oversight

Recovery Act: Housing Programs Met Spending Milestones, but Asset Management Information Needs Evaluation

Published by the Government Accountability Office on 2012-06-18.

Below is a raw (and likely hideous) rendition of the original report. (PDF)

             United States Government Accountability Office

GAO          Report to Congressional Committees




June 2012
             RECOVERY ACT

             Housing Programs
             Met Spending
             Milestones, but Asset
             Management
             Information Needs
             Evaluation




GAO-12-634
                                               June 2012

                                               RECOVERY ACT
                                               Housing Programs Met Spending Milestones, but
                                               Asset Management Information Needs Evaluation
Highlights of GAO-12-634, a report to
Congressional Committees




Why GAO Did This Study                         What GAO Found
The Recovery Act required HUD to               Almost all public housing authorities (PHA) met their spending deadlines for the
distribute $4 billion to PHAs through its      Public Housing Capital Fund formula and competitive grant programs. As
Public Housing Capital Fund. Congress          mandated, all but one PHA spent 100 percent of their formula grants by March
also created two programs to provide           17, 2012. According to Department of Housing and Urban Development (HUD)
funds to HFAs to restart stalled projects.     officials, PHAs with competitive grants were on track to meet their September
This report responds to two ongoing            2012 spending deadlines. PHAs we interviewed cited various challenges to
GAO mandates under the act: to                 meeting the grant deadlines, such as the tight time frames and many attributed
examine states’ and localities’ use of         their ability to meet deadlines to good planning within their organizations and
Recovery Act funds and to report on the
                                               help from HUD. According to analyses of HUD data, about 3,100 PHAs planned
quarterly estimates of jobs funded. This
                                               to undertake improvements with their formula grants that affected about 495,000
report examines the progress PHAs and
HFAs made in spending grant funds,
                                               housing units. Many used their grants to make improvements that enhanced
the ways the funds were used, and the          energy efficiency, such as installing energy-efficient windows and appliances.
actions HUD and PHAs took to ensure            GAO determined that HUD’s monitoring strategy for these programs incorporated
that recipients spent grants on time and       key internal controls, such as developing and implementing measures that
for the intended purposes. It also             allowed HUD staff to compare actual with planned results. At specific sites that
assesses the quality of job estimates          GAO visited, PHAs were able to demonstrate work was under way or had been
reported by Recovery Act recipients and        completed.
reports the status of GAO Recovery Act
                                               All housing finance agencies (HFA) met their December 2011 disbursement
recommendations. GAO visited PHA-
                                               deadlines for funds they received under Section 1602 of the American Recovery
and HFA-sponsored projects in 7 states
and the District of Columbia,                  and Reinvestment Act of 2009 (Recovery Act). Most HFAs also met their
interviewed federal and local agency           February 2012 deadline to spend Tax Credit Assistance Program (TCAP) funds.
officials, evaluated HUD’s and                 Almost all HFAs reported that the funds helped restart stalled affordable housing
Treasury’s monitoring strategies,              projects that otherwise could not have moved forward. Project owners primarily
surveyed 56 HFAs, and analyzed                 used the funds to construct new housing units. HFAs identified several factors
recipient-reported data.                       that helped them meet the deadlines, particularly their experience and
                                               established practices and procedures. As GAO reported in September 2010,
What GAO Recommends                            TCAP and Section 1602 programs require HFAs to do more project oversight
                                               than they typically would to ensure that project owners comply with long-term
GAO recommends that Treasury                   program requirements. The Recovery Act requires that HFAs perform “asset
assess the extent to which HFAs are            management,” which includes ensuring the long-term viability of projects. But
utilizing information provided to them         some HFAs may not have the necessary experience, as third-party investors
by project owners to ensure the long-          have often supported HFAs with this additional oversight. HUD has begun
term viability of buildings during the 15-     gathering data to help determine which projects may need additional oversight,
year compliance period. In response to         but Treasury has not. Treasury staff would benefit from collecting information that
Treasury’s comment on the draft
                                               would allow them to assess how HFAs are implementing their asset
recommendation that it assess HFA
                                               management policies and procedures.
capacity to conduct asset management
after projects are built, GAO clarified        The accuracy of full-time equivalent (FTE) data reported by recipients of the
the recommendation to specify that             Public Housing Capital Fund competitive and formula programs and TCAP has
Treasury use available information for         improved over time. HUD staff have continued to monitor the data for errors—for
assessing how HFAs are ensuring                example, for over counts of FTEs—and have worked with recipients to make
long-term viability of buildings.              corrections. The number of FTEs reported per quarter for HUD programs peaked
Treasury’s views and GAO’s response            in 2010 and 2011 and gradually declined each quarter as funded activities were
are discussed more fully in the report.
                                               completed. The Recovery Act does not require HFAs to report FTEs for
                                               Treasury’s Section 1602 program.

View GAO-12-634. For more information,
contact Mathew J. Sciré at (202) 512-8678 or
Sciremj@gao.gov.
                                                                                       United States Government Accountability Office
Contents


Letter                                                                                   1
               Background                                                                4
               PHAs Met Spending Deadlines for Grants and HUD’s Monitoring
                 Incorporated Key Internal Controls                                      9
               Recipients Met Deadlines for Section 1602 and TCAP Expenditures,
                 but Treasury Does Not Plan to Fully Evaluate Asset Management
                 Activities                                                            23
               Conclusions                                                             47
               Recommendation for Executive Action                                     48
               Agency Comments and Our Evaluation                                      48

Appendix I     Scope and Methodology                                                    55



Appendix II    Results from Survey of State Housing Finance Agencies                    61



Appendix III   Recommendations from Prior GAO Recovery Act Reports with
               Sections on Housing                                                      78



Appendix IV    Status of Prior Open Recovery Act Recommendations and Matters
               for Congressional Consideration                                          83



Appendix V     Comments from the Department of Housing and Urban Development            89



Appendix VI    Comments from the Department of the Treasury                             90



Appendix VII   GAO Contact and Staff Acknowledgments                                    92




               Page i                                               GAO-12-634 Recovery Act
Table
          Table 1: Status of Prior Open Recovery Act Recommendations and
                   Matters for Congressional Consideration                        83


Figures
          Figure 1: Energy-efficient Activities Most Frequently Undertaken
                   by PHAs                                                        11
          Figure 2: Examples of Housing Projects Funded with Formula
                   Grants                                                         13
          Figure 3: Examples of Housing Projects Funded with Competitive
                   Grants                                                         16
          Figure 4: Total Number of Projects Awarded TCAP, Section 1602 or
                   Both Fund Types                                                25
          Figure 5: Examples of Projects Funded by the TCAP and Section
                   1602 Programs                                                  27
          Figure 6: Range of Average Prices Paid Per Tax Credit at Project
                   Closing, for 50 States and the District of Columbia, 2005-
                   2010                                                           28
          Figure 7: Number of Projects That Moved Forward with and
                   without Section 1602 and TCAP Assistance, and Those
                   That Did Not Move Forward, 2007-2010                            30
          Figure 8: FTEs That Recipients Reported for Recovery Act Housing
                   Funds, October 2009 through December 2011                      45




          Page ii                                              GAO-12-634 Recovery Act
Abbreviations
EPIC               Energy and Performance Information Center
FTE                full-time equivalent
HFA                housing finance agency
HUD                Department of Housing and Urban Development
IRC                Internal Revenue Code
LIHTC              Low-Income Housing Tax Credit
LOCCS              Line of Credit Control System
NEPA               National Environmental Policy Act
OFHEO              Office of Fair Housing and Equal Opportunity
OIG                Office of Inspector General
OMB                Office of Management and Budget
PHA                public housing authority
RAMPS              Recovery Act Management and Performance System
RATB               Recovery Accountability and Transparency Board
Recovery Act       American Recovery and Reinvestment Act of 2009
TCAP               Tax Credit Assistance Program
Treasury           Department of the Treasury

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Page iii                                                         GAO-12-634 Recovery Act
United States Government Accountability Office
Washington, DC 20548




                                   June 18, 2012

                                   Report to Congressional Committees

                                   In response to the economic crisis, Congress enacted the American
                                   Recovery and Reinvestment Act of 2009 (Recovery Act) to, among other
                                   things, preserve and create jobs and promote economic recovery.1 Under
                                   the Recovery Act, the Department of the Treasury (Treasury) has paid out
                                   approximately $249.1 billion in funds for use by state and local
                                   governments to use for a variety of purposes, including the provision of
                                   affordable housing.2 This report, which addresses housing programs that
                                   received Recovery Act funds, responds to two recurring mandates in the
                                   Recovery Act. The first requires that we review, every 60 days, the use of
                                   Recovery Act funds by recipients. The second requires us to comment
                                   and report quarterly on estimates of jobs funded and counted as full-time
                                   equivalents (FTE), as reported by recipients of Recovery Act funds.3

                                   This report discusses how public housing authorities (PHA) used almost
                                   $4 billion in grants distributed by the Department of Housing and Urban
                                   Development (HUD) to fund a variety of capital and management
                                   activities.4 It updates our September 2010 report and also provides
                                   information on two new programs that Congress created as part of the
                                   Recovery Act.5 These programs addressed the lack of private investment
                                   in projects that would otherwise have used Low-Income Housing Tax
                                   Credits (LIHTC) when the market for these tax credits was disrupted in



                                   1
                                    Pub. L. No. 111-5, § 3, 123 Stat. 116 (2009).
                                   2
                                    For updates, see http://gao.gov/recovery.
                                   3
                                    Pub. L. No. 111-5§, 1512(e), 123 Stat. 115, 288. FTE data provide insight into the use
                                   and impact of the Recovery Act funds, but recipient reports cover only direct jobs funded
                                   by the Recovery Act. These reports do not include the employment impact on suppliers
                                   (indirect jobs) or on the local community (induced jobs). Both data reported by recipients
                                   and other macroeconomic data and methods are necessary to understand the overall
                                   employment effects of the Recovery Act.
                                   4
                                    PHAs are typically local agencies created under state law that own and manage public
                                   housing.
                                   5
                                    GAO, Recovery Act: Opportunities to Improve Management and Strengthen
                                   Accountability over States’ and Localities’ Uses of Funds, GAO-10-999 (Washington,
                                   D.C.: Sept. 20, 2010).




                                   Page 1                                                            GAO-12-634 Recovery Act
2008. The two programs are the Tax Credit Assistance Program (TCAP),
which is administered by HUD, and the Grants to States for Low-Income
Housing Projects in Lieu of Low-income Housing Credits Program under
Section 1602 of the Recovery Act (Section 1602 Program), which is
administered by Treasury. State housing finance agencies (HFA) were to
use the funding from these programs to provide gap financing for stalled
“shovel-ready” projects and to offset the drop in the demand for—and
subsequently the price of—LIHTCs.6

Specifically, our reporting objectives were to examine (1) the progress
PHAs made in spending their grant funds, what is known about how funds
were used, and the actions HUD and PHAs took to help ensure that
recipients spent their grants on time and for intended purposes; (2) the
progress state HFAs made in disbursing funds, what is known about how
funds were used, and the actions Treasury and others took to ensure that
recipients disbursed funds on time and for intended purposes; and (3) the
quality of job estimates reported by Recovery Act recipients, including
housing grant recipients.

To address the first objective, we obtained data on program expenditures
and summary information on the use of Recovery Act funds from HUD
officials. To obtain more specific information about how funds were used
at specific locations, we visited project sites funded by 19 PHAs in seven
states and the District of Columbia.7 While the results cannot be
generalized within these states or to other states, we selected these
states using several criteria, including the amount of Recovery Act funds
each received, the types of projects funded, geographic diversity, and the
availability of photographic evidence from earlier GAO visits, allowing us
to make comparisons over time. In addition, we identified whether HUD’s
plans for monitoring the use of Recovery Act funds contained key internal
controls contained in GAO’s internal control standards, reviewed
monitoring files to identify if agency officials took steps outlined in their
monitoring plans, and reviewed reports issued by the HUD Inspector
General. See appendix I for more information about our methodology.


6
 HFAs are state-chartered authorities established to help meet the affordable housing
needs of the residents of their states. Although they vary widely in characteristics such as
their relationship to state government, most HFAs are independent entities that operate
under the direction of a board of directors appointed by each state’s governor.
7
 The seven states were California, Colorado, Georgia, Illinois, Massachusetts, Mississippi,
and Pennsylvania.




Page 2                                                            GAO-12-634 Recovery Act
For our second objective, we obtained data on program expenditures for
the TCAP and Section 1602 programs, respectively, from HUD and
Treasury. In addition, to collect information on HFA experiences with
these programs, and how the funds were used, we also developed a
Web-based survey for HFA managers in all 50 states, the District of
Columbia, American Samoa, Guam, the Commonwealth of the Northern
Mariana Islands, Puerto Rico, and the U.S. Virgin Islands. We began our
survey in December 2011 and received usable responses from all survey
respondents (see app. II for the survey results). In addition, to obtain
information about how funds were used at specific locations, we visited
11 project sites in seven states. We also reviewed HUD and Treasury
plans for monitoring HFA disbursement of Recovery Act funds, as well as
actions they planned to take to provide assurance that HFAs had the
capacity to perform asset management over the 15-year compliance
period. In addition, we interviewed staff from the HUD and Treasury
Offices of Inspector General, as applicable, to identify audit work they
may have completed for the TCAP and Section 1602 programs. We
requested similar information for these programs from the Recovery
Accountability and Transparency Board (RATB) and state auditors.

For our third objective, we assessed the 10 quarters of recipient reporting
data that were publicly available at Recovery.gov as of January 31, 2012
to understand the quality of jobs data reported by housing program
recipients for the Public Housing Capital Fund and TCAP grants. We also
analyzed the data for consistency and conducted other analyses on
recipients’ reports for the Recovery Act.8 The Recovery Act did not
require recipients of Section 1602 grants to file such reports.9

Our oversight of programs funded by the Recovery Act has resulted in
more than 100 related products with numerous recommendations since
we began reporting on the Recovery Act.10 Appendix III contains a list of



8
 In addition to conducting our analyses of recipient report data for housing programs
under the Recovery Act, we continued, as in prior rounds, to perform edit checks and
analyses on all prime recipient reports to assess data logic and consistency and identify
unusual or atypical data.
9
 The Recovery Act recipient reporting requirements apply only to programs under Division
A of the Recovery Act, which includes TCAP. The Section 1602 Program is under Division
B of the Recovery Act, and, therefore, not subject to recipient reporting requirements.
10
    See http://www.gao.gov/recovery for related GAO products.




Page 3                                                            GAO-12-634 Recovery Act
                           recommendations that we made for housing programs. This report also
                           updates agency actions in response to recommendations from our
                           previous Recovery Act reports that have not been fully implemented
                           (referred to in this report as open recommendations) in appendix IV.11

                           We conducted this performance audit from June 2011 through June 2012
                           in accordance with generally accepted government auditing standards.
                           Those standards require that we plan and perform the audit to obtain
                           sufficient, appropriate evidence to provide a reasonable basis for our
                           findings and conclusions based on our audit objectives. We believe that
                           the evidence obtained provides a reasonable basis for our findings and
                           conclusions based on our audit objectives. See appendix I for more
                           information about our methodology.



Background

Grants to Public Housing   PHAs, under contract with the federal government, own and manage
Authorities                approximately 1.2 million units of public housing at the local level,
                           including housing that serves the elderly, persons living with disabilities,
                           and families with and without children. PHAs vary in size, with 74 percent
                           of all PHAs categorized as small (administering fewer than 250 units
                           each) and responsible for about 17 percent of all public housing units
                           nationally. In contrast, large PHAs (administering more than 1,250 units
                           each) administer over half of all public housing units.12

                           Federal funding for public housing comes from two main formula grant
                           programs—the Public Housing Capital Fund and the Public Housing
                           Operating Fund—which are meant to supplement the rents collected by
                           PHAs to meet the operation, maintenance, and capital needs of public
                           housing. The Public Housing Capital Fund provides funds annually by
                           formula to about 3,200 PHAs for the development, financing, and
                           modernization of public housing developments and for management
                           improvements. A federally created and funded program, this fund is



                           11
                            For updates, see http://gao.gov/recovery.
                           12
                            Congressional Research Service, Introduction to Public Housing, Maggie McCarty,
                           Specialist in Housing Policy (Washington, D.C.: Jan. 6, 2012).




                           Page 4                                                       GAO-12-634 Recovery Act
                          administered by HUD’s Office of Capital Improvements, with the
                          assistance of HUD field offices.

                          The Recovery Act included a $4 billion appropriation for the Public
                          Housing Capital Fund to be used by PHAs for capital and management
                          activities for PHAs. The act required that PHAs give priority to capital
                          projects, for contracts that could be awarded based on bids within 120
                          days from the date the funds were made available to the PHAs and for
                          projects that were already underway or included in their 5-year capital
                          plans. The act required that the grants be awarded in two parts:

                              Formula Funds: The Recovery Act required HUD to allocate $3 billion
                               through the Public Housing Capital Fund to PHAs using the same
                               formula for amounts made available to PHAs in fiscal year 2008. HUD
                               allocated Capital Fund formula dollars (formula grants) to 3,134 public
                               housing agencies shortly after passage of the Recovery Act, and after
                               entering into agreements with housing agencies.13

                              Competitive Funds: As required by the Recovery Act, HUD also
                               distributed nearly $1 billion to public housing agencies based on
                               competition for priority investments, including investments that
                               leveraged private-sector funding and financing for renovations and
                               energy conservation retrofitting. In September 2009, HUD awarded
                               396 competitive grants totaling $995 million to 212 PHAs.


Recovery Act Tax Credit   HFAs administer a wide range of affordable housing and community
Programs                  development programs. They support the LIHTC program, which is a
                          federal program, by competitively awarding tax credits among housing
                          development projects in their state that serve low-income households.

                          In recent years, the LIHTC program has been regarded as the primary
                          federal vehicle for affordable housing production and preservation.
                          Congress established the LIHTC program in the Tax Reform Act of 1986
                          (P.L. 99-514) (Internal Revenue Code Section 42) to provide an incentive
                          for the development or rehabilitation of affordable rental housing. In return
                          for contributing tax credit equity to the projects, private investors receive


                          13
                            GAO, Recovery Act: Opportunities to Improve Management and Strengthen
                          Accountability over States’ and Localities’ Uses of Funds, GAO-10-999 (Washington,
                          D.C.: Sept. 20, 2010).




                          Page 5                                                        GAO-12-634 Recovery Act
tax credits over a 10-year period. Projects must comply with LIHTC
requirements for 15 years, including maintaining affordable housing units,
to avoid recapture of the tax credits. State housing finance agencies
award LIHTCs to owners of qualified rental properties (developers) who
then reserve all or a portion of their units for low-income tenants. Once
awarded LIHTCs, project owners typically attempt to obtain funding for
their projects by doing what is referred to as selling the tax credits to third-
party investors that are willing to contribute equity to the projects.14
Investors purchasing the tax credits can claim them over the next 10
years once the property is “placed in service,” provided that the property
continues to comply with program requirements.15

In 2008 and 2009, the LIHTC program was severely disrupted when tax
credit markets collapsed and project owners could not obtain funding for
projects that would have qualified for the credit. In February 2009,
Congress created TCAP and the Section 1602 programs which operate
differently but are both intended to address lack of private investment in
LIHTC projects.16

    TCAP: HUD provided TCAP funds to HFAs in the form of grants for
     capital investment in LIHTC projects according to a predetermined




14
  The arrangement of project owners providing LIHTCs to investors in return for an equity
investment is generally referred to as “selling” the tax credits. The owners of the buildings
are permitted to claim the credit from the building on their tax return. Technically what is
being sold to third-party investors is not the credit, but an ownership interest in the building
(through a partnership or other entity). For purposes of this report we refer to direct
investors and syndicators generally as “third-party investors “or “investors.”
15
  “Placed-in-service” is defined in IRS Notice 88-116 as being the date on which the first
unit in the building is certified as being suitable for occupancy under state or local law.
16
  Pursuant to the Recovery Act, GAO is to review the use of funds of programs included
under the act’s Division A, Appropriations Provisions. TCAP is a Division A program, while
the Section 1602 Program is included under Division B, Tax and Other Provisions. GAO
chose to include the Section 1602 Program in its review because, like TCAP, it
supplements the LIHTC program, and state housing finance agencies (HFA) are
implementing the two programs simultaneously.




Page 6                                                               GAO-12-634 Recovery Act
     formula.17 The HFAs were to award the funds competitively according
     to their qualified allocation plans, which explain selection criteria and
     application requirements for housing tax credits as determined by the
     states and in accordance with Section 42 of the Internal Revenue
     Code (IRC). Projects that were awarded low-income housing tax
     credits in fiscal years 2007, 2008, or 2009 were eligible for TCAP
     funding, but HFAs had to give priority to projects that were “shovel-
     ready” and expected to be completed by February 2012.

