HUD Releases Guidance on Using Operating Subsidy for Capital Fund Program Activities

On Wednesday, February 28, HUD published Notice 2018-03 titled “Guidance on the Use of Operating Subsidy for Capital Fund Purposes for Subsidy Appropriated and Allocated for Calendar Year 2018 and Subsequent Years.” The Housing Opportunities Through Modernization Act of 2016 (HOTMA) included language that allows PHAs to transfer up to 20 percent of their Operating Funds to their Capital Fund, language NAHRO has advocated for strongly over many years. This guidance explains how public housing agencies (PHAs) operating public housing may use a portion of their Operating Subsidy for capital activities, subject to HUD requirements.

PHAs that are required to submit an Annual PHA Plan are required to indicate their intent to use Operating Subsidy for Capital Fund Program (CFP) activities in the plan. Small PHAS must check the appropriate box on form HUD-50077-CRT-SM, indicating that there has been a change to the statement of financial resources since the last Annual Plan submission in years in which small PHAs are not required to submit a 5-year Plan.

PHAs must ensure that the Operating Subsidy used for CFP activities at all projects does not exceed the maximum amount of 20 percent allowed at the PHA-wide level, and the Operating Subsidy used for CFP activities at any one project does not exceed that project’s total amount of Operating Subsidy. HUD will publish the total amount of Operating Subsidy obligated to each PHA for the funding year and identify the maximum amount of Operating Subsidy allowed for CFP activities toward the end of each funding year. PHAs may need to update their original estimate of Operating Subsidy to be used for CFP activities and will be required to create a draft Annual Statement/Budget. A PHA must create a separate draft Annual Statement/Budget for each Operating Subsidy grant where the PHA will be using Operating Subsidy for CFP activities in EPIC.

Operating Subsidy that has been identified for CFP activities by the PHA is not subject to the two-year obligation or four-year expenditure requirements normally associated with a PHA’s CFP grant. These funds remain Operating Subsidy with “expanded uses.” As Operating Subsidy, they must be expended within seven years.

The guidance notes that there are no threshold requirements for the use of this flexibility, such as meeting minimum financial ratios or maintaining appropriate reserve levels, which may impact a PHA’s Public Housing Assessment System (PHAS) score and designation.

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