officials do not believe the private firms
operate more economically than in-house staff. Instead, they
believe that under a recently decentralized management structure
and a new pay-for-performance plan, in-house property managers can
operate at or below the cost of private management companies,
which receive an additional management fee. Meanwhile, the private
management companies believe they could operate more economically
and manage more effectively if they could control enough funding
for capital and support services to meet the needs of the
properties they manage. Background Created by court
order in May 1995, DCHA replaced the District of Columbia
Department of Public and Assisted Housing, which had been on HUD's
list of troubled housing authorities since January 1979. By order
of the District of Columbia Superior Court, the receiver is solely
responsible Page 50 GAO/RCED-99-210
Private Management for Public Housing Appendix III Very Large
Housing Authorities' Experiences With Private Management and
accountable to the court rather than the city government and has
authority over all of the agency's operations. When the court
ordered the takeover, the former housing authority had a
management performance score of 38 out of 100 points, well below
the 60-point standard for passing. Twenty percent of the units
were vacant, modernization funds were not being spent, and a
number of housing officials had been indicted or arrested.
According to the receiver, the failing score reflected a housing
authority that was "top heavy, inadequately skilled, and
fundamentally incapable of measurable production." The score for
fiscal year 1997 was 67. To obtain its passing score for 1997,
DCHA made significant improvements in its modernization work,
housing inspections, and operating reserve level, but it lost
points for delays in completing maintenance work orders and
collecting rent. For fiscal year 1998, DCHA raised its score to
79, failing only in the uncollected rent category. By court order,
if the score for fiscal year 1999 remains over 70 percent, the
housing authority will be returned to local control over a 6-month
period, and the receivership will then be terminated. DCHA was
reorganized in October 1998. The Department was divided into three
regions, each headed by a regional administrator responsible for a
workplan containing objectives and performance standards for both
the region and each development within the region. DCHA's
Experience With The receiver told us that he took over the
housing authority in the summer Private Management of 1995,
intending to turn the management of most of the District's housing
Companies developments over to private companies.
He said, however, that he has since changed his mind. His
workplan, updated as of January 1999, reports that the housing
authority has "achieved an appropriate balance between in-house
and private management." He said he no longer plans to privatize
beyond the 12 developments already under contract because he
believes that (1) qualified in-house staff can manage as
efficiently and effectively as the private sector and (2) the
better private firms in the area do not have the capacity to take
on more work. The receiver does not doubt that the private firms
have played a part in the improved performance scores. He said the
private firms have been very efficient in increasing rent
collections, reducing the time to prepare a vacated housing unit
for occupancy (unit turnaround time), making repairs, and making
properties more energy-efficient. He also believes that private
firms have an advantage in that they do not have to deal with Page
51 GAO/RCED-99-210 Private Management
for Public Housing Appendix III Very Large Housing Authorities'
Experiences With Private Management unions or government
bureaucracy. But he added that he was uncertain whether the
savings accrued were sufficient to offset the management fees paid
to the private firms to manage the developments. The receiver also
believes that the private firms under performance-based contracts
are outperforming those without performance standards. He
maintained that the use of performance standards would similarly
enhance the productivity of in-house staff. In February 1999, the
receiver announced a pay-for-performance agreement tying the pay
increases of all housing authority staff to their success in
meeting predetermined indicators in five areas: occupancy, rent
collection, unit turnaround, work order closeouts, and employee
attendance. Under this agreement, which resembles a corporate
profit-sharing plan, housing authority employees will receive
salary increases based on agencywide scores for each of the five
indicators. The raises will be funded by the additional revenue
the authority will take in if the lower vacancy rate, higher rent
collection, and other performance goals are met. The receiver also
believes DCHA's new in-house staff can make the performance-based
system work. For example, 14 of the 29 manager positions turned
over-primarily through terminations, demotions, and resignations-
during the 17 months from July 1997 through November 1998. One of
the three DCHA regional managers who report to the receiver said
that these personnel changes were part of an agencywide effort to
eliminate patronage, incompetence, and, in some cases, salary
payments to employees who never came to work. The management
companies agree with the receiver's view that their firms have
been very efficient, but they also believe that they are saving
more than the cost of their management fees. For example, one firm
noted that in the first few weeks of its contract, it eliminated a
backlog of 1,600 work orders, barred 45 nonresidents from the
property, and returned accuracy to the rent rolls. Another firm
told us that it evicted over 70 residents for nonpayment of rent
within its first 60 days and began documenting rent collections.
