FUNDING PHA SALARIES IN A CAP ENVIRONMENT: THE TALE, OBSERVATIONS & SOME LESSONS April 11, 2015 Carolinas Council of Housing, Redevelopment & Codes Officials, Inc. 2015 Commissioner Workshop Myrtle Beach, South Carolina Eric Pristell, Principal Winchester Place, Suite 225 4309 Emperor Boulevard, Suite 225 Research Triangle Park, North Carolina 27703 (919) 474-9137 [email protected] www.bankslawfirm.com 2 Events that Contributed to the Implementation of a PHA Salary Cap: The Tale 3 The Great Recession December 2007 – June 2009 4 The Great Recession 5 ARRA • Public Law 111-5. • Passed by the 111th Congress on February 17, 2009. • Purpose to (a) Create new jobs and save existing ones; (b) Spur economic activity and invest in long-term growth; and (c) Foster unprecedented levels of accountability and transparency in government spending. • Intended to achieve these goals by providing funding for: (a) Tax cuts and benefits for working families and businesses; (b) Entitlement program funding; and (c) Funding for federal contracts, grants and loans. 6 ARRA • Original estimate was $787 Billion. • Later increased to $840 Billion. • Preceded the $182 Billion stimulus bill signed by President George W. Bush. • Intended to achieve these goals by providing funding for: (a) Tax cuts and benefits for working families and businesses; (b) Entitlement program funding; and (c) Funding for federal contracts, grants and loans. 7 ARRA 8 ARRA – HUD Funding $13.61 Billion for nine (9) projects and programs administered by HUD: • $4 Billion - Public Housing Capital Fund • $2 Billion - Project-Based Rental Assistance • $510 Million - Native American Housing Block Grants • $250 Million - Assisted Housing Energy Retrofit • $100 Million - Lead Hazard Reduction • $2.25 Billion - Tax Credit Assistance Program • $2 Billion - Neighborhood Stabilization Program • $1.5 Billion - Homeless Prevention • $1 Billion - Community Development Block Grants 9 HUD-OIG Audits HUD Stimulus Spending In 2009, the HUD Office of Inspector General audited HUD’s stimulus spending. The HUD-OIG released a series of investigative reports that specifically examined ARRA funding implementation at PHAs around the country. Notable audits/findings: 10 HUD-OIG Audits HUD Stimulus Spending Puerto Rico Housing Administration • Awarded more than $174MM in ARRA funds for its Capital Fund Program. • Inappropriately obligated $32MM in ARRA funds. • Inadequate oversight and capacity to ensure that HUD funds were managed in an economical, efficient and effective manner. 11 HUD-OIG Audits HUD Stimulus Spending Miami-Dade Housing Authority • Awarded $19.3MM in ARRA funds for its Capital Fund Program. • Weak procurement procedures. • Inadequate staffing levels. • Improper prioritization of ARRA funded activities. 12 HUD-OIG Audits HUD Stimulus Spending New Orleans Housing Authority • Awarded $34.5MM in ARRA funds for its Capital Fund Program. • Deficiencies related to staffing levels, accounts payable procedures, financial policies and procurement. 13 HUD-OIG Audits Come to the Attention of Congress 14 HUD-OIG Audits Come to the Attention of Congress Senator Charles “Chuck” Grassley • Senior Senator from Iowa. • 81 years of age. • Elected in 1981. • Former Ranking Member and Chairman of the Committee on Finance. 15 The Case of Carl Greene 16 The Case of Carl Greene Carl R. Greene • Former Executive Director of the Philadelphia Housing Authority. • 4th Largest PHA in the country. • Very successful in eliminating outdated public housing projects throughout the city and building new housing. • Lauded for his ability to quickly expend $127MM in ARRA funds to rebuild and renovate 1,200 units. 17 PHA Bad Press in 2010 “Lakeland Director of Public Housing's Pay and Perks Stir Pot” - Published May 15, 2010 “Sugar-Sweet Stimulus: How Low-Rent Housing Built a High-Rent Office Building” - Published June 2, 2010 18 Congress Demands More Answers from HUD August 23, 2010 Senator Grassley writes to HUD again and says that he is still concerned about fraud and abuse of taxpayer dollars, citing the recent cases in Philadelphia, PA and Lakeland, FL. 19 Congress Demands More Answers from HUD Senator Grassley requests information from HUD: the following • Salary, allowances and bonus data of executive directors at all troubled PHAs from the previous two years. • Salary, allowances and bonus data of executive directors of the 20 largest PHAs. • An explanation as to who determines PHA executive director salaries, and the criteria for determining their level of pay. • An explanation as to why bonuses are paid to executive directors. 