This is the accessible text file for GAO report number GAO-03-703R 
entitled 'Employment of OMHAR Staff at HUD Following Their Employment 
at OMHAR' which was released on June 30, 2003.

This text file was formatted by the U.S. General Accounting Office 
(GAO) to be accessible to users with visual impairments, as part of a 
longer term project to improve GAO products' accessibility. Every 
attempt has been made to maintain the structural and data integrity of 
the original printed product. Accessibility features, such as text 
descriptions of tables, consecutively numbered footnotes placed at the 
end of the file, and the text of agency comment letters, are provided 
but may not exactly duplicate the presentation or format of the printed 
version. The portable document format (PDF) file is an exact electronic 
replica of the printed version. We welcome your feedback. Please E-mail 
your comments regarding the contents or accessibility features of this 
document to Webmaster@gao.gov.

This is a work of the U.S. government and is not subject to copyright 
protection in the United States. It may be reproduced and distributed 
in its entirety without further permission from GAO. Because this work 
may contain copyrighted images or other material, permission from the 
copyright holder may be necessary if you wish to reproduce this 
material separately.

June 30, 2003:

The Honorable Paul S. Sarbanes:

Ranking Minority Member:

Committee on Banking, Housing, and Urban Affairs:

United States Senate:

Subject: Employment of OMHAR Staff at HUD Following Their Employment 
at OMHAR:

Dear Senator Sarbanes:

To reduce the estimated multibillion-dollar costs to the federal 
government of renewing rental subsidy contracts while helping preserve 
available and affordable low-income rental housing, Congress passed the 
Multifamily Assisted Housing Reform and Affordability Act of 1997 
(Act), which established the "mark-to-market" program to restructure 
the contracts. The Act also created the Office of Multifamily Housing 
Assistance Restructuring (OMHAR) as a temporary organization within the 
Department of Housing and Urban Development (HUD) to administer the 
contract-restructuring program. With OMHAR scheduled to "sunset" (cease 
operations) on September 30, 2001, the Subcommittee on Housing and 
Transportation, Committee on Banking, Housing, and Urban Affairs, held 
a hearing in June 2001 to determine whether it would be more 
advantageous to the federal government to extend rather than end the 
program. Subsequently, Congress extended the sunset date to September 
30, 2004, with restructuring work at HUD continuing until 2006. To 
ensure that OMHAR could attract and retain staff with requisite 
expertise in multifamily housing finance issues, the Act provided the 
Director of OMHAR authority to pay salaries comparable with the Federal 
Deposit Insurance Corporation.[Footnote 1] As a result, OMHAR salaries 
are generally higher than those paid for most federal positions. OMHAR 
is staffed in part by former HUD employees, and also by former 
employees of other federal agencies and the private sector.

As you know, the Subcommittee on Housing and Transportation, Committee 
on Banking, Housing, and Urban Affairs has previously highlighted the 
importance of attracting and retaining the skilled staff necessary to 
carry out OMHAR functions. In addition, you have stated that a chief 
goal of the legislation extending the sunset date until 2004 ought to 
be the retention of OMHAR staff so that program implementation would 
move forward effectively. In light of these issues, in your December 4, 
2002, request, you expressed concern that HUD might not be honoring pay 
commitments relating to the return of OMHAR staff to HUD after their 
employment at OMHAR ends. We agreed with your office to (1) describe 
what information HUD and OMHAR officials provided regarding OMHAR staff 
employment at HUD following their employment at OMHAR; (2) describe how 
HUD determined to which OMHAR employees it would offer employment and 
what their pay levels would be; and (3) determine, for eligible OMHAR 
employees, how accepting HUD's offer would affect their pay.

Background:

OMHAR is responsible for administering the mark-to-market program, 
which was established to reduce rent levels for Federal Housing 
Administration (FHA)-insured multifamily properties that receive 
Section 8 assistance and have rents determined to be above prevailing 
market levels.[Footnote 2] The goals of the mark-to-market program 
include preserving the affordability and the availability of low-income 
rental housing while reducing the long-term costs of Section 8 project-
based assistance. Restructuring generally involves resetting rents to 
market levels and reducing mortgage debt, if necessary, to permit a 
positive cash flow for the project. To facilitate the restructurings, 
Congress provided OMHAR with certain tools, such as the ability to 
reduce an owner's mortgage payments by creating a new first mortgage 
and, where necessary, deferring some of the debt to a second mortgage 
that must be repaid only if sufficient cash flow is available.

