Jackie J. Gleason
Deputy Administrator Multi-Family Housing
Rural Housing Service
Washington, D.C.
RD Nitty-Gritty
The Rural Housing Administrator, Russ Davis, is not able to join us today because he is in Florida with the Secretary of Agriculture doing an event for Homeownership Month. Homeownership is very important to the Agency and we do a number of different venues. We have a poster that says “Own Your Future.” I put a little piece of paper over the “Own” with the word “Rent” so it read “Rent Your Future.”
I come from a very small town in Washington, population 225. So I come from very rural roots. We had three multifamily projects within 10 miles of where I lived. I also have a best friend there — he’s a veterinarian. He has a little practice. He’s also an amateur taxidermist. On his desk is a little placard that says “Your dog is coming back one way or another.” That’s his philosophy.
Let me talk about some of the things that are going on in Washington. I had a chance to talk with John Meyers out in the hall and he said, “You’ve got to be careful; you’re starting to be perceived as the Wal-Mart of the government.” I think that’s an interesting perspective because he’s right. I’ve heard that from our own people.
National Office Role
When I came to Washington DC ten months ago I made the statement that I’d like to see our program come back and be run on a national basis. Everybody wants change but no one wants it to affect them. Everybody wants consistency as long as it’s their way. I will tell you that’s not how it’s been. So far we’ve been getting quite a bit of change out; we got 3560 out.
I have to apologize to all of you here today that the 3560 Handbook is atrocious. In fact we are going through it page by page by page and making quite a few changes to try to line it up better with the Regulation. As you know, the Regulation is what this program runs on, not the Handbook. The Handbook is supposed to explain how to do things.
Who Knows 3560?
Unfortunately, I think the final edit may have been done by . . . well, I won’t say. It wasn’t done by folks that knew 3560 as well as they should have. So we are working on that.
Given that idea, I would say you should expect that sometime in the summer we’ll come out with some new Handbooks that are realigned and fit the Regulation a little better.
One of the biggest issues facing us now is the tenant subsidy, the Rental Assistance. I’ve talked on this before, I think I talked on this at the Housing Assistance Council (HAC) meeting. I will just say it is not getting any better. We do have an unused Rental Assistance policy in 3560 which moved it from 12 months to 6 months. But one of the unintended consequences there, that we are going to have to work on, is that appears that our AMAS reports spit out a unit as Unused if there has been one unit in a project that has turned over within the last 6 months.
State RA Limitations
That’s not what we want to do folks; that is not the idea of unused Rental Assistance. We want to make sure that it is a project where maybe one of the units has been cannibalized, or maybe they haven’t been able to rent it, or move it somewhere we can use it. We’re not looking at trying to take properties and bring them to their knees in order to help other properties. That’s not the idea at all. So bear with us; we are still working on a policy to get that out.
There have been several emergencies around the country, one of which was created by the hurricanes last year. Another one is a State Rental Assistance contract in Missouri which expired leaving about 1,000 tenants at risk of losing their Rental Assistance, which the state had been providing, because they’re not going to renew those. The state has been working with us, and giving us a month or six months-worth at a time, but they are running out of resources and so we’re trying to find a way to raise some unused Rental Assistance to help them. There is a reason why we’re doing what we’re doing; it isn’t just insanity although some might think that.
In addition, I am a little but alarmed at the use rates of Rental Assistance; we projected our Budget back in 2004 based upon an OMB inflation rate of 2.4%. That’s not what’s going on in the real world; what’s happening is that the inflation rate running at the projects is more like 6 or 7%. The result of that is that in January, when I ran the numbers to see what our renewals were going to be for 2007 for the Budget, it was right off the 07 Budget proposal that assumed it to be in 06 — that was about 55,000 units. Lo and behold I ran it this month, and now it shows that in 07 we’re going to have to renew 66,000 units. Or an increase of 10,000 units or about $150 million more than what we already expected to put in the Budget.
Keep RA Costs Down!?
