[Senate Hearing 107-403]
[From the U.S. Government Publishing Office]
S. Hrg. 107-403
HUD'S PROGRAM, BUDGET AND MANAGEMENT PRIORITIES FOR FISCAL YEAR 2002
=======================================================================
HEARING
before the
SUBCOMMITTEE ON HOUSING AND TRANSPORTATION
of the
COMMITTEE ON
BANKING,HOUSING,AND URBAN AFFAIRS
UNITED STATES SENATE
ONE HUNDRED SEVENTH CONGRESS
FIRST SESSION
ON
THE EXAMINATION OF THE NEW ADMINISTRATION'S PROGRAM, BUDGET AND
MANAGEMENT PRIORITIES FOR FISCAL YEAR 2002, FOR THE U.S. DEPARTMENT OF
HOUSING AND URBAN DEVELOPMENT
__________
APRIL 25, 2001
__________
Printed for the use of the Committee on Banking, Housing, and Urban
Affairs
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78-799 WASHINGTON : 2002
____________________________________________________________________________
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COMMITTEE ON BANKING, HOUSING, AND URBAN AFFAIRS
PHIL GRAMM, Texas, Chairman
RICHARD C. SHELBY, Alabama PAUL S. SARBANES, Maryland
ROBERT F. BENNETT, Utah CHRISTOPHER J. DODD, Connecticut
WAYNE ALLARD, Colorado TIM JOHNSON, South Dakota
MICHAEL B. ENZI, Wyoming JACK REED, Rhode Island
CHUCK HAGEL, Nebraska CHARLES E. SCHUMER, New York
RICK SANTORUM, Pennsylvania EVAN BAYH, Indiana
JIM BUNNING, Kentucky ZELL MILLER, Georgia
MIKE CRAPO, Idaho THOMAS R. CARPER, Delaware
JOHN ENSIGN, Nevada DEBBIE STABENOW, Michigan
JON S. CORZINE, New Jersey
Wayne A. Abernathy, Staff Director
Steven B. Harris, Democratic Staff Director and Chief Counsel
Linda L. Lord, Chief Counsel
Melody H. Fennel, Professional Staff Member
Jonathan Miller, Democratic Professional Staff Member
George E. Whittle, Editor
______
Subcommittee on Housing and Transportation
WAYNE ALLARD, Colorado, Chairman
JACK REED, Rhode Island, Ranking Member
RICK SANTORUM, Pennsylvania THOMAS R. CARPER, Delaware
JOHN ENSIGN, Nevada DEBBIE STABENOW, Michigan
RICHARD C. SHELBY, Alabama JON S. CORZINE, New Jersey
MICHAEL B. ENZI, Wyoming CHRISTOPHER J. DODD, Connecticut
CHUCK HAGEL, Nebraska CHARLES E. SCHUMER, New York
John Carson, Staff Director
Tewana Wilkerson, Deputy Legislative Assistant
(ii)
C O N T E N T S
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WEDNESDAY, APRIL 25, 2001
Page
Opening statement of Senator Allard.............................. 1
Opening statements, comments, or prepared statements of:
Senator Reed................................................. 3
Prepared statement....................................... 48
Senator Enzi................................................. 4
Prepared statement....................................... 49
Senator Corzine.............................................. 6
Prepared statement....................................... 50
Senator Carper............................................... 6
Senator Santorum............................................. 7
Senator Sarbanes............................................. 7
Prepared statement....................................... 51
Senator Stabenow............................................. 22
Senator Schumer.............................................. 28
WITNESSES
Mel Martinez, Secretary, U.S. Department of Housing and Urban
Development.................................................... 9
Prepared statement........................................... 52
Response to written questions of:
Senator Sarbanes......................................... 77
Senator Santorum......................................... 153
Senator Shelby........................................... 153
Senator Reed............................................. 154
Susan Gaffney, Inspector General, U.S. Department of Housing and
Urban Development.............................................. 33
Prepared statement........................................... 55
Stanley J. Czerwinski, Director, Physical Infrastructure Issues,
U.S. General Accounting Office................................. 35
Prepared statement........................................... 59
Response to written questions of Senator Sarbanes............ 156
Renee L. Glover, Executive Director, Atlanta Housing Authority... 37
Prepared statement........................................... 63
Barbara Sard, Director of Housing Policy, Center on Budget and
