oversight

HUD's Fiscal Year 2000 Budget Request: Additional Analysis and Justification Needed for Some Programs

Published by the Government Accountability Office on 1999-09-03.

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

                  United States General Accounting Office

GAO               Report to Congressional Requesters




September 1999
                  HUD’S FISCAL YEAR
                  2000 BUDGET REQUEST
                  Additional Analysis and
                  Justification Needed for
                  Some Programs




GAO/RCED-99-251
      United States
GAO   General Accounting Office
      Washington, D.C. 20548

      Resources, Community, and
      Economic Development Division

      B-283159

      September 3, 1999

      The Honorable Christopher S. Bond
      Chairman
      The Honorable Barbara A. Mikulski
      Ranking Minority Member
      Subcommittee on VA, HUD, and Independent Agencies
      Committee on Appropriations
      United States Senate

      The Honorable James T. Walsh
      Chairman
      The Honorable Alan B. Mollohan
      Ranking Minority Member
      Subcommittee on VA-HUD, and Independent Agencies
      House of Representatives

      As the Department of Housing and Urban Development (HUD) looks
      forward to fiscal year 2000, it faces a combination of limited funds and
      organizational changes. From fiscal year 1997 through fiscal year 1999,
      HUD’s discretionary budget increased from $16 billion to $26 billion,
      primarily because of the need for additional budget authority to renew
      current and increasing numbers of contracts with rental property owners
      who provide housing to low-income households. In February 1999, HUD
      proposed an increase to $28 billion to meet its needs in fiscal year 2000. In
      mid-April 1999, the Congress approved a concurrent resolution that
      established the congressional budget for the U.S. government for fiscal
      year 2000 and set forth budgetary levels for fiscal years 2001 through 2009.
      Industry groups representing housing and community development
      practitioners believe that these levels could severely limit the amount of
      new budget authority available for HUD’s programs.

      In addition to managing the Department within federal budget limitations,
      HUD  is responding to internal changes resulting from the implementation of
      its 2020 Management Reform Plan announced in June 1997. The plan’s
      purpose is to develop ways to manage HUD’s programs and people more
      efficiently and responsibly. Under this plan, HUD is creating new ways of
      doing business throughout the Department, including centralizing many
      activities that had been conducted in HUD’s field offices.

      We agreed with your offices that our review of HUD’s fiscal year 2000
      budget request would respond to the following questions:




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                   •   Does HUD have the capacity to implement, and adequate justification to
                       support, the new or significantly expanded programs and initiatives
                       included in its budget request?
                   •   What is the potential for HUD to use available unexpended balances in
                       some programs to reduce its need for new funding in other programs?
                   •   Has HUD adequately justified its use of or requests for funds in the
                       following five areas: disaster assistance, salaries and expenses, Schedule C
                       and non-career Senior Executive Service positions, rural housing and
                       economic development, and international housing initiatives?

                       To answer these questions, we relied on HUD’s budget documents, as well
                       as information obtained from HUD’s program and budget officials, HUD’s
                       Office of Inspector General, other studies published on selected programs,
                       and our analysis of HUD’s unexpended balance reports for fiscal years 1996
                       through 1998. We also drew on current or completed work on specific
                       programs. Our scope and methodology are discussed in detail in appendix
                       I.


                       Out of its total fiscal year 2000 budget request of over $28 billion, HUD has
Results in Brief       requested $731 million for 19 programs and initiatives that were not
                       funded in fiscal year 19991 (see app. II). However, in our March 1999
                       testimony on HUD’s fiscal year 2000 budget request, we questioned HUD’s
                       capacity to manage this volume of additional work because of the
                       time-consuming organizational reform occurring at this time and the
                       substantial resources HUD would need to implement new or expanded
                       programs.2 In our current review of one of the largest of these
                       programs—Contract Administration, with $209 million requested for fiscal
                       year 2000—we found that HUD has not accomplished two tasks that are
                       critical for effective implementation. As proposed, the Contract
                       Administration Program would contract out for the administration of an
                       additional 20,000 multifamily properties in HUD’s project-based Section 8
                       housing assistance inventory. Although HUD has taken steps to identify
                       qualified contractors, HUD has not established, to date, essential oversight
                       procedures nor assigned key staff to monitor the contractors’
                       performance. Furthermore, HUD recently decided to exclude certain
                       properties from the program, which could reduce the need for fully

                       1
                        We focused on programs and initiatives that the Congress did not fund in fiscal year 1999 or that could
                       be significantly expanded in fisal year 2000; however, some of the programs and initiatives may have
                       received funding in prior years. HUD believes that only three of the programs we identified are new
                       and that the remaining programs and initiatives represent increases or expansion within existing
                       programs.
                       2
                        Comments on HUD’s Fiscal Year 2000 Budget Request (GAO/T-RCED-99-104, Mar. 3, 1999).



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funding the request. Therefore, HUD is not prepared to fully implement the
program and likely will not need the full amount of its fiscal year 2000
budget request for this program.

The potential exists for HUD to better manage unexpended balances in a
number of programs and for some unobligated funding to be used to meet
other needs. However, determining the full extent to which unexpended
balances are available for other purposes will require additional
information and analysis by HUD. Our limited review identified some
programs—such as the Homeless Assistance, Rent Supplement, and Rental
Assistance programs—in which the need for carrying unobligated
balances is questionable. It also showed that the unobligated unexpended
balances for three selected programs—the Community Development
Block Grant (CDBG), Community Development Disaster Assistance, and
Drug Elimination programs—are caused by several factors, including HUD’s
lengthy process for making competitive awards and funding allocation
policies that delay providing funds to grantees. Taking steps to scrutinize
and make more productive use of its unobligated balances is important
because these balances have grown over the past 3 years for some of HUD’s
existing programs—including some programs, such as Homeless
Assistance ($45 million) and Urban Empowerment Zones ($105 million),
for which HUD has requested $234 million in increased funding for fiscal
year 2000. Furthermore, we reviewed obligated balances in three programs
mentioned above and identified “excessive” balances in HUD’s Community
Development Block Grant Program3 that totaled about $360 million. We
also are concerned that HUD does not independently verify, and therefore
cannot ensure, the accuracy of the unexpended balances reported by its
program offices.

For four of the five areas that you asked about, we found that HUD had
adequate support for its budget request. In one area—salaries and
expenses—it did not. HUD’s estimate of its fiscal year 2000 staffing level and
the corresponding budget authority to support that level is not supported
with a systematic analysis of its needs. In particular, HUD has not
completed a cost-benefit analysis of its new cadre of over 780 “community
builders” located in its field offices and headquarters.4 However, HUD has
taken a positive step by working with the National Academy of Public
Administration to develop and test a staffing allocation model that should
allow the Department to better estimate its resource requirements.

3
 HUD defines excessive balances as unspent amounts greater than 1.5 times a grantee’s annual award.
4
This is a new position that HUD began to staff in 1998. Persons in this position assist communities in
making effective use of HUD programs and services and represent HUD in the community.



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                 Established in 1965, HUD was staffed by 9,157 employees as of June 1999
Background       and is the principal federal agency responsible for programs in four
                 areas—housing assistance, community development, housing finance, and
                 certain regulatory issues.

             •   Housing Assistance: HUD provides (1) public housing assistance through
                 allocations to public housing authorities and (2) private-market housing
                 assistance under section 8 of the U. S. Housing Act of 1937 for
                 properties—referred to as project-based assistance—or for
                 tenants—known as tenant-based assistance. In contrast to entitlement
                 programs, which provide benefits to all who qualify, the benefits of HUD’s
                 housing assistance programs are limited by budgetary constraints to about
                 one-fourth of those who are eligible.
             •   Community Development: Primarily through grants to the states, large
                 metropolitan areas, small cities, towns, and counties, HUD provides
                 community planning and development funds for local economic
                 development under its CDBG and Empowerment Zone/Enterprise
                 Community programs, housing development and related assistance under
                 its HOME program, and assistance to the homeless under its McKinney Act
                 Homeless programs. The funding for some programs, such as those for the
                 homeless, may also be distributed directly to nonprofit groups and
                 organizations. CDBG funds go to 847 localities and 137 large counties, plus
                 3,000 small cities and counties across the nation. The states also receive
                 CDBG funds for distribution to small towns and rural counties.
             •   Housing Finance: The Federal Housing Administration (FHA) insures
                 lenders—including mortgage banks, commercial banks, savings banks,
                 and savings and loan associations—against losses on mortgages for
                 single-family properties, multifamily properties, and other facilities. The
                 Government National Mortgage Association, a government-owned
                 corporation within HUD, guarantees investors the timely payment of
                 principal and interest on securities issued by lenders of federally insured
                 and guaranteed loans. FHA also administers the General Insurance and
                 Special Risk Insurance programs, which include specialized single-family
                 mortgage insurance programs, a number of multifamily insurance
                 programs, and Title I insurance for manufactured homes and lots as well
                 as home improvement loans.
             •   Regulatory Issues: HUD is responsible for regulating interstate land sales,
                 home mortgage settlement services, factory-manufactured housing
                 (prefabricated and mobile homes), lead-based paint abatement, and home
                 mortgage disclosures. HUD also supports fair housing programs and is
                 partially responsible for enforcing federal fair housing laws.




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                      The Congress supports HUD’s programs through annual appropriations that
                      are subject to spending limits under the Budget Enforcement Act of 1990,
                      as amended. For fiscal year 2000, HUD is seeking about $28 billion in
                      discretionary budget authority. In combination with unexpended budget
                      authority from prior years, these funds will help to support about
                      $34 billion in discretionary outlays, most of which will be used to provide
                      rental assistance to low-income households.5 This request represents a
                      9-percent increase in budget authority over fiscal year 1999. In its Fiscal
                      Year 2000 Budget Summary, HUD states that its proposed budget will
                      provide for the renewal of all Section 8 housing assistance contracts,
                      increases to virtually all program areas, and continued increases to other
                      areas, such as the CDBG program and programs to address homelessness,
                      that address communities’ greatest needs. The summary also states that
                      many program enhancements will be initiated. In addition, HUD proposes
                      to fund several new activities from money set aside within existing
                      programs, such as CDBG.



