GMHA Board Considers Conversion of Units to HUD
Section 8 Program - Rental Assistance Demonstration (RAD)
Geauga Metropolitan Housing Authority (GMHA) - 9/17/2024
Meeting Info: Regular Meeting on September 17, 2024 at 4:00 pm (EST) in the GMHA Conference Room at Murray Manor, 385 Center St., Chardon, OH, 44024. This meeting is in-person only.
Agenda: An agenda was provided at the meeting. It is not available online. The documented proceedings below follow the agenda and are presented sequentially.
Proceedings:
1. Call to Order - 4:01 pm
2. Roll Call
Board Chair - Richard Depenbrok, present
Board Vice Chair - Jeff Markley, absent
Board Member - Walter Claypool, absent
Board Member - Susan Kemerrer, present
Board Member - Michael Petruziello, present
Staff Present:
Executive Director - Dawn Farrell
Chief Financial Officer – Carrie Carlson
Legal Counsel - Todd Petersen
Others Present:
GMHA’s Accountant - Salvatore Consiglio of Salvatore Consiglio, CPA, Inc.
Public Presence:
Five members of the general public were present, including this observer.
3. Pledge of Allegiance
4. Discussion/Approval of Minutes - August 2024 Meeting
No discussion of the August minutes was required. All accepted the minutes. Observer Note: Minutes are not available online. The Executive Director Dawn Farrell indicated to this observer by email that Minutes are available through a written request after they have been approved by the Board.
5. Financial Statement and Writeoffs
A motion to receive the financial statements for public housing, Section 8 and non-federal funds for July 2024 was approved.
Issue Identified:
Planned Correction:
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Future revisions will ensure that capital improvements are aligned with both revenue and expenditure on the operating statement.
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The correction will balance the capital improvement expenses and reflect them appropriately in future financial reports.
Detailed Adjustments:
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Total expenses were originally recorded as - $47,000 but, after the revision, increased to -$59,000—a $12,000 adjustment.
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These capital improvements were previously recorded in the 1400 accounts on the balance sheet but not shown on the operating statement.
Current Financial Snapshot:
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Revenue year-to-date: approximately $537,000.
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Expenditures: $194,000.
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Further revisions are anticipated, with a corrected balance sheet expected for review by the next board meeting.
Additional Discussions:
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Public housing reserves and the use of funds were explored, including whether reserves could be used to rebuild condemned units.
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Asset depreciation and proper allocation of capital improvements were also reviewed.
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The state audit process was discussed, with the team noting no significant findings. The board expressed appreciation for the management team's efforts in ensuring a successful audit.
6. Fee Accountant Presentation
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Introduction of Capital Line Items: Mr. Consiglio, GMHA’s contracted accountant, explained that capital line items were added to the financial statements to improve transparency and allow board members to better understand how funds are used for capital improvements. This design enables clearer tracking of capital expenditures, such as improvements made to housing units, by including them in the operating statement rather than solely on the balance sheet.
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Three Public Housing Funding Sources: The accountant clarified that the operating subsidies and tenant rent cover operating expenses, while capital funds can sometimes be used for operational needs, depending on the situation. However, these funding sources are not kept entirely separate because they interrelate, with tenant rent and subsidies being used to cover regular expenses, while capital funds handle improvements. The accountant noted that this is why they don’t break down the financial statements into completely separate categories for each funding source.
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HUD’s Formula for Subsidy Allocation: HUD calculates the operating subsidies needed for the housing authority using a formula that factors in the rent collected from tenants. For instance, if it costs $1 million to operate a housing authority but the tenants contribute $500,000 in rent, HUD would provide a subsidy for the remaining $500,000. This ensures that the public housing program has the necessary funds to operate.
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Balance Sheet and Reserve Management: The balance sheet reflects the housing authority’s assets and liabilities, and the difference between the two constitutes its equity, showing the financial health of the organization. However, since the housing authority is a public entity, HUD discourages excessive reserves. The accountant explained that HUD prefers reserves equivalent to about six months of operating costs. If a housing authority accumulates more than that, HUD could potentially reallocate the excess funds to other authorities in need, as has happened in the past.