According to the regional manager for that housing development,
his management company can now sue to collect rent that has been
unpaid since the date that his firm began managing the
development. However, the company cannot press for unpaid rent
from prior years because the housing authority's rent records were
not kept well enough to prove nonpayment. A third management
company said that it took over a property whose annual operating
budget had been $290,000 and reduced it by over $80,000 during the
first year, a reduction of almost 30 percent. Management company
officials point to property Page 52
GAO/RCED-99-210 Private Management for Public Housing Appendix III
Very Large Housing Authorities' Experiences With Private
Management improvements that they made at year-end using funds
that they saved by reducing their costs. These improvements
included new carpeting and a fish tank in the lobby of a building,
new tables and chairs in the recreation room, and a new rooftop
card room. While DCHA officials acknowledge these savings and the
many management improvements that private management staff have
incorporated at the properties they manage, one regional manager
said that, on balance, he believes private management is more
costly than in-house management. He said that private firms'
balance sheets can be deceiving because the firms classify some
cost items as "extraordinary" in the accounting sense, meaning
that they are not included in the total cost figure. This
classification makes the private firms' costs of operation seem
lower at first glance. For example, a private management firm
might classify an unusually large expense to repair a housing unit
after a tenant's departure as extraordinary, when it was simply
higher than average. He believes that the frequency and magnitude
of the differences between the accounting entries by private firms
and by DCHA argue against the validity of the private firms'
claims of savings. Officials at two of the private companies
managing DCHA properties told us that if their companies were
given control over all funding for the property-including the
capital budget, the modernization funds, and the funds for support
services programs-they could show that their savings would exceed
their management fee. One added that his firm is performing as an
extension of DCHA, acting as a maintenance operation and rent
collection agency rather than as a proactive private management
company. He believes that his firm could show significant savings
if DCHA allowed it to manage all aspects of the properties. In
response, a DCHA official stated that the authority does give each
housing development its own capital budget and could assign each
development a total capital plus operating budget at the beginning
of the year. However, the authority likes to be able to move funds
among developments within the year, as needs change. The official
added that DCHA would consider requests for access to the capital
budget on a case-by-case basis and would also consider embarking
on a pilot program to explore the usefulness and practicality of
assigning all funds to a privately managed development. The
management companies also disagree with the receiver's position on
the management companies' capacity. For example, an official at a
national firm interested in managing properties for DCHA said that
the firm could manage a number of the housing authority's
properties if given Page 53 GAO/RCED-
99-210 Private Management for Public Housing Appendix III Very
Large Housing Authorities' Experiences With Private Management
adequate time to plan for expansion. An official at a firm that
already manages DCHA properties said his firm is ready today to
take on many more DCHA properties. Obstacles to Privatizing
Several obstacles to effective private management at DCHA still
exist. First, Public Housing DCHA has not
effectively implemented HUD's requirement that all housing
authorities with more than 500 housing units adopt project-based
or cost-centered accounting. Second, some management companies
believe that they have not been treated fairly or have not been
given as much responsibility as they could successfully accept.