I don’t know about you, but we have not been receiving a whole lot of pats on the back for our work on the Rental Assistance front. I would say that anything you can do to help us keep costs down is going to be appreciated, but I realize there is a frugality here we just cannot get past. That is, if we’re running at 7% a year, we can’t be forecasting at 2.4%. I think that is one of the problems that I see us having the challenge of dealing with. So we’ll work with you on that and see what we can do.
We also did some interesting work to try to uncover what our turnover rate is. It was a little project we did out in the Finance Office to try to see how quickly our rate of turnover was; it was 43 months or about half the rate of HUD’s turnover. I’m not sure what that means yet. But it is something that got my attention.
So if we’re running RA contracts for 4 years, and we’re turning over people in less than four years, there seems to be a disconnect because what’s happening is that as a person moves out who’s making $15,000 a year, the next person on the list is making $5,000 a year. This is sort of an end-sum game that says it is always going to go up and not go down. We need to work on some solutions or at least getting more funding for the program.
Let’s talk about Reserve Accounts for a minute. We have a new policy on Reserve Accounts. I like to call it the Common Sense Policy; this is a Replacement Reserve Account, a Capital Account. It is not supposed to be an Operating Reserve Account. We don’t have OCAF or an operating reserve account. Ours is budget based: it takes X to run a project and we’re supposed to budget for X. If we need to raise the rents, we raise the rents.
Reserve Policy Intentions
We don’t capitalize Reserve Accounts. One reason why the CPA (Comprehensive Property Assessment) in November 2004 said we’re upside down on a lot of our projects, and we don’t have sufficient monies to do major renovations on these properties as things start wearing out, is because we didn’t capitalize the Reserve Account. I knew to try to stop the bleeding on that so I tried to get some common sense in the system; I can tell you that there are a lot of folks that have decided to put the brakes on right now, right this minute, and from this day forward we’re not going to ever approve this or that out of the reserve. That was not my intention, but I don’t know if you folks work with folks that you don’t have direct lines of authority over, but when you put policy out and people don’t report to you directly, they won’t necessarily have to follow that policy.
Like fighting of the wills. I think what’s happening is we’re having some growing pains. We’re going to go back and talk a little bit about transition because I think that’s probably the issue that needs work.
Legislative Package?
We have a legislative package that is making its way through the Administration, a very slow process. I’m told it is fast compared to normal. But it is one of these things that we are now circulating it through our internal partners and trying to get it ready to send it up to the Hill. The Hill has been very patient. They need that package because it was mentioned in the President’s Initiative. The President’s Initiative focussed on tenant protection and Vouchers and that has to be looked at also as an important part of the overall Initiative. There has not been really in the Budget this year to start the Revitalization other than the Vouchers. So we’re hoping that Congress will understand that while the legislative package is very important, it isn’t necessarily something that is dependent upon to get the Voucher program moving. That has to do more with tenant protections in the face of litigation and maybe some legislative relief under ELIHPA (Emergency Low Income Housing Preservation Act of 1988) that may be coming out through that litigation process.
Section 538 — we had a couple of good meetings on 538 this past year since the last time I talked with you, I was up in Vermont and New Hampshire. They were to try to get folks interested in the program, and I will say from that visit we had two or three contacts with developers who were interested in putting a package together. I hope we could do something there — they are facing a very high cost area to try to use the 538 program. In fact they have a high cost area that causes rents to be up on the side where it is very difficult to help low income tenants.
We are also working with Fannie Mae. We’re sort of chomping at the bit; we understand that they may legislatively be required to put up to a Billion dollars in a rural initiative, in which we would hope to be one of the players that would receive some of that benefit for some of your projects. We will be working with them in the months to come to try to grab something to use in the Revitalization side of the program.
We just recently redid our performance part scores. I don’t know that you know what that is. The government is ranked and rated against a standard. This is something that Congress is supposed to use to decide whether you get funding or not. Luckily they haven’t used it in the past because our best effort to date has been “Cannot Rate.” So that’s not a great score to get. I’m happy to say that based on our new score that we put together and our new measurements they gave us a Green. That’s kind of an A for Effort, but we’ll take it. That is the first time in history that the multifamily program has actually improved in its score, so I look at it as an accomplishment.
