1. Section 3: The Central Office Cost Center
Welcome to Section 3: The Central Office Cost Center.

2. The Central Office Cost Center: Learning Objectives
Explain the concept and requirements of the Central Office Cost Center (COCC) under the Final Rule
Describe the allowable fees charged by the COCC
Asset management provides a real opportunity for PHAs to maximize available opportunities and embrace an entrepreneurial business model. In this section, we’ll take a closer look at those opportunities and explore the PHA’s property management function.
<advance 1> First, we will introduce the concept of the Central Office Cost Center, or the COCC, and the COCC requirements as laid out in the Final Rule.
<advance 2> Next, we will describe the fees that the COCC can charge to the AMPs, and the rules and requirements surrounding these fees.
<advance 3> Finally, we will discuss how asset management might impact the organizational structure of PHAs and provide a few high level examples of what the new structures might look like.

3. Central Office Cost Center (COCC)
Owners of Multifamily properties employ property management companies for the day-to-day operation of properties
The Central Office Cost Center will operate like a property management company
Final Rule requires all large PHAs (250 or more units) to establish a COCC
Before we discuss the requirements for the Central Office Cost Center, we are going to briefly explain the background behind its development.
<advance 1> In the broader multifamily industry, many owners will employ the services of property management companies in order to handle the day-to-day operations of the owner’s properties. In these instances, the owner will pay the property management company a fee for the work performed. These property management functions can either be performed internally by a property management division or can be contracted out to a third-party property management company.
<advance 2> In Public Housing, the COCC will operate just like a property management company. The COCC will provide day-to-day oversight of a PHA’s AMPs and, in return, each AMP will pay the COCC certain allowable fees, all of which will be discussed in detail later in this section.
<advance 3> Under the Final Rule, all PHAs with 250 or more units are required to establish a COCC; however, small PHAs, those with fewer than 250 units, are free to implement the COCC model as well.

4. Central Office Cost Center
Business unit within the PHA that earns income from fees and/or by overseeing other business activity
Simplifies administrative requirements
Provides greater flexibility to support mission of PHA
<advance 1> The Central Office Cost Center, or COCC, is a business unit within the PHA that employs most of the PHA’s management and administrative staff. The COCC earns income from the fees that it is allowed to charge each of the AMPs along with other business activity, where applicable.
For PHAs, there are a number of benefits in implementing the COCC approach:
<advance 2> First, it greatly simplifies administrative requirements related to the accounting of overhead costs. The fees charged will be used in lieu of complex systems for allocating overhead expenses.
<advance 3> Second, the COCC provides PHAs with greater flexibility. PHAs will be free to determine how to use their fee income. This allows PHAs to further support their individual mission and goals.

5. Review: The Flow of Funds
HUD
PHA
OLD $
HUD
AMP
NEW
PHA/COCC
$ Subsidy
$ Fees
Now that we’ve spent some time looking at the concept of the COCC, let’s see how the COCC earns income in the Public Housing world. Recall our flow of funds diagram from section 2. In the new model, the operating subsidy is accounted for at the AMP level. The AMP then pays fees to the COCC.
<advance 1> Under the Final Rule, this payment comes in the form of: the property management fee, the asset management fee, the bookkeeping fee, fee-for-service, and program management fees (e.g. Housing Choice Voucher Program, Capital Fund Program, etc.). This is the income of the COCC in the Public Housing world. Let’s take a closer look at the potential fee income earned by the COCC.
Property Management Fee
Asset Management Fee
Bookkeeping Fee
Program Management Fees
Fee-for-Service

6. Types of Fee Income Property management fee Bookkeeping fee
Asset management fee
Program management fees and other business activity
Fee-for-service (e.g., centralized painting or extermination)
As we just mentioned, there are several types of fees that the COCC may charge including:
<advance 1> A property management fee for overseeing the operations of each AMP.
<advance 2> A bookkeeping fee for the bookkeeping and accounting operations of each AMP.
<advance 3> An asset management fee for each AMP.
<advance 4> Program management fees and other business activity income. Some potential sources of program management fees are the Capital Fund Program and Housing Choice Voucher Program management and bookkeeping fees. Other income might include management of a section 202 and development fees earned from non-public housing units.
<advance 5> Fee-for-service (for example, centralized painting or extermination).
We often call these different sources of fee income, lines of business (e.g. property management).

