The HUD 2020 Management Reform Plan

DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT

[Docket No. FR-4266-N-01]

The HUD 2020 Management Reform Plan

AGENCY: Office of the Secretary, HUD.

ACTION: Notice of the HUD 2020 Management Reform Plan.

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SUMMARY: On June 26, 1997, Secretary Andrew Cuomo released his plan for

significant management reforms at HUD. The plan is titled the ``HUD

2020 Management Reform Plan.'' The reforms contained in this plan are

directed to restoring HUD's reputation and credibility by improving the

efficiency and effectiveness of the Department's programs, operations

and provision of services. This notice presents in the Supplementary

Information section of this document the Secretary's HUD 2020

Management Reform Plan.

FOR FURTHER INFORMATION CONTACT: For further information, contact the

Office of Departmental Operations and Coordination, the Department of

Housing and Urban Development, 451 Seventh Street, SW, Washington DC,

20410, (202) 708-0988. (This is not a toll free number.) Comments or

questions can be submitted through the Internet to Candis

__B.__H[email protected]. More information on HUD's Management Reform

Plan can be found on HUD's Home Page on the World Wide Web at http://

www.hud.gov, and the plan is available at http://www.hud.gov/reform/

mrindex.html.

SUPPLEMENTARY INFORMATION:

Introduction

``I believe America needs a government that is both smaller and

more responsive. One that works better and costs less. One that shifts

authority from the federal level to states and localities as much as

possible* * * One that has fewer regulations and more incentives. One,

in short, that has more common sense and seeks more common ground.''

President Clinton, Between Hope and History

``Everyone in government knows big challenges remain. It is time

for faster, bolder action to expand our islands of excellence and

reinvent entire agencies--time to entirely reinvent every department of

government.''

Vice President Al Gore, The Blair House Papers

HUD 2020 Management Reform Plan \1\

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\1\ Special Note: In January 1997, President William Clinton

asked incoming Secretary Andrew Cuomo to transform the Department of

Housing and Urban Development through the President's vision for

community empowerment. The next six months demonstrated unparalleled

creativity and energy by the Department. This product reflects the

input and insights of many, including: Vice President Al Gore, David

Osborne, James Champy, Ernst & Young LLP, members of Congress, the

Office of Management and Budget, and the HUD Office of Inspector

General. Most of all, it was made possible by the talented civil

service staff at HUD.

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HUD is just over 30 years old--it is time to prepare HUD for the

next 30 years.

Table of Contents

Executive Summary

Road Map to This Plan

Offers a guide for how to use this report

The Six Major Reforms

Describes reforms that cut across the entire Department.

Business Line Reform Plans

Describes specific issues and reforms for each business line

Public and Indian Housing (PIH)

Housing

Community Planning and Development (CPD)

Fair Housing and Equal Opportunity (FHEO)

Chief Financial Officer (CFO)

Administration

Appendices

Provides Additional Details on the Implementation of the Reforms

Appendix A: Buyout Plan

Appendix B: Annual Management Planning Strategy

Appendix C: HUD Salaries and Expenses FTEs

Appendix D: HUD 2020 Structural Reform

Appendix E: Consolidated Centers

Appendix F: HUD Salary and Staff Reductions

Executive Summary

``For HUD to fulfill its mission, it must have credibility--with

Congress, with local government and with the customer. They must all

believe that HUD has the competence and capacity to perform its

functions. It's time HUD put its own house in order.''

Secretary Andrew Cuomo

Responding to Change

Since HUD was created in 1965, economic and social conditions in

the United States have changed dramatically. Yet, in many ways, the

Department has not kept pace with that change. Over the years,

Congress, the General Accounting Office, and HUD's own Inspector

General have recognized this mismatch and criticized the Department for

failing to modernize itself by updating its systems, improving

accountability and performance, and reducing red tape.

Given these chronic problems, a priority for HUD in the next few

years must be its management. Specifically, is the agency taking

significant steps to clean up its act? Are new systems in place to

better steward HUD's funding? Are agency operations better coordinated

across functions? Is the agency defining a clear mission with clearly

delineated organizational roles? Is it managing workforce and workload?

Is it using new technology? Are its employees acquiring new skills?

This plan presents a fundamental management overhaul that, when

carried out, aims to bring HUD in line with the times, ensuring its

relevance and effectiveness into the 21st Century. The reform package

focuses on getting HUD's own house in order, on managing its programs

and people more efficiently and responsibly. It is a combination of

significant organizational changes, as well as proposed legislative

reforms, that HUD has submitted to Congress over the past few months,

including: The Housing Management Reform Act of 1997; Housing 2020:

Multifamily Management Reform Act of 1997; and the Homelessness

Assistance and Management Reform Act of 1997.

Compassion without competence has failed America and HUD; it has

let too many landlords profit without providing adequate service, left

too many public and assisted housing residents living in squalor, and

abandoned too many neighborhoods to decay. HUD is just over 30 years

old and it is time that we prepare HUD for the next 30 years. This plan

says that management must come first, that a new empowerment policy for

a new century requires a new HUD, a HUD that works.

Five major forces have combined to create the need and urgency for

the Department redesign proposed here. Those forces include: The

groundshaking economic shift as the U.S. transitions from an industrial

to an information society; passage of the Welfare Reform Bill, the most

significant change in American poverty policy in 30 years; the economic

and moral imperative to rein in an explosive national debt and balance

the budget; the discrediting of top-heavy, Washington-driven

government; and the legacy of mismanagement at HUD, which has made it

dangerously vulnerable to waste, fraud, and abuse of taxpayer funds.

America's Economic Transition

Despite the fact that America's economy is booming, too many

neighborhoods and communities are

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being left behind in the current revolutionary economic transition.

This transition has supplanted the national market with a global

market, and is replacing industry with information and knowledge as the

prime economic drivers. Yet because so many of our urban economies were

built on industry, their transition into this new era has been

particularly tumultuous and is still far from complete--and far from

successful. Throughout the 1970s, as our economy moved into the

earliest stages of deindustrialization, cities were hit hard--

population and incomes fell, poverty and unemployment increased, crime

and social problems became more intense and intractable.

To succeed in this economic transition will require new skills, new

strategies, and new cooperation, not just between government and

business, but between cities and suburbs. HUD must marshal all its

resources to help cities thrive in the new economy.

Making Welfare Reform Work

President Clinton made good on his promise to end welfare as we

know it, and now the hard work begins: moving millions of our fellow

citizens from welfare to work at a time when global competition for

low-skill jobs is great. HUD cannot escape the spotlight of welfare

reform. We are the Department responsible for housing more than a

quarter of the families on welfare today; the agency with potentially

the largest economic development portfolio in the federal government;

and the branch that deals most directly with the fate of cities, where

most people on welfare live. We must recognize that our long-term

success as a Department will largely depend on the degree to which

America can make welfare reform work for all our citizens.

Balancing the Federal Budget

Both President Clinton and Congress have committed to balance the

federal budget by the year 2002, the first time the budget would be in

balance since 1969. The need to cut funding to meet that vital goal

pressures all federal agencies to get the most bang for every taxpayer

buck. In short, we are forced to find ways to do even more to meet the

demands of a society in transition, ensuring that everyone coming off

welfare can find and hold a job, while downsizing staff and saving

money in every way possible. That means HUD must be leaner and smarter,

meeting its mandate in a creative, competent, common sense way.

A New Model of Government

While most of America's major institutions have changed

dramatically over the past few decades, government--particularly

government inside the Washington beltway--has often resisted reform. At

times, we act as if we are insulated from the powerful forces reshaping

the American economy and society.

But that is wrong. Government must change--and change

dramatically--if it is to remain relevant. Vice President Gore has led

the way for this Administration through his effort to reinvent

government. As he wrote in the Blair House papers, a small but powerful

handbook for organizational change, ``The need to reinvent was clear.

Confidence in government--which is simply confidence in our own ability

to solve problems by working together--had been plummeting for three

decades. We either had to rebuild that faith or abandon the future to

chaos.''

Former HUD Secretary Henry Cisneros recognized this need for

change. Under his leadership, HUD began that task a few years ago,

proposing sweeping and broad changes to many of its policies and

programs. However, Congress failed to enact changes in any authorizing

legislation. Indeed, no comprehensive housing authorizing legislation

has been enacted over the past six years.

This plan says that we can--we should--retain our core goals, but

we must change how we carry out those goals, making HUD run less like a

30-year-old bureaucracy and more like a smart, new business.

The HUD Legacy

Finally, and most importantly, HUD itself has been plagued for

years by scandal and mismanagement. It is the only federal agency cited

by the General Accounting Office (GAO) as being at ``high risk'' for

waste, fraud, and abuse. Congress regularly raises concern over the

efficiency and soundness of its programs. And its Inspector General

still questions HUD's basic ability to provide ``reasonable

stewardship'' over the billions of taxpayer dollars we administer.

These failings have made HUD the poster child for inept government.

That view is damaging to the agency's ability to fulfill its vital

goals--goals strongly supported by the public, such as ending

homelessness, investing in cities, and moving people from welfare to

work--at a time when Americans have a deep distrust and disgust with

the way government tries to meet those worthy goals. When over five

million people cannot afford decent housing, and hundreds of thousands

go homeless, we cannot afford to waste even one dollar on inefficiency

or corruption.

This plan says that enough is enough, that the era of an inept HUD

must end. It proposes to change the negative perception of HUD by

changing the reality--by making HUD work well.

Revitalizing HUD'S Mission

This changing context demands a shift in HUD's mission. While our

traditional goals remain the same--fighting for fair housing,

increasing the supply of affordable housing and opportunities for

homeownership, reducing homelessness, promoting jobs and economic

development--our mission must be updated, renewed, and focused.

If HUD is going to be a significant, value-added player, helping

America's communities move from an industrial to an information

economy, with welfare reform hanging in the balance, we must strive to

empower people, giving them the tools they need to succeed. HUD must be

an ally to communities, not a bureaucratic adversary; a creator of

opportunities, not obstacles.

At the same time, in a balanced budget environment--and with the

storm clouds of mismanagement still hovering over the agency--HUD must

refocus its energy, ingenuity, and resources on eliminating waste,

fraud, and abuse in all our programs.

Therefore, two distinct, yet interrelated missions for HUD are

evident as we approach the new century:

Mission #1: Empower people and communities to improve themselves and

succeed in today's time of transition.

Mission #2: Restore the public trust by achieving and demonstrating

competence.

Mission #1: Empowering People and Communities

The empowerment mission is a dramatic philosophical and paradigm

shift for the Department.

--Rather than top-down programs with inflexible mandates, the

Department must move to bottom-up, community-driven partnerships that

demonstrate a comprehensive community development strategy.

--Rather than long-term dependence, we must nurture self-sufficiency

and self-reliance; the helping hand of government must help people and

families become productive, taxpaying citizens. Whenever possible, we

must strengthen

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mainstream values of work, family, responsibility and opportunity.

--Rather than work in isolation, we must collaborate with other federal

agencies, each of which provides vital community resources.

--Rather than creating a new bureaucracy for every program, we must

seek out community partnerships breaking the habitual link between the

need for federal action and the growth of federal bureaucracy.

--Rather than working against the free market, we must harness market

forces wherever possible, using them to help people lift themselves up.

Empowerment is the right role for the federal government, a role

that says ``Washington can help communities thrive, but the decisions

and power must be closest to the people.'' HUD's plan will do just

that, getting a greater portion of our resources out of Washington and

into communities, investing more in people and less in overhead.

As President Clinton said in his Urban Policy Report, ``I believe

in a government that promotes opportunity and demands responsibility,

that deals with middle-class economics and mainstream values; a

government that is different radically from the one we have known here

over the last 30 to 40 years, but that still understands it has a role

to play in order for us to build strong communities that are the

bedrock of this Nation.''

Mission #2: Restoring the Public Trust

The public trust mission will restore public confidence in HUD by

instilling an ethic of competence and excellence at the agency.

Our goal must be performance and product rather than process and

perpetuation. We must have zero tolerance for waste, fraud, and abuse--

and have the institutional courage to demand accountability from both

our private- and public-sector customers. For everything we do, we must

ask two questions. First, how can we do it better, cheaper, and more

effectively? And second, are we taking all reasonable precautions to

protect the public trust and ensure that every tax dollar is used

properly?

Unfortunately, HUD continues to suffer from management troubles

that have long plagued the agency. Recent reports by the GAO highlight

essential steps we must take if we are going to permanently improve

HUD's management. These include:

--Consolidating programs and reorganizing and retraining staff to align

the agency's resources with its long-term mission;

--Developing and implementing stringent internal controls;

--Integrating financial and information management systems Department-

wide; and

--Increasing program monitoring and measurement to ensure higher

performance.

The agency's problems have been long in the making. We recognize

that it will take a tremendous commitment of time, energy, discipline,

and focus to reinvent the systems and the values that have undermined

HUD's credibility and capability.

We also recognize that we cannot fulfill our empowerment mission if

we fail to protect the public trust. The American people and the

Congress will only have faith in an empowerment approach to urban

policy if they believe we can make that approach work.

Reinventing HUD'S Management

Recognizing both the historic need and the recent forces that

demand change, HUD undertook a comprehensive effort to fundamentally

redesign our mission, programs, and organization. We asked outside

experts--and ourselves--one question: how do we organize ourselves to

ensure that we effectively and efficiently fulfill our twin missions of

empowerment and public trust?

This sweeping reform was based on some basic, common sense

premises:

--Start with no ``givens.'' Everything about the way we do business is

on the table for discussion.

--Analyze core purposes and organize by clearly defined

responsibilities, in effect creating separate ``businesses.''

--Match workload and workforce, skills and services.

--Measure and reward performance.

--Focus on changes that create the most leverage.

--Question whether the task is better performed by the private sector.

--Live in the 21st Century: master and utilize new technologies.

Driven by these principles, we assembled teams of ``change agents''

from all parts of the agency, challenging them to rethink every aspect

of our management. This HUD team was then complemented with advice and

assistance from the private sector, including Ernst & Young LLP, David

Osborne, and James Champy, among others.

Our process revealed several deep-seated, structural dysfunctions:

--Proliferation of a number of small ``boutique'' programs which are

highly labor-intensive.

--HUD is organized strictly by program (i.e., Office of Housing, PIH,

CPD) rather than function. A functional realignment would regroup some

program lines by mission and responsibility, and eliminate duplication.

--HUD is driven by process rather than performance.

--Workload and workforce are mismatched. While the Department has

downsized, the workload has increased and the necessary skills for

specific services in some cases do not exist within the agency.

--Management information systems have developed parochially rather than

in an integrated fashion--they need a complete overhaul.

--The Department's structure is an outdated pyramid, and the

headquarters/field relationship is inefficient.

--HUD's workforce has not been given a clear mission, but rather

schizophrenic mandates: On the one hand, to provide assistance to

communities and help them meet their needs; while on the other, to

police the actions of those same communities.

--The Department's culture lacks the work ethic and ability to make

stewardship of public funds a priority.

HUD addresses these breakdowns in several ways:

--The new HUD will be reorganized into discrete functions to serve

distinct customer groups, rather than solely along program lines. These

common functions will then either be performed within HUD or contracted

out if HUD does not have the expertise or if the private sector can

perform the work more efficiently.

--The culture will more clearly reward performance rather than

perpetuate process.

--The structure will change from a rigid, bureaucratic headquarters/

field operation into two distinct parts: (1) ``storefront,'' customer-

friendly local offices that aim to provide hands-on service to

communities; and (2) ``back office'' processing centers to consolidate

and expedite routine processing and paperwork.

