Guidance for PHAs: Required and Voluntary Conversion of Public Housing Units

1. “A Toolkit for Change: From Removal to Redevelopment” September 15-16, 2008 Chicago, IL Guidance for PHAs: Required and Voluntary Conversion of Public Housing Units

2. Introduction HUD has adopted a property-based focus for managing a PHA’s housing inventory This approach helps PHAs identify poor-performing developments When a non-viable development is identified, what can a PHA do?

3. Options • Options include: • Modernize/revitalize to stabilize the development • Redevelop the development (HOPE VI, bond financing, etc) • Demolish the non-viable units • Keep the land or dispose of the land • Dispose of the development • Convert the non-viable units from public housing to vouchers • This discussion will focus on the conversion option

4. Required Conversion • There are two types of conversions: • Required conversions • When HUD determines that units are non-viable • HUD WILL deprogram these units and the PHA WILL loose subsidy • Similar to the previous Section 202 Mandatory Conversion process • The PHA can apply separately for vouchers

5. Voluntary Conversion • Voluntary conversions • When a PHA requests HUD approval to convert units the PHA believes are non-viable • Once approved, the PHA can apply separately for vouchers

6. Logistics Q & A session Materials Exercises

7. Conversion Overview

8. Introduction • QHWRA made changes in requirements governing conversion of PH • Rules amended 24 CFR 972 • PHAs are required to annually review inventory and identify distressed developments

9. Conversion- What Does it Mean? In this context, conversion means the removal of public housing developments (or portions of developments) from a PHA’s public housing inventory and ACC and the provision of tenant-based or project-based assistance for the residents who lived in those developments. Conversion does not require that the PHA convert the development to any particular future use after conversion.

10. Introduction- continued • PHAs may at any time determine that units are eligible for voluntary conversion • Guidance is to summarize • Eligible activities • Requirements for required or voluntary conversion • Outline the rights and responsibilities

11. HUD Approval • Required before a PHA may undertake a voluntary or required conversion • Approval obtained through Special Application Center (SAC) and/or Office of Public Housing Investments (OPHI) • SAC- based in Chicago • Must be contained in the Annual Plan

12. Moving to Work (MTW) Training materials will also highlight “MTW” provisions May follow slightly different process Highlighted in text through graphics and text boxes

13. Guide Materials • Summarizes eligible activities and requirements • Rights and responsibilities • Must work with the resident group to inform and consider • Intended to assist PHAs in assessing future viability of the public housing stock • Planning appropriate actions for use of the stock

14. Assistance of Guide to PHAs • Identify PH units (developments) that PHA is required to convert • Identify PH units (developments) that PHA is not required to convert but may be legally authorized to convert • How to conduct and analyze a conversion assessment • Compare the cost of continuing to operate PH units to the cost of providing tenant-based assistance

15. Assistance of Guide to PHAs- continued • How to develop and implement a conversion plan • How to provide transition of displaced residents • How to remove the inventory from PH • Compliance with • Forms • Procedures • Submission requirements • Timelines

16. Guide Materials Guide is not a substitute for the regulations Additional notices will be issued

17. History of Required and Voluntary Conversion • Section 537 of QHWRA • Added new Section 33- Required Conversion • Section 533 of QHWRA • Amended Section 22 – Voluntary Conversion • Separate implementing conversion published September 17, 2003; effective March 15, 2004 • Appendix to the rule addressing methodology for comparing cost published March 21, 2006; effective April 20, 2006

18. Regulations • 24 CFR 972 • Required or voluntary • Means the removal of the units from the inventory and the ACC • Provisions of tenant-based or project-based assistance for residents of PH being removed • Conversion does not necessarily mean the removal of the PH development- demolition

19. Annual Review for Required/Voluntary Optional Annual review PH inventory Identify distressed developments (or parts of developments) PHA can also determine at any time the option for determining inventory for voluntary conversion HUD approval is required in both cases Approval is obtained from Office of Public Housing Investments (OPHI); processing is through SAC

20. PHA Plan or MTW Plan HUD’s approval of the PHA Plan or MTW Plan does not constitute approval of the “Conversion Program” Separate approval process for conversion Provisions to proceed with conversion are contained in the PHA Plan or MTW Plan

21. Required Conversion

22. Required Conversion Overview Phase One: PHA first determines if they have public housing units that MUST be converted Phase Two: If they do, the PHA then MUST develop a Required Conversion Plan and deprogram the units out of the public housing program

23. Determining if Units Must be Converted PHAs must identify if they have units that are subject to Required Conversion requirements If they do, the PHA must determine if the units fail the HUD viability test If they do, the PHA must determine if it would be less expensive to serve the residents with vouchers If it is, the PHA MUST convert the units