In fact, the accountant mentioned that some housing authorities had money taken away in 2008 or 2009, leading to a lawsuit where several housing authorities successfully sued HUD and had their funds returned. The risk of losing reserves emphasizes the importance of carefully managing surplus funds.
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Using Reserves for Rebuilding Condemned Units: The accountant confirmed that the housing authority could legally use its reserves to rebuild condemned units. While new construction is generally not allowed, rebuilding condemned properties is permissible. This is important because the housing authority has two condemned units in Newbury that need to be addressed. The accountant added that, while HUD does not allow for increasing the size of these units, they do not have to be exact replicas of the original structures. There are options to mirror other existing units in the portfolio, which could make maintenance easier.
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Borrowing Restrictions: The accountant clarified that while the housing authority can borrow money, it cannot use public housing assets (i.e., the units themselves) as collateral. HUD places a lien on public housing properties, preventing the authority from leveraging them in a loan. If the housing authority wanted to borrow funds, it would need to use a different type of asset as collateral, and the interest on any debt incurred would not be an allowable expense under HUD’s guidelines for public housing.
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Time-Consuming Process for Unit Removal and Rebuilding: The removal and rebuilding process for condemned units, such as the ones in Newbury, is time-consuming because it involves several steps and requires federal approval. The accountant explained that the housing authority would need to go through a formal process, including public meetings and approvals from HUD at the federal level. The timeline for this process can take years, often two or three, which adds a layer of complexity when trying to quickly resolve issues with condemned properties.
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Ensuring the Use of Reserves Before HUD Recaptures Them: Given that the housing authority currently has about 18 months' worth of reserves, the board and accountant discussed the importance of utilizing these funds for necessary improvements, such as rebuilding the condemned units. If the reserves continue to grow unchecked, HUD could potentially reclaim the excess, so there is a need to use the funds strategically for long-term improvements while ensuring that reserve levels remain acceptable to HUD.
In summary, the presentation focused on ensuring the housing authority’s financial health, managing reserves properly, addressing the issues with condemned units, and understanding the constraints and opportunities presented by HUD regulations regarding funding and borrowing.
7. Commissioner’s Report
The management team was praised by the board for their excellent work during the recent state audit, which had no findings. Ms. Carlson was instrumental in providing all necessary documents. The team acknowledged the challenges of working with the less-experienced Auditor of State's office but noted that the team, especially Mr. Consiglio, helped guide the auditors through the process. Although the preliminary audit report has been received, the final version is still pending. The team’s efforts were highly appreciated.
8. The Report of Counsel
Mr. Petersen indicated there was nothing to report or discuss.
9. Report of Director
a. August Programs Report
No questions or comments were provided on the programs report.
b. Conference Participation
Ms. Farrell reminded everyone of the Ohio Housing Authorities Conference (OHAC) conference this week and the National Association of Housing and Redevelopment Officials (NAHRO) national conference next week, which she will be attending.
c. Small Area Fair Market Rents (SAFMR)
Ms. Farrell indicated they have been working with a knowledgeable technical assistant that HUD has provided, at no charge to the agency. She expects all of the rents to be finalized after one more upcoming meeting.
OLD BUSINESS
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Murray Manor Window Payment
Ms. Carlson indicated that work was still ongoing to repair/replace windows and this topic could be tabled until next month’s board meeting. This was agreed to by the board.
NEW BUSINESS
A. Murray Manor Backup Generator
Ms. Carlson sought approval of the board to award the contract for the installation of a backup generator at Murray Manor to IELTS Electric for a cost not exceeding $232,000. The board granted approval without dissent. The project is classified as a capital improvement and will be funded through capital funds already budgeted in the five-year capital plan. The contract will be quickly executed, then a pre-construction conference will be held, after which the generator will be ordered, and site work can begin. The project must be obligated by February 2025. There was also a brief discussion about possibly using surplus funds for similar upgrades at another facility, Harris House. Reviewer Note: During recent storms in August both facilities were without power from August 6-August 9th.