--HUD's technological systems will evolve from Jurassic-era to state-

of-the-art.

--HUD's workload and workforce will be better matched according to size

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and skills. This will entail critical shifts in organizational

structure, positions, and personnel to reflect the aims of the new HUD.

--Everything in HUD will be driven by the twin missions: empowering

people and communities and protecting the public trust.

In short, we will reduce staff from 10,500 employees to 7,500,

restructure our operations, and dramatically consolidate HUD's current

300-plus programs and activities. Meanwhile, our long-term budget for

programs rises--which means that the new HUD will truly be doing more

with less. We will be investing a greater portion of our funding into

strengthening America's communities.

HUD's transformation is clustered around six reforms.

Reform 1: Reorganize by function rather than strictly by program

``cylinders.'' Consolidate and privatize where needed.

Reform 2: Modernize and integrate HUD's outdated financial

management systems with an efficient, state-of-the-art system.

Reform 3: Create an Enforcement Authority with one objective--to

restore public trust.

Reform 4: Refocus and retrain HUD's workforce to carry out our

revitalized mission.

Reform 5: Establish new performance-based systems for HUD programs,

operations, and employees.

Reform 6: Replace HUD's top-down bureaucracy with a new customer-

friendly structure.

Reform 1--Reorganize by Function Rather Than Program ``Cylinders.''

Where Needed, Consolidate and/or Privatize

Historically, HUD was formed by integrating several existing

departments: The Office of Housing, the Public Housing Administration,

the Urban Renewal Administration, and the Community Facilities

Administration. These historic entities were never shed. Consequently,

the Department never achieved operational efficiency, mission clarity,

or organizational unity. The ``stovepipes'' of the Office of Housing,

Public and Indian Housing, Fair Housing, and Community Planning and

Development operate essentially independently. Accordingly, they often

duplicate each others' efforts and at times work at cross-purposes,

making it exceedingly difficult for communities to make sense of HUD

services.

Compounding this situation, the recent workforce reduction has

exacerbated the performance problems of these separate areas--and

further downsizing from 10,500 employees today to 7,500 by the end of

the year 2000 will increase the strain.

To eliminate these duplications, and in anticipation of even more

downsizing over the next four years, this plan reorganizes the

Department by function--maintaining the distinct business lines of

public housing, single and multifamily housing, community planning and

development, fair housing and others--but making significant

connections across these business lines (i.e. the ``stovepipes'' or

``cylinders'') to maximize efficiency and dramatically improve customer

service.

Having identified the common, cross-cutting functions, we then

asked: How best do we meet our goals--through consolidation,

privatization, or both?

Consolidation

Program Consolidation: HUD currently operates over 300 programs and

activities, as cited in a recent Inspector General audit. After

reorganization, and if Congress passes HUD's legislative proposals for

program and activity consolidation and elimination, HUD will

consolidate and eliminate to about 70.

Functional Consolidation: Under this plan, several major functions

are consolidated, such as financial systems and enforcement (discussed

in reforms #2 and #3). Several administrative functions are also

consolidated, including:

--Real Estate Management System

Neither of HUD's twin missions--empowerment and public trust--is

well served by how PIH and the Office of Housing currently operate. PIH

and the Office of Housing now operate independently under separate real

estate management operations, yet portfolio management for the Office

of Housing's multifamily stock and for the Public Housing Authorities

(PHAs) is a common function of asset management.

Public Housing now assesses its portfolio through the Public

Housing Management Assessment Program (PHMAP) system. Despite recent

reforms, PHMAP is often criticized for failing to provide an accurate

measure of PHA portfolios.

Similarly, the Office of Housing's multifamily portfolio

experiences substantial fraud and abuse in its Section 8 program, with

an estimated 5,000 troubled properties nationwide.

To address these issues, the assessment of all PIH and Office of

Housing properties will be consolidated and radically redesigned. For

the first time in HUD's history, all properties will be physically

inspected and financially audited by outside contractors using a

comprehensive and uniform protocol. Portfolios will then receive a risk

assessment based on these reports. HUD staff can thus focus on the most

troubled and neediest properties.

--Contract Procurement

At the Secretary's direction, a top-to-bottom assessment of the FHA

procurement system was conducted by the National Academy of Public

Administration (NAPA). The study found that the current system neither

responds efficiently to Department needs nor adequately ensures

accountability.

As a result, the Department has asked NAPA to help improve HUD's

procurement system to ensure accountability, while responding flexibly

to changing program needs. The aim of reform is for staff to have the

resources they need to serve their customers, while safeguarding

taxpayer dollars with a system that ensures quality and value.

--Section 8 Payments

Both PIH and the Office of Housing currently operate Section 8

payment functions, often in disparate field offices; these functions

will be consolidated into one Section 8 Financial Processing Center.

--Economic Development and Empowerment Service

A number of economic development and jobs skills programs now exist

throughout the Department. These will be consolidated into the new

Economic Development and Empowerment Service, which will target these

resources to empower people and communities. Programs to be

consolidated or coordinated include Economic Development Initiative,

Section 108, Empowerment Zones, and job training and skills programs in

PIH and the Office of Housing.

Privatization

While many of the common functions will be consolidated, some will

also be privatized where efficiency or expertise dictates.

Privatized functions include physical building inspections for the

PIH and Office of Housing portfolios; financial audits of Public

Housing Authorities, as well as multifamily project owners and

mortgagees; HOPE VI construction management supervision; legal and

investigative services for the Enforcement Authority, where

appropriate; and specific expertise required by the grantees through

technical assistance.

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Reform 2--Modernize and Integrate HUD's Outdated Financial Management

Systems With an Efficient, State-of-the Art System

The single most glaring deficiency of the Department--and the

single greatest shortfall of a Department organized by program rather

than function--is the financial management systems. Currently, every

program cylinder operates its own financial systems: The number of

management information systems within the Department totals 89.

Compounding redundancy, many of the systems can't talk to each other.

This is the chief reason why the Department is on the GAO ``high risk''

list and why HUD's Inspector General says that HUD's future is ``dim.''

The new HUD will have a common, consolidated financial management

information system. Fully implemented by mid-year 1999, this system

will also facilitate communication between HUD, its grantees, and

communities across the country. With these improvements and enhanced

financial management, HUD's goal is to be removed from the high risk

list.

HUD's award-winning mapping software--which HUD will soon launch in

an innovative, joint public-private marketing venture--will ultimately

be incorporated into the new financial system for one seamless

communication and financial management system.

With the ease of an ATM, this cutting-edge mapping software will

provide a graphic display of HUD funding in virtually every community

in the country--helping communities better plan their future. In the

system of the future, HUD employees will know the workings of the

entire Department on a real-time basis. By using the best technology,

we will provide faster, higher-quality service to communities, while

recognizing and cracking down on problems in HUD programs.

Reform 3--Create an Enforcement Authority With One Objective: To

Restore the Public Trust

The greatest breach of the public trust at HUD is the waste, fraud,

and abuse in HUD's existing portfolio of millions of housing units.

Currently, each of HUD's program offices--PIH, the Office of Housing,

FHEO and CPD--operates independent enforcement functions, with

different standards and procedures.

PIH, for example, considers enforcement action when a property

fails its annual assessment. Solutions for troubled housing authorities

have been ad hoc, ranging from judicial receiverships to HUD

partnership agreements with the local housing authority. Housing, on

the other hand, takes enforcement actions against landlords

infrequently, as a last resort. The Department's critics note that the

financial interests of the FHA insurance fund can be at odds with the

social interests of the tenants.

The new HUD will combine enforcement actions for PIH, CPD, FHEO

(non-civil rights compliance), and the Office of Housing into one

authority. The Enforcement Authority will be responsible for taking

legal action against all PHAs that receive a failing score on their

annual assessment. The Enforcement Authority will also move against all

Office of Housing properties that fail physical and financial audit

inspections, cleaning up the historical backlog of 5,000-plus troubled

Office of Housing properties. The Authority will also crack down on all

CPD and FHEO grantees who fail audit standards or who engage in waste,

fraud, and abuse.

HUD is also seeking new tools to strengthen its enforcement

ability, such as a one-year mandatory trigger to move troubled large

PHAs into judicial receivership; a performance evaluation board to help

develop an improved annual assessment system for PHAs, including an

expanded PHMAP; broad waivers of reporting requirements for high-

performing and smaller PHAs; increased funding for multifamily

enforcement; and reform of the bankruptcy laws to prevent multifamily

owners from hiding behind the law to avoid prosecution by HUD and the

Department of Justice (DOJ).

The Enforcement Authority will consolidate existing employees and

will contract with outside investigators, auditors, engineers, and

attorneys where necessary and appropriate. Lastly, this division will

serve as liaison with the Inspector General, and coordinate its work

with the FBI, DOJ, and the IRS.

Reform 4--Refocus and Retrain HUD's Workforce To Carry Out Our

Revitalized Mission

Under the new HUD, no matter what area an employee works in, his or

her primary mission is either to empower communities and people or to

enforce the public trust.

In the past, employees were too often charged to do both at the

same time. After the HUD scandals in the 1980s, all emphasis was on

monitoring and enforcing regulations. At other times, the emphasis was

to help the grantee do whatever it wanted. Too often, employees were

asked to be facilitators as well as monitors. These charges were

inconsistent and often contradictory. The new HUD realizes that both

roles have a place in the Department but that they truly differ. They

are distinct functions and must be performed by different individuals--

and in different divisions--within the organization.

--Community Resource Representatives: One function is to empower the

community by bringing in technical expertise, knowledge of finance

programs and economic development. The culture of this position is

cooperative, helpful, and accommodating, and this service will be

performed by a new group of HUD employees called ``Community Resource

Representatives.'' These employees will provide the first point of

contact for our customers and will be the Department's ``front door,''

helping customers gain access to the whole range of HUD services.

--Public Trust Officers: The public trust function requires many

different skills in relation to the community. Public Trust Officers

must have absolutely zero tolerance for waste, fraud, and abuse; their

mission is to ensure that federal funds are used appropriately and in

compliance with laws and regulations. They will work in the field as

the front line for monitoring and will refer significant problem cases

for enforcement to HUD's new Enforcement Authority. HUD will increase

the number of staff devoted to this monitoring work by directing all

facilitation to the Community Resource Representatives and placing all

routine processing work in processing centers, thus freeing up a number

of HUD staff to work on protecting the public trust.

HUD will create training programs for each of these two new

categories of employees. Training will include a broad overview of all

HUD programs, while emphasizing general community development skills

for the Community Resource Representatives and program monitoring for

the public trust officers. Both employee categories will receive

specialized training at universities, beginning in the fall of 1998.

Reform 5--Establish New Performance-Based Systems for HUD Programs,

Operations, and Employees

Today, HUD uses an employee evaluation system that has some, but

not significant, connection to program and agency long-term goals. We

will explore changes to that system, as well as implement effective and

meaningful Government Performance and Results Act (GPRA) performance

measures designed to hold HUD staff and grantees accountable for

results.

We are also seeking to change--in large part through legislation--

programs

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to emphasize performance. For example, inflexible, labor-intensive

competitive grants will instead shift to performance-based formula

grants; high-performing housing authorities will be subject to fewer

onerous reporting requirements; a new board will design more effective

and comprehensive measures for evaluating PHA performance; and new

incentives will be developed in joint venture agreements to share

financial risk and rewards for disposing of defaulted FHA mortgages.

The new HUD will emphasize product over process, performance over

paperwork. Encouraging achievement, giving staff the tools they need to

be accountable, and rewarding results is the new culture HUD embraces.

Reform 6--Replace HUD's Top-Down Bureaucracy With a New Customer-

Friendly Structure.

With a new mission driving HUD's purposes and organization, we must

redesign our structure. The top-down headquarters/field structure is

outdated and outmoded; while many private sector companies reorganized

and restructured a decade ago, HUD has not kept pace.

Particularly compelling--and relevant--models of this kind of

reorganization can be seen in the financial services field. Over the

past decades, many banks, like Citibank and NationsBank, consolidated

routine functions into centralized ``back office'' processing centers

and established ``store-front'' customer offices closer to their

markets. Using this plan, HUD will adopt a similar model over a four-

year period.

Organized by function instead of by program, our newly consolidated

operations will be located in processing centers, while HUD's public

and grantee outreach will be conducted in community-friendly locations.

It is paramount that HUD retain its scope and presence in communities

across the country; HUD's 81 field offices will remain and be better

focused in serving their constituents.

Steps to Implementation

Following the release of this management plan to all HUD employees,

Congress, and the public, the agency will launch an aggressive

implementation strategy.

That strategy includes:

--Creating new entities detailed in this plan, including a new

Enforcement Authority and a national assessment center for all HUD

housing stock;

--Designing, with the help of the Office of Personnel Management, a new

performance planning and management program that:

Links performance requirements to specific objectives of

the Management Reform Plan;

Creates incentives for meeting specific performance

objectives; and

Establishes new performance rating levels (e.g., ``pass''

or ``fail'') and separates performance appraisal from performance

awards to tie awards to achievement of major goals.

--Continuing to request Congress to pass legislation that makes this

plan work, including a public housing bill, a multifamily ``Housing

2020'' bill, and a homeless assistance programs consolidation bill;

--Contracting out such plan elements as Hope VI oversight, PIH and

Office of Housing site inspection, and certain enforcement activities;

--Partnering with financial systems experts in the Treasury Department

to modernize and integrate HUD's financial systems;

--Shifting organizational structures and personnel to reflect the

plan's broad changes, then conducting a national talent search for new

senior personnel where needed; and

--Implementing a targeted buyout plan.

Because the Management Reform Plan calls for numerous cross-program

consolidations and deep-seated changes in HUD's administrative

structure, HUD will assign a project manager to each of several

specific reform targets. These project managers will take charge of

putting these reforms in place:

Enforcement Authority

Real Estate Assessment Center

Section 8 Financial Management Center

Financial Systems Integration

Technology Enhancements

Community Resource Representatives/Store-fronts

Finally, the Senior Executive Service (SES) anticipated mobility

and movement within the organization and in keeping with that

expectation, there will be major changes throughout the Department.

This plan will initiate a shift in virtually all senior management in

the SES positions in PIH and Housing including: Jose Cintron will

become the General Deputy of PIH, Eleanor Bacon will become DAS for

HOPE VI in PIH, Joe Smith will become the Deputy for Operations in

Housing and Karen Miller will become Acting DAS for Multifamily in

Housing. Both Mr. Cintron and Mr. Smith will be charged with

implementing the management reforms and transformation of their

respective business lines.

Conclusion

A few years from now, the new HUD will be judged positively if we

have corrected our most basic problems. Lessons from management reform

and reengineering show that you can't do it piecemeal--the success of

each individual piece of this plan is dependent on the success of the

whole. To create a new HUD, we will need the full range of changes set

out in this plan. The success of this reform commitment will, in part,

rise or fall not just on HUD's efforts but on the efforts of its

partners in Congress and communities across the country.

In its overall framework, this plan adopts a business-like

structure to achieve a public purpose. It defines a clear mission

divided into identifiable functions for each separate business line. It

centralizes some operations for economies of scale while decentralizing

other operations to improve service and innovation. It uses technology

to improve efficiency--both in front-line service delivery and in the

creation of back-office processing centers. It puts a new stress on

enforcement and economic development, while making information on HUD's

resources more widely available through computers. And it implements a

broad set of performance measures to best target resources to

communities in need.