                      In accordance with its 2020 Management Reform Plan, HUD is currently
New Programs Will     implementing a complex and far-reaching organizational reform effort to
Tax HUD’s Capacity,   improve the effectiveness of its operations and to address long-standing
and One of the        management problems. In the process, HUD is moving and retraining many
                      of its employees so that they can staff several new centralized offices,
Largest May Not Be    such as the Financial Management and Real Estate Assessment Centers. In
Ready for             this environment, HUD may find that marshaling the resources necessary to
                      embark on a series of 19 new programs and initiatives may be difficult.
Implementation        New or expanded programs require substantial resources to plan,
                      implement, and manage, and it is uncertain whether these needed
                      resources will be available as HUD undergoes the organizational changes
                      outlined in its plan. While HUD is making credible progress toward
                      implementing its reforms, we continue to believe, as we did in our
                      testimony of March 3, 1999, that the Department may not have the capacity
                      to effectively initiate and oversee the new or expanded programs being
                      proposed for fiscal year 2000. Since the March hearing, HUD has revised its
                      request slightly by retracting its funding request for 2 of the 19 proposed
                      initiatives and redirecting those funds to established programs that HUD


                      5
                       Budget authority is the authority provided by federal law to incur obligations that will result in
                      outlays. Appropriations are the most common means of providing budget authority. Outlays are the
                      measure of federal spending and are payments to liquidate obligations incurred over 1 or more years.
                      Typically, outlays draw from unexpended funds that were appropriated not only in the current year
                      but also in prior years. Therefore, HUD’s outlay spending in fiscal year 2000 will differ from its request
                      for new budget authority.



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    believes have already proved their effectiveness (see app. II for a listing
    and a description of all proposed programs that were not funded in the
    prior fiscal year).6

    We reviewed HUD’s justification for one of the largest of these programs
    because of its relatively high dollar value—the Contract Administration
    Program—to determine whether the full amount of the request was
    justified. Since 1974, section 8 of the Housing Act of 1937, as amended, has
    allowed HUD to contract with private property owners to provide housing
    assistance on behalf of eligible low-income households. Currently, about
    4,200 housing assistance contracts are administered by contract
    administrators, while HUD field staff administer the remaining 20,000
    contracts. However, for fiscal year 2000, HUD is requesting $209 million to
    hire eligible public agencies, such as public housing authorities or state
    housing finance agencies, to administer all 24,200 project-based Section 8
    housing assistance contracts. Duties performed by contract administrators
    include

•   conducting management and occupancy reviews and taking action on
    health and safety issues and on the results of physical inspections;
•   submitting budgets, paying for Section 8 vouchers, and processing,
    renewing, and adjusting housing assistance payment contract rents; and
•   monitoring owners’ actions to address deficiencies in their financial
    statements.

    According to HUD’s July 1999 cost-benefit analysis of this proposal,
    contracting out for the administration of project-based Section 8 housing
    assistance could cost as much as $19 million per year more than
    administering the program in-house. HUD officials believe that the
    increased cost for contract administrators is justified because, among
    other things, it would allow HUD field staff to perform more property
    monitoring and owner oversight to ensure that owners are complying with
    HUD’s regulations, protect against fraud by owners and tenants, and hold
    owners accountable for the rental subsidy payments they receive.
    However, before HUD is ready to implement this program and effectively
    use the funding it has requested for fiscal year 2000, it needs to complete
    its planning and implementation of two key tasks: (1) establishing and
    disseminating formal procedures and performance standards for its staff
    to use in monitoring the new contract administrators and (2) adequately

    6
     HUD has asked the Congress to redirect to other housing programs the (1) $10 million earmarked
    within the CDBG program for Metro Job Links and (2) $25 million earmarked for the Regional
    Affordable Housing Initiative within the HOME Investment Partnership program. However this request
    has not been approved.



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staffing the new payment centers that it has established under its 2020
Management Reform Plan to manage the program and oversee the
contractors.

We do not believe that HUD will have completed these two tasks in time to
fully implement the Contract Administration Program in fiscal year 2000.
For the first task, HUD has outlined a schedule for developing the necessary
standards and monitoring plan. However, at the time of our review,
milestones on HUD’s schedule had begun to slip. For example, by
August 1999, HUD did not have a draft, as it had planned, of the procedures
for identifying and communicating its performance standards to all the
HUD centers, headquarters, and field offices that are to be responsible for
overseeing the contractors and the properties. According to a program
official, HUD currently plans to have draft procedures by the end of
September 1999 and will make them final by the end of October 1999.
These procedures are critical to avoid past problems in overseeing the
program—HUD’s Office of Inspector General (OIG) has found instances in
which existing contract administrators did not have the staffing and
training needed to effectively monitor or identify problems in Section 8
properties. The OIG also found that some contract administrators were not
performing all required duties, yet HUD was providing them with full
compensation.7,8,9

Timely completion of the second task is also doubtful. Since 1997, HUD has
undergone significant staffing changes that have resulted in reductions
and in transfers to new positions and locations. While these changes are
nearly complete, some locations are still understaffed, and newly placed
staff are still being trained in their new responsibilities. According to the
OIG, inadequate staffing in HUD’s field offices already has resulted in
insufficient oversight of existing Section 8 contract administrators.
Moreover, in its review of HUD’s financial statements, the OIG cited the need
for better monitoring of contract administrators as a material weakness in
monitoring multifamily projects.10 We believe that HUD has taken a positive
step by working with the National Academy of Public Administration to
develop a methodology to fully assess its staffing needs. However, until


7,
    Interim Audit of Bond Refundings of Section 8 Projects, (93-HQ-119-004, Oct. 1992).
8,
 Multi-Region Audit of Refunding of Bonds for Section 8 Assisted Projects, (93-HQ-119-0013, Apr. 30,
1993).
9
 Advisory Report on Section 8 Contract Administration, (99-BO-119-0801, Oct. 7, 1998).
10
  U.S. Department of Housing and Urban Development Audit of Fiscal Year 1998 Financial Statements,
(99-FO-177-0003, March 29, 1999 pp. 31-34.)



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                       HUD completes and applies this methodology in the fall of 1999, fully staffs
                       its centers, and retrains its staff, its ability to effectively implement this
                       program and use all of the funding it has requested in fiscal year 2000 will
                       be questionable.

                       Furthermore, changes HUD has recently made to the program could reduce
                       the need for the full amount of its request for the Contract Administration
                       Program. HUD plans to exclude properties that are owned by HUD, in
                       foreclosure, referred to the Enforcement Center, or owned by parties who
                       no longer intend to participate in the Section 8 housing assistance
                       program. HUD based its proposed funding request on the need to contract
                       out the administration of about 1.1 million housing units. However,
                       according to a HUD official, recently excluded properties could reduce the
                       number of units which, in turn, may reduce the need for fully funding the
                       proposed program. HUD could not provide a firm estimate of the number of
                       housing units to be excluded.


                       Unobligated balances that are not needed to meet current requirements in
Potential Exists for   several of HUD’s programs may be available to meet other needs, but
Unexpended Balances    additional analysis is needed on unobligated balances before the
to Be Used More        availability of these balances can be determined. In addition, proposed
                       increases in about eight programs, amounting to $234 million, raise
Effectively            questions because most of these programs have carried unobligated and
                       undisbursed obligated balances over the last 3 years.11 We also found
                       excessive obligated but unexpended balances (excessive balances are
                       those that are greater than 1.5 times the annual grant amount) in HUD’s
                       Community Development Block Grant Program amounting to $360 million.
                       We are concerned about the accuracy of all unexpended balances12—both
                       obligated and unobligated—reported by HUD because most are not




                       11
                         Obligated funds are funds allocated under binding agreements that will result in outlays. These funds
                       remain in HUD’s budget accounts until all contractual payments are made. Unobligated funds are
                       funds that have not been obligated and remain available for obligation under law. HUD has broken its
                       unobligated funds into two classifications: reserved, or administratively set aside for a project, entity,
                       or activity; and unreserved, or fully available for obligation under law.
                       12
                        Unexpended balances are funds accumulated from previous years that have not been used to make
                       payments. These balances include both undisbursed obligated and unobligated balances. The total
                       unexpended balance ($154 billion) differs slightly from the balance reported in HUD’s Fiscal Year 1998
                       Financial Statement Report of March 29, 1999. This difference exists primarily because HUD updated
                       amounts reported in the Department’s year-end balance reports in preparing the financial statements
                       and, in part, because of rounding differences.



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                           independently verified.13 HUD officials told us, however, that they are
                           improving their analysis and reporting in this area through data cleanup
                           efforts and improved data reporting systems. Although most of these
                           efforts have been focused on Section 8 housing assistance programs,
                           officials said that improvements will occur over time in other programs.
                           Finally, we are concerned about delays in approving and awarding grants
                           for some HUD programs and the contribution these delays have to creating
                           unobligated balances.

                           HUD reported on September 30, 1998, that it had unexpended balances of
                           about $154 billion. This amount consists of both obligated ($113 billion, or
                           74 percent) and unobligated funds ($41 billion, or 26 percent) and is
                           spread among programs that receive both discretionary and mandatory
                           funds. Valid reasons exist for HUD to have unexpended funds. For example,
                           HUD and its grantees and contractors often need to expend funds for
                           multiyear construction projects and for housing assistance contracts that
                           cover periods as long as 40 years and involve thousands of landlords. In
                           addition, by law, FHA must maintain a reserve to cover potential losses in
                           its loan portfolio. Funding for this reserve is mandatory and must equal at
                           least 2 percent of the over $380 billion in the outstanding balance of
                           insurance in force that FHA had guaranteed as of September 30, 1998.


