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Asset Management Orientation for PHA Boards . Overview of Asset Management Orientation for PHA Boards. Section 1: Overview of Asset Management. Section 2: Asset Management Building Blocks . Section 3: The Central Office Cost Center. Training Format. Designed for PHA Board members

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Asset management orientation for pha boards l.jpg

Asset Management Orientation for PHA Boards


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Overview of Asset Management Orientation for PHA Boards

Section 1: Overview of Asset Management

Section 2: Asset Management Building Blocks

Section 3: The Central Office Cost Center


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Training Format

  • Designed for PHA Board members

  • Based on the curriculum presented at live, regional training sessions conducted in 2007

  • Features include:

    • Fully narrated presentation slides

    • Ability to navigate between slides

    • Exercises in each section

    • Ability to download the training to your computer

    • Access to reference materials and websites


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Section 1: Overview of Asset Management


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Overview of Asset Management Learning Objectives

  • Provide a brief history of the events leading up to Public Housing’s conversion to asset management

  • Identify key dates associated with the transition to asset management

  • Define asset management

  • Distinguish asset management from property management

  • Describe key roles and responsibilities under asset management, particularly the PHA Board’s role as owner


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History and Background

  • 1998: Quality Housing and Work Responsibility Act

  • 1999: Negotiated-Rulemaking I, Funding of Harvard Cost Study

  • 2003: Cost Study Completed

  • 2004: Negotiated-Rulemaking II

  • 2005: Final Rule on Operating Fund Program

    • New Operating Subsidy Formula

    • Asset Management Requirement for PHAs with 250+ Units

  • 2006: PIH Notice 2006-33 (Interim Guidance/Financial Reporting)

  • 2007: PIH Notice 2007-09 (Final Guidance/Financial Reporting)

  • 2008 Appropriations Bill (Include full name here)


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A Look at the PHA Inventory

Data is based on the “Operating Fund Annual Report Calendar Year 2007,” October 31, 2007.


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Gainers and Decliners Under the New Operating Fund Formula

Data is based on the “Operating Fund Annual Report Calendar Year 2007,” October 31, 2007.


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Central Tenet of Asset Management

“PHAs shall manage their properties according to an asset management model, consistent with the management norms in the broader multi-family management industry. PHAs shall also implement project-based management, project-based budgeting, and project-based accounting, which are essential components of asset management.”

Revisions to the Public Housing Operating Fund Program; Final Rule

HUD, September 19, 2005


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Key Implementation Dates

  • Determination of Asset Management Projects (AMPs) – Calendar Year 2006

  • Implementation of new Operating Fund Formula – Calendar Year 2007

  • Project-Based Budgeting/Accounting (PBB/A) – Fiscal Year 2007

  • Cost Reasonableness Standards – Fiscal Year 2008

  • New Public Housing Assessment System – Effective Second Year of PBB/A

  • Full implementation of Asset Management – Fiscal Year 2011


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Effective Dates for Implementation

*Extension through 2011 on case-by-case basis


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Asset Management Definition

Asset management…is a process of making investment decisions for a collection (portfolio) of assets, based on the mission, goals, and objectives of the owner, lender, sponsor, or regulatory body.


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Asset Management vs. Property Management

  • Asset Management

    • Mission/goals/policies

    • Strategic decision making

  • Property Management

    • Day-to-day management/operations


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A Look at Entities, Roles and Functions

Entity

Role

Function

Owner

Asset

Management

PHA Board

PHA Staff

or Mgmt

Company

Property

Management

Operator

Oversight

and

Monitoring

Regulator

PIH

Field Offices


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Difference in PHA Missions

  • Who to serve

  • Quality of housing

  • Standard of affordability

  • Social goals


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Operating Fund Program Final Rule and Small PHAs

  • PHAs with fewer than 250 units are not required to convert to asset management. Still, they will be:

    • Subject to new funding formula

    • Required to use the new year-end financial reporting template (FDS, or Financial Data Schedule)

    • Affected by change in PHAS

  • Small PHAs may choose to implement asset management and follow the key business rules like any larger PHA


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PHA Board: Owner Role

  • Review activities for conformance with missions and goals

  • Evaluate progress and recommend corrective action

  • Monitor performance

  • Stay up-to-date on industry information

  • Foster relationships with key stakeholders


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Asset Management Changes from Appropriations Act of 2008

The Consolidated Appropriations Act of 2008 contained two provisions which pertain directly to asset management. The two provisions are:

  • PHA election to be exempt from asset management for PHAs with 250-400 units

  • Use of Capital Fund proceeds to pay for central office costs

    The first provision is only effective for CY 2008. The second is considered permanent legislation.


