# The HUD 2020 Management Reform Plan

> Briefs, arguments, decisions, and more.

URL: https://www.frixlaw.com/law-library/documents/fr%3A97-21081

## Record

- **Collection:** Federal Register
- **Document type:** Notice
- **Published:** August 12, 1997
- **Citation:** 62 FR 43204

## Text

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

[[Page 43205]]

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

[[Page 43206]]

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

[[Page 43207]]

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.

[[Page 43208]]

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

[[Page 43209]]

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

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Source: Frix Law Library, https://www.frixlaw.com/law-library/documents/fr%3A97-21081. Public record. Not legal advice.