Issue Date March 24, 2005 Audit Report Number 2005-PH-1008 TO: Milan M. Ozdinec, Deputy Assistant Secretary, Office of Public Housing Investments, PI FROM: Daniel G. Temme, Regional Inspector General for Audit, Mid-Atlantic Region, 3AGA SUBJECT: The Housing Authority of the City of Pittsburgh, PA, Did Not Effectively Implement Its Moving to Work Demonstration Program HIGHLIGHTS What We Audited and Why As part of our charter to review the U.S. Department of Housing and Urban Development’s (HUD) Public and Indian Housing programs, we audited the Housing Authority of the City of Pittsburgh’s (Authority) Moving to Work demonstration program to evaluate the effectiveness of the Authority’s implementation of the program. What We Found The Authority did not develop and implement an effective strategy to fully use the freedom and flexibility of the Moving to Work program. Since entering the program in November 2000, the Authority has accumulated more than $81.4 million of HUD funds over the first 4 years of its 5-year Moving to Work agreement. We estimate the Authority will accumulate an additional $21.2 million in the fifth and final year of its agreement. The audit showed the 1 Authority could more effectively use those funds to assist needy families through HUD’s traditional programs. The Authority’s original Moving to Work plan incorporated strategies to achieve the goals of the program. However, the Authority made a number of revisions to the plan and delayed implementing the plan. In the third year of the agreement, the Authority decided to operate its low-rent housing assistance programs under a conventional approach. Under the Authority’s Moving to Work agreement, HUD waived many of its traditional program requirements including those that would have ensured the Authority used HUD funds timely. The audit showed that without these traditional HUD requirements, the Authority did not plan or execute an adequate housing modernization program and it delayed using all of its available Section 8 vouchers. Further, since the Authority lacked the capacity to implement both its modernization and replacement housing programs concurrently, it focused its efforts almost entirely on its replacement housing program. As a result, it accumulated funds that could be used to modernize its more than 6,700 low-rent housing units and provide housing to nearly 3,000 households on its Section 8 and low-rent waiting lists. What We Recommend We recommend that HUD not renew or extend the Authority’s agreement beyond its scheduled termination date of December 31, 2005, and that HUD and the Authority work collaboratively to create a comprehensive workout plan to maximize the use of $78.7 million of capital funds and operating subsidies not used by the Authority while under Moving to Work. We also recommend that HUD initiate procedures to recapture $18.4 million of accumulated excess Section 8 reserves from the Authority and direct the Authority to immediately begin leasing up its unused Section 8 vouchers, valued at $5.5 million. For each recommendation without a management decision, please respond and provide status reports in accordance with HUD Handbook 2000.06, REV-3. Please furnish us copies of any correspondence or directives issued because of the audit. Auditee’s Response We discussed the report with the Authority during the audit and at an exit conference on February 3, 2005. The Authority provided written comments to our draft report on March 2, 2005. The complete text of the Authority’s response, along with our evaluation of that response, can be found in Appendix B of this report. 2 TABLE OF CONTENTS Background and Objectives 4 Results of Audit Finding 1: The Authority Did Not Implement an Effective Strategy To Use the 5 Freedom and Flexibility of the Moving to Work Program Scope and Methodology 13 Internal Controls 14 Appendixes A. Funds To Be Put to Better Use 15 B. Auditee Comments and OIG’s Evaluation 16 C. Photographs From Physical Inspections 36 3 BACKGROUND AND OBJECTIVES The Housing Authority of the City of Pittsburgh (Authority) was established as a public corporation in 1937 under the Housing Authority Law of the Commonwealth of Pennsylvania to provide decent, safe, and sanitary housing in the most efficient and economical manner, as defined by its Annual Contributions Contracts with the U.S. Department of Housing and Urban Development (HUD). A seven-member Board of Directors appoints the Authority’s Executive Director and governs the Authority. The current Executive Director is Keith Kinard. The Authority’s main administrative office is located at 200 Ross Street, Pittsburgh, PA. In 1996, Congress authorized Moving to Work as a HUD demonstration program. The program allowed certain housing authorities to design and test ways to promote self-sufficiency among assisted families, achieve programmatic efficiency, reduce costs, and increase housing choice for low-income households. Congress exempted the participants from much of the Housing Act of 1937 and associated regulations as outlined in the Moving to Work agreements. Participating housing authorities have