NSP 1 Grantees Overcame Challenges and Used a Variety of Strategies to Meet Obligation and Income-Targeting Requirements

		Most Grantees Met the Deadline for Obligating Funds

HERA required NSP 1 grantees to obligate all of their funds within 18  months, creating a September 2010 deadline for most grantees. HUD data also show that 298 NSP 1 grantees obligated at least 25 percent  of their grant funds for activities benefiting low-income households. For example, several  grantees mentioned they had encountered competition from private  investors in their efforts to acquire NSP-eligible properties. Several  grantees also worked with banks’ “first look” programs, which gave them  the opportunity to bid on bank-owned foreclosed properties before other  potential buyers. HUD Has Taken Actions to Mitigate NSP 1 Program Risks through Training, Technical Assistance, and the Establishment of Internal Controls

As previously noted, HERA established specific program requirements for  NSP 1 beyond those for CDBG, including an accelerated timeline for  obligating funds and the requirement that grantees must use 25 percent of  their NSP 1 funds to benefit households at or below 50 percent AMI. HUD  officials said that some of the assistance grantees found useful was  delivered using funds that HUD received well after the start of NSP 1. Additionally, CPD field office staff conducted on-site monitoring of 176  grantees (57 percent of NSP 1 grantees). HUD field offices conducted the majority of on-site monitoring from April  through September 2010. We found no instances of significant noncompliance with the key NSP 1  requirements we reviewed for the 32 properties in our nonstatistical  sample. HUD Adapted an Information System for NSP 1, but Data on Program Outputs Have Limitations

		HUD Modified DRGR and Provided Training and Guidance

HUD made several modifications to DRGR—a system that was designed to  assist in managing Disaster Recovery grants—in order to collect  information for NSP 1 and subsequent rounds of the program. HUD also provided training and technical assistance to HUD  field staff and NSP grantees that were unfamiliar with DRGR. Reporting Flexibilities and Shortcomings in HUD Guidance Have Limited the Usefulness of Output Data in DRGR

Although DRGR has been a useful tool for monitoring grantees’  obligations, variation in the way grantees were allowed to classify certain  activities and select output measures in DRGR complicates the analysis of  program outputs. Additionally, HUD officials said they were more focused  on reporting outputs for “end uses” of NSP 1 funds, such as the number of  housing units rehabilitated and demolished and the number of benefiting  households. The assessment will focus primarily on the  impacts of NSP 2—which funds the same types of activities as NSP 1—but  will also incorporate the results of NSP 1 where the two rounds of the  program overlap. While HUD has developed a method to resolve the  overcounting issue, limitations in HUD’s written guidance to grantees and  field staff may be contributing to variation in data entry and impairing  HUD’s ability to accurately summarize program outputs. Similarly, HUD has not provided grantees  with written guidance specifying the output measures they should select  for different activity types. Appendix I: Objectives, Scope, and Methodology

Congress created the Neighborhood Stabilization Program (NSP), which is  administered by the Department of Housing and Urban Development  (HUD), to help reduce the number of foreclosed and abandoned properties  and restore depressed local housing markets. The Housing and Economic  Recovery Act of 2008 (HERA) authorized the first phase of this program  (NSP 1), providing $3.92 billion in grant funds to states and local  governments. HERA mandated that GAO report on whether NSP 1 funds  were being used in a manner consistent with criteria set forth in the act. To respond to this mandate we examined (1) grantees’ progress and  challenges in meeting NSP 1 obligation time frames and income-targeting  criteria, (2) HUD’s actions to mitigate program risks and ensure grantees’  compliance with key NSP 1 requirements, and (3) HUD’s efforts to collect  program data and assess program performance. We reviewed HUD’s internal controls for NSP 1, including HUD’s guidance  and procedures for monitoring grantee compliance with key program  requirements. Additionally, we visited 8 grantees to conduct limited tests of compliance  with key program requirements. We interviewed OIG staff about these  audits and reviewed documentation on HUD’s actions to address the OIG’s  recommendations.
Why GAO Did This Study

Congress created the Neighborhood Stabilization Program (NSP) to help reduce the number of foreclosed and abandoned properties and restore depressed local housing markets. The Housing and Economic Recovery Act of 2008 (HERA) authorized the program's first round (NSP 1), providing $3.92 billion in grant funds to states and local governments. The Department of Housing and Urban Development (HUD) administers the program. HERA mandated that GAO report on whether grantees were using NSP 1 funds in accordance with the act's criteria. For this mandate, GAO examined (1) grantees' progress and challenges in meeting NSP 1 obligation and income-targeting requirements, (2) HUD's actions to mitigate program risks and ensure grantees' compliance with key NSP 1 requirements, and (3) HUD's efforts to collect program data and assess program performance. To address these objectives, GAO analyzed HUD data and the information system used for NSP 1; interviewed HUD officials and representatives of NSP 1 grantees; analyzed HUD's internal control processes; and conducted limited tests of 8 grantees' compliance with key NSP 1 requirements.

What GAO Found

According to HUD data, the vast majority of the 309 NSP 1 grantees obligated their funds within the required 18-month time frame. As a result, over 99 percent of NSP 1 funds were obligated as of early October 2010. Also, consistent with HERA criteria, most grantees obligated at least 25 percent of their funds for housing for low-income households. Some grantees with whom GAO spoke modified their NSP 1 strategies to meet obligation deadlines and overcome other challenges such as competition from private investors in acquiring foreclosed and abandoned homes. For instance, with HUD approval, some grantees expanded the geographic areas they were targeting. Grantees also participated in banks' "first look" programs, which give grantees the chance to bid on bank-owned properties before other potential buyers. HUD provided training, guidance, and technical assistance to grantees to address new requirements and risks posed by NSP 1. Although the grantees GAO spoke with were generally satisfied with HUD's guidance and program support, some said these efforts would have been more useful if provided earlier. HUD officials said that some of the assistance grantees found useful was delivered using funds that HUD received well after the start of NSP 1. HUD also established various internal control processes for NSP 1 and hired additional staff to help oversee the program. HUD field office staff conducted remote monitoring of all grantees and on-site monitoring for 176 grantees that HUD considered to be higher risk. Although HUD is still aggregating the results of its on-site monitoring, available results from the four field offices GAO contacted generally showed compliance with key NSP 1 requirements but also found some financial management deficiencies. HUD is requiring grantees to take corrective actions, where appropriate. GAO's review of records for 32 properties at 8 grantees found no instances of significant noncompliance with key NSP 1 requirements. To collect information on NSP 1, HUD adapted an existing financial and information system--the Disaster Recovery Grant Reporting (DRGR) system--and provided training and guidance on its use. HUD has used the system to monitor NSP 1 grantees' obligations and summarize program outputs for specific types of activities (rehabilitation and construction, demolition, and homeownership assistance). However, variation in the way grantees entered information into DRGR makes it difficult to summarize outputs for each activity (e.g., housing units acquired) without undercounting, and overall outputs (e.g., total benefiting households) without overcounting. HUD has developed a method for addressing the overcounting problem, but insufficient guidance to grantees and HUD field staff may be contributing to variation in data entry that limits the usefulness of DRGR output information. For example, HUD has not provided grantees with specific written guidance on selecting output measures, which can lead to inconsistency among grantees. HUD is planning an assessment of NSP outcomes that will focus primarily on the program's second round (NSP 2) but will also include NSP 1 in geographic areas where the two phases of the program overlap.

What GAO Recommends

GAO recommends that HUD provide additional guidance to NSP grantees and HUD field staff to help ensure that information on output measures is collected in HUD's data system in a more consistent manner. HUD agreed with the report's recommendations.