20 HUD BEGINS to COLLECT PHA EXECUTIVE COMPENSATION DATA • April 26, 2011. HUD announces that it will require PHAs that administer public housing and housing choice voucher programs to annually report total compensation and benefits of their current highest compensated employees (the “Big Five”). Applied to FY 2010. Source: Notice of Proposed Information for Public Comment; Public Housing Authority Executive Compensation Information, 76 Fed. Reg. 23330 • The data collection method is modeled after IRS Form 990, Part VII, Schedule J, which requires a tax-exempt organization to annually report its five current highest compensated employees with reportable compensation of at least $100,000. • HUD proposes that the compensation information be posted on its website with job titles but not the employees’ names. • The purpose of this new reporting requirement is to provide a transparency and oversight tool, and a point of comparison for local PHA boards in determining appropriate compensation levels. 21 HUD BEGINS to COLLECT PHA EXECUTIVE COMPENSATION DATA • August 26, 2011. HUD provides guidance on its new compensation disclosure form, HUD-52725 (“Operating Budget: Schedule of Positions and Compensations”). Source: Guidance on Reporting Public Housing Agency Executive Compensation Information and Conducting Comparability Analysis, PIH Notice 2011-48 • PIH Notice 2011-48 created three requirements: (1) PHA must report its five highest compensated employees for FY 2010. (2) PHA is obligated to pay reasonable compensation to its ED/CEO based on a comparability analysis. (3) PHA must retain the comparability analysis and make it available to HUD upon request. 22 HUD BEGINS to COLLECT PHA EXECUTIVE COMPENSATION DATA Reasonable Compensation and Comparability Analysis Requirements • Based on the PHA’s Certifications of Compliance with PHA Plans and Related Regulations – Annual and 5-Year. • PHA certifies (1) that it will comply with OMB Circular No. A-87 (“Cost Principles for State, Local and Indian Tribal Governments”), and (2) that it is in compliance with all applicable Federal statutory and regulatory requirements. • OMB Circular No. A-87 and 2 C.F.R. Part 225, Appendix B, Section 8 (“Compensation for Persons”) require compensation for personal services to be reasonable. • “Compensation for employees engaged in work on Federal awards will be considered reasonable to the extent that it is consistent with that paid for similar work in other activities of the governmental unit.” • Compensation surveys providing data representative of the respective labor market is an acceptable basis for evaluating reasonableness. 23 HUD BEGINS to COLLECT PHA EXECUTIVE COMPENSATION DATA Other Highlights of HUD-52725 • Signatory of form required to certify, under penalty of criminal and/or civil punishment, that the submitted information is both accurate and true. • By executing PHA Certifications of Compliance with PHA Plans and Related Regulations, the Chairperson of the PHA Board is certifying, under penalty of criminal and/or civil punishment, that the submitted information is both accurate and true AND that the PHA is in compliance with all applicable Federal statutory and regulatory requirements, which includes the circular and regulatory requirements that ED/CEO compensation is reasonable. • Penalties for failing to report or provide to HUD ED/CEO salary comparability information include subsidy withholdings, temporary monetary sanctions, ACC default and other remedies pursuant to the U.S. Housing Act of 1937, HUD regulations and the ACC. • PHAs that operate an HCV-only program and receive less than 50 percent of their funding for employees from HUD are exempt from filing the form. 24 HUD BEGINS to COLLECT PHA EXECUTIVE COMPENSATION DATA FYI on HUD’s 2010 Data Collection (National PHA Salary Survey) • 97% of PHA executives earn less than $155,500 in total cash compensation (including base pay and bonuses). • 93% of PHA EDs/CEOs earned less than $125,000 annually. • Average cash compensation of a PHA ED/CEO was $82,229. • Top Earners: (1) Atlanta ($644K) (2) Los Angeles ($606K) (3) Philadelphia ($418K) (4) Chelsea, Mass ($358K) 25 FY 2012 PHA SALARY CAP On November 18, 2011 President Barack Obama signed the Consolidated and Further Continuing Appropriations Act of 2012 (Public Law 112-55) for federal fiscal year 2012, which provided funding for HUD and other departments and related programs. 