Policy
Priorities..................................................... 40
Prepared statement........................................... 68
Response to written questions of Senator Sarbanes............ 159
Additional Material Supplied for the Record
Charts submitted by Senator Reed entitled, ``HUD's Unexpended
Balances and HUD Funding--Core Programs''...................... 169
Prepared statement of Salvadore Carpio, Jr., Executive Director,
Denver Housing Authority, dated April 25, 2001................. 172
Prepared statement of D. Scott Minton, Executive Director,
Housing Opportunities Commission (HOC), Montgomery County, MD,
dated April 25, 2001........................................... 178
Prepared statement of Richard Wilson, Housing Authority of
Washington County, MD.......................................... 179
Charts submitted from HUD's Budget Justifications, entitled
``Public Housing Drug Elimination Program and Rural Housing and
Economic Development Program''................................. 182
HUD'S PROGRAM, BUDGET AND
MANAGEMENT PRIORITIES FOR
FISCAL YEAR 2002
----------
WEDNESDAY, APRIL 25, 2001
U.S. Senate,
Committee on Banking, Housing, and Urban Affairs,
Subcommittee on Housing and Transportation,
Washington, DC.
The Subcommittee met at 10 a.m., in room SD-538 of the
Dirksen Senate Office Building, Senator Wayne Allard (Chairman
of the Subcommittee) presiding.
OPENING STATEMENT OF SENATOR WAYNE ALLARD
Senator Allard. Let me call the Committee to order.
This is the Housing and Transportation Subcommittee of the
Banking Committee. I want to welcome all the Members of the
Committee, as well as all of the witnesses here this morning.
Today, we are going to review HUD's programs, budget and
management priorities for fiscal year 2002.
I particularly want to welcome Secretary Martinez. Mel, I
am so thrilled to have you assume the responsibilities of HUD.
You have had a lot of local responsibilities, a lot of
local experiences. I do not mean to embarrass you, but when I
talk to groups, I frequently talk about your success story. I
think of your coming to America and your accomplishments and
where you are now, as a close adviser to the President, is one
of the success stories of America and what America is all about
when we talk about freedom and opportunity. And so, I really
appreciate and am looking forward to working with you.
Mr. Secretary, this is your first appearance before the
Committee since your confirmation hearing 3 months ago. I trust
that by now, you have had time to digest at least some of the
tremendous challenges of your job.
I want to commend you on the thoughtful tone that you set
in your first months in office. The response from my
constituency has been very, very positive.
I also want to welcome our second panel of witnesses
following the Secretary. We will be hearing from Susan Gaffney,
HUD's Inspector General.
We will be hearing from Mr. Stan Czerwinski, Director of
Housing and Community Development at GAO.
Next, we will hear from Ms. Renee Glover, Executive
Director of the Atlanta Housing Authority.
Our final witness will be Ms. Barbara Sard, Director of
Housing Policy, Center on Budget and Policy Priorities.
I have an opening statement and then I will ask other
Senators if they have statements and then we will hear from the
Secretary.
There has been a good deal of debate over HUD's budget
proposal and whether it constitutes an increase or decrease.
However, this debate seems to me to miss the point.
The central question should be--what are the objectives of
HUD, and are adequate resources provided to achieve the desired
results?
Last year, I made a point to emphasize the Government
Performance and Results Act. Government agencies, in my view,
should be judged by results, not by the size of their budgets
or the number of new programs. I would repeat that.
Government agencies should be judged by results, not by the
size of their budgets or the number of new programs. The
success of HUD will be determined by how many people it helps
to achieve self-sufficiency, not by how much money it spends.
It is the responsibility of the Congress to hold Federal
agencies accountable for specific results and to budget
according to the success or failure in achieving those results.
