Public Housing: HUD's Takeover of the Housing Authority of New Orleans
(Testimony, 07/08/96, GAO/T-RCED-96-212).

GAO discussed the Housing Authority of New Orleans' (HANO) operational
problems, focusing on the Department of Housing and Urban Development's
(HUD) efforts to correct these problems. GAO noted that: (1) obstacles
to improving HANO performance include HANO inability to perform routine
maintenance and repairs on its buildings, and persistent interference by
HANO board of commissioners into HANO daily operations; (2) such
interference has resulted in cancelled modernization contracts and
delays in HUD-mandated improvement actions; (3) HUD provided HANO $90
million in 1994 and over $37 million in 1995 to modernize unsafe
buildings; (4) despite the presence of a professional property
management contractor, HANO performance significantly declined in 1993
and 1994; (5) HUD attempts to resolve HANO management problems have not
proven effective; and (6) in February 1996, HUD declared the housing
authority in breach of its contract and negotiated a partnership
agreement to improve the living conditions in HANO public housing.

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

 REPORTNUM:  T-RCED-96-212
     TITLE:  Public Housing: HUD's Takeover of the Housing Authority of 
             New Orleans
      DATE:  07/08/96
   SUBJECT:  Declining neighborhoods
             Public housing
             Low income housing
             Federal aid to cities
             Municipal governments
             Disadvantaged persons
             Housing repairs
             Maintenance (upkeep)
             Intergovernmental relations
             Repair contracts

             
******************************************************************
** This file contains an ASCII representation of the text of a  **
** GAO report.  Delineations within the text indicating chapter **
** titles, headings, and bullets are preserved.  Major          **
** divisions and subdivisions of the text, such as Chapters,    **
** Sections, and Appendixes, are identified by double and       **
** single lines.  The numbers on the right end of these lines   **
** indicate the position of each of the subsections in the      **
** document outline.  These numbers do NOT correspond with the  **
** page numbers of the printed product.                         **
**                                                              **
** No attempt has been made to display graphic images, although **
** figure captions are reproduced.  Tables are included, but    **
** may not resemble those in the printed version.               **
**                                                              **
** Please see the PDF (Portable Document Format) file, when     **
** available, for a complete electronic file of the printed     **
** document's contents.                                         **
**                                                              **
** A printed copy of this report may be obtained from the GAO   **
** Document Distribution Center.  For further details, please   **
** send an e-mail message to:                                   **
**                                                              **
**                                            **
**                                                              **
** with the message 'info' in the body.                         **
******************************************************************


Cover
================================================================ COVER


Before the Subcommittee n Housing Opportunity and Community
Development, Committee on Banking, Housing, and Urban Affairs, House
of Representatives

For Release
on Delivery
Expected at
2 p.m.  CDT
Monday
July 8, 1996

PUBLIC HOUSING - HUD'S TAKEOVER OF
THE HOUSING AUTHORITY OF NEW
ORLEANS

Statement of Judy A.  England-Joseph,
Director, Housing and Community Development Issues,
Resources, Community, and Economic
Development Division

GAO/T-RCED-96-212

GAO/RCED-96-212T


(385637)


Abbreviations
=============================================================== ABBREV

  HUD -
  HANO -
  GAO -

============================================================ Chapter 0

Mr.  Chairman and Members of the Subcommittee: 

We are pleased to have this opportunity to discuss the operational
problems at the Housing Authority of New Orleans (HANO), some of the
causes of those problems, and the Department of Housing and Urban
Development's (HUD) efforts over the years to correct them.  Our
testimony summarizes our report issued in May of this year that
described the events that led to HUD's to takeover of HANO's
operations.\1

In summary, we found the following: 

  -- Two operational problems have stood out over the years as
     significant and continuing obstacles to improving HANO's
     performance.  They are HANO's inability to perform (1) routine
     maintenance--repairs to plumbing, heating, and electrical
     systems--and consistent inspection and upkeep of its buildings
     and grounds and (2) major modernization and rehabilitation work
     such as replacing roofs and heating systems or demolishing
     unsafe buildings.  These problems, coupled with persistent
     interference into HANO's daily operations by its board of
     commissioners, have posed major obstacles to HANO's ability to
     provide decent housing to its residents. 

