DEPARTMENT OF HOUSING AND COMMUNITY DEVELOPMENT: INSTITUTE PROPERTY-BASED BUDGETING
HABC does not have a sufficient system of project-based budgeting that allows it to track the true costs of operating each property. Without such a system, it cannot effectively monitor performance.
Develop a new project-based budgeting system.
Estimated Annual Impact:
The benefits of developing a more realistic property-based budgeting system are: (1) each property will receive an equitable allocation of the agency’s operating funds; and (2) the agency will actually be able to measure the financial performance/operating costs of each property.
Estimated Implementation Costs:
Costs are included in the recommendation on developing an Asset Management System (see Recommendation 3-C).
Barriers to Implementation:
There are two main barriers to developing an effective project-based budgeting system. The first is the expertise to structure such a system. Essentially, HABC must develop a rational system for determining how much of its operating funds should go to specific properties (i.e. ‘ Latrobe vis-à-vis Perkins). It must then make sure it prepares routine income and expense reports on these properties. The second, and more difficult, barrier is reducing overhead costs so that more operating funds are actually available to operate the properties. There is little value in developing an enhanced property-based budgeting system if significantly more funds are not made available for direct operating costs.
Another barrier to developing a project-based budgeting system is the fact that the current organizational structure is complex and has many different cost centers. Under the current system, the agency needs to assign each property the actual costs incurred for each centrally located function (i.e. the central HQS team, the central plumbing team, the centralized legal staff, etc.).
Decide what percentage of the total operating funds HABC receives will be assigned to the properties as a whole and what will be assigned to cover overhead. Devise an equitable allocation system among properties. This would normally be based on historical expenses per property, but since the agency has not had property-based budgeting, such data is likely not available. Instead, create (and revise as necessary) a reasonable allocation system based on a number of factors, including: distressed/not distressed; modernized/not modernized; elderly/family; and high-rise/low-rise.
Unlike virtually any other real estate organization, public housing authorities are not assigned operating funds on a project-by-project basis. Rather, a housing authority receives its operating funds from HUD in the aggregate and is free to sub-assign funds to each property, as it best determines.
Property budgets are one of the most essential management tools in conventional real estate. They are central to knowing the performance of any property. At HABC, however, property-based operating budgets are virtually ignored and there is little knowledge of what it actually costs to operate any property. This is true for a number of reasons. First, a disproportionate share of funds is spent on overhead and other centralized costs and, as such, the amount that is available to the properties is quite modest. Second, there are great inequities in the assignment of budgets from one property to the next. Third, the agency does not prepare and distribute routine and timely financial statements. Fourth, even though managers are assigned budgets they are often prevented from actually spending those funds (frequently this happens covertly by ‘freezing’ personnel vacancies).
One of the first places to start in developing a new system of project-based budgeting is deciding what percentage of the total operating funds that the agency receives will be assigned to the properties and what will be assigned to cover overhead. Currently, there is no control over overhead costs. The properties are the last to be funded. The reverse should be true. At the start of every year, the board should determine the amount of each year’s funds to be assigned to the properties, with a cap on central administrative costs.