Rental Assistance Demonstration:

HUD Needs to Take Action to Improve Metrics and Ongoing Oversight

GAO-18-123: Published: Feb 20, 2018. Publicly Released: Mar 22, 2018.

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What GAO Found

The Department of Housing and Urban Development (HUD) put procedures in place to evaluate and monitor the impact of conversion of public housing properties under the Rental Assistance Demonstration (RAD) program. RAD's authorizing legislation requires HUD to assess and publish findings about the amount of private-sector leveraging. HUD uses a variety of metrics to measure conversion outcomes. But, the metric HUD uses to measure private-sector leveraging—the share of private versus public funding for construction or rehabilitation of assisted housing—has limitations. For example, HUD's leveraging ratio counts some public resources as leveraged private-sector investment and does not use final (post-completion) data. As a result, HUD's ability to accurately assess private-sector leveraging is limited.

HUD does not systematically use its data systems to track effects of RAD conversions on resident households (such as changes in rent and income, or relocation) or monitor use of all resident safeguards. Rather, since 2016, HUD has required public housing agencies (PHA) or other post-conversion owners to maintain resident logs and collect such information. But the resident logs do not contain historical program information. HUD has not developed a process for systematically reviewing information from its data systems and resident logs on an ongoing basis. HUD has been developing procedures to monitor compliance with some resident safeguards—such as the right to return to a converted property—and begun a limited review of compliance with these safeguards. However, HUD has not yet developed a process for monitoring other safeguards—such as access to other housing voucher options. Federal internal control standards require agencies to use quality information to achieve objectives, and obtain and evaluate relevant and reliable data in a timely manner for use in effective monitoring. Without a comprehensive review of household information and procedures for fully monitoring all resident safeguards, HUD cannot fully assess the effects of RAD on residents.

RAD authorizing legislation and the program's use agreements (contracts with property owners) contain provisions intended to help ensure the long-term availability of affordable units, but the provisions have not been tested in situations such as foreclosure. For example, use agreements between HUD and property owners specify affordability and use restrictions that according to the contract would survive a default or foreclosure. HUD officials stated that HUD intends to develop procedures to identify and respond to risks to long-term affordability, including default or foreclosure in RAD properties. However, HUD has not yet done so. According to federal internal control standards, agencies should identify, analyze, and respond to risks related to achieving goals and objectives. Procedures that address oversight of affordability requirements would better position HUD to help ensure RAD conversions comply with program requirements, detect potential foreclosure and other risks, and take corrective actions.

Why GAO Did This Study

HUD administers the Public Housing program, which provides federally assisted rental units to low-income households through PHAs. In 2010, HUD estimated its aging public housing stock had $25.6 billion in unmet capital needs. To help address these needs, the RAD program was authorized in fiscal year 2012. RAD allows PHAs to move (convert) properties in the public housing program to Section 8 rental assistance programs, and retain property ownership or transfer it to other entities. The conversion enables PHAs to access additional funding, including investor equity, generally not available for public housing properties.

GAO was asked to review public housing conversions under RAD and any impact on residents. This report addresses, among other objectives, HUD's (1) assessment of conversion outcomes; (2) oversight of resident safeguards; and (3) provisions to help preserve the long-term affordability of units. GAO analyzed data on RAD conversions through fiscal year 2017; reviewed a sample of randomly selected, nongeneralizable RAD property files; and interviewed HUD officials, PHAs, developers, academics, and affected residents.

What GAO Recommends

GAO makes five recommendations to HUD intended to improve leveraging metrics, monitoring of the use and enforcement of resident safeguards, and compliance with RAD requirements. HUD agreed with our recommendations to improve metrics and build on existing oversight.

For more information, contact Daniel Garcia-Diaz at (202) 512-8678 or garciadiazd@gao.gov.

Recommendations for Executive Action

  1. Status: Closed - Implemented

    Comments: HUD has implemented this recommendation. HUD now requires owners of completed, post-construction RAD conversions to submit a RAD Completion Certification which collects final, updated information regarding sources and uses, among other data . Additionally, if the final scope of work exceeded an average of $2,000 per unit, the RAD Completion Certification must include a third-party certification regarding completion of the scope of work. By collecting more robust data for postclosing oversight, HUD can better assess the feasibility of converting public housing units to other rental assistance programs to help preserve affordable rental units.

    Recommendation: HUD's Assistant Secretary for Housing should include provisions in its postclosing monitoring procedures to collect comprehensive high quality data on financial outcomes upon completion of construction, which could include requiring third-party certification of and collecting supporting documentation for all financing sources and costs. (Recommendation 1)

    Agency Affected: Department of Housing and Urban Development

  2. Status: Open

    Comments: This recommendation remains open. HUD has described an ongoing evaluation of its leverage metrics. We will continue to review HUD's progress and post updates as appropriate.

    Recommendation: HUD's Assistant Secretary for Housing should improve the accuracy of RAD leverage metrics--such as better selecting inputs to the leverage ratio calculation and clearly identifying what the leverage ratio measures--and calculate a private-sector leverage ratio. (Recommendation 2)

    Agency Affected: Department of Housing and Urban Development

  3. Status: Closed - Implemented

    Comments: HUD has implemented this recommendation. HUD has updated its RAD resident information notice template, which includes information for tenants regarding their rights, such as the prohibition on rescreening for rent amount, the phase-in of tenant rent increases, the right to establish and operate a resident organization, and the availability of funding for resident participation. HUD has revised the RAD Completion Certification review items to confirm the fulfillment of right to return requirements. Finally, HUD revised relocation compliance oversight standard operating procedures. The revised procedures include additional detail regarding agency actions in response to situations of potential non-compliance with the relocation requirements. As a result of these actions, HUD can more reasonably ensure that required resident safeguards will be implemented in RAD conversions.

    Recommendation: HUD's Assistant Secretary for Housing should prioritize the development and implementation of monitoring procedures to ensure that resident safeguards are implemented. (Recommendation 3)

    Agency Affected: Department of Housing and Urban Development

  4. Status: Open

    Comments: This recommendation remains open. HUD plans to develop a methodology to track residents through individual HUD systems such as Public Housing program, RAD and Section 8 program databases. We will continue to review HUD's progress in implementing this recommendation and provide updates as appropriate.

    Recommendation: HUD's Assistant Secretary for Housing should determine how it can use available program-wide data from public housing and Section 8 databases, in addition to resident logs, for analysis of the use and enforcement of RAD resident protections. (Recommendation 4)

    Agency Affected: Department of Housing and Urban Development

  5. Status: Closed - Implemented

    Comments: HUD has implemented this recommendation. HUD included Rental Assistance Demonstration (RAD) ownership, control, and preservation of rental assistance safeguards in applicable standard operating procedures governing HUD asset management activities. HUD established a RAD-specific standard operating procedure for asset management with a listing of activities to be implemented in the event of a potential bankruptcy or foreclosure, which we have reviewed. As a result, HUD can better monitor for risks to the long-term preservation of affordable RAD converted units consistent with statutory intent.

    Recommendation: HUD's Assistant Secretary for Housing should prioritize the development and implementation of procedures to assess risks to the preservation of unit affordability. (Recommendation 5)

    Agency Affected: Department of Housing and Urban Development

 

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