We know the American people consistently support the goals of the

federal government, particularly those of HUD--helping homeless people

become self-sufficient, strengthening our cities, helping empower

people through work. The American people see our nation's problems--

they desperately want a solution and are frustrated because we haven't

been able to give them one.

Americans don't want to see human beings lying in the street. They

don't want to see one in five American children living in poverty. They

don't want to see hungry children. Because they know we can do better.

If we demonstrate that we can solve these problems, if we show them

solutions that work, we will unleash a power greater than we've ever

seen.

We can make that change. If we put our own house in order, showing

people that HUD has both the competence and capacity to perform its

vital role, we can help America make the transition into the 21st

Century. We will give people a reason to believe again.

HUD's new direction matters to America. Without HUD, millions of

Americans could not become the proud owners of a new home, could not

lift themselves from welfare to work, could

[[Page 43210]]

not walk safely through their own neighborhood, could not escape a life

on the streets to a new beginning.

What is at stake is more than just the survival and success of one

agency. When we reinvent HUD, one of the most historically troubled

government departments, we will have begun to restore the promise and

purpose of government itself.

These coming decades, the first of a new millennium, will be both

an exciting and challenging time for all Americans. We hold our fate in

our own hands: neither friend nor foe will determine our national

destiny--it belongs to us alone.

This plan affirms HUD's role in that new world, in charting that

destiny. It affirms a place at the national table and a piece of the

economic pie for all our communities. It recognizes the urgency of

creating opportunity for all Americans--and the importance of

accounting for every single dollar entrusted to us by millions of

taxpayers.

It says that a renewed and reinvented HUD will work--if we, and our

partners in Congress, are prepared for change.

Road Map to This Plan

Quick Guide

The Six Major Reforms

Describes reforms that cut across the Department.

Business Line Reform Plans

Describes specific issues and reforms for each business line.

Appendix

Provides additional details on implementing the reforms

.This plan is divided into three sections. The first, The Six Major

Reforms, gives readers a compass for understanding our major changes in

six reform areas:

Reorganizing by function.

Replacing HUD's financial management system.

Creating an Enforcement Authority.

Refocusing HUD's mission and retraining our workforce.

Establishing new performance-based systems.

Creating a customer-friendly organization.

The first section shines a spotlight on each reform area,

explaining why it is relevant, what changes will occur, and who will be

affected. In some cases, HUD's organization will change to implement

needed reforms; in others, specific programs will change to achieve our

reinvention goals. Regardless, they are reforms that will cut across

the face and through the depth of what HUD is today, reconstituting the

HUD of the future.

The second section, Business Line Reform Plans, describes the

reforms each of HUD's business lines will undertake. From Public and

Indian Housing to Fair Housing to Community Planning and Development,

specific problems, reforms, and benefits are laid out. Each business

line answers these questions: Why do we need to change? What reforms

will we make? What benefits will result? What legislation, if any, do

we need to make the change?

Finally, the Appendix provides supporting details.

The Six Major Reforms

``Contrary to what much experience and certainly much old wisdom

tell us, the essence of reengineering lies in this principle: The

larger the scale of change, the greater the opportunity for success.''

James Champy, Reengineering Management

HUD cannot affect community change unless it first changes within.

To effectively bolster community revitalization and offer new

opportunities for America's citizens, HUD must cast aside our outdated

structures that no longer serve customers well. The bureaucracy that

has swelled and become rigid over time must make way for a lean,

flexible, results-oriented structure.

This transformation is driven by HUD's realization that fundamental

change is critical if HUD is going to remain relevant into the next

century. These reforms are the product of a bottom-to-top review of

everything HUD does.

To kick off this change process, HUD pulled together dynamic

thinkers from across the Department to question every aspect of our

programs and processes. Complementing these change agents were outside

experts from the private sector, including Ernst & Young LLP, David

Osborne, and James Champy, among others, who lent additional strength

and perspective to our refocusing efforts.

These ``change agents'' started with no ``givens,'' no constraints,

no commitments to bygone structures--their only mandate was to question

how HUD should organize itself to effectively fulfill its twin missions

of empowering people and communities and restoring the public trust.

Principles guiding the process emphasized changes that would match

workload and workforce; focus on customers; measure and reward

performance; and take advantage of new technologies.

In figuring out what to fix, change agents had to find what was

broken. They identified several breakdowns within HUD's structure that

prevent optimal fulfillment of our missions. They noted, for example,

that HUD is driven by process rather than performance; that we are

organized by program rather than function, creating wasteful

redundancies; that management information systems aren't integrated;

and that the current relationship between headquarters and field office

responsibilities makes poor use of resources. Finally, change agents

concluded that the Department's culture has not made vigilant

stewardship of public funds a priority.

Next, the change agents focused on how to fix these fundamental

structural flaws. Their recommendations targeted everything from

creating a performance-based culture, to overhauling HUD's

technological systems, to consolidating or eliminating redundant

functions. Perhaps most importantly, they developed a new structure

that emphasizes function, customer service, and commitment to our

mission.

Change agents distilled these recommendations into six major areas

of reform that affect all aspects of HUD's ability to provide the

value, effectiveness, and quality demanded by our taxpaying customers.

Reforms in these areas will hit home with every HUD employee, from the

way we think about our purpose to how we measure progress and the tools

we have at hand to deliver services.

We call these changes ``cross-cutting'' reforms. Carpenters know

that cross-cutting lumber means to cut across the natural grain of the

wood. Sometimes it's a little harder to do. But the results make it

worth the extra effort.

Transforming HUD will involve cutting across program lines that

have been in place so long they must seem as natural as grains of wood.

But what seems natural in bureaucracies may only be illusion. The

reforms that will transform HUD cut across outmoded structures that

have too often given the illusion of efficiency, while in reality

making HUD less efficient.

This section explains each of the Department's six major reforms

and the organizational and programmatic changes they entail. It also

describes how these reforms will contribute to a new HUD--one that

partners with local communities to empower America's citizens and that

scrupulously protects the public trust.

[[Page 43211]]

Overview of Reforms and Specific Changes

#1 Reorganize by Function Rather Than Program ``Cylinders.'' Where

Needed, Consolidate and Privatize

Organizational Changes

Create the following centers:

1. Real Estate Assessment Center for reviewing and evaluating

physical inspections and financial reporting.

2. Section 8 Financial Management Center for Housing and PIH.

3. Housing: Single Family Homeownership Centers, Multifamily

Centers.

4. Public and Indian Housing: Troubled Agency Recovery Centers,

Special Applications Center, PIH Grants Center.

5. CFO: Accounting Center.

6. Office of Administration: Administrative Service Centers,

Employee Service Center.

Redesign contract procurement process to improve

operations and oversight.

Consolidate routine cross-operational processing into

centralized back office processing centers, or hubs, in the field.

Consolidate program administrative functions into the

Office of Administration.

Establish Economic Development and Empowerment Service,

aligning various job skills and other programs from CPD, PIH, and

Housing.

Outsource legal and investigative services when

appropriate.

Outsource technical assistance to grantees when

appropriate.

Privatize physical building inspections, financial audits,

technical assistance, and real estate assessments.

Consolidate ten field accounting divisions into one

accounting center within the Office of the CFO.

Consolidate operations in 51 field offices into 17

Multifamily Centers within Multifamily Housing.

Consolidate financial management and budget functions in

CFO.

Program Changes [L=Legislation Required]

Privatize HOPE VI construction management and development

process as appropriate (L).

Consolidate 6 homeless assistance programs (L).

Merge Section 8 certificate and voucher programs to

streamline HUD regulations and oversight (L).

Extend FHA note sale authority permanently (L).

Reform FHA single family property disposition to reduce

staff burden, value lost while in inventory, and exposure to risk (L).

#2 Modernize and Integrate HUD's Outdated Financial Management Systems

with an Efficient, State-of-the-Art System

Organizational Changes

Integrate HUD's fragmented financial management system,

repairing or replacing HUD's 89 separate financial management and

information systems

Use advanced mapping software system, Communities 2020, to

show communities the impact of HUD funding and activity in their area

and enable them to plan, track, and measure performance

Implement HUD's new Management Integrity Plan

#3 Create an Enforcement Authority

Organizational Changes

Consolidate existing organizations and employees; contract

where appropriate with outside investigators, auditors, and attorneys.

Monitor low-performing PHAs, properties failing physical

and financial audit inspections, and CPD/FHEO grantees failing program

compliance.

Create a business-like entity to clean up the backlog of

over 5,000 troubled multifamily properties.

Program Changes [L = Legislation Required]

Streamline and privatize process for Housing's pursuit of

negligent owners (L).

Reform bankruptcy laws to prevent owners from using them

as a refuge from enforcement actions (L).

#4 Refocus and Retrain HUD's Workforce to Carry Out Our Revitalized

Mission

Organizational Changes

Select and train staff as Community Resource

Representatives and Public Trust Officers for all field offices.

Downsize HUD staff from 10,500 to 7,500, using skills and

resources where they are needed most.

Develop a road map for downsizing HUD employees, including

a buyout strategy and options for career transitions.

Streamline and consolidate operations and reassign staff

to high priority work.

#5 Establish New Performance-Based Ssystems for HUD Programs,

Operations, and Employees

Organizational Changes

Create meaningful GPRA performance measures that hold HUD

staff and grantees accountable for results.

Program Changes [L = Legislation Required]

Convert inflexible, labor-intensive competitive grant

programs to performance-based grant programs, including: Tenant

Opportunities, Economic Development/Support Services, Public Housing

Drug Elimination, Competitive PHA Capital Funds; and six homeless

programs (L).

Deregulate high-performing PHAs and smaller PHAs by

mandating fewer reporting requirements (L).

Create a Public Housing Authority Performance Evaluation

Board (L).

Mandate judicial receivership for PHAs on the troubled

list for more than one year (L).

Reduce excessive rent subsidies to market levels on

assisted housing (L).

#6 Replace HUD's Top-Down Bureaucracy with a New Customer-Friendly

Structure

Organizational Changes

Create neighborhood ``store-front'' service centers in

communities.

Offer single point of service to customers through

Community Resource Representatives and centralize back-office centers.

Establish a new management planning strategy.

Streamline headquarters and redeploy staff to field.

Discussion of Reforms and Specific Changes

Reform 1: Reorganize by Function Rather Than Program ``Cylinders.''

Where Needed, Consolidate and/or Privatize

Management theorists call them ``stovepipes.'' At HUD we refer to

them as ``cylinders.'' They mean the essentially self-contained program

areas within HUD, Housing, Public and Indian Housing, Fair Housing, and

Community Planning and Development. Insulated from the outside,

operating from top to bottom in a relatively narrow way--like a

stovepipe--these units duplicate each other's efforts, and sometimes

work at cross-purposes. They make it hard for communities to use HUD's

programs to shape comprehensive solutions.

[[Page 43212]]

Compounding this long-standing situation are the reductions in

workforce of the last few years. From 13,500 employees in 1992, HUD has

shrunk to 10,500--and plans a further reduction to 7,500 by fiscal year

2000. The reductions that have occurred and those to come will strain

HUD's organization to the breaking point.

How do we compensate for the reductions? How do we correct the

problems inherent in HUD's structure? The answer: Reorganize the

Department by function to cut across ``stovepipes,'' eliminate

duplication where possible, and focus on customer service.

Organizational Changes

The most important organizational efforts to consolidate in the new

HUD involve creating both Department-wide and program-specific centers.

The major consolidations are described below; a complete list of

consolidated centers appears in Appendix D.

Create Consolidated Centers

--Real Estate Assessment Center

Currently, the need to monitor activities far outstrips the

abilities of both the Office of Housing and the Office of Public and

Indian Housing.

The proliferation of programs itself creates difficulties for a

shrinking staff. But the wide variety of smaller, highly specialized

programs and the many facets of public housing options often call for

skills the field office staff do not have. Consequently, FHA has an

estimated backlog of over 5,000 troubled properties. And as PHAs are

more accurately assessed, it is more likely that all of those that are

``troubled'' will receive help as needed early on. This will require

still more attention from a lean staff already overburdened with

conflicting priorities.

Even in the best of organizations such obstacles would make

assessments a challenge. These challenges are further aggravated,

however, by an inefficient process. Fragmented and beset by red tape,

the current assessment process makes an effective and flexible response

almost impossible.

Furthermore, FHA and PIH each use different standards for

performing separate physical inspections of public housing and

multifamily insured housing projects.

To help solve these problems, HUD will create the Department-wide

Real Estate Assessment Center. At the Center, HUD staff will rigorously

review data from physical inspections, based on guidelines used by

PHAs, mortgagees, and lenders. They will also determine whether each

project has passed or failed, using standard protocols for financial

performance reviews established by the new HUD Consolidated Asset

Management System (described under Reform #2).

--Section 8 Financial Processing Center

Handled by both Housing and PIH, financial documentation for the

Section 8 rental assistance voucher program has been neither

centralized nor easy to obtain. Without the necessary financial data,

HUD has had difficulty obligating and disbursing funds. Worse yet, HUD

has no electronic validation for processing payments or determining the

accuracy of requests from landlords or mortgagees. This fragmented

system leaves the door open to fraud--and in fact, HUD's Inspector

General estimates overpayments to be in the millions of dollars each

year.

To close these loopholes, the Office of Housing and PIH will

establish a unified center for Section 8 payments processing. Functions

will include budgeting, payment scheduling, contract reservations and

revisions, financial statement revisions, rent calculations, and income

verification. The electronic, integrated financial management of all

Section 8 processing helps HUD by monitoring compliance and ensuring

disbursement accuracy.

--Single Family Homeownership Centers

Currently, loan production, asset management, and property

disposition for Single Family programs are beset by problems. Insurance

endorsements are delayed; information systems are often inappropriate

for staff needs; disposition of properties is poorly controlled and

monitored; and staff reductions have made it difficult to deliver

consistently excellent service.

One solution: consolidate all Single Family operations into

Homeownership Centers, or HOCs. It is a move that will encourage

economies of scale and better use of sophisticated technology.

The Office of Single Family Housing will open three Homeownership

Centers. Located in Philadelphia, Denver, and Atlanta, the centers will

become fully operational by fiscal year 1999. The Homeownership Centers

will consolidate work formerly performed in field offices, including

routine processing, loss mitigation, and quality assurance.

To jumpstart this transition, HUD will either streamline, privatize

or outsource Real Estate Owned (REO) activities and will sell nearly

all assigned mortgage notes.

Such consolidation and streamlining will result in faster service,

better risk assessment and loss mitigation, and better loan targeting,

among other benefits.

--Multifamily Development Centers

The Multifamily Centers will carry out both Asset Management and

Asset Development. Asset Management will oversee and manage property

assets, as well as administer programs to ensure that low and moderate

income families have safe and affordable housing. Asset Development

will provide a full range of development services, including

applications, underwriting approval, construction inspection, and final

closing.

These centers will provide leadership for HUD staff who will

provide technical expertise in managing multifamily properties.

Additionally, several consolidated operations will facilitate the

multifamily asset development and management processes, including: the

Department-wide Enforcement Authority, Section 8 Financial Processing

Center, and Property Disposition.

But these are not HUD's only organizational efforts to consolidate.

Others include:

Redesign Contract Procurement

HUD recognizes that its staff can't create positive change and

serve communities unless we remove longstanding roadblocks to action.

One of these roadblocks is obsolete and inefficient procurement and

contracting processes, long a source of frustration within the

Department.

