Capital Fund Finance, Operating Fund Finance, and Mixed Finance Programs
Public
Housing Authorities (PHAs) participating in HUD's Capital Fund, Operating Fund,
and Mixed Finance Programs must comply with HUD regulations at 24 CFR Part 85
and OMB's Cost Principles regulations at 2 CFR Part 225. Part 85 covers financial
administration, procurement, reporting and recordkeeping and close-out requirements.
A PHA's grant administration will be based on Part 85 procedures whenever Federal
grant funds are used. Typically, a PHA draws down funding within 3 days of payment
for allowable costs that have been procured or for allowable costs according to
program requirements, Part 85, and state and local laws. These costs must also
be reasonable and allowable under 2 CFR Part 225.
When using Capital Fund
Financing or Operating Fund Financing proceeds for goods and services, the PHA
must follow 24 CFR Part 85 and 2 CFR Part 225. Typical goods would be materials
and equipment needed for modernization or development of public housing. Typical
services needed for modernization and development would include services of laborers,
mechanics, architects, engineers, surveyors, developers, construction managers,
and lawyers.
With the passage of the Quality Housing and Work Responsibility
Act (QHWRA) in 1998 and the advent of financing as an eligible use of Capital
Funds and Operating Funds, there have been questions regarding the coverage of
these regulations in regard to financing obtained by PHAs. We are issuing this
guidance to confirm that financing for programs administered by PIH (including
Capital Fund Financing, Operating Fund Financing, and Mixed Finance) are subject
to consistent requirements.
If the PHA seeks the general services of counsel,
a financial advisor, or other financial assistance (e.g., someone who finds a
loan for them or provides them financial advise), it must follow the requirements
of 24 CFR Part 85, including procurement of these services and price analysis.
However, it is more common with the number of financing sources available, that
PHAs seek financing from a variety of lenders, underwriters, LIHTC syndicators
or other sources of finance or credit enhancement. This is considered a financial
transaction rather than a financial service. A financial transaction is a process
to qualify the PHA as a borrower, and thus is not subject to the procurement requirements
of Part 85. Incorporated in a financial transaction are a team of professionals,
such as bond underwriters, lenders, lender's or underwriter's counsel, LIHTC syndicators,
line of credit providers, and credit enhancement providers, all of which either
constitute the financing or are secured by the financing source (underwriter or
lender) as an intrinsic part of the financing and are included as part of the financial
costs of closing. When a PHA decides to a close on a loan or bond, with a particular
lender, the PHA must determine that the fees are reasonable pursuant to 2 CFR
225. PIH certainly expects PHAs to seek financing from a number of sources in
order to support their cost analysis. In addition, for most Capital Fund Financing
Program Proposals, the Office of Public Housing Investments (OPHI) will continue
to ensure the reasonableness of financing costs through the requirement for an
independent, third-party fairness opinion. OPHI will likewise ensure that any
Cost Control and Safe Harbor Standards or other requirements related to financing
in Mixed Finance transactions will continue to be met as applicable.
