Grassley Slams Continued Lack of Accountability for Spending at HUD Public Housing Agencies
Millions of taxpayer dollars that support public housing lack federal oversight
– Senate Finance Committee Chairman Chuck Grassley is pressing the Department
of Housing and Urban Development (HUD) for answers over the lax oversight of federal
spending by Public Housing Agencies (PHAs) and delays to reforms it promised
three years ago.
more than 3,300 PHAs across the country receive millions of dollars in federal
funds every year intended to support housing for low-income households. But
many PHAs, including the country’s largest, use a portion of those funds to pay
“fees” to themselves for the provision of property management and other
services to the housing projects they operate. Once the PHA business
units, known as central office cost centers (COCCs), take in the federal money
as fee income, then those dollars lose their federal designation. That means
those dollars are no longer subject to rigorous federal oversight.
the Obama administration, the HUD Office of Inspector General found
many instances in which COCC accounts were used to pay questionable expenses,
including excessive salaries and a seven-figure severance package. Last
year, funds drawn from a COCC account were reportedly used to fund an expensive
golf outing for a PHA’s staff.
Americans pay their taxes, we ought to have the utmost confidence those dollars
will be spent wisely,” Grassley said. “But the current system seems to
prevent accountability and oversight of how taxpayer dollars are spent. HUD
promised to fix the problem in 2016, and it has been dragging its feet ever
since. It’s past time that the department took concrete steps to protect the
integrity of these programs.”
a letter to HUD Secretary Ben Carson, Grassley questions why HUD has thus far
failed to update and reform how federal dollars are handled once they enter a
COCC. He also seeks information about any planned changes to the annual
contributions contract between HUD and PHAs that could improve federal
oversight of these funds, as well as updated information on the salaries
received by PHA executives.
text of Grassley’s letter follows or can be found HERE
March 20, 2019
The Honorable Dr. Ben Carson
U.S. Department of Housing and Urban
451 7th Street S.W.
Dear Secretary Carson,
Over the past decade, I have repeatedly
expressed concerns to you and your predecessors at the Department of Housing
and Urban Development (HUD) about lax federal oversight of spending by Public
Housing Agencies (PHAs).
One ongoing area of concern is the nearly
total lack of HUD oversight over millions of dollars in federal funds used to
pay fees to PHA central office cost centers (COCCs) under the asset management
business model adopted by some of the country’s largest PHAs. Under the asset management model, a portion
of the federal dollars that go to support a PHA’s projects are paid in the form
of fees to the PHA’s business unit, the COCC, in exchange for its provision of
property management, bookkeeping, and other administrative services. According to one HUD source, in 2016, more
than 600 PHAs had COCCs, and these COCCs accounted for more than 1.9 billion
dollars in total revenue.
Even though the COCC is part of a PHA and plays
a critical management role, once deposited into a COCC’s account, public funds
lose their federal designation and cease to be subject to rigorous federal
absence of federal oversight, taxpayers have to rely on PHA management, Boards
of Commissioners, and state and local governments to ensure that taxpayer
dollars are spent properly.
In the absence of oversight, PHAs have not
always proven themselves good stewards of taxpayer funds. When the HUD
OIG reviewed PHA activities in 2014, it found evidence of excessive fees and
uses of funding for questionable expenses including excessive salaries and
bonuses, and, in one case, a seven-figure severance package.
More recently, a top
administrator at the Indianapolis Housing Agency (IHA) reportedly decided to
take fourteen employees on an $1100 golf outing as a “team-building”
event. When questioned about the trip,
the IHA reportedly stated:
budgets are funded through the Central Office Cost Center (COCC) which covers the
administration of the IHA. COCC is funded by management fees received from
the properties and other administrative fees charged. Because the money
comes from fees and not directly from HUD, the funds are not considered federal
According to reports from February of this
year, the Executive Director of the Columbia Housing Authority, which oversees
the property where two people recently died of carbon monoxide poisoning,
reportedly makes more than $167,000 per year.
His salary, which is reportedly drawn from
the PHA’s COCC, is several thousand dollars above the federal cap for a PHA
While it is lawful under certain
circumstances for a PHA executive to receive a salary in excess of the federal
cap, only funds that originate from non-federal sources may be used to pay the
excess portion. Although HUD collects
data on the salaries of PHA executives, the data collected have not been made
public beyond the figures for 2016.
Therefore, there is no way for the public to know whether or not the
executive’s salary complies with federal law.
Experience teaches that some skepticism
here is warranted. In the past, absent
much needed public transparency, executive salaries have not always complied
with the law. According to the most
recent public data on executive compensation shared by HUD, in 2016, nine PHA
executives were paid with federal funds at an amount that exceeded the federal
cap. Fifteen executives received total
compensation amounts that ranged from just over $300,000 to more than $650,000.