    Section 1602 Program: The Section 1602 Program allowed HFAs to
     exchange returned and unused tax credits for a payment from
     Treasury at the rate of 85 cents for every tax credit dollar. HFAs were
     permitted to exchange up to 100 percent of their unused 2008 tax
     credits and credits returned in 2009 and up to 40 percent of their 2009
     tax credit allocation and any amounts an HFA may have derived in
     2009 from a national pool of unused credits.18 HFAs were to award
     Section 1602 funds as a cash payment or noninterest bearing,
     nonrepayable loan program. HFAs were permitted to award Section
     1602 Program funds to project developers to finance the construction
     or acquisition and rehabilitation of qualified low-income buildings in
     accordance with the qualified allocation plans, which establishes
     selection criteria for LIHTC projects and application requirements (as
     determined by each state in accordance with Section 42 of the
     Internal Revenue Code). The last day for HFAs to commit funds to
     project owners was December 31, 2010, but funds could be disbursed
     through December 31, 2011, provided that the project owners paid or




17
  HFAs in each state, the District of Columbia, the Puerto Rico, Guam, and the U.S. Virgin
Islands receive LIHTC allocations. The Recovery Act directed HUD to distribute TCAP
funds in accordance with the fiscal year 2008 HOME Investment Partnerships Program
(HOME) formula allocations to state participating jurisdictions, thereby limiting the funds to
states as defined by the HOME (HOME formula). Guam and the U.S Virgin Islands are
defined as “insular areas” under HOME, rather than as “states,” and therefore, did not
receive TCAP funds. While TCAP funds were distributed based on the HOME formula,
HOME requirements generally do not apply to TCAP funds.
18
  Forty-nine states, the District of Columbia, American Samoa, Guam, the Northern
Mariana Islands, Puerto Rico, and the U.S. Virgin Islands participated in the Section 1602
Program to date. New York is the only state that did not request Section 1602 Program
funds.




Page 7                                                             GAO-12-634 Recovery Act
                           incurred at least 30 percent of the total adjusted basis of the project
                           by the end of 2010.19


Recipient Reporting   The Recovery Act sought to increase transparency and accountability in a
                      program’s use of funds. Section 1512 of the Recovery Act requires fund
                      recipients, including PHAs that received Public Housing competitive and
                      formula grant funds, and HFAs that received TCAP funds, to report
                      certain information quarterly. Following Office of Management and Budget
                      guidance, recipients reported on FTEs for which Recovery Act funding
                      directly paid and not the employment impact on suppliers of materials
                      (indirect jobs) or on the local communities (induced jobs). Recipients
                      report, among other types of information, a description of their project or
                      activity, the progress of their projects, and the number of resulting
                      estimates of jobs funded and counted as full-time equivalents (FTE). The
                      job calculations are based on the total hours worked divided by the
                      number of hours in a full-time schedule, expressed as FTEs. The funding
                      recipient is responsible for the reporting of all data required by section
                      1512 of the Recovery Act each quarter for each of the grants it received
                      under the act. Recipients provide the reports through
                      FederalReporting.gov, and the data are then made available to the
                      general public through the Recovery.gov website.

                      HUD developed the Recovery Act Management and Performance System
                      (RAMPS) to track information on the work funded by the Recovery Act.20
                      PHAs receiving formula and competitive grant funding were required to
                      use RAMPS for quarterly reporting on Recovery Act work, including the
                      total number of housing units they planned to and actually did rehabilitate
                      or develop, as well as specific information about the number and type of
                      energy-efficient improvements they undertook. For example, RAMPS
                      contains information on the number of energy-efficient windows or the
                      number of Energy-Star appliances installed by each PHA. However, while
                      RAMPS contains a high-level narrative description of all Recovery Act
                      funded improvements, it does not collect data on improvements not


                      19
                        Pursuant to Treasury regulations, project owners must have, by the close of 2010, paid
                      or incurred at least 30 percent of the subawardee’s total adjusted basis in land and
                      depreciable property that is reasonably expected to be part of the low-income housing
                      project.
                      20
                       In addition, RAMPS contains information on PHA compliance with the National
                      Environmental Policy Act (NEPA).




                      Page 8                                                          GAO-12-634 Recovery Act
                        related to energy efficiency. For example, RAMPS does not contain
                        information on the number of elevators a PHA may have replaced or the
                        number of parking lots it may have repaved.



PHAs Met Spending
Deadlines for Grants
and HUD’s Monitoring
Incorporated Key
Internal Controls


Formula Grant Program   All but 1 of 3,115 PHAs met their March 17, 2012, deadline for expending
                        a total of $2.98 billion in obligated formula grant funds, with 3,101 of
                        3,115 PHAs expending all but $45,000 of the total.21 However, 14 of the
                        3,115 PHAs had unexpended balances and were in the process of
                        returning funds or the funds were pending recapture by HUD. HUD
                        officials attributed the success of most PHAs to the Recovery Act’s clear
                        obligation and expenditure deadlines, PHAs’ previous documentation and
                        planning for rehabilitation needs, processes PHAs had in place to
                        implement their plans, and technical assistance from HUD field offices.
                        HUD officials said HUD is planning to recapture the $45,000 that had not
                        been expended by the deadline.22 In the previous year, 3,112 PHAs of
                        3,116 PHAs met their March 17, 2011, deadline to expend 60 percent of
                        their formula grant funds.23 At that time, 2,435 of these PHAs, or about 78


                        21
                          According to HUD, it had 14 grantees with unexpended balances by the 100 percent
                        expenditure deadline. Of these they considered only 1 grantee as missing the 100 percent
                        expenditure deadline. Of the other grantees with unexpended balances, 7 PHAs had the
                        funds recaptured for violations. The remaining 6 PHAs were in the process of returning
                        funds voluntarily because they knew they would not meet the deadline. In total, HUD
                        anticipates recapturing a total of about $402,700, including the $45,000 unexpended
                        balance for the PHA that missed the expenditure deadline.
                        22
                          HUD plans a total recapture of about $402,700 because of PHA final returns of
                        unexpended funds, repayments to HUD, and HUD Office of Inspector General audits.
                        23
                         After the March 17, 2011, deadline, HUD recaptured about $892,000 in funds from 4
                        PHAs. Since HUD recaptured all of one PHA’s formula grants funds, the total number of
                        PHAs with obligated funds decreased from 3,116 to 3,115.




                        Page 9                                                         GAO-12-634 Recovery Act
percent of PHAs that received formula grant funds, had already expended
100 percent of their funds.24

HUD’s analyses of RAMPS data as of December 31, 2011 (the most
recent quarter of data available at the time of this report), indicate that
PHAs had planned to use formula grant funds to undertake rehabilitations
that affected about 495,000 units and to develop about 5,743 units.25
HUD defines a developed unit as one that is newly constructed or
acquired by the PHA. As of December 31, 2011, PHAs reported that they
had collectively undertaken rehabilitations that affected about 462,000
units and developed about 5,500 units.

Based on our analysis of RAMPS data, with data current as of April 19,
2012, out of the 3,115 PHAs that received formula grant funds, 2,766
PHAs used formula funds for rehabilitation. Of these 2,766 PHAs, we
found that 1,678 completed energy efficient improvements.26 Our
analyses of HUD’s RAMPS data indicated that the types of rehabilitations
that PHAs were most likely to undertake were installation of energy
efficient windows, refrigerators, and toilets (see fig. 1).




24
  See GAO-10-999. In addition, as we previously reported, all housing agencies met their
March 2010 obligation deadline for formula grants by either obligating all of their funds or
rejecting or returning a portion of the funds.
25
  For the purpose of counting the number of units rehabilitated, HUD instructed PHAs to
count the number of units that were affected by an activity. For instance, if a PHA installed
an energy-efficient roof on one building that had five units, the PHA was to report that five
units were rehabilitated.
26
  RAMPS contained information on 2,766 of the 3,115 PHAs that received formula grant
funding. Since our analyses focused solely on buildings that were rehabilitated and
RAMPS only tracks information on activities that promote energy efficiency, our analyses
excluded the other 349 PHAs. The data we analyzed includes data submitted as of
December 31, 2011, the most recent quarter of completed and reviewed data available at
the time of our review, and additional data submitted by some PHAs as of April 19, 2012.




Page 10                                                            GAO-12-634 Recovery Act
Figure 1: Energy-efficient Activities Most Frequently Undertaken by PHAs




                                         Public Housing agency officials we interviewed reported that they used
                                         formula grant funds to undertake improvements that were important to
                                         maintaining and upgrading their housing projects. At the PHAs we visited,
                                         grants were used for a wide variety of purposes including the replacement
                                         of roofs, installation of energy-efficient windows with double-paned glass,
                                         renovations of kitchens and bathrooms, refurbishment of community
                                         rooms, and installation of new furnaces. More specifically, we observed
                                         completed work at each of the following sites.

                                            Kenmore Apartments (Chicago, Illinois): The Chicago Housing
                                             Authority used $16.8 million for the complete gutting and renovation of
                                             these apartments. We have observed this property from the beginning
                                             of its rehabilitation work (see fig. 2). Renovations included energy-
                                             efficient replacement windows, a high-efficiency heating plant,
                                             programmable thermostats, low-flow showerheads, and faucet
                                             aerators.

                                            Waltersville Estates (Vicksburg, Mississippi): The Vicksburg Housing
                                             Authority used $889,000 for the rehabilitation of these buildings. As


                                         Page 11                                               GAO-12-634 Recovery Act
    part of this work, the buildings received new roofs, and deteriorated
    siding and fascia boards were replaced (see fig. 2). In addition, the
    exposed fascia boards were wrapped in aluminum, and chain link
    fencing was removed.

   Cheshire Bridge High Rise (Atlanta, Georgia): The Atlanta Housing
    Authority used $2.4 million for the renovation of this high rise building.
    This funding was used to upgrade equipment in its common areas,
    including computers and laundry facilities. As a result of these
    upgrades, on December 13, 2011, we observed new computers, a
    new fitness room, and new laundry equipment at Cheshire Bridge
    (see fig. 2).




Page 12                                                 GAO-12-634 Recovery Act
Figure 2: Examples of Housing Projects Funded with Formula Grants




                                       Page 13                      GAO-12-634 Recovery Act
Competitive Grant   According to our analyses of HUD data, all 210 PHAs with competitive
Program             grants met their September 29, 2011, deadline to disburse 60 percent of
                    each competitive grant awarded.27 HUD officials credited PHA progress in
                    expending the funds to the same factors that contributed to their success
                    in meeting the formula grant deadlines, as well as HUD staff commitment
                    to facilitating agreements that involved financing from other sources.28 In
                    addition, as of September 29, 2011, PHAs had completely expended
                    funds for 171 (43 percent) of the 400 competitive grants awarded.29 By
                    March 18, 2012, the number of completely expended grants increased
                    from 171 to 232 (58 percent). HUD officials expect that PHAs will meet
                    their respective deadlines for spending 100 percent of each type of
                    competitive grant in September 2012.

                    As required by the Recovery Act, in September 2009 HUD awarded
                    nearly $1 billion in competitive grant funds to PHAs for “priority”
                    investments, including those that leveraged private sector funding or
                    financing for renovations and energy conservation retrofitting. While many
                    PHAs received one competitive grant, others received more than one. As
                    of September 29, 2011, PHAs were using the funding as follows:

                       To increase the energy efficiency and environmental performance at
                        housing properties, HUD awarded 269 grants totaling $606.6 million
                        to 170 PHAs, including 35 grants totaling $290.2 million to 34 PHAs
                        for increasing energy efficiency and 234 grants totaling $316.4 million
                        to 136 PHAs for retrofitting buildings with energy-conserving
                        technology. For example, HUD awarded $10 million to the Denver
                        Housing Authority for new construction of a high-rise building with 100
                        public housing units and community facilities to serve seniors and
                        persons with disabilities. The high rise was to include many green



                    27
                      According to HUD, 12 PHAs received funding reallocated from other PHAs. Nine of
                    these 12 PHAs did not meet the 60 percent expenditure deadline but were not required to
                    do so because they received their grants by way of reallocations. In addition, they are not
                    required to spend 60 percent of their grants until September 2012.
                    28
                      The Recovery Act required that HUD, when awarding competitive grants, consider
                    whether the grant applicant would be able to leverage private sector funding. So, for
                    example, PHAs we interviewed also obtained financing obtained through tax credits, other
                    federal programs, and private financing.
                    29
                      GAO-10-999. In September 2009, HUD awarded 396 competitive grants in the amount
                    of $995 million to 212 PHAs. Afterwards, 3 PHAs returned competitive grants totaling
                    approximately $14 million to HUD.




                    Page 14                                                           GAO-12-634 Recovery Act
    features, including solar photovoltaic panels, Energy Star appliances,
    and double- or even triple-paned windows (see fig. 3.)

   For gap financing for projects stalled due to financial issues, HUD
    awarded 36 grants totaling $177.9 million to 32 PHAs. For example,
    HUD awarded $9.6 million to the District of Columbia Housing
    Authority to support construction of infrastructure improvement for the
    Capper Carrollsburg Townhomes Phase II’s 163 total units, of which
    47 are public housing units. The PHA reported that the competitive
    funds were needed because they were unable to raise capital in the
    municipal bond markets or raise sufficient private capital by offering
    LIHTCs. As described in the PHA’s grant application, the competitive
    funding would be primarily used to fund the replacement or repair of
    underground water lines, install waste management systems, improve
    curbs and gutters, and improve public landscaping (see fig. 3).

   For public housing transformation, HUD awarded 14 grants totaling
    $93.4 million to 13 PHAs. For example, HUD awarded $10 million to
    the City of Sacramento Housing Authority for the renovation of
    Riverview Apartments. The PHA reported that the distressed building
    with 108 units was creating blight in the surrounding neighborhood
    and that as a result the units could not be occupied. For example, the
    plumbing fixtures, plumbing, the pipes and HVAC systems had all
    deteriorated and needed to be replaced and the roof was damaged
    and leaking (see fig. 3).

   For improvements addressing the needs of the elderly or persons with
    disabilities, HUD awarded 81 grants totaling $94.8 million to 45 PHAs.
    As an example, HUD awarded $2.8 million to the San Francisco
    Housing Authority for the Robert B. Pitts Project in San Francisco, in
    which 198 units (or more than 60 percent of the units) are set aside
    for residents who are elderly or have a disability. At the time of the
    award, nine units needed to be made more accessible (with roll-in
    showers for wheel chairs) to be in compliance with federal
    accessibility standards. During our site visit, we observed examples of
    these showers and other accessibility improvements, including
    upgraded elevator cars with Braille added to the button panel and
    additional outdoor ramps and bathroom handrails (see fig. 3).




Page 15                                               GAO-12-634 Recovery Act
Figure 3: Examples of Housing Projects Funded with Competitive Grants




As of December 31, 2011, RAMPs data indicated that PHAs with
competitive grants planned to undertake rehabilitation work affecting
46,065 units and develop 4,206 units and that they had completed
rehabilitation work affecting about 31,500 units and development of about


Page 16                                                  GAO-12-634 Recovery Act
                          2,600 units. According to HUD, for competitive grant funding,
                          development meant new construction of units.


PHAs Reported Few         Officials from most of the PHAs we interviewed, 8 of the 12 PHAs in the
Challenges Meeting        four primary states in which we conducted our work, noted that the tight
Recovery Act Milestones   time frame was the primary challenge they faced in using their grants but
                          that they had been able to overcome it. PHA officials we interviewed
                          attributed their success in meeting the Recovery Act deadlines to several
                          things, particularly planning. Most of the PHA officials we interviewed said
                          that their previous planning efforts meant that they knew how they wanted
                          to use their Recovery Act funds. For example, officials for one PHA in
                          California said that it already had up-to-date information on the capital
                          needs for all of its properties, which enabled its staff to quickly prioritize
                          work that could be done with the Recovery Act funding. Another PHA in
                          Massachusetts had just completed a 5-year planning process that its
                          officials said helped in identifying appropriate Recovery Act projects,
                          while another PHA in Illinois said that focusing on “shovel-ready” projects
                          was key to meeting the deadlines.

                          Many of the PHAs whose officials we interviewed also cited HUD’s
                          helpfulness, noting that coordination with HUD was important in helping to
                          meet Recovery Act deadlines, although a few said that HUD guidance
                          could have been clearer. Officials from a PHA in Illinois noted that HUD
                          was very responsive to requests and provided anything that was needed.
                          And officials from a PHA in Colorado remarked that the HUD field office
                          had not been “overly intrusive” and that the agency had developed a good
                          working relationship with HUD. Among the actions that PHA officials cited
                          as particularly helpful were assisting with permits and closing, sending out
                          meeting reminders, and remaining involved throughout the obligation and
                          expenditure stages.

                          Officials from about half of the PHAs also cited the experience of their
                          project teams and the usefulness of processes they had in place. Officials
                          from several PHAs noted that their staff had experience in administering
                          projects and one noted that it had been considered high- performing
                          before they received the Recovery Act funds. A representative of a PHA
                          in Illinois said that the PHA created a special group to focus on spending
                          the Recovery Act funds, which facilitated communication across its
                          departments and created a collaborative working environment. Officials
                          from a PHA in Massachusetts noted that prior to the Recovery Act it had
                          already determined how to reduce energy consumption in a building,
                          allowing it to qualify for competitive grant funding.


                          Page 17                                                 GAO-12-634 Recovery Act
                         When PHA officials identified challenges to complying with Recovery Act
                         formula grant deadlines, most noted that meeting the obligation deadlines
                         had presented more challenges than meeting the expenditure deadlines.
                         Eight of the 12 PHAs we interviewed indicated that the tight timeframes
                         for meeting the obligation deadlines as an explanatory factor. As part of
                         the obligation challenge, a few PHAs cited the procurement process, for
                         example, the time needed to advertise the bidding process to contractors
                         and do it correctly to avoid errors. In addition, as we previously cited as a
                         challenge in our May 2010 report, officials from several PHAs pointed
                         specifically to the “Buy American” requirement, as presenting various
                         challenges, such as getting all the contracts executed by the one year
                         deadline and being sure the Buy American requirements were met.30
                         Officials at one PHA in Massachusetts noted that requirements for the
                         Buy American were especially challenging when coupled with
                         requirements to buy “green” products. A few PHAs noted that HUD
                         guidance could have been clearer—including on how to comply with the
                         Buy American requirement—and on how to submit data to RAMPs.
                         Officials from another PHA noted that the FederalReporting.gov website
                         could have been clearer, while another described this website as “not
                         user-friendly.”


HUD Used Key Internal    HUD developed a monitoring strategy for each of the 3 years that
Controls in Monitoring   awarded Recovery Act formula and competitive grants would be in use.
Grant Recipients         The purpose of this monitoring was to ensure that grant recipients—
                         PHAs—spent their grant funds on time, in conformance with program
                         requirements, and for the intended purposes.

                         We determined that HUD’s monitoring of PHAs’ use of formula grant
                         funds incorporated and addressed key internal control activities intended
                         to provide reasonable assurance that Recovery Act funds were spent as
                         planned. We also found that HUD implemented the monitoring strategies
                         it developed for the first 2 years of the Recovery Act.31 The four key


                         30
                          GAO-10-604
                         31
                           For this report, we primarily focused on HUD’s implementation of its year two strategy
                         (March 2010 to March 2011), since all parts of it were completed at the time of our audit.
                         We examined completed monitoring reviews for 21 of 24 projects we visited for which
                         HUD completed a year two monitoring review in seven states and the District of Columbia.
                         HUD did not complete a monitoring review for 3 of the 24 sites. We also verified that work
                         was underway or had been completed at each of the 24 sites.




                         Page 18                                                         GAO-12-634 Recovery Act
internal control activities we reviewed for our assessment were (1)
establishing policies and procedures, (2) establishing measures and
indicators, (3) implementing policies and procedures, and (4) comparing
planned to actual results.32

   Establishing policies and procedures: HUD’s strategies for the second
    year (from March 2010 to March 2011) and third year (from March
    2011 to March 2012 or grant close-out) of the Recovery Act identified
    specific procedures for assessing PHAs’ progress in meeting
    milestones, complying with reporting requirements, and spending
    funds on approved work items. The strategies identified risk-based
    criteria for determining which PHAs would receive which type of
    review—for example, remote or on-site—and established time frames
    for completing the reviews. For example, the year two strategy for the
    formula grant program stated that PHAs designated as “troubled
    performers” under HUD’s Public Housing Assessment System
    (PHAS) would receive a minimum of one on-site review between
    March 2010 and March 2011 and that other PHAs would be subject to
    additional remote or on-site reviews only if, for example, they had
    failed to expend funds on time or had procurement-related
    deficiencies.33 In addition, the strategies outlined quality control
    reviews, performed by HUD’s Office of Field Operations, to help
    ensure uniformity in monitoring across HUD’s field offices. HUD’s
    strategies also called for an outside contractor to perform independent
    reviews of PHAs receiving the largest amounts of formula funding.