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400-Unit Exemption for CY 2008

  • For the purpose of being exempt from asset management, the size threshold increased from 250 units to 400 units

  • Does not change small PHA threshold for other program areas

  • PHAs between 250-400 units that elect to convert will not have option of “alternative asset management model” (available only for PHAs of less than 250 units)

  • Exemption only authorized for CY 2008

  • PHA must notify HUD via CY 2008 operating subsidy submissions by April 25, 2008


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400-Unit Exemption: Implications

  • Will not implement fee for service model, and will not create a COCC

  • Will not receive the $4 PUM asset management add-on

  • All units will be combined into one AMP, possibly affecting Project Expense Levels (PELs)

  • Refer to PIH Notice 2008-16 for additional implications


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Capital Fund Program Changes

  • PHAs may transfer Capital Funds to Operations for payment of central office costs

  • In implementing this provision, PHAs must maintain cost allocations for overhead costs (in lieu of fee-for-service/management fees) and, therefore, not establish a COCC

  • Overhead costs must still be considered reasonable and necessary

  • Large PHAs may still only transfer up to 20% to “Operations”


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Workshop 1.1: Asset Management Change Assessment

  • How might asset management change the way your PHA does business?

    As a group, please discuss and provide an answer to the question above.


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End of Section 1


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Section 2: Asset Management Building Blocks


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Asset Management Building Blocks Learning Objectives

  • Introduce the five building blocks of asset management


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Initial Priorities/Building Blocks

Project-based

performance assessment

Project-based management

Project-based accounting

Project-based budgeting

Project-based funding


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Project-based funding

Project-Based Funding

  • Separate subsidy form for each project

  • Project Expense Level (PEL) is a major component

  • Ensures appropriate resources are allocated to each AMP


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$

OLD

HUD

PHA

NEW

HUD

PHA/COCC

$ Fees

$ Subsidy

AMP

The Flow of Funds

  • Property Management Fee

  • Asset Management Fee

  • Bookkeeping Fee

  • Fee-for-Service

  • Program Mgmt. Fees.


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Components of Formula Funding

  • To understand the amount of funds available to any project, one must understand the following:

    • Project Expense Level (PEL)

    • Utility Expense Level (UEL)

    • Add-Ons

    • Frozen Formula Income

    • Proration


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Project Expense Level (PEL)

  • Model-generated estimate of cost to operate a project on a per unit basis, exclusive of taxes, utilities, and add-ons

  • Amount expressed in PUMs (per unit month)

  • Major coefficients that have a large impact on PEL

    • Unit Size (Bedroom Mix)

    • Local Market

    • Age of Property

    • Occupancy Type (Family vs. Elderly)

  • National average was $ 325 PUM in 2007 (excluding New York City Housing Authority)


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Utility Expense Level (UEL)

  • Represents the average utility consumption for a project over the past three years, multiplied by recent utility rates

  • Amount expressed in PUMs

  • National average was $125.95 PUM in 2007

  • Assigned UEL will vary by project


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2007 Add-Ons


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Frozen Formula Income

  • Equal to a project’s rental income reported on 2004 financial statements, adjusted for changes in utility allowances

  • Effective for 2007 through 2009

  • National average was $181.09 PUM in 2007


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Proration

  • Each year, total subsidy eligibility is compared with appropriations for the Operating Fund program; the difference is proration

  • Expressed as a percentage

  • Example:

    • Eligibility = $4.0 billion

    • Appropriation = $3.6 billion

    • Proration = 90%


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Effective Income

- Operating Expenses

= Net Income

Determining Project Funding

Project Expense Level (PEL)

+ Utilities Expense Level (UEL)

+ Add-ons

= Formula Expenses

- Formula Income

= Subsidy Eligibility

- Proration

= Actual Subsidy

+ Rental Income

+ Other Income

+ Transfers

= Effective Income


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Project-based budgeting

Project-based funding

Project-Based Budgeting

  • Used for planning purposes

  • Budgeted amounts must reconcile to FDS

  • Must be approved by PHA Board

  • Not subject to HUD approval


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Project-Based Budgeting (continued)

What are project-based budgets?