The receiver has decentralized the housing authority's
organization by creating three autonomous regional housing
agencies, thereby producing friendly competition among the regions
and among in-house managers and private management companies
within the regions. Moreover, DCHA has regionalized the asset
management function and developed separate budgets for each
development. However, the receiver does not expect full project-
based accounting until after 2000. Without accurate financial
performance data for each development, asset managers cannot
perform site-by-site financial analyses, including breakdowns of
the operating resources spent for individual properties and for
central office overhead. According to officials of private
management companies under contract to DCHA, some of DCHA's
managers see them as a threat and have tried to undermine their
companies' efforts. For example, one firm believes it was unfairly
hit with a surprise audit, without being given the scoring
criteria ahead of time. Employees at another firm believe they
have many insights to offer but are not given the opportunity to
share their ideas with DCHA's in-house managers. DCHA's
Experiences With At developments that are managed in-house,
DCHA contracts with private Hiring Private Contractors firms
for very few individual functions. Management officials believe
that DCHA now has the resources and ability to manage most housing
development operations. For example, DCHA has expanded its in-
house police force, which in November 1988 was given authority to
operate citywide. Previously, housing authority officers had
jurisdiction only on DCHA property or within 300 yards of a public
housing site. In addition, routine and preventive maintenance
programs are being developed for each of the three new regions,
and the receiver is confident that the in-house staff will stay
ahead of maintenance problems. Outside contracts Page 54
GAO/RCED-99-210 Private Management for Public Housing Appendix III
Very Large Housing Authorities' Experiences With Private
Management are limited to legal services, such as processing
evictions; trash removal; and vehicle maintenance. HUD's Role in
the HUD has not taken an active role in DCHA's private
management activities Privatization of Public since the court
receiver took over. Before that time, HUD reviewed all Housing at
DCHA requests for proposals and was supportive of
private management as an option for improving DCHA's poor
performance. According to the Director of Public Housing in HUD's
District of Columbia Office, since the receiver arrived, the
Department's role has been limited to dealing with legitimate
complaints about private management, such as helping to resolve a
stalemate over the final pay for a private firm whose contract was
terminated. He said he tells his staff to take a neutral position
on private management. Above all, he said, HUD wants to ensure
that the housing authority is managed effectively, and whether it
is managed by private companies or by in-house staff is not
important. But if a decision is made to switch one way or the
other, the housing authority should document the expected
improvements and/or savings. Chicago Housing According
to the Chicago Housing Authority (CHA), it has derived Authority
qualitative benefits from placing nearly half of its public
housing units under private management. Private management at CHA
has tangibly improved living conditions at some of the
developments and made operations more effective. Although CHA
officials cannot quantify dollar savings from using private
management, they believe it has allowed them to streamline their
operations and reduce overhead. CHA and the management companies
it contracts with are still learning ways to manage public housing
more efficiently. As this learning process continues, CHA plans to
transfer more of the property management responsibilities to the
private companies-something the management companies say will help
them manage the properties more effectively. Background
The state of Illinois established the Chicago Housing Authority in
1937, and it is the second largest public housing agency in the
continental United States.2 Besides federal low-income housing
programs, CHA administers several parallel programs that are
funded and regulated by the state of Illinois and the city of
Chicago. The authority not only manages seven city-state public
housing developments but also operates the Section 2Only the New
York Housing Authority and the Puerto Rico Housing Authority have
larger numbers of low-income housing units. Page 55
GAO/RCED-99-210 Private Management for Public Housing Appendix III
Very Large Housing Authorities' Experiences With Private
Management 8 substantial rehabilitation program funded by the city
and the state. Under this program, the authority serves as a
landlord to provide housing to qualified applicants. The authority
currently manages about 35,000 public housing units, located
throughout the city of Chicago, for approximately 90,000 low-
income residents. Compared to other public housing agencies, CHA
is one of the most difficult and challenging public housing
agencies to operate because of its large concentration of severely
distressed high-rise developments. CHA has had long-standing
management problems in virtually all aspects of it operations.
These include problems with housing management, maintenance of the
housing stock, and financial management. Frequent turnover in
CHA's management has contributed to CHA's operational problems and
has made it difficult to implement needed management improvements.
Because of these problems, HUD initiated a takeover of CHA in May
1995. CHA's Department of Private Management monitors and
supervises the private management firms that manage CHA
properties. CHA currently has 16 management firms under contract
to manage approximately 17,000 public housing units in 45
developments-about half of all its 35,000 public housing units.
CHA operates the second largest private management program in the
nation-only the Puerto Rico Housing Authority has a larger
program. CHA first introduced private management in the 1980s,
after a consent decree required CHA to build scattered-site
housing. CHA expanded its private management program to a limited
number of socially distressed high-rise family properties in the
late 1980s. In 1995, CHA's private management program expanded
significantly when the authority sought additional private
management companies for scattered-site housing and for senior and
family properties. In 1998, CHA again sought additional
contractors to manage more of its portfolio. CHA's Experience With
CHA officials believe that their use of private management
companies has, Private Management on balance, benefited the
residents of public housing and the housing Companies
authority. Although CHA's expectations at some of the privately
managed developments have not been met, living conditions at some
of the developments have improved, as have CHA's operations.
