An aerial view of Potrero Hill public housing, seen in foreground. (Courtesy Rebuild Potrero)

Housing Authority seeking HUD’s help to close ‘distressful’ $29.5M shortfall

Federal housing officials are expected to decide within a week how much money they will provide to bail out the San Francisco Housing Authority after the agency discovered a $30 million shortfall in a rental subsidy program.

The news of the shortfall, which caught members of the Board of Supervisors by surprise, was reminiscent of the Housing Authority’s troubled past, drawing criticism from city leaders.

Barbara Smith, acting executive director of the federally-funded San Francisco Housing Authority since 2013, called the shortfall “distressful” and said she, too, was “dismayed by this unacceptable situation,” during the board’s Government Audit and Oversight Committee hearing Thursday called by Supervisor Aaron Peskin.

Smith said that deficit was the result of poor financial management and unreliable data. In one example, the agency miscalculated its reserve funds and was off by $5.6 million.

The revelation came at a time when the agency was largely thought to have turned itself around, having handed over public housing sites to nonprofits to renovate and manage under the RAD program and successfully expanded its housing voucher program to help house more low-income and formerly homeless residents.

The agency serves over 12,000 households through the housing voucher program, or Section 8, after expanding the program to serve 4,600 additional households during the past five years. City officials said tenants benefiting from the vouchers will not be impacted by the shortfall as they work to close it.

The Housing Authority has about $7 million to help plug the $29.5 million shortfall and the Mayor’s Office of Housing has funds to loan the agency. But the Housing Authority is hoping for a big chunk to come from the US Department of Housing and Urban Development, which provides agencies with “shortfall” funding on an annual basis — just not to the magnitude of San Francisco’s shortfall.

Smith said she was unsure how much HUD would provide, but has $75 million set aside for shortfalls experienced by agencies across the nation. HUD funds the agencies on an annual calendar year basis.

“It’s been an evolving number,” Smith said of her expectations for funding. “I hesitate to say. We did have a conference call this morning. It seems as though they are coming up with more money than they originally thought they could. We won’t know definitively probably for another week.”

One condition of receiving the HUD shortfall funding is that the City take over responsibilities of the Housing Authority’s day-to-day operations; basically, it would become a city agency. That’s expected to bring more oversight of the agency, including by the City Controller’s Office.

Smith said they weren’t aware of the magnitude of the shortfall until September, but had become concerned about a shortfall as early March. She said the agency was aware there were deficiencies in their financial management, which were noted in recent audits. She said they tried to resolve this by hiring a chief financial officer, but failed to find a viable candidate and then hired an accounting firm BDO in September, which helped identify the shortfall along with the HUD Quality Assurance Division.

Smith noted that “in Sept. 2018 with BDO in place, SFHA terminated the director of finance and senior budget analyst in charge” of the housing choice voucher program.

Peskin vowed to hold follow up hearings to provide oversight into the details of The City’s plan to absorb the Housing Authority “so that this continuing on and off again troubled department will not remain troubled when it becomes a closer part of the city.”

“The RAD program has been, despite its great risks and challenges, a remarkable success, the increase in the amount of vouchers we all support, but we have to live within our means,” he said.

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