HUD officials  and contract administrators said that delays on HUD’s part—stemming  from a renewal process HUD officials agreed could be cumbersome  and paper intensive—could cause (or exacerbate) late payments that  resulted from the lack of a renewed contract. According to project owners with whom we met, delays in HUD’s housing  assistance payments had negative financial effects and may have  compromised owners’ ability to operate their properties, but the delays  were unlikely to cause owners to opt out of HUD’s programs or stop  providing affordable housing. Background

HUD operates a variety of project-based rental assistance programs  through which it pays subsidies, or housing assistance payments, to  private owners of multifamily housing that help make this housing  affordable for lower-income households. From Fiscal Years 1995 through 2004, HUD Made Three- fourths of Its Housing Assistance Payments on Time

Overall, from fiscal years 1995 through 2004, HUD disbursed by the due  date 75 percent of the 3.2 million monthly housing assistance payments on  all types of contracts (see fig. The timeliness of housing assistance payments varied over the 10-year  period (see fig. Further, HUD-administered contracts were more likely to have  chronically late payments. Therefore, an owner cannot receive a monthly voucher  payment on a contract that HUD has not renewed. HUD’s contract renewal process was largely manual and paper driven and  required multiple staff in the PBCAs and HUD to complete (see fig. HUD’s Difficulties in Assessing Rate of Funding Use and Monitoring Funding Levels

The methods HUD used to estimate the amount of funds needed for the  term of each of its project-based assistance contracts and the way it  monitored the funding levels on those contracts also affected the  timeliness of housing assistance payments. HUD’s Payment Delays Caused Difficulties for Project Owners, but Were Unlikely to Be a Significant Factor in Owners Opting Out of HUD Contracts

In preparing our 2005 report, some owners reported that they had not been  able to pay their mortgages or other bills on time as a result of HUD’s  payment delays. According to owners as well as industry group and HUD officials, owners  who were heavily reliant on HUD’s subsidy to operate their properties  were more severely affected by payment delays than other owners. Project owners, industry group officials, contract  administrators, and HUD officials we interviewed generally agreed that  market factors, not late payments, primarily drove an owner’s decision to  opt out of HUD programs. Most of the owners with whom we spoke  reported that they received no warning from HUD that their payments  would be delayed. To mitigate the effects on owners when payments were delayed, we  recommended in our 2005 report that HUD notify owners if their monthly  housing assistance payments would be late and include in such  notifications the date by which HUD expected to make the monthly  payment to the owner.
Why GAO Did This Study

The Department of Housing and Urban Development (HUD) provides subsidies, known as housing assistance payments, under contracts with privately owned, multifamily projects so that they are affordable to low-income households. Project owners have expressed concern that HUD has chronically made late housing assistance payments in recent years, potentially compromising owners' ability to pay operating expenses, make mortgage payments, or set aside funds for repairs. This testimony, based primarily on a report issued in 2005, discusses the timeliness of HUD's monthly housing assistance payments, the factors that affected payment timeliness, and the effects of delayed payments on project owners.

What GAO Found

From fiscal years 1995 through 2004, HUD disbursed three-fourths of its monthly housing assistance payments on time, but thousands of payments were late each year, affecting many property owners. Over the 10-year period, 8 percent of payments were delayed by 2 weeks or more. Payments were somewhat more likely to be timely in more recent years. The process for renewing HUD's subsidy contracts with owners can affect the timeliness of housing assistance payments, according to many owners, HUD officials, and contract administrators that HUD hires to work with owners. HUD's renewal process is largely a manual, hard-copy paper process that requires multiple staff to complete. Problems with this cumbersome, paper-intensive process may delay contract renewals and cause late payments. Also, a lack of systematic internal processes for HUD staff to better estimate the amounts that HUD needed to obligate to contracts each year and monitor contract funding levels on an ongoing basis can contribute to delays in housing assistance payments. Although HUD allows owners to borrow from reserve accounts to lessen the effect of delayed housing assistance payments, 3 of 16 project owners told GAO that they had to make late payments on their mortgages or other bills--such as utilities, telephone service, or pest control--as a result of HUD's payment delays. Owners who are heavily reliant on HUD's subsidy to operate their properties are likely to be more severely affected by payment delays than other, more financially independent, owners. Owners reported receiving no warning from HUD when payments would be delayed, and several told GAO that such notification would allow them to mitigate a delay. Nonetheless, project owners, industry group officials, and HUD officials generally agreed that late housing assistance payments by themselves would be unlikely to cause an owner to leave HUD's housing assistance programs, because such a decision is generally driven primarily by local market factors.