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(last updated 4.10.15)

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HUD Releases HCV Administrative Fee Study

On, Wednesday, April 8, HUD’s Office of Policy and Development and Research (PD&R) released the long-awaited findings of the Housing Choice Voucher (HCV) Administrative Fee Study. This study measures the cost of operating a high performing HCV program and recommends a new formula for calculating and distributing administrative fees to PHAs. Wednesday’s release includes both an executive summary and the draft final report, which can be accessed on the HUD USER website.  On April 17, from 11 a.m. - 12:30 p.m. ET, HUD will conduct a briefing about the study. The public briefing will be webcast live and will also be recorded for those who will be unable to watch it at that time.  To register for the briefing, click here.  Following the briefing, HUD will provide each PHA with a projection of its admin fee eligibility under the proposed formula.

In mid-May, HUD is anticipating putting out a Notice of Proposed Information Collection in the Federal Register to solicit reactions to the study. Then, in the late fall or early winter of 2015, HUD will publish a proposed rule implementing the new formula. By the end of FY 2016, HUD anticipates promulgating a final rule in time for implementation in CY 2017.  HUD officials said the Department does not plan to seek any changes to permanent law before moving forward with implementation. Currently, Congress includes in its annual HUD appropriations acts instructions to use the pre-QHWRA admin fee rates. NAHRO anticipates that the Congress will, in its FY 2017 appropriations act, substitute language authorizing HUD to implement the formula in the regulations.  As a result, NAHRO anticipates that 2017 will be the first year in which admin fees are based on the new formula.

Study Design and Findings

To gather data for the Admin Fee Study, the research team measured the time that staff at 60 high-performing PHAs devoted to various HCV program administration activities.  Based on this sample, the researchers calculated the full administrative costs of each of these agencies.  Then, the study team performed a statistical analysis of potential cost drivers to determine which factors had the most impact on PHA costs.  After testing a universe of 50 cost drivers, the researchers developed a proposed formula which includes seven of these factors.  This formula, if adopted, would be the basis upon which HUD would calculate each PHA’s administrative fee rates.

To measure the time PHA staff spent on each activity, staff from each of the PHAs included in the sample were required to report what activity they were working on 12-15 times per day during an eight-week period.  Based on this data, the research team found that, on average, the study PHAs spent 13.8 hours per voucher under lease per year on frontline HCV activities including intake, lease-up, annual recertifications and inspections.  Of this time, the study found that the largest share is devoted to ongoing occupancy activities.

 HCV Chart from NAHRO website

 
The study found that the average CY 2013 administrative cost per voucher for the study PHAs ranged from $42.06 to $108.87 per unit month leased (UML).  However, the study also found that the distribution of funding under the current formula diverges widely from the actual costs measured.  During the study period, despite facing deep prorations, the study found that actual fees received covered between 45 and 115 percent of study PHAs’ actual costs.  In other words, while some agencies were paid less than half of their costs, other agencies received more funding than their actual costs, even under prorations of 69 to 79 percent.

The largest component of the study was an effort to explain the observed variation in costs and identify the factors that drive these costs.  In proposing a new formula, the study team identified the following principles: 1) the formula should be based on the findings of the study; 2) the formula components should have a strong theoretical basis; 3) the formula should be based on existing datasets; 4) the formula should be easily understood; 5) the formula results should be predictable from one year to the next; and 6) the final formula should be phased in to protect PHAs from large year-over-year changes.

The research team found that the largest share of costs, explaining 35 percent of the observed variation, were attributable to program size and local wages.  After testing several different ways of measuring program size, the researchers determined that the most statistically significant manner was to create a binary variable, distinguishing only between PHAs with 500 or fewer vouchers and those with more than 500 vouchers.  To show the impact of local wage rates, the study team chose the Bureau of Labor Statistics Quarterly Census of Employment and Wages (QCEW).

