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2. 2 Housing Choice Voucher Program Financial Management Cash Management Implementation Update October 10, 2012

3. Today’s Topics Cash Management Procedures Implemented January 1, 2012 Update on Cash Management – 4 th Qtr 2012 Disbursements Upcoming Activities 3

4. Cash Management Definition: Control disbursement of federal funds in such a way that PHAs do not receive federal funds before they are needed Treasury Issuance: “Advances to a recipient organization will be limited to the minimum amounts necessary for immediate disbursement needs and will be timed to be in accord only with the actual immediate cash requirements of the recipient organization in carrying out the purpose of an approved program or project. The timing and 4

5. Cash Management amount of cash advances will be as close as is administratively feasible to the actual disbursements by the recipient organization for direct program costs and the proportionate share of any allowable indirect costs.” Requirement is reiterated in the 2012 Appropriations Act Initial procedures detailed in PIH Notice 2011-67 5

6. Cash Management Prior to CY 2005: – Voucher funds were distributed to PHAs in accordance with a PHA budget; PHAs were required to revise budgets if disbursements exceeded needs; – HUD held all excess as program reserves Effective CY 2005: – Voucher renewal funds were distributed 1/12 of total pro- rated eligibility per month; incremental funds distributed based on contract terms; – PHAs held all excess as NRA 6

7. Cash Management Results: – PHAs since 2005 have received disbursements in excess of their needs – PHAs have accumulated significant levels of NRA -- $1.8 billion at the end of CY 2011 – Congress has mandated the offset of approximately $1.5 billion combined in 2008 and 2009 and $650 million in 2012 7

8. Cash Management Intent of Cash Management Procedures: – Mitigate PHA accumulation of NRA funds – Reduce Treasury outlays and costs by timing the disbursements based on actual need – Facilitate a more efficient and timely method by which to account for PHA program reserves. 8

9. Cash Management Components: – Monthly disbursement of anticipated HAP needs and a small margin for increases (advances) – PHA option to request additional advances based on demonstrated need, up to total allocation – Quarterly reconciliation of actual costs to advances – Year-end final reconciliation of actual costs to advances 9

10. Cash Management Process, effective 1/1/2012: – Each month’s HAP disbursement is based on the most recent quarter’s validated VMS monthly average HAP costs July to September 2012 disbursements were based on January to March 2012 actual costs – changes at year end – Disbursements include a margin of 3% of monthly pro-rated eligibility, to account for increased costs and leasing since the base quarter 10

11. Cash Management – PHAs that require additional funds are contacting their FA at the FMC – PHA provides actual costs for intervening months not yet reported in VMS; known costs for the upcoming month or quarter; and NRA funds available Disbursements are limited to total funds obligated and available 11

12. Cash Management Disbursements continue to be made on the first of the month – to ensure PHAs do not receive funds in advance of need Disbursements are reconciled to actual HAP expenses at the end of each quarter, once actual costs are validated in VMS – Subsequent disbursements are adjusted to recoup any excess provided – Additional disbursement is made to cover any shortage in funds provided 12

13. Cash Management Process is repeated quarterly Incremental funds have been disbursed based on contract dates – this is under review, since many PHAs are receiving excess disbursements Final reconciliation will be completed at year-end to: 13

14. Cash Management – Calculate total HAP expenses incurred by the PHA for the year and compare them to total HAP disbursements to the PHA for the year, in order to determine whether the PHA has received excess or insufficient advances. An additional payment or offset will be provided as needed to complete this reconciliation of funds, if funds available (cash reconciliation) 14

15. Cash Management – Compare HAP budget authority provided and other revenue for the year to HAP costs for the year in order to determine the increase or decrease to the program reserve and the new balance (program reserve reconciliation) – Since inception, the process has been running smoothly – thank you for your cooperation 15

