Policy Alert - Administration of Dofa/Eiop for Mixed-Finance Developments

Administration of DOFA/EIOP for Mixed-Finance Developments

September 24, 2001

HUD is issuing this policy alert to advise readers of its policies concerning the establishment of a development’s Date of Full Availability (DOFA) and End of Initial Operating Period (EIOP). These milestones are critical as they establish when a development can access operating subsidy from a PHA’s Operating Fund.

The DOFA occurs when at least 95% of the units in a development are ready to be occupied (i.e., have certificates of occupancy). The DOFA is especially important for management of a mixed-finance development because it starts the development’s initial operating period. The end of the initial operating period is the last day of the first calendar quarter after DOFA provided that 95% of the units are actually occupied (vs. ready to be occupied). If 95% of the units are not occupied, EIOP is automatically established as the last day of the second calendar quarter after DOFA. EIOP marks the point at which the construction period for a development ends and management begins.

Example: Assume that 95% of the units are ready to be occupied on 11/30/00 (i.e., the DOFA is 11/30/00). If 95% occupancy is achieved on 2/10/01, the EIOP is 3/31/01. If 95% occupancy is not achieved by 3/31/01, EIOP is the last day of the second calendar quarter or 6/30/01.

Prior to EIOP, development funds are typically used to pay for operating expenses associated with public housing units. Once EIOP is reached, the development is considered to be in the management phase and eligible to receive operating subsidy.

Historically, HUD’s policy for determining DOFA/EIOP was based upon the assumption that the entire development was public housing and that all units would come on line at the same time. However, mixed-finance/mixed-income communities are typically constructed in phases, with only a percentage of the public housing units being constructed in each phase. Under the conventional methodology for establishing DOFA and EIOP, DOFA would not be established until 95% of all public housing units received certificates of occupancy, despite the fact that some public housing units could have been occupied for one to two years. Meanwhile, the PHA would be unable to use operating subsidies, and, instead, would have to pay the operating expenses with capital funds, causing less funds to be available for construction of new units.

In order to avoid this delay in utilizing operating subsidy for occupied units, HUD has determined that, in mixed-finance developments, DOFA/EIOP can be reached by development phase. Additionally, HUD is permitting the utilization of subphases within each phase for purposes of determining DOFA/EIOP, if subphases are completed more than 6 months apart. Development budgets are still expected to fund the initial operating period with capital funds or other private funds, but this change makes the length of initial operating period much shorter. The new DOFA/EIOP determination method expedites the ability of the development to access funds from the Operating Fund, thereby preserving development dollars for hard construction and administration costs.

In order to establish DOFA and EIOP, PHAs should follow the following process:

1. Develop a projected online schedule for the public housing units by phase and subphase, if applicable. The PHA should analyze the actual on-line schedule to see where the certificates of occupancy dates are clustered in order to determine the best phase and subphase configuration. Phases or subphases must be separated by at least 6 months. The objective of the analysis is to use the least number of subphases while also minimizing the length of time that development funds must be used for the initial operating period.
   
   
2. Submit the projected schedule to HUD as part of the Mixed-Finance Proposal approval process.
   
   
3. HUD’s Office of Public Housing Investments will review the DOFA request and contact the local field office. The field office will assign a project number to the phase or consecutive project numbers to the subphases.
   
   
4. Once certificates of occupancy (95%) have been received for the phase or subphase, the PHA and field office can establish DOFA.
   
   
5. Operating costs incurred after DOFA but prior to EIOP are funded with capital funds or other non-Operating Fund sources.
   
   
6. Once the PHA and field office establish EIOP, the PHA may make funds from its Operating Fund available to the phase or subphase.