INTRODUCTION

Thank you Mr. Chairman and Committee members. My name is Allen Hester, and I am the Assistant to the Executive Director of the Saint Paul (Minnesota) Public Housing Agency (PHA).

We thank you for holding this hearing, and especially we thank Senator Allard and Minnesota Senator Rod Grams for inviting Saint Paul to participate. The Saint Paul PHA has benefited from a good working relationship with Senator Grams and his able staff members. He has visited our properties, asked our opinions on issues relating to public housing, and introduced important legislation on housing concerns, some of which became law. Senator Grams has demonstrated great understanding and support for the housing needs of low income families and elderly and disabled individuals in Minnesota and across the country.]

We appreciate the invitation to testify because we are very concerned that HUD is rushing to implement PHAS before it is ready. HUD has spent two and a half years planning, paying consultants and selectively discussing issues with housing authority representatives, but their system still is not sufficiently tested, verified, and accepted as valid to implement. We offer the following recommendations:

• HUD should not implement the PHAS revised physical inspection protocol before conducting adequate testing and analysis.

• HUD should extend the PHAS advisory score period for physical conditions inspections until that system is thoroughly tested and proven to be valid.

• HUD should extend the PHAS advisory score period even longer for financial indicators, at least another year, since that system relies on comparisons with housing authority "peer groups" as the basis for its scores.

• HUD should consider substantially revising the physical and financial components. They are way too detailed, too complicated, far exceeding the statutory mandates, too costly to implement and maintain, and still vulnerable to producing inaccurate results. In its present form PHAS does not give a reliable answer to the question, "Is this PHA providing good housing in a responsible manner?"

On March 15th Senators Bond and Mikulski wrote an excellent letter to Secretary Cuomo specifically requesting that HUD "delay the implementation of PHAS until it has remedied the problems with the system [and] test[ed] the new system on a statistically valid sample." The Senators' letter cites specific problems with PHAS and requests pertinent information from HUD. I hope copies of the letter will be shared with this committee and that it will be made part of the record of these proceedings.

The previous speakers have described some of the most significant problems in PHAS, and we agree with their comments and recommendations. Our experience has been the same in many ways, and also different in a few important respects which I will explain in a moment.

Part of the challenge of operating public housing effectively is the wide variety of local conditions. In Saint Paul we have overcome some unique challenges (like housing thousands of families from Southeast Asia) and benefited from solid support from our City government and a strong non-profit social service network.

Because of the variations among the 3100 housing agencies in the country, we rely on our three national housing groups to speak for us. I am referring to CLPHA, PHADA and NAHRO (Council of Large Public Housing Authorities, Public Housing Authorities Directors Association, and the National Association of Housing and Redevelopment Authorities). Most of what I will say today has been said or written to HUD officials by the excellent professional staff members of the three housing groups. They speak for us and thousands of other well-run housing agencies, as well as the smaller number of agencies which are struggling to improve. We rely on HUD to work cooperatively with these organizations as the legitimate representatives for our thousands of individual housing agencies.

Some HUD officials have tried to deflect criticism of PHAS by saying the industry groups don't speak for the housing agencies, and that individual PHA's are trying to avoid accountability for poor performance. Neither is true. The Saint Paul PHA runs Public Housing and Section 8 well - we know how to do it right. (See Exhibit 1: PHA Profile sheet) We believe this is an important foundation for our comments on PHAS.

• Saint Paul is a large PHA, with 4300 public housing units in 16 hi-rise apartment buildings, four family developments and 400+ scattered sites; 10,000+ residents.

• Saint Paul is a city of 270,000, in a metropolitan area of over 2.2 million.

• We consistently maintain 99% occupancy in our public housing units.

• Our housing units all in good shape (see photos at end of written testimony).

• Crime rates in public housing developments and neighborhoods are lower than citywide averages, for a lot of reasons. It is due in part to good cooperation between the PHA and the Saint Paul Police Department and Ramsey County Sheriff's Department, and also to sound public housing management practices, tenant screening (Thank you, Senator Grams), excellent property maintenance, and good cooperation between PHA staff and resident groups. We have also been helped by several years of Public Housing Drug Elimination Program (PHDEP) grants.

The Saint Paul PHA SUPPORTS a public housing performance assessment system which is fair and credible. We encouraged HUD to develop PHMAP (the Public Housing Management Assessment System, a predecessor of PHAS), and that rating system confirmed that we were performing well.

• The Saint Paul PHA has been rated a "High Performer" every year (9) under PHMAP, with 100% scores for 3 years in a row.

• We developed our own performance standards even before PHMAP; our system now includes annual agency and departmental goals, plus individual performance standards for every job.

• We have commented on all proposed rules for PHMAP and PHAS, and we participated in several rounds of meetings with HUD staff and contractors.