As of June 1, 2003, OMHAR had a staff of 78, split among four field 
offices and its Washington, D.C., headquarters. Approximately two-
thirds of the staff are devoted to "production" functions such as 
reviewing, underwriting, or restructuring mortgages and conducting 
closing and post-closing activities; the remaining staff perform 
administrative functions. HUD and OMHAR managers agreed during the 
start-up of OMHAR that HUD's human resource office would handle 
personnel processing functions, because establishing a separate 
personnel office at OMHAR or using other agencies would be difficult 
and might delay hiring.

In December 1998 and January 1999, HUD requested, and received from the 
Office of Personnel Management (OPM), the authority to appoint (hire) 
staff under Schedule A of the excepted schedules.[Footnote 3] Schedule 
A authority must be used by temporary organizations (such as OMHAR) 
that are established within continuing agencies to hire staff for 
positions for which it is not practical to hold competitive 
examinations.[Footnote 4] An appointment into a position under Schedule 
A is an appointment into the excepted service, or those positions in 
the executive branch specifically exempted from competitive service 
procedures. In contrast, competitive service positions are those to 
which competitive civil service laws and procedures do apply. An 
appointment to a competitive service position allows federal employees 
to earn competitive status, which in turn allows them to be promoted, 
transferred, reassigned, or reinstated without taking additional 
competitive examinations or undergoing competitive procedures, subject 
to the conditions prescribed by the civil service rules and 
regulations.[Footnote 5]

The movement of federal employees among agencies or between positions 
is subject to certain limitations. In this letter, we discuss two such 
limitations; specifically, how reemployment rights and reinstatement 
eligibility apply to federal employees. Reemployment rights allow an 
employee to return to nontemporary employment following an assignment 
to other civilian employment.[Footnote 6] An employee with reemployment 
rights is entitled to, among other things, a position at the same grade 
or level and in the same geographic area as the position that the 
employee previously held.[Footnote 7] But, under OPM regulations, 
agencies may only offer reemployment in limited circumstances, such as 
movement of staff between executive agencies during emergencies. To 
grant reemployment rights in the case of an emergency, an agency must 
request that OPM provide it with a letter of authority.[Footnote 8]

Reinstatement eligibility, on the other hand, is a broader concept; 
federal employees with competitive status are by definition eligible 
for reinstatement. Reinstatement eligibility allows an individual 
formerly employed in the competitive service, who had competitive 
status or was probationary when separated, to be considered for a 
federal position without undergoing competitive procedures.[Footnote 
9] Agencies may still choose whom to hire; reinstatement eligibility 
does not guarantee a position, but rather offers the possibility for 
appointing an individual to a position.

According to OPM regulations, individuals who have reinstatement 
eligibility would, upon accepting reinstatement without competition, 
have their pay set at no higher than their last competitive grade held 
in the General Schedule (GS).[Footnote 10] For example, if an 
individual left the competitive service and the last competitive grade 
held was a GS-9, he or she would have to be reinstated to a GS-9 
position. The hiring agency could then apply the maximum payable rate 
rule, which uses highest previous rate of pay to determine the 
appropriate step within this grade level.[Footnote 11] Highest previous 
rate is the highest actual rate of basic pay previously received by an 
individual while employed in a federal government position, or the 
actual rate of basic pay for the highest grade and step previously held 
by an individual while employed in a position subject to the general 
schedule. To set pay, the hiring agency typically would review the 
individual's official personnel folder to determine the last 
nontemporary GS grade held in the competitive service. The agency then 
would have the discretion to set pay at any step within the grade 
without exceeding the last GS pay grade held.[Footnote 12]

Results in Brief:

Over a period of several years, HUD provided inaccurate information to 
OMHAR officials and staff regarding OMHAR staff members' potential 
employment and pay at HUD. To encourage HUD employees to apply for 
positions at OMHAR during start-up in 1999, HUD provided a memorandum 
to OMHAR managers stating that certain HUD employees who joined OMHAR 
would have "reemployment rights." However, HUD had neither requested 
nor received authority from OPM to grant reemployment rights. (HUD did 
have the authority to reinstate employees.) Also during 1999, HUD-
prepared job announcements erroneously advertised some OMHAR positions 
as competitive service positions, when they were actually excepted 
service positions. In November 2000, HUD sent a memorandum to OMHAR 
managers, notifying them that it would correct erroneous OMHAR employee 
appointments made under incorrect announcements. However, in the same 
memorandum, HUD provided inaccurate information on pay levels that 
would apply to OMHAR employees eligible to return to HUD. Specifically, 
the memorandum stated that "upon the sunset of OMHAR," eligible 
employees would be moved into positions at HUD at their current OMHAR 
pay grades rather than, as is correct, their highest previously held 
grade in the competitive service.

HUD determined to which OMHAR employees it would offer employment and 
what their pay would be using OPM regulations regarding reinstatement 
eligibility. HUD laid the groundwork for these decisions in a July 2002 
memorandum to OMHAR managers noting that previous information on 
employment and pay that it had provided was not consistent with OPM 
regulations. The memorandum clarified previous inaccuracies and 
explained which regulations applied to staff and how these would affect 
employment eligibility and pay for positions at HUD. HUD also stated 
that its earlier "reemployment commitment" to eligible staff would be 
honored. Shortly after the July 2002 memorandum, OMHAR and HUD 
officials worked together to identify OMHAR staff to whom HUD would 
offer positions, based on their prior competitive status, and what 
their pay would be, based on their highest grade level held in the 
competitive service. Because OMHAR is a temporary organization and its 
positions are excepted rather than competitive, only staff with prior 
competitive status have reinstatement eligibility. HUD is using its 
discretionary authority to offer positions to OMHAR employees with 
reinstatement eligibility in an attempt to honor its "reemployment 
commitment." HUD is also using its authority to offer staff pay at the 
highest appropriate step within the last competitive grade held. Based 
on HUD and OMHAR's analysis, as of March 7, 2003, there were 24 staff 
who had been identified as eligible for reinstatement at HUD.

By accepting HUD's offer of reinstatement without competition, all 24 
eligible OMHAR staff would experience a reduction in pay. Based on HUD 
and OMHAR's analysis, as of March 7, 2003, the average decrease in pay 
for OMHAR staff would be 16.5 percent, or about $17,000. Specifically, 
10 staff would experience a decrease of more than 20 percent, 6 would 
experience a decrease of 10 to 20 percent, and 8 would experience a 
decrease of less than 10 percent. However, to more closely match their 
OMHAR salary, eligible OMHAR staff may apply for higher-grade positions 
at any federal agency through normal competitive procedures.

In commenting on a draft of this letter, HUD officials agreed with the 
letter's findings. Our evaluation of HUD's comments appears later in 
this letter; HUD's comments appear in the enclosure. We also requested, 
but did not receive, comments from OPM.

HUD Provided Inaccurate Information Regarding Future Employment and Pay 
of OMHAR Staff:

From 1999 until 2002, HUD provided OMHAR staff with inaccurate 
information regarding employment and pay. The inaccurate information 
was contained in a variety of documents, including a series of 
memorandums and job announcements to OMHAR managers and staff. Prior to 
hiring staff, HUD mistakenly informed OMHAR managers that certain HUD 
employees who joined OMHAR had "reemployment rights," when in fact what 
they had was reinstatement eligibility, which is granted to all 
employees with prior competitive status in the federal service. HUD 
then incorrectly advertised some positions as competitive and therefore 
appointed some OMHAR staff to positions incorrectly designated as 
competitive when they were actually excepted positions. Later, HUD 
corrected OMHAR employee appointments to address initial mistakes, but 
presented inaccurate information regarding pay grades for OMHAR 
employees eligible to return to HUD; OMHAR's Director then communicated 
this inaccurate information on pay to OMHAR staff.

