Program Income & Recaptured Funds Questions

Question:
This question is related to Form 1. Please explain the definition change for Recaptured Funds, which was established in May, 2009. What changes do SHIP administrators need to make?

Answer:
Recaptured Funds are now defined as only one thing: a repayment that a SHIP jurisdiction receives if it provides SHIP funding for a housing project, but this funding is ultimately not used to assist eligible households. Here is the official new definition of Recaptured Funds, now that the SHIP Statute has been changed:

“Recaptured funds” means funds that are recouped by a county or eligible municipality in accordance with the recapture provisions of its local housing assistance plan pursuant to s. 420.9075(5)(h)(g) from eligible persons or eligible sponsors, which funds were not used for assistance to an eligible household for an eligible activity, when there is a default on the terms of a grant award or loan award.”

Now that Senate Bill 360 has changed the definition of recaptured funds, this means that all other types of repayments that a SHIP office may receive are categorized as program income, including money repaid when a SHIP lien it triggered.

SHIP Administrators should change their SHIP lien and LHAP if it makes any reference to recaptured funds that does not meet this new definition. For example, if the LHAP currently indicates that recipients must pay back SHIP assistance as recaptured funds if they sell their house before the end of 10 years, this should be changed to reflect the new definition. This also affects the annual reports. Administrators should use the new definition when reporting on revenue for the Close Out, Interim 1 and Interim 2 distributions.


Question:
I have a question about Program Income and Recaptured Funds. When a formerly assisted household repays money as required by the recapture agreement/SHIP lien, do I count this repayment revenue as recaptured funds or program income?

Answer:
This repayment is Program Income, since Senate Bill 360 was signed into law in May of 2009. This bill changed the statutory definition of Recaptured Funds, which are now defined as only one thing: repayment that a SHIP jurisdiction receives if it provides SHIP funding for a housing project, but this funding is ultimately not used to assist eligible households. Here is the official new definition of Recaptured Funds:

“Recaptured funds” means funds that are recouped by a county or eligible municipality in accordance with the recapture provisions of its local housing assistance plan pursuant to s. 420.9075(5)(h)(g) from eligible persons or eligible sponsors, which funds were not used for assistance to an eligible household for an eligible activity, when there is a default on the terms of a grant award or loan award.”

This definition change means that all other types of repayments that a SHIP office may receive are categorized as program income, including money repaid when a SHIP lien it triggered. Remember, the most significant difference between Program Income and Recaptured Funds is that a small portion of Program Income may be expended on additional administrative expenses—above and beyond a jurisdiction’s 10 percent administrative budget. No Recaptured Funds may be used for this purpose.


Question:
You recently provided an example of the new definition of “Recaptured Funds”. The SHIP Jurisdiction provided a non-profit a check for $100,000 and they paid back $50,000 they could not spend. This $50,000 is to be considered “Recaptured Funds.” What if, by contrast, you have an executed contract with a non-profit for $100,000 and only provide the funds on a reimbursement basis? The nonprofit sends a letter indicating they cannot spend the last half of the encumbered funds. In this case, does the remaining $50,000 of this contract count as “Recaptured Funds”? If not, how is it treated?

Answer:
This is not an example of recaptured funds according to the new definition. In your example, the nonprofit receives funds on a reimbursement basis. The final $50,000 that was encumbered to be paid to the nonprofit has never actually left your Local Housing Trust Fund. The new definition of recaptured funds discusses money “recouped by a county or eligible municipality”. In this case, there is no money that must be repaid or “recouped” by the local SHIP program. Instead, money that is in your trust funds was encumbered but then became unencumbered when the nonprofit’s project fell through. Do not categorize this as recaptured funds. Simply commit this $50,000 to other projects.


Question:
What expenses can program income pay for?

Answer:
Section 420.9075 (6) of the SHIP Statute states:
“The cost of administering the program may not exceed 10 percent of the local housing distribution plus 5 percent of program income deposited into the trust fund, except that small counties, as defined in s. 120.52(17), and eligible municipalities receiving a local housing distribution of up to $350,000 may use up to 10 percent of program income for administrative costs.”

Administrative costs are the same expenses that may be paid for with the 10 percent administrative budget: salary, travel, advertising, and much more. The remainder of your program income must be dedicated to paying for SHIP assistance to applicants, using the strategies in your LHAP.