Housing and Urban Development: HUD's Management Deficiencies, Progress on
Reforms, and Issues for Its Future (Testimony, 03/06/97,
GAO/T-RCED-97-89).

GAO discussed progress that the Department of Housing and Urban
Development (HUD) has made in addressing serious management and
budgetary problems, focusing on: (1) the long-standing management
deficiencies that hamper HUD's effectiveness, progress made in
addressing these problems, and the work remaining in the coming years;
(2) the problems in HUD's assisted and public housing programs, which
account for the largest portion of its outlays and a vast share of the
budget authority HUD expects to need in the future; and (3) the need to
achieve consensus on federal housing policy, HUD's mission, and the
resources devoted to achieving that mission.

GAO noted that: (1) four long-standing departmentwide management
deficiencies continue to make HUD vulnerable to waste, fraud, abuse, and
mismanagement: (a) weak internal controls; (b) inadequate information
and financial management systems; (c) an ineffective organizational
structure; and (d) an insufficient mix of staff with the proper skills;
(2) while HUD has made progress in addressing these weaknesses, GAO has
determined that much remains to be done and HUD continues to warrant the
focused attention that comes with being designated by GAO as a
"high-risk area"; (3) HUD faces a variety of problems in its largest
assisted and public housing programs, including how to: (a) continue
providing Section 8 housing assistance to 3 million families while not
undermining funding for other important housing and community
development programs; (b) reduce excess rental subsidies to some insured
multifamily properties while minimizing insurance losses to the Federal
Housing Administration fund and ensuring that those properties meet
basic housing quality standards; and (c) help public housing authorities
deal with increasingly tight funding levels while ensuring a minimum
level of oversight and assistance from HUD for the authorities with
management problems; (4) the Congress and the administration need to
agree on the future direction of federal housing policy and put in place
the organizational and program delivery structures that are best suited
to carrying out that policy; and (5) doing so will require revisiting
fundamental issues about that policy, including whom the federal
government will serve, how much will be spent on those being served, and
how those policies will be implemented.

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

 REPORTNUM:  T-RCED-97-89
     TITLE:  Housing and Urban Development: HUD's Management 
             Deficiencies, Progress on Reforms, and Issues for Its Future
      DATE:  03/06/97
   SUBJECT:  Internal controls
             Cost control
             Agency missions
             Management information systems
             Federal agency reorganization
             Human resources utilization
             Insurance losses
             Federal aid for housing
             Community development
             Housing programs
IDENTIFIER:  GAO High Risk Program
             Federal Housing Administration Fund
             HUD Section 8 Housing Assistance Program
             HUD Public Housing Management Assessment Program
             HUD Reinvention Blueprint
             
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Cover
================================================================ COVER


Before the Subcommittee on Human Resources and Intergovernmental
Relations, Committee on Government Reform and Oversight, House of
Representatives

For Release
on Delivery
Expected at
1:30 p.m.  EST
Thursday
March 6, 1997

HOUSING AND URBAN DEVELOPMENT -
HUD'S MANAGEMENT DEFICIENCIES,
PROGRESS ON REFORMS AND ISSUES FOR
ITS FUTURE

Statement of Lawrence J.  Dyckman,
Associate Director
Housing and Community Development Issues,
Resources, Community, and Economic
Development Division

GAO/T-RCED-97-89

GAO/RCED-97-89T


(385665)


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

  HUD -
  GPRA -
  GAO -
  FHA -
  PHA -
  PHMAP -

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

Mr.  Chairman and Members of the Subcommittee: 

Two years ago before this Subcommittee, we discussed the most
important management and budget problems facing the Department of
Housing and Urban Development (HUD) as part of your effort to help
set the stage for addressing those problems.  We are pleased to
return here today to discuss progress that has been made since then
and the problems and challenges that remain for both the Congress and
HUD. 

HUD remains a Department with serious management and budgetary
problems.  While it has formulated approaches and initiated actions
over the last 2 years to address some of its most significant
problems, those actions are far from complete.  HUD's programs
continue to represent large federal loan commitments and
discretionary spending, much of which goes for rental assistance to
those people who are least able to afford decent housing.  Therefore,
we believe that controlling spending for these programs will require
a continued reexamination--by both the Congress and the
administration--of federal housing policies and the type of program
delivery systems best suited to carry out those policies. 

