MILFORD, CONN. - All the appliances had been ripped out of the kitchen, and the unpainted squares they left behind were patterned with mold. But cleaning up the last few public housing apartments at Allan Jepson Manor here will take more than new sinks and a fresh coat of paint.

These apartments need serious work, but the Milford Redevelopment & Housing Partnership doesn?t have the money to do it, despite its reputation as one of the most efficient housing authorities in the country.

Under the leadership of Executive Director Anthony J. Vasiliou, the Partnership has kept its operating costs low, implemented new accounting systems, rehabbed apartments, and even built new public housing. But the housing authority has reached the limits of what it can do while the Department of Housing and Urban Development (HUD) continues to cut the Partnership?s annual capital grant and operating subsidies.

There are 44 public housing apartments at Jepson Manor set in 11 four-unit buildings built in 1972. The Partnership is just finishing the $904,000 rehabilitation of 12 of these apartments, paid for with capital grant money from HUD and a small Community Development Block Grant from the city.

The Partnership will need another $900,000 to rehab the remaining eight apartments. Six are uninhabitable, with huge holes gouged into the walls and soot-blackened wires hanging into space.

But the Partnership?s capital funds are committed until fiscal 2008 for jobs including new roofs and new windows, pushing construction at Jepson Manor back to 2010. To make matters worse, the Partnership?s annual capital grant has steadily shrunk from $438,000 in 2002 to $376,000 in 2006.

With the shortage of cash, some of the costs of replacing equipment or what the budget calls ?extraordinary maintenance? have found their way onto the operating budget, pushing it into deficit since 2002. Other jobs simply have not been done.

A reputation for efficiency

For years, federal officials have told housing authorities that they can solve their budget problems by becoming more efficient. But the Partnership is already one of the most efficient housing authorities in the country, according to housing watchers like David Smith, president of Recap Advisors, Inc., based in Boston.

The plight of Milford, a small town on the Long Island Sound between the larger cities of Bridgeport and New Haven, provides a stark reminder that cost-cutting and proactive management can only go so far.

It also illustrates the struggles faced by many public housing agencies across the country.

The Partnership manages 464 public housing apartments. Most are federal public housing, but about a quarter, or 135 apartments, is Connecticut state public housing that receives almost no operating subsidy.

In the late 1990s, the Partnership moved toward accounting for each development separately and now manages its apartments with the help of a software program, Yardi Voyager, far ahead of HUD?s demand for ?project-based accounting.?

It has already made many of the cost-cutting measures suggested by its new accounting systems, like renovating for better energy efficiency and hiring outside firms to perform many of its functions, from painting to electrical work to managing its Sec. 8 voucher program.

Since 2000, the housing authority has cut its staff 40 percent, to just nine full-time workers and one part-time employee. Milford also does not keep a central warehouse. Instead the Partnership has a just-in-time inventory system that still allows it to complete most work orders in just three days.

Milford has been able to?just barely?hold its routine expenses steady at about $1.9 million a year or less for the last five years. That?s an extraordinary accomplishment in an era of rising costs.

But over this same period, the annual operating subsidy provided by HUD dropped from $441,000 in 2002 to $397,000 in 2006. At the same time, the income from rents, which are based entirely on tenant incomes, is unpredictable.

The Partnership?s operating budget has run in the red since 2002.

?We need a sustainable and predictable way to pay operating costs,? Vasiliou said. ?I have no more room to constrain costs.?

Hope for the future

The real help HUD could give the Partnership would be more flexibility and a stream of capital subsidy that wasn?t shrinking. ?Housing authorities have been put into a straitjacket of regulations,? Vasiliou said. He wants more control over the rents at the Partnership?s properties and the ability to apply for new construction funds like the Sec. 202 grant program to develop new seniors housing.

The Partnership recently developed new public housing, using a $3.5 million grant allocated by HUD in the 1970s to renovate 18 market-rate apartments as new public housing.

But even this development shows what the Partnership could do with more flexible resources. At one of the scattered sites, six apartments look out over a parking lot large enough for 100 cars and the half-finished foundation of an apartment building begun and abandoned more than 20 years ago.

Vasiliou won?t say what he?s planning for the site, only that he plans to gather the financing to build, with or without HUD.