HUD Funding for Additional Lighting

Q There has been an increase in criminal activity in and around my tax credit site. I want to install additional lighting on my building entrances, courtyards, and other common areas, for security. Will HUD pay for it?

A That depends on whether you can prove that additional lighting is needed to operate the site in accordance with HUD's Model Lease. “HUD will require that you prove the need,” says affordable housing expert Mark Chrzanowski, a trainer at the Gene B. Glick Company. Evidence that might justify further expenditure for lighting as a deterrent to criminal activity includes police reports or management documentation of criminal activity.

Q Can I pay for additional lighting from my Reserve for Replacement account?

A Additional lighting isn't the usual sort of expenditure taken from the Reserve for Replacement account, but HUD has the authority to let a site use its reserve money for such needs, says Chrzanowski. Other security equipment, such as gates or cameras, has been approved, he notes. In addition to proving the need for additional lighting, the site will have to show that the lighting is in the best interests of the site and its residents, he says.

Q Are there guidelines for how the Reserve for Replacement account may be used?

A No, there's no hard rule about what HUD allows to be taken out of the Reserve for Replacement account (beyond regular withdrawals), says Chrzanowski. HUD has the authority to repay you for the cost of the parts and labor to install additional lighting, if you've paid for them out of your Reserve for Replacement account. But what your local HUD office will actually decide will vary by state, and even by site, so check with your contract administrator before using those reserves, he recommends.

Q Will HUD pay for the electricity to run the additional lighting?

A No, HUD won't pay for the electricity, says Chrzanowski. That's an operating expense that will have to come out of the rent, like any other expense required to run the site.

Q How should I account for the cost of parts and labor required to install additional lighting fixtures?

A Once you've decided to install and pay for additional lighting, you'll need to consider the cost as either a capital item expenditure or an operating expense. HUD has the discretion to approve repayment for capital expenditures, as long as the expenditures improve the property. “Having a policy at your site that defines a capital expenditure in terms of cost is a good idea,” says Chrzanowski. An owner may set a policy, for example, that any amount over $3,500 is considered a capital item. And anything under $3,500 is considered an operating expense.

If you call the lighting expenditure a capital improvement, you can depreciate the capital base over the useful life of the additional lighting fixtures. You'll need HUD authorization if you pay for additional lighting with funds taken from the Reserve for Replacement account. But if the cost doesn't justify a capital expense, then it's just an operating expense, for which HUD's authorization isn't needed.

PRACTICAL POINTER: For Section 8 multifamily sites, the cost of additional lighting comes under operating expenses and is paid for out of rents gotten from HUD. Also, public and private grants for crime prevention may be applied to installing additional lighting, Chrzanowski notes. For example, HUD has used Drug Elimination Grants effectively at a large number of sites.

Insider Source

Mark Chrzanowski: Trainer, Gene B. Glick Co.; Indianapolis, IN