HUD Meeting on Operating Reserves

NAHRO staff, along with our industry partners, met yesterday with PIH Assistant Secretary Sandra Henriquez and nearly every member of PIH's senior leadership team to discuss issues related to the Department's proposal to imposed a $1 billion offset against public housing operating reserves for 2012.  The bulk of the meeting was spent discussing the Assistant Secretary's assertion, communicated through a February 22 letter to all PHA executive directors, that "Operating Reserve balances may only be used for Operating Fund purposes and cannot be used for capital or modernization activity as defined within the United States Housing Act of 1937 (the 1937 Act)."

Ahead of yesterday's meeting, NAHRO on March 11 transmitted a memorandum on operating reserves to PIH staff.  The memo summarizes and provides representative examples of feedback from our members regarding their reasons for accumulating reserves that the Department now considers “excessive.” The memorandum also presents feedback from NAHRO members regarding past and planned uses of operating reserves for capital expenditures.  The memo includes the following passage:

As HUD is aware, PHAs have long used operating reserves for capital improvements in their properties. These expenditures have been recorded in HUD’s annual budget justifications to the Congress dating back at least to the Clinton administration and as recently as 2007 under the administration of George W. Bush. These justifications have been informed by data submitted by PHAs, in accordance with 24 CFR 990.280 and the Supplement to Handbook 7475.1 REV attached to PIH Notice 2007-9, which includes “non-routine or capital expenses.”

Combined with statutory language that provides only a partial list of eligible expenses, including “the cost of repaying… debt incurred to finance the rehabilitation and development of public housing units,” under the Operating Fund, HUD’s guidance has long served to assure PHAs that capital improvements were an eligible use of operating reserves. Despite indications to the contrary in the Department’s February 22 letter to PHA Executive Directors, NAHRO maintains that both statute and regulation as currently constituted plainly permit these uses. For HUD to now disallow these uses would be not only a significant departure from past custom, practice, and rhetoric, but a change that we believe would have to be reflected through statutory change and the revision of existing regulation.

As PHAs continue to look to HUD as a partner in their joint mission to provide safe, decent, and affordable housing, this shift is deeply disappointing. Because this departure from long-standing policy relating to the eligible uses of operating funds coincides with HUD’s efforts to portray $1 billion in carefully accumulated reserves as “excessive,” PHAs are naturally alarmed.

During yesterday's meeting, NAHRO staff reiterated our members' firm conviction that operating subsidy and reserves may be used for capital improvements, including, but not limited to, extraordinary maintenance and property betterments.  As the regulations at 24 CFR 990.280(4) clearly state, "Project-specific operating expenses shall include, but are not limited to, direct administrative costs, utilities costs, maintenance costs, tenant services, protective services, general expenses, non-routine or capital expenses and other PHA or HUD-identified costs which are project-specific for management purposes." (emphasis added)

NAHRO staff also encouraged PIH to formally clarify that small PHAs with less than 250 public housing units have since the enactment of QHWRA enjoyed full flexibility (under statute) to use operating subsidy (and by extension operating reserves) for eligible Capital Fund activities, including development.  (See our March 1 Direct News item on small PHAs for more information on this topic.) 

We will provide additional coverage of the March 15 meeting through Direct News and in the March 31 NAHRO Monitor