The two largest public housing agencies in Arkansas -- in Little Rock and North Little Rock -- are facing revenue shortfalls after enacting a federal program that secures funds to renovate their buildings, officials at both agencies said.
While the Rental Assistance Demonstration program has freed up more money for capital improvements, it has presented budget woes, leading to staffing cuts and hard looks at spending.
Other housing authorities have avoided any financial shortfalls from the program, agency officials said, thanks to preemptive management decisions.
The U.S. Department of Housing and Urban Development, however, does not see how Rental Assistance Demonstration could create a net loss of revenue for housing authorities that implement it.
"There is no structural design of RAD that would systematically result in less funding," a department spokesperson told the Arkansas Democrat-Gazette via email.
Still, housing authorities across the state report that the program can have negative budgetary impacts.
Rental Assistance Demonstration converts Section 9 public housing to Section 8 housing-choice vouchers. Local and regional housing authorities own and operate Section 9 properties, while housing-choice vouchers allow recipients to choose their own residences within a housing authority's jurisdiction.
Former President Barack Obama's administration created the Rental Assistance Demonstration program in 2012 to give the public housing sector a new funding source after decades of underfunding. The Department of Housing and Urban Development estimates a $35 billion backlog of capital expenses in public housing complexes, a spokesperson said.
Through Rental Assistance Demonstration, private companies usually take over most or all of a public housing complex, though housing authorities still own the land. This private ownership allows housing authorities to enter into contracts with banks and finance companies -- whether through loans, tax credits, grants or a combination -- to receive the millions for plumbing, flooring, roofing, electrical, and other repairs and maintenance.
If a private company leases the buildings, housing authorities must pay them a certain amount in management fees. Some housing authorities circumvent this by enlisting their own nonprofit development organizations to lease and manage the properties.
The federal housing department first authorized the Housing Authority of the city of Little Rock, publicly known as the Metropolitan Housing Alliance, to begin Rental Assistance Demonstration at nine properties in 2015. Five conversions are complete and four are ongoing, said Kenyon Lowe, chairman of the Metropolitan Housing Alliance board of commissioners.
The North Little Rock Housing Authority has converted three buildings via Rental Assistance Demonstration, starting in 2019. The agency has also combined the program's vouchers with those administered by Section 18, which allows for the demolition of aged buildings, for three more properties, executive director Belinda Snow said.
Lowe and Snow said their agencies need new income streams since Rental Assistance Demonstration diverted property management revenue from the housing authorities to private entities.
"Housing authorities have to become more entrepreneurial as well as transformational as far as how to increase their revenue streams," Lowe said.
Both are still figuring out where the extra revenue will come from. Lowe said developing vacant lots is an option, and Snow said staff cuts have made a difference.
REDIRECTION OF FUNDS
Housing authorities have smaller amounts of organizational overhead, or the costs that are not directly involved with housing assistance, after completing Rental Assistance Demonstration, according to the federal housing department and the local housing authority officials. Those overhead costs include accounting, bookkeeping and management.
Even with fewer overhead costs, Lowe and Snow said, the operating subsidies from the federal housing department are not sufficient to cover those costs. The housing authorities collect less money in operating subsidies for administering vouchers than they do for Section 9 public housing because they are now only administering rental assistance in some buildings, not managing the buildings themselves.
The housing authorities in Texarkana and Fort Smith avoided this problem by putting their nonprofit arms in charge of leasing and managing the converted properties, the executive directors of both agencies said. The Texarkana Housing Authority used Rental Assistance Demonstration to convert 390 units in nine buildings, and the Fort Smith Housing Authority converted 288 units in one building.
Management by the agencies' nonprofits prevented the revenue loss that other housing authorities have seen, said Texarkana Housing Authority director Brandy Bradley and Fort Smith Housing Authority director Mitch Minnick.
"I can see where [other agencies] would have a little bit more difficulty adjusting their mode of operation in order to continue to operate," Minnick said. "Thankfully, because we had the Section 8 program already, and we had set up under public housing asset management, through our central office we got the bookkeeping and accounting fees every month for the units we managed. We carried that model forward. Our finance and administration is handled through the bookkeeping and accounting fees we received for administering Section 8 vouchers."
The Metropolitan Housing Alliance created the nonprofit Central Arkansas Housing Corp. in 2006 "to facilitate the development, financing and construction of multi-family and single-family residential housing in the city of Little Rock and the Central Arkansas area," according to the housing authority website.
The Central Arkansas Housing Corp. owns three Little Rock buildings that have completed Rental Assistance Demonstration deals. Gorman and Co. Inc., a Wisconsin development and investment company, leases and manages the Fred W. Parris, Cumberland and Jesse Powell towers, Lowe said. The nonprofit does not play a role in day-to-day management of the three properties.
The North Little Rock Housing Authority does not have an adjacent nonprofit organization.
Bradley said bringing in an outside entity to manage the converted properties would have made it impossible to keep all of the agency's staff after completing Rental Assistance Demonstration.
"If you still have your full office of 10 people, and you could fund them from public housing [subsidies], you're not going to be able to fund those 10 people through Section 8," Bradley said. "The only money you're getting is the administrative fees from the vouchers."
Snow said the North Little Rock Housing Authority has saved some money after eliminating some jobs by attrition.
"We knew the reduction in fees was going to happen, so we started early on not filling positions, and everyone's just doing a little bit more than they were doing before," Snow said.
The staff of formerly 50 people is now down to 18, requiring the remaining staff to do multiple jobs at once, she said. She hopes new sources of revenue will lighten the load by allowing the agency to hire more staffing, but she said the agency will not hesitate to move forward with the Rental Assistance Demonstration conversions it has planned for the next few years.
"Our primary concern and goal is to modernize those facilities, so that's what's going to be first, and then we'll adjust as necessary," Snow said.
She added that she and the agency's board of commissioners will not make any decisions that would "put the agency in a position where we can't function."
BOARD BUDGET
Lowe said the Metropolitan Housing Alliance board will have to take a serious look at its budget before making any decisions on new income sources.
"It's all in the development stage," he said. "We have to do that what-if analysis. If the expenses are going to be so cumbersome that they exceed the revenue, why do it?"
Metropolitan Housing Alliance financial director Andy Delaney told the board of commissioners at a special meeting June 3 that the agency should make significant changes to its budgeting and spending in order to maintain financial solvency.
Delaney's suggestions included limiting spending to "absolutely necessary" purchases, training property managers on the budgeting process and reallocating some executive staff salaries and benefits to "various program budgets." He also suggested requiring deputy director Lisa Dickerson to approve all purchases beforehand.
Commissioner Leta Anthony said at the meeting that the agency needs to assess its staff to be sure everyone is qualified to be in their positions, especially positions with higher salaries.
"For this board, when we're constantly spending out and we have not identified new income streams, the fiduciary responsibility for us is really concerning," Anthony said.
Lowe told the Arkansas Democrat-Gazette that the board is still looking at which executive staff's salaries would be redistributed into which program budgets. The agency currently has fewer than 15 staffers, he said.
He also said one potential new revenue stream could come from building single-family homes on some of its vacant lots, including some on Cumberland Street and Washington Street.
The Metropolitan Housing Alliance is not operating at a deficit, Lowe said, but simply working on "long-range planning" that any organization would do.
"We're just trying to be good stewards of public money and use our resources to the best of our ability," Lowe said.