BREAKING: HUD is Planning on Hobbling Federal Financial Assistance for Housing by Burying it in Paperwork.

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Juan Hanes is a research fellow at Notes on the Crises and a Journalism student at NYU. Find him on Bluesky here.

The Department of Housing and Urban Development (HUD) is planning on “adding special conditions to grant awards” according to a “Notice of Proposed Information Collection” posted to the Federal Register July 8th.

Behind the anodyne language is a sweeping proposal to fundamentally restructure how HUD grant reporting works, create enormous and duplicative reporting requirement burdens and subject HUD grants to unprecedented centralized control by the federal government. Attached to these duplicative reporting requirements is a new planned online portal and associated database which will subject grantees to “AI” (Large Language Model) “fraud detection and compliance automation”. If this plan goes through HUD, and its dedicated “AI” system, will have direct access to sensitive personal information about domestic violence survivors, HIV positive individuals, employees and more. These forthcoming changes at HUD should be seen as part of OMB director Vought’s recent proposal to subject trillions of dollars of federal financial assistance to direct political control by the presidency, which professor Phil Rocco covered for Notes on the Crises last week. 

The timeline for the addition of these “special conditions” is not clear.

To understand the extreme nature of these reporting requirements, we need to examine the data they plan to require of grantees more closely. According to the notice:

Under grants with the special conditions applied, recipients will need to provide financial records that substantiate payments made with federal funding, including payments made by subrecipients and other contracted services. [emphasis added]

This last clause is the most important. As stated, HUD plans to require not simply detailed financial reporting from grantees and “subreceipents” (entities or persons who receive subgrants to facilitate accomplishing the grant’s goal), but also require grantees to collect itemized payments information from contractors as well. 

According to the notice, HUD estimates that these requirements will affect 30,000 “unique entities that receive grants from HUD”  i.e. all HUD grantees. This, however, does not include subrecipients and vendors who will have downstream “compliance burdens” unestimated by HUD. Consequently, the Department of Housing and Urban Development’s estimate of annual compliance costs, $8,834,400, is likely a severe underestimate based on these “subentities” alone. The “unestimated” reporting burdens are a significant threat to housing grant programs insofar as the arduous compliance burdens may discourage contractors from working with grantees.

Additionally, the time and cost estimates for Grantees is based on a pilot program (discussed below) which involved only 9 grantees and the results have not been made public. This means that the estimated reporting burden is likely not based on a proper extrapolation from HUD’s limited pilot program or adjusted for large grantees. To put this in concrete terms, a grantee receiving a billion dollars or more of grants is going to take more than 6 hours a year to upload all receipts, contracts and other sensitive information. Obviously.

Is this additional compliance burden necessary?

When HUD first introduced its pilot program for its new online portal and database (known as the Housing Unified Grant System, or HUGS) last year, multiple organizations left comments expressing concern over the administrative burden that might be incurred with the introduction of a new system. 

As noted, the timeline for the implementation of this system is unclear, meaning that it is unknown how long grantees might be required to use both the old systems and the new portal simultaneously. The paperwork and staff training burden placed by the use of one online portal is already considerable; to force recipients to use both will, at minimum, eat into the grant money provided and reduce support to the ultimate beneficiaries of these programs.

In a comment letter left on last year’s pilot, the Council of State Community Development Agencies (COSCDA) made a recommendation as follows:

Do not require grant recipients to use both the new portal and existing grant management systems  (DRGR, e-snaps, etc.). Managing one reporting system is enough of an administrative burden. If HUD required grant recipients to use an existing system plus the new system, more time and funding would be consumed by the need to train staff on multiple systems. [emphasis included].

This “duplicative” reporting burden could, in practice, be even worse than it appears. Specifically, given the lack of clarity surrounding the new portal, it is entirely possible that HUD might prematurely require use of HUGS before it finishes development. Even if it finishes development, grantees could be required to use this online portal before HUD provides the educational resources required to train staff on how to use it. 

According to HUD Secretary Scott Turner’s testimony to congress on May 12th, the president’s budget request for this online portal is 30 million dollars.

There are also questions about HUD’s ability to manage such a sweeping project. HUD’s existing digital infrastructure has significant frailties. According to an anonymous source (and online internet comments) there was a previously unreported month-long outage in HUD's Integrated Disbursement and Information System (IDIS) in January of this year. The outage caused several major disruptions in grantee activity. That HUD still struggles to maintain its existing systems raises major questions about its ability to develop an entirely new, comprehensive, portal from the ground up. As is often the case with information technology, upkeep and maintenance of existing systems is generally more important and cost effective than building larger and more comprehensive systems from scratch.