  • Itemized projection of income and expenses over a specific period

  • Guideline for operating the project


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Sample Conventional Budget

Gross Potential Income (GPI)

- Vacancy and Collection Loss

+ Miscellaneous Income

= Effective Gross Income (EGI)

- Operating Expenses

= Net Operating Income (NOI)

- Reserves for Replacement

- Annual Debt Service (ADS)

= Cash Flow


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Ratios Used for Expense Benchmarking

Operating Expense

Ratio (%) =

Operating Expense

per Unit ($) =

  • Several variables may impact benchmarks

  • Expense benchmarks can be used to compare efficiencies across properties

Operating Expenses

Income

Operating Expenses

Number of Units


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Workshop 2.1: Expense Benchmarks

  • Consider data from two similar apartment buildings shown on the next slide

  • Calculate the Operating Expense Ratio and Operating Expense/Unit Ratio

  • In groups, identify the project with the lowest costs

  • What other factors should be considered when evaluating the results of this cost comparison?


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Workshop 2.1: Expense Benchmarks

86%

91%

$7,500

$14,500


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Calculating Expense Benchmarks

Hamilton Place:

Operating Expense Ratio:

$150,000 (Operating Expense)/$175,000 (Income) = 86%

Operating Expense per Unit:

$150,000 (Operating Expense)/20 (Number of Units) =

$ 7,500

Southside Apartments:

Operating Expense Ratio:

$145,000 (Operating Expense)/$160,000 (Income) = 91%

Operating Expense per Unit:

$145,000 (Operating Expense)/10 (Number of Units)=

$ 14,500


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Where Can I Find Benchmarks?

  • Project Expense Levels (PELs)

  • Project Level Data

  • IREM Income/Expense Analysis® Reports

    • www.irem.org

  • Housing Finance Agencies

  • NeighborWorks (small properties)

  • Rural Development

  • Local and Regional Market Studies


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Project-based accounting

Project-based budgeting

Project-based funding

Project-Based Accounting

  • Year-end project statements submitted to HUD

  • Can only charge projects for services actually received

  • Fees must be considered reasonable


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Project-Based Accounting (continued)

  • For conventional properties, the financial performance of each property is tracked individually and reported to the owner

  • This allows the manager and owner to make the best possible decisions for each individual property

  • Similarly, PHAs will assemble project level financial data


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Project-Based Accounting Under the Final Rule

Annual year-end financial statements on each AMP will be required

  • Revenues, expenses, balance sheet

  • To be included with the Financial Data Schedule (FDS)

  • FDS will also be revised to include a column for the COCC


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Entity-Wide FDS Financial Reporting Model (Existing)


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Asset Management Project FDS Financial Reporting Model (New)


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Project-based

management

Project-based accounting

Project-based budgeting

Project-based funding

Project-Based Management

  • Arrange services in the best interest of the project

  • Assign management personnel to each project


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Project-Based Management (PBM)

“The provision of property-management services that is tailored to the unique needs of each property, given the resources available to that property...Under PBM, these property management services are arranged, coordinated, or overseen by management personnel who have been assigned responsibility for the day-to-day operation of that property and who are charged with direct oversight of operations of that property.”

24 CFR 990


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Why Practice PBM?

