HUD and Treasury Programs:

More Information on Leverage Measures' Accuracy and Linkage to Program Goals Is Needed in Assessing Performance

GAO-08-136: Published: Jan 18, 2008. Publicly Released: Feb 19, 2008.

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This is the second of two reports on the leveraging of federal funds in housing and community and economic development programs. Leveraging involves using a source of funds to attract other funds or combining multiple sources of funds. This report examines (1) the leverage measures and the transparency of the data and methods used to calculate them, and (2) the relevance of such measures in assessing performance that the Department of Housing and Urban Development (HUD) and the Department of the Treasury (Treasury) reported for six selected programs. To complete this work, GAO reviewed agency policies and reports, interviewed officials, and analyzed agency data.

The leverage measures (such as ratios) HUD and Treasury reported for the selected programs in performance, budget, and other documents lacked transparency because the agencies generally did not disclose the limitations of the data or the methods used to calculate them. Based on its review of available leveraging data and interviews with HUD and Treasury officials, GAO found that the leverage measures the agencies reported for the selected programs were based on incomplete data and thus did not capture the actual extent of leveraging in the programs. GAO also found that while the agencies generally reported measures that described the ratio of all other funds (federal, state, local, and private funds) to program funds, alternative measures that described the total federal investment or total private investment in a program provided considerably different results--also potentially of value to decision makers--about the extent of leveraging in a program. GAO regularly has reported that clearly communicating data limitations and their potential impact may foster appropriate use of data; however, no agency-specific or governmentwide guidance directs what agencies should disclose about the leverage measures they report for the selected programs. Consequently, absent specific information on how these measures were calculated and their limitations, decision makers would not have sufficient information to understand their meaning and determine how they could and should be used in performance assessment, budgeting, and other contexts. Leverage measures can provide basic information about the programs GAO reviewed; however, their relevance in assessing the performance of these programs varies considerably. For all of the programs GAO reviewed, leverage measures can describe inputs, or the resources used to support program activities, and may be useful for conveying basic financial information. To the extent that leveraging is a goal or expected activity of a program (as in the three Treasury programs), leverage measures generally can describe program outputs, or the products or services delivered (such as total leveraged funds), and may be used along with other performance indicators to assess the efficiency and effectiveness of a program in meeting its goals. In cases where leveraging is not clearly and appropriately linked to program goals and activities (as in the three HUD programs), use of such measures to describe program outputs could be misleading and result in adverse consequences. Although leveraging had limited relevance to the goals and activities of the selected HUD programs, GAO found that the Office of Management and Budget (OMB) and the agency often cited leverage measures for the programs in performance- and budget-related reviews and documents. Their continued use of leverage measures in these contexts could unnecessarily encourage HUD to place more importance on leveraging than meeting the stated goals of the selected programs.

Recommendations for Executive Action

  1. Status: Closed - Not Implemented

    Comments: Based on our review, OMB has not provided any specific guidance to agencies on how to calculate, describe, and use leverage measures in a manner consistent with the programs' design. Therefore, this recommendation is closed as not implemented.

    Recommendation: The Director of OMB should provide guidance to help agencies determine how to calculate, describe, and use leverage measures in a manner consistent with the programs' design.

    Agency Affected: Executive Office of the President: Office of Management and Budget

  2. Status: Closed - Implemented

    Comments: By design, the CDFI and NMTC programs leverage funds. Budget and other reports we reviewed discuss the extent to which the measures are linked to program goals and activities and assess and provide data on grantees' performance. For example, Treasury's fiscal year 2013 budget submission notes that CDFI awardees reported originating more than 16,000 loans totaling more than $1.2 billion based on their portfolio activities in fiscal year 2010. A 2008 report on the NMTC program found that every $1 of federal tax revenue foregone as a result of the credit was estimated to induce over $14 in investments in projects in low-income communities. These documents relate the measures to the program's leveraging and community development goals. No information was available for the LIHTC program. Therefore we are closing the recommendation as implemented.

    Recommendation: To ensure that leverage measures provide accurate, useful, and relevant information to Congress and others, the Secretaries of HUD and the Treasury should consider disclosing the following when they publish such measures for the programs included in our review: Presentation of leverage measures should be accompanied by a discussion of the relevance of the measure in assessing the program's performance. For example, the agencies should discuss the extent to which leverage measures are linked to program goals and core activities.

    Agency Affected: Department of the Treasury

  3. Status: Closed - Implemented

    Comments: Since 2008 HUD has limited its discussion of leverage measures in its budget and other documents related to the CDBG, HOME, and HOPE VI programs. Prior to 2008 HUD's use of these measures was more frequent in its reports and documents, such as agency strategic plans and other reports. After we raised questions about the data used to calculate these measures, the agency's use of such measures substantially declined. However, in cases where HUD discusses these measures, the agency has taken steps to link the measures to program goals and performance. For example, HUD's budget justifications for the HOME program discuss (1) the program's match requirement (as we noted in our report, matched funds can constitute leveraged funds)--grantees must match 25 percent of HOME funds with nonfederal sources--and (2) its relation to program goals--the match requirement was instituted to foster local participation in the development of affordable housing. The justifications further note the number of affordable housing units developed with HOME funds, including match funds. Therefore we are closing the recommendation as implemented.