Although CHA is not able to measure the quantitative benefits of
private management, the asset manager at the authority believes
that operating costs are lower. And, according to the private
management companies, costs could be even lower if they were given
greater operating and financial responsibilities. Page 56
GAO/RCED-99-210 Private Management for Public Housing Appendix III
Very Large Housing Authorities' Experiences With Private
Management CHA's Selection and Monitoring In implementing
private management, CHA has tried to match the skills and
Philosophy experiences of management
companies with the needs of CHA's housing developments. Under that
philosophy, CHA chose management companies on the basis of their
track record at other properties, their level of experience in a
particular type of housing (senior, family, or scattered-site),
and their experience and familiarity with the local market. For
example, CHA matched a company with a very good track record in
senior housing but no experience in the Chicago market with a
small number of senior developments in good condition. CHA awarded
another company the contracts to manage several developments that
included housing stock in the worst physical condition because
this firm had several years of experience with the Chicago market
and with public housing. CHA monitors the performance of the
management companies through site visits and monthly reports that
include financial and narrative information on the operations of
the buildings. Although CHA's formal policy is to conduct
quarterly site visits, in practice such visits have typically
occurred each month. According to CHA's asset manager, monthly
monitoring helps the companies prepare for the more extensive
quarterly site visits. Performance of Private According
to CHA officials, the performance of the 16 private management
Managers Mixed, but Results companies has been mixed. Some
have performed very well and brought Generally Positive
improvements to their housing units, while others have not
performed as well. The better performers have improved the living
conditions of the developments that they manage. For example,
according to CHA, some private companies have increased the curb
appeal and therefore the marketability of their buildings. In some
cases, they have increased residents' satisfaction and provided
better social services. The two resident representatives we spoke
with agreed that the residents are generally happier with private
management and that living conditions have improved with the
management change. For example, one management company built a
laundry room for the residents, who previously had to travel 10
blocks to the closest laundromat. The authority has also benefited
from the use of private management. According to CHA's asset
manager, she can identify instances in which the authority's
operations became more businesslike after private management
began. Private management has forced CHA to keep more accurate
information on its properties so that it can support the
management companies-information such as current occupancy and
rent collection rates. According to the asset manager, a
compatible computer Page 57 GAO/RCED-
99-210 Private Management for Public Housing Appendix III Very
Large Housing Authorities' Experiences With Private Management
system is necessary for the housing authority and the management
companies to have current information on all of the properties. In
addition, some degree of competition now exists between CHA's in-
house development managers and their private counterparts. This
competition has led to better property management among the CHA-
managed properties, according to CHA's asset manager. Although CHA
officials agree that private management has qualitative benefits,
they cannot quantify the cost savings they have realized from its
use. And CHA will not be able to compare the costs of private and
in-house management until it can more precisely determine its own
management costs. CHA is moving toward project-based budgeting,
which will provide the authority with baseline information on the
costs of managing its public housing developments, but it has not
progressed far enough to determine baseline costs. Currently, CHA
has begun project-based budgeting at 16 developments, according to
the asset manager. She believes that restructuring the budgets of
all of the authority's developments will take time. Even though
direct cost-savings are not quantifiable at this time, CHA has
reduced its overhead costs (for salaries and employee benefits) by
reducing its workforce through contracting with private companies
to manage its developments. Management Companies
Representatives of the management companies reported that they are
able Seeking More Responsibility to manage public housing more
effectively than CHA and at a lower cost, but they are constrained
by CHA's control over funding and over some services. The
management companies expressed the desire to control their
developments' share of CHA's federal grant for modernizing public
housing properties. They believe they could accomplish repairs and
renovations more quickly, cheaply, and effectively than CHA. Some
of the representatives also believe they could operate more
efficiently if they had control over other aspects of the
properties' management, such as evictions. For example, some of
the management companies would like to be able to evict residents
for reasons other than nonpayment of rent, such as drug or gang-
related activity. One private manager wanted control over such
evictions so that he could remove problem residents more quickly
than CHA has been able to do. However, according to CHA's asset
manager, the private companies would probably not be able to
handle these evictions faster than CHA. The delays occur because
of legal requirements and procedures that provide the residents
with several days of notice throughout the eviction process. Page
58 GAO/RCED-99-210 Private Management
for Public Housing Appendix III Very Large Housing Authorities'
