Rural Housing Service:

Opportunities Exist to Strengthen Farm Labor Housing Program Management and Oversight

GAO-11-329: Published: Mar 30, 2011. Publicly Released: Mar 30, 2011.

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Congress created the Farm Labor Housing (FLH) Loan and Grant Program in the early 1960s to support the development of affordable housing for farm workers. In 2010, Congress appropriated $19.7 million for this program, which is administered by the Rural Housing Service (RHS) in the U.S. Department of Agriculture (USDA). GAO was asked to examine (1) demand for the FLH program; (2) RHS's processes for ensuring that the program is providing decent housing for eligible farmworkers; and (3) the financial status and financial management of FLH properties. To do this work, GAO analyzed agency data, regulations, and FLH program documentation; convened a group of experts with assistance of The National Academies; selected and inspected 20 properties in five states; and interviewed RHS staff and various stakeholders.

Available RHS occupancy data indicate that overall demand for FLH units has remained stable in recent years--with the vacancy rate ranging from 12 to 16 percent from 2007 through 2010. But the data showed, and stakeholders GAO interviewed and other experts agreed, that rates varied significantly across states. For example, RHS occupancy data show that the vacancy rates ranged from 0 percent in South Carolina to 64 percent in Wisconsin in 2010. However, stakeholders and experts offered divergent perspectives on trends in the demand for FLH units, with some citing instances of declining demand and others suggesting that demand was still high. The experts frequently cited housing costs and eligibility requirements among the factors having the greatest impact on demand. RHS management processes have hindered the agency's ability to assure farmworkers access to decent and safe housing and compliance with program requirements. For example, RHS cannot readily determine the severity of occurrences of noncompliance among FLH borrowers because the program information it uses to track borrower performance lacks specificity. Moreover, the enforcement mechanisms RHS uses may not be effective in bringing borrowers back into compliance in a timely manner, because some are too mild (servicing letters), and others too severe (acceleration of the loan payments) to have the intended effect. Additionally, the processes RHS has used for verifying tenant eligibility were inconsistent among states. For example, some states used third-party income and residency verification systems, while other states did not have access to or were unaware of these verification tools. Further, RHS has not analyzed all available program data to best target program funds to areas of greatest need. For example, information from program applicants has not been summarized to assess demand in a local area or state. Most FLH program borrowers were able to make timely loan payments; however, more could be done to ensure that FLH funds are used efficiently. For example, according to GAO's analysis, RHS overestimated its credit subsidy costs for fiscal year 2010 by $3 million, and another $11.8 million in low-interest financing could have been available to loan applicants. An investigation of unusual fluctuations in the credit subsidy cost components and a greater degree of coordination by budget and program staff could have helped ensure that key assumptions, namely the predicted default rates, used in the credit subsidy model more closely reflected portfolio performance and would have allowed RHS to optimize funding use. In addition, more than $184 million in loans and grant obligations were unliquidated, or unpaid, as of September 2010 and the balance of unliquidated obligations has not changed significantly over the past 6 years. However, RHS had no guidelines in place on when to recapture these funds, making it difficult to ensure that limited program funds are used effectively by being made available to other projects in a timely manner. GAO recommends that the Secretary of Agriculture take steps to strengthen oversight and management of the FLH program by, among other things, improving performance and financial information, increasing borrower compliance, and ensuring the efficient use of resources for the FLH program. The agency generally agreed with GAO's recommendations.

Recommendations for Executive Action

  1. Status: Closed - Implemented

    Comments: This recommendation has been implemented. In May 2011, the Rural Housing Service (RHS) developed and began to utilize a monthly report that identifies problems (open findings) in Farm Labor Housing projects listed in the Multifamily Information System (MFIS) that remain unresolved at the month's end. Open findings in the following categories are reviewed by the national office: civil rights compliance, financial, management, ownership and physical condition. In 2012, RHS also began evaluating the Missing Data Elements report, which is designed to detect data that should be in MFIS, as part of its oversight each State Director's Multifamily Housing servicing goals. According to the Rural Development Multifamily Handbook (HB)-2-3560, state and servicing offices are required to input the current status of all servicing actions into MFIS. The state office must monitor the MFIS activities of servicing offices to ensure that data are accurate, consistent, timely, and complete. According to the RHS national office, the Missing Data Elements report is used to ensure that such actions by the state and servicing offices are completed.

