The following represents the questions we received and the answers we provided on our webcast “The SF-425 Reporting, Order of Operating Expenses & Returning Interest Income” held on March 5, 2026
If you are in need of a private one-hour training/consulting session on these topics, please register for our SF-425 Consultation/Training.
Per HUD guidance, excess utility collections would be reported on the SF-425 as a program income deduction alternative and would take the same priority of rental collections for the order of operating expenditures.
Per HUD guidance, fraud recovery collections would be reported on the SF-425 as a program income addition alternative and would be spent before operating subsidy if not expended for expanded uses.
Per HUD guidance, bad debt collections would be reported on the SF-425 as a program income addition alternative and would take the same priority of rental collections for the order of operating expenditures.
Yes, a Public Housing Authority (PHA) may revise their Capital Funds budget. We recommend you review the Capital Fund Guidebook for guidance.
Capital Funds have different rules and regulations than public housing operating subsidies.
Pursuant to Section 9(k) of the 1937 Act (42 USC 1437g(k)), as amended, the PHA may retain nonrental income, and such amounts will not decrease the amounts PHAs receive under the Capital or Operating Fund. Nonrental income may be used for eligible purposes within the Public Housing program or the Section 8 program or to benefit the residents assisted by the PHA.
Operating subsidies can be spent after rental collections have been spent. The operating subsidy must be fully expended in seven years or returned to HUD per PIH Notice 2025-20.
No
The PHA will not receive a billing statement. The PHA is responsible for tracking their grant funds and the interest earned on the grant funds.
No, interest earned on restricted funds is not included. In addition, interest earned on Section 8 administrative fees is excluded from returning interest.
Yes.
If a PHA transfers cash from an AMP to another AMP per Excess Cash guidance, then the initial AMP providing the cash to the receiving AMP will only report the cash as expended once the receiving AMP spends the cash.
Pursuant to Section 9(k) of the 1937 Act (42 USC 1437g(k)), as amended, the PHA may retain nonrental income, and such amounts will not decrease the amounts PHAs receive under the Capital or Operating Fund. Nonrental income may be used for eligible purposes within the Public Housing program or the Section 8 program or to benefit the residents assisted by the PHA.
Pursuant to Section 9(k) of the 1937 Act (42 USC 1437g(k)), as amended, the PHA may retain nonrental income, and such amounts will not decrease the amounts PHAs receive under the Capital or Operating Fund. Nonrental income may be used for eligible purposes within the Public Housing program or the Section 8 program, or to benefit the residents assisted by the PHA. Furthermore, cash from sources other than HAP funding must be approved by HUD to prevent terminations of housing assistance for HCV participants per PIH Notice 2013-28.
Currently, the Capital Funds don’t expire.
2 CFR 200.305 (b)12 states “The recipient or subrecipient may retain up to $500 per year of interest earned on federal funds to use for administrative expenses of the recipient or subrecipient. Any additional interest earned on federal funds must be returned annually to the Department of Health and Human Services Payment Management System (PMS) through either the Automated Clearing House (ACH) network or a Fedwire Funds Service payment. All interest in excess of $500 per year must be returned to PMS regardless of whether the recipient or subrecipient was paid through PMS.” Find more information on Returning interest income.
HUD implements the Government Accounting Standards Board (GASB) guidance.
The Cash Management Improvement Act of 1990 amended the Intergovernmental Cooperation Act of 1968. The PHA may only retain $500 of interest in total for interest earned on all federal grants. Interest earned on administrative fees in the Section 8 programs are excluded from returning interest income because they are considered a fee for service.
Interest earned on grant funds must be returned annually. No specific reporting deadline, just annually. I would recommend that when the audit is complete, the PHA can return the funds. Please see the response to question 13.
No, please refer to PIH Notice 2025-20.
A SF-425 will be submitted for each AMP each year until the subsidy is fully expended for the grant or until the end of the Period of Performance (PoP).
The PHA is required to spend the rental collections first prior to spending the operating subsidy.
Per 2 CFR 200.302 and 24 CFR 990 Subpart H, a PHA must maintain all source documentation.
