1. Casterline Associates PC 11 Davis Rd, Bldg 2, Ste 225 Valley Forge, PA 19482-0962 www.casterline.net (800) 337-5088

2. Final Formula: 2015 Funding for HAP HAP expenses reported by the PHA to HUD through the VMS system for the period 1/1/2014 through 12/31/2014 (this information is updated annually and is referred to as “Re-Benchmarking”) X An annual adjustment factor (AAF) for inflation X An adjustment for proration = 2015 HAP Funding ~ No 2015 NRA / Program Reserve Offset/Recapture! ~ 2

3. Excess HAP Funding Not Spent on HAP Expenses, Accumulates to Restricted Reserves  Excess HAP Funding held by the Housing Authority = Net Restricted Position (Restricted Equity), formerly known as NRA  Excess HAP Funding held by HUD = Program Reserve (a.k.a. HUD-Held HAP Reserve), this amount does not show up as an asset or equity on the PHA 3

4. Net Restricted Position / “NRP” (Formerly Known as NRA)  Net Restricted Position (“NRP”) = excess unspent HAP funding  Most PHAs know this under its former name, NRA (stands for Net Restricted Assets)  NRP/NRA = excess unspent HAP funding disbursed to the PHA since January 1, 2005, that has not been spent on HAP expenses incurred since January 1, 2005, plus other HAP-related revenue (FSS Forfeitures and up to 50% of Fraud Recovery Revenue) 4

5. HUD Getting Away from the Concept of NRP  Beginning 2012, under new so called “Cash Management” procedures HUD limits the funding actually disbursed to the Authority to those amounts immediately needed for HAP/UAP expenses. PHA’s funding disbursements are based upon HAP expense reported to HUD in VMS.  In addition, HUD in conjunction with implementing the new cash management procedures swept remaining NRP balances into the HUD-held HAP reserve (a.k.a. Program Reserve) during 2014.  The purpose of these two steps is to get away from the concept of NRP and for HUD (actually the Treasury) to hold on to any excess unspent HAP funds. 5

6. Understanding the Difference Between Net Restricted Position (NRP) and Program Reserve  Net Restricted Position (“NRP”) = excess unspent HAP funding on hand at the PHA  Program Reserve = excess unspent HAP funding held by HUD Program Reserve  HAP Funding that is allocated to the housing authority but not disbursed to the housing authority accumulates in a HUD-held Program Reserve 6

7. Targeting Your Utilization and HAP Spending  Determining how much you can afford to lease is more complicated than ever, especially with the implementation of so called Cash Management procedures.  Casterline Associates fears that some PHAs will target the amount of cash coming in each month, which may limit you from realizing your full leasing/spending potential.  In general, you should plan to spend – at a minimum – your Final Prorated HAP Renewal Funding (before Offset if any), plus any Set Aside Funding, Non Renewal Funding, Other HAP-Related Revenue, and Excessive NRP or Program Reserve that you want to CAUTIOUSLY spend down. 7

8. Three Easy Steps to Maximize the Use of HCV Program Resources Amidst all this confusion, the good news is that maximizing the number of families you can assist (that’s why we’re here of course!) can be – in most cases – broken down into three easy steps: 1) Determine how much money you have available to use for HAP, 2) Increase or reduce spending to a level equal to this amount, expressed on a monthly basis, 3) Monitor your cash carefully to ensure it is adequate and contact your FMC rep if you need more. 8

9. Details 1) Determine how much money you have available to use for HAP.  Total Prorated Calendar Year HAP Renewal Funding Eligibility before offset (trainer will tell you where to obtain this information, the forms vary by year).  Non Renewal Funding (for new vouchers if you have received some).  Set aside funding applicable.  Other HAP-Related Revenue (FSS Forfeitures, and up to 50% of Fraud Recoveries)  A portion of NRP and/or Program Reserve, if you have an excessive amount, to be used cautiously.  Question: What is an “Excessive” Amount of NRP / Program Reserve 9

10. 2) Increase or reduce spending to a level equal to this amount expressed on a monthly basis (total of above divided by 12). 3) Monitor your cash carefully to ensure it is adequate and contact your FMC rep if you need more (limited to the amount of your annual funding plus program reserves – more about program reserves later).  By the 10th of each month, estimate what your HAP expense will be for the following month.  Compare this to the amount HUD has indicated they will give you for that month on the disbursement schedule.  If the disbursement does not cover HAP expense, determine if there is sufficient NRP on hand to make up the difference.  If not, contact HUD immediately for additional funds (do not wait until you are near the beginning of the next month!). 10

11. HCV Admin Funding  Beginning in 2008 the HCV Admin Funding reverted back to a PUM Fee. Prior to that it was a fixed block of funds for several years. The Admin Fee is calculated based upon Unit Months reported in VMS, and then provided to the PHA.  More leasing means more Admin Fee! High utilization is key!  HUD provides the fee rates on their website: http://portal.hud.gov/hudportal/HUD?src=/program_ offices/public_indian_housing/programs/hcv  Note that PHAs are not guaranteed to receive the HUD Admin Fee rate – it is subject to proration! Cuts have been very deep in recent years, 20%+! 11

12. New Admin Fee Formula to be Implemented by HUD?  HUD has commissioned an Admin Fee Study, completed by Abt Associates. Final report: early 2015.  Casterline Associates PC is part of an Advisory Group known as the EITRG (Expert and Industry Technical Review Group), to meet periodically and review the progress of the study, and to make recommendations on approach and the draft and final reports. At the date of this writing (Feb 2015), the final meeting is just one week away. 12

13.  Each member of the EITRG as well as the study team are under nondisclosure/confidentiality agreements that were mandated as a condition of participating in this, and thus there have not been a lot of details disclosed up to this point regarding the study.  While final details concerning the study and the proposed formula are not disclosed at this time, there is language provided in HUD's budget justifications for 2015 that will give you a rough idea of what they are trying to accomplish: "HUD has recognized the critical need for data regarding the true cost of administering the voucher program, both in order to budget for administrative costs and to provide HUD and Congress with information to support decision-making changes in program policies, goals, and requirements that consider the administrative cost impacts (both increases and decreases) and trade-offs of those decisions.” (continued next page) 13

14. “Consequently, HUD has undertaken an in-depth time-and-motion study to determine the costs of running an effective and efficient HCV program. The purpose of the study is to provide comprehensive and detailed data on the administrative costs and burdens of the individual components of HCV program administration to better inform the Department and Congress of funding needs. The study will also use the findings to propose a new funding methodology for PHA administrative fees. Intensive time measurement and other data collection activities took place at approximately 60 high performing PHAs over the course of calendar year 2013 and the early part of 2014, with a final report due late in 2014.” (note: delayed to 2015)  Considering the current level of HCV Admin Fee funding, this is obviously a very important development. Once the report is officially published we will be providing a lot of coverage in our seminars and The Casterline Associates Advisor. 14