As we said in a statement to your full Committee on February 12 of
this year, the Congress is an important partner in working with
executive branch agencies to implement the Government Performance and
Results Act (GPRA), which focuses on clarifying missions, setting
programmatic goals, and measuring performance toward those goals.\1

Building on GPRA's call to measure performance better and focus on
results, the Congress has enacted additional important reforms
including (1) the Government Management Reform Act of 1994, which
expanded the 1990 Chief Financial Officers (CFO) Act's requirements
for financial statements and controls that can pass the test of an
independent audit; and (2) the 1996 Clinger-Cohen Act, which is
directed at more effective management and use of information
technology to better support agencies' missions and improve program
performance. 

Our statement today is based on several reports that we have issued
and testimony that we have given over the past 2 years as well as our
ongoing work.  (See app.  I for a list of related GAO products).  It
will focus on (1) the long-standing management deficiencies that
hamper HUD's effectiveness, progress made in addressing these
problems, and the work remaining in the coming years; (2) the
problems in HUD's assisted and public housing programs--which account
for the largest portion of its outlays and a vast share of the budget
authority HUD expects to need in the future; and, (3) the need to
achieve consensus on federal housing policy, HUD's mission, and the
resources devoted to achieving that mission. 

In summary, we found the following: 

  -- Four long-standing, Department-wide management deficiencies
     continue to make HUD vulnerable to waste, fraud, abuse, and
     mismanagement.  These deficiencies are weak internal controls,
     inadequate information and financial management systems, an
     ineffective organizational structure, and an insufficient mix of
     staff with the proper skills.  While HUD has made progress in
     addressing these weaknesses, we have determined that much
     remains to be done and that therefore the Department continues
     to warrant the focused attention that comes with being
     designated by GAO as a "high-risk area."\2

  -- HUD faces a variety of problems in its largest assisted and
     public housing programs.  These include how to (1) continue
     providing Section 8 housing assistance to 3 million families
     while not undermining the funding for other important housing
     and community development programs, (2) reduce excess rental
     subsidies to some insured multifamily properties while
     minimizing insurance losses to the Federal Housing
     Administration (FHA) fund and ensuring that those properties
     meet basic housing quality standards, and (3) help public
     housing authorities deal with increasingly tight funding levels
     while ensuring a minimum level of oversight and assistance from
     HUD for the authorities with management problems. 

  -- The Congress and the administration need to agree on the future
     direction of federal housing policy and put in place the
     organizational and program delivery structures that are best
     suited to carrying out that policy.  Doing so will require
     revisiting fundamental issues about that policy, including whom
     the federal government will serve, how much will be spent on
     those being served, and how--via existing systems, block grants,
     devolution to states, or other means--those policies will be
     implemented. 


--------------------
\1 Managing for Results:  Using GPRA to Assist Congressional and
Executive Branch Decisionmaking (GAO/T-GGD-97-43, Feb.  12, 1997). 

\2 We identified areas throughout the government that are especially
vulnerable to waste, fraud, abuse, and mismanagement and termed these
"high-risk areas." See GAO's High-Risk Series (GAO/HR-97-1, Feb. 
1997). 


   BACKGROUND ON HUD'S PROGRAMS
   AND BUDGET
---------------------------------------------------------- Chapter 0:1

Established in 1965, HUD is the principal federal agency responsible
for programs dealing with housing and community development and fair
housing opportunities.  Through its programs, HUD provides rental
assistance to more than 4 million lower-income households, has
insured mortgages for about 23 million homeowners, has helped
revitalize over 4,000 communities, and helps ensure that access to
housing is equally available to all. 

HUD is responsible for the expenditure of significant amounts of tax
dollars.  The net budget outlays for HUD's programs were close to
$25.5 billion in fiscal year 1996, the vast majority of which was for
assisted and public housing programs.  HUD also is responsible for
managing more than $400 billion in mortgage insurance, $464 billion
in guarantees of mortgage-backed securities, and about $180 billion
in prior years' budget authority for which it has future financial
commitments. 


   HUD'S MANAGEMENT DEFICIENCIES
---------------------------------------------------------- Chapter 0:2

The HUD scandals of the late 1980s served to focus a great deal of
public attention on the management problems at HUD.  HUD's
information and financial management systems were inadequate, failing
to meet program managers' needs or to provide adequate oversight of
housing and community development programs.  These internal controls
weaknesses were a major factor leading to the scandals.  The
organizational problems at HUD included overlapping and ill-defined
responsibilities and authorities between the Department's
headquarters and field organizations as well as a fundamental lack of
management accountability and responsibility.  Finally, an
insufficient mix of staff with the proper skills hampered HUD's
ability to effectively monitor and oversee its programs. 