7. Property Management Fee
Fee charged to AMPs for oversight provided by COCC
Replaces traditional PHA overhead allocations
Based on occupied units and HUD-approved vacancies (not including limited vacancies)
Average management fee in HUD’s multifamily housing programs was $35 PUM (2004)
Let’s start with the property management fee.
<advance 1> The Final Rule requires PHAs to charge each AMP a “reasonable” property management fee to fund the operation of the central office as compensation for overseeing the operations of the AMP.
<advance 2> In essence, this property management fee replaces traditional PHA overhead allocations.
<advance 3> The property management fee is only based on occupied units and HUD-approved vacancies, and does not include limited vacancies.
<advance 4> Nationally, the average property management fee paid in 2004 in HUD’s Multifamily Housing programs for unlimited dividend and non-profit sponsors was $35 PUM. The range of fees paid will vary by market.

8. Methods of Determining Property Management Fees
80th percentile of fees paid by market
Local HUD multifamily fee schedules
Other compelling local market data
PHAs may use three methods to determine the property management fee:
<advance 1> 80th percentile of management fees paid in the local market. This data is published in the Supplement to PIH Notice on page 57.
<advance 2> Local Multifamily fee schedules created by the HUD Multifamily office in the same region. PHAs and HUD staff should consult HUD Multifamily staff for information on these fee schedules.
<advance 3> Other compelling local data from the market.

9. Bookkeeping Fee
COCC is permitted to charge a bookkeeping fee for the project accounting function of $7.50 PUM
Based on occupied units and HUD-approved vacancies (not including limited vacancies)
Average bookkeeping fee in HUD’s multifamily housing programs was approximately $3.50 PUM (2004)
<advance 1> In addition to a property management fee, the COCC will be permitted to charge a fee for the project accounting function (bookkeeping) provided by the COCC in the amount of $7.50 PUM. This bookkeeping fee includes salaries of appropriate staff; the establishment, maintenance and control of accounting systems; and/or contracts for accounting services.
<advance 2> Just like the property management fee, the bookkeeping fee is only based on occupied units and HUD-approved vacancies, and does not include limited vacancies.
Prior to the advancement of automated systems, most bookkeeping activities in multifamily housing were performed onsite. Today, the accounting for project funds is a task that is done mostly through a management agent’s central office, which is often charged to the project as a bookkeeping fee.
<advance 3> In 2004, the average bookkeeping fee in HUD’s Multifamily Housing program was about $3.50 per unit per month.
PHAs will report the management fee and the bookkeeping fee as separate line items on each project’s financial statements.
For all practical purposes, the management fee and the bookkeeping fee represent the reimbursement to the managing entity for the oversight of the project and the production of all related financial statements.

10. Asset Management Fee
Fees charged to AMPs for those tasks that would be residual if all property management functions were contracted to a third-party ($10 PUM)
Subject to the availability of excess cash
Based on total number of ACC units
<advance 1> Under the Final Rule, the COCC may also charge each project a “reasonable” asset management fee. The asset management fee is charged for those tasks of ownership that would be residual if all property management functions were contracted to a third-party. In such instances, the owner would still need to perform such tasks as approving the annual budget for the AMP, ratifying any recommendations for rent increases, and overseeing the performance of the property manager. HUD will generally consider an asset management fee charged to each AMP of $10 per unit per month as reasonable.
<advance 2> The asset management fee is subject to the availability of excess cash. To determine if a project has sufficient “excess cash” to pay the asset management fee, HUD will use a calculation similar to the computation of “surplus cash” in HUD’s Multifamily Housing programs, which is a balance sheet approach. Therefore, as long as the project has sufficient funds in its reserves, the COCC could charge the project an asset management fee.
<advance 3>Asset management fees, up to the allowed per unit per month amount, will be paid based on the number of ACC units. This is different from the property management and bookkeeping fees, which are paid based on the number of occupied units and allowable vacancies in the project.

11. Capital Fund Program Management Fee
Fee charged to the Capital Fund Program for management related to capital activities
COCC may charge up to 10% of total Capital Fund Program grant as management fee
<advance 1> The COCC will be permitted to recover the costs associated with managing the Capital Fund Program.
<advance 2> The COCC will charge up to 10% of the total Capital Fund Program Grant as a management fee. This fee is not based on actual costs, so PHAs are not required to keep documentation related to the expenditures associated with this fee. It is important to note that the 10% management fee should only be applied to Capital Fund Grants from FY 2007 and beyond. All grants from previous years should still be charged actual costs regarding program administration.