Year-End Unexpended        In its fiscal year 2000 budget documents, HUD estimates that it will have
Balances Raise Questions   approximately $5 billion in unobligated discretionary budget authority at
About Need for New         the end of fiscal year 1999 (see app. III). Because this estimate is
                           significantly lower than the $14 billion HUD reported in its year-end
Discretionary Budget       unexpended balance report for fiscal year 1998, we worked with HUD’s
Authority                  Office of Budget to determine the current status and causes of
                           unexpended program balances that are not obligated for specific program
                           needs. HUD officials told us that some programs either do not need those
                           balances for future needs or that the program’s need is not immediate. For
                           other programs, additional analysis by HUD is needed to justify the
                           Department’s carrying the unobligated balances forward.

                           For example, in two housing assistance programs—Rent Supplement and
                           Rental Assistance Payments—HUD reported unreserved, unobligated
                           balances amounting to $930.3 million, as of September 30, 1998. Through
                           contracts with property owners, these programs provide supplemental

                           13
                            In its audit of HUD’s fiscal year 1998 financial statements, HUD’s OIG states as a “reportable
                           condition” that HUD’s procedures for identifying and deobligating funds that are no longer needed to
                           meet its obligations are not effective. The OIG attributes this condition to offices either not reviewing
                           unliquidated obligations or not doing it in a timely manner.



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rent payments to owners on behalf of low-income tenants. HUD has
approved no new contracts for either program since 1973. The initial
funding for these long-term contracts may have been insufficient because
of rent increases. Accordingly, the Congress appropriated supplemental
funding in 1983 so that HUD could amend the contracts with additional
resources. Approximately $1.5 billion was provided by the Supplemental
Appropriations Act of 1983 to fund anticipated contract amendment needs
over the lives of these two programs. HUD believes that the current
unobligated balances should provide sufficient funds to cover the
programs’ future needs. HUD also stated that predicting the state of the
economy over the terms of these contracts is not an exact science; thus, it
did not believe that the funds remaining in the accounts should be viewed
as excess. However, this conclusion is not based on a contract-by-contract
analysis, as HUD recently has done for its project-based Section 8 rental
assistance program.14 That analysis revealed the amount of obligated
funding available to each contract and whether shortfalls are expected
through the end of the contract term that would require the contracts to be
amended using as yet unobligated funds. In our view, without such an
analysis of amendment needs of the Rent Supplement and Rental
Assistance Programs, HUD lacks sufficient information to determine
whether the existing unobligated funding will be needed for these
programs or whether some is available for rescission and reappropriation
to these programs on an as-needed basis.

Greater attention to unobligated balances in smaller programs is also
needed. For example, two programs—Nonprofit Sponsor and
Youthbuild—have unreserved and unobligated balances of $5 million and
$400,000, respectively. According to HUD officials, these amounts are not
needed to meet future requirements and could be considered for
rescission, even though they are small relative to balances in some other
programs.

In addition, HUD has proposed increases in several existing programs that
have carried unobligated balances from fiscal year 1996 through fiscal year
1998. As table 1 shows, eight discretionary programs for which HUD has
requested funding increases amounting to $234 million for fiscal year 2000
carried unobligated balances in 1998, most since 1996. Several of these
programs also carried obligated balances that had not yet been disbursed.
Our review disclosed why some of these unobligated funds have not been

14
  As discussed in our July 22, 1998, report, Section 8 Project-Based Rental Assistance: HUD’s Processes
for Evaluating and Using Unexpended Balances Are Ineffective (GAO/RCED-98-202), HUD has
performed such an analysis to determine amendment needs for its Section 8 project-based rental
assistance program.



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                                         obligated. For example, unobligated balances in the CDBG program are due
                                         to an extensive awards process to accommodate the increased number of
                                         set-asides in the CDBG program. Program officials cited similar reasons for
                                         balances observed in HUD’s Homeless Assistance Program, including a
                                         deliberate two-step application process that HUD says both it and the
                                         grantees believe maximizes program results even though the process takes
                                         longer. For the Urban Empowerment Zone program, HUD does not grant
                                         funding to the zone until the zone submits and has received approval for
                                         all of its required planning documents. According to HUD officials, the
                                         Department is using its technical assistance funds for this program to
                                         assist the zones in developing their planning documents in order to
                                         accelerate the obligation process.


Table 1: Requested Budget Increases for Fiscal Year 2000 Programs With Historical Unobligated Balances
Dollars in millions
                                                                                            Year-end unobligated balances
                                  FY 1999            FY 2000                          9/30/96        9/30/97        9/30/98      9/30/99
Program/initiative                enacted            request        Increase         (actual)       (actual)       (actual)        (est.)
Community Planning and
Development
Community Development
Block Granta                       $4,750              $4,775             $25           $726           $777           $832            $0
                       a
Homeless Assistance                   975               1,020              45            888            955           1,019            0
Housing Opportunities for
Persons With AIDSa                    225                 240              15                b
                                                                                                          36                40         0
HOME Investment Partnership
Grantsa                             1,600               1,610              10            182            210                236         0
                                                                                             b              b
Brownsfield Redevelopment              25                   50             25                                               25         0
                            a                                                                b              b
Urban Empowerment Zones                45                 150             105                                                4         0
Policy Development and
Research
Research and Technologya               38                   40              2               2              3                12         0
Fair Housing and Equal
Opportunity
Fair Housing Activitiesa               40                   47              7             13               8                23         0
Total                              $7,698                               $234
                                            a
                                            Also carried undisbursed obligated balances in 1998.
                                            b
                                                Balances were not reported in HUD’s Year-end Unexpended Balance Reports.




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                             When presenting its budget in recent years, HUD has assumed that large
                             unobligated balances would be obligated by year-end. Historically,
                             however, significant amounts of these balances have remained at year-end,
                             which conflicts with guidance from the Office of Management and Budget
                             that requires federal agencies to provide the Congress with a realistic
                             estimate of each program’s unobligated balance, if any. In addition to the
                             programs shown in table 1 with estimated zero balances, HUD estimates
                             that 12 other programs will have zero balances for fiscal year 1999, but
                             these programs historically have had unobligated balances (see app. III).
                             Accurate estimates are needed to give congressional decisionmakers
                             better and more useful information for making budget decisions.

                             Although our review did not focus as much on programs with obligated
                             unexpended balances as on those with unobligated balances, we believe
                             that in some cases obligated funding warrants scrutiny. For example, HUD’s
                             regulations require CDBG grantees to expend their funds in a timely
                             manner; however, the grantees do not always do so. Despite a prohibition
                             on carrying balances that are more than 1.5 times as large as a grantee’s
                             annual block grant allocation—which HUD defines as “excessive
                             balances”—259 entitlement grantees, or 26 percent, had balances as of
                             March 31, 1999, that exceeded this restriction. The excessive portion
                             amounted to $360 million. Although HUD has a process for enforcing its
                             regulation against carrying excessive balances, it has enforced this
                             regulation only once, according to HUD officials. However, according to
                             HUD officials, the Secretary recently has become personally involved in this
                             matter and significant follow-up efforts are being made through HUD field
                             offices, including providing increased technical assistance and
                             substantially increased efforts in the area of monitoring.

                             Although HUD reports that as of May 1, 1999, only $277 million remains to
                             be obligated in the CDBG program, HUD has not responded to our request for
                             information on whether recently obligated amounts have gone to grantees
                             carrying excessive balances. Comparing grantees’ balances with planned
                             obligations would provide HUD with the information needed to avoid
                             providing funds to grantees who are carrying excessive balances and are
                             thus in violation of HUD’s prohibition against such conditions.


Unexpended Balances Are      In monitoring its unexpended balances, HUD does not independently verify
Not Independently Verified   the accuracy of the amounts certified and reported by its various program
                             offices. Each year, HUD prepares an Unexpended Balance Report based in




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                             part on data provided by its program offices.15 In July, HUD’s Budget Office
                             prepares an Aging Report that identifies all program accounts with
                             unexpended balances that had no activity during the 6-month period
                             ending June 30. The Budget Office sends this report to program budget
                             offices for them to certify whether the funds are still needed. If needed,
                             the funds remain obligated to that account; if not, the funds are
                             de-obligated from the specific project in the program account and made
                             available for other uses within the existing program. Funds remain
                             available for use unless they are statutorily transferred to another account.
                             In addition, the Budget Office relies on the program offices’ certifications
                             in order to prepare its annual Statement of Budgetary Resources for
                             certifying to the Treasury Department, as do other federal departments
                             and agencies, that all obligations at the end of the fiscal year are proper.

                             HUD’s OIG has said, and we agree, that unexpended balances should be
                             verified before they are reported to Treasury. Moreover, unexpended
                             balances should be verified before they are reported on the Department’s
                             Statement of Budgetary Resources. Although the OIG has verified Section 8
                             Assisted Housing funds, which represent a significant portion of the total
                             reported unexpended balance for 1998, it has not systematically verified
                             the balances reported in other program accounts. Verifying balances is
                             important because the OIG recently found weaknesses in program offices’
                             internal reviews of obligated balances as well as instances in which
                             program offices identified but did not subsequently deobligate unneeded
                             obligations.16 HUD officials said they are working to improve their
                             validation process, primarily through a recently implemented data cleanup
                             effort that independently certifies the estimates for Section 8 contracts.
                             However, this effort has not been expanded to include other programs.


Several Factors Impede the   In two programs we reviewed—CDBG and Drug Elimination—we found
Timely Obligation of Funds   substantial growth in unobligated balances from fiscal year 1996 through
                             fiscal year 1998. In addition, CDBG grantees do not always spend their funds
                             expeditiously.

                             Unobligated balances in HUD’s Drug Elimination program grew from
                             $68 million in 1996 to about $346 million in 1998, and unobligated balances
                             in HUD’s CDBG program have grown by more than $50 million annually since


                             15
                              Data in the Unexpended Balance Report come from HUD’s Government General Ledger, which
                             contains data imported from program-specific databases.
                             16
                              U.S. Department of Housing and Urban Development Audit of Fiscal Year 1998 Financial Statements,
                             Mar. 29, 1999.