HUD's slow progress in correcting the fundamental management
weaknesses that allowed the scandals to occur and a concern that HUD
needed heightened congressional attention led us to designate the
Department as a "high-risk area" in January 1994.  In February 1995,
we reported in more depth on HUD's management deficiencies as part of
GAO's biennial High-Risk Series,\3 and, last month, we reported on
the corrective actions that HUD has taken or initiated since our
February 1995 report.\4 Because HUD is still working to correct its
management weaknesses and, in some areas, has a long way to go, we
have determined that the Department continues to warrant being
designated as a "high-risk area."

HUD has made progress in addressing each of the major management
deficiencies, but in most cases, much work remains for the Department
before its actions will be complete.  For example, HUD has made
progress improving its internal controls, but major problems persist. 
HUD has implemented a new management planning and control program
intended to identify and rank the major risks in each program and
develop strategies to abate those risks.  Also, HUD has reported that
its number of material internal control weaknesses dropped from over
51 in the early 1990s to only 9 at the end of fiscal year 1995. 

However, we and HUD's Inspector General question the effectiveness of
the Department's management control program in identifying material
weaknesses and assessing front-end risks.  For example, we noted in
our review of the fiscal years 1995 and 1996 management plans
prepared by several of HUD's major program areas that the only risks
identified in the management control section of each plan were
previously identified material weaknesses and the abatement actions
were those previously outlined in HUD's report on compliance with the
Federal Managers' Financial Integrity Act.  In addition, the
Inspector General stated that weaknesses existed in the management
control program because HUD's major program areas were not performing
front-end risk assessments on new or substantially modified programs,
as required. 

Furthermore, even though HUD has reduced the number of material
internal control weaknesses, some of those remaining weaknesses are
significant and long-standing.  For example, these remaining material
weaknesses (first identified in fiscal years 1983 through 1993)
include weaknesses that affect more than $18 billion in subsidy funds
that HUD disburses annually, primarily through its Section 8 and
Section 236 programs.  For both fiscal years 1994 and 1995, HUD's
auditors were not able to express an opinion on the reliability of
HUD's consolidated financial statements.  The fiscal year 1995 audit
of FHA's financial statements continued to identify internal control
weaknesses, including a lack of staff and administrative resources
for such tasks as performing loss mitigation functions, managing
troubled assets, and implementing new automated systems.\5

Much work also remains for HUD to improve its information and
financial management systems.  HUD has continued to make progress on
these systems over the last 2 years, moving beyond the planning
stages to where portions of major new systems are becoming
operational.  However, some of the projects involving major
improvements to HUD's systems will not be completed before the year
2000.  Furthermore, HUD reported in March 1996 that 93 out of 116 of
its information and financial management systems did not meet the
requirements of the Federal Managers' Financial Integrity Act and
therefore could not be relied upon to provide timely, accurate, and
reliable information and reports to management.  As we said in our
testimony last month,\6

conclusions about what the government is accomplishing with the
taxpayers' money cannot be drawn without adequate program performance
and cost information.  HUD plans to replace or enhance these systems,
but its efforts have been hampered by problems with systems
development, funding constraints, and data conversion problems. 

HUD has taken a number of steps to address the problems with its
organizational structure.  It has completed a field reorganization,
which was intended to eliminate previously confused lines of
authority, enhance communications, reduce levels of review and
approval, and improve customer service; transferred direct authority
for field staff and resources to the Assistant Secretaries in HUD
headquarters; and, restructured its 81 field offices.  HUD is
continuing its reorganization efforts, which will include reducing
headquarters staff, redeploying staff, and further streamlining and
consolidating field activities.  When we recently conducted a
telephone survey of HUD's field directors about the Department's
reorganization efforts, the respondents rated three areas as good or
excellent--HUD's success in improving the lines of program management
authority, empowering staff, and improving communications with
headquarters and HUD's customers.\7 However, HUD has found that, to
some extent, the reorganization has impaired communications across
program lines at its field offices.  HUD is taking actions, such as
adding program integration requirements to senior managers'
performance expectations and appraisals, that it believes will
alleviate this situation. 

HUD has made progress on its efforts to address the problems with
staff members' skills.  HUD has begun to implement a needs assessment
process to plan future training.  In addition, HUD has increased
staff training and has begun to evaluate the effectiveness of its
stepped-up training efforts.  While the field directors we surveyed
generally believed that the skills of their staff have improved over
the past 2 years, 40 percent of these directors rated HUD's current
training as less than good.  The field directors also said that more
training is needed in the use of information systems, the
implementation of program regulations, HUD-related technical skills,
and interpersonal skills.  In addition, we and HUD's Inspector
General continue to find staff resource problems in some of HUD's
major program areas, including public housing and FHA. 


