It was revealed late last year that faulty data and poor financial management caused the Housing Authority to experience a surprise shortfall of $20 million for low-income housing vouchers. The agency was bailed out using a mix of federal and local funds. (Kevin N. Hume/S.F. Examiner)

SF preparing to assume control of troubled Housing Authority in face of federal takeover threat

San Francisco’s Housing Authority is in “substantial default” of its obligations to administer low-income housing programs like Section 8 vouchers and could warrant a takeover by the federal government, according to a letter sent Thursday by the U.S. Department of Housing and Urban Development.

The letter also sets the stage for The City to avert a federal takeover by taking over the agency’s programs itself by submitting a plan to HUD by April.

The letter comes after it was revealed late last year that faulty data and poor financial management caused the Housing Authority to experience a surprise shortfall of $20 million for low-income vouchers that required a bailout using both city and federal funds.

SEE RELATED: Housing Authority to get $10 million bailout from HUD

Since then, the agency has come under review by HUD and an outside auditor hired by the Housing Authority.

The letter from HUD’s Dominique Blom, general deputy assistant secretary with the Office of Public and Indian Housing, identifies “material breaches” committed by the Housing Authority in failing to meet HUD obligations to administer housing voucher programs.

That includes a failure to “maintain complete and accurate books of accounts and records” of the housing voucher program and also to provide accurate financial and program reports.

With finding the agency is in default based on the breaches and violations, “HUD has the authority to not only ‘take possession of all or part of the public housing agency’ but to ‘require the agency to make other arrangements acceptable to the Secretary and in the best interests of the public housing residents and families assisted,” said the HUD letter sent Thursday to Barbara Smith, acting executive director of the San Francisco Housing Authority.

The letter said HUD is agreeable to the idea of having The City take over the functions of the Housing Authority and sets the parameters as well as a deadline.

“SFHA and the City must submit to HUD for HUD’s review and approval a Memorandum of Understanding (MOU) outlining a scheduled plan of action for the City’s assumption of all programmatic and financial functions of SFHA’s [Housing Choice Voucher] and [Low Rent Public Housing] Programs, including but not limited to financial management, program management, wait list and admissions, inspections, eligibility determinations, and lease and grievances procedures,” the letter said.

“The MOU must also include plans for outsourcing financial and programmatic services for the HCV and LRPH programs to third party experts and implementing all corrective actions from the 2019 QAD Report,” the letter said. “The MOU must be received by HUD on or before April 8, 2019.”

In response to the HUD letter, Mayor London Breed sent a letter to the 227 employees of the Housing Authority that will be affected by The City’s plan to take over the agency.

“Our priority is to ensure that the approximately 14,000 households that rely on Housing Authorities subsidies keep their housing,” Breed wrote. “At the same time, I am also committed to ensuring that you, the Housing Authority’s employees are not unfairly harmed by the actions the Housing Authority and City must take to meet the obligations HUD has outlined.”

Breed said she has directed city department to work with the Housing Authority and labor unions to mitigate the impacts on the employees and directed her staff to work with them to “design an appropriate severance program for employees.”

Breed said that HUD’s requirements has set the stage “for real transformation of the Housing Authority to ensure long term housing stability for our residents, and to continue to move forward with our multi-year effort to rebuild and transform distressed public housing units.”

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