I will say in order to do that, we had said that what we would like to do over the next five years is increase our percentage of projects that are A and B over the projects that are C and D. To do that of course, we’re going to have to get fairly aggressive about rehabbing and putting a lot of work out there in the projects. You’ll hear a lot of that discussion about trying to improve our projects to get them off the C and D lists and I’m sure that is everyone’s goal.
Centralized Tenant Certs?
We’re doing a pilot in the St. Louis Finance Office on doing Tenant Certs on a national basis where they would no longer go through states; they would actually go to our Wal-Mart center, I guess that is what they are calling it. The idea being that we want to have things that are duplicated and very expensive from the standpoint of lots of FTEs (Full Time Employees) attached to it, they could be put in St. Louis and actually done a little more efficiently from an FTE standpoint.
We think Tenant Certs are one of those things that can be done. That means your RA check would be cut from the Finance Office in St. Louis, all the Tenant Certs. Working with the Agency —back and forth — would be done there as well. I don’t know this pilot will come out, but so far they are doing their first one in Louisiana; they’re trying to see how it would be. We haven’t had to put any money into the project so far; the Finance Office and the CSD folks have been able to do it with their available resources, which I think is a good thing.
Demo Project
The Demo: we started out this year with a whole lot of high ideals; let’s put it that way. We sent out a Demo AN. We asked for folks to put in their properties to ask for us to take a look at what we could do under existing authorities that we would normally do in a Workout. We have made a bit of progress — we have identified a whole lot of barriers. The tasks were broken down; a Demo team was established and they meet weekly.
The team consists of National Office folks who devote a portion of their day to tasks associated with the Demo effort. The team is also supported with a small contract with ICF. And we do have some Field Office representatives.
The objective of the Demo was to implement the Revitalization concepts that were put out in November 2004 in the Comprehensive Property Assessment. To accomplish that, the team has worked to establish successful processes, formats and examples. We found a lot of challenge around the forms and even the process: our Finance Office right now, in order to make sure the deals we might put together not show up as a delinquency, required that they manually input all the data in Finance. We understand they can do twelve — that’s twelve total projects.
That’s not good enough. We need to be able to do hundreds. So we’re probably going to have to come up with some resources to pay for an IT upgrade in order to do just the paperwork side. I’m always amazed; we have the policy side working fine, but it is all the internal processes and paperwork that the systems support at the IT that seems to be really giving us a lot of trouble. We are also going to need some OGC (Office of General Counsel) work on some of the forms to make sure we don’t do something illegal on those.
But we do have to report that we have our first two guinea pigs so to speak that we are running through the process. What they really are, they look more like AN 4010 deals (AN 4010 Revitalizing the Multi-Family Housing Portfolio Using Transfers, Assumptions and Other Servicing Authorities, September 23, 2004) — transfers that have a deferral. So it is kind of a combo of the Demo plus an AN 4010 process. So it is not the cleanest thing I have ever seen. We’d also in the future like to pick out some stay-in owners that want to revitalize their properties and not necessarily be part of a transfer. We’re taking what we can get right now; we’re seeing what we can do with it.
We think at the end of this year we will have a lot of good data that we could use to build on for FY 2006, beginning October 21, 2005. We are finding that our toolbox just does not have the tools in it, quite frankly. We need to ask Congress for more tools, which is what part of our Revitalization package will do.
Currently, the team is focussed and working with developers and the State Office staffs in three states: Wisconsin, Michigan and Missouri in an effort to establish three successful transactions. Now these are multiple properties together in three different portfolios. They are working with Accounting and Automation Support Staff to identify the long-term and immediate needs on what we would need to be able to put those together.
I would like to report a little more progress than I can today, but I will say we are making some progress. It doesn’t sound like it, but remember ten months ago we hadn’t even thought of this. Things have happened very quickly and we are learning a lot that we can now report back to our partners in Congress.
Two more issues.
Occupancy Age Waivers? Not!