--------------------
\3 High-Risk Series:  Department of Housing and Urban Development
(GAO/HR/95-11, Feb.  1995). 

\4 High-Risk Series:  Department of Housing and Urban Development
(GAO/HR-97-12, Feb.  1997). 

\5 Federal Housing Administration, Audit of Fiscal Year 1995
Financial Statements, prepared by KPMG Peat Marwick LLP for the
Office of Inspector General (June 7, 1996). 

\6 See footnote 1. 

\7 HUD:  Field Directors' Views on Recent Management Initiatives
(GAO/RCED-97-34, Feb.  12, 1997). 


   HUD'S ASSISTED AND PUBLIC
   HOUSING PROGRAMS FACE DIFFICULT
   MANAGEMENT AND BUDGET PROBLEMS
---------------------------------------------------------- Chapter 0:3

In addition to wrestling with critical agencywide management
weaknesses, HUD faces a daunting task in managing the costs
associated with (1) renewing Section 8 contracts for assisted
housing, (2) the multifamily projects that FHA has insured, and (3)
ensuring the soundness of public housing in a time of intense
scrutiny and pressure on all housing programs in light of the move to
reduce the budget deficit.  As I mentioned earlier, these rental
assistance programs serve more than 4 million low-income households;
figure 1 illustrates the number of households currently receiving
Section 8 tenant-based and project-based assistance and the number in
public housing. 

   Figure 1:  Number of Households
   in HUD-funded Assisted and
   Public Housing

   (See figure in printed
   edition.)

Figure 2 gives you an overall picture of whom HUD's rental assistance
programs are serving. 

   Figure 2:  Characteristics of
   HUD-assisted Renters

   (See figure in printed
   edition.)


      RETAINING SUPPORT FOR
      IMPORTANT HOUSING PROGRAMS
      IN THE FACE OF THE SPIRALING
      COSTS OF SECTION 8 CONTRACT
      RENEWALS
-------------------------------------------------------- Chapter 0:3.1

Under Section 8 of the 1937 Housing Act (as amended), HUD contracts
with public housing authorities and private property owners to
provide housing assistance for low income families.  In fiscal year
1998, Section 8 contracts covering 1.8 million housing units will
expire, an increase of more than a million over 1997.  To the extent
that HUD may not have the budget authority to renew these contracts,
the currently assisted families could face rent increases or
displacement.  Moreover, owners of many multifamily properties
currently receiving Section 8 assistance will default on their
FHA-insured mortgages if the assistance is withdrawn.  (We address in
greater detail those properties with FHA-insured loans later in this
testimony). 

Overall, the price of renewal is high and will increase over the next
several years.  Figure 3 shows HUD's estimates of over $9 billion for
the fiscal year 1998 budget authority it will need to renew contracts
covering over 1.8 million housing units; figure 3 also shows how the
escalating needs for section 8 budget authority will soon surpass
funding levels for all of HUD's other programs.  As you can see in
figure 4, this budget authority grows to over $21 billion by the year
2006.  This amount exceeds HUD's total budget authority of about
$19.3 billion in fiscal year 1997.  With increases in budget
authority of this magnitude forecast for the next 8 years, other
long-standing HUD programs with significant funding could be at risk
of being funded at levels less than would support their current
commitments.  These programs include public housing at more than $6
billion, community development block grants at nearly $5 billion, and
homeless assistance at nearly $1 billion. 

   Figure 3:  Budget Authority
   Required to Renew Existing
   Section 8 Contracts

   (See figure in printed
   edition.)

   Figure 4:  Budget Authority
   Required to Renew Existing
   Section 8 Contracts Through
   Fiscal Year 2006

   (See figure in printed
   edition.)

Funding these programs as well as the Section 8 housing assistance
program will be difficult in the face of other agencies' competing
budget requests.  The challenge for HUD will be to demonstrate that
it is operating its programs efficiently, that it has planned
realistic reforms that will lead to decreased costs, and that the
programs themselves are achieving the goals and policy objectives
that the Congress envisioned in creating them. 


      COSTS ASSOCIATED WITH
      MULTIFAMILY PROJECTS
-------------------------------------------------------- Chapter 0:3.2

Over the past 2 years, HUD has begun the difficult process of
attempting to resolve three basic problems affecting its insured
Section 8 portfolio:  high subsidy costs, high exposure to insurance
loss, and the poor physical condition of some properties.  In 1995,
HUD introduced its "mark-to-market" proposal (subsequently renamed
"portfolio reengineering"), through which it sought to (1) reduce
subsidies by setting rents at market levels, (2) reduce the mortgages
on those properties as necessary to achieve positive cash flows and
terminate the FHA mortgage insurance on them, and (3) replace
project-based Section 8 subsidies with portable tenant-based
subsidies. 