    Recommendation: To ensure that leverage measures provide accurate, useful, and relevant information to Congress and others, the Secretaries of HUD and the Treasury should consider disclosing the following when they publish such measures for the programs included in our review: Presentation of leverage measures should be accompanied by a discussion of the relevance of the measure in assessing the program's performance. For example, the agencies should discuss the extent to which leverage measures are linked to program goals and core activities.

    Agency Affected: Department of Housing and Urban Development

  4. Status: Closed - Implemented

    Comments: Since 2008 HUD has limited its discussion of leverage measures in its budget and other documents related to the CDBG, HOME, and HOPE VI programs. In prior reports and documents, such as agency strategic plans and other reports, HUD's use of these measures was more frequent. After we raised questions about the data used to calculate these measures, the agency's use of such measures substantially declined. However, in cases where HUD discusses these measures, the agency provides information about the completeness and methods used to calculate the measures. For example, HUD's fiscal year 2012 budget justification for the HOME program notes that all matched funds (which we noted in our report can constitute leveraged funds) must come from nonfederal sources. Under the HOME program, grantees must match 25 percent of their program funds with nonfederal funds. In addition, although HUD's CDBG budget justifications do not include leverage measures, they do note that "[CDBG] may be used as a standalone financing source, but is more often used in conjunction with other federal, state, or local funding sources. Further, local officials use CDBG to leverage other federal funds as for other federal programs." Therefore we are closing the recommendation as implemented.

    Recommendation: To ensure that leverage measures provide accurate, useful, and relevant information to Congress and others, the Secretaries of HUD and the Treasury should consider disclosing the following when they publish such measures for the programs included in our review: Presentation of leverage measures should be accompanied by information about the completeness and accuracy of the data and the method(s) used to calculate the measures (for example, with leverage ratios, information on what sources of funds were compared, such as private funds to public funds or nonfederal funds to federal funds).

    Agency Affected: Department of Housing and Urban Development

  5. Status: Closed - Implemented

    Comments: Treasury has moved away from use of leverage measures to express the extent of leveraging in its CDFI and NMTC programs. For example, in its fiscal year 2013 budget submission for the CDFI program, Treasury stated that it had discontinued using leveraging as a performance measure because "leverage measures were viewed as too sensitive to macroeconomic factors" and might be misleading. To the extent that budget and other documents continue to discuss leveraging, these discussions include information on the types of funds the CDFI and NMTC programs leverage. For example, Treasury's 2011 Agency Financial Report for the CDFI program discloses that grantees leverage their CDFI funds with non-federal sources, such as banks, foundations, and state and local governments. A 2008 report on the NMTC program found that every $1 of federal tax revenue foregone as a result of the credit was estimated to induce over $14 in investments in projects in low-income communities and cited that the largest investors in these tax credits were banks and other regulated financial institutions (37 percent of the investor pool). No information was available on the LIHTC program. Therefore we are closing the recommendation as implemented.

    Recommendation: To ensure that leverage measures provide accurate, useful, and relevant information to Congress and others, the Secretaries of HUD and the Treasury should consider disclosing the following when they publish such measures for the programs included in our review: Presentation of leverage measures should be accompanied by information about the completeness and accuracy of the data and the method(s) used to calculate the measures (for example, with leverage ratios, information on what sources of funds were compared, such as private funds to public funds or nonfederal funds to federal funds).

    Agency Affected: Department of the Treasury

  6. Status: Closed - Implemented

    Comments: Following the issuance of this report, OMB decided not to measures and rate agency performance against a defined set of performance measures (including leveraging) through the Program Assessment Rating Tool (PART) review. New guidance encourages federal agencies to develop priority goals and implement those goals into strategic and annual performance plans measure their progress toward these goals. Specifically, OMB's new guidance emphasizes that agencies are "accountable for setting specific outcome-focused goals, measuring progress toward meeting the goals, tracking completion of key milestones, comparing progress among peers to identify better practices, looking for factors that government can influence and that affect trends, adopting and implementing cogent strategies based on analysis of performance and other relevant data, using performance data to confirm achievement of intended outcomes, making quick adjustments to strategies when they are not working, and reporting to the public in useful and accessible ways--candidly, coherently, and consistently." While this guidance is not specific to leveraging, it will have an effect on what measures agencies will develop to measure their performance and how they report this information to the public. This change emphasizes transparency and linkage to program goals, which is consistent with the intent of our original recommendation. Therefore, we are closing this recommendation as implemented.

    Recommendation: The Director of OMB should re-evaluate the use of leverage measures and disclose their relevance to program goals and activities in future Program Assessment Rating Tool or other performance reviews of the selected programs.

    Agency Affected: Executive Office of the President: Office of Management and Budget

 

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