HUD Mistakenly Informed OMHAR Managers That Eligible Staff Would Have 
Reemployment Rights and Erroneously Appointed Many OMHAR Staff:

On February 17, 1999, the Deputy Secretary of HUD sent a memorandum to 
the Director of OMHAR regarding the employment of HUD employees 
appointed to positions at OMHAR. The memorandum incorrectly stated 
that, under delegated agency authority granted by OPM, the Deputy 
Secretary was "granting reemployment rights to those eligible career 
and career-conditional HUD employees serving under a Schedule A 
excepted service or a career appointment with OMHAR."[Footnote 13]

The February 1999 memorandum's use of the term "reemployment rights" 
was inaccurate, because reemployment rights only apply in very specific 
circumstances. Although these OMHAR staff did not have reemployment 
rights, they did have reinstatement eligibility, which is offered to 
all federal employees with prior competitive status, allowing them to 
be considered for a federal position without undergoing competitive 
procedures. Based on our discussions with OPM officials and review of 
the regulations, HUD would have had to request a letter of authority 
from OPM to be able to offer reemployment rights.[Footnote 14] After 
interviews with HUD and OPM officials, and after review of internal 
files by these officials, they were unable to find any documentation 
that showed that HUD requested or received this authority from OPM. 
However, according to HUD and OMHAR officials, HUD believed at the time 
that it could offer reemployment rights and used this offer to increase 
the interest of prospective HUD employees in applying for positions at 
OMHAR. HUD and OMHAR officials also told us that shortly after the 
memorandum was released, the Director of OMHAR erroneously decided to 
extend reemployment rights to all federal employees to be hired by 
OMHAR, not just HUD employees, to further increase interest in the 
positions.

In 1999, as OMHAR started hiring staff, some HUD-prepared job 
announcements incorrectly labeled OMHAR positions as being in the 
competitive service. Because OMHAR is a temporary agency, all its 
appointments must be to excepted service positions. Consequently, some 
OMHAR employees were appointed to positions incorrectly characterized 
as competitive service positions, and these incorrect appointments were 
documented in personnel records such as the Standard Form 50 (SF 
50).[Footnote 15]

After OMHAR appointed staff, it also provided each employee with a 
memorandum explaining that the employee had either an excepted service 
appointment or (erroneously) an appointment with reemployment rights. 
For staff erroneously offered reemployment rights, these individual 
memorandums, in most cases, discussed the position and grade level 
staff would be placed in at HUD following OMHAR sunset or termination 
of their appointment.

HUD Presented Inaccurate Information on Pay Grades to OMHAR Managers, 
Who Disseminated the Information to OMHAR Staff:

On November 7, 2000, the Director of the Office of Human Resources at 
HUD sent a memorandum to OMHAR's Administrative Officer regarding the 
appointment status and pay of OMHAR employees. This memorandum was a 
follow-up to a series of discussions between HUD's Office of Human 
Resources and OMHAR managers concerning appointment status and pay in 
light of the impending OMHAR sunset. OMHAR officials were concerned 
that there would be a problem retaining qualified staff and recruiting 
new staff in the year prior to sunset. As an incentive to reduce the 
potential loss of staff, HUD agreed to offer OMHAR employees retention 
of their OMHAR pay grades rather than use their last competitive grade 
held. The memorandum also noted that some appointments had been 
improperly documented as competitive, rather than excepted, and 
outlined the steps that would be taken to correct employee records. 
(HUD and OMHAR subsequently provided staff with corrected SF 50s.) 
However, the November memorandum continued to erroneously refer to 
staff as having reemployment rights.

