Nov. 12 (UPI) -- After dodging a $30 million bullet, San Francisco officials said they will now pay much greater attention in managing the city's low-income housing ledger -- after a serious shortfall nearly put a number of needy out in the street.
The U.S. Department of Housing and Urban Development alerted San Francisco's Housing Authority in September there would be a major deficit in its low-income voucher program, which pays private landlords who own the city's public housing properties.
Audits last month by global accounting firm Binder Dijker Otte and HUD revealed the gap was in the $25 million range for fiscal 2018, and $5 million for the beginning of 2019. As a result, the authority had nothing to subsidize landlords and nonprofit developers.
HUD provided $10 million and the housing authority more than $7 million. City officials said once they became aware of the problem, they acted immediately -- as the city's low-income residents were running out of time. Officials feared the cash problem might force many of the tenants out of their homes by the end of the year.
How it happened
At a meeting of the housing authority last week, Executive Director Barbara Smith said unqualified financial employees failed to keep up with the agency as it began more aggressively pursuing housing programs with HUD funding -- after having underused those government funds for years. Part of that effort expanded the voucher program by more than 4,600 units.
The housing authority administers about 11,000 Section 8 vouchers that totaled about $23 million for the month of October, Smith said.
"Our finance department was unable to keep up with all these additions to our programs and actually, quite honestly, was not able to perform some routine reporting to HUD," she said. "Our data that we were reporting to HUD wasn't correct."
HUD provides the authority with a two-year forecasting tool, but poor reporting that failed to account for specific situations caused that gauge to produce inaccurate numbers -- a problem Smith said was created by her department.
"This is not HUD's fault," she said. "The housing authority is fully responsible for projecting any potential shortfall. Those projects can be complicated with the portfolio and housing units we've added."
About 3,500 Rental Assistance Demonstration units that opened this year were major factors in the flawed calculations. The forecast tool requires accurate reporting and necessary adjustments to work correctly. Smith said her agency didn't make some of those adjustments.
"We were fast becoming overutilized based on commitments we made in 2017," she said.
City officials expected a shortfall, but not nearly as large as the one they found. It's not uncommon for cities to experience funding deficits for housing. In fact, HUD routinely covers such gaps at the end of the year -- but those amounts are typically in the hundreds of thousands, not tens of millions.
On Oct. 19, the mayor's Office of Housing and Community Development agreed to provide a zero interest loan of up to $20 million to keep endangered tenants in their homes. As part of the deal, housing officials must earmark all non-essential third-party revenues -- plus any surplus cash -- to pay back the loan.
In addition to the loaned money, the authority put up $7.1 million of its own to cover part of the gap -- some taken from reserve coffers, $2.1 million from public housing reserves and $4.5 million from other avenues.
In addition to the size of the gap, housing officials were also surprised how little they had in reserve. Poor bookkeeping led the department to believe it had $20 million, The San Francisco Chronicle reported last month.
Dariush Kayhan, deputy executive director of programs for the housing authority, said at the meeting all new voucher distributions were quickly stopped and housing officials scrambled to find ways to reduce spending to chip away at the deficit.
"These are recommendations by HUD, but frankly many of them are mandates that we have to do once we're on shortfall," Kayhan said during the Housing Authority meeting.
Experts, though, fear taking money from the other channels might have significant consequences in the future.
"The reserve funds used are not under the purview of any particular program, so there should be minimal impact if at all to any current programs or projects," Housing Authority spokeswoman Rose Marie Dennis said.
To prevent a similar dilemma in the future, housing officials said they granted the office of San Francisco Mayor London Breed greater financial oversight -- something it's never had before -- and will keep working with BDO.
"This office has over the last few years developed a very collaborative relationship with the Housing Authority on some of the major initiatives that we've undertaken," Dan Adams, deputy director of Breed's Office of Housing, told UPI. "That collaboration will continue, but certainly with additional focus on the financial management so that we don't run into this problem again."
Adams added that in the near term, third-party consultations and regular financial analysis will try and help predict future shortfalls.
"We are currently working ... to confirm that future years are covered and identify what, if any, future shortfalls there might be," he said. "Should there be future shortfalls projected, we would ... make sure at the end of next year we're not in the same position."
Long-term oversight plans are not yet finalized, but officials said BDO will be involved with them "for some time."
"We'll have to think through what the permanent infrastructure is for financial management but we're not there yet," he said.
Breed said last month her main concern was keeping low-income families in their homes.
"The city will do everything necessary to keep them housed," she told the Chronicle.
San Francisco has struggled for years with a significant homeless population, and it's a problem voters helped alleviate Tuesday. Proposition C, which increases taxes on large companies to pay for homeless programs, passed with 60 percent of the vote.
Multiple housing issues were on the ballot in last week's election -- including a measure to raise $4 billion in general obligation bonds for housing-related programs, loans, grants, and housing loans for veterans. It passed, as did a measure to subsidize housing for persons with mental illness.
A controversial measure for rent control, which landlords heavily opposed, was defeated.