26 FY 2012 PHA SALARY CAP No funds originating from the Section 8 Tenant-Based Rental Assistance (Section 8 funds) and Section 9 Capital Fund and Operating Fund (Public Housing Funds) may be used to pay the salary of a PHA employee in excess of $155,500 (the Executive Schedule Level IV). Section 234 of Title II, Division C 27 HUD PHA SALARY CAP GUIDANCE • Pursuant to PIH-2012-14, dated February 24, 2012. • Remains in effect until amended, superseded or rescinded. • Salary limitation applies to all PHAs, including low-rent only, Section 8 only and Moving to Work PHAs that (1) receive 2012 appropriations for Section 8 HCV program, Section 9 Capital Fund or Section 9 Operating Fund; and (2) pay any annual PHA salary during the PHA’s 2012 FY that exceeds $155,500. • Salary limitation applies to “covered individuals” which is any official or employee of the PHA within the ordinary understanding of those terms – Board member, CEO, ED, CFO, COO or other employee, including employees of PHA affiliates, instrumentalities that are a “component unit” of the PHA in accordance with applicable accounting standards. • Term “salary” includes payment to all covered individuals who are paid on an annual basis including situations where multiple PHAs collectively hire one person for an annual amount pursuant to one agreement. The term salary does not include bonuses and overtime or fringe benefits such as retirement, life insurance, medical insurance or the use of a PHA vehicle. 28 HUD PHA SALARY CAP GUIDANCE 29 HUD PHA SALARY CAP GUIDANCE • No funds originating from Section 8 or Section 9 sources may be used to pay a PHA salary in excess of the applicable salary rate, including fees generated by asset management or HCV that are collected by the Central Office Cost Center. • Funds remaining from previous fiscal years are not affected by the salary limitations. PHAs may carry over funding from previous years or use other non-restricted funds to pay salaries, in accordance with applicable eligibility requirements. • The test is how much the covered individual was paid during the PHA’s fiscal year (annual – Jan 1 – Dec 31, fiscal – July 1- June 30), NOT the federal fiscal year (Oct 1 – Sept 30). • March 17 Compliance: PHA to compute (1) Beginning and end dates of its fiscal year; (2) Covered individuals’ salaries in excess of $155,500; and (3) the Amount of salary that has been paid and remains due as of March 17, 2012. 30 HUD PHA SALARY CAP GUIDANCE Central Office Cost Center Fees De-federalized or Re-Federalized? • PHAs now operate under an asset management/project-based accounting model, designed to encourage PHAs to act more like private management companies. • Under this model, PHAs are considered third-party managers and thus charge internal fees payable out of Public Housing Operating Funds (Section 9 funds). • These fees are collected by an internal business unit called the “Central Office Cost Center” or “COCC.” • Examples of COCC fees include property management, asset management, program management and bookkeeping. • HUD has long considered these fees to be de-federalized and no longer subject to HUD requirements. • Many PHAs charge executive salaries to the COCC. • COCC funds can come from any number of sources including Section 8 and Section 9 appropriations, and can become commingled. 31 HUD PHA SALARY CAP GUIDANCE Central Office Cost Center Fees De-federalized or Re-Federalized? • However, HUD took the position, in connection with the passage of the PHA salary cap, that the legislation overrode HUD’s asset management rules, which regarded fees earned by the COCC as de-federalized. • HUD-OIG has questioned asset management fees and the COCC due to concerns over potential misspending by PHAs and the lack of restrictions attached to the use of such funds. • HUD-OIG has recommended that HUD re-federalize the COCC. 32 HUD THREAT OF A PERMANENT PHA SALARY CAP • Communicated through the June 5, 2012 release of the 2010 PHA salary survey results. • Purpose was to protect taxpayers by indexing PHA total compensation to federal government salary scales. • Pay ranges commensurate with the size and number of units managed by the PHA, including location adjustments (cost of living): - Less than 250 units - $74,628 - $88,349 (GS 11/10) - 250 -1,249 units - $106,369 - $125,926 (GS 13/10) - More than 1,250 units - $147,857 - $155,500 (GS 15/10) • Pay ranges limit total cash compensation, not just salary – in effect closing the 2012 salary cap loophole. • HUD threatens a permanent regulatory fix if Congress fails to act in the 2013 appropriations budget. 