While the memorandum notified OMHAR managers of the correction of one 
misunderstanding, it created another by incorrectly stating that 
employees with competitive status, following OMHAR sunset or 
termination of their appointment, would be moved into positions at HUD 
at their "current grades" rather than the grade last held in a 
competitive position. The memorandum stated that when this occurred, 
"salaries would be based on the GS pay schedule using highest previous 
rate rules." The memorandum also stated that the maximum rate payable 
under this authority was step 10 of the GS equivalent to the current 
grade held. Based on our discussions with OPM and HUD officials, 
because OMHAR is a temporary organization with excepted positions, pay 
grades under this organization are also temporary, and cannot be used 
to set pay if an agency chooses to reinstate an employee without 
competition to a competitive position. (Reinstatement without 
competition would be to the grade last held in a competitive 
position.)[Footnote 16]

Using the information provided in the November 2000 memorandum, the 
Director of OMHAR sent a memorandum to OMHAR staff on December 5, 2000, 
notifying them of the two issues. The discussion of pay retention in 
the December memorandum was almost identical to that of the November 
memorandum, but added that shortly before OMHAR sunset, employees would 
be notified of the positions to which they would be assigned and the 
grades and steps of these positions.

HUD Determined to Whom It Would Offer Employment and What Their Pay 
Would Be by Applying Federal Personnel Regulations:

HUD determined to which employees it would offer positions and what 
their pay would be by applying relevant OPM regulations on 
reinstatement eligibility. Prior to the originally scheduled (2001) 
sunset of OMHAR, and after questions were raised by OMHAR staff, HUD 
officials began to research employment and pay issues. In so doing, HUD 
officials discovered that inaccurate information had been provided to 
OMHAR officials and staff from OMHAR's inception. HUD then contacted 
OPM to discuss how HUD's existing information compared with OPM 
regulations. OPM officials described OMHAR employee entitlements based 
on relevant regulations and explained specific provisions applying to 
employees of temporary agencies.

Based on this research, HUD developed a memorandum to clarify previous 
misinformation. On July 8, 2002, HUD's Assistant Secretaries for 
Administration and Housing sent this memorandum to the Deputy Secretary 
of HUD requesting approval of a policy change on OMHAR employment. This 
policy change was requested in order to clarify eligibility of current 
and future competitive status employees at OMHAR for positions at HUD 
and to explain how pay would be set for those employees offered 
positions at HUD.[Footnote 17] More specifically, the memorandum 
explained that the information on "reemployment rights" and pay that 
employees had previously received was inconsistent with OPM 
regulations. The memorandum also referred to the December 2000 
memorandum that inaccurately indicated that OMHAR employees could move 
to HUD at their current pay grades in OMHAR (not to exceed step 10 of 
that grade).

Based on discussions with OPM officials and review of the regulations, 
HUD determined that those OMHAR employees who had achieved competitive 
status--whether at HUD or another federal agency--prior to their 
appointment with OMHAR did not have reemployment rights, but rather 
reinstatement eligibility. Yet the memorandum also recommended that HUD 
"honor the commitment" made by the former Deputy Secretary in February 
1999. The memorandum further explained that current OMHAR employees 
with competitive status would receive positions at HUD at a pay grade 
permissible under OPM regulations, meaning the last competitive grade 
held (because they could not be reinstated to a position at a higher 
grade than previously held without undergoing competitive 
procedures).[Footnote 18] Additionally, HUD stated that all staff hired 
after July 8, 2002, who had competitive status in a previous position, 
would be required to sign an acknowledgment indicating that they were 
leaving the competitive service to join the excepted service on a time-
limited appointment and not entitled to permanent reemployment with HUD 
upon expiration of their OMHAR appointment.

After the July memorandum was approved, HUD and OMHAR officials began a 
process of identifying individuals to whom HUD would offer positions. 
In August 2002, OMHAR provided HUD with a list of employees who had 
been told they had reemployment rights when they were hired.[Footnote 
19] HUD then examined official personnel folders to verify the accuracy 
of the list. Specifically, HUD determined whether an individual had 
prior competitive status and what his or her previous grade level was 
in the last competitive position held. Based on HUD and OMHAR's 
analysis, as of March 7, 2003, 24 staff were identified as eligible for 
reinstatement at HUD.