considerable flexibility in determining how to use Federal funds. For example, participants may combine operating subsidies provided under Sections 8, 9, and 14 of the U.S. Housing Act of 19371 to fund HUD-approved Moving to Work activities. Initially, HUD’s Office of Policy, Programs, and Legislative Initiatives was responsible for implementing, managing, and monitoring the program. In May 2002, HUD transferred the responsibility to the Office of Public Housing Investments. Initially, HUD selected participants based on management performance and potential to plan and carry out a program under the demonstration. However, the Authority did not apply to HUD’s initial solicitation. Rather, language in the Departments of Veterans Affairs and Housing and Urban Development and Independent Agencies Appropriations Act of 1999 (Public Law 105- 276, 112 Stat. 2461), dated October 21, 1998, specifically named and authorized the Authority to join the demonstration. In November 2000, HUD signed a 5-year Moving to Work agreement with the Authority.2 The Agreement gave the Authority flexibility in using Federal funds, did not require the Authority to return unused funds, and significantly reduced HUD’s oversight. On October 15, 2004, the Authority submitted a request to HUD for a 5-year extension of its Moving to Work agreement. For years 2001 to 2004, HUD provided the Authority $293 million of financial assistance under its Moving to Work agreement. HUD provided • $116.4 million of operating subsidy funds, • $68.6 million of capital improvement funds, and • $108 million of rental voucher housing funds. The overall objective of our audit was to evaluate the effectiveness of the Authority’s implementation of the Moving to Work program. 1 Funds provided under Section 8 are for rental housing assistance, Section 9 funds are for housing authority operations, and Section 14 funds are for public housing modernization. 2 The term of the agreement is five years commencing on January 1, 2001, the start of the Authority’s next fiscal year. 4 RESULTS OF AUDIT Finding 1: The Authority Did Not Implement an Effective Strategy To Use the Freedom and Flexibility of the Moving to Work Program The Authority did not implement a workable strategy for a successful Moving to Work program and could better use $102.6 million by reverting to traditional HUD programs. The Authority did not use the freedom and flexibility of Moving to Work to design and implement plans to achieve the larger goals of the program. This occurred because the Authority’s leadership changed during the term of its Moving to Work agreement, resulting in a major shift in the focus of the program. Additionally, the Authority lacked the capacity to implement both its modernization and replacement housing programs concurrently. As a result, it accumulated funds that it could have used to modernize its more than 6,700 low-rent housing units and provide housing to nearly 3,000 households on its Section 8 and low-rent waiting lists. Authority Did Not Use the Flexibility the Program Provided From 2001 through 2004, the Authority was not able to successfully develop and implement a workable strategy to take advantage of the freedom and flexibility available under the Moving to Work demonstration program to design and test innovative ways to promote self-sufficiency among assisted families, achieve programmatic efficiency, reduce costs, and increase housing choice for low-income households. Instead, the audit showed the Authority is operating traditional housing assistance programs that neither use nor require the freedom and flexibility of Moving to Work. Further, although the Authority has reverted to traditional programs, it has had difficulty implementing those programs as well. The Authority’s leadership changed during the term of its Moving to Work agreement, and with it came a major shift in the focus of the program. Contrary to the approach taken by its predecessors, the new leadership took a more traditional view of providing housing assistance to moderate- and low-income families. For example, the Authority decided not to pursue the core component of its original plan, which was to create a separate nonprofit entity to manage its properties. Rather, the Authority believed that it could more effectively deliver all of the required property management services and that it was not necessary to contract for property management. 