GAO Makes Recommendations to Improve Section 8 Preservation Efforts

Return to the main Public Policy page

The Government Accountability Office (GAO) has identified HUD’s one-for-one replacement policy for project-based Section 8 units and Operating Cost Adjustment Factors (OCAF) payment process as contributing to some owners’ decisions to opt out of the Section 8 program. In a report released this month, GAO calls on HUD to be more flexible in its policies in order to ensure that project-based Section 8 preservation efforts are successful.

The report concluded that the majority of owners choose to renew their Section 8 contracts each year: 92 percent of contracts were renewed between 2001 and 2005.  Unfortunately, contracts covering more than 51,000 units were terminated during the same time period. GAO concluded that most owners chose to terminate their contracts to take advantage of market conditions and recurring frustration with HUD's application of program rules has led to other properties being vulnerable to leaving the program. 

Owners frustrated with HUD’s Operating Cost Adjustment Factors (OCAF)

GAO concluded that HUD’s process for determining operating expense increases may threaten preservation efforts. Owners complain that HUD estimates costs for such items as utilities and insurance too far in advance than when rent increases are allowed to take place.  Costs have often increased again by the time the rent increases take effect. Owners have also complained that HUD is not able to respond to sudden increases in operating expenses, e.g. energy cost spikes.

GAO urges HUD to quickly review the OCAF adjustment process to ensure that owners receive enough subsidies to meet operating expenses. Federal Housing Commissioner Brian Montgomery indicated that HUD is studying the OCAF methodology in light of industry concerns. Results of the study are expected to be announced by the end of fiscal year 2007.

Not enough flexibility in one-for-one replacement policy

Some owners might be more likely to remain in the program if permitted to reconfigure their properties to better reflect market conditions. HUD does not permit owners to do so if it means a reduction in the number of Section 8 units. For example, owners who cannot rent efficiency apartments are unable to convert them to one-bedrooms if it means an overall reduction in units.

GAO recommended that HUD adopt a more a flexible approach than its one-for-one replacement requirement and evaluate owners’ request to reduce the number of units on a case-by-case basis. Commissioner Montgomery indicated that he is willing to re-evaluate HUD’s policy, but expressed appropriate concern that revising the policy might prevent one or two owners from opting out while leading to an overall loss of assisted units.

Other HUD actions affect owners’ cash flow and undermine property rehabilitation efforts

GAO identified a number of other policies and actions that may also threaten preservation efforts, including:

·         Late subsidy payments which force owners to use reserve funds to cover critical operating expenses;

·         Burdensome administrative costs for owners with fewer Section 8 units;

·         Confusion and costs associated with implementing limited English proficiency requirements;

·         Difficulties navigating complex HUD policies and frustration over HUD’s failure to adequately update the Section 8 Renewal Guide; and

·         Concerns about the reliability, consistency and fairness of property inspections.

 Click here for the full GAO report.