   Establishing measures and indicators: The checklists HUD staff used
    to implement the department’s monitoring strategies in years two and
    three contained measures and indicators to determine whether PHAs
    were using grant funds in a timely manner and spending the funds on
    approved items. For example, the quick-look checklist for the formula
    program asked HUD reviewers to assess whether PHAs had
    executed contracts before the deadline for obligating funds and had
    the necessary approvals in place for work items. Similarly, HUD’s on-


32
  GAO, Internal Control Management and Evaluation Tool, GAO-01-1008G (Washington,
D.C.: August 2001).
33
  HUD developed PHAS to evaluate the overall condition of PHAs and measure their
performance in areas such as financial condition, management operations, and physical
condition of the housing stock. PHAs that are deficient in one or more of these areas are
designated as troubled performers by HUD and are statutorily subject to increased
monitoring.




Page 19                                                          GAO-12-634 Recovery Act
     site monitoring checklist asks reviewers to describe the results of their
     visual inspection and upload any photographs taken onto a HUD
     tracking site. Finally, for year three, HUD developed indicators for
     helping ensure that all field offices close out grants consistently and in
     accordance with HUD requirements. For example, HUD reviewers are
     to determine whether all significant Recovery Act monitoring
     deficiencies have been closed out by reviewing all prior grant
     monitoring checklists and monitoring notes regarding the particular
     PHA under final review.

    Implementing policies and procedures: The steps that HUD took
     during the time of our review indicated that the agency had
     implemented its monitoring strategies for the first two years of the
     Recovery Act. As we previously reported, HUD implemented and
     completed its monitoring strategy for the formula grants for year one
     (2009)—a strategy that included identifying PHAs to be considered
     “troubled” for the purpose of the Recovery Act monitoring, as well as
     conducting remote and on-site reviews and providing technical
     assistance.34 In year two (from March 2010 to March 2011) HUD
     completed 520 on-site reviews and 916 remote reviews, including 546
     quick-look reviews. According to HUD officials, the department has
     continuously reviewed the findings from all Recovery Act monitoring to
     help inform and direct future monitoring and technical assistance
     targets. In general, HUD’s analyses of monitoring results have
     uncovered two broad themes: first, that many PHAs, particularly
     smaller ones, require ongoing oversight and technical assistance
     regarding procurement and grant administration requirements; and
     second, that the quality of the monitoring can vary from office to office
     and reviewer to reviewer. In light of this, in year two, HUD completed
     one consolidated quality assurance and quality control review for the
     purpose of assessing the quality of monitoring conducted by HUD
     field offices. HUD also commissioned an outside contractor to conduct
     independent reviews as an additional assessment of PHA operations.
     As of December 2011, the independent contractor had reviewed 109
     of the largest grants. As a result of its year two quality assurance and
     quality control review, HUD identified 11 field offices that were in need
     of additional training and technical assistance to maintain the quality
     of reviews. The independent reviews performed by the contractor


34
  GAO, Recovery Act: States’ and Localities’ Uses of Funds and Actions Needed to
Address Implementation Challenges and Bolster Accountability, GAO-10-604
(Washington, D.C.: May 26, 2010).




Page 20                                                       GAO-12-634 Recovery Act
     HUD hired also identified areas for improvement at PHAs that HUD
     considered in its subsequent monitoring. Finally, for its year three
     monitoring (from March 2011 to March 2012 or grant close-out), as of
     April 2012, HUD reported completing 232 competitive grant reviews
     and 2,415 formula grant reviews.

    Comparing planned to actual results: HUD said that one of its primary
     methods of determining whether each PHA spent grant funds as
     planned was the grant close-out certification process. As part of this
     review, HUD staff have identified if any outstanding deficiencies
     remained from prior reviews and evaluate PHAs’ overall performance
     in planning, procurement, and contract administration. As of April
     2012, over 2,600 PHAs had sent certifications to HUD verifying that
     they were complete with all grant activities and accounting, HUD staff
     had completed 2,155 closeout reviews, and 455 grants had been
     reviewed by a third-party auditor (if required) and certified by HUD
     staff as fully closed out.35 According to HUD officials, as of April 2012,
     based on their monitoring to date, PHAs generally have completed the
     improvements and renovations they planned to make with their
     Recovery Act formula funds. The officials noted that projects funded
     with the competitive grants largely remained ongoing as of April 2012.
     As a result, officials said they could not yet assess the final use of the
     competitive funds.

HUD’s approach to monitoring competitive grants was similar to its
approach to monitoring formula grants. As a result, we were able to
determine that HUD’s monitoring of PHA competitive fund grants also
largely addressed key internal control activities that would provide
reasonable assurance that Recovery Act competitive funds were spent as
planned. For example, during the year two time frame, HUD conducted
52 on-site reviews and 387 remote reviews, including 289 quick-look
reviews and 98 quality assurance and quality control reviews. As was the
case with the formula grant program, the quality assurance and quality
control reviews for the competitive grant program allowed HUD to target
particular field offices for additional training and technical assistance.

In addition to the steps HUD took to help ensure that Recovery Act
funding was spent on time and as intended, PHA officials we interviewed


35
  Only those PHAs with total expenditures over $500,000 from federal funding in a fiscal
year cycle are required to obtain a third-party audit under the Single Audit Act.




Page 21                                                         GAO-12-634 Recovery Act
also described other internal controls they implemented to help ensure
the proper use of grant funds. These included performing site inspections
to assess the progress of work, preparing written logs of construction
activities, and withholding final payment until determining that all work
had been satisfactorily completed. HUD’s monitoring review checklists
contained measures and indicators to help assess whether PHAs had
internal controls such as these in place.

HUD field offices implemented the monitoring strategies developed by
HUD’s Office of Field Operations. Staff from the HUD field offices we
interviewed stated that the guidance and direction the Office of Field
Operations provided were helpful in executing monitoring activities in the
field. For example, staff from one field office said that the automation of
certain policies and procedures, such as monitoring checklists, supported
greater uniformity and reduced the amount of reporting errors. Officials
from HUD’s Office of Field Operations stated that they had learned a
significant amount from the years of monitoring Recovery Act funds and
planned to institute key practices, such as more extensive use of
automation, in other monitoring efforts.

Several PHA officials we interviewed perceived HUD staff as helpful in
assisting them in meeting various Recovery Act requirements, some of
which were new because they had been created specifically for the act
(for example, RAMPS) and some of which PHAs may not have been
accustomed to but applied because of Recovery Act provisions (for
example, the Buy American requirements). However, PHA officials’ views
differed on the need for and appropriateness of the oversight HUD
applied to Recovery Act funds. Some PHA officials stated that there was
more oversight for the Recovery Act than for normal Public Housing
Capital Fund grants. Others noted that the increased oversight was
appropriate, given the shortened time frames for obligating and
expending funds.

PHA officials we interviewed were sometimes reviewed by other entities
besides the HUD field offices, including the HUD Office of Inspector
General (OIG), GAO, and independent financial auditors. As of April
2012, HUD’s OIG had issued 9 department-wide audits related to the
Recovery Act and 84 audits related specifically to the Public Housing
Capital Fund, including performance audits of individual PHAs. According
to HUD OIG staff, the performance audits found that many PHAs
generally administered the Recovery Act grants according to
requirements, but the OIG reported issues at some of the PHAs reviewed,
including improper obligation of funds.


Page 22                                               GAO-12-634 Recovery Act
                             The Recovery Accountability and Transparency Board a non-partisan, non-
                             political agency created by the Recovery Act to provide transparency in the
                             use of Recovery Act funds and detect and prevent waste, fraud, and
                             mismanagement, has also been involved in monitoring efforts. As of April
                             2012, the board reported receiving 10 complaints related to HUD’s Public
                             Housing Capital Fund formula and competitive grant programs and had
                             forwarded those complaints on to the HUD OIG. Representatives from the
                             board did not consider any of the complaints to be highly unusual or more
                             significant than other complaints involving Recovery Act funds.


Recipients Met
Deadlines for Section
1602 and TCAP
Expenditures, but
Treasury Does Not
Plan to Fully Evaluate
Asset Management
Activities

HFAs Met Disbursement        All HFAs completed their disbursements of Section 1602 funds by the
Deadlines for Section 1602   December 31, 2011, deadline. According to Treasury data, as of December
Program and TCAP             31, 2011, 55 HFAs had disbursed $5.65 billion in Section 1602 awards to
                             1,496 project developers. However, 15 HFAs did not disburse about $6.69
                             million in funds which they had requested but had not sub-awarded to
                             project developers.36 Grant sub-awardees were required to spend Section
                             1602 funds within 3 days of the HFA providing them. Based on December
                             2010 data in HFAs’ last required quarterly reports, Treasury estimated that
                             about 89,000 units would be completed with Section 1602 funding, of which
                             about 86,000 would be for low-income residents. Treasury will gather
                             additional information about the number of units placed in service as part of
                             annual reports submitted to them by HFAs.



                             36
                              According to Treasury, HFAs reported that these remaining funds were either never sub-
                             awarded or were not needed in projects.




                             Page 23                                                       GAO-12-634 Recovery Act
                          Most TCAP grantees met their February 16, 2012, deadline to expend 100
                          percent of their TCAP funds. As of February 16, 2012, the 52 HFAs that
                          received TCAP grants disbursed almost all of the $2.24 billion in TCAP
                          funds they committed to 861 projects.37 According to a HUD official, since
                          project owners incur costs before requesting TCAP funds from HFAs for
                          reimbursement of eligible activity expenses, HUD considers the HFAs as
                          having expended the funds, after the HFA draws down funds from
                          LOCCS.38 HUD officials reported that they had recaptured the remaining
                          $10.9 million in undisbursed funds. HUD is required to return these funds to
                          the U.S. Treasury. As of February 16, 2012, HUD reported about 27,500 of
                          about 62,400 planned units to be funded with TCAP funds had been
                          completed. However, other projects that received TCAP funding may not
                          have been completed, because developers may be using funds from
                          multiple sources and work on those projects is continuing.39


Use of Section 1602 and   We conducted a web-based survey of all 50 states, the District of
TCAP Funds                Columbia, and 5 territorial HFAs—all of which received Section 1602 or
                          TCAP funds or both to collect information on HFA experiences with these
                          programs, how the funds were used, and to assess the role of these
                          funds in temporarily filling the gap left by diminished investor demand for
                          LIHTCs. All HFAs responded. This survey followed up on our survey of
                          HFAs, distributed in November and early December 2009, which provided
                          information on the status of program delivery, expected results, and
                          challenges to implementation.40 In addition to the survey, we also



                          37
                             Because the Recovery Act directed HUD to distribute TCAP funds in accordance with
                          HOME formula allocations to state participating jurisdictions, TCAP participation was
                          limited to the 50 states, the District of Columbia, and Puerto Rico. In contrast, Section
                          1602 was also made available to 5 U.S. territories. New York State did not participate.
                          38
                            As required by HUD Notice: CPD-09-03-REV (May 4, 2009), federal funds cannot be
                          drawn from the U.S. Treasury in advance of the need to pay an eligible cost.
                          Consequently, TCAP funds cannot be drawn from the U.S. Treasury and placed in escrow
                          or advanced in lump sums to project owners. Once funds are drawn from the grantee’s
                          U.S. Treasury account, they must be expended for an eligible TCAP cost within 3 days.
                          39
                            See appendix II, question 20 for more information about other sources of funding used
                          to fund Section 1602 and TCAP projects.
                          40
                            See GAO, Survey of State Housing Finance Agencies’ Use of the Low-Income Housing
                          Tax Credit Assistance Program (TCAP) and the Section 1602 Program, GAO-10-1022R
                          (Washington, D.C.: Sept. 20, 2010) for more information about the survey of HFAs that we
                          administered in November and early December 2009.




                          Page 24                                                           GAO-12-634 Recovery Act
                                       conducted structured interviews with HFAs in four states—California,
                                       Illinois, Massachusetts, and Mississippi.

                                       In response to our survey, HFAs reported that project developers planned
                                       to use Section 1602 funds, TCAP funds, or a combination of these and
                                       other funding sources to develop 2,373 projects and 126,058 tax credit
                                       units. Figure 4 shows the number of projects and tax credit units (housing
                                       units where resident income may not exceed a maximum allowable
                                       income) that HFAs awarded Section 1602 or TCAP funds or both as of
                                       our December 2011 survey.

Figure 4: Total Number of Projects Awarded TCAP, Section 1602 or Both Fund Types




                                       Note: The percentages for the tax credit units do not add up to 100 percent do to the rounding of the
                                       individual percentages.


                                       In response to our 2011 survey question about how funds would be used,
                                       HFAs generally indicated that most Section 1602 funds would be used to
                                       construct new units. On average, HFAs reported that 63 percent of their
                                       subawards were for new construction, 33 percent for rehabilitation, and 4
                                       percent for a combination of new construction and rehabilitation.




                                       Page 25                                                                  GAO-12-634 Recovery Act
We observed 11 project sites that were funded with Section 1602 and/or
TCAP funds in seven states—California, Colorado, Georgia, Illinois,
Massachusetts, Mississippi, and Pennsylvania. Of these 11 projects, 5
involved new construction, 5 involved rehabilitations of existing buildings,
and 1 project site used funds for both new construction and rehabilitation.
Figure 5 includes examples of TCAP and Section 1602 funded projects.
Examples of TCAP and Section 1602 projects include the following:

   The Kasanof Bakery project (Boston, Massachusetts): The
    Massachusetts Department of Housing and Community Development
    awarded this development, $3.8 million in TCAP funds. TCAP funds
    were used to construct 48 new units (see fig. 5).

   Hopewell Courtyard (Stewartstown, Pennsylvania): The Pennsylvania
    Housing Finance Agency award this development $5.6 million in
    TCAP funds for construction of 96 units. These units are intended for
    residents ages 55 years and older (see fig. 5).

   Bayside Village (Pascagoula, Mississippi): The Mississippi Home
    Corporation awarded this development $5 million in Section 1602
    funds for the rehabilitation of a high school built in 1937 into 57
    apartment units that will offer independent living for seniors. The
    project preserved the exterior windows and many of the blackboards
    and lockers because it also used tax credits designated to preserve
    historic structures (see fig. 5).




Page 26                                                GAO-12-634 Recovery Act
Figure 5: Examples of Projects Funded by the TCAP and Section 1602 Programs




                                       Page 27                                GAO-12-634 Recovery Act
Demand for Tax Credits   As we previously reported, both the demand for tax credits and the price
Has Decreased but TCAP   investors were willing to pay for them declined from 2007 to 2009.41
and Section 1602 Funds   Across all the HFAs collectively, the average prices paid per dollar of tax
                         credit in their states declined, creating funding gaps in projects that had
Helped Restart Stalled
                         received tax allocations in 2007 and 2008. As a result, many planned
Projects                 construction and rehabilitation projects were stalled. Figure 6 summarizes
                         the range of average tax credit prices in the 50 states and the District of
                         Columbia in 2005 through 2010. HFAs reported state average tax credit
                         prices in 2007 that ranged from a high of 97 cents to a low of 80 cents. By
                         2009, the range of average prices had dropped to a high of 82 cents and
                         to a low of 50 cents.

                         Figure 6: Range of Average Prices Paid Per Tax Credit at Project Closing, for 50
                         States and the District of Columbia, 2005-2010




                         Note: The median is the value, in this case, the average price, which falls in the middle of a set of
                         values arranged from smallest to largest; there are an equal number of values above and below the
                         median value.




                         41
                           GAO-10-604.




                         Page 28                                                                   GAO-12-634 Recovery Act
As shown in figure 6, average tax credit prices generally increased in
2010. HFA representatives we interviewed also said that tax credit prices
continued to increase in 2011. For example, HFA officials in one state
said that in 2011, some investors had been making commitments of 90
cents and said that they believed these higher prices reflected the support
that the Recovery Act had provided to the market. Similarly, in another
state, HFA officials reported that prices were also up significantly and that
the price in their state was approaching $1.00 for some development
projects but more often was in the $0.90 range. However, prices within a
state may vary, for example differing between rural and urban areas.
According to state HFA officials in California, the price in 2005 and 2006
was generally in the $0.90 range, with prices ranging from a high of $0.70
for projects in rural areas to $1.04 or $1.05 in urban areas.

Almost all HFAs that received TCAP and/or Section 1602 funds reported
that these funds temporarily filled the gap left by diminished investor
demand for low-income housing credits and allowed projects that had
stalled because of a lack of investors to continue. Of the 56 HFAs that
received TCAP and/or Section 1602 funds, 50 reported that these
programs mostly or completely filled the gap in investor demand. As part
of the survey, we asked HFAs to report on the number of projects that
ultimately moved forward to close on financing with and without the use of
Recovery Act funds for the years 2007, 2008, 2009, and 2010. We also
collected data on the number of projects that did not move forward at all.
As shown in figure 7, HFAs reported collectively that 2009 saw the
highest number of projects move forward with the use of TCAP Section
1602, or both types of assistance. In that year, 865 of 1,258 projects (69
percent) moved forward with Recovery Act assistance.




Page 29                                                GAO-12-634 Recovery Act
                           Figure 7: Number of Projects That Moved Forward with and without Section 1602
                           and TCAP Assistance, and Those That Did Not Move Forward, 2007-2010




HFAs Reported Challenges   From one-third to nearly one-half of the 56 HFAs that we surveyed
in Implementing TCAP and   reported facing challenges in meeting deadlines for TCAP and Section
Section 1602               1602 expenditures. Just over one-third (19 HFAs) viewed meeting TCAP
                           expenditure deadlines as moderately or very challenging, and close to
                           one-half (25 HFAs) reported the same level of challenges for Section
                           1602 expenditure deadlines. The information we obtained from our survey
                           does not explain why a somewhat higher number of HFAs generally
                           viewed meeting the Section 1602 expenditure deadlines as more difficult
                           than meeting TCAP deadlines. However, in September 2010, we reported
                           that according to some HFA officials, some project owners could face
                           challenges in meeting the requirement that they pay or incur at least 30
                           percent of the adjusted cost basis of the project by December 31, 2010,




                           Page 30                                                  GAO-12-634 Recovery Act
citing delays stemming from the time needed to assemble or disburse
funding by HFAs, litigation, and routine construction delays.42

When it came to identifying reasons for why their agency’s Recovery Act
projects or expenditures were successful, many HFAs responded by
describing how they used established practices and procedures and
relied on experienced staff. They also cited monitoring of construction
sites and good communication and collaboration as important factors. For
example, one HFA official recorded that the agency had experienced
team members in place with expertise in accounting, LIHTC allocation,
construction, legal matters, and compliance. In terms of what HFAs would
consider good practices for the future, many HFAs cited the importance of
efficient processes. For example, one HFA official recorded that by
modifying existing procedures and practices with which its network of
developers were familiar, the HFA could award the Recovery Act funds
quickly and efficiently. Other HFA officials mentioned the importance of
program oversight—for example, one HFA recorded that it implemented a
pay-based payroll reporting system to aid it in tracking and monitoring
contractor compliance with the Davis-Bacon Act wage requirements and
required all general contractors and subcontractors working on a project
to register and use the system for electronic submission of payroll reports.
Some HFAs mentioned what they could have done differently, such as by
better monitoring of grant subawardees and construction.

In terms of what HUD and Treasury did well and could be considered
good practices for the future, many surveyed HFAs indicated that HUD
and Treasury were responsive. One HFA said that they greatly
appreciated the responsiveness of agency staff in responding to their
questions. For example, a representative of one HFA said that it
appreciated the speed and clarity with which HUD and Treasury staff
responded to questions and thought that the monitoring and oversight
was also very timely. A representative of another HFA said that it liked the
way in which Treasury repeatedly updated a frequently-asked-questions
document whenever a new question was asked.

However, some HFAs we surveyed reported that implementing TCAP
challenged the agencies in several ways. As we reported in May 2010,
TCAP funds are subject to certain federal requirements, such as the



42
 GAO-10-999.




Page 31                                               GAO-12-634 Recovery Act
                          Davis-Bacon Act and the National Environmental Policy Act (NEPA)
                          requirements. In addition, several HFAs said that both Treasury and HUD
                          could have provided clearer, more consistent guidance, especially up
                          front, and one HFA said that they had a hard time keeping up with
                          program rules for both programs. However, as described in our May 2010
                          report, because TCAP and the Section 1602 programs were new
                          programs for HUD and Treasury, respectively, the agencies needed to
                          develop guidance that covered all aspects of the program, and the
                          guidance had to be carefully crafted to be consistent with the existing
                          LIHTC program. In addition, HUD had to develop additional guidance to
                          address the federal requirements that applied to TCAP, and received no
                          additional administrative resources to implement the program.43


Agencies Have Taken
Steps to Assess Asset-
Management Capabilities
but Treasury Does Not
Plan to Fully Evaluate
Asset Management
Implementation
Recovery Act and Asset    As we reported in September 2010, TCAP and the Section 1602 Program
Management                require HFAs to assume a greater project oversight role than in the
                          standard LIHTC program.44 The Recovery Act requires that housing credit
                          agencies perform asset management functions, or contract for the
                          performance of such services, at the owner’s expense, to not only help
                          ensure compliance with Section 42 of the Internal Revenue Code of 1986
                          (Section 42) but also to ensure the long-term viability of buildings.