  -- To help HANO's management overcome its operational problems, HUD
     has taken numerous actions over the last decade, such as
     withholding funding, twice requiring that the housing authority
     be managed by a commercial property management firm, and
     sanctioning the board of commissioners.  These actions have had
     little impact on housing conditions, however.  A November 1995
     survey by HUD showed that over 90 percent of a random sample of
     HANO's apartments did not meet HUD's housing quality standards,
     and the housing authority's operational performance was at its
     lowest measured level. 

  -- After a 1994 partnership agreement with the Mayor of New Orleans
     failed to improve HANO's performance, in early February 1996 the
     Secretary declared the housing authority in breach of its
     contract and negotiated with the Mayor a second agreement to
     determine and accomplish the steps necessary to improve the
     living conditions in HANO's public housing. 


--------------------
\1 Public Housing:  HUD Takes Over the Housing Authority of New
Orleans (GAO/RCED-96-67, May 3, 1996). 


   BACKGROUND
---------------------------------------------------------- Chapter 0:1

Under the Housing Act of 1937, as amended, HUD contracts with housing
authorities to provide subsidies and grants for operating expenses
and modernizing deteriorated housing.  In return, housing authorities
agree to provide residents with decent, safe, and sanitary housing. 
In New Orleans, as in many other cities, the mayor appoints a
governing body or board of commissioners who, in turn, hires the
local housing authority's executive director and may approve other
top management positions.  The board provides the housing authority
with policy guidance, while the executive director is responsible for
day-to-day operations.\2 Both are responsible for complying with the
terms of the housing authority's contract with HUD. 

If a housing authority does not comply with terms of the contract,
HUD can declare the authority in substantial breach of the contract. 
Historically, however, HUD has made limited use of this authority and
when it has declared a breach, the results have been mixed.  In late
1985, HUD took over the troubled East St.  Louis Housing Authority
and hired a private manager, who operated the housing authority for 6
years.  This housing authority is no longer troubled.  In contrast,
HUD's intervention with the Detroit Housing Authority was not as
successful.  HUD declared Detroit in breach of its contract in
October 1992 but did not place it in receivership or take it over. 
Currently, the Detroit Housing Authority remains on HUD's list of
troubled authorities and is still receiving significant technical
assistance from HUD. 

Pending legislation in both the House and Senate would significantly
reduce the time the Secretary of HUD would be permitted to wait
before taking over troubled housing authorities, such as HANO.  The
Secretary would be required to take a more aggressive approach with
such authorities, ensuring some resolution of the problems and better
protection for the residents living in these authorities.  While the
Secretary would maintain flexibility in dealing with troubled
authorities, he would be required to take over, within 180 days,
authorities that have performance histories similar to HANO's. 
However, after the Secretary takes over an authority, the legislation
would not prevent the Secretary from entering into cooperative
agreements with local governments to encourage their involvement. 

HANO is one of our nation's 10 largest housing authorities, ranking
7th in size with about 13,000 units and providing homes to over
24,000 people in 10 developments.  HANO receives approximately $30
million in operating subsidies each year.  To modernize HANO's
buildings and systems, HUD provided HANO with nearly $90 million in
1994 and over $37 million in 1995; HANO qualifies for $27 million in
modernization funding in 1996.  That these funds are needed to
correct the social and physical distress of HANO's developments is
not in question:  HUD's Deputy Secretary for Distressed and Troubled
Housing Recovery recently described HANO's developments as
disproportionately substandard--by age of housing stock, deteriorated
condition, resident distress, poverty, and social isolation--when
compared with other large housing authorities in the nation. 


--------------------
\2 The responsibilities of HANO's board are outlined in the housing
authority's contract with HUD and HUD handbooks. 


   HANO HAS SUFFERED FROM
   INEFFECTIVE MAINTENANCE AND
   MODERNIZATION EFFORTS
---------------------------------------------------------- Chapter 0:2

Numerous reports by HUD, HUD's Inspector General (IG), GAO, and
consultants have documented HANO's decline since it was first
designated by HUD as troubled in 1979.  The reports attribute this
decline to HANO's lack of an effective maintenance program, HANO's
inability to carry out major modernization and rehabilitation
projects, and the persistent interference into HANO's operations by
its board of commissioners. 