Experiences With Private Management Currently, a private
management company's duties include (1) collecting rent and
maintaining rental collection records that conform to CHA's
regulations; (2) recertifying each resident's income annually; (3)
inspecting all units annually; (4) executing leases; (5)
purchasing and contracting for needed services, supplies,
materials, and equipment; (6) managing the property so as to
maximize residents' safety and security; (7) working with the
Local Advisory Council and other residents' organizations; and (8)
completing a management plan describing the training and
employment opportunities the company will provide for CHA
residents. CHA's Plans for Private CHA intends to keep
the number of units it has under private management Management
at about the current level but plans to give the management
companies more autonomy in running their properties. Because of
its ongoing effort to demolish and redevelop high-rise properties,
the authority does not plan to increase the number of developments
under private management. CHA can operate buildings that are being
redeveloped or demolished more easily than a private firm because
of the high cost of these activities and the diverse funding
sources that are used for demolition or rehabilitation. CHA does,
however, plan to devolve more of the responsibility for managing
the properties to the private firms and move closer to simply
monitoring the management companies. The CHA asset manager
believes these steps will reduce in-house labor costs and make
CHA's operations more efficient. Obstacles to Privatizing Public
According to CHA officials, there are no serious operational
obstacles to Housing privatizing their
housing stock. They said, however, that shifting to a new way of
doing business with the private management companies involves
normal "growing pains," which must be understood and dealt with.
Anecdotes illustrating these growing pains follow. Overcoming
CHA's internal bureaucracy. According to one CHA official, when
private management began, CHA staff tended to treat the private
companies as if they were another department within CHA, providing
all the oversight they would normally apply to CHA departments.
Learning how to be a better contract administrator. One official
suggested adding specific performance standards to contracts in
the future, holding the companies to these standards, and imposing
penalties for nonperformance. Page 59
GAO/RCED-99-210 Private Management for Public Housing Appendix III
Very Large Housing Authorities' Experiences With Private
Management Better defining the respective roles and
responsibilities of the housing authority and the private
management companies. One management company did not budget for
trash collection because it was not aware that it was responsible
for providing this service. CHA officials agreed that such
confusion could be averted in the future by more carefully
specifying the respective roles of CHA and the management
companies. CHA's Experience With CHA has privatized those
activities for which it lacks adequate in-house Hiring Outside
Contractors expertise or needs to obtain better service. For
example, CHA sometimes needs outside counsel for specific legal
issues. It also contracts with private firms that have the
expertise to administer pension plans, workers compensation, and
deferred compensation. The benefits of contracting include a lower
administrative burden on CHA staff, a wider choice in obtaining
needed services, and clearer expectations and responsibilities
provided by the contractual relationship, according to CHA
officials. HUD's Role in the After becoming
increasingly concerned about the management problems Privatization
of Public at CHA, HUD initiated a takeover of the authority
on May 31, 1995, Housing at CHA appointing a top
HUD official to oversee its day-to-day operations. HUD also
appointed a five-person advisory board with representation from
the city of Chicago, CHA residents, the business community, and
the religious community. CHA signed a memorandum of understanding
with HUD covering the period from April 1996 through December
1997, the long-term goal of which was to remove CHA from HUD's
"troubled list." During this period, CHA expanded its private
management program. HUD removed CHA from the troubled list in
August 1998, and the authority is scheduled to return to the
city's control in 1999. According to CHA and HUD officials, the
local HUD office did not have much direct involvement in CHA's
private management, although it did provide some assistance to
CHA. The local HUD purchasing office assisted CHA in preparing its
first request for qualifications for the private management
companies. For the management companies' staff, HUD also provided
training in the area of federal regulations and reporting
requirements. The Director for Public Housing in HUD's local field
office expects that her office will have a greater role in
monitoring the private management companies in the future. Now
that CHA is off of the troubled list, local HUD officials will
begin to work more closely with CHA. They will begin conducting
site visits at the public housing developments and will eventually
have enough information on the private companies to make Page 60
GAO/RCED-99-210 Private Management for Public Housing Appendix III
Very Large Housing Authorities' Experiences With Private
Management some comparisons. (During the years that HUD took over
CHA, the local HUD office did not have much contact with CHA
because HUD headquarters officials were handling CHA's
operations.) According to the Director for Public Housing, HUD's
role should be to adequately oversee the private management
companies and ensure that penalties for poor performance are
included in their contracts. Lessons Learned Through its
initial experience with private management, CHA has learned how to
deal more effectively with the private companies and has adjusted
to its role with respect to them. The following are lessons
learned by CHA officials involved in the privatization effort.