5 Authority Accrued $56.8 Million by Not Modernizing Public Housing The audit showed the Authority accumulated $56.8 million in capital funds because it planned and executed only a minimal housing modernization program starting in 2001. Although the Authority increased its planned modernization in the third year of the agreement, it did not spend the modernization funds in accordance with its plans. Congress exempted the Authority from much of the Housing Act of 1937 and associated HUD regulations as outlined in its November 17, 2000, Moving to Work agreement. The Authority had considerable flexibility in using its Federal funds. It could combine subsidies provided under Sections 8, 9, and 14 of the U.S. Housing Act of 1937 to fund HUD-approved Moving to Work activities. Rather than putting the funds to work to assist families in need of housing, however, the Authority allowed its modernization program to stagnate. The relaxation of requirements under Moving to Work allowed the Authority to plan and execute a minimal modernization program without penalty. Under normal procedures, HUD generally would have required the Authority to obligate its modernization funds within 2 years from the date of the grant and spend the funds within 4 years of that date. HUD normally assesses housing authorities a 1-month penalty for violating the 2-year obligation rule. Rather than modernize, the Authority concentrated on using funds that HUD provided for replacement housing. These funds were subject to HUD’s normal obligation and expenditure rules. The following chart illustrates the Authority’s usage of replacement housing funds that HUD provided in years 2001 through 2004. Replacement Housing Fund Usage as of 9/30/04 $8,000,000 $6,000,000 Grant amount $4,000,000 Amount disbursed $2,000,000 $0 2001 2002 2003 2004 Year The following chart illustrates the Authority’s usage of capital funds HUD provided for years 2001 through 2004. 6 Capital Fund Use as of 9/30/04 $20,000,000 $15,000,000 $10,000,000 Grant amount Amount disbursed $5,000,000 $0 2001 2002 2003 2004 Year As shown in the charts, starting in 2001, the Authority concentrated its focus on its replacement housing funds and did not use $56.8 million of capital funds HUD provided. Condition of the Authority’s Public Housing Was Poor Although the Authority had the flexibility to use HUD funds in innovative ways, it accumulated large surpluses of these funds despite the fact that many of its public housing developments needed repairs. In 2003, HUD’s Real Estate Assessment Center conducted physical inspections of the Authority’s 44 developments and assigned scores below 70 out of a possible 100 points to 16 of the 44 developments (36 percent) under the Public Housing Assessment System. These low scores indicated the condition of the housing units was not good. The following chart shows the physical assessment scores for these developments for 2003. 7 Property Units 2003 Score Addison Terrace 775 69 Northview Heights 666 68 St. Clair Village 635 69 Garfield Heights 588 67 Bedford Dwellings (project ID #1002) 417 62 Hamilton-Larimer/Auburn * 322 41 Allegheny Dwellings 281 68 Addison Addition 186 69 Bedford Dwellings (project ID #1008) 185 50 Homewood North 135 67 Glen Hazel Heights Low Rise 104 61 Scattered Sites (project ID #1022) 82 60 Broadhead Manor 63 68 Scattered Sites (project ID #1039) 59 56 Glen Hazel Heights * 39 60 Scattered Sites (project ID #1050) 25 54 * development scheduled for demolition We performed physical inspections of 23 low-income housing units located in 4 of the developments listed above, which were not scheduled for demolition, and noted serious deficiencies in 10 of the 23 units inspected (43 percent). We noted numerous instances in which units were run down and an excessive number of units that were vacant and boarded up. Our inspections further demonstrated that many of the Authority’s developments were in need of repair. Appendix C contains photographs from our physical inspections documenting the conditions we found. The Authority's lack of attention to its housing modernization program may constitute substantial default of its Consolidated Annual Contributions Contract 4 with HUD. The Consolidated Annual Contributions Contract requires the Authority to carry out modernization in a timely, efficient, and effective manner and to maintain and operate its projects in a decent, safe, and sanitary manner. The Authority’s Moving to Work agreement superseded the terms and conditions of its Annual Contributions Contracts but only to the extent necessary for the Authority to implement its Moving to Work 4 Part B, section 17, “Notices, Defaults, Remedies” 8 plan. Therefore, although the Authority was participating in Moving to Work, it was also bound by the terms of its Consolidated Annual Contributions Contract with HUD to sustain its housing modernization program. Authority Accumulated $26.9 Million Needed To Assist Low- Income Families The Authority increased its Section 8 and operating fund reserve accounts by $26.9 million from 2001 through 2004. In large part, the Authority accumulated these large reserves because it did not fully use all of the Section 8 vouchers that HUD provided. The Authority did not lease up about 1,300 vouchers despite the fact that there were more than 1,700 families on its Section 8 waiting list and more than 6,600 habitable, vacant rental units in the Pittsburgh metropolitan area.5 Rather than allowing those funds to accumulate, the Authority could have used them to assist low-income families. Similarly, the Authority did not use all of the operating funds HUD provided. The following chart shows the balances in the Authority’s operating and Section 8 reserve accounts for 2001 through 2004 and the Authority’s projection for 2005.6 Reserve Balances as of 12/31 $25,000,000 $20,000,000 Public Housing $15,000,000 reserves $10,000,000 Section 8 reserves $5,000,000 $0 Beg. 2001 2002 2003 2004 2005 bal. As the chart above also shows, the Authority’s reserve fund balances increased significantly while the Authority was under Moving to Work. Under the agreement, the Authority does not have to abide by HUD’s Section 8 reserve account limits, which, in 2004, limited the Authority to a Section 8 reserve equal to 5 Source: U.S. Census Bureau, Census 2000. The actual number of potential units will be less because not all of the units will meet HUD’s housing quality standards and some landlords may not choose to participate in the program. 