At the Secretary's request, the National Academy of Public

Administration (NAPA) scoured FHA's procurement system in an assessment

of what is wrong with the system and how we can fix it.

NAPA identified how procedures could be streamlined or eliminated;

pointed out how we could better train staff to handle procurements

fairly, quickly, and, responsibly; and suggested how ``best practices''

should be supported in the Department's operations. Everything from

giving contracting staff greater authority to using Intranet and e-mail

to speed up approvals was put on the table.

HUD is committed to creating a model federal government procurement

system, and a road map for getting there. This new system will:

--Establish high-level procurement priorities consistent with the

Government Performance and Results Act of 1993 (GPRA), focusing on

performance;

[[Page 43213]]

--Ensure accountability by clarifying lines of responsibility and

authority; and

--Respond quickly to changing program needs, becoming flexible and

user-friendly.

Where frustration once was ensured and fairness questioned,

procurement needs to become a tool HUD's program staff can rely on to

more effectively and efficiently serve customers in America's

communities.

Consolidate Administrative Functions

Currently, many routine operations occur at field offices scattered

around the country. These will be moved to a handful of centralized

processing centers. We have already described four.

One other important example: The Office of the Chief Financial

Officer will complete its consolidation of ten field accounting

divisions into one accounting center by the end of fiscal year 1998.

The CFO reviewed accounting processes to identify streamlining and

consolidation opportunities.

HUD will also continue to eliminate redundant administrative

functions through consolidation in the Office of Administration. To

accomplish this, the Office of Administration has established three

Administrative Service Centers in New York City, Atlanta, and Denver.

The Centers will support field offices with such services as

information technology, human resources, procurement, and space

planning. In addition, an Employee Service Center in Chicago handles

all payroll, benefits, and counseling services. In conjunction with

adoption of new technologies, the administrative centers will

ultimately dramatically reduce the need for administrative staff in

each field office.

In addition, HUD will review and streamline the separate

administrative operations currently being carried out by each business

line in headquarters. The review will examine how administrative

resources should most effectively be allocated across the Department.

Consolidate Economic Development and Empowerment Programs

Many economic development and job skills programs are scattered

throughout the Department, such as the Economic Development Initiative

(EDI), Section 108, Empowerment Zones, and job training programs in PIH

and Office of Housing. These will be consolidated into a new Economic

Development and Empowerment Service. The result: Improved focus on

community empowerment.

Privatize Specific Functions

Sometimes it is clearly more efficient to contract with private

firms. As specialists, outside firms can often do work faster and more

economically than HUD, especially given the Department's sharp

reductions in workforce. HUD thus plans to privatize a number of

activities, as appropriate. These include physical building inspections

for the PIH and FHA portfolios, and financial audits of both PIH and

FHA grantees. We will also outsource legal and investigative services

to the newly created Enforcement Authority (described in Reform #3) as

well as real estate assessment and technical assistance to grantees.

Program Changes

In addition to changes in HUD's organizational charts, HUD is

seeking legislation to allow program changes. These legislative reforms

are necessary to continue and strengthen the transformation of public

housing, to ensure that it works for residents and surrounding

communities, and to effect management reforms that permit all HUD

programs to make the most efficient, cost-effective use of scarce

federal resources. Specific program changes we seek include:

Privatize HOPE VI Construction Management

Overseeing the HOPE VI construction management process takes

tremendous staff time and often calls for specialized skills the field

staff may not possess. Contracting with private real estate firms, who

are familiar with this type of construction management, would both ease

staffing burdens and improve oversight of these urban revitalization

projects.

Consolidate Homeless Assistance Programs

A myriad of homeless assistance programs now award grants based on

annual competition for funds. These competitions are staff-intensive

and are an impediment to long-term planning and coordination across

programs and providers. HUD's proposal would consolidate these programs

and change the funding award process to a performance-based formula

grant program. Permanent consolidation would remedy this time-

consuming, unproductive process.

Merge Rental Assistance Certificate/Voucher Programs

The Section 8 certificate and voucher programs currently operate

under two different sets of rules. HUD's proposal would establish

standardized guidelines and procedures, consolidating these programs

into a uniform whole. This change would facilitate staff oversight of

the program, streamline HUD regulations, and reduce the opportunity for

waste and abuse.

Extend FHA Note Sale Authority Permanently

FHA's loan asset sales program was initiated to address the

substantial inventory of HUD-held mortgages, a result of the downturn

in real estate markets in the late 1980s. This program has been

tremendously successful in returning assets to the private sector and

in generating savings for the federal government. The asset sales

program has benefitted FHA in other important ways: It has increased

understanding of portfolio composition and performance; helped managers

refine portfolio strategies; allowed staff to focus on managing the

insured portfolio to prevent defaults; and institutionalized the

capacity to dispose of unsubsidized mortgages. Enactment of HUD's

proposed legislation to extend this authority would perpetuate these

benefits.

Reform FHA Single Family Property Disposition

When HUD takes possession of a property after its owners default on

an FHA loan, the process consumes tremendous staff time. Meanwhile, the

property loses value while in HUD's inventory, and exposes HUD to risk.

It is easier for HUD to find buyers for notes (mortgages on these

properties) than to sell the properties themselves. FHA is considering

possession of Single Family notes instead of properties upon default.

HUD's proposal will also allow FHA to consider outsourcing or

streamlining disposition, including using joint ventures to dispose of

properties and notes--further reducing financial risk and staff time on

servicing defaulted properties.

Reform 2: Modernize and Integrate HUD's Outdated Financial Management

Systems With an Efficient, State-of-the-Art System

The Book of Genesis describes the Tower of Babel, whose completion

was frustrated because its builders all spoke different languages and

couldn't talk to one another.

At HUD, this is one story that rings true. The Department's single

most glaring deficiency is its financial management systems. Today,

every program cylinder operates its own system--a total of 89 separate

systems throughout the Department.

[[Page 43214]]

Written in many different languages, these systems can't talk to

each other. This bureaucratic Tower of Babel is the key reason the

Department finds itself on the GAO ``high risk'' list and why HUD's own

Inspector General says HUD's future is ``dim.''

The Inspector General (IG) has described HUD's material weaknesses

and systemic management and program difficulties to Congress. The IG

has argued that HUD would greatly improve its ability to address these

problems if it finishes upgrading its financial management system.

Meanwhile, the GAO has sharply criticized HUD's financial

management system, calling it poorly integrated, ineffective, and

generally unreliable.

HUD does not dispute this assessment; since 1989 it has made many

similar points in its reports under the Federal Managers Financial

Integrity Act (FMFIA). And in his confirmation hearing, Secretary Cuomo

stated that his top priority would be to put HUD's management systems

in order and to restore effective management and financial

accountability at HUD.

To effect a complete overhaul of HUD's financial management system,

HUD will take these steps:

Organizational Changes

Integrate HUD's Fragmented Financial Management System,

Repairing or Replacing HUD's 89 Separate Financial Management and

Information Systems

The new HUD will have a common, consolidated financial management

information system. This system will ease communication throughout HUD

and will allow HUD to better communicate with grantees and communities

across the country.

The new system will provide quick, user-friendly access to

accurate, current, and complete consolidated financial, program, and

portfolio information. It will support program management decision-

making and financial management, readily provide information to

partners and constituents, and generate program and financial

performance measurements.

The new HUD integrated financial system will incorporate the

following features: Efficient data entry, support for budget

formulation and execution, updates on status of funds, standardized

data for quality control, security controls, and the ability to

correlate program performance measures with related spending

transactions in accordance with GPRA.

HUD has identified the 89 separate information and accounting

systems in major use throughout the Department that fail to comply with

FMFIA. These systems will be overhauled to either correct deficiencies,

consolidate functions into new accounting systems, or be eliminated.

Use the Advanced Mapping Software System, Communities 2020, To

Show Communities the Impact of HUD Funding and Activity in Their Area

It was only a few decades ago that ATMs were unknown. Now we see

them on every corner and Americans use them routinely, comfortably

moving through a variety of transactions by pushing a few buttons.

In a way, HUD's 2020 mapping software is a kind of housing ATM.

Users can move through graphic displays of HUD funding in virtually

every community in the country.

The Consolidated Plan advanced mapping system, which has won an

award from Harvard University's Kennedy School, will be enhanced to

provide current, accurate information on where and how public housing

dollars are being spent. This helps communities better understand the

options open to them. It also allows every HUD employee to grasp the

workings of the entire Department.

HUD will incorporate its award-winning mapping software into the

new financial system to provide one seamless communication and

financial management system.

HUD's Community Resource Representatives can then bring this

software into the communities they serve. By interacting with other HUD

program databases, Communities 2020 will allow Community Resource

Representatives and non-profits to see where specific programs like

Elderly Housing or Homeless Assistance are most needed--and to do so as

easily as they use an ATM.

Implement HUD's New Management Integrity Plan

Recent Inspector General and GAO reports identify a serious

disconnect at the program management level between responsibility and

accountability. The basic problem is that the current management

control process is driven by ``external policemen''--the Inspector

General and GAO. To be successful, HUD must change from a negative,

externally-driven internal control process to a new business culture--a

positive financial management process that is fully integrated with

day-to-day operations and owned by program managers. An effective

financial management system simply ensures that what should occur does

occur.

How do we create a new business culture in which management

monitors itself and looks at its own results? How do we make financial

integrity everybody's business?

To transform HUD into an agency where fiscal prudence matches

management responsibility, HUD will follow a three-part Management

Integrity Plan.

First, it will make program managers responsible for their

programs' financial management. We will hold them accountable for

results--and reward them for excellent results.

Second, HUD will set clear, reasonable expectations and give

managers the resources necessary to meet them. In particular, HUD will

expand the role of its Chief Financial Officer.

Third, HUD will develop and demonstrate this new business culture

by incorporating front-end risk assessments in reorganized and

consolidated programs outlined in the Management Reform Plan.

Reform 3: Create an Enforcement Authority With One Objective: To

Restore the Public Trust

Restoring public trust is a priority that drives the entire

reorganization. And the greatest breach of public trust is the waste,

fraud, and abuse in HUD's existing portfolio of ten million housing

units.

Currently, each of HUD's housing agencies--PIH, FHA, FHEO, and

CPD--operate independent enforcement divisions, with different

priorities. PIH, for example, considers enforcement action when an

authority fails its annual assessment, and has a variety of ad hoc

solutions, from judicial receiverships to partnership agreements with

the local housing authority.

FHA, on the other hand, takes enforcement action only as a last

resort; the Department's critics note that the financial interest of

FHA's insurance fund can be at odds with the social interests of the

tenants.

Because the enforcement system clearly needs reform, HUD will make

significant changes, both organizational and programmatic.

Organizational Changes

Consolidate Existing Organization and Employees; and Contract

With Outside Investigators, Auditors, and Attorneys Where Appropriate

The new HUD will combine non-civil rights compliance enforcement

actions for PIH, CPD, FHEO, and Housing program participants into one

new organization. This Enforcement

[[Page 43215]]

Authority will consolidate existing employees and contract with outside

investigators, auditors, engineers, and attorneys. It will also work

with the Inspector General, consult with the FBI on training staff, and

share information with the IRS.

Monitor Low-Performing PHAs, Properties Failing Physical and

Financial Audit Inspections, and CPD/FHEO Grantees Who Fail Program

Compliance

The new Enforcement Authority will be responsible for all PHAs that

receive a failing score on their annual assessment. It will also be

responsible for all multifamily properties failing the physical and

financial audit inspections performed by the real estate management

system. Finally, the authority will handle all CPD and FHEO grantees

who fail program compliance.

Create a Business-Like Entity To Clean Up an Estimated Backlog

of Over 5,000 Troubled Assisted Properties

HUD will aggressively pursue owners of troubled HUD-insured and

subsidized properties that do not meet established standards. This

entity will receive ratings from the Assessment Center on properties

that ``fail'' those established standards. Using professional resources

under contract, the entity will: (1) Quickly identify and implement

appropriate sanctions based on contractor recommendations; (2) initiate

appropriate civil or criminal actions in a timely manner; and (3)

proceed expeditiously to acquire, foreclose on, and dispose of the

property.

When a property fails its assessment, it will be forwarded for

immediate action to recover the property or misspent funds. Action may

include transfer of physical assets, sanctions, acquisitions,

foreclosures, and civil or criminal referrals. In the event of

foreclosure, a contractor will prepare the disposition plan and dispose

of the property.

General contractors will perform the work through qualified

subcontractors in areas of specific expertise in three major areas:

asset management, legal, and property disposition. A National Advisory

Board of independent stakeholders from the private and non-profit

sectors will give ongoing feedback on performance and policy and will

advise on particularly sensitive issues prior to final action.

Program Changes

Streamline and Strengthen the Office of Housing's Process for

Pursuing Negligent Owners

HUD's legislative proposals would strengthen FHA's enforcement

authority to minimize fraud and abuse in FHA and assisted housing

programs. Key provisions expand the Mortgagee Review Board's ability to

impose sanctions on lenders and other HUD program participants who

violate HUD rules; increase equity skimming penalties and expand equity

skimming prohibitions to all National Housing Act programs, Section

202, elderly, and multifamily risk-sharing pilot programs; and broaden

HUD's authority to impose civil penalties and double damage remedies.

These new or expanded authorities would reduce the staff burden for

each enforcement action and put teeth in their ability to resolve

troubled properties.

Reform Bankruptcy Laws To Prevent Owners From Using Them as a

Refuge From Enforcement Actions

Currently the bankruptcy code legitimizes non-compliance for owners

who have misused HUD funds and who avoid repayment under bankruptcy

protection. HUD seeks to reform Sections 105 and 362 of the Code, which

make this refuge possible. HUD's proposed amendments would allow the

agency to proceed with timely foreclosure of insured or assisted

multifamily housing projects, while protecting the residents, the

property, and the FHA insurance fund.

Reform 4: Refocus and Retrain HUD'S Workforce To Carry Out Our

Revitalized Mission

Partly because HUD was originally an amalgam of several different

organizations, its mission has never been sharply defined.

Moreover, HUD has often changed its emphasis to suit the times.

After the HUD scandals of the 1980s, for example, all emphasis was on

monitoring and enforcing regulations. At other times, the emphasis was

to help grantees do whatever they wanted.

Under the new HUD, we will refocus our mission--then retrain HUD's

leaner workforce to serve that mission. This reform includes four

organizational components.

Organizational Changes

Select and Train Community Resource Representatives and Public

Trust Officers for All Field Offices

HUD's mission involves both empowering communities and winning the

public trust. They are distinct functions and will be performed by

different individuals--and in different divisions--within the

organization.

--Community Resource Representatives, a new group of HUD employees,

will facilitate community empowerment by bringing in technical

expertise, program knowledge, and knowledge of finance and economic

development. Their purpose is to be cooperative, helpful problem

solvers.

--Public Trust Officers require different skills and a different public

stance. Public Trust Officers ensure that federal funds are used

appropriately and that HUD customers comply with the law. They must

have zero tolerance for waste, fraud, and abuse. HUD will sharply

increase the number of staff devoted to this monitoring work by

shifting all facilitating work to the Community Resource

Representatives and placing all routine processing work in ``back

office'' processing centers.

Downsize HUD Staff From 10,500 to 7,500 by the End of Fiscal

Year 2000, Using Skills and Resources Where They Are Needed Most

Once refocused, employees must be retrained. The HUD Training

Academy is designing a training program for Public Trust Officers in

each program area. It will retrain Community Resource Representatives

as well, since they must have broad knowledge of HUD's programs and the

field.