After over a decade of focused effort to rectify maintenance problems
at HANO, HUD's IG reported in 1994 that in a random sample of HANO's
housing units, all 150 units failed to meet HUD's housing quality
standards because of missing ceilings, holes in walls, loose and
peeling paint, and roach infestations.  The report further stated
that no maintenance improvements had occurred at HANO since HUD's IG
had last been there over 10 years earlier.  In addition, a consultant
hired in 1995 by HUD to review HANO's performance cited ineffective
maintenance and modernization as serious problems and stated that
despite the presence of a professional property management
contractor, HANO's performance score had declined significantly from
47 (out of a possible 100, with a score of 60 denoting "troubled"
status) in 1993 to 26 in 1994.  The acting director of HUD's Office
of Troubled Agency Recovery told us recently that the score has risen
to 29. 

The record of audit and independent reports shows that many
interrelated conditions underlie HANO's lack of progress toward
improving its operations.  One of these factors has been HANO's
policy-making body--its board of commissioners.  For example, in
contradiction of HUD's guidance, the board did not effectively govern
the authority and persisted in adversely interfering in the housing
authority's daily operations.  Such behavior resulted in canceled
modernization contracts and delays in HUD-mandated improvement
actions. 


   HUD'S ATTEMPTS TO SOLVE HANO'S
   PROBLEMS HAVE NOT PROVEN
   EFFECTIVE
---------------------------------------------------------- Chapter 0:3

As we reported in May, HUD has taken many actions over the last
decade to stimulate management improvements at HANO.  HUD has
withheld funding, twice required that the authority be managed by a
commercial property management firm, sanctioned the board of
commissioners, and negotiated in 1994 directly with the Mayor to
establish a partnership between HUD and the City of New Orleans to
avoid declaring the authority in breach of its contract with HUD. 
(See app.  I.)

As far back as 1983, HUD's IG identified significant and pervasive
operational and managerial deficiencies at HANO.\3 In 1984, HUD
withheld approximately $10 million in modernization funding because
HANO's performance had not improved.  Although HANO remained on HUD's
troubled list, HUD reinstated modernization funding the following
year.  HUD's own 1988 comprehensive management review of HANO
revealed 241 findings of deficiencies similar to those reported by
the IG.  As a result, HUD required HANO's board of commissioners to
enter into a Memorandum of Agreement that placed HANO under a private
manager.  Private management, however, did not prove to be effective,
resulted in few lasting improvements over its 5-year duration
(1988-1993), and did not enable HANO to be removed from HUD's
troubled list. 

In 1991, HUD attempted to prevent HANO's board of commissioners from
continuing to interfere with the housing authority's daily operations
by issuing a "limited denial of participation" against the board.\4
HUD rescinded the denial a year later when the board agreed to resign
and the Mayor appointed a new board.  Later, the chairman of the new
board resigned under pressure from HUD because of allegations that he
interfered with and impeded the private manager's effort to improve
HANO. 


--------------------
\3 Housing Authority of New Orleans:  Low Income Housing Program
(HUD/OIG/Region VI-84-FW-201-1014/NO-84-26, Dec.  29, 1983). 

\4 A limited denial is a temporary enforcement action effective for 1
year at most to prevent local officials from participating in all or
part of a housing authority's activities. 


   HUD TRIED PARTNERSHIP BEFORE
   DECLARING BREACH OF CONTRACT
---------------------------------------------------------- Chapter 0:4

In 1994, HUD's IG recommended that HUD take over HANO and contract
out its functions.  At about the same time, a new Mayor elected to
the City of New Orleans appointed a new board of commissioners.  Both
HANO and the Mayor wanted to return the authority to a traditional
structure by removing the private manager and hiring a permanent
executive director.  But recognizing that HANO's management and
physical conditions were continuing to decline, and to avoid HUD's
declaring breach and to maintain local participation in HANO's
recovery efforts, HUD's Secretary and the new Mayor entered into a
partnership agreement in September 1994.  This partnership did not
prove successful, and in February 1996 HUD entered into a second
partnership with the new Mayor, removed the housing authority from
the control of the board of commissioners, and took possession of
HANO's assets. 


