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President’s Forum: Perfect Storm for Operating Funding

Please Advocate for Senate Appropriations

PHADA President Mark Gillett.

Much to our dismay, HUD recently announced the operating fund proration is now only 92 percent formula eligibility. Because Congress has not yet approved an FY 24 appropriations bill and we are still under a Continuing Resolution (CR), the Department plans to distribute “conservative” amounts of funds at least through January. Combined with a few other factors, this raises many concerns as we approach the colder – and more expensive – winter months.

The Department attributed the low proration mostly to rising utility costs, asserting the President’s original proposed budget would have furnished HAs 100 percent of their eligibility. Although inflation has receded in recent months, prices are still high and could prove troublesome for many agencies as we experience colder weather.


Insurance Costs a Big Driver

PHADA reported in a recent Advocate that public and private housing providers are seeing steep increases in their insurance costs. The National Leased Housing Association recently completed a survey and found that 29 percent of housing providers experienced premium increases of 25 percent or more, compared to 17 percent in the previous year. The survey further revealed that limited markets and capacity are responsible for most premium increases, followed by claims history/loss and renter populations. In addition, 67 percent of respondents reported increasing insurance deductibles, decreasing operating expenses, and increasing rent to manage insurance cost increases. Please see the November 1 edition of the Advocate for more information.

PHADA and others have met with Department officials to discuss these increases and the Association is collaborating with industry experts to try and develop some recommendations that will better control costs. Industry groups have noted to HUD and Congress that insurance is effectively a “utility” and not a discretionary expenditure HAs can ignore. Unlike private sector providers, HAs cannot impose rent increases to defray costs.


Rent Collection Problems Persist After Pandemic

Another factor hurting the bottom line for many HAs are the difficulties surrounding rent collections and rising Tenant Accounts Receivable (TARs). About 20–25 percent of HAs are still “severely impacted” by this problem, according to HUD’s recent data.

Operating fund shortfall replenishments have helped some HAs plug their gaps, but there is not sufficient shortfall money to help all agencies. Indeed, only $25 million has been available in each of the last two years, while overall needs have reached almost $400 million each year. In addition, the shortfall fund does not provide needed help to similarly situated RAD agencies funded under different accounts.


Capitol Hill Delays Exacerbate the Problem 

Fiscal Year 2024 began on October 1, but Congress will not complete a budget until the middle of January at the earliest. Thus, HUD is distributing operating funds in a cautious lowball way because the Department does not know what the final operating fund budget will be for the full year.

The Senate’s spending appropriations bill would provide $5.53 billion for the operating fund in FY 24, while the House measure is far less adequate at $5.1 billion. The two chambers remain deeply divided over the total amount of funding they will provide for domestic discretionary programs. This creates more uncertainty for specific accounts like the operating fund. Making matters worse, further across-the-board cuts could be imposed if a budget agreement is not reached in early ’24.


Please Act Now

In the short term, PHADA urges members to contact Congress and advocate for the Senate’s higher appropriations. For reference, please see PHADA’s FY 24 appropriations Position Paper.

While additional funding will help, the other issues mentioned above also need to be addressed. We clearly need to find ways to better control insurance costs, and PHADA will continue to collaborate with other partners in the housing and insurance industries.

HUD could certainly help HAs’ rent collection challenges by reversing its ill-advised plan to make the 30-day notice for non-payment rule a permanent regulation. PHADA has noted this misguided policy drives up TARs and will ultimately create more budget problems. Our recent letter to Secretary Fudge on this topic can be found here.

Along with member advocacy, PHADA will work with our industry partners to draw congressional attention to all these issues in hopes of obtaining supplemental appropriations.

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