Throughout downsizing HUD will retrain and redeploy available staff

to minimize workload imbalances. HUD will also try to avoid reductions-

in-force (RIFs), with their disproportionate effect on mid-level and

mid-career employees. Since April, 1994 a total of 1,190 employees have

separated with a buyout from the Department--a 9.4 percent reduction,

without one involuntary layoff.

In general, HUD will downsize by consolidating and streamlining

operations; contracting out program and support functions that the

private sector can perform cost-effectively; eliminating functions that

are only marginally effective; and reducing part-time and temporary

employees.

Develop a Road Map for Downsizing for HUD Employees, Including

a Buyout Strategy and Options for Career Transitions

HUD will reduce staff levels by maintaining an employment freeze

throughout the downsizing period, except for limited hiring targeted at

urgently needed skills. The Department will implement early retirement

and

[[Page 43216]]

buyouts to spur staff reduction and will also offer employee

outplacement and other transition services.

HUD has received approval for Voluntary Separation Incentive

Payments (VSIP)--also known as buyouts--for employees in targeted

locations, titles, series, grades, and program operations. Under this

authority, the Department will offer 600-1,000 buyouts to employees to

most effectively make progress toward reducing the Salaries and

Expenses (S&E) Appropriation to 7,500 Full Time Equivalents (FTEs) by

fiscal year 2000. The buyout strategy, provided in Appendix A, will

target areas where consolidations and streamlining make staff reduction

most necessary. Buyouts will be used as an alternative to involuntary

separations that might otherwise be required for downsizing and

restructuring.

Alone, HUD's traditionally low attrition rate (less than 2 percent

per year) would be insufficient to meet the target staffing number of

7,500 FTEs. Buyouts have been an integral part of HUD's efforts to

streamline, downsize, and consolidate operations. These buyouts, as

well as early-out authority begun in March 1994 and an employment

freeze since October 1994, have substantially reduced staffing levels.

Without buyouts, HUD may have to resort to RIFs as the only other

tool available to meet downsizing goals. Yet RIFs would strip the

agency of key mid-level employees, disrupt agency operations, and

defeat staff diversity gains.

Continued use of buyouts, however, will allow us to target

management reforms to specific positions, locations, programs and/or

functions. In this way, HUD can focus buyouts on those employee

populations and functions which present the greatest need to reduce

staff levels. Buyouts are much more cost-effective than RIFs and are

more positively viewed by employees prepared to seek new challenges.

Reform 5: Establish New Performance-Based Systems for HUD Programs,

Operations, and Employees

In this, we are guided by the story about Bobby Knight, who, when

he first became the basketball coach at Indiana University, reportedly

received a telegram from the Alumni Association: ``Bobby, we're with

you all the way,'' it read. ``Win--or tie.'' Alumni Associations are

noted for caring about results--sometimes too much.

HUD's management reform plan places a new emphasis on results. It

creates new internal and external benchmarks, as well as uniform

standards for measuring performance, to increase productivity and

accountability across program lines.

These tools increase HUD's ability to mandate compliance from

contractors and customers. But by rewarding efforts that go beyond mere

compliance--like performance-based grants for contractors or added

autonomy for HUD employees--they will make HUD's ability to measure and

reward performance and results the true foundation of its

reengineering.

To that end we have made one organizational change and seek

legislation for many program changes.

Organizational Changes

The Government Performance and Results Act of 1993 (GPRA)

essentially requires federal agencies to demonstrate to the public that

its tax dollars are being well used. GPRA requires each agency to

identify specific measures of its performance, results it will achieve,

and timelines for doing so.

In line with these requirements, HUD will create meaningful

performance measures that hold its staff and grantees accountable for

results--in a quantifiable, measurable way. These measurements will

allow HUD staff to compare actual performance against established

goals.

By the end of fiscal year 1997, HUD must submit to the Office of

Management and Budget a three-year strategic plan and mission statement

for complying with GPRA. In that document, HUD will describe its

changing direction, including concrete actions. It will then establish

performance measures that conform to GPRA goals. In fact, we have

already begun creating these measures: at least 20 percent of HUD's

major goals and objectives are based on straightforward outcome-

oriented performance standards. Outside contractors will be held to the

same standards.

Program Changes

Convert Inflexible and Labor-Intensive Competitive Grant

Programs Into Performance-Based Grant Programs

HUD advocates the use of performance-based grant programs wherever

feasible as part of its ``reinvention'' to serve its customers more

efficiently and effectively. Performance-based grant programs

distribute funds by formula, and reward good performance. They also

conserve valuable staff time by eliminating time-consuming annual

competitions and make funding more predictable so that grantees can

plan more strategically. Finally, they give the Department greater

flexibility in partnering with local communities to monitor individual

projects.

Thus, HUD has proposed legislation that would allow it to convert

competitive grants into performance-based formula grants. Affected

programs include Tenant Opportunities, Economic Development/Support

Services, Public Housing Drug Elimination, and Competitive PHA Capital

Funds.

In CPD, HUD has legislation to consolidate homeless assistance

services from six disparate programs into one flexible, performance-

based formula grant program. Affected homeless programs include

Emergency Assistance, Safe Haven Housing, Supportive Housing Program,

Shelter Plus Care, Rural Housing, and the Section 8 Mod Rehab Program.

Deregulate High-Performing PHAs and Smaller PHAs by Mandating

Fewer Reporting Requirements

Currently all PHAs must prepare extensive reports, planning

documents, and other operational reviews. Monitoring compliance with

this stream of paperwork requires inordinate staff time and is

burdensome to those PHAs that already perform responsibly and

efficiently. HUD will reduce staff oversight burdens and reward

effective, high-performing PHAs by reducing the volume of paperwork

they are required to submit. Specific changes HUD will make include

streamlining planning submissions and performance indicators for small

PHAs, and reducing submission requirements for high-performing ones.

These steps will substantially reduce the burden on field staff for

monitoring and oversight.

Create a Public Housing Authority Performance Evaluation Board

An independent Performance Evaluation Board will be established to

help HUD monitor public housing authority performance. The board will

be composed of seven members, all appointed by HUD, with members

representing public housing authorities, residents, the real estate

industry and local government.

The board will be responsible for making broad recommendations for

improving HUD's oversight and monitoring of all facets of public

housing authority performance. The board will be evaluating the current

Public Housing Management Assessment Program (PHMAP) and suggest future

improvements. The board will also study alternative performance

evaluation models used in other

[[Page 43217]]

industries, including accreditation models that can be applied to

public housing. The board will also develop standards for professional

competency for PHA employees and review HUD's system to increase on-

site physical inspections and independent audits of PHAs.

Mandate a Judicial Receivership for All Large PHAs on the

Troubled List for More Than One Year

Currently, troubled PHAs may remain on HUD's troubled list for

years, consuming tremendous staff energy and oversight time in attempts

to restructure and salvage these properties. This prevents HUD staff

from focusing attention on those properties that may need additional

support to prevent their becoming troubled. HUD proposes to place

troubled PHAs in judicial receivership if they remain on the troubled

list for more than one year. This step gets HUD staff out of the

business of managing and restructuring large, troubled PHAs.

Reduce Excessive Rent Subsidies To Market Levels on Assisted

Housing

The Section 8 program, which subsidizes rents, is HUD's largest

housing program for low-income people. Established as a means to help

low-income people find affordable housing, the program has become

fraught with abuse by landlords and developers. FHA insurance of

multifamily Section 8 development virtually eliminated risk from the

development process. As a result, investors developed ``affordable''

multifamily properties that required rents well above market simply to

meet the development cost. Also, significant tax advantages made

Section 8 development even more palatable.

Excessive subsidies reduce the incentive for managers to provide

the results demanded both by residents and HUD. The FHA insurance on

these properties also makes unscrupulous landlords less willing to

invest in their properties. The resulting neglect, abandonment, or

``deferred maintenance'' has in many cases led to much lower property

values, even as rents remain high.

Roughly 65 percent of HUD's Section 8/FHA loan portfolio is

currently subsidizing rents that are substantially above market. In ten

years, the annual cost of renewing Section 8 project-based contracts at

their current above-market levels will increase to approximately $7

billion, about one-third of HUD's current budget. HUD simply cannot

afford to continue this level of spending.

The Department is therefore engaged in an intensive legislative

push to lower these rents to market levels (mark-to-market) and

restructure the portfolio of FHA-insured loans with Section 8

assistance. Without such actions, HUD risks defaulting on approximately

$18 billion of federal guarantees.

HUD has introduced legislation that forces landlords to bring their

rents down to supportable levels and restructure their current debt.

This will reduce the likelihood of massive foreclosures when landlords'

Section 8 contracts expire over the next few years.

Reform 6: Replace HUD's Top-Down Bureaucracy With a New Customer-

Friendly Structure

Just like a bank or a mortgage broker, HUD realizes that we too

have customers. And like a business, we have to think about what makes

customers satisfied. The top-down structure that characterizes HUD,

from headquarters to the smallest field office, is no longer

appropriate.

That structure is based on corporate models of the 1930s and 1940s;

yet while many corporations reorganized and restructured a decade ago,

HUD has not kept pace.

Where are the models for HUD? One comes from the financial services

field. Banks like Citibank and NationsBank have consolidated routine

functions into centralized ``back office'' processing centers. They

have established ``store-front'' customer offices closer--and more

responsive--to their markets.

HUD has learned from their example. HUD's goal is to provide

integrated delivery of services and products and to offer a single

point of service to all customers. We have identified a number of

organizational changes allowing us to do just that.

Organizational Changes

Create Neighborhood ``Store-Front'' Service Centers and Back

Office Processing Centers

The current field structure has state offices with a full staff of

program-specific employees. This structure will be replaced by field

offices staffed with Community Resource Representatives and Public

Trust Officers. While none of the field offices will close, their

operations will change dramatically, becoming processing centers and

new store-front service centers. In this way HUD will maintain its

presence in the communities while allocating resources the way a

customer-friendly Department should.

Offer Single Point of Service to Customers Through Community

Resource Representatives

Community Resource Representatives will play the most critical role

in the new HUD. Highly trained generalists with expertise in all HUD

programs, they will be trained with coursework in housing development,

information technology, real estate and economic development, small

group dynamics, and related topics. They will be the new generation of

urban and community leaders.

These Community Resource Representatives will be the first point of

contact for our customers and will be the Department's ``front door,''

helping customers gain access to the whole range of HUD services. They

will also help HUD coordinators assess the agency's performance and the

impact of programs in local communities.

Establish a New Management Planning Strategy Based on Customer

Feedback and the Secretary's Priorities, Goals, and Objectives

In a top-down management style, goals decided at the top are passed

down through the ranks. But where is the avenue for bottom-up goals and

ideas? How can customers guide HUD's direction?

HUD's new planning strategy makes that possible. It creates a loop

in which Department goals are constantly refined by feedback from

customers. While the Secretary sets priorities for achieving the

Department's mission, increased attention will go to:

--Creating an integrated customer service plan;

--Internal consultation; and

--External consultation.

The Secretary's Representatives and Community Resource

Representatives will be responsible for establishing an effective

partnership and working relationship with customers as we implement

management plans.

A more detailed description of the management plan process can be

found in Appendix B.

Streamline Headquarters

The Department will undertake a broad range of downsizing and

streamlining initiatives that support our major management reforms. We

will look for opportunities to consolidate and improve personnel,

procurement, information technology, training, and other administrative

functions.

For example, FHEO will eliminate one deputy assistant secretary

position, reduce its offices from six to four and its divisions from 14

to six. CPD will

[[Page 43218]]

combine affordable housing, block grant assistance, and economic

development into a new Office of Community and Economic Development. We

will transfer the administration of Section 312 loan functions to

Ginnie Mae.

The Housing, OGC, PIH, and headquarters transformations will

include major organizational changes and consolidations, as well as

significant staffing reductions and redeployment to field activities.

We will expand the Office of the CFO to include the Office of Budget to

better comply with the CFO Act, as well as to improve the strategic

planning, performance, and measurement of HUD's operations.

Reform Plans for Each HUD Business Line

``We must admit that some programs do not work. We must recognize

the right roles for government and the private sector. We must crack

down on waste, fraud and abuse wherever and whenever we find it. We

must understand that quick-fix solutions do not work--that many of

these challenges require long-term structural changes.''

Secretary Andrew Cuomo

Overview

HUD's twin missions are to empower people and communities and

restore the public trust. The Department relies on the services and

products delivered by each of its business lines to accomplish these

missions. To identify how each business line will contribute to the new

HUD's success, and highlight where greater strength is needed, the

Department reviewed program and management performance in detail at

every level during a recent staff retreat. Over the following months,

senior managers from headquarters and field offices, acting as change

agents, teamed with key staff and program managers to find practical

and effective answers to HUD's most pressing problems. These teams

developed management reform targets consistent with the Secretary's

goals. This was the foundation for HUD's reform agenda. Each business

line was asked to define its reform plans according to:

--Need for change

--Reforms (administrative, legislative, or management)

--Benefits of reform.

In addition, each area prepared a staffing plan, as well as the

tools needed to implement these reforms (technology and training).

These comprehensive reform plans will fundamentally change how HUD

operates. When implemented, they will allow HUD to more effectively

fulfill its mission. HUD will implement many reforms immediately--

others require Congressional action.

This section describes specific management reform plans for each

business line. Each plan includes: A summary of key issues, background

on the need for change, reforms we will make, benefits gained through

reform, and any legislative changes required to make progress.

Program and Reforms

Program: Office of Public and Indian Housing Reforms

Establish a cross-cutting Real Estate Assessment Center

for reviewing physical inspections and financial statements of PIH

housing authorities and multifamily projects.

Create a cross-cutting Section 8 Financial Processing

Center for Housing and PIH.

Establish a Department-wide integrated financial system.

Create an Enforcement Authority to manage PIH and

multifamily troubled portfolios.

Establish two Troubled Agency Recovery Centers (TARCs).

Create a special (non-funded) applications center for

demolition/disposition, designated housing, and 5(h) homeownership.

Provide block grant funds for high performers.

Replace PHMAP for better assessment and propose receivers

for troubled management.

Streamline headquarters and enhance field office

responsibilities and authority.

Privatize functions such as physical inspections, legal

and investigative services, technical assistance and HOPE VI

construction management.

Consolidate PIH job skills and economic development

programs with similar programs in CPD and Office of Housing into a new

Economic Development and Empowerment Service.

Program: Office of Housing Reforms

Establish a cross-cutting Real Estate Assessment Center

for reviewing physical inspections and financial statements of PIH

housing authorities and multifamily projects.

Create a cross-cutting Section 8 Financial Processing

Center for Housing and PIH, as well as other consolidated processing

centers.

Establish a Department-wide integrated financial system.

Create an Enforcement Authority to manage PIH and

multifamily troubled portfolios.

Reallocate staff in shift from retail to wholesale service

delivery.

Retrain workforce to meet new challenges.

Privatize Real Estate Owned functions.

Develop streamlined contract and procurement process.

Program: Office of Community Planning and Development Reforms

Convert inflexible, labor-intensive competitive grant

programs to performance-based grant programs.

Outsource technical assistance as necessary.

Monitor grantees failing program compliance through an

Enforcement Authority.

Use advanced mapping software system (Communities 2020)

that shows communities the impact of HUD funding and activities in

their area.

Align resource needs and responsibilities within the newly

established Economic Development and Empowerment Service.

Program: Office of Fair Housing and Equal Opportunity Reforms

Eliminate the split of enforcement and program compliance

functions in headquarters and the field.