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1996 (see app. III). Several reasons account for these growing unobligated
balances. First, in both programs, HUD’s competitive awards processes
have been time-consuming. For example, reviewing, rating, and ranking
the large volume of Drug Elimination Grant applications has taken about
14 months, on average, from the time the funds are appropriated to the
time when the awards can be made. However, HUD officials believe these
grants will be awarded more quickly after HUD implements a plan to
distribute them through a formula rather than a competitive process in
fiscal year 2000.

In one CDBG program, Disaster Assistance, HUD has accumulated
unobligated balances from 1997 and 1998 Emergency Supplemental
Appropriations totaling $142 million, as of March 3, 1999. This balance
results primarily because of HUD’s policy to hold back a portion of its
emergency funds until the end of the year rather than to obligate all of
them as needed. This obligation policy contrasts with that of the Federal
Emergency Management Agency (FEMA), which obligates emergency
appropriations from its disaster relief fund as a disaster occurs. While
HUD’s current time frames are comparable to some of FEMA’s obligation
time frames for its programs,17 HUD officials plan to expedite obligations by
changing their program’s policy. With this policy change, disaster
declarations will be processed individually instead of in batches, which
would save over 6 months for some declarations. If implemented, this and
other changes in the policy would cut the time for obligating funds from
almost 2 years to 10 months.

Other significant differences that affect the obligation of funds also exist
between the two agencies. For example, HUD’s mission in disaster
assistance is to fund unmet needs and to meet the long-term recovery
needs of disaster areas, particularly when they include low-income
communities. For this reason, the Department must depend on FEMA to
identify communities’ unmet needs after disasters are declared before
obligating HUD’s emergency funds. For the 1998 appropriations, FEMA
identified unmet needs within 2 months after HUD’s 1998 emergency funds
were appropriated. In addition, HUD’s authority to fund disaster relief is
generally granted each year through an annual emergency supplemental
appropriation, which requires that HUD fund all declared disasters with
funds made available for that year. FEMA, by contrast, has continuous
access to the Disaster Relief Fund, which provides resources to victims of
all presidentially declared disasters and emergencies. Consequently, FEMA

17
 FEMA’s Hazard Mitigation Grant Program and the Public Works portion of its Public Assistance
Program are comparable to HUD’s CDBG Disaster Assistance Program.



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                           has more flexibility than HUD because it can obtain funding as needed for
                           declared disasters.

                           Despite these differences, we believe that HUD could use some parts of
                           FEMA’s approach as the Department moves to expedite its obligations. For
                           example, in its annual performance plan, FEMA has established internal
                           performance standards to increase the timeliness of services provided to
                           its grantees. HUD has no such standards. Furthermore, FEMA recently
                           received funds totaling $230 million that were transferred from HUD’s
                           Disaster Assistance Program and that carry the same limitations placed on
                           HUD. FEMA staff have planned approaches, as yet untested, for obligating
                           the funds quickly despite the limitations. For instance, their initial
                           allocation to states requires these states to submit projects they want
                           funded within 30 days. This policy allows FEMA to make award decisions
                           soon after allocations are made.

                           HUD officials indicated that, given the limited funding available to meet
                           extensive needs, the Department requires substantial needs analysis in
                           order to make sound award decisions. HUD currently obtains this analysis,
                           in part, by requiring the states to submit action plans. However, we note
                           that HUD places no time restrictions on the states for completing these
                           plans, and states have taken from 3 months to 2 years to complete them.
                           FEMA staff are also experimenting with conditional obligations that will
                           allow them to obligate the funds to grantees that meet certain conditions.
                           In this way, they can commit the funds quickly under binding agreements
                           with grantees and still maintain control by placing conditions on the use of
                           the funds. Our work also shows that unobligated balances reported in
                           HUD’s unexpended balance report have increased in HUD’s CDBG Disaster
                           Assistance program since 1996—going from $0 in 1996 to $2.7 million in
                           1998. HUD budget officials stated, however, that as of July 13, 1999, only
                           $25,000 remained unreserved.


In One of Five Specific    You asked us to determine whether HUD had adequately supported its
Areas, HUD Does Not Have   funding in five areas that you believed might affect your deliberations on
Adequate Support for Its   the Department’s fiscal year 2000 budget request. In four of the
                           areas—disaster assistance, Schedule C and non-career Senior Executive
Budget Estimate            Service positions, rural housing and economic development, and
                           international housing—we found that HUD’s budget was justified and
                           clearly supported. However, our review showed that in the fifth
                           area—HUD’s salaries and expenses—adequate support did not exist.




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Because HUD has not systematically analyzed its requested fiscal year 2000
staffing levels, which include community builders,18 it cannot be certain
whether it has accurately estimated its need for staffing resources and
therefore the funds to pay for such resources, in fiscal year 2000. We
commend HUD for the current effort it has under way with the National
Academy of Public Administration. In this effort, HUD is testing a process
for identifying and justifying its staffing requirements. However, until the
new process is completed and implemented throughout the Department,
HUD does not have complete assurance that it has the right number of
people to achieve its mission. Thus, HUD may not have adequate support
for its proposed fiscal year 2000 staffing level of 9,383 and for its proposed
budget request of $502 million19 for the management and administration
account, which includes salaries and related expenses.

HUD’s estimated staffing level for fiscal year 2000 has fluctuated since 1997.
The Department’s 2020 Management Reform Plan initially established a
goal of reducing staffing from about 10,500 to 7,500 full-time staff by 2000,
a goal subsequently extended to 2002. In our March 1998 report on HUD’s
Reform Plan, we concluded that although HUD used historical workload
data to allocate predetermined target numbers of staff among different
locations or functions, it did not systematically analyze how many staff it
needed to carry out individual responsibilities or functions.20 Our
conclusion was consistent with that of HUD’s OIG, which reported that the
Department failed to perform a cost-benefit analysis of its 2020
Management Reform Plan and adopted a target of 7,500 staff without
analyzing the Department’s mission and projected workload. HUD later
revised the staffing level from 7,500 to approximately 9,00021 and
submitted a cost analysis to the Congress, pursuant to the Conference
Report on HUD’s fiscal year 1998 appropriations act.


18
  HUD’s 2020 Management Reform Plan created two positions, Community Builder and Public Trust
Officer, to reflect the Department’s mission of empowering people and communities and protecting
the public trust.
19
 For fiscal year 2000, the requested appropriation is $1.031 billion, which consists of $502 million in
budget authority and authority to transfer $518 million from various FHA accounts; $9 million from
GNMA; $1 million in administrative funds from CDBG (section 108); $150,000 from title VI Indian
Federal Guarantees Program Account; and $200,000 from Indian Housing Loan Guarantee Fund
Program Account.
20
 HUD Management: Information on HUD’s 2020 Management Reform Plan (GAO/RCED-98-86, Mar. 20
1998).
21
  HUD reported that it would maintain this staffing level and achieve the staffing of 7,500 by 2002 only
if (1) the Congress enacts legislation to consolidate HUD’s programs and (2) a substantial reduction
occurs in the number of troubled multifamily assisted properties and troubled public housing
authorities.



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              B-283159




              According to HUD’s OIG, the Department’s cost analysis does not relate the
              benefits attributable to community builders to the cost of maintaining a
              community builder’s workforce. HUD describes the position of community
              builder as (1) the initial point of contact for all elected officials and (2) the
              critical link for HUD’s customers to access the full range of HUD’s programs
              and services. In addition, community builders are to provide a wide variety
              of services to communities and customers in their jurisdiction but should
              have no role in the preparation, review, or approval of applications for HUD
              assistance. Furthermore, they are to perform their work in collaboration
              with Public Trust Officers, who ensure that federal funds are used
              appropriately and in compliance with laws and regulations. On June 19,
              1999, HUD was staffed by 9,157 full-time employees, including 784
              community builders—376 internal HUD-career employees and 408 external
              hires. HUD plans to hire 36 additional external community builders by the
              end of fiscal year 1999. However, without performing an analysis of the
              program that compares costs with benefits, HUD does not know if the
              program’s benefits are worth the costs of hiring and training community
              builders, particularly those hired from outside of HUD, who will serve only
              2- to 4-year terms.

              To improve its resource estimation process, HUD, with the National
              Academy of Public Administration, has developed a proposed
              methodology for resource management that will allow the Department to
              identify and justify its staffing requirements. HUD is pilot-testing the
              methodology at two field offices. After these tests are completed, HUD will
              consider implementing the methodology throughout the Department for
              determining and allocating resources.


              While we believe that HUD’s justification of its fiscal year 2000 budget
Conclusions   request is generally clear, accurate, and improved in some ways over last
              year’s, we have a number of concerns about the request. For example,
              until HUD resolves issues of contractor monitoring, the Department will not
              be ready to implement and use in fiscal year 2000 all of the proposed
              funding for the largest of its proposed new programs—Contract
              Administration. Furthermore, the total amount requested for this program
              could be reduced, given changes made by the Department to exclude
              certain properties. Regarding the other newly proposed or expanded
              programs, the Department’s capacity to take on such work will be
              uncertain until its new resource management methodology is
              implemented. In addition, the potential exists for HUD to identify
              unobligated balances in some programs that, with congressional direction,



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                      B-283159




                      could be available for other uses. However, fulfilling this potential will
                      require HUD to further scrutinize funding status and analyze needs to
                      determine whether unobligated balances could be used for alternate
                      purposes. This is particularly true in programs for which HUD is requesting
                      increases in funding but that also have had substantial unobligated
                      balances in recent years and in cases of excessive balances identified for
                      grantees in HUD’s CDBG program. Identifying excessive program balances in
                      the CDBG program would enable HUD to more efficiently enforce its own
                      regulation and prevent the accumulation of unexpended balances.
                      Moreover, because HUD’s Office of Budget relies on unverified information
                      from the program offices to prepare its reports to the Congress and to the
                      Treasury Department, the balances in those reports could be subject to
                      error. Finally, HUD may have several opportunities to improve the
                      timeliness of its disaster assistance obligations by employing some of the
                      management techniques FEMA uses to obligate funds.


