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Supplemental Guidance on Phase-in Management Fees

Purpose

In accordance with PIH Notice 2007-9, issued April 10, 2007, PHAs are not required to comply with the reasonableness requirements for management fees in the first year of project-based budgeting and accounting (i.e., the transition year). Further, PHAs can obtain an additional two-year phase-in of management fees, subject to:

  1. The PHA reasonably documents current fees needed to support operations at current organizational levels,
  2. PHA presents a schedule to achieve fee reasonableness by 2011, and
  3. The request, including items 1 and 2, above, is included in the PHA's Annual Plan.
The following provides additional guidance to Field Offices and PHAs regarding the documentation to be included in the Annual Plan with regard to these phase-in fees.

Note: The special phase-in provisions outlined in this document are not applicable to agencies demonstrating successful conversion to asset management to stop their losses under the new Operating Fund formula, i.e., Stop-Loss.

Safe Harbor Phase-in Schedules

The Department recognizes that many PHAs require substantial organizational changes in transitioning to the fee-for-service model. The Department further recognizes that the reduction in overhead necessary to comply with fee reasonableness may not necessarily occur in a linear progression, with, say, a one-third reduction in the first year, a two-thirds reduction in the second year, and the remaining reduction in the third year. Consequently, the Department will consider as reasonable any phase-in schedule of management fees that meets the following:

  1. 20% progress towards meeting the fee schedules in Year 2,
  2. 40% progress in meeting the fee schedules in Year 3, and
  3. full compliance by Year 4.

Example

Assume that the "allowable" management fee for a particular PHA is $42.50 per unit month (PUM). Additionally, the PHA can charge $7.50 PUM in a bookkeeping fee and $10 PUM in an asset management fee, for a total of combined fees of $60 PUM. The PHA's current overhead costs attributed to the public housing program, for Year 1, are $90 PUM, or a difference of $30 PUM. In this case, the PHA could submit a schedule showing collective fees of $84 PUM in Year 2 ($90 - (.2 x $30)), $78 PUM in Year 3 ($90 - (.4 x $30)), and $60 PUM in Year 4.

Process

Any phase-in schedule submitted with a PHA's Annual Plan that is consistent with the above safe harbor will be considered reasonable and approved as part of the PHA Annual Plan.

Sample Annual Plan Language

The following is an example of the language that would be expected to be included in the Annual Plan for a PHA electing to implement the phase-in fees, following the guidelines presented above.

The Duncan Housing Authority (DHA) elects to phase-in its management fees through 2011. Currently, the overhead charged to the public housing program is $90 PUM, based on most recent financial statements (FYE 2008). The allowable management fees for the DHA are as follows:
Management Fees -- $42.50 PUM Bookkeeping Fee -- $7.50 PUM Asset Management Fee -- $10.00 PUM Total -- $60 PUM
The difference between the current overhead costs, $90 PUM, and the allowable fee schedules, is $30 PUM. The DHA proposes the following phase-in schedule:

Schedule of Phased-in Management Fees for DHA
2008 (Initial Year of Project Based Budgeting and Accounting
2009 (Year 2)
2010 (Year 3)
2011 (Year 4, first year of full compliance)
$90 PUM
$84 PUM
$78 PUM
$60 PUM

Year-End Financial Reporting

For purposes of year-end Financial Data Schedule (FDS) reporting, a PHA that adopts phase-in fees should first charge the permitted bookkeeping fee. Then, subject to excess cash rules, the PHA should charge the permitted asset management fee. The balance shall be reported on the Management Fee line item. (In the case of the above example, in Year 2 the PHA, assuming it had sufficient excess cash, would report $10 PUM in asset management fee, $7.50 PUM in bookkeeping fee, and the remaining amount, $66.50 PUM, under the management fee line item.)

Alternatives to Safe Harbor Phase-in Schedules

As an alternative to the safe harbor management fee phase-in schedules outlined in this document, a PHA can either: (1) maintain overhead allocations for overhead costs in lieu of fee-for-service through 2011 (see below) or (2) request an alternative phase-in schedule that will be reviewed by HUD Headquarters/Financial Management Division. In the case of PHAs that pursue the second option, they should indicate, as an attachment to the Annual Plan, that they are submitting a request for phase-in fees that are higher than the safe harbor schedule. Field Office approval of the Annual Plan represents approval of the PHA's intent to submit to HUD Headquarters a phase-in schedule that exceeds the safe harbor amounts.

Requests for phase-in fees that exceed the safe harbor amounts must include appropriate supporting documentation and should be mailed to:
Andrea Williamson,
Financial Management Division, Real Estate Assessment Center,
U.S. Department of Housing and Urban Development,
550 12th St., SW,
Washington, D.C., 20410.
Ms. Williamson can be reached by email at: Andrea.D.Williamson@hud.gov.

Use of Allocated Overhead in lieu of Phased-in Management Fees

As indicated above, through 2011, a PHA that has overhead costs that exceed allowable management fees can either utilize the phased-in management fees or it can continue to maintain overhead allocations. If a PHA maintains overhead allocations, it will report that allocated overhead on the income statement for each project under a new FDS line item called "Allocated Overhead." For those PHAs that implement this provision, please note that:

  1. Only overhead costs should be reported on "Allocated Overhead" line item. Other direct project costs, such as the salary of the maintenance staff or costs associated with administering the waiting list must be appropriately reflected on the project's income statement.
  2. Allocated overhead expenses, as opposed to management fees, are covered under all applicable Federal program rules. Unlike management fees, they are not "de-federalized."
  3. A PHA that maintains allocated overhead (as opposed to fee-for-service) will not create a Central Office Cost Center (COCC). Instead, it shall maintain the internal overhead accounting documentation that supports the allocated overhead amounts .