According to HUD officials, they are trying to find positions at HUD 
for OMHAR staff with competitive status in an attempt to honor HUD's 
"reemployment commitment." Based on our discussions with OPM officials, 
HUD's offer of employment to OMHAR staff with competitive status is not 
a guarantee; that is, these individuals do not have reemployment 
rights. HUD is using its discretionary authority to choose to hire 
staff with reinstatement eligibility. Additionally, HUD is using its 
discretion to offer pay up to step 10 of the reinstated employees' 
previous competitive grades. A federal agency has the authority to 
match, as closely as possible, prospective employees' current salary as 
long as the agency does not exceed the highest step within the last 
grade held in a competitive position.

Accepting HUD's Offer of Reinstatement Would Reduce the Pay of Eligible 
OMHAR Staff:

Because of the difference between OMHAR and HUD pay schedules, and pay 
increases due to promotions that some employees received at OMHAR, all 
eligible OMHAR staff would see a reduction in pay if they chose to 
accept HUD's offer of reinstatement without competition. Based on HUD 
and OMHAR's analysis, as of March 7, 2003, 24 eligible OMHAR employees 
would experience an average pay decrease of 16.5 percent, or about 
$17,000. Five staff would experience a decrease of 25 percent or more, 
5 staff would experience a decrease of 20 to 25 percent, 6 would 
experience a decrease of 10 to 20 percent, and 8 would experience a 
decrease of less than 10 percent. In dollars, 4 staff would experience 
a reduction in pay of $30,000 or more, 4 would experience a reduction 
of $17,000 to $30,000, 10 would experience a reduction of $8,500 to 
$17,000, and 6 staff would experience a reduction of less than $8,500.

To verify the number of staff that would be affected and the pay 
reductions they would experience, we used the August 2002 HUD-verified 
list of 36 employees to whom HUD would offer positions. The list 
included the grade and step employees would receive at HUD, their 
current OMHAR grade and step, and the difference between the two in 
dollars. Additionally, on March 7, 2003, OMHAR provided us with 2003 
OMHAR pay rates and updates regarding employee status, including 
retirements, transfers, and resignations. Based on these updates, the 
list of 36 was reduced to 28 employees because 4 staff were offered 
positions by HUD, 2 staff retired, 1 took a position with another 
federal agency, and 1 took a position in the private sector. As of 
March 7, 2003, HUD planned to offer positions to 24 employees with 
reinstatement eligibility.[Footnote 20]

If OMHAR staff wish to obtain or more closely match their OMHAR salary 
and grade levels, OPM regulations require that they apply for higher-
grade positions through normal competitive procedures. If an agency 
then selected these staff into higher-grade positions, it could use the 
highest previous rate these staff earned at OMHAR to set pay up to the 
step 10 within this new grade. Through this process, OMHAR staff 
members could more closely match their OMHAR pay, if such positions 
were available.

Agency Comments:

We provided a draft of this report to the Department of Housing and 
Urban 
Development (HUD) and the Office of Personnel Management (OPM) for 
their review and comment. We received written comments and technical 
suggestions on the draft report from HUD's Assistant Secretary for 
Housing, but did not receive a response from OPM. HUD agreed with the 
report's findings that the Department initially provided OMHAR 
management with incorrect personnel guidance regarding "reemployment 
rights" and "return pay" levels of OMHAR staff. Where appropriate, we 
also incorporated technical suggestions made by HUD.

Scope and Methodology:

To describe what information HUD and OMHAR officials provided regarding 
OMHAR staff employment and pay following their employment at OMHAR, we 
obtained memorandums and interviewed officials from HUD, OMHAR, and 
OPM. To describe how HUD determined to which OMHAR employees it would 
offer employment and what their pay levels would be, we interviewed HUD 
and OMHAR officials and obtained relevant communications and data from 
HUD, OMHAR, and OPM. We also obtained and reviewed relevant personnel 
regulations. To address the impact of accepting HUD's offer of 
employment on eligible OMHAR employees' pay, we obtained data from 
OMHAR and HUD that listed those who were eligible and compared the 
current pay of OMHAR staff with the pay they would receive if they 
accepted employment with HUD. We then verified this information by 
reviewing official personnel folders of the listed staff. HUD was 
unable to locate one personnel folder; therefore, we were only able to 
verify the competitive status and the highest grade held for 23 of the 
24 eligible staff. We conducted our work in Washington, D.C., from 
December 2002 until June 2003 in accordance with generally accepted 
government auditing standards.

