PHADA and Others Register Concerns with HUD
I noted last month that HUD recently issued Notice 2024-25, which includes a provision that would require HAs to remit interest income they earn on federal operating funds. This provision is worrisome because many HAs earned considerable sums through investments on their rental income and other resources. These funds are especially needed at a time when we are short-funded, insurance costs are skyrocketing, and tenant accounts receivable are at all-time highs for many agencies. Moreover, HUD only requested about 90 percent of what is needed to fund our operations, so this new development could make a bad fiscal outlook even worse, especially for the growing number of HAs now in a shortfall situation.
Takes Effect in 2025
The interest rule is prospective starting early next year. Even though we are just weeks way from 2025 most HAs are unaware of it. HUD is developing supplemental guidance to spell out details, explaining how the remittance would work.
PHADA requested the opportunity to engage with HUD on the development of the guidance to ensure it is fair and workable. We appreciate HUD agreed to our suggestion and the first session was held on September 24. Several knowledgeable accountants and financial staff participated in the meeting including PHADA’s own Treasurer Kimberly Gober (Gloucester County, NJ), who is an accountant by background.
The most important point is that the requirement applies to federal grants only, not program income and rental income.
PHADA’s goal is to make sure the new requirement is clear, well understood and ensure it does not negatively affect our funding and operations. During the meeting, HUD officials asserted this is not a new requirement, noting that the Office of Management and Budget’s (OMB) issuances, Part 200 and Part 85, have been effective for several years. HUD says this issuance reflects the Biden Administration’s efforts to improve grants management and oversight. OMB directed HUD to remind HAs of the requirement and implement a process to ensure better compliance.
HUD is engaged in a two-step process. The first was the notice itself, announcing the reiteration of the requirements in Part 200 for interest remittance. The second part will come in the form of supplemental guidance to assist HAs and enable them to the calculate sums owed (if any).
Rental and Program Income are Exempt
The most important point is that the requirement applies to federal grants only, not program income and rental income. Thus, being able to distinguish federal funds from other sources is key to determining whether a remittance is required.
On this point, the accounting professionals opined that very few HAs would have earned interest on federal funds since those are spent first on payroll, resident services, utilities, and overall operations. In such a scenario, very few HAs would be required to return interest to the government.
As mentioned above, the requirement is effective for 2025 and beyond. However, one complication that arose centers around accumulated reserves. Department staff insisted HAs would need to go back an undefined period (it is unclear how long, but it could be several years) to determine what interest was earned on federal money vs. other funds. The accountants believe this could create a burden for some HAs, and might even be impossible for agencies to document, depending on how far back they must go. The issue is critically important because the government takes that position that all funds are considered “federal” (and therefore subject to remittance) if HAs cannot distinguish between the sources.
Conclusion
We appreciated the Department met with the industry and finance experts to discuss this rule. As always, the devil will be in the details and more good questions are bound to arise.
In the meantime, I encourage you and your finance staffs to carefully review the terms of Notice 2024-25 and begin to look at the sources of accumulated interest. Lastly, be assured that PHADA will stay on top of this matter and continue working to ensure that HAs receive adequate appropriations and retain all existing funds needed for operations.
In the Wake of Hurricane Helene
It is a scene that we have witnessed all too often in recent years. The devastation caused by Hurricane Helene is heartbreaking. Many residents in North Carolina, Georgia, Tennessee, and other parts of the Southeast have lost their homes and even livelihoods because of workplace destruction. PHADA’s most sincere thoughts and prayers go out to families, businesses, and communities throughout the region.
In addition to the areas noted above, federal emergency declarations have been approved for parts of Florida, South Carolina, Virginia, and Alabama. People can apply for federal assistance in four ways: online by visiting disasterassistance.gov, calling: 1-800-621-3362, on the FEMA App, or via disaster recovery centers.
HUD has said it will continue to work with housing authorities, multifamily, and healthcare owners and homelessness assistance partners to determine damage impact and resident displacement. The Department will also be developing vacancy lists of HUD-assisted projects that can be used to provide temporary and/or permanent housing to disaster survivors.
Our industry has faced challenges like this before and we know the importance of community strength and solidarity. With this in mind, housing professionals in the area have reached out to one another for help or to render their assistance. More information on how HAs and others can find information to assist is available here. Lastly, I want to mention that HAs should feel free to contact PHADA’s Washington staff, who can help make sure HUD and even FEMA are made aware of the need for additional follow-up or other things such as needed regulatory waivers or other types of assistance.