Monitoring Fees for HOME Projects

Agencies that administer HOME funds are known as Participating Jurisdictions or “PJs.” For HOME-assisted projects with commitments on or after August 23, 2013, the HOME program regulations [24 CFR 92.214(b)(1)(i)] allow PJs and state recipients to charge owners if rental projects reasonable fees for compliance monitoring during the affordability period. Owners of projects with HOME funds should understand the methodology used in determining the allowable HOME monitoring fees to ensure that the amount being charged is legitimate.

Fees for HOME-assisted projects must be based upon the average actual cost of performing the monitoring of HOME-assisted rental projects. The basis for determining the fee amount must be documented and the fee must be included in the costs of the project as part of the project underwriting.

Owners should understand two things about a PJs monitoring fees:

1. PJs may not charge any monitoring fee for projects with HOME funds committed prior to August 23, 2013; and

2. PJs must document their cost of monitoring and may not charge more than that cost.

Ongoing Monitoring of Rental Projects

The monitoring fees authorized under the HOME regulations may only cover the cost of ongoing monitoring during the affordability period (five to 20 years). Costs incurred by a PJ for monitoring during the development period can be charged either as administrative costs or as project related soft costs. In any case, these are not permitted operating costs.

The PJ justification of the monitoring fee should outline the services that are provided for the fee. At a minimum, the PJ must perform the following monitoring activities:

>Review and approval of the annual owner’s report on rents and occupancy;

>Establishment of the monthly utility allowances (UA) (while PJs may require that owners develop the UA, this service will not be part of the monitoring fee unless the PJ develops the allowance);

>Conducting the first year and periodic ongoing onsite monitoring of tenant files and physical inspections of a sample of assisted units; and

>Conducting annual examinations of the financial condition of HOME-assisted rental projects with ten or more units, including the costs for re-inspection of units with deficiencies.

PJs may choose to implement a more frequent monitoring schedule than required by HOME regulations. A PJs projection of monitoring costs and fees should reflect the actual frequency and extent of its rental project monitoring activities.

Also, because monitoring fees are based on actual costs, the fees charged to a project can be increased during the period of affordability to reflect rising wages or travel costs. However, such increases must be permitted by the HOME written agreement and the project must be able to bear the additional cost based on evidence from the PJs financial oversight of the project.

Acceptable Methods for Establishing “Average Actual Cost”

Examples (not an exclusive list) of methods used to determine the average actual cost of monitoring:

>Variable fee based on project size – a PJ may establish either a project-specific fee that is determined based on travel time to the project location and the number of units in the project, or a tiered monitoring fee schedule that varies the fee based on the project size and number of on-site unit inspections and file reviews. For example, a PJ might establish standard fees for projects of less than 20 units, 20-50 units, and 50+ units. This approach reflects the monitoring cost associated with different project sizes without establishing a project-by-project fee schedule.

>Standard Monitoring Fee Plus Re-Inspection Charge – a PJ may establish a fee for each project based on the anticipated cost of monitoring under “normal” circumstances (e.g., onsite monitoring every third year) and separately estimate a re-inspection fee that will be charged for re-inspection of units with identified deficiencies. This approach charges poor performing projects for the increased level of effort they require but may be more difficult to underwrite initially or to collect fees from struggling projects.

>Portfolio Average Fee – a PJ may establish the fee based on portfolio wide assumptions about on-site monitoring frequency and re-inspection rates. While some projects will perform well, others may require annual on-site reviews, so a PJ may assume that “on average” projects will be monitored on site every two years and that 20% of monitoring inspections will require re-inspections. A PJ could calculate the cost of this average level of effort and charge every project the same fee. This approach may be easier to administer and may result in more consistent collections of the monitoring fees, but it will result in better performing projects subsidizing the cost of “poor” performing projects.

Project Monitoring Costs

Monitoring costs consist primarily of either staff time or contractor costs, but may also include incidental costs such as mileage or materials. To develop a projection of the actual costs of monitoring, a PJ must determine the average level of time associated with each monitoring activity and multiply by the actual cost of the staff or contractor time involved. While some costs will vary by project size, driven by the number of files or units to inspect or review, other administrative monitoring costs (e.g., rent approvals) may be relatively the same on a per project basis. There also may be some non-staff costs, such as travel for on-site inspections. A PJ’s projection must be justified with documentation evidencing and explaining the inputs, such as the total hourly cost of salaries and benefits for employees who conduct the monitoring.

It is not unreasonable for the owner of a HOME-assisted project to ask the PJ for information on how the administrative fees were derived and remember – if the project was awarded HOME funds prior to August 23, 2013, no administrative fee may be charged.