We are sending copies of this report to the Secretary, Department of 
Housing and Urban Development; the Director, Office of Personnel 
Management; and the Director, Office of Management and Budget. The 
report is also available at no cost on GAO's home page at http://
www.gao.gov. Major contributors to this report were John McGrail, 
Barbara Roesmann, Wendy Wierzbicki, and Chuck Wilson. If you or your 
staff have any questions, please contact me on (202) 512-8678 or at 
woodd@gao.gov.

Sincerely yours,

David G. Wood:

Director, Financial Markets and Community Investment:

Signed by David G. Wood:

Enclosure:

Comments from the Department of Housing and Urban Development:

US. DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT WASHINGTON, DC 20410-
8000:

ASSISTANT SECRETARY FOR HOUSING-FEDERAL HOUSING COMMISSIONER:

JUN 19	2003:

Mr. David G. Wood:

Director, Financial Markets and Community Investment:

United States General Accounting Office 441 G Street, NW:

Washington, DC 20548:

Dear Mr. Wood:

Thank you for the opportunity to provide comments to the draft report, 
Employment of OMHAR Staff at HUD Following Their Employment at OMHAR 
(GAO-03-703R). We agree with the report's findings that the Department 
initially provided OMHAR management officials with incorrect personnel 
guidance regarding "reemployment rights" and "return pay" levels.

In 2001, various officials from the Department became aware of these 
issues and began the process of correcting the situation. In July of 
2002, the Deputy Secretary approved a joint memorandum from myself and 
Vickers Meadows, the Assistant Secretary for Administration,

which corrected prior inaccuracies. This memorandum, along with person 
specific information relating to salary, was provided to each OMHAR 
employee who had reinstatement eligibility. We recognized that most of 
the reinstatement-eligible employees at OMHAR would face a reduction in 
pay should they choose to return to the competitive service and, 
consequently, the maximum notice possible was an important factor to 
their financial planning. HUD recognizes and fully appreciates the 
contribution OMHAR employees have made to the Department, and we are 
confident that we have implemented equitable procedures which comply 
with all relevant personnel statutes and regulations for those 
employees who are eligible for reinstatement.

Thank you again for the opportunity to comment on this report.

Sincerely,

John C. Weicher:

Assistant Secretary for Housing-Federal Housing Commissioner:

Signed by John C. Weicher:

[Signed by US. DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT WASHINGTON, DC 20410-
8000:

ASSISTANT SECRETARY FOR HOUSING-FEDERAL HOUSING COMMISSIONER:

JUN 19	2003:

Mr. David G. Wood:

Director, Financial Markets and Community Investment:

United States General Accounting Office 441 G Street, NW:

Washington, DC 20548:

Dear Mr. Wood:

Thank you for the opportunity to provide comments to the draft report, 
Employment of OMHAR Staff at HUD Following Their Employment at OMHAR 
(GAO-03-703R). We agree with the report's findings that the Department 
initially provided OMHAR management officials with incorrect personnel 
guidance regarding "reemployment rights" and "return pay" levels.

In 2001, various officials from the Department became aware of these 
issues and began the process of correcting the situation. In July of 
2002, the Deputy Secretary approved a joint memorandum from myself and 
Vickers Meadows, the Assistant Secretary for Administration,

which corrected prior inaccuracies. This memorandum, along with person 
specific information relating to salary, was provided to each OMHAR 
employee who had reinstatement eligibility. We recognized that most of 
the reinstatement-eligible employees at OMHAR would face a reduction in 
pay should they choose to return to the competitive service and, 
consequently, the maximum notice possible was an important factor to 
their financial planning. HUD recognizes and fully appreciates the 
contribution OMHAR employees have made to the Department, and we are 
confident that we have implemented equitable procedures which comply 
with all relevant personnel statutes and regulations for those 
employees who are eligible for reinstatement.

Thank you again for the opportunity to comment on this report.

