National Housing Law Project Housing Law Bulletin

HUD has finally announced its selection of the state and local Housing Finance Agencies (HFAs) to serve most of the country as "Participating Administrative Entities" (PAEs) to implement the Section 8 "Mark-to-Market" program./1/ Thirty-nine state and 13 local housing finance agencies have been selected. However, actual completion of this novel and drawn out experiment in the new federalism’s transfer of administrative duties still awaits the resolution of a host of complicated contractual issues between HUD and the public agencies.

State Agencies Approved as PAEs

AZ, CA, CO, CT, DE, FL, ID, IL, IN, IA, KY, LA, ME, MD, MA, MI, MN, MO, NH, NJ, NM, NY, NC, ND, OH, OK, OR, PA, RI, SC, SD, TN, TX, UT, VT, VA, WA, WV, WI

Jefferson County, AL; District of Columbia; Atlanta and Macon, GA; Chicago; Indianapolis; Anne Arundel County and Montgomery County, MD; New York City; Puerto Rico; Southeast TX; Fairfax County, VA; Kitsap County, WA.

The final selections include several state and local agencies that remedied deficiencies in their original applications to ultimately win approval from HUD’s Office of Multifamily Housing Assistance Restructuring (OMHAR).

The selected agencies will be responsible for carrying out technical activities necessary to restructure debt and subsidies on the HUD-insured portfolio with above-market Section 8 rents. In many cases, PAEs may also undertake regulatory oversight of the restructured portfolio, primarily via Section 8 contract administration.

Despite this significant step toward making Mark-to-Market operational, groups representing both state and local housing finance agencies continue to express reservations regarding the content of the Portfolio Restructuring Agreement (PRA) contracts required between HUD and the PAEs.

Addressing PAE concerns, OMHAR Director Ira Peppercorn has stated that the protection of the public is the paramount consideration in negotiating a PRA contract that will meet the concerns of the HFAs, while protecting tenants and owners and meeting the Department’s fiduciary obligation to taxpayers.

Among the specific contract issues raised by HFA representatives is the degree of authority vested in OMHAR to control the flow of properties into and out of a PAE’s portfolio. HFAs prefer joint OMHAR/HFA determination of which properties would be turned over to the PAEs for action. HUD counters that, while PAEs may inform HUD of their capacity in terms of overall volume, they may not select or decline specific properties. Moreover, OMHAR believes that PAE performance with respect to various types of projects will serve as an evaluative tool as HUD monitors the restructuring process.

A second area in which HFAs question HUD’s draft contract involves the delegation of exclusive authority to HUD’s Office of General Counsel to construe the governing statute and rules. They contend that judicial review should be available to resolve differing HUD/PAE interpretations.

Aside from the issues of HUD discretion, the HFAs have expressed concerns over significant omissions from the draft contract. For example, the draft PRA contract fails to address compensation for the PAEs. Many approved HFAs will not commit themselves contractually until compensation, among other issues, is addressed.

Another general HFA concern is the discretion afforded HUD by the unclear language in the draft contract to require tasks of the PAEs beyond those set out in the contract. The omission of specific parameters to the "scope of work" for PAEs will leave HFAs vulnerable to what they may see as "unfunded mandates." HUD’s view is that agreement on the scope of work must precede any resolution of the compensation issue.

Another bone of contention is the scope of HUD’s indemnification of HFAs for losses in the course of carrying out their PAE responsibilities. HFAs also want assurances that they can avoid the administrative burden of being required to apply separately to serve as Section 8 contract administrators once they assume the PAE role.

HUD and the HFAs will continue to negotiate these issues over the coming weeks, which hopefully will close at least the first stage of this new and uneasy relationship. Simultaneously, HUD will be evaluating PAE applications from other non-public entities to cover those unserved areas where no public agency was approved for the restructuring role.

Notes

1    For background, see HUD Selects PAEs for Mark-to-Market Program, 28 HOUS. L. BULL. 217 (Dec. 1998).

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