The Newark Housing Authority plans to cut about $2 million in salaries and benefits by the end of the month in order to plug its $5 million budget shortfall and avoid a federal takeover.

The state's largest housing authority is now considered "troubled" -- the lowest performance rating issued by the U.S. Department of Housing and Urban Development (HUD).

A HUD spokeswoman said the housing authority's financial deficit and lack of capital funding to fix aging buildings prompted the designation.

Housing authorities, which receive federal money, are assessed every year in four areas (physical, financial, management and capital fund). The agency's 2016 assessment scores were released this March.

In its 2016 assessment, the housing authority scored 4 out of 25 in finances and 23 out of 40 for the physical condition of the buildings. It also received no points when it was graded on occupancy. HUD said the housing authority has a high vacancy rate and not enough money to repair those units for use.

The Newark Housing Authority oversees about 6,800 units and 6,900 housing vouchers, according to its annual plan.

"I'm here to clean up," said Victor Cirilo, executive director of the housing authority, who took over last fall. "Our properties are not in good shape, we need to improve them. Our finances are in disarray."

Cirilo said he was looking for ways to increase revenues for the agency, including increasing its work as a redevelopment agency, repairing dilapidated units to bring back on the market, renegotiating vendor contracts and cutting positions for non-essential services.

"We're trying to find ways to save money and move people into capacities where they are fully maximized," he told NJ Advance Media.

Cirilo declined to say how many positions would be eliminated or reassigned but confirmed layoffs began last week and would continue through the month, with a target of saving $2 million in administrative costs.

The housing authority's 2018 budget is $183 million.

Last year, the former executive director, Keith Kinard, announced forced furloughs across the board that would save $1.2 million and avoid any layoffs.

But employees only took two of the 12 furlough days before the Board of Commissioners rescinded that decision a few months later and instead gave workers a $1.7 million raise.

By then, Kinard had left and the agency was looking for his replacement. The move even left union leaders perplexed; one questioned how the agency went from broke to offering retroactive raises.

"Unfortunately it's unsustainable and that's why we need to make difficult decisions for the housing authority's financial health," Cirilo said. "We have been living beyond our means for quite some time, it has resulted in depletion of our reserves."

The housing authority employs about 400 full-time workers.

Cirilo said there are 500 housing units offline that need repairs before they are rented out. Fifty Newark workers from Laborers Local 55 are improving those units; Cirilo wants to increase the pool of workers to 75.

Housing authority employees have also been terminated recently for improperly renting units, Cirilo confirmed. He declined to give further details, adding, "we have zero tolerance for impropriety."

Cirilo said the housing authority is working to finalize a recovery plan with HUD. Once both parties agree, the housing authority will have two years to earn a passing score or else risk a HUD takeover.

Read more:

Karen Yi may be reached at kyi@njadvancemedia.com. Follow her on Twitter at @karen_yi or on Facebook.