The team also determined that the cost of PHA employee health insurance, the percentage of households with earned income, the PHA’s new admissions rates, the average rents in the areas where a PHA’s voucher participants live and the percentage of HCV households living more than 60 miles from the PHA’s headquarters were also major drivers of administrative costs.  Together, these seven variables make up the proposed formula.  However, the proposed formula is only able to predict 65 percent of the variation in the data collected.  In other words, the formula is not able to predict fully one-third of the variation in PHAs’ administrative costs.  NAHRO is deeply concerned that such a high level of uncertainty could result in administrative fee rates that fall significantly lower than actual PHA costs. 

To prevent excess volatility, the proposed formula would look at some of the cost drivers over a span of multiple years. Although HUD would still calculate the new formula on an annual basis, three variables—the health insurance cost index, the percent of households with earned income and the new admissions rate—would be based on a three-year average instead of on a single year’s worth of data. Using a three-year average would reduce the volatility of these three variables and lead to a more predictable formula eligibility from year to year.

The proposed formula would eliminate portability billing, instead providing PHAs that administer vouchers on behalf of other agencies with 100 percent of their own administrative fee rate for each such voucher.  PHAs would also be able to earn 20 percent of their administrative fee rate for port-out vouchers that are administered by other PHAs. 

The study also recommends using inflation adjustments. After a new fee rate is calculated, the study recommends applying an inflation factor to account for costs that have gone up since 2013. The recommendation is that HUD use a blended inflation factor that takes into account inflation in wages, inflation in benefits costs and inflation in non-labor costs.  NAHRO is pleased to see HUD’s recognition of the importance of recognizing increases in the costs of benefits, a major element that was excluded from the inflation factor for the Public Housing Operating Fund.  The study recommends implementing a phase-in plan to allow time for PHAs to adjust to the new fees. The goal of the plan would be to minimize the disruption to PHAs that might lose funding under the new formula. Two considerations in designing a phase-in plan would be the length of the phase-in and which PHAs were included under the plan.  The research team also recommended setting a floor of $42 per UML ($54 in US Territories). 

As with any new formula, the proposed formula would result in increased eligibility for some PHAs and decreased eligibility for others.  For the 2013-2014 study period, the research team estimates that nationwide eligibility under the proposed formula would be equal to 95 percent of the pre-QHWRA admin fee rates.  NAHRO will provide further analysis and coverage when the PHA-level data is released.  Unfortunately, despite NAHRO’s objections, the executive summary discusses “gainers” and “decliners” based on a comparison of funding eligibility under the proposed formula with funding received at a time when the proration averaged 75 percent.  By using the deeply prorated admin fees as a benchmark, HUD is able to claim that 92 percent of PHAs would be considered gainers.  NAHRO is deeply disappointed by the lack of transparency on this key issue, and will work to create additional clarity on the impacts of the proposed formula.

Minimum Necessary Size

The study found that there is no specific number of vouchers below which operating on fees alone is not financially feasible. To come to this conclusion, the study analyzed data collected through HUD’s Financial Assessment Subsystem of Public Housing (FASS-PH) and through interviews with 130 PHAs operating HCV programs with fewer than 250 units. The researchers did, however, identify an inverse pattern of costs per unit, where the costs decrease with an increasing number of vouchers as economies of scale are achieved.

Conclusion

The study concludes by noting that the proposed formula may still be tweaked and gives suggestions for further research. The study states that “HUD will further analyze and consider the proposed formula and may recommend modifications to the implementation approach.” It further states that “HUD may consider modifications to the formula or supplemental fees to support PHAs in exercising their administrative discretion to address program priorities, strategic goals, and policy objectives at both the local and national level.” Other areas for further research include the following: administering the HUD-VASH program; serving homeless households; providing PHA performance incentives; and, finally, expanding housing opportunities.

NAHRO will continue to provide members with complete coverage and analysis as
additional information is released.  Questions? Contact Tamar Greenspan, NAHRO’s
Director of Policy and Program Development, at tgreenspan@nahro.org.

 
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