GAO REPORT

funding authorization are insurmountable. Of course, since such situations reduce the efficiency of the debt issuance process, procedures will be developed with a view toward minimizing the likelihood of their Occurrence. Also, many projects will be of a magnitude that will require or make expedient a stage-wide issuance of the total bond authorization, thus allowing closer targeting of actual funding to final project cost.

Any increase in a project budget will be requested through a Congressional budget submission, since Congressional budget approval controls the total cost of a project.

Recommendation

GAO recommended that the City Administrator refine and clarify the criteria for determining when betterments and improvements are to be considered as capital items and thus eligible for bond financing to minimize subjective interpretations. The criteria established should be consistent with the Home Rule Act, the District's Accounting Principles and Standards and take into account the other criteria cited in this report. All items currently in the capital budget that do not meet refined and clarified criteria should be removed from the capital budget. GAO also recommended that Group I and Group II equipment classifications be eliminated. The items previously classified as Group I and Group II should be required to meet the criteria for permanent improvements before they are included in the capital budget.

Status

The District Government clearly has no intention of financing operating expenses in the capital budget. The capital budget instructions in this area generally follow accepted accounting principles in that improvements to be included must have an estimated useful life for at least the period of financing and result in increasing the value of the property.

As evidenced by the numerous references in the Report, there are differing definitions of what constitutes a capital improve

ment. The project items listed on pages 22 and 23, for the most part, coincide with a number of those definitions. Such projects have extended useful lives and would meet generally accepted definitions for capital assets. The classification of a $1.6 million heating system replacement (referred to in the Report) which has a useful life of about 20 years as an operating budget item is inconsistent with any definition of a capital asset.

Within the scope of anticipated refinements to the capital improvement programming process, the District will ensure the inclusion of equipment, such as items permanently connected and designed as an integral part of the building (Group I), and of items permanently connected to building services or structure itself (Group II) only as provided for in the Home Rule Act P.L. 93-198 as amended.

Recommendation

GAO recommended that the City Administrator develop procedures for preparing accurate (water and sewer service revenue) estimates. The estimates should be reviewed and approved before they are finalized in financial reports.

Status

The Report notes that problems in the billing system have made it difficult to estimate water and sewer service revenue. The new system being developed will encompass computer-based consumption data management, billing, and revenue estimating capabilities. It will provide accurate revenue accruals and minimize erroneous bills.

The Office of Budget and Resource Development has recently instituted procedures for thorough budgetary review of revenue estimates, including those for water and sewer service, as a part of the budget preparation process.

Budgeted water and sewer revenue, on an aggregate basis, is reported retrospece tively in comparison to actual revenue in the District's Annual Financial Report, however, insofar as this is an historical budget item, no additional review prior to publication of this document is anticipated. 21

We agree that the present data source called the Municipal Automated Georgraphic Information System (MAGIS) would benefit from more specific information on income and household composition. The Department intends to institute the collection of these data as part of a systematic code enforcement program and add them to MAGIS for analysis of program needs. This means that these data would be collected for that part of the city where systematic code enforcement is most needed. The collection of these data for every household in the city however is infeasible in terms of money and available staff.

The costs of providing these data on income and population characteristics has particular significance when viewed against the city's declining Community Development Block Grant and the need to reduce administrative cost. Based on information supplied by the U.S. Bureau of Census concerning the decennial Census, an average of $7 per questionnaire is charged for the handling of a survey form. Additional charges have to do with the design of the survey questionnaire and the tabulation of the results, which may include call backs where responses to the survey are low or incomplete. Depending on the city the total per household cost 22 of carrying out a Census survey may vary

between $30 and $100. Assuming that the Department would survey all of the currently 278,000 units in the city, the total cost could be between $8.34 million (at $30/survey form) and $27.8 million (at $100/survey form). Compared against our CD-5 grant of $22.0 million carrying out the survey would constitute between 38% and 126% of the Department's CD-5 entitlement. On the other hand, if the City limited its survey to the 65,000 rental households and 15,000 owner-occupied households the 1979 Housing Assistance Plan indicates the need of housing assistance the costs would be between $2.4 million (at $30/survey) and $8 million (at $100/ survey), which represents between 11% and 36% of the CD-5 entitlement. It is important to note the Census collects income data on a 20% sample. In view of HUD's insistence that the Department reduce its administrative costs, the Department cannot commit itself to gathering the kind and scope of data your recommendation suggests.

