Puerto Rico Public Housing v. Hud, Civ. 96-1304(PG).

• Decision Date: 09 July 1999
• Docket Number: No. Civ. 96-1304(PG).,Civ. 96-1304(PG).
• Citation: 59 F.Supp.2d 310
• Parties: The PUERTO RICO PUBLIC HOUSING ADMINISTRATION, et al., Plaintiffs, v. UNITED STATES DEPARTMENT OF HOUSING & URBAN DEVELOPMENT, et al., Defendants.
• Court: U.S. District Court — District of Puerto Rico

59 F.Supp.2d 310

The PUERTO RICO PUBLIC HOUSING ADMINISTRATION, et al., Plaintiffs, v. UNITED STATES DEPARTMENT OF HOUSING & URBAN DEVELOPMENT, et al., Defendants.

No. Civ. 96-1304(PG).

United States District Court, D. Puerto Rico.

July 9, 1999.

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James F. Hibey, Verner, Liipert, Bernhard, McPherson and Hand, Chartered, Washington, DC, Mabel Ramon-Millan, Dept. of Justice for Puerto Rico, Fed. Lit. Div., San Juan, PR, William Sherman, Washington, DC, for plaintiffs.

Fidel A. Servillano-Del-Rio, U.S. Atty's Office District of Puerto Rico, Civil Div., Hato Rey, PR, for defendants.

OPINION & ORDER

PEREZ-GIMENEZ, District Judge.

In March 13, 1996, the Puerto Rico Public Housing Administration, the Puerto Rico Department of Housing, and Myriam Alameda (hereinafter referred to as "PRPHA", "PRDH" and "Alameda" respectively), commenced the instant action against defendants United States Department of Housing & Urban Development (hereinafter referred to as "HUD") and the then Secretary of HUD, Henry Cisneros (hereinafter referred to as "the Secretary") seeking declaratory and injunctive relief because defendants have allegedly discriminated against plaintiffs in the formulation, calculation, and distribution of the operating subsidies that HUD provides to the states and United States territories to provide adequate housing to low-income citizens. Pending before this Court is defendants' motion for partial dismissal and limited discovery (Dkt.##17 and 19) and plaintiffs' opposition to said motion. (Dkt.##18 and 20).

The Facts

PRPHA is a government instrumentality existing under the Laws of the Commonwealth of Puerto Rico, Act. No. 66 (August 17, 1989), 17 L.P.R.A. § 1001, responsible for the maintenance and management of federally-funded public housing projects for the benefit of approximately 250,000 low-income residents of Puerto Rico. Pursuant to its Annual Contributions Contract (hereinafter referred to as "ACC") with HUD and the Housing and Community Development Act of 1974 (hereinafter referred to as "the Act"), 42 U.S.C. § 1437g, PRPHA receives federal funding from HUD for the maintenance and management of these public housing projects. PRPHA currently owns and operates 332 public housing developments comprised of approximately 57,345 units. PRDH, on the other hand, is the local agency that formulates and implements housing policy in the Island; said entity was created pursuant to Act No. 97 (June 10, 1972), as amended. Alameda is a Puerto Rican resident in the Commonwealth's public housing system.

The Housing Act of 1937, 42 U.S. § 1437 et seq., as amended by the Act, requires HUD to use its funding to help the "states", including Puerto Rico, 42 U.S.C. § 1437a(b)(7),¹ remedy unsafe and unsanitary housing conditions and the shortage of decent housing for poor families. HUD and the Secretary are required by the Act to provide local Public Housing Administrations (hereinafter referred to as "PHAs") with annual operating subsidies to make up the difference between the amount of rent the PHAs charge their tenants and the amount of the PHAs' operating costs. HUD provides these subsidies pursuant to ACCs with each PHA. It is the Secretary's responsibility to determine the amount of subsidy that each PHA is to receive annually. 42 U.S.C. § 1437g(a)(1)(A).

Sometime around 1970, HUD began providing each PHA in the Unites States, including PRPHA, with an operating subsidy to assist the PHA in paying its operating expenses not covered by rental or investment income. At that time, HUD calculated each PHA's operating subsidy by a "deficit-funding method." This method subtracted a PHA's operating expenses, which were subject to approval by HUD, from the PHA's annual income. The deficit comprised the operating subsidy funded by HUD. Because HUD had the power to disapprove any operating expenses projected or incurred by a PHA, the adequacy of operating subsidies calculated using the deficit-funding method was dependent upon HUD's actions as well as those of the PHAs.