  • Maximizes performance at all levels

  • Local staff are closer to market changes and community issues

  • On-site staff can monitor the project

  • Response to resident issues is faster and more personal


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Common Characteristics of PBM

  • Each project has an operating budget to be approved by the owner

  • The project is assigned dedicated management and maintenance personnel who frequently work on site

  • If a project is too small to afford full-time staff, the project may have part-time or shared staff


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Common Characteristics of PBM (Continued)

  • Site personnel have significant authority and responsibility over the day-to-day operations

  • Most project management tasks are handled or coordinated by the on-site staff

  • Procurement is done by on-site management and reviewed by supervisor

  • The person primarily in charge of the project on a day-to-day basis, including maintenance, is the site manager


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Project-Based Management Example

You own a group of restaurants.

  • Would you have a budget for each restaurant?

  • Would you hire a manager for each restaurant?

  • What roles would you assign to on-site staff vs. central staff?


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Workshop 2.2: Assignment of Common Tasks

  • The table on the following slide list tasks commonly associated with managing Public Housing

  • As a group, determine whether each task should be performed on-site or centrally under project-based management


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Workshop 2.2: Assignment of Common Tasks (Answers)


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Project-based

performance assessment

Project-based management

Project-based accounting

Project-based budgeting

Project-based funding

Project-Based Performance Assessment

  • Revise PHAS to emphasize AMP performance

  • Development of internal PHA monitoring mechanisms


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HUD Oversight and the Public Housing Assessment System (PHAS)

  • Each project will be evaluated on financial, managerial, and physical aspects in addition to use of Capital Funds

  • New system will:

    • Be consistent with the norms in multifamily housing

    • Avoid PHA self-certifications

    • Rely on existing data sources

    • Emphasize on-site management reviews


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Internal PHA Monitoring Mechanisms

  • Develop mechanisms to collect data to measure actual AMP performance against goals

  • Goals must be clearly articulated in annual plans and budgets. For example, budget goals may include monthly income and expenditures.


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Project Goals

  • In order to measure performance, goals must be articulated

  • Annual budget preparation includes goals:

    • Rent collections

    • Vacancies

    • Unit turnarounds

    • Inspections

    • Maintenance services


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Sample Monthly Project Review

  • 5th of month: Financial statements made available

  • 7th of month: Manager’s monthly Project Report due to Regional Manager

  • 9th of month: Meeting with Site Manager and Regional Manager to review performance

  • 10th of month: Regional Manager forwards narrative variance report to Director of PM and ED, accompanying monthly financial report

  • 12th–15th of month: ED reviews performance with Board and Committees


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Long-term Capital Planningand Asset Repositioning

Key information needed:

  • Physical needs assessment

  • Market data

  • Asset value

  • Funding sources


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Long-Term Capital Planningand Asset Repositioning: Strategies

Asset strategies:

  • Hold/defer

  • Hold/modernize

  • Refinance

  • Sale/disposition/demolition

    Each strategy must be compared against the mission and goals of the agency


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End of Section 2


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Section 3: The Central Office Cost Center


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The Central Office Cost Center: Learning Objectives

  • Explain the concept and requirements of the Central Office Cost Center (COCC) under the Final Rule

  • Describe the allowable fees charged by the COCC


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Central Office Cost Center (COCC)

  • Owners of Multifamily properties employ property management companies for the day-to-day operation of properties

  • The Central Office Cost Center will operate like a property management company

  • Final Rule requires all large PHAs (250 or more units) to establish a COCC


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Central Office Cost Center

  • Business unit within the PHA that earns income from fees and/or by overseeing other business activity

  • Simplifies administrative requirements

  • Provides greater flexibility to support mission of PHA


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$

OLD

HUD

PHA

NEW

HUD

PHA/COCC

$ Fees

$ Subsidy

AMP

Review: The Flow of Funds

  • Property Management Fee

  • Asset Management Fee

  • Bookkeeping Fee

  • Program Management Fees

  • Fee-for-Service


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Types of Fee Income

  • Property management fee

  • Bookkeeping fee

  • Asset management fee

  • Program management fees and other business activity

  • Fee-for-service (e.g., centralized painting or extermination)


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Property Management Fee

  • Fee charged to AMPs for oversight provided by COCC

  • Replaces traditional PHA overhead allocations

  • Based on occupied units and HUD-approved vacancies (not including limited vacancies)

  • Average management fee in HUD’s multifamily housing programs was $35 PUM (2004)