Beyond the existing portal systems, grant recipients are already subject to independent financial audits on a regular basis as stipulated by law. 

It's important to recall that part of the purpose of independent financial auditing is to ensure compliance with federal laws and regulations without compromising the internal systems and data of those audited. HUD’s new “special conditions” sidestep the traditional auditing process by requiring grantees to hand over, in essence, all of their internal accounting and financial information. As the National Association of Housing and Redevelopment Officials (NAHRO) stated in its comment letter on the Housing Unified Grant System (HUGS) “pilot” last year:

This notice would pilot a system in which HUD acts as a national auditor, reviewing granular programmatic data for every grantee in the country, an impossible task [...] The evidence collected, scrutinized, and reported by financial statements and other existing reporting software is enough to ensure a grantee complies with laws and regulations. Examining anything beyond legal and regulatory compliance—such as reviewing accounting software and payroll systems—is outside of HUD’s authority. [emphasis added]

We will continue investigating these legal issues in our ongoing coverage.

This internal accounting and financial information is not, however, simply a matter of the Grantees. By requiring individual invoices, receipts and unredacted payroll information they are requiring the exposure of all sorts of sensitive personal information. For example, grantees make medical payments on behalf of domestic violence survivors, the unhoused and more. Payroll systems have sensitive personal information about employees. Grantees will be put in the difficult position of attempting to arduously redact sensitive personal information from everything they hand over. Otherwise HUD will be able to directly harvest sensitive personal information about the most vulnerable populations.  

HUD grant recipients have also been subject to considerable financial reporting requirements long before these changes were considered. The different grant programs under HUD each require recipients to use different online portals in order to report their spending plans, request the drawdown of funds into their bank account, and report financial data ex post. Under the “Community Development Block Grant-Disaster Recovery” program, for instance, recipients are required to use the Disaster Grant Reporting System. The “Continuum of Care” homelessness support program, meanwhile, uses the online “e-snaps” system supported by the Office of Special Needs and Assistance Programs within HUD.

In both the description of their wider information collection plans and the corresponding description of last year’s pilot, HUD never specified what their new portal would look like. It is thus unclear how far along in development the new portal is. 

More information about HUD’s proposed online portal comes from a notice HUD posted to find suitable vendors to design the online portal and associated database. In the synopsis, the goal of the “recipient analytics platform” is stated as follows:

HUD seeks to modernize its financial and grants management systems to improve efficiency, data quality, compliance, and user experience. This effort includes designing and building new systems and microservices that can better support enterprise functions, reporting requirements, and integration with external systems.

The document suggests that the pilot portal provides relatively limited guidance for the functionality required for a comprehensive system that reviews granular program data for the entire universe of HUD grantees. The timeline for building a comprehensive system, and the time and cost of finding appropriate vendors to build that system, is unclear.

Nevertheless, HUD appears to be marching forward with the rollout of what will, in all likelihood, be an incomplete system. 

Though it is difficult to ascertain much about the progress of the portal’s development, a related document attached to the notice discussed above sheds a little more light on what HUD is hoping to get out of its centralization efforts:

Grant Data & Interactive Contract Analysis: Enable AI-powered querying, summarization and fusion of disparate data, with references to source documents. [emphasis included]

Fraud Waste and Abuse (FWA) Detection & Automation: Implement workflows to identify and investigate fraud, waste, and abuse (FWA), including grant compliance checks, price discrepancy detection, and automated financial reporting for disaster recovery grants. Leverage Machine Learning (ML) and Artificial Intelligence (AI) techniques to detect potential FWA. [emphasis included]

In other words, it appears that the Trump administration is hoping that Large Language Models will be able to “automatically” look over program data and make what NAHRO called “an impossible task” possible. How exactly such “automated” compliance would work, how HUD would deal with “false positives” from its LLM’s alleged identification of “fraud, waste and abuse” or whether such grant oversight would be consistent with the Administrative Procedure Act is, as of yet, unclear.

By and large, HUD’s plans to rework its financial reporting systems pose major threats to grantees on administrative, technical, and legal levels. Given the fact that many HUD grant recipients, such as public housing authorities, have been existing under severe fiscal stress for decades, these forthcoming changes will- at best- make these service providers buckle under even further strain. At a time when it is widely believed that the U.S. has a substantial housing shortage, and certainly has deep housing affordability problems, further burdens on overstretched public housing agencies and other grantees for the sake of unitary executive control is a worrying development.