24. Converting the Units If the PHA must convert units, the PHA must develop a Required Conversion Plan The Required Conversion Plan must be included in the PHA’s Annual PHA or MTW Plan The PHA must also submit a Required Conversion Inventory Removal Application to SAC Once HUD approves the Application, the PHA can then request Vouchers if they are needed Once needed Vouchers are available, Conversion can begin

25. Required Conversion Nuts & Bolts Section 33 of the U.S. Housing Act of 1937 requires PHAs to identify developments that must be removed from their public housing inventory and their ACC PHAs must annually review eligible units to identify distressed developments If these properties do not have long-term viability, residents must be converted to tenant-based or project-based assistance

26. Required to Develop Plan • In instances where either • (1) the PHA cannot assure the long-term viability of a distressed development, or • (2) it would be more expensive for the PHA to modernize and operate a development as public housing for its remaining useful life than to provide tenant-based assistance to its residents, the PHA must develop and carry out a Required Conversion Plan to remove the development from its public housing inventory.

27. Which Properties are Subject to a Required Conversion? • Public Housing developments, portions of developments or contiguous developments may be subject if they meet all of the following: • Must be a “Cluster” of 250 or more units on the same or on one contiguous site • Must be units that are open to “general occupancy” by families • Must be units that have had chronically high vacancy rates for each of the last 3 years • Has remained above 15% (before March 16, 2009) • Has remained above 12% (after March 16, 2009) • And, these vacancy rates have not significantly decreased

28. Properties Long-Term Viability • The Long-Term viability standard is: • With reasonable investment, it is probable to: • Sustain full occupancy • Be structurally sound • Not be excessively dense by local standards • Achieve a broad range of incomes, and • Have no disqualifying site impairments • And the property is not more expensive to operate as Public Housing than serving the residents with vouchers

29. Viability Assessment Based On Comparing • The projected cost to repair, operate and maintain the public housing units during their remaining useful life • The cost of a market rate unit utilizing a tenant-based voucher under HUD’s Housing Choice Voucher Program

30. How are public housing and voucher costs compared? • The public housing cost are described in 24 CR §972.124(c)(2). These are the costs needed to • Produce a revitalized development • Operate the revitalized units • Address future modernization needs • Address accrual needs • These public housing costs will be compared to the PHA’s adopted voucher Payment Standards • Note: Gross costs are compared, NOT subsidy amounts

31. Clusters vs. AMPs Conversion clusters are a development, portion of a development, or group of developments of 250 or more dwelling units in the same geographical location AMP groupings are the result of PHA’s asset management decisions Thus, there is no direct relationship between AMPs and Clusters

32. Vacancy Calculation • Vacancy Data used must be consistent • PHA must use the same data it relied on for other reports to HUD, including PHAS, Form HUD-51234 Report on Occupancy, or successor reports • MTW PHAs must use the same vacancy data submitted to HUD as per their MTW agreement.

33. Units Excluded from Vacancy Calculation Units vacated to enable modernization activities Vacant units previously approved by HUD for Demolition or Disposition under Section 18 of the Act Vacant units where resident belongings are abandoned, but only if state law mandates that such units remain vacant for an established period of time Vacant units having sustained casualty damage, but only until the insurance claim is adjusted Units occupied by an employee of the PHA Units used for resident services activities Non-distressed units that were intentionally kept vacant

34. Developments Exempt from Required Conversion Developments with an approved HOPE VI Plan Developments restricted to occupancy by Elderly/Disabled residents under a HUD approved Designated Housing Plan Developments identified before October 21,1998 for Mandatory Conversion under Section 202 of the Fiscal Year 1996 HUD Appropriations Act (42 USC §1437) until those conversion requirements have been fulfilled

35. Identification of Properties on HUD’s Website • To assist PHAs, SAC has created reports from HUD Field Offices listing clusters that may be Required Conversion candidates • www.hud.gov/offices/pih/centers/sac/rconv.cfm • These cluster reports may not be fully complete and may be further refined with data from HUD field offices and PHAs • PHAs are still required to annually monitor their own eligible developments, even if their developments are not on the SAC cluster list

36. Conversion Information from HUD Website • DETAILED REPORT • HA CODE:XY 001 • HA NAME:Sample Housing Authority • Cluster Number:XY001C009 • Cluster Total:308 • Development Total Units From PIC Designated Units DD Approved Non Designated • XY001025274 0 274 • XY001040 34 0 34 • DevelopmentProject Name Report Date Total Units Vacant Units Vacant Pct. Distressed • XY001025High Point 4/5/2008 274 45 16.4 Distressed • XY001025High Point 5/7/2008 274 47 17.1 Distressed