For the last several years, HUD's budget has been increased
significantly, and what is most striking to me is the amount of
unobligated money in the HUD pipeline which has already been
appropriated by the Congress.
At the end of last fiscal year, there were at least $12
billion of unobligated and unspent HUD money. Congress can
argue about whether this year's budget request is a billion-
dollar increase or a billion-dollar decrease, but the key
question is how do we get HUD to efficiently and wisely spend
the money that Congress has already approved? That question
should be answered before we put more spending increases in the
budget.
As I review the budget request, I am impressed with the
com-
mitment to increase homeownership, particularly among minority
families. I am also impressed with the commitment to fully fund
Section 8 contracts and vouchers and to focus on ways to ensure
that those vouchers can be fully utilized.
I am also supportive of the effort to return the CDBG
program to a true block grant. Far too many of the dollars in
this program have been siphoned off by Congress for special
projects before they ever get to the local communities.
I am pleased to see some consolidation in programs and I
hope that there will be more. I am pleased to see the
commitment to tax incentives, fair housing enforcement, and
improvements in the homeless assistance programs. Obviously,
the housing authorities are understandably concerned with
proposals that impact them.
We have invited the Atlanta Housing Authority to present
their views here today, and we will review their concerns and
the concerns of others who oppose parts of the budget.
I look forward to working with you, Mr. Secretary, and with
the Members of this Committee as we work to build HUD
accountability for results to taxpayers and program
beneficiaries.
I would like to call on my Ranking Member, Senator Reed. I
understand that you have a schedule conflict this morning and
may have to step out after your opening comments. We will do
what we can to work with you.
I call on our Ranking Member, Senator Reed.
STATEMENT OF SENATOR JACK REED
Senator Reed. Thank you, Mr. Chairman. And thank you,
Secretary Martinez, for joining us this morning, and also for
your enthusiastic involvement in these critical issues facing
our country.
We have for the last several years witnessed unprecedented
prosperity in the United States. But one of the ironies is that
it made accessible, affordable housing, both rental housing and
homeownership, much more scarce.
And so, when the Chairman speaks, I think rightly, about
measuring HUD not so much by the size of its budget, but in its
challenge, the challenge is even greater today because if our
goal is, as it should be, to give every American the chance for
safe and decent housing, then we have not succeeded yet and we
need more resources, I believe, to make that a successful
outcome.
In addition, HUD has a very special role. It is not simply
to put people in housing. It is to try to build communities.
And so, bricks and mortar are important. But there are other
programs in the HUD budget that are equally important. And
those programs have to be emphasized also.
One of the aspects of the budget that the President set up
is that it represents a decrease in overall funding, I believe,
in looking at the numbers, and also in terms of some critical
programs. There is a chart up there that I would like to have
submitted for the record.
Senator Allard. Without objection.
Senator Reed. Thank you very much, Mr. Chairman.
It shows from 2001 to the proposed 2002 budget a fall-off
in the Section 8 program in new vouchers, a fall-off in tenant
protection grants, a zeroing-out of vouchers to disabled, and
certainly, that is an area that has not gone away and we have
to support and fund. And also a reduction in the Section 8
reserves. And in the formula grant program, for the HOME
program, that too has been reduced. That is one area of concern
in this budget.
A second area of concern is public housing. There has been,
and I commend you, an increase, I would say a modest increase
in operating funds. But there has been a reduction in capital
funding. And this means that for many Public Housing Agencies,
the ability, the flexibility to go in, to repair, to build, has
been severely eroded.
And I would also say in terms of the operating fund, that
is an increase and you cannot ignore that. But just in terms of
energy costs, which I foresee rising in the Northeast and
throughout the country over the next several years--California
is prominently displayed today, but I am sensing it up my way
as well--is that even that small increase in operating money
could be overwhelmed simply by the cost of buying energy for
public housing units.
When you look at the Drug Elimination Grant Program--and we
have police officers here today that would be the first to say
that this program has helped them, again, not so much to put
people in housing, but to build stronger communities--it has
been zeroed out entirely.