                      In its fiscal year 1998 audit of HUD’s financial statements, HUD’s OIG found
Recommendations       that the Department needed to improve its processes for reviewing
                      obligation balances. To address that finding and to improve HUD’s
                      management of unexpended balances, we recommend that the Secretary
                      of Housing and Urban Development direct the Department’s Chief
                      Financial Officer and its Office of Budget to work with HUD’s program
                      offices to independently verify unexpended balances that are certified by
                      the program offices.

                      We also recommend that the Secretary direct the Office of Budget to work
                      with HUD’s program offices to

                  •   identify programs with a history of unobligated and undisbursed obligated
                      balances, as well as grantees holding excessive balances, so that action
                      can be taken to ensure the expeditious obligation and expenditure of these
                      funds and
                  •   identify and alleviate barriers to the timely obligation of funds in HUD’s
                      programs.

                      Finally, we recommend that the Secretary

                  •   provide, prior to letting new contracts for administering multifamily
                      housing assistance contracts, written assurances to the Senate and House
                      Committees on Appropriations that HUD has (1) established firm
                      monitoring procedures for overseeing the performance of contract



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                      B-283159




                      administrators and the condition of the properties they administer through
                      the Contract Administration Program and (2) amended its budget request
                      to reflect the reduction in the scope of the Contract Administration
                      Program resulting from the exclusion of certain properties from the
                      program and
                  •   adopt, where practicable, the practices used by FEMA for obligating
                      emergency funding for disaster relief—provided HUD’s authority to fund its
                      disaster assistance program does not change.


                      We provided copies of a draft of this report to HUD for its review and
Agency Comments       comment. While agreeing with much of the report, HUD identified several
                      areas that it believed should be clarified or better described.

                      First, we said in our draft report that HUD was requesting funding for 19
                      new programs and initiatives. HUD believes, instead, that it has only three
                      new programs proposed in its fiscal year 2000 budget request. We have
                      revised our report to more clearly state that by new programs and
                      initiatives we mean programs that were either not funded by the Congress
                      in fiscal year 1999 or were significantly expanded for fiscal year 2000 and
                      which will result in substantial increases in HUD’s administrative effort. As
                      a case in point, HUD refers to the Contract Administration Program as a
                      program that we characterize as new but that has been authorized since
                      1937 and currently is in operation. We believe that this program illustrates
                      our point that the substantial increase in this program’s scope will
                      necessitate corresponding increases in planning and administration that
                      will be required of HUD staff to implement and monitor this effort. HUD
                      proposes to expand the program from covering 20 percent of the
                      project-based inventory, or about 4,500 properties, to covering
                      100 percent, or nearly 25,000 properties.

                      Second, HUD disagreed with our conclusion that unexpended balance
                      reports could be subject to error. HUD said that the unexpended balance
                      data come from financial systems that are subject to Office of Inspector
                      General audit via the annual financial statement audit, which, in turn,
                      received an unqualified audit opinion from the Inspector General in
                      March 1999. While the information contained in HUD’s unexpended balance
                      reports originates from HUD’s various accounting systems, not all of these
                      systems are subject to accuracy checks and verification, even by the
                      Inspector General. During our review, HUD officials in the Office of the
                      Chief Financial Officer told us that information provided by program
                      offices for these accounting systems is accepted without being



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              B-283159




              independently verified. Moreover, as part of its audit of HUD’s fiscal year
              1998 financial statements, HUD’s Office of Inspector General audited
              unexpended balances. As part of this audit, the Inspector General reported
              an internal control weakness related to HUD’s need to improve its
              processes for reviewing obligation balances. In this finding, the Inspector
              General reported instances in which program information was incomplete
              or inaccurate. Thus, even with HUD’s unqualified audit opinion, we
              continue to believe, consistent with the Inspector General’s finding, that
              balances reported could be subject to error because that information has
              not been verified.

              Finally, HUD provided information on the roles and responsibilities of
              community builders and on the conceptual foundation of the Community
              Builder Program, which it contended should allay our concerns over the
              relative benefits and costs of this program. We continue to believe that a
              quantitative analysis of the costs and benefits of the Community Builder
              Program would provide a valuable supplement to the extensive qualitative
              information that HUD has already prepared to justify the program.

              Although HUD did not comment on our recommendations, it did provide a
              number of additional comments. The complete text of HUD’s comments
              and our responses are included in appendix V.


              To answer your questions about HUD’s fiscal year 2000 budget request, we
Scope and     reviewed the Department’s Congressional Justifications for 2000
Methodology   Estimates. We also interviewed appropriate officials in HUD’s Office of the
              Chief Financial Officer, Budget, Public and Indian Housing, Housing, and
              Community Planning and Development to obtain more information on
              planned uses for the funding requested. When available, we reviewed
              additional information, such as year-end reports of unexpended balances
              and other analyses produced by HUD. We performed our work from
              February through August 1999 in accordance with generally accepted
              government auditing standards. For a more detailed explanation of our
              objectives, scope, and methodology, see appendix I.


              As arranged with your offices, unless you publicly announce its contents
              earlier, we plan no further distribution of this report until 30 days after the
              date of this letter. At that time, we will send copies of this report to
              appropriate congressional committees; the Honorable Andrew M. Cuomo,
              Secretary of Housing and Urban Development; the Honorable Jacob Lew,



              Page 20                      GAO/RCED-99-251 HUD’s Fiscal Year 2000 Budget Request
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Director, Office of Management and Budget; and other interested parties.
We will also make copies available upon request.

If you or your staff have any questions about this report, please contact me
at (202) 512-7631. Key contributors to this report are listed in appendix VI.




Judy A. England-Joseph
Director, Housing and
  Community Development Issues




Page 21                     GAO/RCED-99-251 HUD’s Fiscal Year 2000 Budget Request
Contents



Letter                                                                               1


Appendix I                                                                          24

Objectives, Scope,
and Methodology
Appendix II                                                                         26

New Programs and
Initiatives in HUD’s
Fiscal Year 2000
Budget Request
Appendix III                                                                        32

Actual Versus
Estimated
Unobligated Balances
for HUD’s
Discretionary
Programs
Appendix IV                                                                         34

Increases in Existing
Programs Included in
HUD’s Fiscal Year
2000 Budget Request
Appendix V                                                                          36

Comments From the
Department of
Housing and Urban
Development



                        Page 22   GAO/RCED-99-251 HUD’s Fiscal Year 2000 Budget Request
                   Contents




Appendix VI                                                                                   53

GAO Contacts and
Staff
Acknowledgments
Tables             Table 1: Requested Budget Increases for Fiscal Year 2000                   11
                    Programs with Historical Unobligated Balances
                   Table II.1: New and Expanded Programs and Budget Authority                 26




                   Abbreviations

                   CDBG       Community Development Block Grant
                   FEMA       Federal Emergency Management Agency
                   FHA        Federal Housing Administration
                   HUD        Department of Housing and Urban Development
                   OIG        Office of the Inspector General
                   VA         Veterans Administration


                   Page 23                  GAO/RCED-99-251 HUD’s Fiscal Year 2000 Budget Request
Appendix I

Objectives, Scope, and Methodology


              The objectives of our review of the Department of Housing and Urban
              Development’s (HUD) fiscal year 2000 budget request were to determine
              whether (1) HUD has the capacity to implement, and adequate justification
              to support, the new or significantly expanded programs and initiatives
              included in its budget request, (2) the potential exists for HUD to use
              available unexpended balances in some programs to reduce its need for
              new funding in other programs, and (3) HUD has adequately justified its use
              of or requests for funds in the following five areas: disaster assistance,
              salaries and expenses, Schedule C and non-career Senior Executive
              Service positions, rural housing and economic development, and
              international housing initiatives

              To determine whether HUD has the capacity to implement its new or
              expanded programs, we relied on work that we completed earlier this year
              and reported in our March 3, 1999, testimony. To update this work, we
              obtained information from HUD about its staffing of key field offices and
              centers. To determine whether HUD’s justification for implementing key
              programs was adequate, we selected the largest proposed program,
              Contract Administration, to review in depth. For this program, we
              obtained and reviewed HUD’s documentation for the program’s need and its
              budget request. We also interviewed HUD budget and program officials and
              reviewed pertinent documents they provided. Finally, we obtained and
              reviewed reports by HUD’s Inspector General, as well as GAO reports and
              other studies related to contracting, and discussed these programs with
              outside interest groups.

              To determine whether HUD had unexpended balances available that it
              could use to reduce its request for new budget authority, we reviewed all
              HUD discretionary programs with reported year-end unobligated balances
              for fiscal year 1998. We also compared unexpended balance reports for
              fiscal years 1996 and 1997 to identify whether growth was occurring over
              the 3-year period. We compared these actual balances with the estimated
              balances in the Budget Appendix for the President’s fiscal year 2000
              budget request to determine whether HUD was estimating continued
              growth in fiscal years 1999 and 2000. We reviewed HUD’s congressional
              budget justification documentation to determine the extent to which HUD
              is requesting increases in funding for fiscal year 2000. With this
              information about which programs had significant, long-term, or
              increasing unobligated balances, we asked HUD to discuss the
              Department’s expectations for the future use of these balances and to
              justify carrying them over to succeeding years.