MAGIS has provided the Department with a capability to identify housing needs and define housing objectives that it did not have previously and that few if any other cities have at all. On the basis of the information stored in MAGIS, plus other data not included in MAGIS, the Department has been able to classify neighborhoods in terms of on-going trends, problems and conditions, and ascertain housing needs and develop program objectives strategies for housing in the city.

From data contained in MAGIS, it is possible to pinpoint neighborhood change. Because Washington has experienced an explosion in real estate investment, particularly in the central city where the Department's urban renewal programs were targeted, the primary indicator of neighborhood change is real estate sales. From real estate sales data in MAGIS, the Department has developed a statistical indicator which tracks changes in single

family sales and sales prices from 1970 thru 1978. This indicator alone has highlighted those neighborhoods where sales and prices have remained consistent but at high prices, moderate prices, or low prices. It has also located those neighborhoods where real estate activity has actually declined. More importantly, it clearly has focused on those neighborhoods where activity has increased dramatically, where prices have risen at a rate far above the city average, and where displacement of low and moderate income families has been triggered. Using ownership information in MAGIS, it is possible to tell whether this trend occurred in neighborhoods with high, moderate or low levels of owner-occupancy. From data on repair permits -- also in MAGIS -- it is also possible to show whether or not high sales activity is followed by rehabilitation, another signal that displacement is happening. Supplemental data on income and welfare, not included in MAGIS, show which neighborhoods have serious social and economic problems. Land use information in MAGIS further describes each neighborhood as to whether it is predominantly an area of single family homes, apartments, offices, shops, or industry. Staff field surveys collected data on the condition of buildings.

An analysis of these diverse data

led to the structuring of the neighbor hood classification system mentioned above. Four categories of neighborhood conditions were developed: (1) sound; (2) distressed; (3) transitional; and (4) stable. A sound neighborhood is one where incomes are high, single family home sales prices are also high, owner-occupancy levels are low. In a sound neighborhood families can maintain their homes without any public assistance. Distressed areas are the opposite of this description, and where the need for public assistance is great.

Transitional areas are those where great change is underway: single family sales activity and sales price changes are high, and welfare cases are decreasing and incomes are increased because higher income families are moving in; and displacement of lower income families is taking place at a rapid rate. These trends may indicate a need to assist those lower income families to either find other housing elsewhere or to remain in the neighborhood.

Stable is the fourth category of neighborhood condition. In these neighborhoods real estate activity is low, single family homes prices are rising with inflation, incomes are at the moderate level, and housing conditions may be beginning to show the first stages of deterioration. These conditions may show the need for some public assistance to improve the condition of homes to provide a buffer to displacement trends from adjacent neighborhoods.

The results of this work have been discussed with citizens and community groups, as well as within the Department itself. The outcome of these discussions has been the Fifth Year Community Development Block Grant Application. Goals and objectives for the City's Community Development Program have been developed as well as specific strategies and schedules for the next three years for the improvement of individual neighborhoods identified as having particular housing needs. In addition, existing programs were evaluated to determine necessary revisions and new programs were sketched out to respond changing conditions and trends underway in the city.

GAO REPORT

funds by reducing non-program costs, expending funds more timely, and encouraging private investments.

Response

Classification of our program and nonprogram costs was directed by and conforms to HUD guidelines. We are in agreement with the recommendation and have implemented cost reduction studies to reduce non-program costs. HUD instructions

for entitlement grant applications for our fifth year CD program beginning October 1, 1979, provides new guidelines for the classification of program and non-program costs and limits. Non-program costs are limited to no more than 20% of the

block grant. DHCD is required to comply with the HUD guidelines. Similar citywide cost reduction efforts are being made on an on-going basis as part of the budgetary/management review process.