The insured Section 8 portfolio--the subject of the portfolio
reengineering proposal--consists of more than 8,600 properties
containing just under 859,000 apartments.  The properties provide
housing for a diverse population, including families and single
adults as well as special-needs populations such as the elderly and
the disabled.  These properties have FHA insurance, loans with unpaid
principal balances of nearly $18 billion, and receive project-based
Section 8 assistance, much of which HUD provided under long-term
contracts executed in the 1970s.  Over time, these properties'
Section 8 subsidies have increased dramatically, and today many of
the Section 8 contracts are reaching their expiration.  However, for
many properties, reductions in the Section 8 subsidies without a
reduction in the outstanding mortgage balances on those properties
would lead to defaults and partial claims against FHA's insurance
fund.  This would happen because, without a continuation of the
subsidy, many of the projects would not be economically viable. 

Recognizing this predicament--properties that cannot command market
rents high enough to cover their federally insured mortgages but
which continue to receive excessively costly Section 8 subsidies--HUD
proposed to restructure the FHA-insured mortgages and bring income
and expenses into line so that they could operate on market rents. 
HUD's fiscal year 1997 appropriation includes a demonstration program
covering those properties with contract rents exceeding 120 percent
of fair market rents.  For owners who are eligible for and agree to
participate in this demonstration, HUD has the flexibility to use
tools such as reinsurance, debt forgiveness, and second mortgages to
decrease the escalating costs of Section 8 rental assistance, prevent
mortgage defaults, protect residents against dislocation, and resolve
associated tax issues.\8

In 1996, HUD hired Ernst & Young LLP to study a randomly selected
sample of 558 properties to obtain information about how HUD's
original mark-to-market proposal would affect them.  Subsequently, we
selected 10 of the properties included in Ernst & Young's study as
case studies and hired three licensed real estate appraisal firms to
help assess the effects of HUD's proposal on them.\9 Among other
things, Ernst & Young found that 60 to 66 percent of the properties
in the insured Section 8 portfolio receive above-market rents and
that $9.2 billion to $10.2 billion would be required to address
deferred maintenance and future capital needs at the properties if
they were to compete in the marketplace without project-based
subsidies.  We believe that for the most part, the methodology and
assumptions that Ernst & Young used were reasonable given their
study's overall scope.  However, for most of the 10 properties we
reviewed, the study estimated substantially higher deferred
maintenance needs than did the property owners or managers and our
contract appraisers. 

HUD's initiative to reengineer its portfolio recognizes a reality
that has existed for some time--namely, that the value of many of the
properties in the insured Section 8 portfolio is far lower than the
mortgages on the properties suggest.  Addressing the problems of
HUD's insured multifamily portfolio will inevitably be costly and
difficult.  As the Congress evaluates the options for addressing this
situation, the fundamental problems that have affected the portfolio
and their underlying causes will be important to consider.  Any
approach that is implemented should address not only the high costs
of Section 8 subsidies, but also the government's high exposure to
insurance loss, the poor physical condition of some of the
properties, and the underlying causes of these long-standing problems
with the portfolio.  The overarching objective should be to implement
the process as efficiently and cost-effectively as possible,
recognizing not only the interests of the parties directly affected
by restructuring but also the impact on the federal government. 


--------------------
\8 For owners who are eligible for but do not choose to participate
in the demonstration, contract rents are reduced to 120 percent of
fair market rents.  For projects with rents below 120 percent of fair
market rents, the appropriation requires HUD, if requested by the
project owner, to renew the assistance contract for 1 year. 

\9 Multifamily Housing:  Effects of HUD's Portfolio Reengineering
Proposal (GAO/RCED-97-7, Nov.  1, 1996). 


      ENSURING THE SOUNDNESS OF
      PUBLIC HOUSING
-------------------------------------------------------- Chapter 0:3.3

About 3 million low-income people, many of whom are elderly or
disabled, live in public housing, which is operated on a day-to-day
basis by local public housing authorities (PHA).  HUD currently
provides PHAs with $5.4 billion a year to help them operate and
modernize their projects.  However, over time, the costs for PHAs
have begun to exceed the financial resources available to them
because their tenants' incomes--on which the amount they pay the PHAs
in rent is based--have declined steadily over the last decade.  In
addition, over the last several years, the amounts appropriated for
HUD's operating subsidy to the PHAs have not kept pace with the PHAs'
expected costs.  The recent welfare reforms could further reduce the
rents that the tenants are able to pay if they lose welfare benefits
without finding work.  With funding for the PHAs increasingly tight,
interest has been keen in knowing how well the PHAs are managing
their properties and whether HUD has been adequately identifying and
helping those PHAs having management problems. 