• Saint Paul PHA Executive Director Jon Gutzmann participated in a working group on PHMAP in the late 1980's, consulting with then-Assistant Secretary Joseph Schiff and other industry leaders. Mr. Gutzmann encouraged HUD to develop a system which would guide housing agency staffs and commissioners to improve their basic management practices. PHMAP has done that, to the benefit of residents, agencies and their communities. PHAS incorporates most of PHMAP, then adds the highly detailed physical inspection, elaborate financial indicators, and a resident satisfaction survey.

FINANCIAL CONDITIONS

The PHAS Physical Conditions indicator has sparked more controversy, but the PHAS Financial Conditions indicator may be a greater impediment to operating public housing in the long run. In its present form it is not a reliable indicator of a well-run agency. Financial strength and stability are important, but the PHAS tests are too detailed, too complicated, too intrusive, and less grounded in accepted industry practices and standards. Here are our recommendations:

• HUD should extend the advisory period for PHAS financial scores for at least a year, to determine what the standards will be.

• HUD should reduce or eliminate its assessment of "entitywide" operations under the financial indicators.

• HUD should base its "peer groups" on a wider range of factors, recognizing that different mixes of public housing, Section 8 and other housing programs will look different on financial reports.

HUD is trying to establish meaningful benchmarks for physical conditions, measuring sidewalk cracks, holes in walls, etc. For the financial indicators HUD is comparing each PHA to a "peer group" of similar-sized agencies. Whether that approach is a good idea or not, it necessarily requires more time - a year or more - to gather the data, determine the distributions within each peer group, and then announce the proposed standards and accept comments. Then the standards should be issued and followed in the next year's assessments. PHA's will know how they will be scored and (maybe) can plan their actions accordingly.

However, HUD's first year of data collected under PHAS is not much use because the required accounting system has shifted in the meantime. We supported the shift from "HUD accounting" methods to GAAP (generally accepted accounting principles), but it is not an easy or quick transition, and the results are not entirely predictable. And it keeps changing - HUD has issued four or five guidebooks on GAAP and Financial Indicators over the last year. Therefore HUD still needs to collect a year's worth of data before even proposing the standards which will be used in the official scoring. (Imagine the confusion if physical inspections standards depended on "peer group" scores from last year. Analogy: Radar gun - Could police give tickets for going too fast or too slow compared to different vehicles on different roads - over the course of a week?) If HUD is going to use the financial indicators based on peer group data, they must extend the advisory period.

Even with a much longer advisory period, the PHAS financial indicators are too detailed, intrusive and uncertain.

• PHAS is too detailed. A PHA's financial health can usually be determined from its required audit. A clean audit should be enough information. Only if the audit suggests problems should a series of other indicators be checked to determine if there really is a problem. Instead, PHAS subjects every PHA to a series of tests which may or may not signal financial health. Some, like "occupancy loss", are private market terms which have little meaning in public housing.

• PHAS is intrusive. In PHAS, HUD intrudes on the professional judgment finance and housing experts. PHA staff must make important decisions on financial matters every day, such as planning investments and staffing; but now PHAS introduces a new factor: How will this action affect our PHAS score? (Should we sell or extend time investments of assets in reserves? We may get better rates for a longer term investment, but how will that be counted under PHAS?)

• PHAS is uncertain.

We do not know how our "peer group" data will look under GAAP reporting. We do not know if conservative money managers in other agencies are holding much higher cash reserves than we believe are necessary, etc.

"Entity-wide" results are unknowns. HUD/REAC intends to give official PHAS scores for public housing operations this year, and for all agency operations next year, including Section 8, homeownership programs, state- and locally-funded housing, other development activities, etc. Is that necessary? Will the data be reliable and meaningful? We believe it will not.

PHADA's analysis shows that the mix of Section 8 units and public housing units may change the picture greatly for two "peer group" agencies.

We (all PHA's) have not reported Section 8 numbers aggregated along with public housing data - we don't know what to expect. Some public housing measurements like vacancy days are meaningless in Section 8.

PHYSICAL CONDITIONS:

What's wrong with implementing the PHAS physical conditions inspection protocol now?

• It's not ready, not tested and analyzed, nor accepted or understood as valid.

• HUD is ignoring Congressional directives (Conference Report on 1999 Appropriations Act) to fully test the final system and analyze the results before implementing it, and to seek a consensus with housing industry groups.

• HUD is also ignoring the Congressional directive to review the GAO study of PHAS before implementing the system. The GAO report has not been issued yet, but HUD is going ahead with PHAS.

• HUD is skirting an agreement made in January with Congressional staff and housing industry groups to conduct testing of the revised PHAS protocol for physical inspections before using it.

• HUD risks another year of unreliable data by "jumping the gun" and starting "official" inspections with a protocol that isn't sufficiently tested and analyzed.
  (Radar gun analogy: HUD wants to start giving tickets without waiting for the equipment to be fully tested and validated, so the results won't be reliable.)

• (For the record, Saint Paul's "advisory score" on the PHAS Physical Conditions Indicator was 66 out of 100 points, or 19.8 out of 30 points in the total PHAS score. The total was 89.8 out of 100 points, which would have lost us the "high performer" status and incentives, costing perhaps $300,000 in modernization funding this year.)