              Page 24                    GAO/RCED-99-251 HUD’s Fiscal Year 2000 Budget Request
Appendix I
Objectives, Scope, and Methodology




To understand the reasons for and implications of HUD’s unexpended
balances, we selected three programs to review—the Community
Development Block Grant (CDBG), CDBG Disaster Assistance, and Drug
Elimination programs—because of the growth in their unexpended
balances over the last 3 years and HUD’s continued requests for full
program funding. Combined, these programs accounted for about
7 percent of HUD’s unexpended balances as of September 30, 1998. We also
reviewed audit reports prepared by HUD’s Office of Inspector General on
HUD’s annual financial statements, HUD’s fiscal year 1999 annual operating
plan, and prior GAO reports on unexpended balances for HUD’s Section 8
program. In addition, we discussed unexpended balances with
representatives from HUD’s Office of Budget and from the three programs
we reviewed. We also discussed disaster assistance funding issues with
several staff from the Federal Emergency Management Agency. Finally, we
obtained data on unexpended balances from HUD’s general ledger, which
has as its source several data systems maintained by various HUD program
offices. These systems had been reviewed by HUD’s Office of Inspector
General as part of its audit of HUD’s fiscal year 1998 financial statements.
Therefore, to determine the reliability of HUD’s data, we reviewed the
financial statement report and discussed the audit work performed with
the Inspector General’s staff. We determined that the data were
sufficiently reliable for the purposes of this report.

To determine whether HUD supported its funding requests in the areas of
salaries and expenses, disaster assistance, Schedule C and non-career
Senior Executive Service employees, the Rural Housing and Economic
Development program, and the International Affairs Office, we
interviewed HUD budget and program officials as well as officials in HUD’s
Office of Personnel Management, HUD’s Office of Inspector General, and
the Office of Management and Budget. We also obtained and reviewed
reports from HUD’s Inspector General and other program documentation.

We conducted our work from February 1999 through August 1999 in
accordance with generally accepted government auditing standards.




Page 25                         GAO/RCED-99-251 HUD’s Fiscal Year 2000 Budget Request
Appendix II

New Programs and Initiativesa in HUD’s
Fiscal Year 2000 Budget Request


Table II.1: New and Expanded Programs and Budget Authority
Dollars in millions
Programs and Initiatives                                              Notes                              Budget authorityb,c
Community Planning and Development
Metro Job Links                                                       Set-asided                                         $[10]
Homeownership Zones                                                   Set-aside                                           [25]
EZ/EC Targeted Technical Assistance                                   Set-aside                                           [10]
Round II Planning and Implementation Grants                           Set-aside                                           [10]
Citizens Volunteer Housing Corps                                      Set-aside                                             [5]
Regional Connections                                                                                                        50
Regional Empowerment Zone Initiative                                                                                        50
America’s Private Investment Companies Credit Subsidy                                                                       37
America’s Private Investment Companies Guarantee Commitment Limit                                                      {1,000}
Homeless Multi-Agency Support Services Demonstration                                                                         5
Incremental Vouchers for the Homeless                                 18,000 vouchers                                    [104]
Regional Affordable Housing Initiative                                Set-asided                                          [25]
Redevelopment of Abandoned Buildings                                                                                        50
Public and Indian Housing
Incremental Rental Assistance                                         42,000 vouchers                                     243
Youth Anti-Drug Diversion Program (Drug Elimination Grant Program)                                                       [100]
Housing Programs
Contract Administration                                                                                                   209
Elderly Capital Grants/Assisted Living                                Set-aside                                          [100]
Service Coordinators                                                  Set-aside                                           [50]
Mandatory Program
LIHTC Vouchers for the Elderly                                        15,000 vouchers                                       87
Total new budget authority for line items not in brackets or braces                                                      $731

                                                                                                     (Table notes on next page)




                                              Page 26                  GAO/RCED-99-251 HUD’s Fiscal Year 2000 Budget Request
                      Appendix II
                      New Programs and Initiativesa in HUD’s
                      Fiscal Year 2000 Budget Request




                      a
                       For this table, we defined new programs and initiatives as any that the Congress did not fund in
                      fiscal year 1999; however, some of programs or initiatives may have received funding in prior
                      years. HUD believes that only three of the programs are new—Redevelopment of Abandoned
                      Buildings, America’s Private Investment Companies and Regional Connections. According to
                      HUD, the other initiatives and programs we identified represent increases or expansion within
                      existing programs.
                      b
                          Brackets indicate that a program is funded within another program in HUD’s budget request.
                      c
                       Braces indicate that the amount is a guarantee or insurance limit and not a request for new
                      budget authority.
                      d
                       HUD has asked the Congress to redirect funds from these programs to housing programs that
                      HUD believes have proved effective. HUD proposes using $10 million slated for Metro Job Links
                      to fund Habitat for Humanity/Self-Help Homeownership Program within CDBG. In addition, HUD
                      proposes redirecting $25 million earmarked for Regional Affordable Housing Initiative to the
                      HOME program. Of the total funds available, $7.5 million would be set aside to fund Capacity
                      Building for Habitat for Humanity, and the remaining $17.5 million would be provided as regular
                      HOME formula funding.

                      Source: GAO’s analysis of HUD’s fiscal year 2000 budget documents.




                      Community Planning and Development
Descriptions of New
Programs and          Metro Job Links (see note d above)
Initiatives
                      HUD is requesting $10 million for Metro Job Links, an initiative that would
                      create or strengthen a welfare-to-work infrastructure that is place-based
                      and regionally oriented to help connect persons needing employment to
                      places where jobs are located. Metro Job Links will serve families living in
                      housing developments operated by community development corporations
                      or other housing for persons with low incomes.

                      Homeownership Zones

                      HUD is requesting $25 million to fund five to eight homeownership zones
                      that will enable cities to undertake large-scale, single-family developments
                      in inner city neighborhoods. HUD maintains that the $25 million in grant
                      funds will create an estimated 1,500 new homeowners.

                      Empowerment Zones/Enterprise Communities Targeted Technical
                      Assistance

                      HUD is proposing to set aside $10 million for technical assistance and other
                      support to establish partnerships between nondesignated Empowerment




                      Page 27                                GAO/RCED-99-251 HUD’s Fiscal Year 2000 Budget Request
Appendix II
New Programs and Initiativesa in HUD’s
Fiscal Year 2000 Budget Request




Zones/Enterprise Communities and to assist the communities in
implementing their strategic plans.

Round II Planning/Implementation Grants

HUD is proposing to set aside $10 million for meritorious communities that
applied for designation in HUD’s second competition as empowerment
zones but were not chosen. The grant funds will be used to assist the
meritorious communities in implementing portions of their strategic plans.

Citizens Volunteer Housing Corps

HUD is requesting $5 million to mobilize a corps of citizens to help reclaim
and rebuild abandoned and dilapidated housing in 80 cities across the
country. According to HUD, this initiative will complement and be
coordinated with ongoing AmeriCorps programs and other volunteer
initiatives.

Regional Connections

HUD is requesting $50 million for the Regional Connections program, which
will provide competitive funding to states and partnerships of local
governments (where at least one member is a CDBG entitlement
community) to help them develop and implement new, locally driven
strategies that address regional economic and community development
needs across jurisdictions. Regional Connections will complement existing
federal programs that promote local and regional partnership, and
influence growth and investment patterns.

Regional Empowerment Zone Initiative

HUD is requesting $50 million for a new Regional Empowerment Zone
Initiative to help Empowerment Zones/Enterprise Communities link their
economic development strategies to broader metropolitan regional
economies. HUD plans to award competitive grants to help current and
future Empowerment Zones/Enterprise Communities finance regional
strategies to expand their revitalization efforts, with an emphasis on
increasing the level of youth employment.




Page 28                         GAO/RCED-99-251 HUD’s Fiscal Year 2000 Budget Request
Appendix II
New Programs and Initiativesa in HUD’s
Fiscal Year 2000 Budget Request




America’s Private Investment Companies

HUD is requesting $37 million to subsidize and secure $1 billion in privately
issued federally guaranteed loans to go with $500 million in private equity
commitments to create for-profit venture capital funds known as
America’s Private Investment Companies. This new program will
significantly expand private equity capital for the creation or relocation of
large-scale businesses in distressed central cities and rural areas. HUD
maintains that the $37 million federal credit subsidy will leverage an
estimated $1 billion in private capital, thus creating thousands of jobs
through direct job stimulus and spillovers. HUD and the Small Business
Administration will jointly administer this program.

Homeless Multi-Agency Support Services Demonstration

HUD is requesting $5 million for a pilot project that will bring together
major federal agencies and departments that have programs to serve the
homeless. The purpose of this demonstration is to test new ways to better
link and integrate these programs and the services they provide to improve
the efficiency of assisting the homeless and expanding self-sufficiency
results.

Incremental Vouchers for the Homeless

HUD is requesting $104 million to provide 18,000 new Section 8 vouchers
for homeless individuals and families. These vouchers will be used to
assist homeless persons who have become sufficiently independent to
secure permanent housing.

Regional Affordable Housing Initiative (see note d above)

HUD is requesting $25 million for the Regional Affordable Housing
Initiative, a competitive pilot program that will address critical housing
needs in targeted metropolitan regions. This program seeks to increase the
availability of affordable housing in areas with high job growth and
inadequate supplies of affordable housing for low-wage workers, as well
as to promote the creation and implementation of regional affordable
housing strategies.




Page 29                         GAO/RCED-99-251 HUD’s Fiscal Year 2000 Budget Request
Appendix II
New Programs and Initiativesa in HUD’s
Fiscal Year 2000 Budget Request




Redevelopment of Abandoned Buildings

HUD  is requesting $50 million for the Redevelopment of Abandoned
Buildings Initiative, which will provide local governments with
competitive grants to support the demolition of blighted, abandoned
buildings as part of a holistic plan to redevelop properties for commercial
use or for single-family and multifamily housing. This 3-year program will
require significant private-sector and local government commitment and
provide an average of $30,000 per building to pay for demolition,
deconstruction, debris removal, environmental remediation of soils, and
site preparation.

Public and Indian Housing

Incremental Rental Assistance

HUD is requesting $243 million to provide 42,000 new certificates and
vouchers for Section 8 incremental rental assistance. This assistance will
be used for various Section 8 activities, including the Family Unification
Program, litigation-related needs, and portability requirements.

Youth Anti-Drug Diversion Program

HUD is requesting $100 million for the Youth Anti-Drug Diversion Program.
This program will emphasize fighting drug-related activity by youths in
public housing and provide mentoring, after-school, and
family-strengthening activities.