33 SENATE THREAT OF A PERMANENT PHA SALARY CAP • Senate Bill 1243, § 228 (113th Congress). • Proposed permanent salary cap would be enacted by amending the U.S. Housing Act of 1937. • Salary paid to PHA employees and contract personnel must be based on the federal government salary scales. Tiered structure (public housing and HCV): - 250 to 1249 Dwelling Units – Not to Exceed GS-13, Step 10 - 1250 or more Dwelling Units – Not to Exceed GS-15, Step 10 • Salary includes annual basic rate of pay and adjustments such as overtime, bonuses or contract payments. • PHA obligated to make available to HUD, upon request, financial and other records for compliance monitoring. • Cap effective January 1, 2014 or in the case of contract personnel (e.g. EDs/CEOs), effective upon the expiration of contracts in effect when the law is passed. 34 FY 2013 PHA SALARY CAP On March 26, 2013 President Barack Obama signed the Consolidated and Further Continuing Appropriations Act of 2013 (Public Law 113-6) for federal fiscal year 2013, which provided funding for HUD and other departments and related programs. 35 FY 2013 PHA SALARY CAP Congress appropriates such amounts as may be “necessary, at the level specified in subsection (c) and under the authority and conditions provided in applicable appropriations Acts for fiscal year 2012…” Section 1101 of Title I 36 FY 2014 PHA SALARY CAP On October 17, 2013, President Barack Obama signed the Consolidated and Further Continuing Appropriations Act of 2014 (Public Law 113-46) for federal fiscal year 2014, which provided funding for HUD and other departments and related programs. 37 FY 2014 PHA SALARY CAP Congress appropriates such amounts as may be “necessary, at a rate for operations as provided in the applicable appropriations Acts for fiscal year 2013 and under the authority and conditions provided in such Acts…” Section 101 of Division A 38 FY 2015 PHA SALARY CAP On December 16, 2014, President Barack Obama signed the Consolidated and Further Continuing Appropriations Act of 2015 (Public Law 113235) for federal fiscal year 2015 funding the federal government and related programs. 39 FY 2015 PHA SALARY CAP No funds originating from the Section 8 Tenant-Based Rental Assistance (Section 8 funds) and Section 9 Capital Fund and Operating Fund (Public Housing Funds) may be used to pay the salary AND BONUSES of a PHA employee in excess of $158,700 (the Executive Schedule Level IV). Section 227 of Title II, Division K 40 MODIFIED PHA EXECUTIVE COMPENSATION DATA • Issued January 9, 2014 (PIH-2014-01). • Entitled “Guidance on Reporting Public Housing Agency Executive Compensation.” • Key Differences from PIH-2011-48: - No reporting exemptions (applies to all PHAs). - Different submission date requirement (not tied to submission of Operating Subsidy Form – HUD-52723). - Data on top three highest paid employees required, including the top management and financial officials. - HUD introduced a two-pronged concept called “total cash compensation” which consists of (1) base salary and (2) bonus and incentive compensation. - Source of funds must be reported for persons with total cash compensation exceeding $155,500. Limited to total cash compensation paid with funds originating from Section 8 and Section 9 appropriations. 41 INCREASES TO THE PHA SALARY CAP * ** 2012 $155,500 2013 $155,500 2014 $157,100 * 2015 $158,700 ** Pursuant to Executive Order 13655, December 23, 2013. Pursuant to Executive Order 13686, December 19, 2014. 42 CHALLENGES OF IMPOSING A PHA SALARY CAP: OBSERVATIONS • Suggested pay structure is not an accurate reflection of the federal pay system. • PHA staff are not federal employees and do not receive similar benefits. • May be considered inequitable in that HUD does not regulate compensation of other recipients of federal funding. • Infringement upon the autonomy and authority of local PHA boards. • Could undermine efforts to attract and retain qualified and skilled professionals. • Rigid size-based cap does not take into consideration larger more complex organizations, high cost regions and long tenured PHA staff. 43 FUNDING PHA SALALRIES: SOME LESSONS LEARNED • Ensure that the compensation of your PHA top officials is reasonable. • Be transparent. It’s the law! • Entrepreneurial PHAs that have additional non-federal sources of funding will have more flexibility to go over the salary cap. • Ensure that the annual compensation form (“Big Three”) is filed with the local HUD Field Office. • Annually evaluate and monitor salary allocation (source of funds). • Evaluate and monitor the earning and expenditure of non-federal funds. • Keep up the good work! 44 QUESTIONS? Eric Pristell [email protected] (919) 474-9137 www.bankslawfirm.com 45 North Carolina Office: Winchester Place, Suite 225 4309 Emperor Boulevard Research Triangle Park, North Carolina 27703 South Carolina Office: 1201 Main Street, Suite 1980 Columbia, South Carolina 29201
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