Public Housing Authorities (PHAs) nationwide are facing a new reporting requirement: starting with calendar year 2026, PHAs must submit an SF-425 Federal Financial Report for each public housing grant every year. This represents a major change in how PHAs report funding usage, effectively treating Operating Subsidy like multiple individual grants. It’s a complex mandate from HUD, one that did not go through the normal rulemaking, and has caught many by surprise.
In a recent webinar (1/21/26), Emphasys’ Lisa Dove broke down what this requirement entails and invited Debbie Sullivan from the Boston Housing Authority (BHA) to share how her PHA is proactively adjusting its processes to comply. Their experience offers valuable insights for other PHAs preparing for this “SF-425 era.”
The new requirement at a glance
HUD’s Office of Public and Indian Housing issued a notice (PIH 2025-20) in late 2025 requiring that PHAs report on each year’s Operating Fund and Capital Fund grants annually using Standard Form 425 (SF-425), which is a government-wide form for federal grant financial reporting. In practice, this means:
- Instead of a single year-end financial statement covering all public housing operations, a PHA with multiple projects (AMPs) will have to file separate SF-425s for each AMP’s operating subsidy grant, each year, until those funds are fully expended.
- The first reporting will be for calendar year 2026, due by April 30, 2027. HUD expects PHAs to report every year thereafter (by each April 30) on the prior year’s funds, until a grant is at $0 or reaches the end of a 6-year period of performance.
- Any funds the PHA may have in Program or Operating Subsidy will not be reported. These funds belong to the PHA with no SF-425 requirements.
- PHAs must adhere to a specific order of funding utilization: use program income first, then operating subsidy, and must always exhaust the oldest grant’s funds before touching newer grant funds. This will be reflected in the reports.
- Reports are submitted through the existing Public Housing Information Portal (the same system used for some CARES Act reporting and waiting list submission) – there’s no automated interface, so PHAs will manually input data for each SF-425 in the portal. HUD has explicitly said no API or bulk upload will be provided at this time.
In essence, PHAs will be tracking the inflow and outflow of funds for each year’s subsidy separately, and doing a federal grant close-out process for operating funds, similar to how Capital Fund grants have always been handled (but Capital Fund already has an electronic 425 in the Energy Performance Information Center – now Operating Fund will too, but via this new method).
HUD’s reasoning is to increase transparency and accountability of how each year’s subsidy is used. However, it’s undeniably a huge administrative burden. Debbie Sullivan put it plainly: “We’re going from submitting one SF-425 to being required to submit more than 50 SF-425s starting next year. So it’s a very big deal for us.”. With over 50 AMPs, BHA historically did one combined Operating Fund unaudited submission and one audited financial each year. Now they must break that into 50+ pieces. Many PHAs are in similar situations (one SF-425 per project per year of funding).
Key challenges and BHA’s strategy
Debbie described how her team grappled with the decision of when to start implementing these changes. HUD’s notice says it’s required, but some PHAs hoped HUD might delay or rescind it. BHA considered waiting for more information, but ultimately decided they must act now to retool their accounting. Debbie told her leadership, “If I wait, I don’t believe that I will be able to recreate the information in a format that will allow me to fill out these forms.”. In other words, you can’t easily retroactively disentangle your funds by year/AMP without setting up systems upfront.
Here are steps BHA is taking as part of their high-level strategy, which might inspire other PHAs’ approach:
- Reconfiguring bank accounts: BHA traditionally had two bank accounts for public housing operations – one for Operating Subsidy draws and one for program income (rent, etc.). They used to commingle funds by sweeping subsidy into the income account. Now, they flipped the script. They set the subsidy account as a zero-balance account and, each time rent comes in, they transfer that into the subsidy account to cover expenses. The idea is that each month, they only draw down operating subsidy from HUD if and to the extent program income (tenant rent) isn’t enough to pay that month’s bills. If rental income covers the costs, they don’t pull subsidy at all for that period. This ensures they use all program income first (as HUD requires) and only then touch subsidy – and it leaves a clear trail of how much subsidy was needed.
- Granular General Ledger tracking: They enhanced their GL structure with segments for grant year and AMP. For instance, every transaction in their ledger now tags which year’s subsidy (grant) it belongs to and which AMP. BHA already had an AMP fund segment (most PHAs do, for asset management). They added a grant year identifier. This will allow them to run reports summing expenditures by AMP by grant year which is exactly what’s needed to fill out each SF-425.