Cross-train field staff.

Consolidate field oversight functions.

Restructure leadership functions at headquarters.

Integrate fair housing principles throughout HUD's other

program areas.

Make use of other program areas' software and new

technology to fill gaps in information.

Program: Office of the Chief Financial Officer Reforms

Consolidate program and administrative accounting

operations from ten accounting divisions into one accounting center.

Consolidate HUD budget functions into CFO operations.

Ensure implementation of Management Integrity Plan.

Incorporate Resource Estimation and Allocation Process

(REAP) into budget process.

Public and Indian Housing

``Our purpose is not to criticize government, as so many have, but

to renew it. We are as bullish on the future as we are bearish on the

current condition of government. We do not minimize the depth of the

problem, nor the difficulty of solving it. But, because we have seen so

many public institutions, we believe there are solutions.''

David Osborne and Ted Gaebler, Reinventing Government

[[Page 43219]]

Summary

The Office of Public and Indian Housing (PIH) faces many challenges

as it continues to transform public housing across America. In order to

successfully meet these challenges, PIH will align its staff resources

to address the greatest needs. It will establish centers that house

``back office'' activities, freeing field staff to target their

energies on monitoring and providing services to 3,400 Housing

Authorities and the 1.4 million families they house.

PIH will establish its own grants center; establish a Department-

wide Section 8 Financial Processing Center; participate in the

Department-wide Real Estate Assessment Center; establish Troubled

Agency Recovery Centers to work with troubled Housing Authorities; and

undertake other privatization and streamlining efforts to encourage

greater productivity and accountability with local PIH partners and

customers.

The Office of Public and Indian Housing has identified six areas

where change is most needed. These are:

--Staffing Imbalances

Two forces have created staffing imbalances in PIH field offices:

PIH's field restructuring and the Department's ongoing effort to reduce

overall staffing to 7,500 employees by fiscal year 2000. The 1994 field

restructuring organized field staff into several disciplines to match

the functions of property management. This specialization of duties,

combined with significant reductions in the number of field staff, has

led to many shortages within disciplines, particularly in smaller

offices.

--Myriad Programs To Deliver and Monitor

The proliferation of PIH programs in the last decade has created a

gap between the need to monitor activities and the ability to do so.

Many of the smaller PIH programs (e.g., the Tenant Opportunities

Program, the Family Investment Centers, and the Urban Youth Corps

Initiative) are highly specialized and require intensive staff effort,

making it difficult to give them the attention they need while

monitoring overall business line program operations. Also, the high

number of PIH programs has greatly increased the demand for staff to

oversee the grant award process in response to Notices of Funding

Availability (NOFAs).

--Program Transitions

The tremendous variety of public housing options now available

requires field office staff to have new skills. They must be familiar

with the unique features of gap financing, specialized grant agreements

and contracting, and program monitoring--all qualitatively different

from traditional public housing.

Additional program changes involve the shift of the Section 8

Moderate Rehabilitation program and many Section 8 New Construction/

Substantial Rehabilitation properties to the Section 8 tenant-based

program(s), requiring a new consolidated system for processing all

certificates.

--Coordinating Delivery of HUD Programs

PIH, like many of the Department's business lines, has difficulty

coordinating a plethora of programs, especially in developing and

implementing so-called place-based strategies, those strategies that

address the specific places where Americans work and live. Because each

program is designed independently, it is difficult to uniformly

coordinate complex, disparate requirements and procedures.

--Troubled Agencies

Given new, more effective approaches to assessing PHAs, HUD will be

in a position to move quickly to identify ``troubled'' PHAs. Because of

the complexity and sensitivity experienced by the Department in past

work with troubled agencies, we need to make greater efforts to turn

around troubled PHAs and prevent them from reaching that stage. This

will require more staff attention, which is difficult to allocate given

the competing priorities for administering a multitude of programs with

limited staff resources.

--Current Program Delivery Process

The roles and responsibilities of both headquarters and field

office staff are often poorly differentiated, overlapping, unclear, and

fragmented, making coordinated, effective allocation of staffing and

resources difficult. Red tape in navigating multiple levels of

authorization and reporting is plentiful, reducing effectiveness and

flexibility in the field.

To perform its work, field office staff are now grouped into

several disciplines that mimic property management functions. These

existing groupings include:

--Finance and Budget Specialists

--Facilities Management Specialists

--Public Housing Revitalization Specialists divided into sub-

specialists:

Organization, Management and Personnel (OMP).

Marketing, Leasing and Management (MLM).

Community Relations and Involvement (CRI).

While created to address existing needs, these classifications must

change to better reflect HUD's reforms and PIH's efforts to streamline

its service and delivery process.

Reforms

Three main restructuring areas have been identified to address

these problem areas:

Department-Wide Collaboration Opportunities

--Establishing a Real Estate Assessment Center

Collaboration With Housing

--Development of a Section 8 Financial Processing Center

Processing Center Reforms Specific to PIH

--Troubled Agency Recovery Centers

--Special Applications Center

--PIH Grants Center

Other Reforms

--Headquarters streamlining

--Enhancing the role of field offices

--Enhanced financial accountability

The proposed reforms and expected benefits from reengineering each

of these areas are described below.

Department-Wide Collaboration Opportunities: Establish a Department-

Wide Real Estate Assessment Center

HUD will create a Real Estate Assessment Center to centralize and

standardize the way the Department conducts annual PHA assessments. The

Center's staff will supervise the assessment process and manage

contractor performance, generating an overall score and incorporating

performance and compliance concerns for every agent/agency receiving

HUD funding. This scoring and ranking will give the Department a

comprehensive oversight tool. PIH can thus spend less time with high

performing agencies, instead focusing attention and assistance on

troubled authorities with lower scores.

How will the Center measure program performance and compliance with

federal rules? It will gather relevant data, both qualitative and

quantitative, pertaining to each program recipient, including: (a)

Physical inspections; (b) independent audits (combining standard fiscal

audit requirements with compliance factors defined by HUD); (c)

management and performance assessment, as defined by the revised

[[Page 43220]]

PHMAP; and (d) evaluations of community and residents' satisfaction.

Physical inspections and audits will be performed by contractors.

An expanded, more accurate PHMAP will provide inputs for other

performance measures. HUD field staff will supply qualitative

management assessment (e.g., recent turnover of critical staff and/or

number and complexity of programs) and assessments of grants

management. We will obtain views of residents and other community

clients from surveys and toll-free calls. The Center will then analyze

the information and grade the agent/agency according to the following

system:

(1) Pass with distinction or ``high performance.'' The highest

grade will give a PHA a possible bonus award of operating funds and

allow it to prepare fewer performance reports. The PHA will be

highlighted as a ``best practices'' site as a model for other PHAs.

(2) Pass. For PHAs of more than 250 units that score adequately but

still have problems (higher than average vacancy rates or one to two

poorly managed properties, for instance), field offices will perform

targeted monitoring of PHA activities in problem areas and will help

them improve annual scores. PHAs of less than 250 units that score in

this range will receive the benefits of ``high performance,'' except

for the bonus award of operating funds.

(3) Fail. We will assign failing PHAs to a Troubled Agency Recovery

Center for targeted intervention.

For PHAs that score above the failing level but have a serious

breach of contract between annual assessments, the PIH Assistant

Secretary may intervene.

Benefits of Reform

The new Assessment Center provides:

--Comprehensive, annual assessments based on the key components of PHA

performance--tenants' quality of life, PHA management, condition of

physical stock, and compliance with federal rules.

--Stronger HUD management controls.

--A front-end risk assessment approach for public housing that ranks

PHAs, helping management focus limited resources on the neediest PHAs.

--Uniform standards for early detection of fraud, waste, and abuse.

The Assessment Center also oversees the contracts for physical

inspections of every agent/agency and for expanded independent audits.

Contracting out functions supplements scarce PIH field staff

resources and increases the assessments' objectivity.

Proposed legislation would reward high-performing authorities with

incentives through allocation of operating funds. This would encourage

a ``management by results'' philosophy and provide an incentive for

grantees to improve performance. Proposed legislation would also permit

high-performing and non-troubled housing authorities to reduce the

number of planning and status reports prepared.

Collaboration With Housing: Create a Section 8 Financial Processing

Center for Housing and PIH

PIH will establish a unified center for Section 8 payments

processing with Housing. It will:

--Review and approve budgets

--Establish payments

--Maintain HUDCAPS

--Process year-end statements

--Calculate renewal needs

--Maintain funding control.

Currently, Housing and PIH have two very distinct methods for

processing payments: Housing uses a monthly voucher system based on

actual subsidy needs, while PIH uses an annual budget projection, with

adjustments made upon receipt of year-end statements. Unifying these

processes will benefit both business lines. This will also necessitate

improvements to the HUDCAPS system to accommodate processing of all

certificates.

Benefits of Reform

The combined Section 8 Financial Management Center will standardize

and consolidate Section 8 processing functions--ensuring uniformity,

consistency, and accountability in processing Section 8 subsidies and

projecting future Section 8 subsidy needs. It will provide a single,

effective financial management system, enhancing program

accountability. The Center will also centralize and focus staff

resources to better identify and respond to training and development

needs.

PIH-Specific Reforms: Establish Two Troubled Agency Recovery Centers

To deal with ``failing'' PHAs, PIH will establish two Troubled

Agency Recovery Centers (TARCs). Any agent/agency receiving a failing

annual assessment score will be referred to a TARC, which will develop

and implement an intervention strategy to bring the agent/agency to

passing scores. The TARCs will be arms of PIH's existing Office of

Troubled Agency Recovery (OTAR), located in headquarters. The 192 staff

proposed for this effort will be divided between the two TARCs and

program hubs.

PIH will divide staff assigned to the TARCs into several teams.

Each team will be assigned one large, troubled PHA. Where appropriate,

staff will be temporarily relocated to work directly with residents,

PHA staff, and leaders in the community. If PHA problems are not

addressed within a one-year time limit, as prescribed by proposed

legislation, the TARCs will recommend judicial or administrative

takeovers to the Assistant Secretary. To address small, troubled PHAs

(failing score with less than 250 units), teams of three staff will be

located in program hubs to correct problem areas and prevent further

declines in performance. Staff will be assigned several small PHAs in

their geographic area and report directly to one of the TARCs.

Individual skills on TARC teams will encompass all aspects of PHA

management and operations, including the Section 8 program, financial

and management systems, deterioration of physical stock, resident

needs, and more. Other field staff may perform some routine functions

for troubled authorities under TARC direction.

Benefits of Reform

The TARC model more clearly defines and separates the roles of

intervention/recovery and program operation/management. Intervention

functions will be performed by specialized personnel, all under the

authority of a TARC Director. This staff will be largely assigned to

the TARCs, with a contingent distributed to the program hubs. TARCs

will enable field staff to focus on community priorities and enhancing

performance of passing PHAs, rather than on problem PHAs. The proposal

encourages effective, targeted program delivery: specialized staff for

large or small PHA recovery efforts and field staff dedicated to

preventing decline in good PHA performance.

Consolidating intervention activities will also generate more

expertise as teams learn to swiftly identify and correct problem areas

and share solutions with staff.

Finally, TARCs will remove intensive, specialized work from field

offices, allowing staff to focus on monitoring and improving the bulk

of agents/agencies which are neither high performing nor troubled.

PIH-Specific Reforms: Create a Public and Indian Housing Grants Center

PIH will establish a center to perform competitive grants

selection, allocation and reservation requirements, as well as Public

Housing Operating Fund management, as follows:

[[Page 43221]]

--Competitive Grants. The Grants Center will be responsible for all

aspects of competitive grants management, including preparation and

publication of NOFAs, grants application and review process, and notice

of grant award.

--Funds Management. The Grants Center will also be responsible for the

Public Housing Operating Fund and Capital Fund. For the Public Housing

Operating Fund, the Center will provide a range of services, including

calculation of subsidy allocations, review and approval of PHA budgets,

and processing of year-end statements. For the Capital Fund, the Center

will review and approve a five-year plan, reserve funds, notify

Congress and the PHA, and prepare grant agreements.

PIH-Specific Reforms: Create a Special Applications Center

PIH will consolidate special (non-funded) applications and

processes for its unique programs in a single Special Applications

Center. Those applications are: demolition/disposition, designated

housing, and 5(h) homeownership. PIH will assign up to 15 staff to this

center.

Benefits of Reform

Consolidating these discrete functions will maximize staff

effectiveness and increase program accountability. Consolidation will

also eliminate current duplication of efforts in the field, for

example: demolition/disposition processing, now conducted at four

locations, and processing designated housing and 5(h) applications, now

performed at all existing field offices. The center will standardize

application processing and use staff specifically trained in evaluating

and processing these applications. Centralizing these functions will

relieve regular field staff of specialized processing burdens.

Other PIH-Specific Reforms: Streamline Headquarters/Enhance Field

Office Responsibilities/Enhance Financial Accountability

PIH will consolidate the field structure to better use existing

staff and to take advantage of cross-program efficiencies. The total

number of PIH offices will decrease by ten, as the existing 52 offices

evolve into 26 program hubs and 17 program centers. An additional 76

staff will move into the field as a result of headquarters

reorganization.

Field offices are the first point of contact for PHAs that pass the

annual assessment; they will work toward community goals using HUD and

other federal resources. Field staff will assess risk and monitor

programs for large PHAs with passing scores, all capital fund programs

(except for HOPE VI, in some cases), and various competitive grants.

Annual personnel assessments will be tied to the annual performance of

PHAs for which they are assigned.

PIH will also abandon the functional discipline specialization

resulting from earlier field restructuring. Instead, program hub and

program center needs will be better met by consolidating the OMP, MLM,

CRI and planning and evaluation functions into a generalist position.

PIH will also take steps to strengthen financial accountability and

controls, including integrating PIH financial systems with the rest of

the agency, working closely with the new Department-wide consolidated

budget function within the CFO's office, and bringing on board new

financial personnel such as a chief financial officer.

Benefits of Reform

By creating central processing centers and enhancing field

offices--thus separating intervention/recovery functions from routine

activities--PIH strengthens field office staff. Field staff can

concentrate on helping and monitoring non-troubled PHAs, flagging

potential or emerging problems. This structure better meets community

needs by focusing staff expertise on troubled agencies (both large and

small) where necessary, community service coordination, and program

monitoring. This reform also links agency performance to individual

personnel assessments.

Proposed Legislation

Internal reforms are under way throughout the agency. But to effect

real change within the PIH business line, Congressional action is

needed to facilitate lasting reform. Proposed authorizing legislation

will support the reorganization plan by:

--Replacing the PHMAP system, making it a component of the annual

assessment conducted by the Assessment Center;

--Making poor physical condition of properties automatic grounds for

designation of an agent/agency as ``troubled,'' providing a framework

for the Assessment Center to contract out physical inspections and

giving new input into the revised assessment system;

--Creating a formula for distributing operating funds and providing

incentives to housing authorities with good management, rewarding high-

performing housing authorities;

--Waiving four of the nine planning requirements for non-troubled small

housing authorities and high-performing large authorities, enabling

these entities to submit one interim statement during the five-year

comprehensive plan;

--Supporting TARCs by giving agents/agencies a one-year deadline to

correct their troubled status or be placed in judicial receivership

(for larger authorities) or administrative receivership (for smaller

authorities); and

--Consolidating programs, such as incorporating the Public Housing Drug

Elimination Program into the proposed formula award of operating

subsidies.

