Using Reserves to Maximize Funding

housing reserves

Alright, folks, hold onto your seats, because today we are about to go into a space that may be a little uncomfortable. But what we are about to say could completely shift your PHA’s approach to maximizing your funding and increasing your utilization.

Let’s talk reserves!

Did you know your agency can use its administrative reserves to pay your housing subsidy?

If you did know this, kudos to you! You’re well ahead of the game. If not, keep reading…

In all of our years of experience, we can’t say we’ve seen a PHA utilizing 100% of its available vouchers. Not once. That is a pretty significant finding.

That means your PHA is probably struggling with underutilization. This means you can use your reserves to fund those additional vouchers and get yourself to 100%.

We know ultimately, it’s not your PHA’s first move to dip into its reserves.  But when used appropriately, it can prove to be effective in improving utilization, which then increases your funding. The more families you have housed, the more vouchers are leased up, which ultimately means more administrative funding you will be eligible to receive for your ongoing expenses.

So, here’s a simple example to illustrate this. You have a leasing percentage of 75%. This means 75% of your agency’s available vouchers in your program are actually being utilized. If you have 1000 vouchers, that means there are 250 vouchers going unused and those 250 families that could be housed, aren’t.

75% sounds decent. But recognizing 250 missed opportunities turns the perspective around a bit. That’s a significant number.

Let’s go a step further…

If we are still using the 1,000 vouchers as our example, let’s say your agency gets $75 in admin funding for every leased voucher. This means your agency could potentially be receiving $75K every single month in additional funding. However, if you are only at 75% utilization, then you are actually missing out on around $19K per month, every month.

Over the course of year, that’s just under a quarter of a million dollars! ($250,000 **numbers added for emphasis LOL) That’s pretty substantial, especially for agencies who are looking to expand their workforce or make improvements in technology or equipment, which is pretty much all of us!

So, you may be asking, “What does this have to do with our reserves?”

So glad you asked!

Keep in mind… Lower utilization rates equal less funding. Less funding means fewer staff and less processing power. And less processing power leads us BACK to lower utilization rates.

Do you see the vicious cycle our PHAs can get caught in? When you get trapped in that cycle, it is extremely difficult to get out. And we know, many times, this is just a result of something completely out of your control. It can be anything from low housing stock in your jurisdiction to lack of staffing. In these cases, the solution is not necessarily cut and dried. After all, what can you do about low housing stock?

Before you default to thinking the answer is obviously nothing, consider this…

Landlord Incentives

This is a fairly new concept in the PHA community, but you can absolutely use your reserves to incentivize landlords in your jurisdiction to become HCV landlords:

  • Signing Bonuses – a one-time payment that the PHA will make to a landlord who has rented a unit to a voucher family
  • Vacancy Funds – a monetary incentive to landlords to compensate for missed days of rental income while program paperwork is being processed
  • Security Deposit Assistance – offsets the risk of a landlord being stuck with costly repairs
  • Damage Claim Fund – can pay the landlord for excessive tenant-caused damages beyond normal wear and tear when the landlord has been unable to collect payment from the tenant
  • Rehabilitation Incentives – helps landlords rehabilitate their properties or improve the energy efficiency and longevity of their housing units

AND… these are just a few ideas! So go get inspired and draw your local landlords into a valuable partnership.

Payment Standards

Another solution for low housing stock is to use your reserves to increase your payment standards. We all know how crazy the housing market is right now. It is challenging to get landlords to sign up to receive less rent than they would get if they rented the same unit to a private tenant. Using reserves to increase payment standards is a great way to combat low housing or landlord stock.

Remember, HUD is evaluating your budget on a quarterly basis. So, even though you are pulling from your reserves and are technically working from a deficit, you only have to do so for about 3 months before HUD will recognize that you are utilizing more vouchers and therefore need more funding.

Utilizing your reserves for a short period of time can result in an increase of hundreds of thousands of dollars in additional funding over the course of the remainder of the year. It can even balloon into the millions over the course of the next 1-2 years.

This leads us to the question, “If we have the money in reserves, why not just use it now to bring on more staff?” While it’s a viable option, remember if your agency is not spending 100% of their funding every month, HUD may reclaim that money thinking you don’t need it. What you end up losing here is long term sustainability. There is no guarantee that bringing on more staff will increase your utilization rates so that money will run out or worse, be taken back by HUD, and you will be right back in the same cycle of underutilization.

If HUD sends your PHA $500,000 every month and you are not spending every single dime, HUD is going to assume you don’t need it.  Since your agency is reporting through VMS that it is only utilizing a portion of the money, when it comes time to recalculate your need for funding, HUD is going to base your future funding on those numbers. Lower utilization equates to less funding.

So again, the more you lease up, the more families you serve, the more HUD will fund your program – for HAP, for Admin, for everything.

So, utilizing your reserves to keep your utilization rates high will not only keep you well-funded, but it will also contribute to higher staff levels, more processing power, and higher quality service in every area of your program. Bottom line, if you have the reserves and the ability to invest in your program, do it now to ensure your agency is putting every dollar to work and receiving the maximum return each and every time.

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