Housing Programs

Contract Administration

HUD is requesting $209 million to procure contract administrators who will
oversee HUD’s project-based program. These non-HUD personnel will
assume many duties currently performed by HUD employees, such as
conducting annual physical inspections, reviewing projects’ financial
statements, conducting management and occupancy reviews, and
reviewing management agents among other things.




Page 30                         GAO/RCED-99-251 HUD’s Fiscal Year 2000 Budget Request
Appendix II
New Programs and Initiativesa in HUD’s
Fiscal Year 2000 Budget Request




Elderly Capital Grants/Assisted Living

HUD is requesting $100 million for a new initiative that will provide
competitive grants to existing HUD subsidized (Section 202) projects for
the elderly that convert some or all units to assisted living facilities.

Service Coordinators

HUD is requesting $50 million for service coordinators who will link elderly
or disabled residents of eligible housing with supportive services provided
by community agencies. The purpose of this program is to help elderly or
disabled persons live independently in their own homes. Service
coordinators may provide case management, serve as advocates or
mediators, coordinate group programs, or train housing management staff.
Program funds will be used to pay the salaries and fringe benefits of
service coordinators and related administrative costs.

Mandatory Program

Low Income Housing Tax Credit Vouchers for the Elderly

HUD is proposing $87 million in mandatory spending for 15,000 new
vouchers for the elderly. The vouchers will be targeted to elderly persons
with very low incomes who move into projects constructed using
Low-Income Housing Tax Credits.




Page 31                         GAO/RCED-99-251 HUD’s Fiscal Year 2000 Budget Request
Appendix III

Actual Versus Estimated Unobligated
Balances for HUD’s Discretionary Programs


Dollars in millions
                                9/30/96     9/30/97          9/30/98            9/30/99             9/30/00
                               (actual)    (actual)         (actual)         (estimate)          (estimate)
Community Planning and
Development
Community Development
Block Grant                      $726        $777              $832                  $0                 $0
Youthbuild                         2.6           .1               .4                  0                  0
Homeless Assistance Grants         888         955            1,019                   0                  0
Housing Opportunities for
                                      a
Persons with AIDS                               36               40                   0                  0
Emergency Shelter Grants             .3          .4               1                   0                  0
Supplemental Assistance for
Facilities to Assist the
Homeless                             1           1                1                   0                  0
Supportive Housing Program          31          19               17                   0                  0
Section 8 Moderate
Rehabilitation Single Room
Occupancy                          106          86               85                   0                  0
Shelter Plus Care                   16          10                6                   0                  0
HOME Investment Partnership
Grants                             182         210              236                   0                  0
                                      a           a
Brownfields Redevelopment                                        25                   0                  0
                                      a           a
Urban Empowerment Zones                                           4                   0                  0
Capacity Building for
Community Development and
Affordable Housing                   0          30                8                   0                  0
Public and Indian Housing
Annual Contributions Account     6,399       2,291            1,103                  79                  0
                                                                                       a                  a
Disaster Assistance                  0           0                3
Public Housing Capital Fund          0           0            1,611                   1                  1
Prevention of Resident
                                                                                       a                  a
Displacement                         0       3,486               72
PIH Homeownership                   38          11               11                  11                 11
Drug Elimination Grants for
Low-Income Housing                  68         281              346                   0                  0
Revitalization of Severely
Distressed Public Housing
(HOPE VI)                          539         698              630                600                 600
Indian Housing Loan
Guarantee Fund Program
Account                              .1          0                4                   0                  0
                                                                                       a                  a
Rental Assistance Program          467         463              455
                                                                                                (continued)



                                 Page 32              GAO/RCED-99-251 HUD’s Fiscal Year 2000 Budget Request
                                 Appendix III
                                 Actual Versus Estimated Unobligated
                                 Balances for HUD’s Discretionary Programs




Dollars in millions
                                9/30/96               9/30/97               9/30/98               9/30/99               9/30/00
                               (actual)              (actual)              (actual)            (estimate)            (estimate)
Native American Indian
                                       a                     a
Housing Block Grant                                                             136                      0                      0
                                       a                     a
Housing Certificate Fund                                                      3,405                   986                       0
Rental Housing Assistance              1                    1                     1                      1                      1
Housing Programs
                                                                                                          a                      a
Section 235 Restructuring             16                   16                    16
Housing for Special
                                       a                     a
Populations                                                                   2,864                  2,231                   1,543
Capital Grants Preservation
                                       a                     a                                            a                      a
Account                                                                          10
                                                                                                          a                      a
Rent Supplement                      519                 502                    496
                                                                                                          a                      a
Section 235 Refinancing                7                    7                     7
Nonprofit Sponsor Assistance
Liquidating Account                    6                    6                     6                      0                      0
Flexible Subsidy Fund                142                 179                    235                   276                     292
Nehemiah Housing
Opportunity Fund                      21                   21                     1                      0                      0
FHA General and Special Risk
Program Account                      590                 506                    443                   338                      38
Policy Development and
Research
Research and Technology                2                    3                    12                      0                      0
Fair Housing and Equal
Opportunity
Fair Housing Activities               13                    8                    23                      0                      0
Total                          $10,781             $10,603.5             $14,164.4                  $4,523               $2,485

                                 a
                                 Indicates the program was not included in the document reviewed.

                                 Source: HUD’s Unexpended Balance Reports for fiscal years 1996, 1997, and 1998 for actual
                                 amounts. HUD’s fiscal year 2000 budget request documents for estimates.




                                 Page 33                            GAO/RCED-99-251 HUD’s Fiscal Year 2000 Budget Request
Appendix IV

Increases in Existing Programs Included in
HUD’s Fiscal Year 2000 Budget Request


Dollars in millions
                                                                                      Budget authoritya
                                                                                      FY 1999          FY 2000
Program/Initiative                                                                    enacted          request            Increase
Community Planning and Development
Community Development Block Grant                                                      $4,750             $4,775               $25
Youthbuild                                                                                [43]              [75]               [32]
Homeless Assistance Grants                                                                975              1,020                 45
Housing Opportunities for Persons with AIDS                                               225               240                  15
HOME Investment Partnership Grants                                                       1,600             1,610                 10
Brownfields Redevelopment                                                                   25               50                  25
Public and Indian Housing
Regional Opportunity Counseling                                                             10               20                  10
Public Housing Operating Fund                                                            2,818             3,003               185
Section 8 Renewals/Amendments                                                            9,599            10,640             1,041
                                                                                              b                 b
Administrative Fee Increase                                                                                                       6
Housing Programs
Housing Counseling Assistance (funded in HOME)                                            [18]              [20]                 [2]
FHA Mutual Mortgage Insurance and Cooperative Management Housing                          329               491                162
Insurance Funds program account
FHA Mutual Mortgage Insurance and Cooperative Management Housing                     {110,000}        {120,000}           {10,000}
Insurance Funds program account
Government National Mortgage Association
Mortgage-Backed Securities Guarantee program account                                         9               15                   6
Mortgage-Backed Securities Guarantee                                                 {150,000}        {200,000}           {50,000}
Policy Development and Research
Research and Technology                                                                     38               40                   2
Fair Housing and Equal Opportunity
Fair Housing Assistance Program                                                             17               20                   3
Fair Housing Initiatives Program                                                            23               27                   4
Management and Administration
Salaries and Expenses                                                                     535               559                  24
Mandatory Programs
FHA General Insurance and Special Risk                                                      46             1,164             1,118
Insurance Funds liquidating
Manufactured Home Inspection and Monitoring                                                 15               16                   1
Urban Empowerment Zones                                                                     45              150                105
Total increase in new budget authority requested (Total does not include              $21,059          $23,840              $2,787
items in brackets or braces.)

                                                                                                          (Table notes on next page)




                                              Page 34                      GAO/RCED-99-251 HUD’s Fiscal Year 2000 Budget Request
Appendix IV
Increases in Existing Programs Included in
HUD’s Fiscal Year 2000 Budget Request




a
 Brackets indicate that a program is either a set-aside under another program or is funded within
another program in HUD’s budget request. Braces indicate that an amount is a guarantee or
insurance limit and not a request for new budget authority.
b
 The administrative fee is paid to public housing authorities that administer the Section 8
tenant-based assisted housing program and is included in the baseline unit cost for the Section 8
tenant-based program. Therefore, the exact amount of the aggregate fee for fiscal years 1999
and 2000 is not known. Differences in authority between fiscal year 1999 and fiscal year 2000 do
not agree with total increases because the administrative fee of $6 million is counted as a
requested increase for fiscal year 2000.

Source: GAO’s analysis of HUD’s fiscal year 2000 budget documents.




Page 35                              GAO/RCED-99-251 HUD’s Fiscal Year 2000 Budget Request
Appendix V

Comments From the Department of Housing
and Urban Development

Note: GAO comments
supplementing those in the
report text appear at the
end of this appendix.




                             Page 36   GAO/RCED-99-251 HUD’s Fiscal Year 2000 Budget Request
Appendix V
Comments From the Department of Housing
and Urban Development




Page 37                       GAO/RCED-99-251 HUD’s Fiscal Year 2000 Budget Request
                 Appendix V
                 Comments From the Department of Housing
                 and Urban Development




See comment 1.




See comment 2.




See comment 3.




                 Page 38                       GAO/RCED-99-251 HUD’s Fiscal Year 2000 Budget Request
                 Appendix V
                 Comments From the Department of Housing
                 and Urban Development




See comment 4.




                 Page 39                       GAO/RCED-99-251 HUD’s Fiscal Year 2000 Budget Request
                 Appendix V
                 Comments From the Department of Housing
                 and Urban Development




See comment 5.




                 Page 40                       GAO/RCED-99-251 HUD’s Fiscal Year 2000 Budget Request
                 Appendix V
                 Comments From the Department of Housing
                 and Urban Development




See comment 6.




Now on p. 12.