                          While HFAs have typically performed limited annual compliance
                          monitoring for their traditional LIHTC projects, they do not necessarily
                          also perform asset management activities to help ensure the long-term
                          physical and financial viability of the projects. Investors who have
                          purchased tax credits under Section 42 of the Internal Revenue Code
                          (IRC) program carry out asset management during the fifteen years after


                          43
                           GAO-10-604.
                          44
                           GAO-10-999.




                          Page 32                                             GAO-12-634 Recovery Act
a project is placed in service. The primary focus of LIHTC annual
compliance monitoring is to help ensure that LIHTC goals for affordable
rental housing are met. Once LIHTC projects have been placed in
service, state agencies are responsible for monitoring the projects for
compliance with Section 42 requirements concerning household income
and rents and project habitability. However, while asset managers also
take steps to ensure properties remain in compliance with Section 42,
they also undertake an additional set of activities, commonly referred to
as “asset management” that focus on the long-term financial and physical
health and viability of project. An important objective of asset
management is to preserve and protect the investor’s benefit stream.
Typically, investors do not expect the project to produce income. Instead,
investors look to the credits, which will be used to offset their income tax
liabilities, as their return on investment.45 Third-party investors are highly
motivated to perform asset management because of the risk of tax credits
being recaptured if the property is found to be out of compliance during
the 15-year compliance period. For example, an LIHTC tax credit could
be subject to recapture should a household residing in a residence
funded by tax credits not have qualifying incomes.

In traditional LIHTC projects, third-party investors play an important role in
helping ensure compliance with tax credit program requirements through
asset management. Asset management includes the many activities that
relate to monitoring and planning for the long-term financial and physical
health and viability of a project. In addition to monitoring compliance with
LIHTC requirements, asset management activities also examine long-
term issues related to plans for addressing a project’s capital needs,
changes in market conditions, and recommendations and implementation
of plans to correct troubled projects. For example, asset managers are
likely to take a much closer look at a project’s finances than what HFAs
would do for long-term compliance monitoring. As explained by one HFA
representative, while its staff might review a high-level financial report to
see if a project has a negative cash flow, an asset manager would look
more thoroughly at the property’s financial health by looking at unit
vacancy rates, tenant income, and the project’s ability to pay its bills. In
addition, asset managers are likely to make more frequent physical
inspections at properties than state agencies that monitor LIHTC projects



45
 Congressional Research Service, An introduction to the Design of the Low-Income
Housing Tax Credit, 7-5700 (Washington, D.C.: Sept. 17, 2010)




Page 33                                                      GAO-12-634 Recovery Act
for compliance. Under LIHTC regulations, state agencies are only
required to make onsite visits once every 3 years.46 Nearly all HFAs we
interviewed for our September 2010 report noted that a third-party
investor provided additional oversight and monitoring or financial interest
in a project, and some said that they would coordinate with and rely on
reviews and audits that investors and private construction lenders perform
to satisfy their asset management obligations under TCAP. In addition,
HFAs noted a range of challenges associated with asset management,
with some HFAs and investors noting challenges as projects aged. They
said that between the 5th and 12th year of a project’s life, projects may
begin to show signs of physical and financial stress.47

By program design, many Section 1602 projects have no LIHTC investor
equity, and do not benefit from the additional level of oversight these
investors provide.48 In effect, the HFA becomes a primary “investor” with
its award of the Section 1602 funds. HFAs we surveyed collectively
reported that 592 of at least 1,511 projects (39 percent) had LIHTC
investor equity.49 The numbers of Section 1602 projects with and without
LIHTC investor equity varied widely by state. For example, HFAs in states
with some of the larger awards, such as Texas ($594 million) and North
Carolina ($135 million), reported that none of their Section 1602 projects
had any LIHTC investor equity in any of their Section 1602 projects. In
contrast, other states, with larger awards, such as Florida ($579 million)
and Ohio ($118 million) had a higher proportion of projects with LIHTC
investor equity. The Florida HFA reported having LIHTC investor equity in
41 of its 56 Section 1602 projects, and Ohio reported having LIHTC
investor equity in 64 of its 71 Section 1602 projects. As we indicated in
September 2010, some HFAs have required third-party investor


46
 Treas. Reg. §1.42-5(c)(2)(ii)(B).
47
 GAO-10-999.
48
  The Section 1602 Program, by design, does not require that Section 1602 projects have
LIHTC funding. The Section 1602 Program allowed HFAs to exchange returned and
unused tax credits for a payment from Treasury at the rate of 85 cents for every tax credit
dollar. Thus, there are always other sources of funding in Section 1602 projects and the
funding source need not be LIHTC investors.
49
  HFAs may have responded to this question in two different ways. Assuming that they
also included their TCAP projects, the total number of projects with Section 1602 funding
would be 1710, in which case 613 of 1710 (36 percent) of projects would have had LIHTC
funds. We did not collect information on the dollar amount of LIHTC investor equity in
each project.




Page 34                                                          GAO-12-634 Recovery Act
       participation in all or the majority of their Section 1602 program projects,
       and they plan to work in coordination with investors on asset
       management activities.

       As we previously reported, HFAs’ approach to long-term asset
       management and the amount of prior experience varied. HFAs we
       interviewed reported that they had strengthened their procedures for long-
       term monitoring to meet the program requirements, mitigate risks, and
       help ensure projects’ long-term physical and financial viability.50 For
       example, of the nine HFAs we interviewed for our September 2010 report,
       four HFAs said that instead of inspecting projects every 3 years as
       required by the LIHTC program, they would inspect projects annually or
       more often, and seven said that they would require reports from projects
       owners on a monthly, quarterly, or as-requested basis, possibly including
       information such as project income statements. In response to our
       December 2011 survey, 23 HFAs reported that they would outsource their
       asset management responsibilities for the Section 1602 program and 19
       HFAs reported that they would do so for the TCAP program. However, we
       also noted that approaches to long-term asset management varied
       depending on resources, workload, and asset management experience.
       For example, 5 of the 12 HFAs we interviewed for both our September
       2010 and our current report indicated that they had no or minimal asset
       management experience, although they were taking steps to assume the
       responsibilities.

TCAP   As discussed in our September 2010 report, HUD officials reported that
       they had been primarily relying on existing monitoring systems to
       determine whether TCAP funds were spent properly and to identify
       projects that were not in compliance with the terms and conditions of
       TCAP agreements. These monitoring systems consist of HUD Office of
       Inspector General (OIG) audits, HUD Office of Fair Housing and Equal
       Opportunity (OFHEO) reviews in 10 states, and HOME reviews done by
       HUD field offices when projects include both TCAP and HOME funds.51
       Because the Recovery Act required that all TCAP projects have some


       50
         GAO-10-966. We interviewed nine HFAs for this report and three additional HFAs for
       our current report.
       51
         HOME, administered by HUD, provides formula grants to states and localities that
       communities use—often in partnership with local nonprofit groups—to fund a wide range
       of activities that build, buy, or rehabilitate affordable housing for rent or homeownership or
       provide direct rental assistance to low-income people.




       Page 35                                                             GAO-12-634 Recovery Act
amount of LIHTC equity, HUD officials stated that they also expected
third-party investors to monitor TCAP projects for compliance, just as they
monitored traditional LIHTC projects.

However, as we reported in September 2010, some TCAP projects had
received only a nominal amount of tax credits that the project owners
chose not to sell thereby limiting or precluding third-party oversight over
these projects.52 Because the absence of third-party investors reduces
the amount of overall scrutiny TCAP projects could receive, and because
HUD did not know how many projects lacked third-party investors at the
time of our review, our September 2010 report recommended that HUD
develop a risk-based plan for its role in overseeing TCAP projects that
recognizes the level of oversight provided by others.53

In March 2012, HUD took steps to address this recommendation.
Specifically, HUD staff developed a risk-based plan for monitoring TCAP
projects with little third-party investment. To develop this risk-based plan,
HUD requested that HFAs report certain data about their projects to HUD,
including the dollar value of LIHTC equity and federal, state, and local
funds, private funds and loans, and the project owner’s cash contribution,
which represents the amount of money that the developer has invested in
the project. According to HUD, HFAs report this data after the units are
completed. As part of its plan, HUD states that it will review these data on
a quarterly basis to identify those that may be at a higher risk of
noncompliance with the TCAP program. HUD identified higher-risk TCAP
projects as those that have less than $10,000 in LIHTC investment and
no other federal funds, such as HOME funds. For grantees with projects
meeting these criteria—according to HUD, there were two such projects
as of March 2012—HUD will review the HFA’s monitoring plans and
contact them to discuss specific oversight and safeguards to help ensure
that their projects maintain their compliance with TCAP requirements.
HUD’s plan also states that it will require the grantees to submit any
documentation or plans of continued oversight of these projects. As
additional TCAP projects become complete in the coming years,



52
  GAO-10-999. Also, the Recovery Act requires that TCAP projects to have some amount
of LIHTC, but if the amount is too small, third-party investors might not have sufficient
incentive to ensure that a project comply with long-term requirements.
53
 See appendix III for the status of recommendations that GAO has made with respect to
Recovery Act spending for housing programs.




Page 36                                                         GAO-12-634 Recovery Act
consistently executing this specialized monitoring approach will be
important for HUD.54

Since our September 2010 report, HUD OIG has also made
recommendations to improve HUD’s monitoring of TCAP grantees and
HUD has agreed to make changes. In November 2011, the HUD OIG
reported that HUD was not adequately monitoring TCAP grantees or
documenting their compliance with Office of Management and Budget
(OMB) regulations related to single audit reports.55 In particular, the OIG
noted that HUD lacked staff, expertise, and funding to perform on-site
monitoring reviews; was not ensuring that outside entities’ controls were
operating effectively; and did not have documented procedures for
reviewing and resolving open audit findings. HUD’s OIG made
recommendations to address these findings. HUD program staff have
submitted a response to the OIG’s findings and recommendations, stating
that as of March 31, 2012, the agency will develop a procedure requiring
each TCAP grantee to submit its on-site monitoring procedures and a
summary of its on-site monitoring of TCAP projects to its office. In
addition, HUD states that by June 29, 2012, it will update its procedures
for the review and resolution of single audit findings. Finally, on a
quarterly basis beginning on March 31, 2012, HUD stated that it will
review single audits of TCAP grantees and take immediate action, as
appropriate, to act on any findings, with the goal of resolving findings
within 3 months of an initial review.

The OIG has also issued eight other reports related to the TCAP
program, including seven performance reviews of individual HFAs. HUD
OIG officials did not consider any issues from the audits to be open and
were planning no further audits.




54
  For more information about this and other prior open Recovery Act recommendations
and matters for Congressional consideration, see appendix IV.
55
  U.S. Department of Housing and Urban Development, Office of Inspector General,
Additional Details To Supplement Our Report on HUD’s Fiscal Years 2011 and 2010
Financial Statements, 2012-FO-0003 (Washington, D.C.: Nov.15, 2011), 36-37. The
Single Audit Act of 1984, as amended, Pub. L. No. 98-502, 98 Stat.2327, codified at 31
U.S.C. § 7501-7507, requires state and local governments and nonprofit organizations
that expend $500,000 or more in federal awards in a fiscal year to have either a single
audit or a program-specific audit.




Page 37                                                          GAO-12-634 Recovery Act
                       As stated previously, the Recovery Accountability and Transparency
                       Board has also been involved in monitoring efforts. As of April 2012, the
                       board reported receiving two complaints related to the TCAP program. As
                       was the case with HUD’s public housing programs, representatives from
                       the board did not consider these complaints to be more significant than
                       other complaints involving Recovery Act funds.


Section 1602 Program   As we reported in September 2010, Treasury developed a system to
                       conduct compliance reviews to help ensure that the HFAs were following
                       the terms and conditions of the Section 1602 Program agreement and are
                       providing oversight of project owners. Treasury officials said at that time
                       that they designed a risk-based system for conducting on-site and remote
                       monitoring by the end of calendar year 2010.

                       Treasury used two general approaches for its initial monitoring of Section
                       1602 awards. First, it required HFAs to submit quarterly reports from 2009
                       through December 2010, the month by which HFAs were required to
                       commit all of their subawards and by which subawardees were to pay or
                       incur at least 30 percent of their funds on an adjusted cost basis Second,
                       in February 2010, Treasury developed a written monitoring plan for
                       reviewing HFAs’ implementation of the Section 1602 Program to help
                       ensure that they followed the terms and conditions of their grant
                       agreements and were accountable for the funds awarded, and to mitigate
                       any identified risk. This plan also included assessing whether the HFAs
                       were equipped to perform asset management and monitor long-term
                       compliance. In addition, consistent with Recovery Act requirements,
                       Treasury established Section 1602 reporting requirements for post-
                       subaward compliance, beginning in July 2011 and continuing until all
                       projects completed their 15-year compliance period.

                       We determined that Treasury’s initial monitoring of HFAs, as outlined in
                       its compliance monitoring handbook, largely incorporated key internal
                       controls that would provide reasonable assurance that Section 1602
                       funds were spent as planned. However, we found that during the annual
                       compliance period, Treasury was not planning on taking steps that would
                       provide it with a better understanding of how HFAs were implementing
                       the plans they had developed to undertake asset management.

                       As was the case with HUD’s monitoring strategies for the Public Housing
                       Capital Fund formula and competitive grant programs, we examined four
                       key internal control activities in assessing Treasury’s monitoring plan: (1)
                       establishing policies, (2) establishing measures and indicators, (3)


                       Page 38                                                GAO-12-634 Recovery Act
implementing policies and procedures, and (4) comparing actual with
planned results.

    Establishing policies and procedures: Treasury outlined its policies
     and procedures for its compliance review in a compliance monitoring
     handbook.56 Treasury’s monitoring plan is divided into two parts: initial
     monitoring of HFAs’ compliance with the terms and conditions of their
     grant agreements and monitoring of HFAs’ annual compliance with
     program requirements over a 15-year period beginning in July 2011.
     As part of its initial monitoring, Treasury’s procedures include
     conducting on-site and remote reviews to examine supporting
     documentation. According to Treasury’s handbook, whether
     monitoring is conducted on-site or remotely depended on several
     factors, including identified risks, size of the grants, costs, timing, and
     availability of Treasury staff. As part of its long-term monitoring,
     Treasury established two basic reporting requirements for HFAs. First,
     beginning in 2011 and continuing until all projects are reported on,
     HFAs must submit a report regarding the project’s placed in service
     date and eligible basis. Second, beginning in July 2011 and
     continuing until all projects have completed their 15 year compliance
     period, a state agency must submit an annual report of compliance.
     As part of its monitoring procedures, for each HFA, Treasury officials
     stated that they will review one or more projects for each HFA based
     principally on where Section 1602 funds represent close to 85 percent
     of eligible basis.57 However, Treasury was not planning on obtaining
     additional information, such as the amount of LIHTC equity in the
     project, in order to select projects for review.

    Establish measures and indicators: Treasury’s handbook contains a
     checklist of measures and indicators for its reviewers to consider in
     determining whether awardees were meeting the terms and


56
  U.S. Treasury Department, Office of the Fiscal Assistant Secretary, Compliance
Monitoring Handbook, Section 1602: Cash Assistance to States for Low-Income Housing
Projects in Lieu of Low-Income Housing Credit Allocations for 2009 under the American
Recovery and Reinvestment Act of 2009, Revised November 2011
57
   Eligible basis” refers to a project’s development costs that are chargeable to a capital
account for determining depreciation expenses for tax purposes (i.e., “adjusted basis”),
with certain modifications as defined in section 42 of the Internal Revenue Code. It is
generally equal to the adjusted basis of the building, excluding land but including
amenities and common areas.




Page 39                                                            GAO-12-634 Recovery Act
    conditions of their grant agreements with Treasury. These measures
    and indicators include examining HFA processes for selecting
    subawardees; whether the state agency has established policies for
    asset management; and policies for addressing indications of fraud,
    waste, abuse, and potential criminal activity. With respect to
    compliance monitoring and asset management, as required by section
    42, Treasury officials stated that an HFA’s asset management
    responsibilities were to be undertaken during application reviews, at
    the time of the written agreement, and when the building is placed in
    service. The officials noted that HFAs assess the long-term viability of
    Section 1602 project during this time period, including an analysis and
    approval of the financial aspects of the project, operating budgets,
    market viability, and reserves for replacement, from the time before an
    HFA makes an award until projection completion. In addition,
    Treasury’s handbook requires that HFAs, for their annual compliance
    reports, report the date on which each project was placed in service,
    whether the HFA had received the project owner’s certificate of
    compliance, if the HFA conducted an on-site visit, and if
    noncompliance was found. However, the annual compliance report,
    as outlined in Treasury’s handbook, does not require additional
    information that would allow Treasury to further assess how HFAs are
    satisfying their asset management responsibilities, for example, if they
    analyzed financial statements, monitored use of reserve accounts,
    ensured that real estate taxes are paid, and ensured that proper
    insurance coverage remains in place after units are completed. During
    the fifteen year compliance period, Treasury monitors HFAs for
    compliance with Section 42 but not for these other asset management
    responsibilities that help ensure the long-term viability of the building.

   Implement policies and procedures: Treasury officials told us that, as
    planned, that they conducted 18 on-site and 36 remote reviews
    between May 5, 2010, and November 14, 2011, with one additional
    on-site review remaining to be done as of April 4, 2012. To verify that
    Treasury had actually implemented its procedures, we reviewed the
    monitoring documentation for reviews performed of seven state
    HFAs—California, Colorado, Georgia, Illinois, Massachusetts,
    Mississippi, and Pennsylvania—and identified the extent to which
    Treasury staff had completed a monitoring checklist for each state
    agency. With respect to asset management and Section 42
    compliance, Treasury staff reported that they evaluated HFA’s policies
    and procedures, interviewed staff to understand their skills and
    experience, and reviewed related documentation. Treasury staff said
    that their on-site and desk reviews included an analysis of asset
    management policies and procedures, as required in section 42, and


Page 40                                                 GAO-12-634 Recovery Act
     that for a sample of projects at each HFA, they examined asset
     management documentation available at the time of application and
     written agreement. While subawardee files were not available for
     Treasury staff review at the time of their on-site and desk reviews,
     Treasury officials indicated that they would assess a project’s asset
     management documentation, for a sample of projects, at each state
     HFA, at the time the project is placed in service.58 It also plans to
     assess, for a sample of projects, at each HFA, for the annual
     compliance reporting.

    Compare planned with actual results: For this internal control, we
     primarily focused on Treasury’s assessment of HFAs’ commitment
     and disbursement of Section 1602 funds because HFAs would be
     responsible for asset management and annual compliance monitoring
     in the future. We found that Treasury monitored the amount of funds
     committed and disbursed, completed the relevant parts of its
     monitoring checklist, and collected specific information about projects
     funded by Section 1602. In addition, Treasury established a quarterly
     reporting requirement, whose primary purpose was to show HFA
     progress in sub-awarding Section 1602 funds. For this purpose,
     Treasury also collected information including the names and locations
     of projects, brief narrative descriptions of projects, and the numbers of
     total housing units constructed and rehabilitated, and the number of
     units for low-income families and individuals.59

We determined that Treasury had taken steps to help ensure that HFAs
were in compliance with Section 1602 program requirements for activities
prior to the annual compliance period. However, we did not find that
Treasury had developed plans to assess HFA asset management
activities to help ensure the long-term viability of the buildings after
projects have been placed in service. Further, we did not find that
Treasury had developed risk-based criteria that would provide reasonable
assurance that they would be selecting projects least likely to benefit from
the oversight of others, particularly LIHTC investors. Treasury did not
collect information, such as whether any LIHTC was in the project, or
other federal grant money was involved, that might help it determine the


58
   Treasury’s compliance handbook originally indicated that subawardee (project owner)
files should be reviewed at the time of the onsite or remote review.
59
  HFAs are required to report to Treasury on the final numbers of projects completed or
dates of completion when they file their annual compliance reports.




Page 41                                                         GAO-12-634 Recovery Act
extent of project oversight that entities other than HFAs or their
contractors might provide. Further, collectively, HFAs are responsible for
almost 1,500 projects and Treasury indicated that it generally planned to
include one project for each HFA as part of its sample. However, while
some states may have just a few funded projects, some states have a
higher numbers of projects, for example, from 10 to 96 projects, and one
state has 372 projects. Internal control standards state that federal
agencies should have adequate mechanisms in place to identify program
risks, including assessing the likelihood that the risk will occur and
deciding how to manage it, including the actions that should be taken.60
Without additional risk-based selection criteria, especially for states with
higher numbers of projects, Treasury could overlook projects with minimal
or no third-party oversight.