Proposed Legislation--Public Housing Management Reform Act of 1997

1. Deregulate Small PHAs and High-Performing PHAs

Streamlining planning submissions and performance indicators for

small PHAs, HUD will substantially reduce burden on field staff for

compliance monitoring and oversight. High-performing PHAs will also

have lighter submission requirements.

2. Merge Section 8 Certificate and Voucher Programs

Consolidation allows streamlining of HUD regulations and oversight

of a single program.

3. Consolidate Tenant Opportunities Program (TOP) and Economic

Development/Supportive Services Program

Combination allows HUD to conduct one competition, rather than two,

under a single set of regulations.

4. Streamline PHA Submissions to HUD and Provide for Timely and Limited

HUD Review Process

Submission of a single streamlined comprehensive plan with annual

modifications requires substantially less HUD staff time for review and

approval. Lighter submission requirements for high performers will also

reduce staff workload.

5. Create New Performance Evaluation Board to Recommend System

Enhancements for Public Housing Authority Oversight

Creation of board to enhance performance measurement system and

develop system for site inspections; use of audit reports will create a

more efficient, more effective system for oversight of public housing

authorities.

[[Page 43222]]

6. Allocate Public Housing Drug Elimination Funds by Performance-based

Formula

Conversion to formula will eliminate the need to conduct staff-

intensive annual competition.

7. Allocate Capital Funds for Small PHAs by Formula Instead of

Competition

Formula allocation of capital resources to small PHAs will

eliminate the need to conduct annual competition.

8. Automatic Judicial Receivership for Persistently Troubled Large

PHAs.

Gets HUD staff out of the business of managing restructuring of

large troubled PHAs.

9. Privatize Oversight of HOPE VI Construction Process

Contracting with private real estate firms will ease staffing

burdens and improve oversight of HOPE VI projects.

Summary of Public and Indian Housing Problems, Reforms and Benefits

Problems

Staffing is imbalanced, geographically and by

specialization.

Tracking and assessing of projects is not uniform.

Delivering and monitoring too many programs amplifies

staffing problems.

Changes in statutes, regulations, and delivery process

are not communicated well throughout the field offices and

headquarters.

Coordination of program delivery and targeting of HUD

staffing resources is insufficient.

Resource-intensive management of troubled PHAs prevents

staff from nipping PHA problems in the bud.

Reforms

Establish a cross-cutting Real Estate Assessment Center

for reviewing physical inspections and financial statements of PIH

housing authorities and FHA multifamily projects.

Create a cross-cutting Section 8 Financial Processing

Center for Housing and PIH.

Establish a Department-wide integrated financial system.

Create an Enforcement Center to management PHA and FHA

troubled portfolios.

Establish two Troubled Agency Recovery Centers (TARCs).

Create a special applications center for demolition/

disposition, designated housing, and 5(h) homeownership.

Provide block grant funds for high performers.

Revise PHMAP for better assessment and propose receivers

for troubled management.

Streamline headquarters and enhance field office

responsibilities.

Privatize functions such as physical inspections, legal

and investigative services, technical assistance, HOPE VI construction

management.

Consolidate PIH job skills and economic development

programs with similar programs in CPD and FHA into a new Economic

Development and Empowerment Service.

Benefits

Annual assessments are standardized, providing better

access to critical information and ensuring fairness and objectivity

across projects.

Uniformity, consistency and accountability are ensured for

processing Section 8 subsidies and projecting future subsidy needs.

Roles of intervention/recovery, program operation, and

management are more clearly defined through TARCs.

Through consolidation, field staff are relieved of

intensive processing burdens.

Program staff can concentrate efforts on core functions by

realigning staff responsibilities and certain PIH programs.

Housing

``If you change your systems, organizations, and people, but leave

the work processes alone, or change your systems, organizations, and

processes, but not the way your people work, think, and feel, you will

sentence your organization to ongoing conflict. To reach your

destination, you must bring all five levels into alignment.

David Osborne and Peter Plastrik, Banishing Bureaucracy

Summary

The Office of Housing faces specific problems: poor alignment of

staff and resources, lack of integrated computer systems, and high

risks in multifamily portfolios.

Addressing these problems will involve establishing additional

consolidated processing centers, such as a Section 8 Financial

Processing Center; turning over troubled properties to a centralized

enforcement authority; privatizing discrete functions, such as Real

Estate Owned properties; creating an asset management system; and

aggressively managing portfolio risk.

The Need for Change

For more than 60 years, the Federal Housing Administration (FHA)

has helped make capital available to support rental housing, single

family homeownership, and community health care facilities. To continue

this role for America's communities in the 21st Century, the Office of

Housing has developed a reform plan that blends the efficiency and

flexibility of the private sector with FHA's continuing commitment to

serve the public.

The areas to address in order to accomplish our goals:

--Accurately assessing the financial or physical condition of

multifamily properties;

--Increasing accountability of internal managers, property owners, and

stakeholders;

--Relieving asset managers of non-asset manager work;

--Changing service delivery from retail to wholesale;

--Verifying income in the Section 8 program;

--Linking the reform plan to personnel performance standards;

--Making sure the right skills are available to match needs; and

--Managing staff reductions.

Proposed Legislation--Housing 2020 Multifamily Management Reform Act of

1997

1. FHA Mark-to-Market Reforms

Repositioning/rehabilitating the 500,000 over-subsidized and

insured properties will lighten FHA's exposure to default and reduce

staff workload because remaining properties will be in better condition

and better regulated through market discipline.

2. Strengthen FHA Multifamily Enforcement

Creation of new Department-wide Enforcement Authority. Streamlining

and privatizing the process for FHA pursuit of bad owners reduces staff

burden for enforcement actions, and thus reduces burden on staff for

overseeing/resolving troubled properties.

3. Reform Bankruptcy Laws To Prevent FHA Multifamily Property Owners

From Evading Enforcement

Preventing owners from using bankruptcy laws as refuge from

enforcement action makes it easier for FHA to pursue bad owners, thus

reducing burden on staff and improving the caliber of the housing

stock.

4. Extend Permanently FHA Note Sale Authority

Note sales reduce staff drain that results from having to service

troubled properties and notes.

[[Page 43223]]

5. Consolidate Multiple Multifamily Insurance Authorities into a Single

General Authority

Single, flexible insurance authority will replace more than 10

specialized authorities. Will enhance user access to multifamily

insurance products and streamline management systems.

Overview to Subdivisions

Each of the Office of Housing's subdivisions contributed

reorganization strategies to the HUD-wide reengineering effort. The

following sections describe the individual strategies of Multifamily

Housing, Single Family Housing, and the Comptroller. In addition,

Housing headquarters is also being reorganized.

Multifamily Housing

The Need for Change

During the 1980s, the Office of Housing was significantly affected

by the decline in real estate markets. In the early 1990s, it owned

almost 2,400 multifamily mortgages, with an outstanding balance of over

$7 billion. The substantial inventory of HUD-held mortgages was costing

taxpayers hundreds of millions of dollars and compromising HUD's

ability to perform its other principal functions, specifically

production of new, affordable housing and effective management of the

insured portfolio. Strategies are needed to set the future course for

multifamily housing. Necessary reforms are identified in the following

areas:

Asset Development

Asset development services (intake, processing, underwriting

approval, construction inspection, and final closing) are currently

delivered in 51 field offices. However, this service delivery structure

has several major weaknesses:

--Services are poorly integrated and delivery is fragmented;

--Processing is slow and inconsistent: the industry standard for

processing is 30-45 days, far less than HUD's current average, and

answers to similar client questions vary from field office to field

office;

--Mortgagees are not held accountable for performing due diligence,

putting HUD at greater risk;

--Quality control is weak, with 51 different underwriting authorities

making decisions--leading to increased risk and inconsistencies;

--Confusion and clouded accountability result from burdensome reporting

relationships; and

--Existing staff skill mix doesn't offer consistent, uniform, quality

service across all offices.

Asset Management

Asset Management oversees and manages assets including 31,000

projects with approximately 5,400 ``troubled'' properties. It also

administers nearly 30 different housing programs to ensure that low and

moderate income residents have safe, affordable housing, to safeguard

tax dollars, and to protect the FHA insurance fund. Asset managers

monitor and service many properties, with an average workload of 55

projects per person. Typical tasks include property inspections,

financial analysis, and reviewing grant and other applications.

The current delivery structure has four major weaknesses:

--Asset managers are overburdened with non-asset manager

responsibilities, are poorly trained, and lack the experience to handle

a broad range of troubled and non-troubled projects;

--Owners may exploit bankruptcy laws to avoid compliance;

--No efficient system exists to identify, assess, and respond to

troubled properties; and

--Section 8 subsidy administration is inefficient and burdensome.

Reforms

Asset Development

The following reforms will be made:

--Multifamily Housing will consolidate 51 field offices into 17 program

centers. These hubs will be supported by staff in program centers;

staff will be on detail to various locations, moving across hubs and

program centers. Shifting assignments allows staff to adapt resources

and focus as needed to respond to changing markets;

--Implement a fast-track development process;

--Delegate certain underwriting responsibilities to mortgagees or

contractors;

--Establish a quality assurance unit.

Benefits of Reform

Multifamily Housing will see these results from reform:

--Uniform, consistent processing;

--Sharply reduced processing time;

--Less underwriting risk and inconsistency by having fewer people make

underwriting decisions;

--More responsibility and accountability for mortgagees;

--Clear lines of authority and responsibility, more accountability;

--Shared use of skilled staff across hubs;

--Flexibility to meet rapid market changes; and

--Fewer material weaknesses in managing and controlling staff

resources.

Asset Management

We will usher in change and correct flaws within Asset Management

with the following reforms:

--Create a Department-wide Enforcement Authority to handle the troubled

properties of PIH and Office of Housing.

--Create a Department-wide Real Estate Assessment Center for PIH and

Office of Housing.

--Housing will consolidate key functions in processing centers.

Contractors and/or skilled HUD staff will perform such core functions

as property disposition, insurance conversion, and Section 8 voucher

processing. To align work with available skills, anticipating further

staff reductions by the year 2000, Housing hubs will be located in 17

areas to best serve customers and support the 34 program centers;

--Increase consistency and cohesiveness in processing control;

--Reduce asset managers' non-troubled property workload to appropriate

levels;

--Provide direct lines for staff reporting;

--Improve service quality and balance of staff skills;

--Expand the Insurance Conversion Servicing Center to handle co-insured

portfolio refinancing; and

--Coordinate autonomous field offices.

Benefits of Reform

Multifamily Housing will reap the following benefits from acting on

these reforms:

--Reduce non-core functions performed by asset managers;

--Provide timely, accurate financial and physical condition status of

multifamily properties through the Assessment Center; and

--Dedicate resources to deal with all troubled properties in the

Recovery and Enforcement Authority.

Single Family Housing

The Need for Change

Single Family Housing currently performs loan production, asset

management, and property disposition with 2,080 employees in 81

locations across the country, in addition to 190 headquarters staff.

One critical goal is to rid the agency of the administrative burden of

a substantial inventory of

[[Page 43224]]

HUD-held mortgages. However, this goal, among others, is more difficult

to achieve with the existing service delivery structure. Among its

flaws:

--Delays and problems in insurance endorsement processing;

--Information systems that do not help staff effectively monitor

compliance;

--Poorly controlled and monitored property disposition; and

--Staff reductions that prevent consistent delivery of quality

services.

Reforms

Single Family Housing will consolidate all Single Family operations

into three Homeownership Centers (HOCs). This reform will generate

economies of scale, encourage better use of technology, and allow us to

dedicate staff solely to customer assistance. To jump start the

transition, we will either streamline or outsource Real Estate Owned

(REO) activities and sell nearly all assigned notes.

When fully implemented, HOCs will perform functions which are now

performed in individual field offices. Specifically, they will be

staffed to perform the following core functions:

--Insurance endorsements

--Operational post-endorsement technical reviews

--Fee panel oversight

--Underwriting

--Servicing advice and guidance to mortgagees

--Contractor oversight/management

--Loss mitigation

--REO sales (carryover inventory)

--Marketing and outreach

--Quality control post-endorsement technical reviews

--Lender monitoring

--Sanctions

--Audits/investigations

Benefits of Reform

This consolidation and streamlining will achieve several

objectives:

--HOCs will provide faster, more uniform, efficient service to clients,

lenders, and borrowers;

--Risk assessment, loss mitigation, and quality assurance will all

improve;

--Loan production will increase in targeted populations with better

marketing and outreach;

--HOCs will cut the processing time for insurance endorsements from two

weeks to one day;

--Service to lenders will improve through automated systems; and

--A state-of-the-art financial system will vastly improve HUD's

underwriting and loss mitigation efforts.

Housing Comptroller: Asset Recovery Centers

The Need for Change

Currently, Title I asset recovery operations are performed by 108

employees in three Asset Recovery Centers. The existing delivery

structure has two major weaknesses:

--Recovery processes are cumbersome and are poorly integrated with

premium collection and claims examination; and

--Resource investment is not justified by the level of assets

recovered.

Reforms

HUD will work with the Department of Treasury to transfer

appropriate asset recovery activities to Treasury.

Benefits of Reform

By transferring asset recovery activities to the Treasury, HUD will

reduce resources committed to this non-core function and can refocus

staff on higher priority tasks. Treasury can better ensure timely and

accurate debt collection, significantly increasing the amount of unpaid

debts collected.

Housing Headquarters

The Need for Change

Housing headquarters develops policy and budgets, conducts

Congressional and industry relations, plans and implements new products

and services, and oversees lender compliance, among other tasks. It

also provides field support. Three major weaknesses in headquarters'

current operations have been identified:

--Field support is inadequate;

--Information systems are outdated and disparate, preventing staff from

comparing data and flagging problems; and

--Procurement is cumbersome.

Reforms

Headquarters will streamline operations to better focus on such

HUD-wide responsibilities as policy and budget development,

troubleshooting, industry relations, and those that support field

office service delivery. Its field support will focus on personnel,

procurement/contracting, information technology, training and auditing,

and technical assistance. Headquarters will also:

--Limit its role in compliance and execution to providing data

resources, administrative support, and auditing;

--Design a 360 degree review system of headquarters by field staff;

--Accelerate reconciliation of Generally Accepted Accounting Principles

with Federal Credit Reform accounting systems;

--Treat field office staff as customers, allowing field staff to devote

their full attention to making programs work; and

Housing will also make full use of the new financial systems being

developed in the Department-wide integrated financial system.

Benefits of Reform

Headquarters will create positive change by:

--Using less staff in targeted support of core field office functions;

--Helping field staff better serve customers;

--Streamlining program development, monitoring, enforcement, risk

management and budgeting, through better information systems; and

--Expediting policy and program implementation through the Department's

overall reform of procurement and contracting.

Summary of Housing Problems, Reforms and Benefits

Problems

Limited accountability of internal managers, property

owners, and stakeholders.

Poor allocation of staff and resources.

Lack of training asset managers.

Little integration of computer systems that produce

consistent data.

Transition from retail to wholesale service delivery

requires significant shifts in resources.

Risk mitigation in multifamily portfolio is increasingly

necessary.

Insufficient balance between community needs and program

objectives.

Reforms

The Department will establish a cross-cutting Real Estate

Assessment Center for reviewing physical inspections and financial

statements of PIH housing authorities and FHA multifamily projects.

The Department will create a cross-cutting Section 8

Financial Processing Center for Housing and PIH.

The Department will create an enforcement center to manage

troubled portfolios.

Establish a Department-wide integrated financial system.

Reallocate staff in shift from retail to wholesale.