6 Source: Authority’s 2001 through 2005 Moving to Work plans and reports. 9 one-twelfth of the annual subsidy. HUD does not limit housing authority operating fund reserves. Therefore, considering the Authority had complete freedom and flexibility to use all of the funds HUD provided under Moving to Work we conservatively estimated that the amount of excess reserves the Authority accumulated under the program was $24.6 million. The Authority Lacked Capacity To Execute Its Programs We believe the Authority lacked the capacity to implement its various low-income, modernization, and replacement housing programs concurrently. The Authority did not hire staff to replace the personnel it lost after it developed its original Moving to Work plan. Further, the Authority’s overall staffing has been on the decline. It had 593 employees as of December 2002 and 557 employees as of September 2004. Moreover, the Authority has not filled the position of Chief Operating Officer, which has been vacant since February 2004. Also, because of the limited expertise available in-house, the Authority had to hire outside consultants to implement significant components of its revised Moving to Work plans. However, it hired the outside consultants in June 2004, 3½ years into the Authority’s 5-year Moving to Work agreement. HUD’s Consultant Noted Similar Deficiencies HUD hired a consulting firm to conduct onsite monitoring reviews of the Authority’s Moving to Work program. Based on its November 2003 onsite monitoring visit, the firm reported to HUD that the Authority was doing little that it could not do without Moving to Work. The consultant reported the Authority did not • Develop a definitive plan of action to address distressed and high-capital need projects over the next 5 years, • Correct major deficiencies with respect to the delivery of effective and efficient property management services, • Prevent its operating costs from being substantially higher than the other providers of subsidized housing in the area, • Develop a unique case management plan in either the resources committed or in the program structure, and • Demonstrate it leveraged the potential freedoms under Moving to Work to advance the Authority’s larger goals. 10 HUD Funds Totaling $102.6 Million Could Be Put to Better Use By taking steps now and transitioning the Authority back to normal HUD program rules and regulations as quickly as possible, funds totaling $102.6 million can be put to better use; that is, $81.4 million of funds already made available to the Authority under Moving to Work but not used and $21.2 million of additional funds we estimated HUD will provide the Authority in 2005, the fifth and final year of the Authority’s Moving to Work agreement. The audit demonstrated the need for the Authority to upgrade and improve its housing stock using the funds HUD provided. The Authority needs to aggressively address its distressed housing developments and ensure it fully uses its Section 8 vouchers to assist families in need. The following table shows the details of funds that the audit showed could be put to better use. Amount Fund Type (in Millions) Source Capital $56.8 Accumulated from 2001–2004 Section 8 $18.4 Accumulated from 2001–2004 Operating $ 6.2 Accumulated from 2001–2004 Capital $15.7 2005 block grant (estimate based on 2004 grant) Section 8 $ 5.5 2005 grant (estimate based on the Authority’s action to lease up 1,031 unused vouchers) Total $102.6 Recommendations We recommend that the Office of Public Housing Investments: 11 1A. Not renew or extend the Authority’s agreement beyond its scheduled termination date of December 31, 2005. 1B. Work collaboratively with the Authority to develop a comprehensive workout plan to immediately transition the Authority from Moving to Work. The comprehensive plan should include targeting specific housing developments for renovation, rehabilitation, and/or demolition; specific timelines for implementation; a definite completion date; limited fungibility; and the recapture of any unused funds, thereby putting $78.7 million of funds to better use. 1C. Recapture accumulated excess Section 8 reserves and, thereby, put $18.4 million of funds to better use. 1D. Direct the Authority to immediately begin leasing up its unused Section 8 vouchers and, thereby, put $5.5 million of funds to better use. 1E. Evaluate the Authority’s staffing to determine if it has the capacity to simultaneously carry-out its HUD programs, and if not, take appropriate corrective actions. 