Further, Treasury reported that all but two HFAs (located in the U.S.
territories) had asset management experience, but information we
gathered from HFA officials suggests that additional ones do not.61 This
difference can probably be attributed to Treasury’s understanding of HFA
Section 1602 asset management responsibilities, as opposed to what the
industry, as well as HUD, consider these responsibilities to be. Treasury
requires state HFAs to perform asset management duties similar to those
performed by state HFAs under the LIHTC program prior to the project
being placed in service. However, our work indicates that while the
housing credit industry and HUD guidance would agree that asset
management includes the activities identified by Treasury, they would
also view HFA Section 1602 asset management responsibilities as
extending beyond the time units are placed in service. These activities
would include analyzing financial statements, monitoring use of reserve
accounts, ensuring that real estate taxes are paid, and ensuring that
proper insurance coverage remains in place. In LIHTC projects, these
functions would typically be performed by investors.

For Section 1602, the Recovery Act requires that HFAs recapture and
return it to the U.S. Treasury funding for projects that fall out of
compliance and HFAs are responsible for imposing recapture conditions



60
  GAO, Standards for Internal Control in the Federal Government, GAO/AIMD-00-21.3.1
(Washington, D.C.: November 1999)
61
 Treasury officials reported that they planned to follow-up with a second stage of
monitoring for these two HFAs.




Page 42                                                          GAO-12-634 Recovery Act
                           and restrictions on project owners. If the state agency takes all
                           appropriate steps to recapture the funding but is unable to collect the
                           amount from a liable party, Treasury does not require it to return the
                           money.62 In contrast, under the conventional LIHTC program, HFAs are
                           not liable for recapturing funds if a project owner fails to comply with
                           LIHTC requirements. Rather, their obligation is to report any
                           noncompliance to the IRS, and IRS takes any further action with respect
                           to recapture.


HUD Continues to Monitor   To meet our mandate to comment on reports made by direct recipients of
Quality of Data on Jobs    Recovery Act funding, we continued to monitor data that recipients
Funded                     reported from February 2009 through December 31, 2011. For this report,
                           we focused our review on the quality of FTE data reported on
                           FederalReporting.gov by PHAs, which were the prime recipients of the
                           Public Housing Capital Fund formula and competitive grant programs,
                           and HFAs, which were the prime recipients of TCAP. Following Office of
                           Management and Budget guidance, recipients reported on FTEs directly
                           paid for with Recovery Act funding and not the employment impact on
                           suppliers of materials (indirect jobs) or on the local communities (induced
                           jobs). In those circumstances where Recovery Act dollars are blended
                           with funds from other sources, Office of Management and Budget also
                           provided instructions on how to calculate FTEs. Recipients are generally
                           required to file reports after each quarter until they complete expenditure
                           of Recovery Act funds, are no longer counting FTEs, and have met all of
                           HUD’s requirements.

                           According to information provided by HUD officials, the quality of jobs
                           data submitted by HUD for the Public Housing Capital fund formula and
                           competitive grants and TCAP has improved over time. Each quarter, HUD
                           officials continue to perform quality assurance steps on the data that
                           recipients submit to FederalReporting.gov to identify potential reporting
                           errors, such as overcounts of FTEs, before the data are publicly posted
                           on Recovery.gov. Officials also told us that their data quality reviews of
                           recipient reports continued to include automated data checks to flag
                           values in specific fields that were incorrect or that fell outside of
                           parameters that HUD had defined as reasonable and to generate


                           62
                             In response to our May 2010 recommendation, Treasury provided additional guidance to
                           state HFAs to clarify what constitutes appropriate actions by HFAs to recapture funds in
                           order to avoid liability in the event of project owner noncompliance.




                           Page 43                                                        GAO-12-634 Recovery Act
comments notifying housing agencies of the potential errors and work
with them to make corrections. The HUD staff member responsible for
assessing TCAP data quality did note that for TCAP recipient reporting
differs from that for the Public Housing Capital Fund formula and
competitive programs because the grant recipients (the HFAs) rely on
information submitted to them by the grant subawardees (i.e., the project
developers). According to the HUD TCAP reviewer, these grant recipients
have to gather data and payroll information from each subawardee, and
calculate the total number of FTEs. Assessment of TCAP data quality
includes quarterly reviews of over 800 subawardee reports, each of which
has a varying number of projects. According to HUD staff, the time period
available for agency review before the data are posted on Recovery.gov
was too short to fully review the sub-awardee reporting and some errors
in reporting may not have been detected in time for correction.

Based on our analyses and interviews with agency officials, we
determined that the recipient reported data appeared to be sufficiently
reliable for the purpose of providing summary, descriptive information
about FTEs and other information submitted on grantees’ recipient
reports. HUD officials for the Recovery Act Public Housing Capital Fund
grants also noted that their reporting rate for the tenth reporting period
(from October 1, 2011, to December 31, 2011) was high and there have
been no significant changes in data quality.

As shown by figure 8, the FTEs funded by the formula grant program and
TCAP peaked in 2010. The number of funded FTEs by competitive grants
peaked later, in 2011 because the Recovery Act required that nearly $1
billion in funds be awarded to PHAs based on a competitive basis for
priority investments. Accordingly, HUD obligated the formula grants in
March 2009 and the competitive grants in September 2009. Also, HUD
was able to award the formula grants quickly using the formula that it
typically uses to award Public Housing Capital Funds and PHAs generally
selected projects that were already in their planning documents.




Page 44                                               GAO-12-634 Recovery Act
Figure 8: FTEs That Recipients Reported for Recovery Act Housing Funds, October 2009 through December 2011




                                       Note: We did not include FTE data for the quarter ending September 2009 because of concerns
                                       about comparability with subsequent quarters of FTE reporting.


                                       All of the PHAs responding to our question on quality procedures said
                                       that they were able to describe procedures and controls that they had in
                                       place to help ensure the timely reporting, accuracy, and completeness of
                                       FTEs.63 For example, several PHAs reported that they had processes in
                                       place to help ensure that contractors and subcontractors were in
                                       compliance with reporting requirements in submitting data on hours
                                       worked. In addition, 6 of the 11 PHAs we interviewed specifically said that
                                       they used HUD’s “job calculator” to help calculate FTEs. HUD made this
                                       calculator available to PHAs during the first round of Recovery Act
                                       reporting and later updated it to conform with OMB guidance. To help
                                       ensure that housing agencies used the revised jobs calculator, we



                                       63
                                         Of the 11 PHAs, we interviewed, 10 responded to this question. In addition, while we
                                       visited the site of another PHA, we did not interview its staff because staff familiar with the
                                       Recovery Act funded were no longer employed by the PHA.




                                       Page 45                                                              GAO-12-634 Recovery Act
recommended that HUD tell housing agencies to discontinue using the
outdated jobs calculator for subsequent rounds of reporting.64

According to HUD officials, they were not aware of any plans that the
agency has to use recipient-reported data internally. However, HUD
converted a system it developed to track Recovery Act
accomplishments—RAMPS—into a permanent system known as the
Energy and Performance Information Center (EPIC) that it deployed in
March 2012. This system would allow HUD to collect, aggregate, and
report results of its capital investments made through the Public Housing
Capital fund program and its two largest Native American programs.
According to a HUD official, EPIC essentially replicates the key RAMPS
function of collecting high-level information about Public Housing Capital
Fund activity (for example, the numbers of units rehabilitated or
developed with capital funds) and specific data about the installation of
certain energy conservation measures. In addition, to leverage HUD’s
investment in RAMPS, EPIC also carries over RAMPS infrastructure,
such as login identification number and password, and system
administration.

HUD officials recommended that any system similar to that implemented
at federalreporting.gov that is required in the future should be
prepopulated with existing data from agency databases to reduce errors
caused when recipients enter data. A HUD official estimated that HUD
already collected much of the information that recipients entered into
FederalReporting.gov. For example, HUD already tracks grant
identification numbers and amounts of money awarded and disbursed in
its Line of Credit Control System (LOCCS). He said that asking recipients
to reenter data already tracked in HUD data systems resulted in many
typographical errors that HUD then had to track and correct. Early on in
the program, for instance, many PHAs entered incorrect grant
identification numbers, putting in a “dash” before the last two numbers of
the grant that signified the grant year. HUD officials made a great effort to
correct these errors because, for the first several quarters, RATB could
not cross check the recipient reported data with master lists of Recovery
Act awards provided by the agencies. HUD officials said that the system




64
  See GAO, One Year Later, States’ and Localities’ Uses of Funds and Opportunities to
Strengthen Accountability,GAO-10-437 (Washington, D.C.: Mar. 3, 2010).




Page 46                                                       GAO-12-634 Recovery Act
              would have been more manageable if the fields had been prepopulated
              with data they had already collected.65


              HUD has developed and implemented a strategy for monitoring the
Conclusions   distribution and use of Public Housing Capital Fund formula and
              competitive grants that draws on an approach already in use at the
              agency and that includes monitoring by field offices. This approach
              appears to have served HUD well. Most PHAs met their deadlines to
              expend Recovery Act formula grants, and PHAs with competitive grants
              appear to be on schedule to meet their deadlines.

              HUD and Treasury also developed new programs—TCAP and Section
              1602, respectively—that were designed to provide capital investment to
              LIHTC projects hit hard by the economic crisis. HUD and Treasury each
              developed a strategy for monitoring the distribution and use of funding for
              their respective programs. In addition, to better understand the monitoring
              that TCAP-funded properties would receive over the 15-year compliance
              period, HUD staff collected data on the involvement of other stakeholders
              in these projects, including LIHTC investors and the HOME program. As a
              result, HUD has developed useful information about monitoring that other
              stakeholders will conduct, allowing it to increase its own oversight efforts
              for TCAP-funded projects with more limited amounts of stakeholder
              involvement.

              While Treasury has developed and largely implemented a monitoring
              approach with performance measures to assess HFAs’ use of Section
              1602 funds, some long-term monitoring issues remain. We determined
              that Treasury’s initial monitoring, as outlined in its compliance handbook,
              largely incorporated key internal controls that would provide reasonable
              assurance that Section 1602 funds were spent as planned. But we also
              found that Treasury had not developed a systematic approach for
              evaluating HFAs’ implementation of their asset management
              responsibilities after units had been placed in service. Treasury plans to


              65
                According to HUD officials, prior to implementation of FederalReporting.gov, HUD raised
              concerns with the Office of Management and Budget about its approach for collecting
              information on projects, and proposed populating the information needed to satisfy the
              Recovery Act’s reporting requirements. The Office of Management and Budget opted to
              collect information directly from recipients of Recovery funds. See GAO, Recovery Act:
              Opportunities Exist to Increase the Public’s Understanding of Recipient Reporting on HUD
              Programs, GAO-10-966 (Washington, D.C.: Sept. 30, 2010).




              Page 47                                                         GAO-12-634 Recovery Act
                     review the supporting documentation for at least one project for each HFA
                     in the 15-year compliance period for the purpose of ensuring that Section
                     42 compliance requirements have been met. However, it does not plan to
                     collect information that would allow its staff to assess how HFAs are
                     implementing their asset management responsibilities with respect to
                     helping to ensure the long-term viability of the project’s buildings.

                     Further, Treasury has not obtained information that would allow it to
                     determine which projects may be benefiting from the involvement of other
                     interested parties, such as third-party investors with LIHTC equity and the
                     federal government. Such information is particularly important because
                     LIHTC investors typically provide additional scrutiny to ensure compliance
                     with Section 42 and ensure projects’ long-term viability. Many Section
                     1602 projects have no LIHTC equity at all, and some HFAs have very
                     limited or no asset management experience. Treasury could take
                     additional steps to collect information that would allow it to better prioritize
                     its efforts to help ensure compliance with Section 42 and ensure that low-
                     income residents continue to benefit from affordable housing units
                     throughout the 15-year compliance period. Treasury has already reported
                     that it intends to choose a sample of projects for additional review at the
                     time of HFAs’ annual compliance reviews. Obtaining data that illustrate
                     the interests of other stakeholders would increase Treasury’s ability to
                     identify projects that could be at a relatively high risk of noncompliance
                     with Section 42 because of a lack of stakeholder involvement and to
                     focus its compliance reviews on those projects.


                     To help meet the requirements of the Recovery Act’s Section 1602
Recommendation for   provisions to help ensure the long-term viability of the buildings, we
Executive Action     recommend that the Secretary of the Treasury assess the extent to which
                     HFAs are utilizing information provided to them by project owners during
                     the 15-year compliance period, taking into account the level of investor
                     equity in projects.


                     We provided a draft of this report to the Secretary of Housing and Urban
Agency Comments      Development (HUD) and the Secretary of the Treasury. We received
and Our Evaluation   comments from HUD and Treasury that are reproduced in appendixes V
                     and VI respectively. HUD largely expressed its satisfaction with our
                     review. Each agency also provided technical comments, which we
                     incorporated as appropriate.




                     Page 48                                                  GAO-12-634 Recovery Act
In its response, Treasury noted that it strongly supported GAO’s emphasis
on promoting the success of the Section 1602 Program while limiting
exposure for taxpayer funds. However, Treasury questioned the need to
take additional steps to assess HFAs’ capacity to undertake asset
management, as we originally recommended. In technical comments
accompanying the letter Treasury stated that, in accordance with Section
42 of the Internal Revenue Code (IRC), an HFA’s asset management
responsibilities were undertaken (1) during application reviews, (2) at the
time of the written agreement, and (3) when the building was placed in
service. Treasury noted that it already has reviewed or plans to review
each HFA’s asset management at each of these junctures. We clarified the
draft report language to reflect the requirement that HFAs assess the long-
term viability of Section 1602 projects and that Treasury’s assessments of
HFAs’ capacity to ensure long-term viability ended when a project was
placed in service.

In addition, in subsequent discussion, Treasury stated that the Recovery
Act limits its authority to impose requirements on HFAs beyond the scope
of sections 42 and 1602 but acknowledged that HFAs may choose to
impose more stringent standards. However, based on our analysis we
believe that a broader interpretation of the Recovery Act’s asset
management provisions is feasible and that Treasury can do more to
better ensure that Section 1602-funded projects meet the Recovery Act’s
requirement that HFAs ensure the long-term viability of buildings funded
with Section 1602 through its conduct of asset management after projects
are placed in service. While asset management is not defined by Section
1602, the term is commonly understood by participants in both the LIHTC
(sections 42) and 1602 programs to be a process that strives to assure
that a project remains suitable for occupancy and continues throughout a
project’s useful life. Section 1602(c)(3) uses the term “asset
management” to describe the functions state HFAs are to perform for
Section 1602 projects. On the other hand, the purpose of the provision in
Section 42 that Treasury relies on for what it describes as its asset
management program under Section 1602—section 42(m)(2) of the
IRC—is to ensure that a project has not been awarded too many tax
credits. While that process involves an agency determination that the
housing dollar credit amount does not exceed that necessary for the
project to be financially feasible and viable as a qualified project, it stops
when the project is placed in service since, at that point, the tax credits
(or in the case of the Section 1602 program, the award) have been
committed. The compliance period for both the LIHTC (section 42) and
Section 1602 projects lasts for 15 years beyond that point. For standard
LIHTC projects, private investors see the need to continue to provide


Page 49                                                 GAO-12-634 Recovery Act
asset management during the 15-year compliance period. Our position is
that Section 1602(c)(2), with its reference to section 42 of the IRC, must
be read in conjunction with Section 1602(c)(3) which explicitly assigned
state HFAs asset management responsibilities. Based on our analysis,
we also believe Treasury, while ensuring state HFAs’ compliance with
section 42 of the IRC pursuant to Section 1602(c)(2), was also given the
authority, pursuant to Section 1602(c)(3), to require the HFAs to perform
asset management during the compliance period and to assess those
HFAs’ efforts.

Our interpretation—that Congress’s use of the term “asset management”
in the Recovery Act means more than the duties imposed upon state
HFAs under IRC Section 42—is supported by the plain language of
Section 1602(c)(3). This provision states that a state HFA “shall perform
asset management functions to ensure compliance with section 42 of the
Internal Revenue Code of 1986 and the long-term viability of buildings
funded by any subaward under this section.” As this provision indicates,
under Section 1602, state HFAs’ asset management responsibility has
two functions: ensuring compliance with section 42, the purpose that
Treasury focuses on, as well as ensuring the long-term viability of the
funded projects. Thus, state HFAs are to perform asset management
duties beyond what they perform under section 42 of the IRC in order to
assure projects’ long-term viability. We believe this additional function of
asset management under Section 1602 is further evidence that the
statute authorizes Treasury to direct state HFAs to perform asset
management during the compliance period and to assess the HFAs’
efforts.

We also realize that HFAs entered into binding written agreements with
project owners at the time that Section 1602 awards were made. It would
be difficult at this point for state HFAs to unilaterally perform asset
management over subawardees if such oversight is not authorized by the
written agreements. Nevertheless, we found that many state HFAs,
recognizing the absence of third-party investors, have taken on asset
management during the compliance period, although some have reported
that they had no or minimal experience with this duty. All nine of the HFAs
we interviewed for our September 2010 report, reported that they had
strengthened their procedures for long-term monitoring to meet the
program requirements, mitigate risks, and help ensure projects’ long-term
physical and financial viability. These procedures include increasing the
number of inspection visits over the 15-year tax credit compliance period
and the frequency of reporting, as well as enhancing financial monitoring
of projects receiving TCAP and Section 1602 program funds beyond what


Page 50                                                GAO-12-634 Recovery Act
is typically done for standard LIHTC projects. In addition, 23 of the 56
respondents to our December 2011 survey question on asset
management indicated that they planned to outsource these
responsibilities, and another 6 reported that they planned to hire new
staff.

Recognizing there may be some limits to the information available to
HFAs under the binding written agreements, but noting that the HFAs
have a responsibility for ensuring the long-term viability of projects after
they are placed in service, we modified our draft recommendation that
Treasury assess HFA capacity to conduct asset management. We
recommend instead that Treasury assess the extent to which HFAs are
utilizing information provided to them by project owners for the purpose of
ensuring the long-term viability of the buildings during the 15-year
compliance period. We also modified the title of the report to better
reflect the focus of the revised recommendation.

Treasury also commented that project owners’ interest in maintaining the
financial viability of their investments is a factor in long-term success and
statutory compliance. We recognize that project owners with significant
equity investments have strong incentives to maintain their properties.
However, Treasury has not collected data that show how much equity
project owners have in Section 1602 projects. Data that HUD has
collected for TCAP projects show that some owners have no ownership
equity at all. Further, third-party investors in LIHTC projects often perform
asset management activities that go beyond what project owners provide.
For this reason, it is especially important for HFAs to provide oversight of
Section 1602 projects with no LIHTC equity, and therefore we do not
change our recommendation that Treasury oversight consider the level of
third-party investment.




Page 51                                                GAO-12-634 Recovery Act
We are sending copies of this report to appropriate congressional
committees, the Secretary of Housing and Urban Development, the
Secretary of the Treasury, the Director of the Office of Management and
Budget, and other interested parties. The report is available at no charge
on the GAO website at http://www.gao.gov.

If you or your staffs have any questions about this report, please contact
me at (202) 512-8678 or sciremj@gao.gov. Contact points for our Offices
of Congressional Relations and Public Affairs may be found on the last
page of this report. GAO staff who made major contributions to this report
are listed in appendix VII.




Mathew J. Sciré
Director
Financial Markets
  and Community Investment




Page 52                                               GAO-12-634 Recovery Act
List of Congressional Committees

The Honorable Darrell Issa
Chairman
Committee on Oversight
  and Government Reform
House of Representatives

The Honorable Elijah Cummings
Ranking Member
Committee on Oversight
  and Government Reform
House of Representatives

The Honorable Judy Biggert
Chairman
Subcommittee on Insurance, Housing
  and Community Opportunity
Committee on Financial Services
House of Representatives

The Honorable Luis V. Gutierrez
Ranking Member
Subcommittee on Insurance, Housing
  and Community Opportunity
Committee on Financial Services
House of Representatives

The Honorable Joseph Lieberman
Chairman
Committee on Homeland Security
  and Governmental Affairs
United States Senate

The Honorable Susan Collins
Ranking Member
Committee on Homeland Security
  and Governmental Affairs
United States Senate




Page 53                              GAO-12-634 Recovery Act
The Honorable Tim Johnson
Chairman
Committee on Banking, Housing,
  and Urban Affairs
United States Senate

The Honorable Richard C. Shelby
Ranking Member
Committee on Banking, Housing,
  and Urban Affairs
United States Senate




Page 54                           GAO-12-634 Recovery Act
Appendix I: Scope and Methodology
             Appendix I: Scope and Methodology




             The scope of our audit included four housing programs that received
             American Recovery and Reinvestment Act of 2009 (Recovery Act) funding:
             the Public Housing Capital Fund formula and competitive grant programs;
             the Tax Credit Assistance Program (TCAP), administered by the
             Department of Housing and Urban Development (HUD); and the Section
             1602 program administered by the Department of the Treasury. For each
             program, our objectives were to examine (1) the progress public housing
             authorities (PHA) made in spending their grant funds, what is known about
             how funds were used, and the actions HUD and PHAs took to ensure that
             recipients spent their grants on time and for intended purposes; (2) the
             progress state housing finance agencies (HFA) made in disbursing funds,
             what is known about how funds were used, and the actions Treasury and
             others took to ensure that recipients disbursed funds on time and for
             intended purposes; and (3) the quality of job estimates reported by
             Recovery Act recipients, including housing grant recipients.