In 2016, after the HUD OIG and I continued
to raise concerns about lax oversight of COCC accounts, HUD finally agreed to
revise its rules so that the public funds going into them would retain their
federal designation and thus be subject to federal oversight. The Department stated that it would complete
the rulemaking process by December 2017.
However, three years have now passed since
HUD expressed its intent to act, and the proposed changes do not appear to have
Instead, over the past three years, it
appears that HUD has dragged its feet.
From October to December 2016, HUD held a series of “listening sessions”
with PHA executives working under the asset management system, during which it
told attendees that it planned to “[r]e-federalize Section 8 & 9 fee
HUD never made the changes.
In May of last year, HUD published a
new version of its contract with PHAs, known as the Annual Contributions
Contract (ACC), and announced that the contract would become effective as soon
as PHAs began drawing down capital funds from 2018.
The new version of the ACC contains language
that some stakeholders have interpreted as an effort to re-federalize fee
However, in October 2018, HUD announced that
it was retroactively nullifying that new contract and reverting to the previous
In December 2018, HUD sought comments on a
revised version of its new ACC.
During that comment process, which closed
three weeks ago, some PHA executives expressed opposition to provisions that
they categorized as an attempt to re-federalize fee income.
One commenter referred to these provisions as
an “underhanded effort [to] refederalize fees paid to a PHA’s COCC.”
There is nothing “underhanded” about
seeking transparency in how taxpayer dollars are spent.
These developments raise important
questions about HUD’s commitment to revising its regulations and guidance, its
anticipated timeline for putting the new ACC into effect, and its plans for conducting
future oversight of federal spending.
Accordingly, please contact my office to schedule a briefing, and
respond to the following no later than April 3, 2019:
did HUD fail to update regulations and re-federalize asset management fees
after previously indicating that it would do so by December 2017?
does HUD plan to put its new ACC into effect?
Before doing so, will HUD make substantive changes to the version that
was posted for public comment in December 2018?
If so, please describe any expected changes.
HUD plan to make other regulatory changes and/or issue new guidance in
conjunction with its introduction of a new ACC?
If so, how will these changes be timed with the introduction of the new
ACC? Please describe all planned changes.
the provisions of the new ACC, will asset management fees received by PHAs be
considered by HUD to retain their federal designation? Please supply results of any internal
analysis of this question and all related documentation.
If asset management fees will be
considered to retain their federal designation under the new ACC:
HUD plan to conduct additional oversight of PHA COCC finances? Please describe any additional oversight
plans or projects.
categories and types of expenditures by PHA COCC’s will be allowed and/or
disallowed by HUD?
If asset management fees will not be
considered to retain their federal designation, does HUD plan to undertake
additional measures to re-federalize fees?
If not, why not?
produce all PHA executive compensation data collected by HUD beginning in
January 2017 to the present.
Should you have questions, please contact
Daniel Parker of my Committee staff at 202-224-4515.
, Charles E. Grassley,
Chairman, U.S. Senate Committee on the Judiciary, to Hon. Dr. Ben Carson,
Secretary, U.S. Department of Housing and Urban Development (March 8, 2017),
available at https://www.grassley.senate.gov/sites/default/files/constituents/2017-3-8%20CEG%20to%20HUD%20%28Buffalo%20Municipal%20Housing%20Authority%20conference%20spending%29.pdf
“Grassley Conveys Housing Concerns to HUD Secretary Nominee Carson”
(January 4, 2017), available at https://www.grassley.senate.gov/news/news-releases/grassley-conveys-housing-concerns-hud-secretary-nominee-carson
"HUD Releases Audit of Omaha Housing Authority After Grassley’s
Prodding” (July 27, 2015), available at https://www.grassley.senate.gov/news/news-releases/hud-releases-audit-omaha-housing-authority-after-grassley%E2%80%99s-prodding
Charles E. Grassley, Ranking Member, U.S. Senate Committee on the
Judiciary, and Hon. Mark Kirk, U.S. Senator, to Hon. Julian Castro, Secretary,
U.S. Department of Housing and Urban Development (October 23, 2014), available
Hon. Charles E. Grassley, Ranking Member, U.S. Senate Committee on the
Judiciary, to Hon. Shaun Donovan, Secretary, U.S. Department of Housing and
Urban Development (June 24, 2014); Hon.
Charles E. Grassley, Ranking Member, U.S. Senate Committee on Finance, to Hon.