We are bedeviled by this whole drug problem. We are
spending billions of dollars, which we have all supported I
believe, to interdict supply in Columbia. We have planes flying
throughout South America, to help other air forces and,
tragically, that help this week cost two innocent lives.
But if we do not in our own communities deal with this
problem, then we are making, I think, a tremendous error. And I
think the Drug Elimination Grant Program is very important and
should be supported.
And then, the net funding overall, the last column in the
chart, suggests that we are not putting the kind of resources
into the public housing area that we should.
There are many concerns that I have with the budget. There
are concerns that I hope we can address during the course of
these hearings, Mr. Secretary. And also, as we go forward.
I am pleased that the President has recognized
homeownership tax credits. I have a version of a homeownership
tax credit which I hope we can discuss and I hope that I can
persuade you that my approach is just as good, maybe even
better, than the President's. That might be hard, but I will
try.
But I think it is important that in addition to our
traditional commitments to Section 8 housing and to public
housing, that we do try to inspire and create more
homeownership.
There is another area, too, that this year I believe we
will be engaged in. That is homelessness.
I was up in Providence, RI--and I would suspect, Mr.
Secretary, in Miami, in Atlanta, in Los Angeles, and San
Francisco, it is the same problem. We have social service
agencies that are not shelters, that are, unavoidably, I should
say, having people sleeping on their floors at night. I went
into the Traveler's Aid in Providence, RI in the middle of the
day and there were families sleeping in their community room
who had no place else to go. That is something we have to deal
with, too, and that requires money.
Let me thank you, Mr. Secretary, though, for your interest
in lead hazard reduction. We spoke about this and I am very
pleased that you were responsive and I hope we can carry on.
We have a lot to do and I think we are all fortunate that
we have an individual in your position, Mr. Secretary, who
wants to do the right thing, and I hope we can help you. And if
we get you more money, I hope you would not be too proud not to
accept it.
[Laughter.]
Because that is what I am going to be trying to do.
Thank you, Mr. Chairman. Again, I have to excuse myself
momentarily. I have a more complete statement which I would
like to submit for the record.
Senator Allard. Without objection.
Senator Reed. Thank you very much.
Senator Allard. The Senator from Wyoming, Senator Enzi.
STATEMENT OF SENATOR MICHAEL B. ENZI
Senator Enzi. Thank you, Mr. Chairman, for conducting this
hearing today to discuss the Department of Housing and Urban
Development's budget, but also, its program and management
priorities for fiscal year 2002. I would like to submit a more
complete formal statement for the record.
Senator Allard. Without objection.
Senator Enzi. I want to welcome Secretary Martinez to the
Subcommittee, as well as the other witnesses.
Your comments and commitment to housing and community
development has created a network of people nationwide that is
exciting and knowledgeable and will continue to encourage
community leaders nationwide to find solutions to their housing
and community development needs.
I do support the President's housing and community
development public policy goals in the fiscal year 2002 budget,
which shifts the focus of HUD to providing affordable housing
and promoting community and economic development. Nevertheless,
rural States like Wyoming need better assistance in
establishing homeownership opportunities for their
constituents.
I support the fiscal year 2002 housing initiatives to
promote homeownership opportunities such as increased tax
credits and homeownership down payment assistance. These
initiatives encourage Wyomingites to create strong communities
and sustain economic growth in my home State.
HUD's fiscal year 2002 budget ensures these consumers,
organizations, and manufacturers alike would enjoy reforms that
call for an increase of safe and affordable housing nationwide,
especially for more rural areas of our country like Wyoming.
These are some of the issues of concern that I would like
to address at a later date, such as facilitating better access
to affordable housing for the Arapaho and Shoshone tribes on
the Wind River Indian Reservation.
In addition, I am concerned about the effects of fraud,
waste and abuse at HUD. I have had a keen interest in the
measurable progress of management reforms in all Federal
agencies since I came to Washington. I have conducted Agency
visits for Occupational Safety and Health Administration, U.S.