             As part of our approach to addressing all objectives, while the results
             cannot be generalized within states or to other states, we selected states
             within which to conduct PHA and HFA visits that allowed us to capture a
             range of funding recipient experiences with each program. We selected
             four “primary” states—California, Illinois, Massachusetts, and
             Mississippi—within which to conduct PHA and HFA visits. The selection
             of these states provided geographic diversity and also allowed us to
             obtain information for PHAs with formula and competitive grants and
             PHAs that HUD initially designated as troubled for the purpose of
             monitoring fund use. We also selected these states because they
             received a range of funding levels. For example, California received a
             higher total amount of funds (about $118 million in formula grants and
             $478 million in Section 1602 funds), while Mississippi received a total
             lower amount of funds (about $32 million in formula funds and $29 million
             in Section 1602 funds). We selected several additional states and a
             locality to visit on the basis that we had visited these states as part of
             earlier Recovery Act work. These states were Colorado, Georgia,
             Pennsylvania, and the District of Columbia. Visiting PHA and HFA-
             sponsored projects in each of these states allowed us to identify how
             projects have progressed since the time of our previous visit. In addition,
             we contacted representatives of HUD and Treasury’s Office of Inspector
             General, respectively, as well as representatives of state auditors to
             obtain information that these organizations may have issued on the use of
             Recovery Act funding by PHAs or HFAs. We incorporated their comments
             as appropriate.




             Page 55                                              GAO-12-634 Recovery Act
                         Appendix I: Scope and Methodology




Public Housing Capital   To identify progress PHAs have made in expending public housing
Fund Formula and         formula and competitive grants, we obtained expenditure data from
Competitive Grant        HUD’s Electronic Line of Credit Control System on the amount of
                         Recovery Act funds that PHAs had drawn down for the program’s
Program                  respective deadlines. In addition to getting summary information from
                         HUD on the number of PHA units planned and completed, we also
                         obtained and analyzed available data in HUD’s Recovery Act
                         Management Performance System (RAMPS) to identify the types of
                         rehabilitations (for example, installation of windows or roofs) that PHAs
                         receiving formula funds had performed as of April 19, 2012.1 Our
                         objective was to determine the number of PHAs that had completed each
                         type of energy-efficiency work activity tracked by RAMPS and to account
                         for the number of PHAs that had undertaken other types of work activities
                         or no activity at all. RAMPS data is entered as the number of units to be
                         affected by a planned or actual work activity. Our data reliability
                         assessment of RAMPS data focused on whether a PHA completed an
                         activity rather than on the accuracy of the number of units affected by the
                         work activity. As part of this assessment, we interviewed HUD officials,
                         reviewed guidance manuals, and during our site visits verified that the
                         work was actually completed. We determined that RAMPS was
                         sufficiently reliable for our purpose of providing a high-level description of
                         the ways in which PHAs used their funds to promote energy-efficiency.
                         We excluded a very small percentage of projects funded by formula
                         grants from our analyses—those involving development of new units and
                         non-dwelling improvements (for example, sidewalk improvements). In
                         addition, we also excluded all competitive grant projects from the RAMPS
                         data we analyzed because the deadline for complete expenditure of these
                         funds is not until September 2012. In addition, to verify progress that
                         PHAs have made in spending these funds and to better understand their
                         use, we visited 25 projects sponsored by 19 housing agencies in our
                         seven selected states and the District of Columbia. We asked
                         representatives from each of these agencies for information on their
                         interactions with HUD officials and what lessons they may have learned in
                         meeting Recovery Act requirements. In addition, in our four primary
                         states—California, Illinois, Massachusetts, and Mississippi—we
                         conducted extensive structured interviews with PHA staff on their


                         1
                          HUD staff reported that our analyses could result in a slight overstatement of PHA work
                         activities performed as of April 19, 2012, since any data entered by PHAs after December
                         31, 2011, would not have yet gone through a “cleaning” process to address possibilities
                         such as the double-counting of work activities completed.




                         Page 56                                                        GAO-12-634 Recovery Act
                        Appendix I: Scope and Methodology




                        Recovery Act experiences and interviewed HUD field office staff on their
                        role in monitoring public housing agency obligations and their
                        observations on PHA experiences with meeting Recovery Act funding
                        milestones.

                        To determine whether HUD’s three annual monitoring strategies for
                        oversight of the public housing capital fund grants was likely to help
                        ensure that Recovery Act funds were spent on time and for the intended
                        purposes, we identified whether HUD’s strategy addressed four key
                        internal control activities that we identified as important for this type of
                        funding.2 In addition, to confirm that HUD took the actions that it planned
                        to take for each component of its year two (March 2010 to March 2011)
                        monitoring strategy, we obtained and reviewed supporting documentation
                        for monitoring performed during year two. We specifically reviewed
                        completed monitoring reviews of the 24 PHA sites we visited. We
                        reviewed 13 monitoring review files for the formula grant program and 11
                        such files for the competitive grant program. These monitoring files
                        reflected HUD staff assessment of documentation supplied to them by the
                        PHAs. We performed this review primarily for HUD’s year two strategy
                        because the steps were completed during the time of our review.


TCAP and Section 1602   To identify progress HFAs have made in disbursing Section 1602 and
Program                 TCAP funds, we obtained financial data from their respective federal
                        oversight agencies. For Section 1602, we obtained data on the amount of
                        funds disbursed by HFAs to project developers (the subawardees) from a
                        tracking system—an excel spreadsheet—maintained by agency staff. For
                        TCAP, we obtained data on the amount of funds disbursed by HFAs to
                        project developers from HUD’s Integrated Disbursement and Information
                        System (IDIS), a system that HUD uses to track other housing programs.
                        To verify progress that a limited number of project developers have made
                        in using Section 1602 and TCAP funds and to better understand their
                        use, we visited 11 projects in the seven states we selected. In each of the
                        primary selected states, we visited one project that was rehabilitated and
                        one that was new construction and in each of the additional states, we
                        selected projects that we had visited before. In addition, in our four
                        primary states, we conducted structured interviews with HFA officials to


                        2
                         The four key internal control activities we selected were establishing and implementing
                        policies and procedures, establishing measures and indicators, implementing policies and
                        procedures, and comparing planned with actual results.




                        Page 57                                                        GAO-12-634 Recovery Act
Appendix I: Scope and Methodology




obtain specific information about experiences meeting Recovery Act
requirements and fund use.

To further assess state implementation of the TCAP and Section 1602
programs, we asked managers of state HFAs in all 50 states, the District
of Columbia, American Samoa, Guam, Commonwealth of the Northern
Mariana Islands, Puerto Rico, and the U.S. Virgin Islands to complete a
web survey. Our survey asked about how the funds were used, items that
provided information that allowed us to assess how many projects moved
forward with these funds, assistance received from federal agencies, the
level of challenge associated with meeting Recovery Act deadlines, asset
management, and lessons learned. Data collection took place from
December 2011 through February 2012. We received usable responses
from all 56 agencies. In addition, when reporting on approximate average
tax credit price for 2007, 2008, and 2009, we used information gathered
from HFAs in response to our 2009 questionnaire.3 See appendix II for
the wording of our survey questions and a summary of the results.

While all state agencies returned questionnaires, and thus our results are
not subject to sampling or overall questionnaire nonresponse error, the
practical difficulties of conducting any survey may introduce other errors
in our findings. We took steps to minimize errors of measurement,
question-specific nonresponse, and data processing. We obtained
comments on a draft of our self-administered questionnaire from the
National Council of State Housing Agencies, Treasury, and pretested
draft questionnaires with two housing finance agencies. During the
survey, we made follow-up contacts with nonrespondents to encourage
participation, and to clarify answers respondents made, as necessary. In
addition, GAO analysts resolved respondent difficulties in answering one
question during the survey. Finally, analysis programs and other data
analyses were independently verified.

To determine whether Treasury’s plan for oversight of Section 1602 funds
was likely to ensure that funds were spent on time and for intended
purposes, we identified whether Treasury’s monitoring plans for oversight
addressed four internal control standards that we identified as important


3
 GAO, Recovery Act: Results of GAO’s Survey of State Housing Finance Agencies’ Use
of the Low-Income Housing Tax Credit Assistance Program (TCAP) and the Section 1602
Program, GAO-10-1023SP (Washington, D.C.: Sept. 20, 2010), an e-supplement to
GAO-10-1022R.




Page 58                                                     GAO-12-634 Recovery Act
                      Appendix I: Scope and Methodology




                      for each program. We also reviewed completed monitoring reviews of
                      seven state HFAs to verify that Treasury staff took the actions that they
                      planned to take as part of their plan. These monitoring files reflected
                      Treasury’s assessment of documentation supplied to them by the HFAs.
                      However, we did not review the underlying documentation provided by
                      the HFAs. To better understand the implications of Treasury’s future
                      plans for the oversight of HFA and project developer compliance with
                      long-term program requirements, we considered findings from our
                      previous report on the capacity of HFAs to conduct asset management
                      and information obtained from our questionnaire on HFA plan’s for asset
                      management. We did not undertake a similar review for HUD oversight of
                      the TCAP program because HUD did not have a monitoring plan in place
                      at the time of our review and was in the process of responding to a
                      recommendation that we made in an earlier report concerning asset
                      management.4


Recipient Reporting   The recipient reporting section of this report responds to the Recovery
                      Act’s mandate that GAO comment on the estimates of jobs created or
                      retained by direct recipients of Recovery Act funds.5 For our review of the
                      tenth submission of recipient reports (which covers the period from)
                      October 1, 2011, through December 31, 2011, we built on findings from
                      our nine prior reviews of these reports, which covered the period from
                      February 2009 through September 31, 2011. To understand the quality of
                      jobs data reported by housing program recipients, we compared the 10
                      quarters of recipient reporting data that were publicly available at
                      Recovery.gov as of January 31, 2012; performed edit checks; and
                      conducted other analyses on housing recipients’ reports for the Recovery
                      Act.6 Our reliability assessment included interviewing HUD program
                      officials and funding recipients and conducting logic tests for key
                      variables. Our matches showed a high degree of agreement between
                      HUD’s assessments of full-time equivalent (FTE) positions reported and



                      4
                       GAO-10-999.
                      5
                       Pub. L. No. 111-5, § 1512(e), 123 Stat. 288.
                      6
                       As with our previous reviews, we conducted these checks and analyses on all prime
                      recipient reports to assess data logic and consistency and identify unusual or atypical
                      data. For this 10th round of reporting, we continued to see only minor variations in the
                      number or percentage of reports appearing atypical or showing some form of data
                      discrepancy.




                      Page 59                                                           GAO-12-634 Recovery Act
Appendix I: Scope and Methodology




our analyses of information recipients reported directly to
FederalReporting.gov. In general, the recipient data used in this report
appears to be sufficiently reliable for the purposes of providing summary
descriptive information about FTEs or other information submitted on
grantees’ recipient reports for the three housing programs—Public
Housing Capital Fund formula and competitive grants, and TCAP.

We conducted this performance audit from June 2011 to June 2012 in
accordance with generally accepted government auditing standards.
Those standards require that we plan and perform the audit to obtain
sufficient, appropriate evidence to provide a reasonable basis for our
findings and conclusions based on our audit objectives. We believe that
the evidence obtained provides a reasonable basis for our findings and
conclusions based on our audit objectives.




Page 60                                              GAO-12-634 Recovery Act
Appendix II: Results from Survey of State
                                               Appendix II: Results from Survey of State
                                               Housing Finance Agencies



Housing Finance Agencies


Survey of State Housing Finance Agencies on Recovery Act Funding
Background on Your State's LIHTC Market

1. Compared to 2009, considering both urban and rural areas, is your state's market for low income housing tax credits: Click one
button.

(Data intentionally not reported. This material will be published in a forthcoming report.)

2. Compared to 2009, how would you characterize the current housing tax credit market in urban versus rural areas (however you may
define them) in your state? Is it:


(Data intentionally not reported.).


Tax Credit Pricing

3. In our previous survey we asked for the approximate average tax credit price set at closing with investors in your state for 2007, 2008
and 2009. What were the approximate prices for the following years? Enter cents using numeric digits and decimal points, if needed, in
the boxes below

2005 – cents paid per dollar tax credit

                                                                              Number
                                                                                   of
 Mean                       Median         Minimum          Maximum       respondents
 89.2                            90               75               100                48


2006 – cents paid per dollar tax credit

                                                                              Number
                                                                                   of
 Mean                       Median         Minimum          Maximum       respondents
 92.4                            93               80               103                48


2007 - your previous report was:      _____ cents paid per dollar tax credit


2008 - your previous report was:      _____ cents paid per dollar tax credit


2009 - your previous report was:      _____ cents paid per dollar tax credit




                                               Page 61                                                          GAO-12-634 Recovery Act
                                              Appendix II: Results from Survey of State
                                              Housing Finance Agencies




2010 – cents paid per dollar tax credit

                                                                              Number
                                                                                   of
 Mean                      Median          Minimum          Maximum       respondents
 74.4                            73               47                96                53


4. If you have any additional comments or would like to explain any of your answers on tax credit pricing, please provide them below.
Box will scroll to accomodate text as necessary.

(Data intentionally not reported.)


Impact of CRA on Tax Credit Pricing

5. In your opinion, does the Community Reinvestment Act (CRA) tend to increase, decrease, or have no effect on the pricing of low-
income housing tax credits in your state?


(Data intentionally not reported. This material will be published in a forthcoming report.)


6. Are there specific geographic location(s) within your state where CRA is more influential than others?


(Data intentionally not reported. This material will be published in a forthcoming report.)


7. IF YES: In what geographic locations is CRA more influential?


(Data intentionally not reported. This material will be published in a forthcoming report.)

8. In your opinion, do each of the following project or market characteristics generally tend to increase, decrease, or have no effect on
the pricing of low-income housing tax credits in your state? Click one button in each row.


(Data intentionally not reported. This material will be published in a forthcoming report.)

9. Are there any other factors that generally tend to increase or decrease pricing of low-income housing tax credits in your state? If so,
describe them in the box below.


(Data intentionally not reported.)

10. If you have any additional comments or would like to explain any of your answers on the impact of CRA on tax credit pricing, please
provide them below.


(Data intentionally not reported.)




                                              Page 62                                                            GAO-12-634 Recovery Act
                                             Appendix II: Results from Survey of State
                                             Housing Finance Agencies




Type of Recovery Act Funding Used

11. Of all projects receiving either TCAP or Section 1602 funds, to how many projects and tax credit housing units have you awarded
only TCAP?
Enter whole numbers of projects and units in the boxes below. Enter zero if none.

Projects:

                                                                            Number
                                                                                 of
 Mean                     Median         Minimum          Maximum       respondents
 11.3                           9                 0               59                56


Units:

                                                                            Number
                                                                                 of
 Mean                     Median         Minimum          Maximum       respondents
 886.1                        582                 0            8,346                55


12. Of all projects receiving either TCAP or Section 1602 funds, to how many projects and tax credit housing units have you awarded
only Section 1602 funds?


Projects:

                                                                            Number
                                                                                 of
 Mean                     Median         Minimum          Maximum       respondents
 27.5                          12                 0              372                55


Units:

                                                                            Number
                                                                                 of
 Mean                     Median         Minimum          Maximum       respondents
 1,156.2                      461                 0            7,854                55


13. And of all projects receiving either TCAP or Section 1602 funds, to how many projects and tax credit housing units have you
awarded both TCAP and Section 1602 funds?




                                             Page 63                                                         GAO-12-634 Recovery Act
                                           Appendix II: Results from Survey of State
                                           Housing Finance Agencies




Projects:

                                                                           Number
                                                                                of
 Mean                    Median         Minimum         Maximum        respondents
 4.1                           1                0                31               56


Units:

                                                                           Number
                                                                                of
 Mean                    Median         Minimum         Maximum        respondents
 249.7                        49                0              1,648              55


14. How many Section 1602 projects used Low Income Housing Tax Credits (LIHTC) as part of their financing?


Not applicable: my agency did not receive Section 1602 funds

                                      Number of
 Not checked            Checked     respondents
 0                             1                1


Projects:

                                                                           Number
                                                                                of
 Mean                    Median         Minimum         Maximum        respondents
 11.2                          5                0                64               53


Units:

                                                                           Number
                                                                                of
 Mean                    Median         Minimum         Maximum        respondents
 785.8                       239                0              5,092              52




                                           Page 64                                                       GAO-12-634 Recovery Act
                                             Appendix II: Results from Survey of State
                                             Housing Finance Agencies




Restarting Stalled Projects

15. How many LIHTC-eligible projects did your agency award tax credits to in 2007 through 2010? (For each year, please count only
projects receiving initial awards made in that year. To avoid double-counting, do not include projects that had returned allocations made
in previous years to receive new allocations.)


Total projects receiving initial awards


2007

                                                                             Number
                                                                                  of
 Mean                      Median         Minimum         Maximum        respondents
 27.7                            18               0              189                55


2008

                                                                             Number
                                                                                  of
 Mean                      Median         Minimum         Maximum        respondents
 26.7                            18               0              194                55


2009

                                                                             Number
                                                                                  of
 Mean                      Median         Minimum         Maximum        respondents
 22.9                            16               0              144                55


2010

                                                                             Number
                                                                                  of
 Mean                      Median         Minimum         Maximum        respondents
 19.0                            15               0              126                54




                                             Page 65                                                           GAO-12-634 Recovery Act
                                             Appendix II: Results from Survey of State
                                             Housing Finance Agencies




16. And of these total projects identified in Question 15, how many ultimately moved forward to close on financing with an investor with
and without the use of TCAP and/or Section 1602 assistance (Recovery Act funds)?


Moved forward with Recovery Act funds 2007

                                                                             Number
                                                                                  of
 Mean                     Median         Minimum          Maximum        respondents
 3.9                             1                0               45                51


Moved forward WITHOUT Recovery Act funds 2007

                                                                             Number
                                                                                  of
 Mean                     Median         Minimum          Maximum        respondents
 23.0                           15                0              179                53


Moved forward with Recovery Act funds 2008

                                                                             Number
                                                                                  of
 Mean                     Median         Minimum          Maximum        respondents
 11.2                            6                0               52                54


Moved forward WITHOUT Recovery Act funds 2008

                                                                             Number
                                                                                  of
 Mean                     Median         Minimum          Maximum        respondents
 14.5                            7                0              134                52


Moved forward with Recovery Act funds 2009

                                                                             Number
                                                                                  of
 Mean                     Median         Minimum          Maximum        respondents
 16.0                           11                0               80                54




                                             Page 66                                                           GAO-12-634 Recovery Act
                                             Appendix II: Results from Survey of State
                                             Housing Finance Agencies




Moved forward WITHOUT Recovery Act funds 2009

                                                                            Number
                                                                                 of
 Mean                     Median         Minimum          Maximum       respondents
 6.9                             2                0               62                52


Moved forward with Recovery Act funds 2010

                                                                            Number
                                                                                 of
 Mean                     Median         Minimum          Maximum       respondents
 3.8                             1                0               40                53


Moved forward WITHOUT Recovery Act funds 2010

                                                                            Number
                                                                                 of
 Mean                     Median         Minimum          Maximum       respondents
 15.3                            9                0              124                53


17. And of these total projects identified in Question 15, how many ultimately did not move forward to close on financing with an
investor?


Did NOT move forward

2007

                                                                            Number
                                                                                 of
 Mean                     Median         Minimum          Maximum       respondents
 2.0                             0                0               17                53


2008

                                                                            Number
                                                                                 of
 Mean                     Median         Minimum          Maximum       respondents
 2.4                             1                0               14                53




                                             Page 67                                                           GAO-12-634 Recovery Act
                                             Appendix II: Results from Survey of State
                                             Housing Finance Agencies




2009

                                                                            Number
                                                                                 of
 Mean                      Median        Minimum          Maximum       respondents
 1.2                                0             0               13                54


2010

                                                                            Number
                                                                                 of
 Mean                      Median        Minimum          Maximum       respondents
 0.5                                0             0                 6               51


18. Of those projects identified as moving forward in Question 16, what differentiated projects that were able to move forward without
Recovery Act assistance from projects that required Recovery Act assistance?