Sincerely,

John C. Weicher:

Assistant Secretary for Housing-Federal Housing Commissioner:

Signed by John C. Weicher:

[End of section]

FOOTNOTES

[1] Public Law 105-65, Section 574 (b), 111 Stat. 1422, October 27, 
1997.

[2] Under Section 8 of the Housing Assistance Act of 1937, tenants pay 
up to 30 percent of their family or individual income for rent. The 
federal government pays property owners the difference between the 
actual monthly rent and the family or individual's payment. This 
assistance can be project-based (attached to the unit) or tenant-based 
(in the form of a voucher held by the tenant). The mark-to-market 
program applies only to project-based Section 8 program contracts. Over 
800,000 units in approximately 8,500 multifamily projects have been 
financed with mortgages insured by FHA and supported by project-based 
Section 8 housing assistance payment contracts.

[3] 5 C.F.R. 213.3101. OPM is responsible for administering the Civil 
Service System, including personnel-related laws and executive orders, 
and for developing regulations to ensure that all agency personnel 
actions are in accordance with merit system principles. 5 U.S.C. 1103 
& 1104.

[4] 5 C.F.R. 213.3199.

[5] Competitive status is acquired by completion of a probationary 
period.

[6] Other civilian employment may be with the Foreign Service, public 
international organizations, or other agencies in the executive branch. 

[7] An agency may refuse to reemploy an employee with reemployment 
rights only when the employee was separated from the agency for serious 
cause (5 C.F.R. 352.208).

[8] 5 C.F.R. 352.201-203.

[9] 5 C.F.R. Part 315, Subpart D. 

[10] The General Schedule (GS) is the graded pay system established 
under the Classification Act of 1949, as amended (5 U.S.C. Chapter 53, 
Subchapter III, and 5 C.F.R Part 531). GS grades range from GS-1 to GS-
15, and there are 10 steps in each grade level.

[11] 5 C.F.R 531.201-531.203.

[12] 5 C.F.R. 531.203 (c) (1).

[13] A career employee has completed 3 substantially continuous, 
creditable years of federal service under a competitive service 
permanent appointment (5 C.F.R. 315.201). A career-conditional employee 
is serving in a competitive service appointment, but has not yet 
completed the 3-year service period. 

[14] 5 C.F.R. 352.201-203.

[15] A Standard Form 50 (SF 50), Notification of Personnel Action, is a 
document used by federal agencies to inform employees of changes, such 
as reassignment, pay adjustments, promotions, or achievement of status. 
A copy of every SF 50 issued for an employee is included in the 
employee's official personnel folder.

[16] See 5 C.F.R. 335.103 (c) (1) (vi) and 5 C.F.R. 335.103 (c) (3) (v).

[17] The Deputy Secretary approved the memorandum on July 17, 2002.

[18] These employees are not entitled to their OMHAR salaries even 
though the Director of HUD's Office of Human Resources and OMHAR's 
Director explicitly promised that they would receive those salaries at 
HUD. Federal government employees serve by appointment, rather than by 
contract. See United States v. Hopkins, 427 U.S. 123 (1976). Appointing 
officials cannot exceed their authority in making appointments and by 
such conduct create a binding claim against the Government. See 
National Treasury Employees Union v. Reagan, 509 F. Supp. 1337 (1981). 
Courts have also determined that the appointment documents were not 
controlling on their face where the Government was able to show that 
employees did not have the employment status indicated on the form. See 
Grigsby v. United States Department of Commerce, 729 F.2d 772 (Fed. 
Cir. 1984). Payments of money from the federal treasury are limited to 
those authorized by law; the erroneous advice given by these officials 
does not supersede HUD's limited authority to make payments to 
employees. See Office of Personnel Management v. Richmond, 496 U.S. 414 
(1990), reh'g denied, 497 U.S. 1046 (1990).

[19] We discuss updates and changes to this list in the following 
section.

[20] One individual retired since the March 2003 update, changing the 
number to 23. In addition, four staff were also erroneously offered 
reemployment rights by OMHAR, but did not have prior competitive 
status. HUD and OMHAR officials are working to resolve these cases. HUD 
has hired one of these individuals since the March 2003 update.