These lessons have been or will be incorporated in changes to
CHA's private management program: * Contracts with the private
management companies need to specify their roles and
responsibilities and should include performance incentives. *
Housing authorities need to monitor the management companies
rather than try to directly control them. * The management
companies need to study the properties before they prepare their
budgets to learn of preexisting conditions they will need to
address. For example, the companies managing very poor housing
need to fully assess the extent of the repairs they will need to
make over time and to factor the costs of these repairs into their
budgets. * The management companies need to have a good
relationship with the leaders of the resident groups, particularly
in Chicago, where these groups are very strong. * A compatible
computer system that gives the housing authority and all the
management companies access to the same information on the
properties is a must. Boston Housing About one quarter of
the Boston Housing Authority's (BHA) 12,600 public Authority
housing units are under private management. BHA has been involved
in private management since the early 1970s. BHA officials believe
private management has helped to relieve the strain on the
authority's overextended resources and has had a positive
competitive influence on BHA employees. BHA officials cautioned
that a great deal of monitoring is needed to obtain optimal
results and that not all of BHA's experiences with private
management have been successful. Page 61
GAO/RCED-99-210 Private Management for Public Housing Appendix III
Very Large Housing Authorities' Experiences With Private
Management Background As of January 1, 1999, BHA administered
12,600 units of public housing in 57 developments.3 BHA also
administered 68 units at scattered sites. BHA's first experience
with private management occurred in 1973, when a tenant management
corporation assumed responsibility for managing Boston's largest
public housing development. BHA's next experience with private
management occurred in 1980, when poor performance placed BHA in
receiver status. At that time, BHA entered into a three-party
contract with a management company and a resident association to
manage Commonwealth-a development for families. The contract is
often cited as a model of a successful private management
partnership, although the three parties do not always agree on
capital funding priorities. All parties are involved in major
decisions, and the resident association can terminate the private
management contract if it is not satisfied. In 1994, the mayor of
Boston created a special task force to make recommendations to
improve the management of BHA's housing developments for the
elderly and disabled. These developments had a history of poor
management. At the mayor's request, BHA contracted with private
firms to manage 11 developments-about one-third its properties for
the elderly. BHA could then focus its energy and work on a smaller
number of developments, giving its managers a smaller ratio of
units to staff. BHA also reorganized its properties for the
elderly and disabled into three management clusters (two in-house
and one private), each headed by a senior manager, to provide
additional direction and support on a day-to-day basis. Currently,
BHA has 3,456 units in 17 developments under private management.