Forest Service, and Small Business Administration, Internal
Revenue Service, the Federal Deposit Insurance Corporation to
discuss the implementation of the Government Performance and
Results Act, GPRA.
I would welcome the opportunity to come to HUD to begin the
GPRA discussions with you, Secretary Martinez. I believe that
GPRA's accountability and strategic planning measures assist
Federal agencies in effectively and efficiently accomplishing
their missions and gives credit to the people who do the work
as they serve the American people.
I do support the budget. I thank you, Secretary Martinez,
and the other witnesses for taking time out of your busy
schedules to meet with us today, and I look forward to further
discussing housing and community development issues with each
of you and your staff in the months to come. I do have another
commitment and will have to leave. I will be submitting some
questions to all of the witnesses today.
Thank you, Mr. Chairman.
Senator Allard. Thank you very much.
Now Senator Corzine from New Jersey.
STATEMENT OF SENATOR JON S. CORZINE
Senator Corzine. Thank you, Mr. Chairman. I have a more
formal statement that I would submit for the record.
Senator Allard. Without objection.
Senator Corzine. I want to thank the HUD Secretary for
joining us, and all the other witnesses. I think this is a very
important hearing you are holding.
As I think most of us know, HUD was sometimes considered
terminally ill, or certainly on the sick list in days gone by.
And it certainly moved to a substantial improvement in its
performance through the efforts of Congress, the Clinton
Administration, and I am sure also the efforts that the
Secretary will bring to bear as we go forward.
It is an important point of focus for the kinds of
innovations and opportunities that I think deal with the
problems of our cities that was really the basis of President
Kennedy's initiative with regard to us, and we have had great
progress.
I think close to 70 percent of our population has
homeownership now and it is a terrific move for everyone, for
African-American and Latino households, I think it is terrific.
But I am, as Senator Reed voiced, concerned about a number
of the budget cuts that are within the fiscal year 2002
proposal. I think it provides a very serious stepping back from
things that I think have been very successful.
As I might guess, I am particularly disturbed by the Public
Housing Drug Elimination Grant Program, which is eliminated
from the budget funding proposal. It was an initiative of my
predecessor, Frank Lautenberg, a very bipartisan initiative
from the first Bush Administration, and we think much more
effective than at least some of the commentary that I have
heard. So, I look forward to having some give and take with
regard to that program.
I am also concerned about the capital funding issues. I
think these housing issues, the community development programs
that are funded, are truly bipartisan issues that I think we
all have concerns about. And I would like to join Senator Reed
in trying to encourage greater resources to be flowing to
these.
In New Jersey, if I have read the budget right, this will
cost my State something like $32 million, adversely affect 80
housing agencies, 45,235 public housing units and 110,000 low
income and elderly households.
It makes a difference. It is real. It is on the ground.
People are touched by a lot of these programs. And I feel very
strongly that it is the responsibility of those of us on the
Subcommittee to understand the reasons. Thank you, Mr.
Chairman.
Senator Allard. The Senator from Delaware.
STATEMENT OF SENATOR THOMAS R. CARPER
Senator Carper. Just very briefly. Mr. Secretary, thank you
for joining us today.
There was a fellow who showed up in Delaware a couple of
weeks ago who said he was you and who talked a bit about the
budget.
I think it was the day that the President laid out the
budget that Senator Corzine is referring to. We just look
forward to hearing from you today.
As you know, the programs that you now have jurisdiction
over are ones that we value. We are not interested in cutting
the heart out of them. We want to make sure that we replicate
and reinforce the ones that are good, and the ones that ought
to be corrected, we do something about them. But thank you for
being here today. We look forward to your testimony.
We have another session going on over in the Capitol
dealing with some discussion on the education bill. So I may be
in and out of here today, but I welcome your presence. Thank
you.
Secretary Martinez. Thank you.
Senator Allard. Mr. Secretary, we do have Members who are
coming and going. As they come in, we will recognize them. They
can put their statements in the record when we get ready.
