Court Rules in Favor of Plaintiffs in Operating Reserves Litigation

PHADA and NAHRO are pleased to announce that on January 18th the U.S. Court of Federal Claims found in favor of nearly 350 public housing authorities that brought a lawsuit against the federal government challenging HUD’s reduction of their FY 2012 operating fund subsidies based on the amount of Plaintiffs’ so-called “excess” operating reserves. The President’s FY 2012 budget proposal included an Operating Fund request of just $3,961,850 which was $1 billion short of the amount needed to pay the aggregate estimated operating subsidy eligibility amount. HUD devised an “allocation adjustment” based on the level of savings agencies had accumulated in their operating fund reserves. As proposed, this allocation adjustment would have offset the aggregate amount of operating fund subsidies to which PHAs were entitled in 2012 by the amount of the PHAs’ “excess” operating reserves up to $1 billion. At the Department’s behest, Congress approved the plan, changing the aggregate amount of reserves that could be used as an offset to $750 million.

With PHADA and NAHRO as the lead Plaintiffs, a lawsuit was filed on January 3, 2013. Collaborating with PHADA and NAHRO, Coan & Lyons, a Washington, DC law firm, prepared the case based on the claim that HUD’s offset breached the Annual Contributions Contract (ACC of the PHA Plaintiffs in 2012 when “rather than reducing their subsidy payments by a uniform percentage (pro-rata basis), it first offset each PHA’s payment by a figure that varied from one PHA to another – the amount of its excess operating reserves.”

Judge Elaine D. Kaplan stated in her decision that HUD “breached its [contractual] obligations under the ACCs when it applied the [excess] operating [reserves] offset in response to the 2012 Appropriations Act, rather than the pro rata reduction prescribed by” HUD’s regulations. As noted by Judge Kaplan, the plaintiffs requested compensatory damages of almost $136 million.

With PHADA and NAHRO as the lead Plaintiffs, a lawsuit was filed on January 3, 2013. Collaborating with PHADA and NAHRO, Coan & Lyons, a Washington, DC law firm, prepared the case based on the claim that HUD’s offset breached the Annual Contributions Contract (ACC of the PHA Plaintiffs in 2012 when “rather than reducing their subsidy payments by a uniform percentage (pro-rata basis), it first offset each PHA’s payment by a figure that varied from one PHA to another – the amount of its excess operating reserves.”

Judge Elaine D. Kaplan stated in her decision that HUD “breached its [contractual] obligations under the ACCs when it applied the [excess] operating [reserves] offset in response to the 2012 Appropriations Act, rather than the pro rata reduction prescribed by” HUD’s regulations. As noted by Judge Kaplan, the plaintiffs requested compensatory damages of almost $136 million.

The Court has ordered the attorneys to file a status report by February 17, suggesting how the Court should proceed. Carl Coan, III, Plaintiffs’ lead attorney, believes that the next logical step will be to calculate the exact damages to which the Plaintiffs are entitled and submit them to the Court for approval. Assuming the parties can agree on the amount of damages, the Court will enter a final judgment and order awarding Plaintiffs their damages.

Tim Kaiser, PHADA Executive Director said, “We appreciate the Court’s decision. We tried to dissuade HUD from implementing this unfair and damaging plan as soon as we heard about it. HUD decided to go ahead and it left us with no alternative but to organize a legal action to enforce the existing contract between HUD and its many PHA partners.”

John Bohm, Acting Chief Executive Officer of NAHRO stated “NAHRO applauds the Court’s ruling on this matter. This responsible decision addresses the critical concerns raised by housing authorities across the country, and we hope that it will serve as a benchmark for future decision-making on these matters.”

The Court’s ruling may be accessed here.

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For any specific questions or concerns, please contact Georgi Banna, NAHRO’s Director of Policy and Program Development, at gbanna@nahro.org. As always for the most up-to-date information of the affordable housing and community development regulations and legislation, follow The NAHRO Blog and check the NAHRO website.

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