In January 1999, BHA issued its "BHA 2001 Report"-the result of a
yearlong effort by hundreds of BHA employees. This report
represents BHA's rethinking of how the organization can best
fulfill its mission. It is also part of a comprehensive plan for
improving BHA from top to bottom. Early in the process, senior BHA
managers developed seven goals for the authority: * to improve its
personnel and operational systems; * to improve its management and
maintenance systems; * to improve its management information and
technology systems; * to reorganize and strengthen its
comprehensive modernization and redevelopment functions; * to
decentralize BHA in accordance with the real estate industry's
practices and standards; 3Of the 12,600 public housing units that
BHA operates under its contract with HUD, 1,332 had been approved
for demolition by HUD as of Jan. 1, 1999. Page 62
GAO/RCED-99-210 Private Management for Public Housing Appendix III
Very Large Housing Authorities' Experiences With Private
Management * to improve BHA's financial planning initiative and
seek new related resources; and * to improve customer service and
encourage more user-friendly behavior on the part of staff. BHA
established six task forces for each of the goals except
decentralization. Each task force was to study and make
recommendations to BHA on how it could best achieve the task
force's assigned goal by the end of 2001. Since it was assumed
that the task forces would identify solutions that depended on
decentralization, senior managers believed that decentralization
realistically could not be addressed until the task forces had
completed their recommendations. The task forces presented their
findings to senior management in September 1998. The next step in
the BHA 2001 process will be to review and approve the BHA 2001
Report and develop an implementation strategy that will be
completed by December 31, 2001. BHA's Experiences With
BHA's experience with private management has generally been
positive. A Private Management BHA official stated that
private management helped BHA achieve Companies
authoritywide improvements. The interaction of private and BHA
management improved the organization, increasing communication and
reducing isolation. For instance, BHA officials believe that the
contact with private management led to a more service-oriented
approach at the in-house developments, resulting in performance
gains similar to those associated with private management.
According to resident leaders at BHA's privately managed
developments, most residents prefer private management and are
pleased with the improvements in customer service it has brought.
However, BHA experienced problems with three of its private
management companies. At developments managed by these companies,
day-to-day physical maintenance, services for residents, and
residents' satisfaction declined under private management. Because
of these and other problems, BHA had to take back the management
of these developments. Improved Financial According to
BHA officials, in general, neither the authority's financial
Management and Operating management nor its operating costs
changed as a result of using private Efficiency
management. However, BHA and private management company officials
said that private management did lower some personnel and
maintenance costs. At most of the privately managed developments,
operating efficiency improved, as demonstrated by reduced vacancy
rates and more timely rent collection. For instance, in April
1995, the vacancy rate in Page 63
GAO/RCED-99-210 Private Management for Public Housing Appendix III
Very Large Housing Authorities' Experiences With Private
Management developments for the elderly and disabled was 8
percent, according BHA officials. In October 1998, the vacancy
rate had dropped to 3 percent. BHA officials attribute a portion
of this reduction to private management. According to BHA
officials, private management companies excel at improving the
curb appeal of public housing properties. In addition, according
to BHA officials, private management companies can perform many
repairs more efficiently and economically than in-house
maintenance staff. For example, the officials said, a private firm
can send one maintenance employee to make a simple repair, such as
mend a broken pipe in a wall; however, labor agreements require
that the housing authority use several skilled tradespeople for
relatively minor repairs. In addition, BHA officials noted that
the backlog for BHA-managed properties is about 2 weeks while the
backlog for privately managed properties is a week or less. The
officials attributed this difference to the flexibility of
maintenance staff and the absence of union labor at the private
management companies. However, to increase the flexibility and
responsiveness of its maintenance staff, BHA implemented a new job
description for mechanics. Under this description, people can work
in a variety of trades, performing a variety of neutral activities
that do not require licenses and are not highly specialized. BHA
has implemented this mechanics program at all in-house management
clusters. Private-Sector Business BHA officials pointed out the
benefits of competing with private-sector Practices
managers. For example, after noting the positive impact of
improved curb appeal at its privately managed properties, BHA
improved the curb appeal at the properties it manages in-house.
BHA officials also began inviting private managers to their
management retreats to facilitate the sharing of management
practices. In addition, BHA is changing its maintenance program to
focus on prevention rather than respond to crises. Cost-Effective
Size BHA eased its large workload by using private managers
for a portion of the developments it operates for the elderly and
disabled. This step reduced the typical workload of BHA's site
managers to three developments, a level of responsibility that is
more in line with private-sector practices. Previously, the site
managers at Boston's housing developments for the elderly were
responsible for four to seven developments. Because of this large
workload, according to BHA officials, the site managers had time
for collecting rents and providing basic maintenance but not for
providing services and outreach to tenants. Page 64
GAO/RCED-99-210 Private Management for Public Housing Appendix III
Very Large Housing Authorities' Experiences With Private
Management Decentralized Management BHA historically has been
centralized, according to a BHA official. However, as noted, the
organization is moving toward decentralization. A major mandate of
the mayor's task force was to move BHA from a centralized to a
development-based management model. BHA split its elderly and
family housing portfolios and placed a portion of each under
private management. By decentralizing management, BHA was able to
devolve responsibility and accountability for individual
developments so that managers could focus on analyzing the
physical, structural, and marketing needs of their housing
portfolios. In addition, the use of private property managers has
instilled competition, and exchanges between private and in-house
managers have enhanced performance throughout entire agencies. As
part of BHA 2001, one task force proposed establishing site-based
programs to reduce vacancy rates and prepare units for new
residents, collect rents, and fill work orders more quickly.