    Recommendation: To better determine and track compliance across the portfolio, the Secretary of Agriculture should direct the Administrator of RHS to implement mechanisms to improve the specificity and timely reporting of its compliance review information--such as findings data and performance grade data in Multi-Family Housing Information System (MFIS).

    Agency Affected: Department of Agriculture

  2. Status: Open

    Comments: The agency continues to take actions to address this recommendation, but has not yet fully implemented it.

    Recommendation: To help resolve identified borrower noncompliance in a timely manner, the Secretary of Agriculture should direct the Administrator of RHS to implement enforcement mechanisms that can be tailored to the severity of the borrower noncompliance, such as the civil money penalty enforcement provision in its program regulations.

    Agency Affected: Department of Agriculture

  3. Status: Open

    Comments: The agency has not implemented this recommendation.

    Recommendation: To better ensure that requirements for tenant eligibility are met across the FLH portfolio, the Secretary of Agriculture should direct the Administrator of RHS to require its loan servicers to use the Systematic Alien Verification and Entitlements (SAVE) program administered by the Department of Homeland Security to verify tenant's residency status during supervisory reviews.

    Agency Affected: Department of Agriculture

  4. Status: Closed - Implemented

    Comments: Although legislation has not yet passed, this recommendation to seek legislation has been implemented. The Secretary of the Department of Agriculture (USDA) proposed legislation in May 2012, which would allow the agency access to the National Directory of New Hires (NDNH) administered by the Department of Health and Human Services. The Office of Management and Budget did not move this proposal forward in the President's Budget for fiscal year 2012. USDA subsequently submitted legislative proposals with the Budget for USDA in fiscal years 2013-2015, seeking Congressional authority for access to NDNH.

    Recommendation: To better ensure that requirements for tenant eligibility are met across the FLH portfolio, the Secretary of Agriculture should direct the Administrator of RHS to seek legislative authority to gain access to the Department of Health and Human Services' National Directory of New Hires and make this information available to RHS so that they can assess the accuracy of tenant income documentation during supervisory reviews and other oversight activities.

    Agency Affected: Department of Agriculture

  5. Status: Open

    Comments: We continue to evaluate the agency's actions in response to this recommendation.

    Recommendation: To help ensure that reliable program costs are estimated in future years, the Secretary of Agriculture should direct the Administrator of RHS, on an annual basis, to work with budget staff to investigate key assumptions, including comparing these assumptions to actual program performance, in order to explain unusual fluctuations impacting the credit subsidy rate used in budget formulation.

    Agency Affected: Department of Agriculture

  6. Status: Closed - Implemented

    Comments: This recommendation has been implemented. On December 7, 2011, the Rural Housing Service (RHS) provided guidance to Rural Development State Directors for reviewing, obligating, and deobligating Farm Labor Housing (FLH) program obligations in the form of an unnumbered letter. The unnumbered letter provides timelines for insuring obligation of FLH program funds in a timely manner:on-farm loans must be fully liquidated not more than two years from the date the loan was obligated; and off-farm FLH loans and grants must be fully liquidated not more than three years from the date the loan was obligated. On July 20, 2014, RHS issued an unnumbered letter providing further guidance to Rural Development State Directors in response to this recommendation, which instructs every state office to evaluate every unliquidated obligation semi-annually and certify, to the national office, the continuing need of unliquidated obligations. Both unnumbered letters extend these policies to Section 515, Section 514, and Section 516 unliquidated loan and grant obligations.

    Recommendation: To better ensure that FLH funds obligated but unliquidated are efficiently used to provide farm labor housing, the Secretary of Agriculture should direct the Administrator of RHS to issue guidance on obligation expiration dates and make all RHS staff in the state and local offices aware of the guidance and how to implement it.

    Agency Affected: Department of Agriculture

  7. Status: Open

    Comments: The agency continues to take actions to address this recommendation, but has not yet fully implemented it.

    Recommendation: The Secretary of Agriculture should direct the Administrator of RHS to better utilize available data on demand for the FLH program--such as systematically reviewing local market analyses, further analyzing occupancy data on a statewide, regional, or national level, and retaining and analyzing application information--to help target available funding to areas of greatest need.

    Agency Affected: Department of Agriculture

 

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