Retrain workforce to meet new challenges.

Privatize Real Estate Owned functions.

[[Page 43225]]

Develop streamlined contract and procurement process.

Benefits

Fewer processing problems and delays in loan origination.

Faster, more uniform service to clients, lenders, and

borrowers.

Improved underwriting and loss mitigation efforts.

Increase in unpaid debt collection.

Greater claims processing capacity.

Ability to meet targeted staff reductions by FY 2000.

Faster policy and program implementation through reduced

procurement time.

Greater accessibility to financial information for budgeting,

reporting, risk management, and enforcement.

Better control over resources and outcomes.

Office of Community Planning and Development

``National social problems will be solved the same place they are

manifested--at the grass-roots level. National governments will be

standard setters, supporters of local development, suppliers of

resources, and facilitators or guardians of economic and political

activity . . .''

Rosabeth Moss Kanter, World Class

Summary

Problems encountered by Community Planning and Development (CPD)

include limited resources for managing competitive grants; limited

staff for on-site monitoring; fragmented approaches to solving

community problems; and an inability to completely track and respond to

market trends.

CPD is in the process of correcting these weaknesses by converting

competitive grants into performance-based grants; outsourcing discrete

functions; using advanced mapping software to aid community planning;

aligning resources within a new Economic Development and Empowerment

Service; and downsizing its headquarters staff.

CPD has had many successes, including: increasing the number of

homeless families and individuals helped to reach self-sufficiency from

20,000 to nearly 290,000; creating 1.4 million jobs; and serving nearly

1.7 million people through CDBG and Home programs. Yet CPD also sees

the need to improve its performance. CPD has identified several areas

where reforms are necessary. Key problem areas include:

--Resources are limited and on-site monitoring is inadequate

Limited staff and budgets prevent adequate on-site monitoring and

oversight of high-risk activities.

--Grant award staff are overloaded

CPD approves over 1,300 competitive grants a year, but staff

reductions of 23% since 1992 have prevented adequate monitoring of

thousands of competitive grants.

--Insufficient resources to monitor the rapid increase in development

projects

CPD has insufficient staff resources, both in number and expertise,

to adequately monitor hundreds of economic development projects

approved in the past several years.

--Solid data are unavailable

Timely, complete, and accurate data to measure program outputs are

often lacking.

Reforms

Elements of new and continuing management reforms are:

--Combining planning and application reports into a single plan;

--Using comprehensive plan software that allows applications to display

proposed projects as maps and submit data electronically;

--Upgrading information systems to the Communities 2020 system;

--Implementing the Integrated Disbursement and Information System, an

automated reporting system showing ``real time'' achievements;

--Introducing the Grants Management System, which includes an annual

comparative review of all entitlement grantees, showing the full

spectrum--from ``best practices'' to high-risk projects and cities in

need of technical assistance and monitoring.

CPD is assessing the following structural changes:

--Combining the Office of Block Grant Assistance and the Office of

Affordable Housing into an Office of Community Development.

--The Office of Economic Development will be consolidated into the

Economic Development and Empowerment Service. It will retain the

economic development function and handle the brownfields program, if

authorized and given to CPD. This combination will enhance efficiency

and give communities the help they need to address problems

holistically and will bring needed economic development expertise to

CPD's largest program.

--Regulatory oversight and policy functions of the Office of

Environment and Energy will move to the Office of General Counsel;

other environmental functions will be contracted out.

--The Office of Executive Services and Office of Administration will be

retained with reduced staff.

--The Office of Management would ensure that all offices have adequate

technology to do their jobs.

Administration of the remaining 312 loan functions will be

transferred to the Government National Mortgage Association.

Additional considerations:

--Assess how CPD can support the central coordination of the EZ/EC

program for both existing and proposed zones and communities;

--Consider contracting out monitoring functions, if homeless assistance

legislation is not approved to reduce competitive grants volume; and

--Develop an automated system to manage competitive grants, integrated

with IDIS and the Grants Management System, and provide a seamless

process for recipients. The system should identify high-risk recipients

and projects for targeted monitoring.

Benefits of Reform

Benefits of enacting these reforms include:

--Serving CPD's mission by enabling communities to apply a more

comprehensive approach to solving myriad urban problems;

--Reducing unnecessary paperwork;

--Helping citizens play a more meaningful role in the community

development process by making proposed plans clearer and more

accessible;

--Improving the speed, ease, and accuracy of reporting achievements and

drawing down funds; and

--Improving monitoring and oversight by targeting scarce resources on

high-risk projects and publicizing high-performing projects and cities.

Proposed Legislation

Proposed legislation has been or will be introduced to create a

homeless assistance performance fund and streamline the HOME program.

Proposed legislation will provide a single performance fund

distributed by formula for all homeless programs to: (1) Reduce staff

time on grant approvals, since funds will be distributed by formula;

(2) Approach homeless problems locally and comprehensively; (3) Ensure

role of non-profits and other community organizations in shaping

[[Page 43226]]

and operating programs to help homeless persons reach self-sufficiency

to the extent possible; and (4) Give cities responsibility for

monitoring homeless problems in future block grants.

Proposed Legislation--Homeless Assistance and Management Reform Act

Convert 6 Separate Homeless Programs to Performance-based Formula

Grant Program.

Permanent consolidation will eliminate the need for HUD to

administer staff-intensive, multiple competitions for funds. The new

program will allow communities through local planning boards to shape

comprehensive ``continuum of care'' systems. This plan would lie within

the overall consolidated plan for that community.

Summary of CPD Problems, Reforms and Benefits

Problems

Limited resources for managing competitive grant programs

Limited staff for on-site monitoring

Information is not complete or timely

Community problems are not addressed holistically

Limited ability to handle increased number of economic

development projects

Reforms

Convert inflexible and labor-intensive competitive grant

programs to performance-based grant programs

Outsource technical assistance as necessary

Monitor grantees failing program compliance through an

Enforcement Authority

Use advanced mapping software system (Communities 2020) that

shows communities the impact of HUD funding and activities in their

area

Align resource needs and responsibilities within the newly

established Economic Development and Empowerment Service

Benefits

Communities can apply a more comprehensive approach to

solving urban problems

Unnecessary paperwork is eliminated

Citizens will play a more meaningful role in the community

development process

Speed, ease, and accuracy in reporting

Improved project oversight

Office of Fair Housing and Equal Opportunity

``Reengineering is about Reinvention--not improvement, enhancement,

or modification. Radical redesign means getting to the root of things:

not making superficial changes or fiddling with what is already in

place.''

Michael Hammer and James Champy,

Reinventing the Corporation

Summary

Fair Housing and Equal Opportunity faces challenges in fragmented

responsibilities and lack of accountability; duplication of field

oversight functions; inefficient separation of staff resources between

enforcement and program/compliance; and inadequate use of technology.

To overcome these problems, FHEO will eliminate the separation

between enforcement and program/compliance functions; cross-train

staff; consolidate field oversight and policy functions; integrate fair

housing principles throughout HUD's other program areas; and make

greater use of other areas' technology.

The Need for Change

Since its establishment in 1969, FHEO has evolved according to

changing statutes and program needs. This sporadic approach to building

a business line has created a number of service delivery problems. The

areas that most need to change are:

--Lack of clear responsibility and accountability for policy

development, planning, program evaluation, control, and performance

standards and measurement;

--48 local offices report to multiple sets of field oversight offices

in headquarters;

--A split in field management between enforcement and program/

compliance, resulting in a ``two FHEO'' phenomenon;

--A structure top-heavy with supervisors;

--Inadequate integration of fair housing policies into other HUD

program areas;

--Redundant, inefficient paperwork and processes; and

--Outdated technology and data tracking systems.

Organizational inefficiency is most noticeable in field operations,

where two separate FHEO staffs oversee investigations and programs. In

headquarters, this organizational structure has resulted in six

distinct offices and 14 divisions, directed by three Deputy Assistant

Secretaries.

Reforms

--Eliminate the current division of civil rights enforcement and

program responsibilities in headquarters and field offices so that FHEO

operates more uniformly and cohesively.

A new position, Deputy Assistant Secretary for Enforcement and

Programs, will combine the functions currently performed by the Deputy

Assistant Secretary for Enforcement and Investigations and Deputy

Assistant Secretary for Programs and Compliance, and will report to the

newly created position of General Deputy Assistant Secretary, the chief

operating official.

--New Field Organization

Field offices will be organized into ten program hub offices and

program center offices. Each program hub office will provide civil

rights complaint assessment/control services for its entire area. Each

program hub's director will be accountable to the General Deputy

Assistant Secretary for all FHEO functions, and will be the point of

contact on all major policy and program issues regarding HUD's civil

rights responsibilities in that area.

Program center offices will process complaints, review programs and

compliance, and investigate complaints, among other tasks. Program

center directors will work with other program directors to carry out

community-based customer service.

Program center offices will have new, consolidated responsibility

for all FHEO civil rights enforcement and program activity functions--

investigations, compliance, and programs. Directors at the local level

will deliver effective enforcement, compliance, and program results,

and will assign staff to highest priorities.

--Use Staff More Efficiently

FHEO Civil Rights Analysts will investigate violations of civil

rights laws, as well as perform program/compliance work, while

directors balance workloads among different requirements and priorities

with the full complement of staff available. Use of BPR reforms,

including enhanced technology to increase efficiency, will be expanded.

--Consolidate field Oversight

Field oversight functions will be consolidated into one office

under the General Deputy Assistant Secretary. The number of offices

reporting to headquarters will drop from 48 to 10. The General Deputy

Assistant Secretary will also direct FHEO's consolidated policy and

program evaluation functions, gaining a better understanding of current

issues and problems, and providing clearer guidance to field offices on

litigation and policy initiatives.

[[Page 43227]]

--Streamline Headquarters Functions

Headquarters will be streamlined and its functional areas

reconfigured to reflect those in the field;

One Deputy Assistant Secretary will be responsible for

both enforcement and program functions; and

All field oversight, policy formulation, program

evaluation, and the development of program standards will be

consolidated to eliminate duplication and to establish clear lines of

accountability and responsibility.

--Integrate Fair Housing Into HUD's Other Program Areas

FHEO will continue to focus on:

Technical assistance on civil rights requirements for

recipients of HUD funds;

Section 202/811 application reviews;

Supporting fair housing on-site monitoring;

Voluntary programs with housing industry groups; and

Fair housing planning.

HUD will focus on mainstreaming fair housing government-wide and

throughout the Department through:

--Streamline Existing Front-End Reviews

Other program areas will expand their current application

procedures to include routine front-end reviews now performed by FHEO

for the: Comprehensive Improvement Assistance Program; Family Self-

Sufficiency; Comprehensive Grant Program; Multifamily Development

Programs; Section 108 Loan Guarantees; and Annual Action Plans.

--Standard Information Collection

PIH and CPD will expand their standard data collection (e.g., IDIS)

to include indicators of fair housing compliance by grantees.

--Integrate Fair Housing Into the Proposed Assessment Centers

FHEO will support a process to ensure that fair housing compliance

is included in assessing public housing authorities.

--Section 3

Section 3 can be moved from FHEO to the Office of Small and

Disadvantaged Business Utilization, to take advantage of greater

expertise in economic development and procurement.

--Training of Community Resource Representatives

New Community Resource Representatives will be trained in fair

housing laws, issues surrounding Section 8 recipients, and other thorny

fair housing issues.

Benefits of Reform

--A unified FHEO

--More flexible staff who can handle both enforcement and program/

compliance functions

--More effective field offices due to clearer guidance on policy

initiatives

--Less duplication and paperwork

--More effective elimination and prevention of discriminatory practices

--More effective use of technology and other program areas' data.

Summary of FHEO Problems, Reforms and Benefits

Problems

--Fragmented responsibilities

--Lack of accountability

--Duplication of field oversight functions

--Confusing, complex lines of reporting

--Lack of clear communication

--Fragmented approach to compliance and enforcement

--Poor use of technology

Reforms

--Eliminate the split of enforcement and program/compliance functions

in headquarters and the field

--Cross-train field staff

--Consolidate field oversight functions

--Restructure leadership functions at headquarters

--Integrate fair housing principles throughout HUD's other program

areas

--Make use of other program areas' software and new technology to fill

gaps in information

Benefits

--A unified FHEO

--More flexible staff who can handle both enforcement and program/

compliance functions

--More effective field offices due to clearer guidance on litigation

and policy initiatives

--Less duplication and paperwork

--More effective elimination and prevention of discriminatory practices

--Streamlined headquarters functions

Office of the Chief Financial Officer

``The major complaint about organizations is that they have become

more complex than is necessary.''

Tom Peters, In Search of Excellence

Summary

The Chief Financial Officer is unable to provide cost-effective,

efficient accounting services within the current decentralized

structure and lacks the ability to link budgeting, strategic planning,

and financial management, thwarting clear accountability.

To remedy these problems, the Office of the CFO will consolidate

accounting operations from ten centers to one accounting center and

will absorb budgeting operations into strategic planning and financial

management operations within the office.

The Need for Change

--Consolidating Program and Accounting Operations

Performing accounting services in multiple locations with large

numbers of staff is no longer cost effective. Better financial

management and information systems make it possible to reduce staffing,

streamline operations, and strengthen management controls.

--Consolidating Budget and CFO Operations

Budgeting, strategic planning, and financial management are

critical to HUD's success. But these functions are currently

independent, with little or no coordination. This has led to criticism

from the GAO, IG, and NAPA. Effective management means we must weave

budgeting, strategic planning, and financial management oversight

together. This requires matching workload planning (estimates and

allocations) through the use of GPRA performance measures, HUD's

strategic plan, and a new management plan process.

--Implementing New HUD Management Integrity Plan

Program managers must be responsible for their programs' financial

management. They must be held accountable for results and rewarded for

excellent results. Managers will be provided with clear, reasonable

expectations and the resources necessary to meet them. The CFO must be

a partner with and advocate for program managers.

--Linking Budget, Performance Measures, and Program Delivery

GPRA recognizes the natural links between budget operations and

program outputs and outcomes. At HUD, budget operations, program

performance, and program delivery are fragmented and disjointed.

--Estimating Resources and Making Budget Allocations

The GAO and HUD's own Inspector General have criticized the

Department for its weak and fragmented ability to estimate its resource

needs and make budget allocations.

[[Page 43228]]

--Financial Systems Integration

Since 1989, HUD has reported under FMFIA that it does not have an

efficient, effective, and integrated financial management system that

can be relied on to provide timely, accurate, and complete financial

information to management. Also, in February 1997 the GAO reported that

HUD's financial management systems were ``poorly integrated,

ineffective, and generally unreliable.'' In his confirmation hearing,

Secretary Cuomo stated his top priority is to put HUD's management

systems in order and to restore effective management and financial

accountability at HUD.

Reforms

--The Office of the CFO will consolidate its programs and

administrative accounting operations from ten field accounting

divisions into one accounting center; all accounting operations will be

performed at this center.

--Consolidate headquarters budget operations into the Office of the CFO

to ensure budgeting is integrated with financial management oversight.

--Accountability is the cornerstone of HUD's new business culture.

Effective systems of management controls are critical to the long-term

success of the Department's mission, and outstanding performance in

this area should be rewarded. Employees will be held accountable for

carrying out responsibilities related to financial credibility. The new

focus will be on positive reinforcement, rather than negative

sanctions. For instance, managers who demonstrate outstanding

performance or who contribute to HUD's financial management will be

considered for Secretarial awards and recognition. Also, the C

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