      REDUCING HOUSING
      AUTHORITIES' NEED FOR
      OPERATING SUBSIDIES
-------------------------------------------------------- Chapter 0:3.4

HUD provides the PHAs with an operating subsidy to supplement the
rent paid by residents because federal statutory requirements
generally limit the amount that tenants may be required to pay to 30
percent of their income.  Also, until recently, federal preferences
for admission to public housing required the PHAs to give preference
to admitting those who are usually the poorest of the poor.  By
concentrating the very poor in public housing, these preferences
limited the PHAs' ability to meet operating expenses on their own and
gave rise to the need for a subsidy from HUD to make up the
difference between the rents that the PHAs could charge and what it
costs them to operate their projects. 

A decline in the average income of public housing residents since
1981 has led to a steady increase in the PHAs' need for operating
subsidies.  In 1981, the average income of public housing residents
was 33 percent of the area median income, but by 1995 the average had
dropped to 17 percent.  As a result, 1982 operating subsidy needs
were $1.5 billion, while in 1996 needs reached $3.1 billion (in
nominal dollars).  However, for several years in a row now, budgetary
pressures and reduced appropriations have meant that HUD could not
fully fund the difference between tenants' rents and the PHAs'
operating costs--for example, in fiscal year 1996, HUD's subsidy was
90 percent of the PHAs' expected operating costs.  In many cases, the
effect of reduced operating subsidies can be that the PHAs defer
routine maintenance, which, over time, can lead to deteriorated
housing conditions and higher accrued needs for major rehabilitation
and modernization. 

Congress has proposed legislation and HUD has taken steps over the
last 2 years to give the PHAs more flexibility in managing their
properties to strengthen the long-term viability of this housing. 
These steps--public and assisted housing reform bills in both the
House and Senate\10 and HUD's efforts to relax some requirements--are
aimed at encouraging the PHAs to find additional sources of income
and allowing them to admit tenants with a broader mix of incomes so
that the PHAs have less need for an operating subsidy from HUD.  For
its part, HUD has attempted to increase incentives for the PHAs to
generate additional nonrental income by allowing them to keep more of
that income to meet their operating expenses.  Previously, each
dollar of extra income that a PHA generated reduced its subsidy by a
dollar, thereby creating a disincentive to generating additional
income from sources other than rent. 

The Congress, HUD, and many of those in the public housing industry
were in general agreement on the financial and other benefits of
admitting tenants with a broader mix of incomes to public housing to
better ensure public housing's long-term viability.  However, neither
of the reform bills nor a compromise between the two has been enacted
into law.  As a result, each of HUD's last two annual appropriations
included provisions temporarily repealing the federal preferences as
well as other statutory requirements that were seen as limiting the
PHAs' management discretion.\11

The reforms that were contained in H.R.  2406 and S.  1260 would
likely improve the long-term viability of public housing.  The PHAs
have agreed, telling us that reforms such as allowing them to admit
tenants with incomes higher than those they currently house will
enable them to adjust to possible reductions in the operating
subsidies.\12 However, the PHAs also said that they need an
adjustment period in which to admit new tenants before the subsidies
are significantly cut; industry associations representing PHAs have
said that the PHAs need more certainty that these reforms are
permanent so that they know that they will not be operating under the
old rules in the next new federal fiscal year. 

In public housing, just as in a myriad of other HUD programs, there
remains a need for HUD and the Congress to reach consensus on whom
will be served and at what cost.  While, over time, income mixing can
help the PHAs meet more of their operating expenses on their own,
adopting such a strategy comes at the expense of those very
low-income people who have been given preference for admission to
public housing for years.  This strategy may also exacerbate
worst-case housing needs among the poor, which, according to HUD, are
at an all-time high. 


--------------------
\10 The House of Representatives passed H.R.  2406, The United States
Housing Act of 1996, and the Senate passed S.  1260, the Public
Housing Reform and Empowerment Act of 1995.  Agreement was not
reached on a compromise between the two bills before the 104th
Congress adjourned. 

\11 For example, each appropriation waived the "one-for-one"
replacement requirement, which mandated that the PHAs replace each
unit of housing they elect to demolish with another unit or a Section
8 certificate. 

\12 Housing and Urban Development:  Public and Assisted Housing
Reform (GAO/T-RCED-96-25, Oct.  13, 1995). 