Shaun L.S. Donovan, Secretary, U.S. Department of Housing and Urban Development
(October 25, 2010), available at https://www.finance.senate.gov/imo/media/doc/2010-10-25%20Letter%20to%20HUD.pdf
A 2006 planning
document sent by HUD to housing agency executive directors prior to the
implementation of the asset management business model described the lack of
oversight under the new system as a “benefit.”
A section of that document devoted to explaining how fees would be paid
to COCCs under the new system states: “If adopted across all Public and Indian
Housing (PIH) programs, HUD’s monitoring activities would be greatly
reduced. HUD would no longer need to
evaluate whether a PHA’s allocation system was ‘reasonable.’ Rather, HUD would only need to determine that
the PHA charged a reasonable fee. HUD
would also not need to monitor the spending of fee income, i.e., the activities
of the central office cost center. HUD
monitoring would be limited to ‘front-line’ expenses. Funds received by the
central office cost center to operate public housing, provided they were
generated through reasonable fees, would not be subject to HUD review.” See
U.S. Department of Housing and Urban Development, Office of Public and
Indian Housing Preparing for Asset Management Under the New Public Housing Operating
Fund Rule (24 CFR 990) A Planning Document
(June 1, 2006), available at https://www.hud.gov/sites/documents/DOC_9696.PDF
Under Sec. 222 of the Consolidated
Appropriations Act of 2019, “None of the funds made available by this Act, or
any other Act, for purposes authorized under section 8 (only with respect to
the tenant-based rental assistance program) and section 9 of the United States
Housing Act of 1937 (42 U.S.C. 1437 et seq.), may be used by any public housing
agency for any amount of salary, including bonuses, for the chief executive
officer of which, or any other official or employee of which, that exceeds the
annual rate of basic pay payable for a position at level IV of the Executive
Schedule at any time during any public housing agency fiscal year 2019.” The cap was the same under the Consolidated
Appropriations Act of 2018. Level IV of
the executive schedule is currently $164,200 per year. Salary Table No. 2018-EX, available at https://www.opm.gov/policy-data-oversight/pay-leave/salaries-wages/salary-tables/pdf/2018/EX.pdf
According to the new PHA,
“operating receipts” are defined as: “All rents,
revenues, income, and receipts accruing from, out of, generated by, or in
connection with the ownership or operation of public housing, including grant
funds received pursuant to HUD Requirements and is not limited to income from
fees for services performed…” among other sources of income. Program receipts include operating receipts
and “shall only be used to pay for public housing program expenditures, unless
otherwise allowed by HUD Requirements.” See “60-Day Notice of Proposed
Information Collection: Comment Request: Agency Information Collection Activities:
Public Housing Annual Contributions Contract for Capital and Operating Grant
Funds”, available at https://www.federalregister.gov/documents/2018/12/27/2018-28095/60-day-notice-of-proposed-information-collection-comment-request-agency-information-collection
60- Day Notice of Proposed Information Collection: Comment Request: Agency Information
Collection Activities: Public Housing Annual Contributions Contract for Capital
and Operating Grant Funds” available at https://www.regulations.gov/document?D=HUD-2018-0103-0001.
There is no shortage of examples
of fraud and abuse by PHA employees exposed by state and local investigators. An audit by the Tennessee Comptroller’s
office last year found that an employee at the Oliver Springs Housing Authority
used HUD funding to “buy ‘items such as a Carnival Cruise and plane tickets,
jewelry, sporting goods, clothes, a Comcast bill, insurance, food, [and] a prom
dress.’” See Jamie Satterfield, “Audit:
Oliver Springs housing board asleep at the wheel while staffer steals” Knoxville News Sentinel
2019), available at https://www.knoxnews.com/story/news/crime/2019/01/17/oliver-springs-housing-board-melissa-may-fraud/2586472002/
; In January, 2019, a report
completed by the City of New York Department of Investigation detailed how the
manager at one New York City housing development “directed crews to throw away
everything [used in a renovation of the property’s grounds]…including…equipment
that was in working condition, such as leaf blowers, weed whackers, snow
blowers, lawn mowers, drills, saws, and brand-new pallets of sand…[The manager]
then ordered all new equipment. Also
during this time period, [the manager] ordered nine black leather executive
chairs, three 43” flat screen TV’s, file cabinets, and a conference table, for
a cost of almost $4,000.” See New York
City Council Committees on Oversight and Investigations and Public Housing,
“Testimony of Margaret Garnett, Commissioner, New York City Department of
Investigation, Concerning the Examination of the DOI Reports on NYCHA
Mismanagement at Throggs Neck Houses” (March 14, 2019), p. 16, available at https://www1.nyc.gov/assets/doi/press-releases/2019/Mar/ThroggsNeck_TestimonyandLetters_31419.pdf