In 1974, Congress passed the Act, which directed the Secretary to establish standards for PHAs' costs of operation and reasonable projections of income, taking into account the character and location of such PHAs as well as the characteristics of the families served, or the costs of providing comparable services as determined in accordance with a formula representing the operations of a prototype well-managed PHA. In 1975, defendants promulgated regulations establishing the Performance Funding System (hereinafter referred to as "PFS"), as the method to determine the appropriate subsidy each PHA receives. See 24 C.F.R. § 990 et seq. Congress incorporated the PFS program into the Act in 1988. 42 U.S.C. § 1437g(a)(3). Each PHA participating in the PFS no longer had its operating subsidy calculated by the deficit-funding method, but instead received a subsidy comprised of the difference between the PHA's allowable expenses and its projected income. The PFS was intended to remove HUD's direct approval of expenses, replacing it with a system that attempted to establish a standard for "well-managed" PHAs.

"Allowable Expenses" under the PFS are the aggregate of a PHA's allowable expense level (hereinafter referred to as "AEL"), allowable utilities level, and other expenses. The AEL is the primary element for determining the amount of operating subsidy a PHA will receive from HUD. Under the PFS, defendants calculated each PHA's initial AEL, the "base year AEL," using the PHA's Fiscal Year 1975 approved operating expenses. For each subsequent year, the base year AELs were adjusted by a HUD-established inflation factor to determine the PHAs' annual operating subsidies. An appeal process was available in the first year under the PFS to those PHAs which believed their base year AELs had been set unreasonably low.

Because their operating subsidies were derived from a base year AEL, the PFS PHAs were no longer vulnerable to a reduction in their operating subsidies because of HUD disapproval of significant portions of their estimated operating expenses. Nevertheless, HUD's regulations explicitly excluded from the PFS the PHAs of Puerto Rico, Virgin Islands, Guam, and Alaska. 24 C.F.R. § 990.103(b). From approximately 1975 until 1984, therefore, defendants continued to calculate the operating subsidies for these PHAs, the "non-PFS PHAs," using the deficit-funding method.

On or around 1984, HUD calculated AELs for the PHAs of Guam, the Virgin Islands, and Alaska. These AELs were the equivalent of base year AELs for PFS PHAs and were used to calculate those PHAs' operating subsidies for all subsequent years. However, HUD did not calculate an AEL for Puerto Rico. Thus, from 1984 to 1989, PRPHA apparently was the only PHA in the United States that did not receive its subsidy based upon an AEL. Instead, PRPHA continued to operate under the deficit-funding method.

In 1988, Congress amended the Act to require, among other things, that defendants conduct a formal review to correct for inequities and abnormalities in PHAs' base year expense levels, to accurately reflect changes in operating circumstances since the initial determination of such base year expense levels, and to ensure that the PHAs' AELs accurately reflected the cost of operating public housing in the localities where those PHAs operate. 42 U.S.C. § 1437g(a)(3)(B)(iii). Following the 1988 amendments to the Act, in 1989, for the first time, defendants calculated an initial base year AEL for Puerto Rico. In doing so, HUD used PRPHA's approved operating expenses from the year beginning July 1, 1987 (PRPHA's Fiscal Year 1988). HUD first used this base year AEL to determine PRPHA's operating subsidy for the twelve-month period beginning July 1, 1989 (PRPHA's Fiscal Year 1990).

In 1992, defendants implemented a formal review process to comply with their review obligations under the Act and to increase the AELs of PHAs whose subsidies fell below a certain percentage of what HUD calculated those subsidies should be. Defendants implemented the 1992 appeal process by creating a formula expense level (hereinafter referred to as "FEL") derived from certain characteristics of a PHA's housing stock. If a PHA's FEL was less than 85% of its AEL, the AEL would be increased to an amount equal to 85% of the PHA's FEL. All PFS PHAs had the opportunity to participate in the 1992 appeal process, although many chose not to do so.

PRPHA, which had an AEL well below every other comparable PHA, (see Appendix), participated in the 1992 appeal process. To establish a PHA's FEL, defendants tabulated and assigned weights to the following characteristics: (1) the number of pre-1940 rental units occupied by poor households as a percentage of the population of the community; (2) a local government wage rate index ("LGWI"); (3) the number of two-or-more bedroom units owned and operated by the PHA; (4) a ratio of three-or-more bedroom units owned by the PHA to total dwelling units; and (5) a ratio of two-or-more bedroom units owned by the PHA in high rise family projects to total dwelling units.

For purposes of the 1992 appeal process, HUD determined that a PHA could receive credit for only up to 15,000 two-or-more bedroom units. PRPHA, though, owns and operates approximately 47,000 two-or-more bedroom units. Rather than crediting PRPHA's FEL calculation with 15,000 two-or-more units, however, defendants acknowledged 6,025 only.²

During the 1992 appeal process, defendants used the local government wage index (hereinafter referred to as "LGWI"). The LGWI attempts to compare the average local government wage with the national average. The LGWIs for most PHAs were derived from data provided by the Federal Bureau of Labor Statistics or the Census Bureau, which maintain wage data on each state. However, since apparently there was no data on Puerto Rico available from the Federal Bureau of...