• The most recent "demonstration" is too quick and narrow. Not enough properties were examined; not enough conditions were tested; no total scores were determined. It was supposed to be a full side-by-side test of the old and new protocols, but it was nothing of the sort. (NAHRO, PHADA and CLPHA have all expressed this clearly to HUD and REAC.)

• There should be a broad test, with time to analyze the results, hopefully followed by a consensus of HUD and industry representatives that the protocol produces reliable, credible results. If there is no consensus, it should be revised further.

• The current physical inspection system is so complicated it is difficult to assess the assessment.
  (In PHAS development meetings in 1997, HUD's consultant repeatedly assured us that the variations among properties could be factored in fairly. "The algorithms will take that into account." We said HUD should publish the algorithms for review, testing and comment. They resisted doing that for a long time, and then finally released some very complex explanations. HUD should make scoring software available which demonstrates the scoring process, if they cannot publish a more accessible description of it.

• PHADA staff carefully analyzed the protocol and scoring, showing its defects. REAC published a rebuttal and PHADA responded again. This underscores our point that the protocol and scoring are too detailed, too complicated, and too weighted toward failure.

• Congress directed HUD to conduct physical inspections to determine if PHA's were providing "acceptable basic living conditions." That's the language of the statute. PHAS goes way beyond that - a "white-glove" or "just built" standard.

• During last year's advisory inspections, many "good properties" failed the physical inspection - in Saint Paul and elsewhere.

Our Edgerton Hi-Rise was undergoing major modernization, so it failed. The inspection was a total waste of time for our staff and the inspectors, but that data went into HUD's database for the first year of inspections.

Other hi-rises were graded down because the inspection protocol conflicted with local fire codes. (Not all buildings were cited, showing the variation in .) The revised protocol may eliminate this problem, but we are waiting to see how it is implemented.

"Penetrating vegetation" was cited at several properties, lowering cite scores because of vines growing on boundary fences - which often belonged to the neighboring property. In many cases the vines make the properties more attractive, and they certainly do not detract from "acceptable basic living conditions."

WHAT'S THE RISK OF IMPLEMENTING PHAS "TOO SOON"?

• The data may not be reliable or credible. PHAS can make a well-run PHA look like it isn't.

• By rushing to inspect under an unfinished and untested protocol, the process focuses on finding deficiencies ("Gotcha!") rather than guiding improvement, certifying compliance and recognizing accomplishment. (Compare to private industry standards and processes like ISO 9000.)

• Emphasis has been on finding deficiencies, not compliance

• The consequences for scoring higher or lower on PHAS are serious:

PHA's will receive more or less capital funding, and possibly more or less operating subsidy.

High-scoring PHA's will be inspected less frequently (physical inspections).

PHA's with lower PHAS scores will likely have lower financial ratings, raising the cost of borrowing funds.

PHA's credibility with our residents and in our communities will be affected by PHAS ratings.

Again, our recommendations to Congress and HUD are:

• Allow more time for testing and analysis, gaining consensus on both the physical and the financial standards, protocols and scoring.

• Extend advisory scores until then.

• Wherever possible, simplify the process.

• Public Housing. Our 4,278 HUD-subsidized public housing rental units are in good shape and fully occupied (consistently over 99%), providing safe, decent housing to about 10,000 very low income residents. We received "High Performer" ratings each year under HUD's "Public Housing Management Assessment Program (PHMAP), often scoring 100%.

• Section 8. The Agency also administers 3,625 Section 8 certificates and vouchers, most of them "tenant-based", which pay federal rent subsidies to private property owners who rent to eligible low-income households. Our Section 8 subsidies are fully utilized, despite an increasingly tight rental market.

• Resident Services. The PHA also coordinates a host of service programs for residents, including "welfare to work" programs, homeownership programs, HUD-funded Drug Elimination Programs (including community policing and Boys and Girls Club partnerships), residential services for frail elderly and disabled residents, and others.

• Modernization. The PHA promptly obligates and expends all of its funding under HUD's Capital Fund (Comprehensive Grant) Program, now about $8 million annually. Following a five-year plan which is updated annually, the PHA uses Capital funds to renovate family and hi-rise apartments, create new hi-rise community rooms and kitchens, and enlarge community centers on PHA family housing developments. (Our Mt. Airy Community Center won a national design award.)

• Excellent Property Management and Maintenance. The PHA follows strict but fair standards for screening new applicants and enforcing leases with residents. Residents are held accountable for the upkeep of their units; and vacant units are prepared to high standards for each new resident. All emergency work orders are performed within 24 hours, and routine work orders in less than three days on average. Graffiti is removed within 24 hours. All apartments are inspected at least twice annually, and all meet local codes and HUD's standards.

Saint Paul, the capital of Minnesota, is a city of 272,000 residents. While a medium-sized city, it lies contiguous to Minneapolis, which has 368,000 residents. Together, Saint Paul and Minneapolis comprise the central cities of the seven county Twin Cities metropolitan area, which has a total population of 2.2 million.

Jon M. Gutzmann
Executive Director