I see that we have the Senator here from Pennsylvania,
Senator Santorum. So we will go ahead and call on him next to
make a comment. And then we will recognize the Senator from
Maryland who has just walked in.
STATEMENT OF SENATOR RICK SANTORUM
Senator Santorum. Thank you, Mr. Chairman.
I just want to welcome you, Mr. Secretary. It is great to
see you here. Thank you for your fine service to the country
and I look forward to your testimony.
A couple comments have been raised by some of the Members
on the other side about some of the reductions in the budget.
And obviously, we have been hearing from my housing authorities
in Pennsylvania and concerns about the drug elimination, the
elimination of that funding.
I would just like to get your comments and your feedback on
that as to what the rationale was behind those programs. But we
are anxious to work with you and I know that you come here to
present your proposal, but you are willing to work. And we will
see what we can do to find the right balance between the
President's initiatives and the President's eliminations.
You have proposed some new things. You have taken some
things off the table. That is a good, innovative start and we
will work with you to see if we can craft a good balance
between what the Congress would like and what the White House
would like. Thank you.
Secretary Martinez. Thank you.
Senator Allard. The Senator from Maryland.
STATEMENT OF SENATOR PAUL S. SARBANES
Senator Sarbanes. Mr. Chairman, I want to thank you and
Senator Reed for scheduling this hearing and I want to welcome
the Secretary back before the Committee. I just want to make a
few comments about this HUD budget.
First of all, it has to be understood in a broader context
of the overall housing needs of the country. A HUD study itself
has found that almost five million very low-income American
households have worst-case needs. That means they pay over half
of their income in rent or live in severely substandard
housing. A more comprehensive study shows that almost 14
million families have worst-case needs, including 10 million
working elderly or disabled families.
I think we need to appreciate that there is a tough housing
problem out there for a lot of people. And while we tend, at
least some in the public, to think of the housing problem in
terms of homelessness, and while that is a very serious aspect
of it, there are a lot of working families or elderly people or
disabled families that are in dire straits with respect to
housing.
Obviously, we need to try to address this situation. And I
just feel that the budget that we are facing just does not rise
to the challenge. This is something that I have spoken to the
Secretary about before and will continue to do so. In fact, if
we look at the budget carefully, there are some very
substantial cuts in it.
Public housing is down. The Drug Elimination Grant Program
is terminated. Disabled vouchers are eliminated altogether. The
HOME formula grant, which has been successful in inducing State
and local people to contribute, has been reduced.
I just want to focus for a moment on this cut in the Public
Housing Capital Fund, 25 percent. I think $700 million, as I
recall the figure, which pays to modernize and make needed
repairs to public housing. Now I am concerned about this
because we have a stock of housing there, so that a large
initial investment has been made some time in the past.
And the question is, if we can repair it or modernize it,
we can keep that housing stock available and can continue to
meet housing needs. If we let it slide, eventually, we have to,
in effect, take it off the books. And then we come back to the
problem, well, where are we going to find the units to replace
it, often at very substantial higher cost.
As I understand it, Mr. Secretary, the Department defends
this cut by saying that there are unextended balances in the
Capital Fund. But our analysis shows that your own data show
that the Capital Funds are being spent well within the legal
time frames established in the Public Housing bill in 1998.
Obviously, you cannot expend it immediately. It depends a lot
on the local housing authorities to carry through on this.
We established some time frames to address this issue in
the earlier legislation. And my understanding is that these
balances that are being in effect pulled in are well within
those time frames. If I am incorrect about that, I hope you
will submit some information to substantiate that.
We do not want this housing to deteriorate and fall into
disrepair, people living in housing that is unfit. And
obviously, this will have a real and direct impact.
I was so concerned about this, I did a survey of some of
the housing authorities in my State, just to get some feedback
as to what their situation was. I did not want to talk about it
in the abstract. That is not fair to the Department. We wanted
to try to bring it down to the particular. So let me just give
you one example.
The housing authority in Washington County, MD, wrote back
to me to say that if the cut goes through, they will have to
shelve plans to install heat pumps in elderly housing. These
heat pumps would both save energy costs and provide needed air
conditioning relief to elderly housing residents who have
respiratory problems.