12. Housing Choice Voucher Program Fee
Fees charged for all administrative work performed by COCC staff related to the operation of HCV program
Two different fees can be charged:
HCV Management Fee – Higher of either 20% of annual administrative fee or $12 PUM based on number of vouchers leased
HCV Bookkeeping Fee – $7.50 PUM based on number of vouchers leased
<advance 1> The COCC may also charge the HCV Program for the work performed by central staff in support of the HCV program. Under the current system, PHAs are paid an “administrative fee” for the operation of the HCV program. This fee covers both front-line and fee expenses. Under the Final Rule, PHAs are encouraged to adopt a fee-for-service approach to HCV administration in which the COCC charges the HCV Program fees in exchange for all administrative work performed.
<advance 2> These are broken down into two different fees:
<advance 3> The first of the two is the HCV Management Fee. The amount a PHA can charge will be based on the higher amount of either 20% of the annual administrative fee the PHA could charge or $12 PUM based on the total number of vouchers leased.
<advance 4> Along with the HCV Management Fee, a PHA may also charge an HCV bookkeeping fee of $7.50 PUM based on the total number of vouchers leased.
It is important to note that this method is only recommended and is not required; PHAs may continue to administer the HCV program in the same manner they have in the past.

13. Program Management Fees and Other Income
Public Housing Development
Other HUD Programs (ROSS, HOPE VI, etc.)
Other business activity
Along with the fees already discussed, the COCC may have a number of other potential revenue streams, depending on which other programs the PHA participates in. These potential revenue streams are:
<advance 1> Public Housing development: The COCC can charge an administrative fee equal to 3% of the total development grant, or up to 6% with HUD approval, for public housing development.
<advance 2> Other HUD Programs: Where authorized, the COCC can charge up to 15% of the total grant amount for other PIH Grant Programs, such as ROSS.
<advance 3> And finally, other business activity: The COCC could also earn fees from other non-public housing sources in which the PHA is involved. For example, the PHA may be engaged in development outside of the public housing program or could be the management agent for a non-public housing project.

14. Fee for Service: Centralized Front-Line Functions
PHAs may choose to centralize various front-line expense activities and charge AMPs a fee for these services
Examples
Maintenance
Legal Services
<advance 1> From time to time, it may be beneficial to provide certain project management services centrally. Per PIH Notice , Updated Changes in Financial Management and Reporting for Public Housing Agencies Under the New Operating Fund Rule (24 CFR Part 990), a PHA may choose to centralize various front-line expense activities. Every time an AMP uses one of these centralized, front-line functions, the COCC would charge the AMP a fee for the service provided, just like if the AMP were to hire a third-party contractor to perform the task. These fee for services are another way in which a COCC may earn revenue under asset management.
<advance 2> The following are two examples of front-line activities that could be charged under the fee-for-service model:
<advance 3> Maintenance: If a PHA chooses to maintain a centralized maintenance function then all work provided to the AMPs must be charged using a fee-for-service approach rather than actual costs.
<advance 4> Legal Services: If a PHA maintains a centralized legal department that handles the AMP-level legal issues, such as evictions, then this service must be charged using a fee-for-service approach.

15. Fee for Service Guidelines
PHAs must adhere to the following:
Fees must be based on the market rate for the work received and not the actual cost
PHAs must use the fee for service approach for centrally provided maintenance
Centrally provided front-line services must be in the best interest of the AMPs and cannot cost more than if performed on-site
PHAs must maintain documentation for the fees charged to the AMPs
PHAs that elect the fee for service approach for centralized services must adhere to the following guidelines:
<advance 1> Fees must not exceed the market rate for the work received. Under this approach the PHA’s Central Office Cost Center is providing services much like a third-party contractor and as such can only charge the AMPs the market rate for these services.
<advance 2> PHAs must use the fee for service approach for centrally provided maintenance.
<advance 3> Consistent with the Final Rule, centrally provided front-line services must be in the best interest of the AMPs and cannot cost more than if performed on-site.
<advance 4> PHAs must maintain documentation for the fees charged to the AMPs. For example, acceptable documentation may include multiple quotes from external contractors that establishes a price for the same work the PHA has chosen to provide centrally using the fee for service approach.