37. Required Conversions and PIC • Accurate vacancy rates are critical for the Required Conversion vacancy calculation • Vacancy rates are impacted by whether units are reported in PIC as • ACC-Yes, or • ACC-No • PHAs may not move subsidized dwellings to a non-subsidized status to avoid a negative vacancy impact

38. Correcting SAC Cluster Report Errors • If the PHA disputes the SAC Cluster Report information they may report to their HUD field office and SAC that: • The cluster does not contain 250 eligible units • The occupancy information is inaccurate • The data relied on for the report is incorrect • If SAC receives no response from the PHA it will assume the report is correct • If the development/cluster remains on the SAC cluster report, the PHA must address the development in their next Annual PHA or MTW Plan

39. PHAs Responsibility to Respond • Developments on the SAC report are not required to be converted, the report only identifies possible candidates • If a development is on the report, PHAs must address the following in their Annual PHA or MTW Plan: • Explain why the cluster should not be on the report, or • If the report data is accurate, certify that the cost analysis has been completed and report on the results of the cost analysis, and • If adequate time is available, complete and submit the Required Conversion Plan if the development is not cost effective to continue as public housing

40. Required Conversion Information in the Annual PHA or MTW Plan • HUD wants PHAs to have adequate time to develop their Required Conversion Plans • If sufficient time is not available to finalize the Conversion Plan, the PHA must provide the status of required conversion planning activities in their next Annual PHA or MTW Plan submission • The following timeline tables have been developed to ensure adequate time is available Conversion Guide Traning Manual

41. Timeline Table for Required Conversion Time table for developments identified more than 13 months before PHA fiscal year (Training Manual: Page 12)

42. Timeline Table for Required Conversion Time table for developments identified less than 13 months before PHA fiscal year (Training Manual: Page 13)

43. Cost Analysis • If an eligible cluster fails the vacancy test • Then, a Cost Analysis must be completed • PHAs must follow the Calculation Rule • Comparing the cluster’s operating, capital and accrual cost • With the cost to serve the residents with vouchers • HUD has developed an Excel spreadsheet to assist PHAs with this analysis • PHAs must use this HUD Excel spreadsheet

44. HUD Spreadsheet • The Spreadsheet is located on HUD website: • http://www.hud.gov/offices/pih/centers/sac/docs/costcomparison.xls • The same spreadsheet is utilized for both Required and Voluntary Conversions, but • Different portions of the Spreadsheet are used for each type of Conversion

45. Other Obligations • Not all financial factors are included in the Spreadsheet • PHA must identify additional financial, contractual, or legal obligations that may affect a Conversion • Energy performance contracts • Capital fund leveraging agreements • Legal or Voluntary Compliance Agreements • Etc.

46. Public Housing Cost Analysis • Can use either Development-Based Method or PHA-Wide Method to determine public housing operating costs • Must determine the useful life of the development, once it has been revitalized • 20-year period if only light or moderate rehab is undertaken • 30-year period if all backlog needs are addressed • 40-year period if equivalent to new construction

47. Determining Long-term Viability • To achieve long-term viability, all the following conditions must be met • The revitalization costs must be reasonable • The development must be structurally sound • The development can sustain full occupancy • The density is appropriate for the community • A broader range of family incomes can be achieved • No site impairments exist to disqualify the site as public housing

48. Investment is Reasonable • Costs for revitalization must be • Less than 90% of HUD’s TDC • Less than 100% of TDC for any “infill” new construction • Must be consistent with the revitalization cost in the most recent Annual Plan or 5-year plan • Overall cost should not exceed cost estimated in Annual or 5-year plan • If previous cost was lower PHA must provide a compelling explanation • Funding must be identified and available

49. Extract of HUD Conversion Website for the Spreadsheets A rule addressing the methodology for comparing the cost of individual public housing developments to the cost of tenant-based Section 8 assistance was published in the Federal Register March 21, 2006 (Calculation Rule). The rule is effective April 20, 2006. The cost methodology for Required Conversion is different than that for Voluntary conversion. Calculator Rule 24 CFR 972 (Adobe PDF) Cost Comparison Spreadsheet (MS-Excel) A sample of a completed spreadsheet has been included as well. Sample completed Cost Comparison Spreadsheet (MS-Excel)

50. Relationship Between Required Conversion and Section 18 of the Act Demolition NO. 24 CFR §972.112 and 24 CFR §970.3(15), Section 18 of the Act does not apply for (full or partial) demolition pursuant to required conversion Disposition YES. Section 18 of the Act does apply to disposition of developments removed pursuant to required conversion