PHADA Will Continue to Raise Concerns, Inform HAs on Interest Income Requirements
The Department of Housing and Urban Development’s (HUD) Office of Public and Indian Housing (PIH) posted guidance on the Asset Management webpage on May 7, entitled PHA Post Federal Award Requirements Guidance: Interest Earned on Operating Funds. The guidance outlines a housing authority’s requirement to return interest earned on federal funds to the Department of Health and Human Services (HHS), under the Office of Management and Budget (OMB). The Department states that the guidance provides information to support compliance and financial accountability related to 2 CFR Part 200, including compliance requirements, calculating interest earned on Operating Funds, compliance monitoring, and other resources.
Operating Fund Grant Program Compliance Requirements, per the Guidance
- Operating Funds are to be maintained in an interest- bearing account in accordance with 2 CFR 200.305(b)(11). The account must be subject to a General Depository Agreement, form HUD-51999, and cash management requirements in 24 CFR part 990.
- Interest earned on Operating Funds in excess of $500 must be returned to the federal government via the Department of Health and Human Services as required in 2 CFR 200.305(b) annually.
- HAs must be able to distinguish grant funds from non-grant funds in accordance with financial requirements in 2 CFR 200.302.
- Where an HA has combined operating subsidy with other grant funds and non-grant funds in a manner where the interest earned on the balances of the different funds cannot be recorded in accordance with the financial requirements of 2 CFR 200.302, then the entire balance (excepting tenant security deposits) of reserves must be considered Operating Subsidy for the purposes of calculating interest earned.
The guidance notes that HAs are permitted to use different methods to calculate interest earned on Operating Funds and includes examples of methodologies to calculate interest when grant funds are maintained separately or combined with non-grant funds. The interest earned on federal grant funds must be returned annually to the HHS Payment Management System by either Automated Clearing House (ACH) network or a Fedwire Funds Service payment.
- Grant funds maintained separately from non-grant funds. Interest earned pursuant to 2 CFR 200.305 will be the total interest earned on Operating Subsidy.
- Grant funds combined with non-grant funds. The entire balance (excepting tenant security deposits) will be considered Operating Subsidy for the purposes of calculating interest earned. PHAs may use different methodologies to allocate interest earned to Operating Subsidy, including utilizing year end balances, quarterly, monthly, or average daily balances. HUD provides examples within the guidance on how to calculate interest earned in each example.
PHADA was first made aware of this provision in PIH Notice 2024-25 in late 2024 and immediately requested the opportunity to meet with the Department, along with other industry financial experts, to discuss questions and major concerns. Since many HAs earn considerable sums through investments on their rental income and other non-federal resources, this requirement is especially troubling. These funds are especially needed at a time when HAs are short-funded, insurance costs are skyrocketing, and tenant accounts receivable are at all-time highs for many agencies.
The most crucial point that PHADA and its representatives made to HUD last year was 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. Additionally, one specific complication that arose in the discussion centers around accumulated reserves. HUD staff insisted HAs would need to go back an undefined period to determine what interest was earned on federal funds versus non-federal funds. Industry financial experts believe this could create large burdens for some HAs and might even be impossible for agencies to document.
PHADA appreciated the opportunity to meet with the Department in September 2024 and provided detailed comments to the initial draft guidance on October 11, 2024. The Association’s full comment letter can be found here. PHADA’s goal in providing comments to the Department was to make sure the guidance was clear, straightforward, and that it did not adversely affect HA funding and operations. Unfortunately, a number of questions remain after review of the recently published guidance. First, the timing of the reporting on interest income is unclear, including whether or not a “look-back period” applies to Operating reserves. Further, it is unclear if agencies are permitted to take into consideration long-term and other general liabilities (e.g., OPEB, vendor accounts payable), other restricted funding, like EPC agreement, that offset operating reserve balances, and pre-paid balances like insurance and inventories, for example, in the calculation.
PHADA would like to reiterate, and the industry’s financial experts agree, that the majority of HAs are spending their Public Housing Operating Subsidy (and other federal awards) before any other program and non-program income, because program expenses simply exceed federal Operating Subsidy. Therefore, interest earned, if any, on Public Housing Operating Subsidy funds is negligible.
PHADA will be meeting with members and industry financial experts at our Annual Convention & Exhibition in Seattle in mid-May. Following these discussions, the Association will attempt to provide suggestions for members to assist in both how best to distinguish federal funds from other sources and how to properly calculate interest income earned so that HAs remain in compliance while also retaining existing funds needed for operations. Stay tuned for forthcoming resources and analysis.