16. Sample COCC Revenue from Fees
Fee Calculation
Amount
Management Fee
$40 x 1,000 units x 12 months x 97% occupancy
$465,600
Bookkeeping Fee
$7.50 x 1,000 units x 12 months x 97% occupancy
$87,300
Asset Management Fee
$10 x 1,000 units x 12 months
$120,000
Extermination Fee-for-Service
$50 x 1000 treatments
$50,000
To summarize, let’s take a look at the fee revenue portion of a PHA’s central office cost center. This particular PHA has 1,000 units and maintains 97% occupancy.
<advance 1> In this case, the maximum property management fee established by the local Field Office is $40 per unit per month. So, we have $40 times 1,000 units times 12 months at 97% occupancy. This totals $465,600.
<advance 2> Next, we have a bookkeeping fee of $7.50 times 1,000 units times 12 months at 97% occupancy for a total of $87,300.
<advance 3> To this we add the asset management fee of $10 per unit per month times 1,000 units times 12 months for a total of $120,000. Remember that asset management fees are paid based on the number of ACC units, unlike the property management and bookkeeping fees, which are paid based on the number of occupied units.
<advance 4> And finally, the only property management service that this PHA performs centrally is extermination, which it does on a fee-for-service basis of $50 per treatment and each unit was treated once during the course of the year. All other property management services are performed on-site. So, we take $50 times 1000 treatments for a total of $50,000.
<advance 5> Therefore, this PHA’s COCC would earn $722,900 in fees for the operation of its projects, exclusive of any other miscellaneous income that the PHA may earn.
Total
$722,900

17. Front-Line Expenses vs. Fee Expenses
Unlike in the past, front-line expenses and administrative expenses, called fee expenses, will need to be separated
Front-Line Expenses:
An expense of the AMP
Paid for by AMP income (e.g. subsidy and rent)
Fee Expenses:
An expense of the COCC
Paid for by fee income generated by COCC
<advance 1> One important difference under asset management is that PHAs will now be required to segregate between front-line expenses and administrative expenses, also known as fee expenses. Before we discuss how these expenses will be treated, let’s define each of the expense types.
A front-line expense is an expense that is directly related to the operation of an AMP. As such, this expense should be paid for by the AMP income, such as Operating Subsidy or tenant rental revenue.
A fee expense is any expense that would be considered an administrative expense. These expenses should be paid for by the COCC through the fee income it generates, such as the property management fees or any fee for service they operate.
Now lets take a closer look at some examples of the two expense categories.

18. What is Classified as a Fee Expense?
Certain personnel costs, including:
Executive Director
Regional Managers
Human Resource
Finance and accounting
Equipment, furniture, and services necessary to sustain COCC
Central servers and software supporting COCC
Refer to Table 7.2 of the Supplement to PIH Notice
A fee expense is an expense of the COCC. Examples of fee expenses are:
<advance 1> The costs, including salary and benefits, associated with certain, centralized personal such as,
<advance 2> The Executive Director
<advance 3> Any Regional Managers
<advance 4> All human resources staff members
<advance 5> the finance and accounting staff
<advance 6> Along with these staff members, all equipment, furniture, and services that are needed to successfully operate the COCC would also be considered a fee expense
<advance 7> Finally, central servers and software that are used to directly support the COCC should be paid for through the fee income generated.
<advance 8> In the Supplement to PIH Notice , HUD provided Table 7.2, found on pages 45-46, which provides some details on the fee expenses found in the Operating Fund Program. Please note that this list represents only a few examples of fee expenses.

19. What is Classified as a Front-Line Expense?
Onsite personnel
Housing Manager
Maintenance Technician
Resident Services
Equipment, furniture, and services required to maintain site-based office
AMP utility costs
Refer to Table 7.2 of the Supplement to PIH Notice
Unlike fee expenses, front-line expenses are those that should be incurred by each AMP, not the COCC. Examples of front-line expenses are:
<advance 1> The costs, including salary and benefits, associated with onsite personnel, such as
<advance 2> The housing manager or site manager
<advance 3> All maintenance technicians
<advance 4> Any Resident Services staff members
<advance 5> Along with the onsite personnel, front-line expenses also include the costs associated with maintaining an onsite office at the AMP. These costs could include office furniture, computer hardware and software, and office supplies.
<advance 6> Finally, all utility costs associated with AMP operations are considered a front-line expense
<advance 8> In the Supplement to PIH Notice , HUD provided Table 7.2, found on pages 45-46, which provides some details on the front-line expenses found in the Operating Fund Program. Please note that this list represents only a few examples of front-line expenses.