12 SCOPE AND METHODOLOGY We performed the audit of the Authority from May 2004 through February 2005. The audit was conducted in accordance with generally accepted government auditing standards and included tests of internal controls that we considered necessary under the circumstances. The audit covered transactions representative of operations current at the time of the audit and included the period January 2000 through June 2004. We expanded the scope of the audit as necessary. We reviewed applicable guidance and discussed operations with management and staff personnel at the Authority and key officials from HUD’s Pittsburgh area office. To determine that the Authority did not effectively implement its Moving to Work program we • Reviewed HUD’s Moving to Work agreement with the Authority. • Reviewed the Authority’s Annual Moving to Work plans for years 2001 through 2005 and its Moving to Work reports for years 2001 through 2003. • Interviewed Authority personnel. • Reviewed files, records, plans, and other reports maintained by the Authority. • Reviewed Real Estate Assessment Center inspection summary reports and performed physical inspections of 23 units at four Authority-owned low-income housing projects. • Interviewed personnel from HUD’s Office of Public Housing Investments. • Interviewed representatives from the consulting firm hired by HUD to provide support services, including review and comment on the Authority’s Moving to Work annual plans and reports and onsite monitoring services. • Reviewed files, records, plans, and other reports maintained by HUD. • Interviewed a key former Authority employee who was instrumental in the development of the Authority’s initial Moving to Work plan. 13 INTERNAL CONTROLS Internal control is an integral component of an organization’s management that provides reasonable assurance that the following objectives are being achieved: • Effectiveness and efficiency of operations, • Reliability of financial reporting, and • Compliance with applicable laws and regulations. Internal controls relate to management’s plans, methods, and procedures used to meet its mission, goals, and objectives. Internal controls include the processes and procedures for planning, organizing, directing, and controlling program operations. They include the systems for measuring, reporting, and monitoring program performance. Relevant Internal Controls We determined the following internal controls were relevant to our audit objectives: • Policies, procedures, control systems, and other management tools the Authority established to effectively implement its Moving to Work program. We assessed the relevant controls identified above. A significant weakness exists if management controls do not provide reasonable assurance that the process for planning, organizing, directing, and controlling program operations will meet the organization’s objectives. Significant Weaknesses Based on our review, we believe the following item is a significant weakness: • The Authority did not establish adequate controls to ensure it effectively implemented its Moving to Work program. 14 Appendixes Appendix A FUNDS TO BE PUT TO BETTER USE Recommendation Funds To Be Put Number to Better Use 1/ 1B $78,700,000 1C $18,400,000 1D $5,500,000 Total $102,600,000 1/ “Funds to be put to better use” are quantifiable savings that are anticipated to occur if an Office of Inspector General (OIG) recommendation is implemented, resulting in reduced expenditures at a later time for the activities in question. This includes costs not incurred, deobligation of funds, withdrawal of interest, reductions in outlays, avoidance of unnecessary expenditures, loans and guarantees not made, and other savings. 15 Appendix B AUDITEE COMMENTS AND OIG’S EVALUATION Ref to OIG Evaluation Auditee Comments Comment 1 Comment 2 “ “ “ “ “ “ 16 Comment 3 Comment 2 Comment 4 “ 17 Comment 5 “ “ “ “ “ “ 18 Comment 5 “ “ “ “ “ 19 Comment 5 “ “ “ “ “ Comment 6 “ “ 20 Comment 6 Comment 7 “ Comment 8 Comment 9 “ “ 21 Comment 9 “ Comment 10 Comment 11 Comment 12 Comment 13 22 Comment 10 Comment 14 Comment 15 “ Comment 16 Comment 17 23 Comment 18 “ “ “ “ Comment 19 24 Comment 19 Comment 2 Comment 20 25 Comment 20 Comment 21 “ “ “ 26 Comment 22 Comment 23 Comment 24 “ Comment 25 Comment 1 27 Comment 2 “ “ “ Comment 23 28 Comment 10 29 Comment 10 C 30 OIG’s Evaluation of Auditee Comments Comment 1 Under the Moving to Work program, Congress exempted the Authority from much of the Housing Act of 1937 and associated HUD regulations as outlined in its November 17, 2000, Moving to Work agreement. Our audit objective therefore, was not to evaluate compliance, but to evaluate the effectiveness of the Authority’s implementation of the Moving to Work program. In response to our audit objective, we concluded that the Authority did not implement a workable strategy for a successful Moving to Work program and could better use $102.6 million by reverting to traditional HUD programs. Comment 2 The Authority did not provide adequate evidence to support these statements. Contrary to the