                 Page 41                       GAO/RCED-99-251 HUD’s Fiscal Year 2000 Budget Request
                           Appendix V
                           Comments From the Department of Housing
                           and Urban Development




The chart is not printed
here.


See comment 7.




The paper is not printed
here.




                           Page 42                       GAO/RCED-99-251 HUD’s Fiscal Year 2000 Budget Request
                 Appendix V
                 Comments From the Department of Housing
                 and Urban Development




See comment 8.




                 Page 43                       GAO/RCED-99-251 HUD’s Fiscal Year 2000 Budget Request
                   Appendix V
                   Comments From the Department of Housing
                   and Urban Development




See comment 9.




See comment 10.




See commnent 11.




                   Page 44                       GAO/RCED-99-251 HUD’s Fiscal Year 2000 Budget Request
                  Appendix V
                  Comments From the Department of Housing
                  and Urban Development




See comment 12.




See comment 13.




See comment 14.




See comment 15.




                  Page 45                       GAO/RCED-99-251 HUD’s Fiscal Year 2000 Budget Request
                  Appendix V
                  Comments From the Department of Housing
                  and Urban Development




See comment 16.




See comment 17.




See comment 18.




                  Page 46                       GAO/RCED-99-251 HUD’s Fiscal Year 2000 Budget Request
                  Appendix V
                  Comments From the Department of Housing
                  and Urban Development




See comment 19.




See comment 20.




See comment 21.




                  Page 47                       GAO/RCED-99-251 HUD’s Fiscal Year 2000 Budget Request
                  Appendix V
                  Comments From the Department of Housing
                  and Urban Development




See comment 22.




See comment 1.


Now p. 26.




                  Page 48                       GAO/RCED-99-251 HUD’s Fiscal Year 2000 Budget Request
                 Appendix V
                 Comments From the Department of Housing
                 and Urban Development




                 1. In response to HUD’s comment, we revised the report to more clearly
GAO’s Comments   state that by new programs and initiatives, we mean any that the Congress
                 did not fund in fiscal year 1999 or that would be significantly expanded in
                 fiscal year 2000. However, some of these programs and initiatives may
                 have received funding in prior years.

                 2. We continue to believe that new initiatives or programs that were not
                 funded last year or have gone through a period of no funding will require
                 substantial resources to plan, implement, restart, and manage. HUD’s
                 estimate of resources needed to administer these programs —one-quarter
                 of 1 percent of its salaries and expense budget, or approximately 23 staff
                 persons—seems to be an unrealistically low figure to initiate the volume of
                 new or expanded work proposed in the Department’s budget request. In
                 the Contract Administration Program, for example, HUD has assigned 19
                 staff—some full-time and some part-time—from several headquarters and
                 field offices to plan and prepare for program implementation. Some of
                 these staff will serve full-time once the program is under way. Adequate
                 administration of new or expanded programs is important to the success
                 of those programs; however, without overall increases in HUD’s staffing,
                 administering additional programs will strain HUD’s ability to properly
                 monitor its current programs, an issue that we and HUD’s Office of
                 Inspector General (OIG) have reported on in the past.

                 3. Our prior work on HUD’s management reforms shows that HUD’s efforts
                 to transfer staff to new positions and locations and train them adequately
                 are not yet complete. Moreover, we asked for evidence of staffing analysis,
                 but HUD cannot provide this information until completing its staffing pilot.
                 For these reasons, we remain concerned about HUD’s ability to initiate and
                 properly administer a significant volume of new workload.

                 4. Although HUD has had the authority to contract out housing assistance
                 payments to third-party contractors and has contracted out over
                 20 percent of the properties to third-party contractors in the past, this
                 effort was not funded in fiscal year 1999 as a separate item, as is proposed
                 in this year’s budget request. We believe that this program illustrates our
                 point that the substantial increase in scope will necessitate corresponding
                 increases in planning and administration that will be required of HUD staff
                 to implement and monitor this effort. HUD proposes to expand the program
                 from covering 20 percent of the project-based inventory, or about 4,500
                 properties, to covering 100 percent, or nearly 25,000 properties—a fivefold
                 increase in scope.




                 Page 49                       GAO/RCED-99-251 HUD’s Fiscal Year 2000 Budget Request
Appendix V
Comments From the Department of Housing
and Urban Development




5. We continue to believe that effective implementation of the Contract
Administration Program is in jeopardy. HUD states that it still has not
developed the monitoring procedures nor identified the staffing needed to
adequately implement this program and prevent oversight problems
reported on by HUD’s OIG in the past. According to program officials, HUD
currently plans to have the draft of these procedures completed by
September 1999. The need for these critical procedures was raised by
HUD’s OIG in fiscal year 1998. Without this procedural guidance and
adequate staffing, the benefits of contracting out for the administration of
housing assistance payments, which are outlined in HUD’s cost-benefit
analyses, will not be realized. Furthermore, HUD began this effort 2 years
ago, and it was originally scheduled for implementation this year.
However, as a result of input from HUD’s OIG as well as the Office of
Management and Budget designed to improve the program, HUD has
continued to delay the implementation of this effort. Because HUD is still in
the process of developing its monitoring procedures, has not identified the
staff needed to operate the program, and now expects to exclude some
properties from the program as well as to delay program implementation
until the second quarter of calendar year 2000, we question HUD’s ability to
fully implement the Contract Administration Program in fiscal year 2000 as
well as the need for the full amount of its budget request for this program.

6. HUD disagrees with our conclusion that unexpended balance reports
could be subject to error. HUD said that the unexpended balance data come
from financial systems that are subject to OIG audit via the annual financial
statement audit, which, in turn, received an unqualified audit opinion from
the Inspector General in March 1999. While the information contained in
HUD’s unexpended balance reports originates from HUD’s various
accounting systems, not all of these systems are subject to accuracy
checks and verification, even by the Inspector General. During our review,
HUD officials in the Office of the Chief Financial Officer told us that
information provided by program offices for these accounting systems is
accepted without being independently verified. Moreover, as part of its
audit of HUD’s fiscal year 1998 financial statements, HUD’s OIG audited
unexpended balances. As part of this audit, the Inspector General reported
an internal control weakness related to HUD’s need to improve its
processes for reviewing obligation balances. In this finding, the Inspector
General reported instances in which program information was incomplete
or inaccurate. Thus, even with HUD’s unqualified audit opinion, we
continue to believe, consistent with the Inspector General’s finding, that
balances reported could be subject to error because that information has
not been verified.



Page 50                       GAO/RCED-99-251 HUD’s Fiscal Year 2000 Budget Request
Appendix V
Comments From the Department of Housing
and Urban Development




7. HUD refers a Booz-Allen & Hamilton, Inc., study on the Department’s
implementation of its 2020 reform plan; however, HUD did not provide
evidence from the study to show that it has compared the costs of this
program with its benefits. Our review of a Booz-Allen study on HUD’s 2020
Implementation Review (dated March 25, 1998) shows workload and
staffing analysis for the Department as a whole, but the study does not
provide a detailed cost-benefit analysis of the Community Builder
program.

8. Our report does not question the Department’s concerted planning
efforts to provide high-caliber program planning and customer service
delivery, only the cost of the program relative to its benefits.

9. We made appropriate changes to our report to reflect this comment.

10. We made appropriate changes to our report to reflect this comment.

11. We made appropriate changes to our report to reflect this comment.

12. We made appropriate changes to our report to reflect this comment.

13. We made appropriate changes to our report to reflect this comment.

14. Although HUD may have identified some unobligated balances that were
excess and included them as offsets in the fiscal year 2000 budget
estimate, we believe that further analysis could show that additional
offsets are possible. We believe that additional analysis has potential,
especially because HUD’s fiscal year estimates of $5 billion in unobligated
balances are significantly lower than the $15 billion in unobligated
balances that HUD reported at the end of fiscal year 1998.

15. We continue to believe that a contract-by-contract analysis for the Rent
Supplement and Rental Assistance programs, which together represent
nearly $1 billion in unobligated funding, warrants a contract-by-contract
analysis to determine the programs’ true future needs. Analysis of the
project-based and tenant-based Section 8 programs, although larger
programs, revealed significant budget authority that was not needed to
meet program requirements, most of which the Congress rescinded and
reappropriated for other uses, including meeting the annual contract
renewal needs of assisted housing.

16. We made appropriate changes to our report to reflect this comment.



Page 51                       GAO/RCED-99-251 HUD’s Fiscal Year 2000 Budget Request
Appendix V
Comments From the Department of Housing
and Urban Development




17. We agree that the difference between the Community Development
Block Grant grantees’ program years and the federal fiscal year can affect
timely obligations of funds. However, according to HUD officials, it is not
the only reason block grant funds are not being obligated in a timely
manner. Moreover, HUD’s comment here is not consistent with other
comments in this attachment where the Department states, “ . . .
unobligated balance growth reflects in part the expansion of the number
of competitive set-asides in the CDBG program which thus require Notices
of Funding Availability and an extensive awards process prior to
obligation.”

18. We made appropriate changes to our report to reflect this comment.

19. We believe that even relatively small amounts of unobligated funding
should be scrutinized for whether they continue to be needed. By
highlighting unneeded amounts in all programs, HUD would be in a better
position to suggest to the Congress how funds could be moved from one
program area to another to best address the most urgent needs. Therefore,
we continue to discuss this point in our report.

20. We made appropriate changes to our report to reflect this comment.

21. We made appropriate changes to our report to reflect this comment.

22. We made appropriate changes to our report to reflect this comment.




Page 52                       GAO/RCED-99-251 HUD’s Fiscal Year 2000 Budget Request
Appendix VI

GAO Contacts and Staff Acknowledgments


                  Eric Marts, (202) 512-6771
GAO Contacts
                  Johnnie Barnes, Diane Brooks, Mike Curro, Sherrill Dunbar, Christine
Acknowledgments   Fishkin, Rick Hale, Pat Moore, and Bill Sparling made key contributions to
                  this report.




(385780)          Page 53                      GAO/RCED-99-251 HUD’s Fiscal Year 2000 Budget Request
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