      THE FIRST PARTNERSHIP
      AGREEMENT WAS NOT SUCCESSFUL
-------------------------------------------------------- Chapter 0:4.1

In 1994, HUD's Secretary and the Mayor agreed to form an executive
council that would provide policy guidance for HANO's board, maintain
the private manager on a month-to-month basis until a permanent
executive director could be hired, and develop a 6-month strategic
plan.  Initial partnership objectives were not met, however, because
the board allowed the private management contract to expire and did
not hire an executive director and other key managers for HANO.  HUD
subsequently revised the partnership agreement to include a
transitional management structure.  Later, other milestones in the
agreement were missed. 

In September 1995, HUD began assembling a 15-member transitional
management team comprising HUD staff, staff from high-performing
housing authorities, and staff on loan from the City of New Orleans. 
The team's purpose was to stabilize HANO's operations until an
executive director and upper-level managers could be hired.  Some
members of the team remained at HANO for up to 7 months, at a cost to
HUD of about $480,000 for salaries and living expenses.  By gaining
control over and reducing the 21,000 outstanding maintenance work
orders and implementing standard contracting procedures, the team was
able to stabilize, to some extent, HANO's critical operations.  The
partnership agreement also required HANO to develop a 6-month
strategic plan within 45 days and to hire a permanent executive
director within 90 days.  The strategic plan was not completed until
10 months later and, although HUD provided HANO with additional
funding to search for an executive director, this position was not
filled until April 1995--4 months later than stipulated in the
agreement. 

HANO's performance scores made little improvement from September
1994--when the partnership was initiated--to the time when an
independent contractor assessed the housing authority's performance
in June 1995.  The independent assessment lowered HANO's 1994
performance score from approximately 61 to 26 and predicted limited
improvements in 1995.  The assessment also found modernization to be
one of HANO's most troubled areas and focused on HANO's inability to
spend backlogged funds and obtain quality work. 

HUD's November 1995 housing quality inspection indicated a further
lack of improvement at HANO during the time it was under the 1994
agreement.  The inspection found that 93 percent (70 of 75) of the
occupied units that were randomly selected from HANO's 10
developments failed HUD's quality standards for housing.  Inspectors
described the conditions as "deplorable, unsafe, and in many
instances unfit for human habitation." Furthermore, the inspectors
said that they found no visible indication that maintenance staff
were deployed on-site, that they were responding to scheduled
maintenance, or that recent maintenance work had been done in any of
the units, even though many of the tenants reported broken space
heaters and other problems that should have been addressed. 


      HUD DECLARED BREACH AND
      ESTABLISHED A SECOND
      PARTNERSHIP AGREEMENT
-------------------------------------------------------- Chapter 0:4.2

The lack of progress under the first partnership agreement, the
results of the independent assessment, and the dismal results of the
housing quality inspection prompted HUD's Secretary to initiate an
action to declare HANO in substantial breach of its contract in
December 1995.  On February 8, 1996, after lengthy negotiations with
the new Mayor, HUD's Secretary declared the housing authority to be
in substantial breach of its contract with HUD.  HUD removed HANO
from the oversight of its Board of Commissioners, and obtained
control of all properties and assets.  In addition, HUD's Secretary
and the new Mayor entered into a second partnership--"the Cooperative
Endeavor Agreement"--that provides for establishing plans and
quantifiable performance targets for which they will share
administrative oversight and responsibility. 

Under the agreement, HANO's executive director and management staff
remain in place under the direction of an executive monitor.  The
housing authority's staff is supplemented by HUD staff--an 11-member
team working on-site at HANO.  As part of the agreement, HUD's
Secretary explicitly retains his right to appoint or request judicial
appointment of a receiver to manage HANO. 


-------------------------------------------------------- Chapter 0:4.3

Mr.  Chairman, this concludes our statement.  We would be pleased to
answer any questions that you, the Subcommittee Members, or other
Members of Congress may have at this time. 


TIME LINE OF EVENTS RELATED TO
HUD'S OVERSIGHT OF THE HOUSING
AUTHORITY OF NEW ORLEANS
=========================================================== Appendix I


*** Error occurred during conversion.  Document is incomplete.  ***