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

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    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
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    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
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    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
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    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
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    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-
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