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The Public Housing Operating Fund

The Operating Fund program was established under QHWRA, section 519, which amended section 9 of the 1937 Act. The operating fund provides subsidies to LHAs to assist in funding the operating and maintenance expenses of their properties. The subsidies are required to help maintain services and provide minimum operating reserves.

QHWRA required that the primary system for determining operating subsidies, the performance funding system formula (PFS) be subject to a formal federal process known as negotiated rulemaking. During that process, the negotiators from HUD, LHAs, resident groups, and other advocates determined that without an understanding of the actual costs of operating public housing developments, no reasonable formula could be reached. Therefore, the group settled on an Interim Formula, and Congress commissioned a cost study from Harvard University's Graduate School of Design (in architecture). A final formula is to be established from the results of the Harvard cost study. All of this work began in April 1999 and continued through April 2000. The industry has been awaiting HUD's publication of the Interim Rule for Operating Subsidy since that time.

The subsidy amount is the difference between the estimate of operating costs that is calculated based on the PFS formula, minus an estimate of income from rents and other sources. QHWRA permits agencies to retain non-dwelling income and certain rent increases without an equal reduction in subsidy. This provision was included in the interim formula.

The committee's hardest work probably was establishing a "fix" for small agencies with very low allowable expense levels. (The AEL is the per unit per month amount of expenses an agency is permitted excluding utilities. The AUEL is the utility per unit per month expense. These two are used in the calculation of the agency's subsidy amount.). The negotiated rulemaking committee determined that, since no public housing data existed to help solve the small agency problem, the Federal Housing Administration's database would be used to approximate costs for operating smaller agencies. The committee established an FHA index that set a floor for small agencies' AELs at no less than 70 percent of the adjusted FHA index, or their current AEL, whichever is higher. The committee set an upper limit for larger agencies' AELs at 120 percent of their adjusted FHA index amount.

The committee changed the utility calculation to comply with QHWRA. Agencies will keep 75 percent of any savings, but pay 75 percent of any losses due to overuse of utilities. This was fashioned to encourage agencies to observe conservation and implement energy efficient equipment and practices, and to educate residents about these principles.

The operating fund also provides funding for non-housing authority entities such as low-income projects located in Alaska, Guam, Puerto Rico, and the Virgin Islands. Qualification is determined through an alternative approach due to unique operating circumstances at these LHAs. In June 2000, HUD reached a settlement with the Puerto Rico Housing Authority over a long-standing argument made by Puerto Rico that the agency is entitled to an full share of operating funds, just as any other agency. The settlement, HUD says, will not negatively affect the Interim PFS Formula developed under negotiated rulemaking.

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