HUD annually evaluates a public housing authority’s (PHA) management of its public housing program using four tools, referred to collectively as the Public Housing Assessment System (PHAS). The four indicators that comprise PHAS are physical condition, financial condition, management operations, and resident service and satisfaction. Each indicator is evaluated and scored separately. Physical condition, financial condition, and management operations are worth 30 points each, and resident service and satisfaction is worth 10 points for an overall score of 100 points. A PHA that receives a score of less than 60% overall, or in one area, is designated as troubled. A PHA that is designated as troubled must enter into a Memorandum of Agreement with HUD for the purpose of improving the agency’s score to 60% or above.

HACCC received a PHAS score of 76 for Fiscal Year 2009-2010. Normally, this score would qualify HACCC as a standard performer. However, HACCC failed two components of the financial condition indicator. Specifically, HACCC did not receive any points for “Tenant Receivable Outstanding” and “Net Income or Loss”.

The “Tenant Receivable Outstanding” component of the financial condition indicator measures HACCC’s rent collection ability. HACCC scored poorly in this Indicator in part due to a glitch in a computer conversion that duplicated data in the system. This inflated the number of tenants that appeared to owe HACCC money and made it difficult to completely erase debts that had been written off. HACCC also scored poorly in this Indicator due to past rent collection practices that were not as aggressive as they should have been. The amount of outstanding rent has been cut in half and staff continue to make improvements in this area.

The “Net Income or Loss” component of the financial condition indicator measures how the results of the operations affect the PHA’s viability. It compares a PHA’s adjusted net income to the net available (unrestricted) current resources. It indicates whether the housing authority is adequately managing its income and expenses to maintain a balanced budget. It includes not only public housing data, but also data for the voucher program and an additional variety of smaller programs operated by PHAs. HACCC failed this Indicator primarily due to a shortfall in voucher funding in fiscal year end 2010. Voucher funding is the single largest component of the rating formula.

HUD has come under increasing pressure from Congress to reduce costs in the public housing and voucher programs. HUD’s programs are often not fully funded by Congress and thus HUD must pro-rate the program funding provided to housing authorities. In order to minimize funding pro-rations in any given year, or to respond to Congressional requests to free up more money, HUD has limited the amount of reserves held by housing authorities. Such was the case in fiscal year 2009-2010 when HUD limited amount of voucher reserves a PHA could hold to 7% of that agency’s annual voucher subsidy costs (a reserve level of less than one month). If a PHA had more than that amount in reserve, HUD decreased its funding, which forced the agency to spend reserves to fund the program. HACCC began fiscal year 2009-2010 with reserves of $13.6 million, an amount that was over the 7% threshold. As a result, HUD did not fully fund HACCC’s voucher subsidy, forcing HACCC to spend approximately $11.5 million from reserves to fund rent subsidies. This had the dual affect of radically decreasing HACCC’s net income for the year and reducing voucher reserves to $2.1 million.

Due to HACCC’s financially troubled rating, HUD has assigned a Public Housing Agency Recovery and Sustainability (PHARS) team to conduct an assessment of HACCC’s financial condition, governance and management practices. The purpose of the assessment is to identify the causes of HACCC's substandard



financial performance, and to work with HACCC to develop a plan designed to move from a troubled status to a sustainably good or high performer status. As part of this process, the PHARS Team met at HACCC’s offices with staff and Chair Uilkema on September 19 and 20, 2011. Since that time, staff have met at least weekly via teleconference with members of the PHARS Team and have continued to provide requested information to HUD and to discuss ways to move HACCC to a sustainable financial status. Members of the PHARS Team have also met via teleconference with Chair Uilkema.

The PHARS Team is currently preparing a Results and Determination Letter that will summarize their assessment of the causes of HACCC's substandard financial performance. Once the Results and Determination Letter is received, HACCC will be required to sign a Recovery Agreement with HUD. The Recovery Agreement will list tasks designed to address areas causing financial weakness for the agency. HACCC will be required to complete these by a specific date.

While continuing to work with the PHARS Team on the initial assessment, HACCC has taken the following steps to move toward a sustainable financial position in the public housing program:

• Completed the initial outline of a Recovery Agreement. Staff will discuss this draft with HUD in the next one to two weeks.

• Engaged Casterline Associates to work with staff to further develop a financial recovery plan aimed at improving HACCC’s financial scores with HUD. Although HACCC engaged Casterline, Casterline is one of only 15 agencies nationwide under direct contract with HUD to assist financially troubled PHAs. Casterline began working with staff on January 30, 2012 and expects to complete the financial recovery plan by the end of April.

• Engaged Nan McKay and Associates to assist in completing HACCC’s transition to asset management. The asset management program was developed by HUD to move the public housing program to a business model similar to HUD’s multifamily housing programs, with project-based budgeting, project-based accounting, and project-based management. In the short term, asset management will have the effect of highlighting financial weaknesses at particular properties since some of the accounting techniques used to support these properties in the past are no longer permitted (such as utilizing excess Section 8 revenues) and not all units/properties will survive the transition to asset management. Asset management will, however, drive business decisions that should make HACCC’s overall public housing program healthier. Nan McKay & Associates is the leading provider of consulting, training, and products to the public housing and section 8/housing choice voucher industry. As with Casterline, Nan McKay has extensive experience working with PHAs on an individual basis and on contract with HUD. Nan McKay will start working with staff on March 5, 2012.

• Began the disposition process to remove 38 long-term vacant units at HACCC’s Las Deltas project in North Richmond. This will improve HACCC’s asset management scores.

• Continued to focus staff on intensive lease-up efforts at Bayo Vista in Rodeo.

• Conducted training for financial and public housing staff of HACCC’s recently upgraded public housing management software YARDI). The training was conducted by a YARDI contractor who also worked with staff to begin developing additional management and financial reports necessary to develop a complete report package for executive management and the Board.



• Continued to provide financial and public housing staff with financial training.

• Continued to provide public housing and maintenance staff with asset management training.