      IMPROVING HUD'S OVERSIGHT OF
      HOUSING AUTHORITIES'
      PERFORMANCE
-------------------------------------------------------- Chapter 0:3.5

With the funding for public housing increasingly tight, knowing how
well the PHAs are managing their properties with the resources HUD
gives them takes on added importance.  However, we recently found
that HUD's primary tool for measuring PHAs' performance, the Public
Housing Management Assessment Program (PHMAP), needs to be more
accurate and useful in order for HUD to ensure that it is identifying
all of the PHAs to which it should be targeting its limited oversight
and technical assistance resources.\13

HUD uses PHMAP to annually collect data from each PHA on basic
indicators of management performance, such as vacancy rates and
operating expenses.  The PHAs submit and certify to the accuracy of
most of the data on these indicators.  On the basis of aggregate
performance against these indicators, HUD calculates a score from 0
to 100 for each authority and assigns one of the following three
designations:  "troubled performer" for a score less than 60,
"standard performer" for a score between 60 and less than 90, and
"high performer" for a score of 90 or above.  Troubled PHAs must
enter into a binding agreement with HUD stipulating the problems the
authority needs to address and an approach and timetable to resolve
them.  Standard- and high-performing authorities that fail any
indicator must submit a plan for improving their performance in that
indicator.  HUD requires its field offices to go to troubled PHAs to
verify the data that the PHAs submit (and thus, the PHMAP score) when
those data would lead to a score high enough to remove the "troubled"
designation. 

We found HUD needs to do a better job of ensuring that all of its
field offices comply with PHMAP's follow-up requirements and use
PHMAP scores and other information available to them to better target
their limited technical assistance resources.  HUD's field offices
have the bulk of the Department's responsibility for the day-to-day
implementation of PHMAP, including negotiating the binding agreements
required of troubled PHAs, approving improvement plans for standard
and high performers, and monitoring the PHAs' progress in meeting
agreed-upon goals to which they have committed themselves.  However,
according to the results of a survey of all of HUD's public housing
field offices, we found HUD has not been systematically complying
with PHMAP's statutory and regulatory follow-up requirements for all
housing authorities.  For example, in 1995,

  -- less than 20 percent of the troubled PHAs that should have been
     operating under a binding agreement with HUD actually were;

  -- nearly a third of HUD's field offices had not ensured that
     standard- and high-performing PHAs developed improvement plans
     for each indicator they failed; and,

  -- the field offices confirmed the accuracy of the data behind
     fewer than 30 percent of the troubled PHAs' PHMAP scores that
     HUD requires them to confirm. 

Some field offices cited resource constraints--a lack of staff,
travel funds, or expertise--as the main reason for not meeting
follow-up requirements, while others opted not to enforce the
requirements when they believed the PHAs were already addressing
their problems.  Differences in how the field offices interpret their
role in helping the PHAs improve performance also played a part in
the field offices' oversight and technical assistance activities. 
Some field offices told us they interpret their role narrowly,
generally limiting their assistance to advice, information on
complying with HUD's regulations, and suggestions for solving
management problems.  Others were more willing to get involved in the
PHAs' operations by performing tasks such as setting up proper tenant
rent records and waiting lists. 

The bottom line is that HUD is not maintaining a consistent,
minimally acceptable level of oversight at all PHAs.  Without this
oversight, HUD cannot be reasonably confident that the housing
authorities are using federal funds appropriately, managing and
maintaining their developments properly, and reporting performance
information accurately. 


--------------------
\13 Public Housing:  HUD Should Improve the Usefulness and Accuracy
of Its Management Assessment Program (GAO/RCED-97-27, Jan.  29,
1997). 


   FUTURE FEDERAL HOUSING AND
   COMMUNITY DEVELOPMENT POLICY: 
   COMING TO CONSENSUS ON HUD'S
   MISSION
---------------------------------------------------------- Chapter 0:4

Since it was created in 1965, HUD has grown to include some 240
programs and activities (according to a December 1994 report by HUD's
Inspector General) and hundreds of billions of dollars in financial
commitments.  Through its multiple social and financial roles, it
directly or indirectly affects most Americans.  Over the years, we
and others have criticized the inefficiencies in HUD's organization
and the deficiencies in its management.  Leaders in the
administration and in the Congress agree that HUD must, at a minimum,
be restructured to better meet the nation's housing and community
development needs.  Some policymakers believe that HUD's problems are
so great that they can be cured only by dismantling the agency and
transferring or eliminating its functions.  In its initial
Reinvention Blueprint, HUD proposed major changes, including
consolidating programs, devolving responsibility for program design
and implementation to states and localities, and HUD's assuming the
role of overseer and clearinghouse for national models.  While some
limited, yet significant, improvements to HUD's existing program
structure have been made, a comprehensive redesign of HUD's overall
mission and program delivery structure has not occurred.  Likewise,
various bills to fundamentally restructure HUD's programs to
subsidize multifamily rental housing also have been proposed, but
thus far none has been enacted. 

