Local housing authorities will have to keep individual budgets for each of their public housing properties starting in the 2007 fiscal year, as a result of new accounting rules imposed by the Department of Housing and Urban Development (HUD).

The implications are gigantic for housing authorities across the country. Anxious officials are now struggling to understand and comply with the new rule, first proposed in April 2005.

Only a few housing authorities keep individual budgets for their properties. Instead, most keep a single budget for their entire operation. The lack of project budgets makes it difficult to assess even basic information about public housing, such as the actual revenues and expenses associated with each property, according to HUD.

“You need to understand your assets,” said Orlando Cabrera, HUD’s assistant secretary for Public and Indian Housing.

Creating individual project budgets should also help make it possible for public housing properties to take out loans and access other subsidy programs. “In my perfect world, this is where you can allocate low-income housing tax credits and tax-exempt bonds,” Cabrera said. PHAs have already used LIHTCs on Hope VI properties, but only after they had broken the projects out of their portfolios and accounted for them separately.

Under project-based budgeting, operating subsidies will flow from HUD straight to individual properties. The housing authority will receive its administrative funding from the properties in the form of management fees.

Even though HUD believes that 2007 is a feasible deadline, some housing advocates are more skeptical. “We’re afraid that there are going to be a lot of housing authorities out there that aren’t going to be able to conform,” said Christine Siksa, a policy analyst for the National Association of Housing and Redevelopment Officials. If they don’t, some of the largest agencies stand to lose as much as $100 million in funding.

The smallest authorities, with less than 250 units, are exempted from the rule and will be allowed to treat all of their units as one project.

HUD has also promised housing authorities that they would get the “maximum amount of responsibility and flexibility in implementing project-based accounting.” But some housing advocates feel HUD has reneged on that promise.

“It is unbelievably proscriptive,” Siksa said. For example, HUD will no longer allow housing authorities to store difficult-to-find replacement parts for old machines and appliances in a central warehouse, she said.

“They want everything to be done on a just-in-time inventory,” Siksa said. “You can’t sit in Washington and tell housing authorities what they can and cannot do.”

By forcing housing authorities to keep budgets for individual projects, HUD hopes to lead housing authorities toward what it calls an “asset management” model of project management, “consistent with management norms in the broader multifamily management industry.”

In particular, HUD bases many of its assumptions on the Federal Housing Administration’s (FHA) portfolio of affordable housing properties, which serves a similar population of very low income tenants.

Using new funding formula

This FHA portfolio has already provided many of the assumptions that underlie HUD’s new formula for estimating the operating subsidy that each housing authority needs. The formula also uses information from a six-year study of public housing operating costs conducted by Harvard University.

HUD’s new formula will also go into effect in fiscal 2007, though some authorities claim the formula does not accurately predict their operating expenses. Also, many housing authorities fear that any accounting change, no matter how good it looks on paper, will in the end be used to justify cuts to their agencies. But the formula is just an “interim step” in the process of making its budgets for operating subsidies more accurate, according to HUD.

HUD’s ultimate goal is to establish funding levels based on actual and reasonable cost data by property, which is to be achieved with the implementation of asset management, according to statements by the agency.

Gathering this information will hopefully make establishing HUD’s budget for public housing operating subsidies a more objective process.

Housing authorities will need all the help they can get in the fight for funding in the federal budget. Though the President’s budget projects that the national budget deficit will shrink to half its current size by 2010, budget watchers like the Concord Coalition, a think tank based in Arlington, Va., believe the deficit will continue to grow through 2010, putting more and more pressure on legislators to cut domestic spending programs.

“Housing authorities will have a much better political argument if public housing is being run like real real estate,” said Ned Epstein, manager of JTE Realty Associates, based in North Andover, Mass. Epstein helped HUD create the project-based accounting rule.

Project-based accounting was also one of the primary recommendations of the Congressionally appointed Millennial Housing Commission for public housing, set up half a decade ago to recommend solutions to the nation’s housing problems. The Commission went even further, suggesting each project should be set up as an individually owned entity that receives Sec. 8 rental subsidies and housing tenants earning a mix of incomes, including some market-rate tenants.