Authority’s assertion, we have a full understanding of the Authority’s planned strategies. However, the audit evidence showed that none of the Authority’s strategies were effectively implemented. In addition, a recent November 2004 monitoring review from HUD’s consultants continued to support our audit findings that the Authority has taken little advantage of opportunities for creativity and flexibility available under the program. The consultant concluded that, as the Authority enters its final year under its 5-year Moving to Work agreement, most elements of its capital program remain well behind schedule, few innovative operational changes have been implemented, and no meaningful planning for the transition from the program appears to have occurred. Comment 3 Determining funds put to better use is a matter of professional audit judgment based on the audit evidence. The audit concluded based on the audit evidence that the Authority did not implement a workable strategy for a successful Moving to Work program and could better use $102.6 million by reverting to traditional HUD programs. The audit also concluded the Authority accumulated funds that it could have used to modernize its more than 6,700 low-rent housing units and provide housing to nearly 3,000 households on its Section 8 and low-rent waiting lists. The report does not opine that the best use of funds is modernization and leasing up vouchers as stated in this reply. It is our professional audit judgment however, that using HUD funds to modernize and provide housing to needy families is substantially preferable to the Authority’s current practice of accumulating funds without a workable strategy to use them effectively. Comment 4 The Authority cites several factors that it believes were beyond its control that caused it to delay implementing the Moving to Work program. None of the factors cited in any way justify the Authority’s inability to implement a workable strategy for a successful Moving to Work program over a 4-year period. Many of the issues the Authority cited are relatively minor, and others were definitely within its control. For example, it was within the Authority’s control to propose its initial plans, and it was within the Authority’s control to modify them in year- 3. In addition, it is incomprehensible that the Authority would cite our audit, or brief visits by the HUD consultant, as justification for not adequately implementing its program. The Authority had a window of opportunity, which it 31 did not adequately use as evidenced by the significant amount of funds it accumulated. An extension to the Authority’s Moving to Work agreement is not justified based on the Authority’s lack of performance under the previous 5-year agreement. On the contrary, the Authority needs to begin working collaboratively with HUD to develop a comprehensive workout plan to immediately transition from Moving to Work. Comment 5 Our audit objective did not require us to perform a detailed comparison of the Authority’s original Moving to Work plan to the one it proposed in year-3. Rather, our audit objective was to evaluate the overall effectiveness of the Authority’s implementation of the Moving to Work program. The audit showed that neither plan was adequately implemented. Regardless of the merits of each plan, our audit showed that overall the Authority did not implement a workable strategy for a successful Moving to Work program. Comment 6 Although the Authority hadn’t passed the traditional deadline for expenditures of its capital funds, our audit showed it missed the deadline for obligating those funds from 2001 and 2002, and the Authority was not likely to meet the obligation deadline for its capital funds from 2003. These funds would have been subject to a penalty. Under traditional procedures, HUD would have required the Authority to obligate its modernization funds within 2 years from the date of the grant. Under traditional procedures, HUD would have also assessed the Authority a 1-month penalty for violating the 2-year obligation rule. Comment 7 Our audit objective was to evaluate the effectiveness of the Authority’s implementation of its Moving to Work program. Therefore, we did not perform a detailed review of funds that were not applicable to the program. However, we acknowledge the Authority expended substantial capital funds that HUD provided prior to its participation in the Moving to Work program. Comment 8 In order to quantify the effect of the Authority’s inability to implement a workable strategy for a successful Moving to Work program, it was necessary to calculate the amount of funds it had unnecessarily accumulated while under the program. Under traditional procedures, HUD would have assessed the Authority a penalty for not obligating capital funds within 2 years from the date of the grant. This penalty would have applied to years 2001 and 2002 and would have likely applied to 2003. The audit concluded the Authority could have used these funds to modernize its more than 6,700 low-rent housing units and provide housing to needy families. Comment 9 The audit clearly showed the