Out of seven federal recommendations made to help the Chattanooga Housing Authority straighten out its $4.5 million budget shortfall, housing officials say they’ve rejected two and are studying three, implementing another and expecting one to take care of itself.

“Understand the difference between a recommendation and a mandate,” said Bill Lord, the authority’s chief information officer. “It’s not a matter of us not complying; it’s more a matter of us discussing the review and assumptions made to get to the conclusion that they drew.”

Officials with the U.S. Department of Housing and Urban Development said they are reviewing the housing authority’s recommendations and will respond in 30 days.

In its report to the housing authority, issued July 3, HUD officials recommended that the authority discontinue its contracts for lawn care and for revamping empty units before renting them again, using housing authority employees instead. Or, they suggested, the authority could contract out all property maintenance duties.

Housing authority officials rejected those ideas, according to the report, saying their own internal examination showed that it is more cost effective to contract out lawn care and unit revitalization. Officials also said it is not a cost-effective strategy to incur the learning-curve costs and turnover costs of giving all property maintenance to an outside company.

Instead of reducing its administrative expenditures to the fiscal year 2004 level, as federal officials recommended, housing officials said they will “reduce all expenditures to the absolute minimum to meet the qualitative and quantitative HUD requirements,” according to the report.

“We’re in a break-even cash flow situation right now,” Mr. Lord said. “HUD indicated to us that, as long as we have a break-even or positive cash flow, that they will be flexible or work with the plan that we produce.”

The department also recommended that action be taken to reduce the housing authority’s work force by 15 full-time employees, the report said. Authority officials contend that natural attrition should reduce that work force by 10 to 15 employees over the next 17 months.

Other HUD recommendations included negotiating a repayment plan for the $1.2 million in federal Fannie Mae funds that were used, in violation of law, to pay operating expenses; repaying $732,000 borrowed from the authority’s Housing Choice voucher program; reprioritizing the repayment of about $644,000 in pending and overdue bills; and selling the Maurice Poss Homes and Holtzclaw Avenue central office properties.

Authority officials say they are studying ways to pay back the loans from Fannie Mae, which now are in default, reinfuse the Housing Choice voucher program and reprioritize bill paying. They already have sold some properties and are trying to sell more, officials said.

The authority already has sold its Grove Street property to New York-based Countrywide Consultants for $360,000. Money left over from that sale, about $15,000 after paying bills, is designated to pay off some of the authority’s debt to Fannie Mae, officials said.

Housing officials also are in negotiations with the RiverCity Co. to sell the Broad Street property where the Riverset Apartments are built. Housing authority and RiverCity officials are discussing a plan for RiverCity to give the authority a lump sum of $175,000 instead of yearly lease payments, said John Coxwell, the housing authority’s acting chief financial officer.

“The housing authority is in a difficult position. If we can be helpful we want to be helpful to them,” said Paul Brock, president of RiverCity Co., which developed the 41-unit apartment building. “But at this point, (purchasing the land) is a concept.”

Money from the sale will be used to pay interest on the Fannie Mae debt until a resolution is reached on the loan default, according to the report.

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