16. Cash Management Excess HAP funds, and existing NRA balances, must be maintained by the PHA in an interest-bearing account; when the CY is reconciled, the interest will be returned to the Treasury Cash management process will result in the re- establishment of the program reserves – Excess HAP funds will be held by HUD in the Treasury, rather than by the PHAs in the NRA accounts 16

17. Cash Management – Moves new budget authority into program reserves if it is not needed for current expenses – Existing NRA balances will be transitioned to the program reserves, via either their use in lieu of HUD disbursing new budget authority or by direct return from the PHAs Do not take action to do this until advised by HUD 17

18. Cash Management Cash management procedures do not change the annual allocation available to each PHA, just the disbursements PHA allocations will continue to be calculated per the Appropriations Act requirements – PHA required portion of the total allocation will be disbursed and the balance will be held for the PHA in the program reserves 18

19. Cash Management Transition of NRA balances to the program reserve will not affect their availability to the PHA PHAs will be able to access both undisbursed budget authority and program reserves as needed through the FMC 19

20. Cash Management Cash management procedures apply to MTW agencies – Planned disbursements are based on VMS HAP reporting – PHAs request any additional amounts needed each month from FMC FA, for non-HAP expenditures to be made that month 20

21. Cash Management HUD does not intend for any Voucher participants to lose their assistance as a result of the cash management process A PHA who cannot cover its HAPs with disbursed funds plus available NRA should contact its financial analyst at the FMC immediately to request a frontload of additional funds and begin resolving any cash problems No additional funding 21

22. Update – 4 th Qtr Disbursements PHAs were provided a calculation of disbursements to be made for the 4 th quarter, an explanation of the calculations and a cover letter Purpose: to document for the PHAs how HUD determined the disbursements and the status of their funds for CY 2012 22

23. Update – 4 th Qtr Disbursements Key Points – These are advances based on estimates – not earnings – If a PHA needs more funds from their allocation, and funds are available, they can be disbursed – Task is to provide advances as close as possible to actual needs, and not provide excess 23

24. Update – 4 th Qtr Disbursements Key Points: – If the PHA thinks they should have more BA available then enclosure shows, contact your FA at once – Disbursement calculations are more complicated this quarter than in the past: Cumulative adjustments Some PHAs are running out of BA 24

25. Update – 4 th Qtr Disbursements Key Points: – Data is constantly moving, so this represents a point in time HUDCAPS obligations may have occurred after date was extracted PHA may have entered VMS revisions – We adjust data after each quarter so obligations and disbursements are brought up to date 25

26. Update – 4 th Qtr Disbursements Key Points – HUD will set a date by which any year-end changes must be entered, before final reconciliation is completed – 12/31/2011 NRA balance must be final at that time as well, to prepare for movement of 12/31/2012 balance to program reserves (no NRA accrued after 12/31/2011, but NRA may have been expended in 2012) 26

27. Update – 4 th Qtr Disbursements PHA Enclosure Lines 1 thru 7 – Section immediately below Line 2 provides the monthly disbursements; the calculations below support those amounts – Lines 3 thru 7 unchanged: Actual HAP costs for three months of the latest validated quarter (2 qtrs prior) Three months’ costs are totaled and averaged to yield the basic disbursement 27

28. Update – 4 th Qtr Disbursements PHA Enclosure Lines 8 thru 13 – Detail the 2012 renewal funding and determine average monthly obligation available – Line 8 pro-rated funding eligibility minus Line 9 NRA offset yields actual allocation – BA – on Line 10 (from funding calculations and any HUD-approved changes) – Line 11 monthly allocation is Line 10 divided by 12 – offset not considered here 28

29. Update – 4 th Qtr Disbursements PHA Enclosure Lines 8 thru 13 – Line 12 is the monthly margin: additional disbursement amount to account for cost and leasing increases – Purpose of Lines 8 thru 13 is to calculate this margin amount – Margin added to 3 month average to yield calculated monthly need on line 13 29

