HUD budget woes force local housing authorities to tighten belts

Nothing is easy about public housing: Not living in it, not running it, and not, as Michael Liu is discovering, paying for it.

As assistant secretary for public and Indian housing at the Department of Housing and Urban Development, he is working in an organization saddled with such a history of corruption and mismanagement that it made it this year onto the HBO hit show about the Mafia, The Sopranos. But his efforts to straighten out the books are causing something between heartburn and heart attacks for public housing authorities across the country.

On January 6, Liu's agency sent a notice to the nation's 3,400 locally run housing authorities cautioning them to be modest in planning how much money to spend this year. Liu said until HUD had a final 2003 appropriations bill from Congress, and could work out a way to correct a multiyear accounting problem on the HUD books-that is, until sometime in late spring or early summer-the local authorities would receive federal operating subsidies at a level 70 percent of the prior year's. Seventy percent, he later explained to National Journal, was a prudent opening move, designed to ensure that he would have enough money to meet the authorities' basic needs after he received their final budget proposals in May and a final HUD budget from Congress.

Prudent or not, the local housing authorities went ballistic. Some called their newspapers: The Boston Globe, The Philadelphia Inquirer, The Tampa Tribune, and other regional papers ran stories in the past week screaming about what was, in effect, a 30 percent budget cut. Some called their congressional delegations, some called their lawyers, and almost all started huddling with their accountants and boards of directors, trying to figure out which already-delayed maintenance projects could be put off even longer, and which security services could be trimmed or stopped entirely. Legally barred from raising rents to above 30 percent of their tenants' incomes, the housing authorities don't have many options for bringing in replacement revenues.

A week and a half later, Liu sent out an e-mail clarifying the department's funding intentions and addressing what he called "rumors" and "misinformation." Assuming, his letter said, that Congress passed HUD's requested budget, the department intended to fund the local housing authorities at 90 percent of their prior subsidy budgets. "We're trying to be sensitive to those who feel like they need this comfort level," Liu told National Journal. Authorities sighed enormous gusts of relief, and then settled back down with their books and boards to attack new budgets that were only 10 percent thinner.

This all came about because last summer, Liu's staff told him that they had been carrying a quarter-billion-dollar shortfall, running back to 2001. Stunned, he asked about his options for making up the funds. He says he was told that he could just take the money from the 2003 budget.

"Time out!" he said, aghast. "Can we do that?"

The money in question is money HUD annually gives to local housing authorities to meet some of their expenses. Internal problems with HUD's system for estimating local expenses had led to the shortfall, but Liu saw an even bigger problem in the recommended solution. "We had an environment that allowed the persons working on this to think that shortfalls were not important," he told National Journal. "They had a practice around here where they would just take money out of the subsequent fiscal year to solve the past fiscal year's problem. If you have that kind of program, without being questioned by policy, then there's no urgency" to fix it.

Slopping funds across fiscal years, Liu believed, was legal, but the habit made it hard to sell his historically messy account books to the White House Office of Management and Budget. "From a management, appropriations, and an OMB view, this was clearly not a practice that was condoned, nor something they were necessarily aware of," Liu says.

"They're in full support of what we're trying to do now, as uncomfortable as it may be, which is to straighten things out and put the program back onto a sound financial basis."

Normally, the department funds public housing agencies at between 95 and 99 percent of their requested budgets, based on the total pot size and a convoluted formula estimating the total needs nationwide. Two years ago, the department changed the funding formula, but it didn't update its accounting systems to match the funding change. As a result, estimates of local expenses for the past two years were about $250 million off.

Liu went to OMB and Congress to get permission to pull the needed money from the 2003 budget. But, he says, it's the last time. Furthermore, he's not going to seek a supplemental appropriation to replace the 2003 funds. "We are not in a position to seek additional funds at this time," he says.

Although the local housing authorities are happy they didn't suffer a 30 percent cut, and are resignedly facing only a 10 percent cut, their anger and confusion over HUD's conflicting signals won't fade away as quickly as the cut did. "It sounds like HUD in turmoil," says Sunia Zaterman, executive director of the Council of Large Public Housing Authorities. "It does start to undermine credibility."

Housing authorities say they first heard about a major shortfall in early November. (Liu disputes that timeline, indicating that he was in communication with housing groups long before then.) On January 6, they received notice to cut their budgets to 70 percent, which was followed-after all the bad press-by the January 15 "clarification" saying that 90 percent of their funds would be available, after all.

"It's the credibility of the entire system which is at risk here," says Kevin Marchman, executive director of the National Organization of African-Americans in Housing and a former assistant secretary for public and Indian housing. "I think everyone thinks this is an episode that we could have done without, and the last three or four weeks of energy should have been spent on other things."

Tim Kaiser, executive director of the Public Housing Authorities Directors Association, says that the budgetary confusion has taken a toll on HUD's already-low credibility. "They have created such chaos and confusion in the housing world-and this is just another example of miscommunication, mismanagement, and an incredibly poor way to do business."

Nobody is delighted by the 10 percent reduction, either. Many thought that they would actually see an increase in their money this year, to replace the funding they lost when the $300 million Public Housing Drug Elimination Program was dropped in 2001, at the request of HUD Secretary Mel Martinez. But, Liu points out, the new levels are commensurate with HUD's historic funding commitments.

Bob Rosenberg, who runs the Federal Receivership for the long-troubled Chester Housing Authority in Pennsylvania, was considering a week ago whether to sue HUD. Now he's looking over his books and trying to figure out how to strike $300,000-or half of his total security costs-out of his budget. He's not entirely surprised by HUD's pullback. "A lot of [local housing authorities] expected that they would eventually try to look like heroes by saying, `Oh, we've found some money, it's not 70 percent, it's 85 or 90, and everyone should be happy,' " he says.

In Minnesota, Tom Streitz, deputy executive director of the Minneapolis housing authority, estimates that he's going to lose about $1.5 million this year because of the cuts, on top of the lost $1.4 million that he used to get for security out of the Public Housing Drug Elimination Program. With those two hits on a $30 million budget, he says, he's not sure where the economies are going to come from. "Everything will be on the table" for cuts, he says, running through a folder containing his budget numbers for property management, utilities, administration, security, and maintenance.

Zaterman says she agrees with the need to put public housing on solid financial footing. But she's concerned that the residents will have to pay for HUD's administrative blunders. "I think the emerging policy from HUD is `Housing authority residents, you take the cut if we make a mistake,' " she says. She would like to see HUD seek a supplemental appropriation from Congress to cover the shortfall caused by its own accounting and estimating systems. "There doesn't seem to be, in all this mess, a clear direction from HUD on how they're going to deal with this," she says.

Some critics charge that housing authorities should be patient and let Liu sort through the budgetary morass he has inherited from the Clinton administration. "There's a little bit of crying wolf," said a Senate Republican staffer. "Every year, [the local housing authorities] complain there's not enough money for something."

But other critics say that HUD's actions of the past few weeks show a preoccupation with accounting instead of housing. If the lack of a budget was the problem, says a House Democratic staffer, HUD could have spoken to Congress. "They could have come and said, `We have a big problem because your bill was late, and we're going to do this terrible thing. Are there any assurances you can give us?' " he said.

Liu says that the accounting problems came as a surprise to many in the housing world, including himself, and he acknowledges that remedying them is going to be painful. "We've had extensive discussions with the [housing] industry, and I can understand they're unhappy," says Liu. "I can assure them that it is as difficult for me as it is for them currently."