Please refer to question 20. The PHA has the discretion to track their activity that complies with the grant requirements.
The PHA must spend their rental income first, then their operating subsidy. It is HUD’s expectation that nonrental income is expended in the same funding year in which operating funds are appropriated. Retaining BLI 1406 funds and pre-2026 reserves seems like a practical methodology.
HUD will be publishing FAQs in the near future and will address this.
PHAs will be required to submit an annual SF-425 to report on the status of funds for the period ending December 31 each year. The SF-425 is due by the following April 30. PHAs must submit SF-425s annually until the PHA submits an SF-425 that reports a zero balance of unobligated funds, unliquidated obligations, or cash on hand, which may be earlier than the end of the Period of Performance identified in the Annual Operating Subsidy Processing Notice.
24 CFR 990 allows the PHA to draw 1/12 of their operating subsidy monthly. PIH Notice 2025-20 does not state that a PHA cannot draw 1/12 of the subsidy monthly.
All of the requirements for SF-425 reporting, returning interest income on grant funds, and the order of operating expenditures still apply.
The process will start with calendar 2026 operating subsidy. For example, if the PHA is March 2026 year-end, then the year-end reporting would require a liability as of March 31, 2026, for any 2026 operating subsidy drawn from eLOCCS and not spent.
Currently, HUD plans to maintain the Financial Assessment Sub-System (FASS) ratios and not adjust scoring. HUD also plans to adjust the Financial Data Schedule (FDS) to score the FASS ratios for the new methodology of reporting deferred revenue/liability.
Please refer to PIH Notice 2025-20 section seven regarding non-operating fund program income.
Please see response to question 15.
That is not required. A best practice would be to spend your oldest operating subsidy first.
Yes, PHAs can contact BDO and schedule a one-hour personal training/consulting session. Please feel free to schedule a time.
The PHA is only required to return interest income on federal grant funding.
Interest income is returned for all interest earned over $500 on federal grants that the PHA administers. Section 8 administrative fees are excluded from this requirement because the administrative fees earned are considered a fee-for-service.
As of now, HUD has not commented on this.
No, prior reserves are considered an operating subsidy due to the order of operating expenditures, and the amount of interest earned on those reserves would be included for payment back to HUD.
The PHA is not required to pay back interest that has been received in past years. Please see response to question 36.
See response to question 34.
We recommend you follow GAAP/GASB principles for accounting and reporting. The PHA can negotiate interest rates and fees for the best interest of the PHA.
HUD Accounting Brief# 22 provides clear guidance to account and report operating subsidy transfers for RAD. The amount of the transfer(s) to the RAD entity would be reported on the SF-425 as cash disbursed.
A payable would only start for March 31, 2026, year-ends? PIH Notice 2024-25 requires the returning of interest income on grant funds over $500. Yes, it is required for 2025.
Rental income (collections) must be spent prior to spending the operating subsidy. Nonrental income does not follow the order of operating expenditures per PIH Notice 2025-20.
Rental income currently consists of tenant rental charges only.
I believe I can prove $0 in reserves is considered subsidy. Cash management and the order of operating expenditures applies to the public housing program and not the COCC. Any reserves prior to 2026 in the Public Housing program would be considered operating subsidy unless the PHA can prove otherwise.
This responsibility would reside with the PHA to prove the pre-2026 reserves are not operating subsidy.
The PHA has the flexibility to decide how to account and report activity. Please see response to question 20.
Per the FDS Line Definition Guide, FDS line 70300 is for rental income charges, FDS 70400 is other tenant income, and FDS line 71500 is other income. There are several other categories of revenue as well located in the guide. In addition, we are reporting on cash collections and expenditures on the SF-425, and many of these FDS line items are reported on an accrued basis. This would not be a clean reconciliation.
Currently, only rental collections must be spent first prior to spending operating subsidy per PIH Notice 2025-20. This can be subject to change as HUD implements the cash management requirements.
Please see response to question 36.
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To talk to us about returning interest income or for more information on our service offerings, visit BDO Public Housing & Affordable Housing.