30. Update – 4 th Qtr Disbursements PHA Enclosure Lines 14 thru 18 – Line 14: NRA balance at 12/31/2011 – Line 15: Mandated 2012 NRA offset – Line 16: Monthly offset Oct to Dec is $0 Though some PHAs still owe funds to be collected – Line 17: Monthly need after offset = Line 13 To confirm that offset has been completed – Line 18: lesser of calculated need on Line 17 or obligation on Line 11 30

31. Update – 4 th Qtr Disbursements PHA Enclosure Lines 14 thru 18 – One change: in prior quarters Line 18 was the monthly advance, if funds were available Limit set so PHAs would not assume increasing costs would always be covered – This could be supported because funds were obligated through October – For November and December, if need on Line 13 exceeds obligation amount on Line 11, the need will be disbursed if within PHA’s allocation 31

32. Update – 4 th Qtr Disbursements PHA Enclosure Lines 19 thru 23 – Identifies BA available for 4 th quarter – Line 19: Undisbursed BA through September Total BA minus disbursements through September BA includes obligated and unobligated, since all will be obligated BA includes funding from all sources: renewal, new increments, set-aside, transfers Data as of point in time – may change at year’s end if more funds are obligated 32

33. Update – 4 th Qtr Disbursements PHA Enclosure Lines 19 thru 23 – Line 20: non-renewal disbursements already scheduled for Oct thru Dec Identified because these funds are not available to support renewal disbursements being calculated – Line 21: amount due to PHA for cumulative under- disbursement for Jan thru June (which may now have been disbursed) Identified because these funds are not available for renewal disbursements 33

34. Update – 4 th Qtr Disbursements PHA Enclosure Lines 19 thru 23 – Line 22: October renewal disbursement – note it is calculated further down – Line 23: BA available for Nov and Dec renewal disbursements Undisbursed BA minus non-renewal disbursements already scheduled minus amount due PHA for under- disbursements minus disbursement scheduled for October A few PHAs have $0 34

35. Update – 4 th Qtr Disbursements PHA Enclosure Lines 24 thru 28 – Line 24: Excess funds disbursed 1 st quarter, per the reconciliation – Line 25: Cumulative excess funds disbursed thru 2 nd quarter, per reconciliation – Line 26: Total excess funds already recouped via reduced disbursements in 3 rd quarter – Line 27: Remaining excess to recoup – Line 28: Excess to be recouped in October (this is not a recapture) 35

36. Update – 4 th Qtr Disbursements PHA Enclosure Lines 29 thru 40 – Disbursements for 4 th quarter and how they are calculated – Lines 29 and 30: Disbursements for October – total to Line 18 Some disbursements split if PHA already received disbursements through September that utilized some or all of their October allocation BA presently obligated by HUD only thru October 2 nd October disbursement will be made as soon as balance of allocation is available during the month 36

37. Update – 4 th Qtr Disbursements PHA Enclosure Lines 29 thru 40 – Lines 31 thru 35: November disbursement Line 31: BA remaining after October disbursement (same as Line 23) Line 32: November need (line 13, regardless of monthly obligation amount) Line 33: Any reduction to recoup excess funds – if all could not be taken in October Line 34: Remaining November need after recouping excess 37

38. Update – 4 th Qtr Disbursements PHA Enclosure Lines 29 thru 40 – Lines 31 thru 35: November disbursement Line 35: portion of November BA need that is available and will be disbursed – lesser of remaining need on Line 34 or BA available on Line 31 – Lines 36 thru 40: December disbursement Repeats process used to determine November disbursement – Any disbursement needed and not being made cannot be made up from future years 38

39. Update – 4 th Qtr Disbursements PHA Enclosure Lines 41 thru 45 – Summary for PHA’s information – Line 41: Total CY 2012 renewal funding / BA PHA’s renewal allocation only, from funding letter – Line 42: Total CY 2012 non-renewal funding / BA – Line 43: Total disbursed or scheduled to be disbursed in CY 2012 for all purposes – Line 44: Reiterates the under-disbursement included in the total, since not yet made 39