Authority concentrated its activity on using replacement housing factor funds, which were subject to HUD’s normal rules and regulations. The modernization funds provided under Moving to Work were not subject to HUD’s normal rules and regulations. While the Authority planned to use increased levels of modernization funds in 2003, 2004 and 2005, the audit found that as of September 2004 it had not done so. 32 Comment 10 As our report illustrates, the Authority did not place a high emphasis on using its available funding to modernize its existing projects. For example, the Authority had not obligated or used the majority of its available capital funds since 2001 and as result accumulated more than $56 million of capital funds from 2001 through 2004. It will also likely accumulate another $15 million in 2005. We listed the inspection scores for 16 of the Authority’s 44 projects to simply illustrate that many projects are in need of repair and, as appropriate, should be modernized with the capital funds HUD provided the Authority. We did not intend to imply the physical inspection scores were the sole indicator as to whether a project should be modernized or not. The Authority has a responsibility to ensure all occupied projects meet HUD’s minimum standards at all times by routinely maintaining the units. However, when items that ordinarily would be performed on a regular basis in the upkeep of a property become substantial, modernization of the property should be considered. Further, by performing routine maintenance, and paying close attention to exigent health and safety deficiencies, an Authority can certainly significantly improve its inspection scores on its properties; however, the property may still be a good candidate for modernization. Also, the scoring methodology HUD uses to assess the physical condition of a unit/property has changed a number of times since 2000. As such the scores in and by themselves may not be a good indicator as to whether the overall condition of a property has improved or declined from year to year. For example, in 2002, the inspectable areas were reduced from five to two. This change caused property scores to fluctuate significantly. The fact remains that HUD provided significant modernization funds to the Authority that it failed to use to make much needed physical improvements to existing public housing units and for improvements to its management and operational practices. Comment 11 Our report states the Authority’s units are in poor condition, but does not direct the Authority to modernize these communities. Our inspections merely validated the fact that many of the projects administered by the Authority were in need of repair and may be good candidates for modernization. We recommended that HUD and the Authority work together to develop a comprehensive workout plan but did not recommend how the funds should be spent. Further, we used a July 29, 2004, Moving to Work Implementation Status Report, provided to us by the Authority, to identify the developments scheduled for demolition. The report did not show the Bedford Dwellings Addition development was scheduled for demolition. Comment 12 Contrary to the Authority’s statement, only one photo presented in the report was from a vacant unit. Nevertheless, the photographs merely provided examples of the poor conditions we observed. Comment 13 The report does not direct the Authority to modernize these units or modernize in general. The photos merely document conditions we observed; that the Authority’s housing developments were in need of repair. 33 Comment 14 According to Section 17 (B) of the Annual Contributions Contract, failure to carry out modernization in a timely, efficient, and effective manner may be grounds for default of the contract. Modernization should be an ongoing activity. Although the Authority states that its physical assessment scores are passing scores, some of the Authority’s properties did not in fact have passing scores. Moreover, low scores in 2003 for 16 of its 44 developments indicated the overall condition of the housing units was not good. Lastly, the Authority should not be satisfied with scores that are merely passing, especially in light of the fact that significant HUD funds were available to improve its developments. Comment 15 The statements made in the report are accurate. The Authority accumulated reserves in large part because it did not fully use all of the Section 8 vouchers and funding that HUD provided. Further, the Authority did not provide adequate evidence to support its statement that it was serving 5,219 families with Section 8 vouchers as of February 2005. Comment 16 The Bureau of the Census categorized the units as habitable. As noted in the audit report, we acknowledge that some of the units may not be desirable for Section 8 tenants. However, the Authority provided no evidence to support its assertion that the majority of the housing units in the City of Pittsburgh are not favorable for leasing under the Section 8 Program. Comment 17 Under Moving to Work, the Authority had flexibility to use operating fund reserves to help