Community Development Field

The Complexity of Compliance

Native American Connections (NAC) is a leader in the development and management of high quality, affordable housing communities. It owns 534 multi-family units with another 106 units currently in development […]

Native American Connections (NAC) is a leader in the development and management of high quality, affordable housing communities. It owns 534 multi-family units with another 106 units currently in development predominantly along light rail in Central Phoenix.

To meet the housing needs of low- to extremely low-income individuals and families, NAC uses an array of public housing resources. Though the use of public housing resources makes the projects cost effective for both NAC and its residents, the compliance that comes with the programs not only creates an operational burden for the agency, it is an invasive process for residents.

Qualifying for residency includes verifying income and assets for all residents, including earned and unearned income for the adults and children that will live in the home. While this seems easy enough, and necessary in terms of reducing the risk of fraud, the actual process can be quite uncomfortable for both the applicant and the property manager.

Imagine having to ask a newly remarried mother of three about the status of her court-ordered child support from her previous marriage. On a path to forming her new life, she must disclose sensitive information as she learns that her child support order might still count as income, even if she's never received it. Months of bank statements are required as well as documentation of the custody of all children in the household. The list goes on.

Other families must recount their hardships, possibly including the loss of their home to foreclosure during the most recent recession. Stories of job loss, catastrophic medical events, and the breakup of families are common, and most often heard from people who’ve never previously sought out public housing. More and more, this population includes seniors who are retiring and adjusting to living on fixed incomes. Disclosing this much personal information is not what they’d anticipated—but if they don’t participate, they miss out on the opportunity to gain safe and affordable housing. NAC property management staff must verify every detail, which makes the process time-consuming and frustrating for all involved.

The rules around Section 8 are a recurring point of frustration.

If a tenant qualifies for a Section 8 housing voucher, the local government calculates their co-pay based on current income. The problem with this is the co-pay changes each time their income changes. For example, if a disabled tenant gets a temporary or part time job, their co-pay increases significantly, but if they lose the job, it can take several months for their co-pay to be recalculated (and while awaiting this recalculation, the tenant remains responsible for the payment). Section 8 also requires that every new tenant, even those with no income, pay a minimum rent of $50.00 per month until they receive a hardship letter from the property manager. It can take three to four months before the hardship and zero rent is approved, with the tenant being responsible for the rent until that approval is received. It becomes a significant burden to the tenant, and can lead to eviction if unpaid, as well as a painful financial loss for the development manager, especially when multiplied over several units.

Most people make it through the process and get the opportunity to move in and become part of an affordable housing community, but they must complete an annual recertification process that is basically a review of all income and assets all over again.

The structure of NAC’s housing communities requires compliance with federal, state, and local housing programs including HUD, Low Income Housing Tax Credits, Section 8, and VASH programs, and it is quite common to have a resident be subject to multiple compliance programs at once. Although some of the requirements are the same, the forms and process can vary between programs such that the resulting resident paper file is inches thick. With each unique set of compliance programs comes a unique approach to on-site audits that can occur simultaneously or at different times throughout the year.

Some states allow a household to “self-certify” their income and assets upon the second or third move-in anniversary. In Arizona, self-certifications are allowed on the third anniversary for 100-percent affordable LIHTC projects, but only for units with 50 or 60 percent set-asides. Deeply skewed set asides (20, 30, and 40 percent) and any unit with an additional layer of financing, such as City or State Housing Funds, require full recertification. The process, however, becomes further complicated when a household’s income exceeds the maximum 140 percent (LIHTC) or 80 percent (HOME) limits.  In these instances, management is required to take additional steps to remain in compliance. Given the complexity of self-certifications, owners and managers often opt out of doing them, especially when residents feel they are being treated unfairly if management self-certifies some households and requires full recertification for others.

The complexity of the compliance process and the potential to lose tax credits if errors are found, spurred NAC to add additional compliance staff to the property management team. In addition to the time property managers spend reviewing files, staff members review each paper file along with electronic records to ensure all requirements have been met. This labor-intensive process is necessary to ensure NAC’s capacity to continue to develop and manage affordable housing communities.

In addition to the financial review, there are annual physical inspections to be complied with upon 48-hour notice. If the project has layered financing, there can be more than four, sometimes as many as seven, inspections a year. HUD's HQS inspection (Housing Quality Inspection) is three pages of detailed compliance that can place stress on both the tenant and the housing manager. A missing bathroom sink plug can be a violation, requiring immediate repair, and if the damage goes beyond normal wear and tear, the cost can be passed on to the tenant.

The affordable cost of rent is what attracts the tenants, but what keeps the tenants are safe, well-maintained units and a wide range of services, from financial education, tutoring, health and wellness services, cultural activities, and social supports. Reducing the complexity of compliance structures would afford us more time to enhance our resident services and improve operational cost efficiencies and facility improvements.

As the rental markets continue to rise beyond what’s affordable for most people, affordable housing becomes more and more critical to the stability of lower-wage working individuals and families throughout the U.S., so for NAC, the long-term savings and housing stability for our residents far outweighs the pressure compliance places on us, daunting though it may be.

Photo credit: Brett Davis via flickr, CC BY-NC 2.0)

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