- Internal reporting to mirror SF-425: BHA built a custom report (using their system’s report writer) that compares each AMP’s expenses to its available cash and subsidy. Essentially, for each AMP and grant, the report shows: accounts payable + payroll liabilities vs. cash in the subsidy account. This tells them if the AMP has spent more than its rental income (meaning subsidy was used) or if rental income is sitting unused. They use this to decide how much subsidy to draw from HUD (“LOCCS drawdown”) each quarter. This becomes their backup documentation for each draw and later, for the SF-425, it provides the numbers of how much of the grant was spent.
- Managing “internal loans” carefully: A tricky issue is when one AMP effectively borrows excess cash from another. Debbie noted BHA already encountered an AMP with negative cash that had to be covered by another AMP’s surplus. Under the new rules, if AMP A borrows subsidy from AMP B’s funds, you can’t close out AMP B’s grant until AMP A pays it back (or spends it). BHA is considering consolidating some AMPs to reduce this issue. In the short term, they are tracking inter-AMP cash transfers as payables that must be cleared before year-end so each grant can be accounted for cleanly.
- Adjusting vendor payment process: Because BHA now must ensure no “excess cash” is drawn, they are even holding certain checks until they have the subsidy cash on hand to cover them. HUD allows PHAs to draw operating subsidy a few days in advance of need (as long as you disburse within three days). BHA might utilize that to avoid delaying vendor payments. But the message is: they’re syncing the timing of cash draws very tightly with when bills are paid, to avoid any buildup of cash (since HUD will question if you have too much cash-on-hand).
- Special cases (program income nuances): Some of BHA’s properties have unique income like laundry machine revenue that, by contract, goes to their task forces. They’re trying to determine how to treat those under the new rules. They might classify them as “expended upon receipt” (essentially pass-through funds) so it doesn’t complicate the subsidy picture.
Minimal HUD support
HUD held a workshop on Dec 17, 2025, with HUD officials, auditors, and a few software vendors (including Emphasys) to discuss the SF-425 requirement. A high-level HUD official made it clear at the start of the meeting that this requirement is not negotiable. However, HUD acknowledged it’s burdensome. They indicated:
- They will provide FAQs and technical assistance (likely in Q1 2026) about how to fill out the form, but they won’t give guidance on accounting methods. In other words, HUD will tell you what to report on each line of the SF-425, but not how to set up your books to get those numbers. That’s on each PHA and auditor to figure out.
- There is no new automation. PHAs or their staff will be typing data into a web portal like PIC or VMS every year. For small PHAs with 1 or 2 projects, that’s fine; for bigger ones, it’s a lot of manual entries. HUD is aware it’s “cumbersome and time-consuming and expensive” but is pressing forward.
- Certification: The SF-425 will need to be certified by the PHA’s Executive Director (similar to how the PHA certifies year-end financials now). External auditors do not need to sign off on it pre-submission, though they’ll audit the data later in the usual OMB Single Audit.
Advice moving forward
Every PHA should start conversations with their finance team and fee accountant (if applicable) now. Some tips gleaned from BHA and the webinar include:
- Map out your AMP finances: List each AMP and identify its revenue streams (subsidy, rent, other) and expenses. Are they segregated already? Many PHAs have combined operating accounts; you may need to break them out.
- Talk with your software provider: Can your system produce reports by AMP by funding year? If not easily, you might need to use workarounds (spreadsheets, manual tracking).
- No co-mingling moving forward: Treat each year’s subsidy as its own pot. For 2026, consider creating a unique identifier in your records (even if just in an Excel sheet) to accumulate 2026 funds used per AMP. Then 2027, and so on. It’s a mindset shift: “Grant 2026 – AMP1, Grant 2026 – AMP2, etc.”
- Coordinate with auditors: Your external auditor might have recommendations for you. Also, they will eventually audit these SF-425s against your financials. Ensuring your accounting system can spit out a schedule that matches the SF-425 will make the audit smoother.
By taking steps now, PHAs can regain some control and not be caught scrambling at the last minute. In other words, coordination is paramount and the sooner you align your internal accounting with the new reality, the smoother 2027’s reporting marathon will go.