On September 26, 2011, the U.S. Department of Housing and Urban Development (HUD) released an advisory notice (PIH 2011-55) that provides guidance to public housing authorities (PHAs) on operating subsidy calculations for Calendar Year 2012.

PIH 2011-55 follows President Barack Obama’s budget proposal for Fiscal Year 2012, which seeks to fund the PHA Operating Fund with new appropriations that are supplemented by PHAs’ existing operating reserves.  The advisory notice is subject to final language in the HUD 2012 Appropriations Act, but if the Administration’s proposal is adopted by Congress, HUD would be required to use an offset methodology to calculate a PHA’s operating subsidy that takes into account their existing operating reserves.  The House version of the 2012 Appropriations bill caps the amount of operating reserves that can be used to fill any shortfall in the proposed budget at $1 billion.  The Senate version of the 2012 Appropriations bill caps the amount that can be used at $750 million.

This change in methodology means some PHAs will be subjected to a subsidy allocation adjustment that reduces their operating subsidy by some percentage of their excess operating reserves (defined as the amount of a PHA’s existing operating reserves that exceeds the minimum threshold).  To determine the subsidy allocation adjustment, HUD will use a percentage of existing operating reserves that exceeds the amount needed to cover four months of operating expenses for PHAs with at least 250 housing units, and six months for PHAs with fewer than 250 housing units.

PIH 2011-55 helps PHAs plan for the possibility that the HUD 2012 Appropriations Act adopts the Administration’s proposal, and establishes a process by which PHAs can submit requests to exclude portions of their operating reserves from their calculated operating reserve balances.  HUD is accepting requests for exclusion of operating reserve funds that are committed to outstanding obligations that were entered into no later than March 31, 2011.  PHAs should be aware that HUD will limit the amount of the exclusion to operating reserves that have been or will be used to satisfy such outstanding obligations.

Given the possibility to use operating reserves to satisfy valid pre-existing debt obligations, PHAs may wish to consider using any excess operating reserves to reduce their outstanding debt obligations, including any Capital Fund Financing Program debt.  Ballard Spahr’s attorneys can assist in identifying the most appropriate opportunities to use excess operating reserves to satisfy outstanding obligations, and can help PHAs minimize the potential offset of operating reserve funds that are vital to operating, managing, and maintaining public housing communities.

Requests for exclusions with appropriate documentation are due to HUD by October 31, 2011.  All requests must be submitted electronically to 2012allocationadjustments@hud.gov with the subject line “Exclusion Request 2012 Allocation Adjustment [PHA Code].”

Click here for the full text of PIH 2011-55.