Trash Removal Services
Approval was sought for the director to sign a contract extension from November 1, 2024, through October 31, 2025, with a value not exceeding $24,080, with Dumpster Bandit, with the current contract set to expire on October 31st. It was noted that there is no price increase from the previous year. The contract extension was approved unanimously.
B. Disposal of Assets
Ms. Carlson led a discussion involving the disposal of several obsolete assets, including a hot water tank from Littlefield, which was packed with sediment, rendering the pressure relief valve inoperable, and a refrigerator with black mold, previously scrapped for parts. The board approved a resolution to recycle these items. Additionally, a zero-turn mower with a damaged motor drive and an irreparable deck was deemed no longer needed. The board approved the listing and sale of the mower. Both resolutions passed unanimously.
10. Hearing of the Public
The Chair opened the floor to public comment.
During the public comment section, a participant named Roxanne expressed difficulty in understanding the technical vocabulary used during the meeting, particularly terms related to HUD and the discussions on revenue. Roxanne, a former nurse, noted that every field has its own jargon, making it hard for her to follow the conversation. The board acknowledged the complexity of the terms and suggested she look up HUD acronyms online for clarification. Mr Petruziello shared his experience, explaining that they had the same challenges and suggested taking notes and looking up terms as they come across them in HUD documents.
Additional Topic (not on Agenda) - Rental Assistance Demonstration (RAD)
The executive director, Ms. Dawn Farrel, raised the topic of Rental Assistance Demonstration (RAD). The discussion amongst the staff and the board on the (RAD) program focused on whether to pursue the RAD application process to take advantage of favorable rent rates, which are projected to decrease next year. The RAD program allows public housing authorities to convert their properties from traditional public housing to a project-based Section 8 model, offering more flexibility and the potential for increased revenue by locking in higher rent levels. The board is under a time constraint, needing to submit the application by December 31st to secure the current advantageous rates. Reviewer Note: It appears from correspondence to residents that this funding source could be utilized at all GMHA properties, but it is not certain yet that the Board will approve using it.
Several benefits were highlighted, including the possibility of generating more income that could be less restricted by HUD regulations, greater autonomy in managing properties, and opportunities to finance property upgrades through public-private partnerships and tax credits. Additionally, RAD could provide more control over local properties, making it easier to address community concerns and perform capital improvements without relying solely on HUD funding.
However, the board voiced significant concerns about the long-term risks of RAD. One of the primary concerns was the loss of HUD’s capital funding for property maintenance and improvements. Under RAD, the housing authority would be responsible for generating the necessary funds for upkeep, potentially leaving them financially vulnerable if rental income does not cover expenses. The shift would also introduce stricter income limits for new tenants, potentially reducing the pool of eligible applicants.
Other concerns included the irreversible nature of RAD—once properties convert, they cannot return to traditional public housing—and the adequacy of reserve funds for future maintenance needs. The board emphasized the need for a solid financial safety net, worried about how RAD might impact their ability to manage unforeseen expenses, especially for aging properties requiring significant repairs.
The board also discussed how RAD would change their role, as they would need to run the housing properties more like a business, potentially leading to more difficult decisions regarding budget and maintenance. The future of reserve funds was another key point, with concerns about whether current reserves could be retained post-conversion or if they would need to be spent before switching to RAD.
The board plans to consult Mike Andrews, an expert regarding the RAD process. Mr. Andrews is assisting the executive director in evaluating whether a RAD conversion is financially viable, especially given the favorable current rent rates. He has prepared detailed financial projections, which he will present to help the board make an informed decision. The board aims to balance the potential benefits of increased revenue and autonomy against the risks of financial instability.
Observer Note: More information regarding RAD can be found here on the Housing and Urban Development (HUD) government website.
Next Meeting: Murray Manor. On October 15, 2024 at 4 pm.
More information about the Geauga Metropolitan Housing Authority can be found here.
Observer Note: The Executive Director indicated they were recording the audio of the meeting.
Observer: David Lewis
Editor: Carol Benton
Reviewer: Sarah McGlone
Date Submitted: 9/24/2024
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