(Data intentionally not reported)


Project Type and Other Funding

19. Across all the 2007-2010 projects receiving any TCAP and/or Section 1602 assistance, approximately what percentage of your
agency's subawards were for:


New construction percent

                                                                            Number
                                                                                 of
 Mean                      Median        Minimum          Maximum       respondents
 63.1                           66                0              100                55


Rehabilitation percent

                                                                            Number
                                                                                 of
 Mean                      Median        Minimum          Maximum       respondents
 33.1                           31                0              100                55




                                             Page 68                                                           GAO-12-634 Recovery Act
                                              Appendix II: Results from Survey of State
                                              Housing Finance Agencies




Combination of new construction and rehabilitation percent

                                                                             Number
                                                                                  of
 Mean                     Median          Minimum          Maximum       respondents
 3.8                             0                 0               45                55


20. In approximately how many of your agency's TCAP and Section 1602 projects were each of the following sources of federal, state,
or private funds combined with TCAP and/or Section 1602 funds in project financing?
Click the one button in each row that most closely approximates how many projects included that source of funds.

Recovery Act Public Housing Capital Fund Formula Grants

                                        Included in
                       Included in           about    Included in     Included in
 Included in all             most           half the         only           none                          Number of
 projects                 projects         projects some projects of the projects         Don't know    respondents
 0                               0                 0                8                40            6               54


Recovery Act Public Housing Capital Fund Competitive Grants

                                        Included in
                       Included in           about    Included in     Included in
 Included in all             most           half the         only           none                          Number of
 projects                 projects         projects some projects of the projects         Don't know    respondents
 0                               0                 0                6                39            8               53


Funds from other federal programs - list in box below this table

                                        Included in
                       Included in           about    Included in     Included in
 Included in all             most           half the         only           none                          Number of
 projects                 projects         projects some projects of the projects         Don't know    respondents
 3                               8               13                23                 5            2               54


State or local funds

                                        Included in
                       Included in           about    Included in     Included in
 Included in all             most           half the         only           none                          Number of
 projects                 projects         projects some projects of the projects         Don't know    respondents
 4                              13                 5               23                 9            0               54




                                              Page 69                                                      GAO-12-634 Recovery Act
                                             Appendix II: Results from Survey of State
                                             Housing Finance Agencies




Conventional loans

                                        Included in
                       Included in           about    Included in     Included in
 Included in all             most           half the         only           none                         Number of
 projects                 projects         projects some projects of the projects        Don't know    respondents
 5                              21              12                14                 1            1               54


Bond financing

                                        Included in
                       Included in           about    Included in     Included in
 Included in all             most           half the         only           none                         Number of
 projects                 projects         projects some projects of the projects        Don't know    respondents
 1                                  1             2               28                22            1               55


IF OTHER FEDERAL PROGRAMS: What were those programs?

(Data intentionally not reported)


Assistance with Recovery Act Requirements

21. Did your agency receive assistance from HUD with meeting any of the TCAP requirements?

                                                         Number of
 Yes                            No Not applicable      respondents
 36                             17                3               56


22. IF YES: What type of assistance did your agency receive?

(Data intentionally not reported)


23. How satisfied or dissatisfied are you with the assistance that you have received from HUD regarding the TCAP program?

                       Somewhat                          Somewhat                Very                    Number of
 Very satisfied         satisfied          Neither      dissatisfied      dissatisfied   Don't know    respondents
 18                                 9             4                3                 1            0               35




                                             Page 70                                                       GAO-12-634 Recovery Act
                                              Appendix II: Results from Survey of State
                                              Housing Finance Agencies




24. Did your agency receive assistance from Treasury with meeting any of the Section 1602 requirements?

                                                          Number of
 Yes                            No Not applicable       respondents
 43                             11                 1               55


25. IF YES: What type of assistance did your agency receive?

(Data intentionally not reported)

26. How satisfied or dissatisfied are you with the assistance that you have received from Treasury regarding the Section 1602
program?

                       Somewhat                           Somewhat                Very                      Number of
 Very satisfied         satisfied           Neither      dissatisfied      dissatisfied    Don't know     respondents
 38                                 4              1                0                 0              0                  43


27. If you have any additional comments or would like to explain any of your answers on the assistance you received with Recovery Act
requirements, please provide them below.

(Data intentionally not reported)


Recovery Act Deadlines

28. All things considered, how challenging, if at all, was meeting TCAP obligation deadlines for your agency?

 Very                  Moderately           Slightly       Not at all                                       Number of
 challenging          challenging       challenging      challenging       Don't know Not applicable      respondents
 6                              21               17                 7                 0              4                  55


29. And how challenging, if at all, was meeting the TCAP expenditure deadlines?

 Very                  Moderately           Slightly       Not at all                       Number of
 challenging          challenging       challenging      challenging       Don't know     respondents
 2                              17               21                11                 0             51


30. All things considered, how challenging, if at all, was meeting Section 1602 obligation deadlines for your agency?

 Very                  Moderately           Slightly       Not at all                                       Number of
 challenging          challenging       challenging      challenging       Don't know Not applicable      respondents
 4                              16               18                16                 0              1                  55




                                              Page 71                                                           GAO-12-634 Recovery Act
                                                Appendix II: Results from Survey of State
                                                Housing Finance Agencies




31. And how challenging, if at all, was meeting the Section 1602 expenditure deadlines?

 Very                   Moderately           Slightly           Not at all                    Number of
 challenging           challenging       challenging          challenging    Don't know     respondents
 9                               16                 18                 11               0           54


32. If you have any additional comments or would like to explain any of your answers on meeting Recovery Act deadlines, please
provide them below.

(Data intentionally not reported)


Audit and Oversight

33. Have any of the following organizations audited (or are they in the process of auditing) your agency's expenditure of TCAP and/or
Section 1602 funds grants?


HUD Inspector General

                                                                Number of
 Yes                             No       Don't know          respondents
 12                              41                  1                 54


Treasury Inspector General

                                                                Number of
 Yes                             No       Don't know          respondents
 25                              30                  0                 55


Federal organizations other than HUD or Treasury - list in box below this table

                                                                Number of
 Yes                             No       Don't know          respondents
 4                               49                  1                 54


State or local organizations - list in box below this table

                                                                Number of
 Yes                             No       Don't know          respondents
 19                              36                  0                 55


IF OTHER FEDERAL OR STATE ORGANIZATIONS: What were the names of those organizations?



                                                Page 72                                                       GAO-12-634 Recovery Act
                                              Appendix II: Results from Survey of State
                                              Housing Finance Agencies




(Data intentionally not reported)


Asset Management

34. For TCAP, in which of the following ways do you plan to (or have already) address asset management requirements?

Not applicable: no TCAP funding - Skip to question 35

                                          Number of
 Not checked             Checked        respondents
 0                                  4              4


Use existing staff

                                                          Number of
 Yes                            No       Don't know     respondents
 45                                 3              0               48


Hire new staff

                                                          Number of
 Yes                            No       Don't know     respondents
 5                              29                 3               37


Outsource

                                                          Number of
 Yes                            No       Don't know     respondents
 19                             22                 1               42


Take other measures - Describe in box below this table

                                                          Number of
 Yes                            No       Don't know     respondents
 5                              25                 4               34


IF OTHER MEASURES: What are those other measures?

(Data intentionally not reported)




                                              Page 73                                                    GAO-12-634 Recovery Act
                                              Appendix II: Results from Survey of State
                                              Housing Finance Agencies




35. For Section 1602, in which of the following ways do you plan to (or have already) address asset management requirements?

Not applicable: no 1602 funding - Skip to question 36

                                          Number of
 Not checked             Checked        respondents
 0                                  1              1


Use existing staff

                                                          Number of
 Yes                            No       Don't know     respondents
 46                                 3              0               49


Hire new staff

                                                          Number of
 Yes                            No       Don't know     respondents
 6                              29                 5               40


Outsource

                                                          Number of
 Yes                            No       Don't know     respondents
 23                             20                 1               44


Take other measures - Describe in box below this table

                                                          Number of
 Yes                            No       Don't know     respondents
 3                              28                 5               36


IF OTHER MEASURES: What are those other measures?

(Data intentionally not reported)




                                              Page 74                                                     GAO-12-634 Recovery Act
                                             Appendix II: Results from Survey of State
                                             Housing Finance Agencies




Impacts and Outcomes

36. In your opinion, what level of positive impact, if any, do you think the TCAP and/or Section 1602 programs will have on the following
in your state?


Health of affordable housing market

                        Moderate                                                            Number of
 Great Impact             Impact      Slight impact       No impact       Don't know      respondents
 33                             19                2                 0                1               55


Job creation and preservation

                        Moderate                                                            Number of
 Great Impact             Impact      Slight impact       No impact       Don't know      respondents
 20                             27                8                 0                0               55


Assistance to those most impacted by the recession

                        Moderate                                                            Number of
 Great Impact             Impact      Slight impact       No impact       Don't know      respondents
 19                             21               12                 0                3               55


Infrastructure investment

                        Moderate                                                            Number of
 Great Impact             Impact      Slight impact       No impact       Don't know      respondents
 13                             10               15                 7               10               55


Stabilization of state and local government budgets

                        Moderate                                                            Number of
 Great Impact             Impact      Slight impact       No impact       Don't know      respondents
 4                               9               14               15                12               54




                                             Page 75                                                           GAO-12-634 Recovery Act
                                             Appendix II: Results from Survey of State
                                             Housing Finance Agencies




37. To what extent did your agency's use of the TCAP and/or Section 1602 funds temporarily fill the gap left by a diminished investor
demand for low-income housing tax credits and allow projects to continue where developers were unable to proceed due to a lack of
investors?

                                                                                           Number of
 Completely                 Mostly      Somewhat           Not at all     Don't know     respondents
 27                             23                4                0                 1              55


Lessons Learned

38. To improve future grants programs, we would like to hear what lessons learned, if any, can be identified from your agency's
experiences with the Recovery Act grants.
What made your agency's projects or expenditures successful?

(Data intentionally not reported)


39. What things did your agency do well that might be considered good practices for the future?

(Data intentionally not reported)


40. And what could have been done better by your agency?

(Data intentionally not reported)


41. What things did HUD, Treasury, or others do well that might be considered good practices for the future? Specify entity name(s)
when describing practices.

(Data intentionally not reported)


42. And what could have been done better by HUD, Treasury, or others (e.g., state government or other organizations)? Specify entity
name(s) when describing practices.

(Data intentionally not reported)




                                             Page 76                                                          GAO-12-634 Recovery Act
                                              Appendix II: Results from Survey of State
                                              Housing Finance Agencies




Complete your questionnaire

43. If you have any final comments on any of the issues in this questionnaire, please provide them below.

(Data intentionally not reported)


44. Who is the person primarily responsible for completing this questionnaire whom we can contact if we need to clarify a response?


Name:                       (Data intentionally not reported)

Title:                      (Data intentionally not reported)


Agency/Organization:        (Data intentionally not reported)


Email:                      (Data intentionally not reported)


Phone:                      (Data intentionally not reported)

45. Are you done with this questionnaire?
Clicking "Yes" below tells GAO that your answers are final. We will not use your answers unless the "Yes" button is checked when you
last exit the questionnaire.

                                          Number of
 Yes                            No      respondents
 56                                 0             56


46. Would you like a record of your answers to this questionnaire? If so, click here to view and print a summary of your responses.

Click on the Save & Exit Questionnaire button below to exit the survey.

Thank you for completing this questionnaire




                                              Page 77                                                          GAO-12-634 Recovery Act
Appendix III: Recommendations from Prior
              Appendix III: Recommendations from Prior
              GAO Recovery Act Reports with Sections on
              Housing


GAO Recovery Act Reports with Sections on
Housing
              States’ and Localities’ Current and Planned Uses of Funds While
              Facing Fiscal Stresses, GAO-09-829, July 8, 2009

              No recommendations to the Department of Housing and Urban
              Development (HUD) or the Department of the Treasury (Treasury). All
              recommendations, such as leveraging Single Audits as an effective
              oversight tool for Recovery Act programs, were addressed to the Office of
              Management and Budget or other agencies such as the Department of
              Transportation.

              Funds Continue to Provide Fiscal Relief to States and Localities,
              While Accountability and Reporting Challenges Need to Be Fully
              Addressed, GAO-09-1016, September 23, 2009

              Recommendation: To enhance HUD’s ability to prevent, detect, and
              correct noncompliance with the use of Recovery Act funds, the Secretary
              of the Department of Housing and Urban Development should expand the
              criteria for selecting housing agencies for on-site reviews to include
              housing agencies with open Single Audit findings that may affect the use
              of and reporting on Recovery Act funds.

              Agency Affected: Department of Housing and Urban Development

              Status: Closed—Implemented

              Comments: HUD implemented our recommendation. In a letter dated
              November 20, 2009, HUD told us it had expanded its criteria for selecting
              housing agencies for on-site reviews to include all housing agencies with
              open 2007 and 2008 Single Audit findings as of July 7, 2009, relevant to
              the administration of Recovery Act funds. HUD identified 27 such housing
              agencies and planned to complete these on-site reviews by February 15,
              2010.

              One Year Later, States’ and Localities’ Uses of Funds and
              Opportunities to Strengthen Accountability, GAO-10-437, March 3,
              2010

              Recommendation: The Secretary of Housing and Urban Development
              should instruct housing agencies to discontinue use of the jobs calculator
              provided by HUD in the first round of recipient reporting for subsequent
              rounds of reporting to ensure the correct job calculation is used.

              Agency Affected: Department of Housing and Urban Development


              Page 78                                              GAO-12-634 Recovery Act
Appendix III: Recommendations from Prior
GAO Recovery Act Reports with Sections on
Housing




Status: Closed—Implemented

Comments: HUD implemented our recommendation. HUD provided us
with an e-mail dated March 26, 2010, that it had sent to public housing
agencies instructing them not to use the jobs-counting calculator originally
posted on HUD’s Recovery Act website in October 2009. The email also
provided a link to the revised jobs-counting calculator on HUD’s Web site.
HUD provided us with subsequent emails to housing agencies that
reminded them of the new jobs-counting calculator.

Recommendation: To help HUD achieve Recovery Act objectives and
address challenges with its continued administration of Recovery Act
funds, the Secretary of Housing and Urban Development should develop
a management plan to determine the adequate level of agency staff
needed to administer both the Recovery Act funds and the existing
Capital Fund program going forward, including identifying future resource
needs and determining whether current resources could be better utilized
to administer these funds.

Agency Affected: Department of Housing and Urban Development

Status: Closed—Implemented

Comments: In response to our recommendation, HUD developed a
management plan for administration of Recovery Act funds, including the
need for an additional 11 FTEs to carry out Recovery Act responsibilities.
In July 2010, HUD also provided us with its management plan for the
Public Housing Capital Fund program. The plan summarized the key
activities HUD undertakes to monitor and facilitate the use of these funds
by program area, including rule and policy development, planning,
program awards, program management, technical assistance, and
reporting. The plan also included the specific activities, tasks, and
resources used for each of these existing program areas, identifying
approximately 91 existing FTEs in its headquarters and field offices to
support these activities. According to HUD’s management plan, HUD’s
current staffing level is sufficient to manage its existing Capital Fund
program, but the agency could more efficiently utilize its current
resources. As a result, HUD plans to realign current staff to focus on its
core missions including Recovery Act responsibilities.

States’ and Localities’ Uses of Funds and Actions Needed to
Address Implementation Challenges and Bolster Accountability,
GAO-10-604, May 26, 2010


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Housing




Recommendation: To ensure housing agencies use the correct job
calculation, the Secretary of HUD should clearly emphasize to housing
agencies that they discontinue use of the outdated jobs calculator
provided by HUD in the first round of recipient reporting.

Agency Affected: Department of Housing and Urban Development

Status: Closed—Implemented

Comments: In response to our recommendation, HUD sent an e-mail to
housing agencies on June 30, 2010, that explicitly instructed them not to
use the outdated jobs-counting calculator, as it was not correctly
computing the FTE calculation per updated OMB guidance. This e-mail
also included a link to HUD’s new online jobs-counting calculator and
instructed housing agencies to use this calculator for the July and all
future reporting periods.

Recommendation: In order to increase the likelihood that housing
finance agencies (HFA) will comply with Treasury’s requirements for
recapturing funds, the Secretary of the Treasury should define what it
considers appropriate actions by HFAs to recapture funds in order to
avoid liability when they are unable to collect funds from project owners
that do not comply.

Agency Affected: Department of the Treasury

Status: Closed—Implemented

Comments: Treasury agreed with our recommendation and in response
to our recommendation, Treasury provided additional guidance to state
HFAs to clarify what constitutes appropriate actions by HFAs to recapture
funds in order to avoid liability in the event of project owner
noncompliance. Specifically, in August 2010, the agency developed and
issued a Recapture Guidance for Recovery Act projects that receive
Section 1602 Program funds that defines a recapture event, specifies the
amount of funds owed in the event of recapture, describes a housing
finance agency’s obligation and responsibilities in avoiding project owner
noncompliance, sets forth the kinds of recapture actions an HFA may
take in the event of noncompliance, and directs HFAs on how to report
noncompliance.

Matter for Congressional Consideration: To provide HFAs with greater
tools for enforcing program compliance, in the event the Section 1602


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GAO Recovery Act Reports with Sections on
Housing




Program is extended for another year, Congress may want to consider
directing Treasury to permit HFAs the flexibility to disburse Section 1602
Program funds as interest-bearing loans that allow for repayment.

Agency Affected: Department of the Treasury

Status: Open

Comments: We continue to believe that Congress should consider
directing Treasury to permit HFAs the flexibility to disburse Section 1602
Program funds as interest-bearing loans that allow for repayment.

Recommendation: Treasury should expeditiously provide HFAs with
guidance on monitoring project spending and develop plans for dealing
with the possibility that projects could miss the spending deadline and
face further project interruptions.

Agency Affected: Department of the Treasury

Status: Closed—Implemented

Comments: Treasury officials told us that after they provided additional
guidance, every state HFA and the respective property owners complied
with the 30 percent spending rule by the end of calendar year 2010. We
concluded that Treasury and the state HFAs have addressed the intent of
this recommendation.

Opportunities Exist to Increase the Public’s Understanding of
Recipient Reporting on HUD Programs, GAO-10-966, September 30,
2010

Recommendation: To increase public understanding of how Recovery
Act funds are used and concerns over the cost of reporting, the Secretary
of the Department of Housing and Urban Development, in consultation
with OMB, should provide clarification of Office of Management and
Budget (OMB) FederalReporting.gov guidance (1) so that it better
conveys the Recovery Act requirement for recipients to report key
information for the specific projects and activities funded, and (2) so that,
for each program, it defines key terms (project, primary place of
performance, and subrecipient primary place of performance).

Agency Affected: Department of Housing and Urban Development



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Status: Open

Comments: When we confirm what actions the agency has taken in
response to this recommendation, we will provide updated information.

Recommendation: To increase public understanding of how Recovery
Act funds are used and concerns over the cost of reporting, the Secretary
of the Department of Housing and Urban Development, in consultation
with OMB, should consider options for more effectively reviewing the
content of narrative descriptions submitted by recipients into
FederalReporting.gov in a targeted and cost-effective manner to help
ensure that recipients have entered clear and complete information about
the funded projects and activities.

Agency Affected: Department of Housing and Urban Development

Status: Open

Comments: When we confirm what actions the agency has taken in
response to this recommendation, we will provide updated information.

Recommendation: To increase public understanding of how Recovery
Act funds are used and concerns over the cost of reporting, the Secretary
of the Department of Housing and Urban Development, in consultation
with OMB, should encourage recipients to leverage other sources of
existing information, such as by providing links to agency or recipient
websites, to further enhance the transparency of the information they
enter in FederalReporting.gov.

Agency Affected: Department of Housing and Urban Development

Status: Open

Comments: When we confirm what actions the agency has taken in
response to this recommendation, we will provide updated information.




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Appendix IV: Status of Prior Open Recovery
                                                Appendix IV: Status of Prior Open Recovery
                                                Act Recommendations and Matters for
                                                Congressional Consideration


Act Recommendations and Matters for
Congressional Consideration
                                                In this appendix, we update the status of agencies’ efforts to implement
                                                the seven recommendations that remain open and are not implemented,
                                                five newly implemented recommendations, and four newly closed
                                                recommendations that resulted from our Recovery Act mandate reports.1
                                                Recommendations that were listed as implemented or closed in a prior
                                                report are not repeated here. We also address the status of our matters
                                                for congressional consideration.