families in need of assistance. The accumulation of $81.4 million over the first 4 years of its Moving to Work agreement and possibly another $21.2 million in the final year of its agreement indicated the Authority was not adequately serving the families it was intended to serve. In addition, the Authority’s claim that it accumulated the funds as a result of prudent trimming of excess costs, careful planning, and will result in benefiting low-income families in Pittsburgh for decades is unsupported. Comment 18 Our audit showed that none of the Authority’s strategies, regardless of terminology, were effectively implemented. Further, most of the Authority’s claims that it proceeded with its efforts to reorganize, streamline operations, and address weaknesses over the years is inaccurate and misleading. As the audit demonstrated, the Authority was not able to develop and implement a workable Moving to Work strategy during its first 4 years under the program and in fact significantly revised its Moving to Work plan several times. As such it is understandable why the Authority had a difficult time in deciding what positions were needed to implement its Moving to Work program. The fact that the Authority created a number of positions in early 2004 does not demonstrate it was based on a well thought out strategy nor that it will be effective in moving its program forward. Also, it should be noted that HUD’s consultant concluded the Authority lacked the capacity to carry out a successful program. Comment 19 The fact that the Authority claims it hired an outside consultant in April 2001 is irrelevant. The Authority significantly revised its Moving to Work plan in 2003. Further, as the Authority acknowledged, it only recently procured the services of 34 two firms in June 2004. This was well into its fourth year of its Moving to Work agreement with HUD. Comment 20 Determining funds put to better use is a matter of professional audit judgment based on the audit evidence. Accumulating significant amounts of funds in an environment of unprecedented freedom and flexibility does not adequately serve families in need of housing assistance in the Pittsburgh area. The Authority accumulated $81.4 million over the first 4 years of its Moving to Work agreement and may accumulate another $21.2 million in the final year of its agreement. We recommended the Authority use these funds to assist families by working collaboratively with HUD to develop a comprehensive workout plan to immediately transition the Authority from Moving to Work. Comment 21 It is not prudent to extend the agreement for another 5 years considering the Authority’s lack of progress in its first 5 years. Over the first 4 years, the Authority accumulated $81.4 million, and it may accumulate another $21.2 million in the final year of its agreement. As an alternative, we recommend the Authority keep most of the available funds, because there is a need, and work collaboratively with HUD to put the funds to use as quickly as possible; certainly within an additional 5 years because there are families waiting for assistance. Comment 22 The Authority believes the results of the review actually support its request for an extension to its agreement. However, the audit showed the Authority does not need the freedom and flexibility of Moving to Work to execute the program it’s set forth. Moreover, given the freedom and flexibility, the Authority did not use $81.4 million of HUD funds to assist families in need of housing and it may accumulate another $21.2 million in the final year of its agreement. Comment 23 As we point out in our report the Authority has not been able to develop and implement a workable strategy during its first 4 years under its 5-year agreement, and has in fact significantly changed its strategy a number of times. The mere fact the Authority developed another plan does not guarantee it will be successful. A comprehensive workout plan needs to be coordinated with and approved by HUD. Comment 24 The Authority did not provide adequate evidence to support these statements. Nevertheless, the Authority accumulated large reserves because it did not fully use all of the Section 8 vouchers and funding that HUD provided. Comment 25 The Authority did not provide adequate evidence to support these statements. Further, the Authority needs to work collaboratively with HUD to evaluate its capacity and take appropriate actions as needed. 35 Appendix C PHOTOGRAPHS FROM PHYSICAL INSPECTIONS Damaged Refrigerator (St. Clair Village) Damaged Kitchen Area (St. Clair Village) 36 Damaged Bathroom Ceiling (Garfield Heights) Damaged Bathtub (Garfield Heights) 37 Peeling Paint on Ceiling (Garfield Heights) Damaged Wall (Addison Terrace) 38 Damaged Kitchen Cabinet (St. Clair Village) Boarded-up Housing Units (St. Clair Village) 39
The Housing Authority of the City of Pittsburgh, PA, Did Not Effectively Implement Its Moving to Work Demonstration Program
Published by the Department of Housing and Urban Development, Office of Inspector General on 2005-03-24.
Below is a raw (and likely hideous) rendition of the original report. (PDF)