Locating services as close as possible to the users is an
essential step in fulfilling BHA's mission. Monitoring of
Contractors' BHA requires its private management companies to
submit periodic Performance management and
financial reports for their sites. Residents' Fears of Change
BHA included the residents when it reviewed the qualifications of
companies bidding on its private management contracts. According
to resident leaders at BHA's privately managed developments, most
of the residents now prefer private management and are pleased
with the additional social services and improved living conditions
provided by the private management companies. HUD's Views on BHA's
According to a public housing official in HUD's Massachusetts
office, HUD Private Management supports efficient and
effective management, regardless of whether that Experience
management is provided by the housing authority or a private
management company. The HUD officials were not aware of any
current problems with BHA's private management activities. To
monitor these activities, HUD reviews BHA's PHMAP reports, which
contain scores for each management company on the functions it
provides. BHA officials noted that HUD did not play a role in its
private management activities. BHA preferred this hand-off
approach taken by HUD. Lessons Learned The following
describes the lessons learned by BHA officials in the private
management effort: Page 65 GAO/RCED-99-
210 Private Management for Public Housing Appendix III Very Large
Housing Authorities' Experiences With Private Management Housing
authorities need to clearly specify performance expectations for
their private management companies. The authorities can then
monitor the performance of the management companies against a
clear set of expectations. Housing authorities need to convince
residents of the need for and the benefits of private management.
Authorities also need to involve residents in implementation
efforts. Site-based budgeting is essential to meeting BHA 2001
goals. Site-based budgeting makes property managers more
responsible and more creative in their activities. Page 66
GAO/RCED-99-210 Private Management for Public Housing Appendix IV
GAO Contacts and Staff Acknowledgments GAO Contacts Judy A.
England-Joseph (202) 512-7631 Eric Marts (202) 512-6771
Acknowledgements In addition to those named above, Gwenetta
Blackwell, Anne Eichhorn, Elizabeth Eisenstadt, Andy Finkel,
Jackie Garza, and Lynn Musser made key contributions to this
report. (385755) Page 67 GAO/RCED-
99-210 Private Management for Public Housing Ordering Information
The first copy of each GAO report and testimony is free.
Additional copies are $2 each. Orders should be sent to the
following address, accompanied by a check or money order made out
to the Superintendent of Documents, when necessary. VISA and
MasterCard credit cards are accepted, also. Orders for 100 or more
copies to be mailed to a single address are discounted 25 percent.
Orders by mail: U.S. General Accounting Office P.O. Box 37050
Washington, DC 20013 or visit: Room 1100 700 4th St. NW (corner
of 4th and G Sts. NW) U.S. General Accounting Office Washington,
DC Orders may also be placed by calling (202) 512-6000 or by using
fax number (202) 512-6061, or TDD (202) 512-2537. Each day, GAO
issues a list of newly available reports and testimony. To
receive facsimile copies of the daily list or any list from the
past 30 days, please call (202) 512-6000 using a touchtone phone.
A recorded menu will provide information on how to obtain these
lists. For information on how to access GAO reports on the
INTERNET, send an e-mail message with "info" in the body to:
[email protected] or visit GAO's World Wide Web Home Page at:
http://www.gao.gov PRINTED ON RECYCLED PAPER United States
General Accounting Office Bulk Rate Washington, D.C.
20548-0001 Postage & Fees Paid GAO Permit No. G100 Official
Business Penalty for Private Use $300 Address Correction Requested
*** End of document. ***