Table 1: Status of Prior Open Recovery Act Recommendations and Matters for Congressional Consideration

Department of Energy – Weatherization Assistance Program
Newly implemented recommendation                                         Agency action
1. Given the concerns we have raised about whether                       1. DOE generally concurred with this recommendation. On
weatherization program requirements were being met, we                   December 1, 2011, DOE issued guidance that establishes DOE’s
recommended that the Department of Energy (DOE), in                      monitoring expectations for state and local weatherization
conjunction with both state and local weatherization agencies,           agencies. This guidance requires states to submit a description of
develop and clarify weatherization program guidance that sets            their monitoring plan in their annual State Plan for the program.
time frames for development and implementation of state                  The guidance also sets time frames for implementation such as
                     a
monitoring programs.                                                     monitoring visits and reporting requirements.
Newly closed recommendations                                             Agency actions
1. Given the concerns we have raised about whether                       1. Although DOE generally concurred with this recommendation,
weatherization program requirements were being met, we                   DOE does not appear to have accelerated its efforts to complete
recommended that Department of Energy (DOE), in conjunction              national standards, which had been expected to take about 2
with both state and local weatherization agencies, develop and           years and are just now being completed, about two years later.
clarify weatherization program guidance that accelerates current         DOE reports that it has completed certain milestones toward
DOE efforts to develop national standards for weatherization             developing national standards for weatherization, training,
training, certification, and accreditation, efforts that are currently   certification, and accreditation. For example, DOE reports that it
expected to take 2 years to complete.a                                   has completed analysis of the knowledge, skills and abilities
                                                                         required to perform four specific weatherization jobs (residential
                                                                         energy auditor, retrofit installer, crew leader, and quality control
                                                                         inspector). Based on this analysis, DOE states that its
                                                                         accreditation of energy efficiency training programs is now
                                                                         operational. Other components of this effort, such as the
                                                                         finalization of the national certification program, are not expected
                                                                         to be finalized until September 2012, according to DOE officials.
                                                                         Completion of other components of this program is not expected
                                                                         until 2013. We are closing this recommendation as not
                                                                         implemented because DOE’s actions have not fully addressed our
                                                                         concerns.




                                                1
                                                 For a list of our Recovery Act-related products, see http://www.gao.gov/recovery. .



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2. Given that state and local agencies have felt pressure to meet a   2. Although DOE generally concurred with this recommendation,
large increase in production targets while effectively meeting        DOE did not provide evidence that it had clarified its production
program requirements and have experienced some confusion              targets, funding deadlines, and associated consequences while
over production targets, funding obligations, and associated          providing a balanced emphasis on the importance of meeting
consequences for not meeting production and funding goals, we         weatherization program objectives. In January 2012, however,
recommended that DOE clarify its production targets, funding          DOE allowed states the opportunity to extend their performance
deadlines, and associated consequences while providing a              period deadline, which was originally set for March 31, 2012. We
balanced emphasis on the importance of meeting program                are closing this recommendation as not implemented because (1)
requirements.a                                                        a majority of grantees must spend their Recovery Act funds by fall
                                                                      2012, (2) DOE’s actions have not fully addressed our concerns,
                                                                      and (3) DOE officials did not indicate that they would take any
                                                                      additional actions to address the recommendation.
Open recommendation                                                   Agency action
1. Given the concerns we have raised about whether                    1. DOE generally concurred with this recommendation and states that
weatherization program requirements were being met, we                it will update guidance and standard methodologies weatherization
recommended that the DOE, in conjunction with both state and          work based on findings from the national evaluation of the
local weatherization agencies, develop and clarify weatherization     Weatherization Program under the Recovery Act, currently being
program guidance that revisits the various methodologies used in      conducted by Oak Ridge National Laboratory. They expect some
determining the weatherization work that should be performed          results from this study to be available in September 2012. According
based on the consideration of cost-effectiveness and develops         to DOE officials, the Oak Ridge National Laboratory report will
standard methodologies that ensure that priority is given to the      summarize the cost effectiveness and long-term energy savings
most cost-effective weatherization work. To validate any              resulting from weatherization work by housing type and DOE will use
methodologies created, this effort should include the development     this report to update guidance and promote methodologies that
of standards for accurately measuring the long-term energy            ensure that all installed weatherization measures are prioritized
savings resulting from weatherization work conducted.a                based on their long-term cost effectiveness.
Department of Energy – Energy Efficiency and Conservation Block Grant Program
Newly closed recommendation                                           Agency action
1. To better ensure that Energy Efficiency and Conservation Block     1. DOE generally concurred with this recommendation and added
Grant (EECBG) funds are used to meet Recovery Act and                 additional questions to the on-site monitoring checklists related to
program goals, we recommended that DOE explore a means to             subrecipient monitoring to help ensure that subrecipients are in
capture information on the monitoring processes of all recipients     compliance with the terms and conditions of the award. These
to make certain that recipients have effective monitoring             changes will help improve DOE’s oversight of recipients,
           b
practices.                                                            especially larger recipients, which are more likely to be visited by
                                                                      DOE project officers. However, not all recipients receive on-site
                                                                      visits. As noted previously, we continue to believe that the
                                                                      program could be more effectively monitored if DOE captured
                                                                      information on the monitoring practices of all recipients. We are
                                                                      closing the recommendation as not implemented because (1) a
                                                                      majority of grantees’ must spend their Recovery Act funds by fall
                                                                      2012, (2) DOE’s actions have not fully addressed our concerns,
                                                                      and (3) DOE officials did not indicate that they would take any
                                                                      additional actions to address the recommendation.
Department of Health and Human Services: Office of Head
Start
Open recommendation                                                   Agency action
1. To help ensure that grantees report consistent enrollment          1. OHS issued informal guidance on its website clarifying monthly
figures, we recommended that the Director of the Department of        reporting requirements to make them more consistent with annual
Health and Human Services’s (HHS) Office of Head Start (OHS)          enrollment reporting. This guidance directs grantees to include in
better communicate a consistent definition of “enrollment” to         enrollment counts all children and pregnant mothers who are enrolled
grantees for monthly and yearly reporting and begin verifying         and have received a specified minimum of services. According to
                                                              c
grantees’ definition of “enrollment” during triennial reviews.        officials, OHS is considering further regulatory clarification.




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Department of Housing and Urban Development
Newly implemented recommendation                                      Agency action
1. Because the absence of third-party investors reduces the           1. In March 2012, HUD took steps to address this
amount of overall scrutiny Tax Credit Assistance Program (TCAP)       recommendation. Specifically, HUD staff developed a risk-based
projects would receive and the Department of Housing and Urban        plan for monitoring TCAP projects with little third-party investment.
Development (HUD) is currently not aware of how many projects         To develop this risk-based plan, HUD requested that housing
lacked third-party investors, we recommended that HUD develop         finance agencies (HFA) report certain data about their projects to
a risk-based plan for its role in overseeing TCAP projects that       HUD, including the dollar value of Low Income Housing Tax Credit
recognizes the level of oversight provided by others.d                (LIHTC) equity and funds provided by public and private sources.
                                                                      According to HUD, HFAs report this data after the units are
                                                                      completed. As part of its plan, HUD states that it will review these
                                                                      data on completed projects on a quarterly basis and review these
                                                                      data to identify TCAP projects that have less than $10,000 in
                                                                      LIHTC investment and no other federal funds. For grantees with
                                                                      projects meeting these criteria—according to HUD, two HFAs had
                                                                      such projects as of March 2012—HUD will review the HFA’s
                                                                      monitoring plans and contact them to discuss specific oversight
                                                                      and safeguards to ensure that their projects maintain their
                                                                      compliance with Section 42 of the Internal Revenue Code and
                                                                      TCAP requirements. HUD’s plan states that it also will require the
                                                                      grantees to submit any documentation or plans of continued
                                                                      oversight of these projects. As additional TCAP projects become
                                                                      complete in the coming years, consistently executing this
                                                                      specialized monitoring approach will be important for HUD.
Office of Management and Budget (OMB)
Newly implemented recommendation                                      Agency action
1. We recommended that OMB provide timelier reporting on          1. To address this recommendation, OMB commenced two voluntary
internal controls for Recovery Act programs for 2010 and beyond.e Single Audit Internal Control Projects (projects) in August 2010 and
                                                                  August 2011 for states that received Recovery Act funds in fiscal year
                                                                  2010 and 2011, respectively. The projects’ goals were to achieve
                                                                  more timely communication of internal control deficiencies for higher-
                                                                  risk Recovery Act programs so that corrective action could be taken
                                                                  more quickly. Specifically, the projects encouraged participating
                                                                  auditors of states that received Recovery Act funds to identify and
                                                                  communicate deficiencies in internal control to management 3
                                                                  months sooner than the 9-month time frame required under the
                                                                  Single Audit Act so that corrective action could be taken sooner. OMB
                                                                  initiated the projects because it lacked the authority to require that
                                                                  state auditors issue Single Audit reports earlier than the 9 months
                                                                  required under statute since the Single Audit Act would need to be
                                                                  amended to require state auditors to report earlier than the 9 months
                                                                  presently required. Given the legal constraints, OMB initiated
                                                                  voluntary projects to encourage earlier reporting of internal control
                                                                  deficiencies identified in Single Audits.
                                                                  Each project had participation from 10 or more states. Auditors
                                                                  identified hundreds of internal control deficiencies and issued audit
                                                                  reports at least 3 months earlier than required under statute. The
                                                                  internal control reports provided program managers with more timely
                                                                  reporting on internal control deficiencies identified in the Single Audit
                                                                  so that they could develop corrective actions. As of March 9, 2012,
                                                                  the Department of the Treasury has paid out $247.4 billion,
                                                                  approximately 86.5 percent of Recovery Act funds for use in states
                                                                  and localities. Thus, most of the Recovery Act funds have been
                                                                  expended.


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Open recommendation                                                 Agency action
1. We recommended that OMB issue Single Audit guidance in a         1. 2. With regard to issuing Single Audit Guidance in a timely
timely manner so that auditors can efficiently plan their audit     manner, and specifically the OMB Circular A-133 Compliance
      e
work; and                                                           Supplement, OMB officials have stated that they intended to issue
2. We recommended that OMB issue the OMB Circular No. A-133         the fiscal year 2012 compliance supplement by March 31, 2012.
Compliance Supplement no later than March 31 of each year.
                                                                f   The team of federal officials who assisted in the development of
                                                                    the OMB Circular A-133 Compliance Supplement met in August
                                                                    2011, developed a timeline for issuing the 2012 Circular A-133
                                                                    Compliance Supplement by March 31, 2012, and began working
                                                                    with the federal agencies and others involved in drafting the
                                                                    supplement. In January 2012, OMB provided to the American
                                                                    Institute of Certified Public Accountants (AICPA) a draft of the
                                                                    2012 Compliance Supplement which the AICPA published on its
                                                                    website. However, OMB did not issue the 2012 Compliance
                                                                    Supplement by the scheduled due date of March 31, 2012, and as
                                                                    of May 30, 2012, it had yet to be issued. We will continue to
                                                                    monitor OMB’s efforts in this area.
3. We recommended that OMB shorten the timeframes required          3. OMB officials previously acknowledged that providing timely
for issuing management decisions by federal agencies to grant       management decisions has been a challenge. We previously
            f
recipients.                                                         reported that while OMB officials have identified alternatives for
                                                                    helping to ensure that federal awarding agencies provide their
                                                                    management decisions on the corrective action plans in a timely
                                                                    manner, including possibly shortening the time frames required for
                                                                    federal agencies to provide their management decisions, they
                                                                    have yet to decide on the course of action that they will pursue to
                                                                    implement this recommendation. In 2011, most of the federal
                                                                    awarding agencies that had grantees with audit deficiencies,
                                                                    identified as a result of the Single Audit Internal Control Project,
                                                                    did not submit all of their management decisions for corrective
                                                                    actions by the specified due date. We will continue to monitor
                                                                    OMB’s efforts in this area
                                                                    In fiscal year 2011, most of the federal awarding agencies that
                                                                    had grantees with audit deficiencies, identified as a result of the
                                                                    Single Audit Internal Control Project, did not submit all of their
                                                                    management decisions for corrective actions by the specified due
                                                                    date. We will continue to monitor OMB’s efforts in this area.
4. We recommended that OMB evaluate options for providing           On February 28, 2012, OMB published an advance notice of
relief related to audit requirements for low-risk programs to       proposed guidance, which proposed for public comment a number
balance new audit responsibilities associated with the Recovery     of reforms relating to concentrating audit resolution and oversight
Act.g                                                               resources on higher dollar, higher risk grant awards.h These
                                                                    reforms, if implemented, would be integrated into the Single Audit
                                                                    Act’s implementing guidance, OMB Circular No. A-133 on Audits
                                                                    of States, Local Governments, and Non-Profit Organizations and
                                                                    the guidance in OMB Circular A-50 on Single Audit Act follow-up.
                                                                    The reforms are intended to revise the requirements of the Single
                                                                    Audit framework such that larger expenditures of federally funded
                                                                    grants would be required to undergo increased levels of audit
                                                                    oversight as compared with smaller expenditures of federally
                                                                    funded grants. The proposed guidance is a result of various OMB
                                                                    working groups, at least one of which was initiated as a result of
                                                                    the President’s February 28, 2011, memorandum entitled
                                                                    Administrative Flexibility, Lower Costs, and Better Results for
                                                                    State, Local, and Tribal Governments. To develop their
                                                                    suggestions for improving Single Audit requirements, the working
                                                                    groups obtained input from federal, state, local, and Native


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                                            Act Recommendations and Matters for
                                            Congressional Consideration




                                                                   American tribal officials involved in varying capacities with federal
                                                                   grants and provide a report of their findings to OMB. OMB
                                                                   considered the report of the working groups and incorporated
                                                                   information from the working groups into their proposed reforms.
                                                                   OMB officials stated that they estimate that the reforms will be
                                                                   finalized by the end of fiscal year 2013. We will continue to
                                                                   monitor OMB’s efforts towards implementing this
                                                                   recommendation.
5. We recommended that OMB explore alternatives to help ensure In OMB’s Advance Notice of Proposed Guidance, OMB provided
that federal awarding agencies provide management decisions in reforms for strengthening the guidance on audit follow-up for
                 i
a timely manner.                                               federal awarding agencies. We have previously reported that an
                                                               essential aspect of audit follow-up entails federal awarding
                                                               agencies issuing timely management decisions about the
                                                               corrective actions that grantees plan to take to correct deficiencies
                                                               identified in the Single Audit. OMB’s working group, initiated as a
                                                               result of the President’s February 28, 2011, memorandum entitled
                                                               Administrative Flexibility, Lower Costs, and Better Results for
                                                               State, Local, and Tribal Governments, considered and reported on
                                                               various measures relating to improvements in audit follow-up.
                                                               After considering the working group’s report, OMB included some
                                                               of these measures in the proposed reforms, which among other
                                                               things, would require agencies to designate a senior accountable
                                                               agency official to oversee the audit resolution process, encourage
                                                               agencies to engage in cooperative audit resolution with recipients,
                                                               take a proactive approach to resolving weaknesses and
                                                               deficiencies, and digitize Single Audit reports into a searchable
                                                               database to support the analysis of audit results by federal
                                                               agencies. We believe that if implemented, these reforms could
                                                               assist agency officials in providing timelier management
                                                               decisions. We will continue to monitor OMB’s efforts towards
                                                               implementing this recommendation.
Department of Transportation
Newly implemented recommendation                                   Agency action
1. To ensure that Congress and the public have accurate            1. DOT implemented measures to improve the data in the
information on the extent to which the goals of the Recovery Act   Recovery Act Data System, including incorporating additional data
are being met, we recommended that the Secretary of                checks and enhancing the system by taking steps to minimize
Transportation direct the Department of Transportation’s (DOT)     redundant data fields and requiring monthly updates by funding
Federal Highway Administration (FHWA) to develop additional        recipients. In addition, DOT also issued guidance to improve the
rules and data checks in the Recovery Act Data System, so that     quality of data entered into the system.
these data will accurately identify contract milestones such as
award dates and amounts, and provide guidance to states to
revise existing contract data.j
2. We recommended that the Secretary of Transportation direct      2. DOT completed a comprehensive review of projects in
FHWA to make publicly available—within 60 days after the           economically distressed areas, and it posted an accounting of the
September 30, 2010, obligation deadline—an accurate accounting     extent to which states directed Recovery Act transportation funds
and analysis of the extent to which states directed funds to       to projects located in economically distressed areas on its
economically distressed areas, including corrections to the data   website. We requested documentation of the underlying data from
initially provided to Congress in December 2009.j                  DOT to verify this accounting, which DOT provided. This
                                                                   underlying data showed that around 52 percent of Recovery Act
                                                                   transportation funding was directed to economically distressed
                                                                   areas—a decrease of about 5 percent over the 57 percent figure
                                                                   that DOT provided to Congress in December 2009.




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                                             Act Recommendations and Matters for
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Newly closed recommendation                                              Agency action
                                                            1. In its response, DOT concurred in part and noted that it
1. To better understand the impact of Recovery Act investments in
                                                            expected to be able to report on Recovery Act outputs, such as
transportation, we believe that the Secretary of Transportation
                                                            the miles of road paved, bridges repaired, and transit vehicles
should ensure that the results of these projects are assessed and
a determination is made about whether these investments     purchased, but not on outcomes, such as reductions in travel
                                                            time, nor did it commit to assessing whether transportation
produced long-term benefits. Specifically, in the near term, we
recommended that the Secretary direct FHWA and Federal      investments produced long-term benefits. DOT further explained
                                                            that limitations in its data systems, coupled with separating
Transit Authority to determine the types of data and performance
                                                            Recovery Act funds from overall federal spending in
measures they would need to assess the impact of the Recovery
                                                            transportation, would make assessing the benefits of Recovery
Act and the specific authority they may need to collect data and
report on these measures.k                                  Act funds difficult. DOT officials noted that, to prepare for possible
                                                            Congressional action establishing a more performance-based
                                                            approach to the transportation program as a whole, DOT has
                                                            initiated activities such as training staff, promoting best practices,
                                                            and partnering with states. However, DOT has not determined the
                                                            types of data and performance measures needed to assess
                                                            impacts, nor has it committed to assessing the long-term benefits
                                                            of Recovery Act investments in transportation infrastructure. We
                                                            are therefore closing this recommendation as not implemented.
Matters for Congressional Consideration – Office of Management of Budget
Matter                                                                   Status
1. To the extent that appropriate adjustments to the Single Audit        1. Congress has not enacted any such legislation.
process are not accomplished under the current Single Audit
structure, Congress should consider amending the Single Audit
Act or enacting new legislation that provides for more timely
internal control reporting, as well as audit coverage for smaller
Recovery Act programs with high risk.l
2. To the extent that additional coverage is needed to achieve           2. Congress has not enacted any such legislation.
accountability over Recovery Act programs, Congress should
consider mechanisms to provide additional resources to support
those charged with carrying out the Single Audit Act and related
audits.l
                                             Source: GAO analysis.
                                             a
                                             Recovery Act: States’ and Localities’ Uses of Funds and Actions Needed to Address Implementation
                                             Challenges and Bolster Accountability, GAO-10-604 (Washington, D.C.: May 26, 2010), 246.
                                             b
                                              Recovery Act: Energy Efficiency and Conservation Block Grant Recipients Face Challenges Meeting
                                             Legislative and Program Goals and Requirements, GAO-11-379 (Washington, D.C.: Apr. 7, 2011),
                                             36.
                                             c
                                              Recovery Act: Head Start Grantees Expand Services, but More Consistent Communication Could
                                             Improve Accountability and Decisions about Spending, GAO-11-166 (Washington, D.C.: Dec. 15,
                                             2010), 39.
                                             dRecovery Act: Opportunities to Improve Management and Strengthen Accountability over States’
                                             and Localities’ Uses of Funds, GAO-10-999 (Washington, D.C.: Sept. 20, 2010), 189.
                                             e
                                                 GAO-10-604, 247.
                                             f
                                                 GAO-10-999, 194.
                                             gRecovery Act: States’ and Localities’ Current and Planned Uses of Funds While Facing Fiscal
                                             Stresses, GAO-09-829 (Washington, D.C.: July 8, 2009), 127.
                                             h
                                                 77 Fed. Reg. 11778 (Feb, 28, 2012).
                                             i
                                             GAO-10-604, 247-248.
                                             j
                                                 GAO-10-999, 187-188.
                                             k
                                                 GAO-10-604, 241-242.
                                             l
                                             GAO-09-829, 128.



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Appendix V: Comments from the Department
             Appendix V: Comments from the Department
             of Housing and Urban Development



of Housing and Urban Development




             Page 89                                    GAO-12-634 Recovery Act
Appendix VI: Comments from the
             Appendix VI: Comments from the Department
             of the Treasury



Department of the Treasury




             Page 90                                     GAO-12-634 Recovery Act
Appendix VI: Comments from the Department
of the Treasury




Page 91                                     GAO-12-634 Recovery Act
Appendix VII: GAO Contact and Staff
                  Appendix VII: GAO Contact and Staff
                  Acknowledgments



Acknowledgments

                  Mathew J. Sciré, (202) 512-8678 or sciremj@gao.gov
GAO Contact
                  In addition to the individual named above, other key contributors to this
Staff             report were Paul J. Schmidt, Assistant Director; Sonja J. Bensen; Richard
Acknowledgments   D. Brown; Emily R. Chalmers; William R. Chatlos; Andrew E. Finkel;
                  Ronald Y. Ito; Yvonne D. Jones; Camille A. Keith; Kimberly A. McGatlin;
                  John T. McGrail; Marc W. Molino; Carol L. Patey; Carl M. Ramirez;
                  Marylynn Sergent; Jonathan R. Stehle; and James J. Ungvarsky.




(250589)
                  Page 92                                             GAO-12-634 Recovery Act
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