Age Waivers. We are asking that an ineligibles in elderly projects be asked to leave when their leases expire. I know this is a real problem for some owners because you have areas in the midwest where you just don’t have enough elderly folks to live there. Quite frankly, this is not an Agency policy issue; this is a Fair Housing policy issue. If you have a project that is designated for a particular group of occupants, in this case elderly, you cannot just go and mix the project with anybody that comes along. Whether it is expedient or not, it is a Fair Housing violation. What we would have to do is ask you for us to change the designation to a family project. With that comes all the territory of the family project. You cannot then turn people away that have children or turn people away for one reason or another. You need to make a decision, if it needs to be a family project then so be it. Let us turn it into a family project. But if it is an elderly project, it needs to stay as an elderly project. Again, this is a Fair Housing issue; it is not necessarily an Agency issue. I understand though that HUD has looked at is and taking a look at maybe allowing some waivers within their own program. If that’s true, then we may go back and ask for some relief in our program. But, it is HUD that decides on Fair Housing issues.
Appraisal Funds
The other area is appraisal funds. RD funds which are used for appraisals have been exhausted for the year. In order to keep our transactions moving along, we’ve moved out and done some additional policies. A few years ago the decision was made that we didn’t trust project buyers, so we had to order all the appraisals. I guess it wasn’t actually couched that way, but it appears that the decision was made. And so instead of using the process that everybody else on the planet uses, and that is if the buyer needs to finance the property then they pay for the appraisal. We’ve had this process that the Agency buys the appraisal and we use our staff S&E (Salaries and Expenses) funds to pay for it. That’s a great idea except the staff S&E funds come from my pocketbook in the National Office — staff S&E that we need to operate the National Office on. So we need to make some decision on how do we operate more like the private sector and more like other government agencies and not rely on our own S&E to do things such as appraisals for financing. In any case, we’ve put out a transfer and appraisal Unnumbered Letter and we are trying to come up with some various ideas including using other Agency funds. So if we can get that done, we’ll report on it very soon.
I think all this gives you plenty of food for thought. We’re always open to hear from you and we are interested in working with the owners and managers to make these properties continue to perform.
Questions
QUESTION: There’s a lot of talk about the Section 538 program and its successes. However, 538 does not work in a lot of rural areas across the country. What is the Agency position on 515?
ANSWER: You’re asking for the Administration’s policies on 515. If you look at the Budget for 2005 and 2006 you’ll see that it is focussing on the preservation of the 515 program but not on new construction going forward. I think the problem that we face is we need to take a look at some of the inherent issues that we face in our aging portfolio and make sure we don’t duplicate that by creating more properties out there that are just going to turn around and need revitalization. We need to take a look at the reserve accounts: find a way of making them larger, make them used the way they are supposed to be used so that 10 or 15 years from now our new projects don’t end up in the same spot that are existing projects are. So there are some fundamental issues I think that 3560 did not take a look at that we need to look at in the Final Rule. Once that’s been done, I think we could ask for additional funding.
My position is, personally, that I’ll run whatever program the President and Congress puts in front of me. It’s not up to me, but right now the policy appears to be that 538 is our tool for using new construction. I will say there are ways to make 538 work in rural areas: 60% of the properties we’ve done so far are in areas that have less than 8,500 in population. Those are rural. There are certain states that are very high-cost. I will say if we get 515 funding for new construction through the legislative process, what we would want to do is focus our attention on that 515 in areas where we can get the best bang for our buck. So if we can find state rental assistance, which I know New York has, Tax Credits, other types of partnerships — I would think that would be a very positive use of the 515 program. I would certainly personally support that.
QUESTION: On the need for the Agency and the industry to work closely.
ANSWER: You realize I’ve only been there less than ten months. So far it has been a perfect storm. There are things coming at us from all different directions. We haven’t had the luxury of even taking a step back and taking a breath. I had good intentions when we first started to have a roundtable with industry folks. I haven’t put that together yet. I also think we need to have some field folks from our Rural Development offices in such a meeting, either electronically or in person, because I think that’s another thing I hear a lot — folks think I’m too tight with CARH; well, CARH doesn’t think so. The fact of the matter is my internal partners, my internal customers, aren’t so sure I don’t listen to the industry a little too much. I don’t think that’s the case at all; I think we need to get together and discuss these things, especially 3560. If we’re going to do a rewrite, let’s get it right this time.
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