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Methods of DeterminingProperty Management Fees

  • 80th percentile of fees paid by market

  • Local HUD multifamily fee schedules

  • Other compelling local market data


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Bookkeeping Fee

  • COCC is permitted to charge a bookkeeping fee for the project accounting function of $7.50 PUM

  • Based on occupied units and HUD-approved vacancies (not including limited vacancies)

  • Average bookkeeping fee in HUD’s multifamily housing programs was approximately $3.50 PUM (2004)


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Asset Management Fee

  • Fees charged to AMPs for those tasks that would be residual if all property management functions were contracted to a third-party ($10 PUM)

  • Subject to the availability of excess cash

  • Based on total number of ACC units


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Capital Fund Program Management Fee

  • Fee charged to the Capital Fund Program for management related to capital activities

  • COCC may charge up to 10% of total Capital Fund Program grant as management fee


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Housing Choice Voucher Program Fee

  • Fees charged for all administrative work performed by COCC staff related to the operation of HCV program

  • Two different fees can be charged:

    • HCV Management Fee – Higher of either 20% of annual administrative fee or $12 PUM based on number of vouchers leased

    • HCV Bookkeeping Fee – $7.50 PUM based on number of vouchers leased


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Program Management Fees and Other Income

  • Public Housing Development

  • Other HUD Programs (ROSS, HOPE VI, etc.)

  • Other business activity


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Fee for Service: Centralized Front-Line Functions

  • PHAs may choose to centralize various front-line expense activities and charge AMPs a fee for these services

  • Examples

    • Maintenance

    • Legal Services


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Fee for Service Guidelines

PHAs must adhere to the following:

  • Fees must be based on the market rate for the work received and not the actual cost

  • PHAs must use the fee for service approach for centrally provided maintenance

  • Centrally provided front-line services must be in the best interest of the AMPs and cannot cost more than if performed on-site

  • PHAs must maintain documentation for the fees charged to the AMPs


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Sample COCC Revenue from Fees


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Front-Line Expenses vs. Fee Expenses

  • Unlike in the past, front-line expenses and administrative expenses, called fee expenses, will need to be separated

  • Front-Line Expenses:

  • An expense of the AMP

  • Paid for by AMP income (e.g. subsidy and rent)

  • Fee Expenses:

  • An expense of the COCC

  • Paid for by fee income generated by COCC


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What is Classified as a Fee Expense?

  • Certain personnel costs, including:

    • Executive Director

    • Regional Managers

    • Human Resource

    • Finance and accounting

  • Equipment, furniture, and services necessary to sustain COCC

  • Central servers and software supporting COCC

  • Refer to Table 7.2 of the Supplement to PIH Notice 2007-09


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What is Classified as a Front-Line Expense?

  • Onsite personnel

    • Housing Manager

    • Maintenance Technician

    • Resident Services

  • Equipment, furniture, and services required to maintain site-based office

  • AMP utility costs

  • Refer to Table 7.2 of the Supplement to PIH Notice 2007-09


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Summary and Online Resources


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Benefits of Asset Management

  • Improved services provided to each AMP

  • Organizational structure allows for greater efficiency

  • Onsite staff provide greater service to tenants

  • System enhancements will allow PHAs to operate more efficiently


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Online Resourceshttp://www.hud.gov/offices/pih/programs/ph/am

  • Revisions to the Public Housing Operating Fund Program; Final Rule - 24 CFR Part 990

  • Preparing for Asset Management Under the New Public Housing Operating Fund Rule (24 CFR 990): A Planning Document

  • Demonstration of a Successful Conversion to Asset Management (Stop-Loss) Submission Kit Year 2

  • Demonstrating Successful Conversion to Asset Management: A Site Visit to the Charlotte Housing Authority


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Online Resources(continued)http://www.hud.gov/offices/pih/programs/ph/am

  • PIH Notice 2007-09, Changes in Financial Management and Reporting for Public Housing Agencies Under the New Operating Fund Rule (24 CFR Part 990), issued April 10, 2007

  • Asset Management Help Desk

    • Email: [email protected]

    • Toll-Free Telephone: 1-800-511-8478


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End of Section 3


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