HUD's programs will remain at high risk to fraud, waste, abuse, and
mismanagement until the agency completes more of its planned
corrective actions and until the debate over HUD's future--in which
the Congress must participate--is settled.  In our view, the Congress
now has an excellent opportunity to help HUD eliminate the
deficiencies that make it a high risk and to align the agency's
management responsibilities and capacity by authorizing a major
restructuring strategy that focuses HUD's mission and significantly
consolidates, reduces, and/or reengineers its many separate program
activities.  What is needed now is for the administration and the
Congress to agree on the future direction of federal housing and
community development policy and the organizational and program
delivery structures that are best suited to carry out that policy--a
process that will involve inherent trade-offs between the needs of
those seeking HUD's assistance and other demands on the total federal
budget.  As the Congress provides input to HUD's and other agencies'
strategic plans, as required by GPRA, it can insist that agencies
show how their programs are aligned with related efforts in other
agencies.\14 Congress can also use the GPRA planning process to seek
opportunities to streamline government by comparing the effectiveness
of similar program efforts carried out by different agencies. 


--------------------
\14 In order to successfully implement the initial requirements of
GPRA, HUD must prepare, by the end of this fiscal year a strategic
plan that includes a statement of its mission. 


-------------------------------------------------------- Chapter 0:4.1

Mr.  Chairman, this concludes our prepared remarks.  We will be
pleased to respond to any questions that you or other Members of the
Subcommittee might have.  We in GAO look forward to working with the
Congress to help address HUD's management deficiencies and their
impact on housing and community development programs. 




RELATED GAO PRODUCTS
============================================================ Chapter I

Public Housing:  Status of the HOPE VI Demonstration Program
(GAO/RCED-97-44, Feb.  25, 1997). 

Housing and Urban Development:  Potential Implications of Legislation
Proposing to Dismantle HUD (GAO/RCED-97-36, Feb.  21, 1997). 

Managing for Results:  Using GPRA to Assist Congressional and
Executive Branch Decision-Making (GAO/T-GGD-97-43, Feb.  12, 1997). 

HUD:  Field Directors' Views on Recent Management Initiatives
(GAO/RCED-97-34, Feb.  12, 1997). 

GAO High-Risk Series (GAO/HR-97-1, Feb.  1997). 

High-Risk Series:  Department of Housing and Urban Development
(GAO/HR-97-12, Feb.  1997). 

Public Housing:  HUD Should Improve the Usefulness and Accuracy of
Its Management Assessment Program (GAO/RCED-97-27, Jan.  29, 1997). 

Multifamily Housing:  Effects of HUD's Portfolio Reengineering
Proposal (GAO/RCED-97-7, Nov.  1, 1996). 

Public Housing:  Partnerships Can Result in Cost Savings and Other
Benefits (GAO/RCED-97-11, Oct.  17, 1996). 

Housing and Community Development Products 1995 (GAO/RCED-96-248W,
Aug.  1996). 

Multifamily Housing:  HUD's Portfolio Reengineering Proposal:  Cost
and Management Issues (GAO/T-RCED-96-232, July 30, 1996). 

Multifamily Housing:  Issues Facing the Congress in Assessing HUD's
Portfolio Reengineering Proposal (GAO/T-RCED-96-231, July 26, 1996). 

Executive Guide:  Effectively Implementing the Government Performance
and Results Act (GAO/GGD-96-118, June 20, 1996). 

Housing and Urban Development:  Limited Progress Made on HUD Reforms
(GAO/T-RCED-96-112, Mar.  27, 1996). 

Housing and Urban Development:  Public and Assisted Housing Reform
(GAO/T-RCED-96-22 and GAO/T-RCED-96-25, Oct.  13, 1995). 

Public Housing:  Converting to Housing Certificates Raises Major
Questions About Cost (GAO/RCED-95-195, June 20, 1995). 

Public Housing:  Funding and Other Constraints Limit Housing
Authorities' Ability to Comply With One-for-One Rule (GAO/RCED-95-78,
Mar.  3, 1995). 

Housing and Urban Development:  Reforms at HUD and Issues for Its
Future (GAO/T-RCED-95-108, Feb.  22, 1995). 

High-Risk Series:  Department of Housing and Urban Development
(GAO/HR/95-11, Feb.  1995). 

*** End of document. ***