20. Summary and Online Resources
Now that we’ve reviewed the basics of asset management, what are the next steps? Under asset management, the Board will continue to work closely with PHA leadership to discuss these items in more detail and solidify plans. As we’ve seen, there are many benefits to the asset management transition, but it will require change.

21. Benefits of Asset Management
Improved services provided to each AMP
Organizational structure allows for greater efficiency
Onsite staff provide greater service to tenants
System enhancements will allow PHAs to operate more efficiently
Throughout this training, we’ve explored various high-level benefits of the move to asset management. Let’s get more specific and think about your PHA. What can you expect in terms of the benefits of asset management?
<advance 1> First of all, the project-level focus of asset management allows PHAs to provide services in the best interest of each individual project, taking cost and responsiveness into consideration. Additionally, asset management paves the way to provide additional housing opportunities.
<advance 2> The bottom line is that asset management enables PHAs to operate more efficiently. However, this won’t happen overnight and it may be necessary to examine various organizational models and adjust them to accommodate a more project-based management approach. Remember that HUD is measuring results rather than process so it will not dictate how PHAs should be organized, except where performance is unsatisfactory. As a result, each PHA has the flexibility to determine appropriate organizational models that best meet the needs of each project.
<advance 3> With more activities performed at the project-level, PHA staff will take on more meaningful responsibilities and activities. This will create more knowledgeable staff members, who will be in a better position to both better assist the tenants at each project as well as maintain and operate each project more efficiently. HUD realizes that training will be required to achieve this goal, but this shift will foster true accountability and opportunity. HUD has already provided substantial training in the completion of AMP-level subsidy forms and AMP-level financial reporting, which began last summer and is on-going.
<advance 4> Finally, due to the nature of project-based accounting and financial reporting changes related to asset management, changes may need to occur in management information systems such as accounting and IT. These new systems will provide the necessary information to make decisions in the best interest of the project.

22. Online Resources http://www.hud.gov/offices/pih/programs/ph/am
Revisions to the Public Housing Operating Fund Program; Final Rule - 24 CFR Part 990
Preparing for Asset Management Under the New Public Housing Operating Fund Rule (24 CFR 990): A Planning Document
Demonstration of a Successful Conversion to Asset Management (Stop-Loss) Submission Kit Year 2
Demonstrating Successful Conversion to Asset Management: A Site Visit to the Charlotte Housing Authority
There are a number of resources available on the HUD Asset Management website to assist PHAs throughout this conversion to asset management:
<advance 1> “Revisions to the Public Housing Operating Fund Program; Final Rule,” or 24 CFR 990, amends the regulations of the Public Housing Operating Fund program to provide a new formula for distributing operating subsidy to PHAs. It also establishes requirements for PHAs to convert to asset management.
<advance 2> “Preparing for Asset Management Under the New Public Housing Operating Fund Rule (24 CFR 990): A Planning Document” provides an outline of the overall policy framework underlying the transition to asset management.
<advance 3> “Demonstration of a Successful Conversion to Asset Management: Stop-Loss Submission Kit Year 2” includes instructions and related submission requirements for PHAs that want to apply to have their losses stopped under the new Operating Fund formula.
<advance 4> “Demonstrating Successful Conversion to Asset Management: A Site Visit to the Charlotte Housing Authority” summarizes the results of a site visit to the Charlotte Housing Authority in Charlotte, North Carolina.

23. Online Resources (continued) http://www. hud
PIH Notice , Changes in Financial Management and Reporting for Public Housing Agencies Under the New Operating Fund Rule (24 CFR Part 990), issued April 10, 2007
Asset Management Help Desk
Toll-Free Telephone:
<advance 1> PIH Notice , Changes in Financial Management and Reporting for Public Housing Agencies Under the New Operating Fund Rule (24 CFR Part 990), provides guidance on financial management and reporting requirements for PHAs under asset management. This notice is often referred to as the “supplement.”
<advance 2> Finally, the Asset Management Help Desk is a resource where Field Office and PHA staff can receive real-time assistance with questions and guidance related to asset management. The address is and the toll-free telephone number is Please note that some questions require input from one or more HUD offices and may require more than the standard response time.

24. End of Section 3
This is the end of Section 3: The Central Office Cost Center.