With respect to expending funds more timely, we have increased the annual percentage rate of our obligations. Obligation of funds for CD-1, was 63% of the entitlement authorized, 79% for CD-2, and 97% for CD-3. We are presently obligating at the rate of 95% for the first six months of CD-4 and the cumulative obligation rate for the CD program thru March 31, 1979 is 82%

With respect to private investment, it is DHCD goal to encourage the investment of private funds to the maximum extent possible by the use of CDBG funds. The Application for CD-5 funds, now pending approval before the Mayor and City Council sets forth the basic objective of the CD Program to leverage direct resources to produce additional public and private investment in the production of more housing and better neighborhoods, principally for the benefit of low and moderate income residents.

We believe substantial programs have been achieved as follows: Generation of over $400 million in other grants and subsidies, most notably $259 million in Section 8 subsidies for 1,116 units of new construction, $34 million in rental assistance payments for same--committed over the next 40 years, not including private financing; and at least $100 million additional subsidies generated in 24 other Section 8 programs.

We have explored and will continue to review methods utilized by other cities to resolve housing problems.

The Pittsburgh Home Improvement Loan Program is a good example which the District investigated as a model for a local revenue bond financed rehab loan Legislation is pending in program. Congress for the creation of a housing finance agency to provide for revenue bond financing of both home purchase loans and rehabilitation loans. Congress, in the past, has been reluctant to authorize the District to use its bonding authority

After considerable study of rehabilitation loan leveraging techniques of other cities we have developed a Tandem Rehabilitation Loan Program. The Tandem Loan Program is believed to be unique among programs in larger cities because of its variable interest rate based on the ability of the borrower to repay the loan based on a uniform underwriting standard. The Tandem program will enable us to effect changes in the processing of loans which will reduce processing time and cost and increase loan value. program will reaffirm the importance of the private lending industry as the primary source of rehabilitation financing and enable the District to leverage its limited and declining CD Block Grant funds.

DEPARTMENT OF HUMAN RESOURCES

The

Welfare Payments Reduced: An Improved Method for Detecting Erroneous Welfare Payments (GGD-78-107), February 5, 1979.

Background

Working together, GAO and the District of Columbia's Department of Human Resources developed three formulas to identify welfare cases that have a high probability to be in error. The formulas assign

GAO REPORT

computer-derived numerical scores to cases that need to be reviewed and rank them in order of their error potential.

The District started using one formula in May 1977. Over a year's time, erroneous welfare payments will have been reduced by about $3.5 million or nearly double the reduction in erroneous payments that could have been obtained using the District's procedures.

GAO stated that the approach used by them in the District is applicable to State and local governments. The recommendations were made to the Secretary of HEW that this report should be distributed to State and local governments and emphasize to them that using formulas similar to the ones GAO developed could help in reducing incorrect welfare payments. Although the report concerned welfare payments in the District no recommendations were made to the Mayor or other District officials.

D. C. PUBLIC SCHOOLS

Improvements Recommended for Better Oversight of Capitol Page School (CGD-79-56), April 26, 1979.

Recommendations

GAO recommended that the Board of Education:

--Make a formal arrangement with the Secretary of the Senate and the Clerk of the House of Representatives for the operation of the Capitol Page School.

--Assure that complete and accurate records are maintained for the operating costs of CPS.

--Prepare and submit with its CPS budget a memorandum progress report on CPS operations including costs, educational program data, accomplishments, problems, and recommended solutions.

Status

The Superintendent of Schools in a letter dated April 3, 1979, advised GAO

that DCPS strongly supports the recommendations that a written contractual arrangement be arrived at between DCPS and the appropriate congressional offices for the operation of CPS.

The Superintendent also stated that most of the coding errors encountered in the record for nonpersonnel expenditures for CPS should be overcome with the unified financial system now being developed by the Temporary Commission on Financial Oversight for the District. He pointed out that in the meantime, the written arrangement could provide that the CPS account could be established outside the regular DCPS appropriation funds accounts, such as is currently being done for Federal grants, and thus avoid any possibility of a confusion in the accounting records.

The Superintendent also advised GAO that much of the problem of accounting records and budget estimates we have identified can be attributable to the disparity of fiscal year and school year. He said that if appropriations for DCPS were changed to coincide with the school year, DCPS could more clearly determine the cost of each school year without the necessity for transfer between fiscal years.