40. Update – 4 th Qtr Disbursements PHA Enclosure Lines 41 thru 45 – Line 45: Total CY 2012 BA not disbursed or scheduled to be disbursed If negative, there is less BA available than the PHA is estimated to spend for the CY If negative, PHA may need to support some HAP expenses from other sources, including NRA and UNA – therefore, those PHA-reported values for June 30 are noted on final lines 40

41. Update – 4 th Qtr Disbursements PHA Enclosure Lines 41 thru 45 – Line 45: Total CY 2012 BA not disbursed or scheduled to be disbursed – Limitations on this estimate: PHA reporting may not be up-to-date As of June 30, there was still 1/3 of offset to take 3rd quarter actual expenses not incorporated, so PHA utilization will impact what is still available Line 45 is an estimate of PHA need to augment, not a final number 41

42. Update – 4 th Qtr Disbursements PHA Enclosure Lines 41 thru 45 – If a PHA must augment with NRA now, and there is BA available when full year costs are known, the BA will be disbursed and the use of NRA thereby reduced – PHA needs to examine its own data to determine what they need to do – other resources, stop leasing, etc. 42

43. Update – 4 th Qtr Disbursements PHA Enclosure Lines 41 thru 45 – October is not a good time to lease up, other than replacing attrition, because 2013 funds will likely be based on CY 2012 costs New HAP in October will have 3 months of expenses in CY 2013 funding – Regardless of funds provided in 2012, PHA’s total CY 2012 expenditures will be the basis of 2013 funding, as long as PHA is not over-leased, and eligibility will be subject to pro-ration 43

44. Upcoming Activities 3 rd quarter actual HAP expenditures will be reconciled to disbursements once VMS data is validated – reconciliation will be cumulative HUD plans to combine reconciliation and disbursement reports to PHAs: – 3 rd quarter reconciliation will also identify disbursements planned for 1 st quarter CY 2013 44

45. Upcoming Activities Appropriations for 2013 are not expected before 1 st quarter disbursements must be determined – will use CY 2012 allocation as proxy PHAs will be advised of a date certain by which all CY 2012 reporting in VMS must be final, for year-end reconciliation – Any VMS or funding changes will be incorporated 45

46. Upcoming Activities Once CY 2012 is reconciled: – All outstanding NRA from pre 2012 and all excess HAP from 2012 will be recouped into the HUD- maintained program reserves for each PHA – this is not a recapture – Interest earned on NRA and excess HAP from 2012 will be recouped and returned to the Treasury 46

47. Questions? How can a PHA determine the amount of program reserves HUD is holding for them? – Program Reserves generated from CY 2012 activity will not be determined until the year ends and all funding and costs are known, but – PHA can add up all funds obligated (ACC) applicable to the CY and subtract all HAP costs for eligible vouchers – the difference is the excess HAP at any point in time; total excess for the year will become the program reserves, plus the 12/31/2011 NRA not used in 2012 47

48. Questions? Should a PHA submit a request for HUD held reserves before NRA is exhausted? – No, a PHA should use NRA funds already at hand before requesting an additional advance from the FMC – This will reduce your NRA on hand rather than the excess HAP funds held by HUD, but the total available to the PHA will be the same 48

49. Questions? The award letters for set-aside funds and additional 2011 pro-ration funds said the funds would be disbursed as needed – how does a PHA access those funds? – These funds are a portion of the total BA available for your PHA for CY 2012 and are disbursed as needed per the cash disbursement calculations or front-loading – The funds lose their identify once put under ACC and are available in the same manner and for the same purposes as renewal funds 49

50. Questions? Any questions after this broadcast should be directed to your FMC financial analyst or: PIH.Financial.Management.Division@hud.gov 50