That is just one example. But we will interchange with the
Department and provide other examples as well. I was also, I
have to say to you, surprised and I strongly am opposed to the
termination of the Public Housing Drug Elimination Grant
Program.
This program provides needed funds for police and safety
officers and activities for drug prevention, including after-
school and mentoring programs. There are a number of police
officers here today from Baltimore City. I want to thank them
and the other officers for coming to this hearing to, in
effect, manifest their support for this program.
Now the budget states that the Drug Elimination Grant
Program is unnecessary because it is duplicative. Yet, your own
web page says that these funds support a number of critical
programs that, ``empower residents to turn the tide against
drugs and drug-related crime in their own communities.''
Now I do not know whether this is your web page or the web
page that is carried over from the previous Administration. But
you are going to be subjected to this analysis and you need to
get your web page and your budget on the same page. And from my
point of view, I would like to see the budget on the same page
with the web page and not the other way around.
[Laughter.]
Making public housing safe is indeed within the mission of
HUD and part of our obligation to housing. There are other
proposed cuts that concern me. I will just touch on them.
Termination of the rural housing and economic development
program. Reduction of HOME formula grants. Cut in new Section 8
vouchers. And so forth and so on. So, Mr. Secretary, we intend
to follow the Department's activities closely. We want you to
be able to do the job. I think you are committed to doing the
job. But you cannot do it without the resources.
I think we have to continue to engage in this struggle to
find these resources to do the job. This notion that--well, we
will do a little here and take a little from there. But, you
know, some of these programs, and the ones I focused on are the
ones that really are helping, in a sense, the neediest.
I really do not want to see this public housing deteriorate
because once that happens, you get on that downward slide, it
is just a spiral that carries you on down.
And both the Drug Elimination Grant Program and the capital
expenditure to bring them up to standards I think are extremely
important. We hope we would be able to visit with you and find
some way to put some funds back in these programs.
Thank you very much, Mr. Chairman.
Senator Allard. Now that all the Members have made their
opening statements, we will begin testimony.
Mr. Secretary, we are all looking forward to hearing your
comments this morning.
Secretary Martinez. Thank you, Senator.
Senator Allard. Thank you for joining us, Secretary
Martinez.
STATEMENT OF MEL MARTINEZ, SECRETARY
U.S. DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT
Secretary Martinez. Thank you, Chairman Allard, and thank
you, Members of the Committee.
Senators I appreciate this opportunity to be back before
you and to discuss the fiscal year 2002 budget for the
Department of Housing and Urban Development.
I must say that I continue to be both humbled and energized
by the challenges before me in this Department. The goal of
expanding housing opportunities for American families is one
that I strongly share in and am completely committed to.
The President and I are both committed to restoring the
confidence, however, of the Congress, of our constituents, and
of the American people in the operations of my Agency.
This budget, I think, is the first step in restoring that
confidence. It is a compassionate and responsible budget that
will allow us to serve people more effectively, empowering
individuals and communities across the country.
The American taxpayer will measure our success not by how
much money we spend, but how many families have a better home
and how many immigrants may get a chance to buy their first
house or how many children grow up in the kind of neighborhood
that we all want our children to grow up in.
The Department's proposed budget increases by 6.8 percent--
almost 7 percent. It includes three new homeownership
initiatives
to expand opportunities for hundreds of thousands of low-income
families. The American Dream Downpayment Fund will provide
$200 million to match downpayment assistance, helping more
than 130,000 low-income families achieve that American Dream
of homeownership.
We have also proposed a tax credit which will be operated
by the Department of the Treasury, which will support the
rehabilitation or construction of at least 100,000 new low-
income homes for families in the coming year.
This Administration will seek authority to offer low income
families new adjustable-rate mortgages, called Hybrid ARM's.
These new mortgages protect new homebuyers from dramatic
changes in the market rates until they can establish an
economic foothold.
Finding affordable and decent housing continues to be a
problem for many Americans. As has been mentioned, about five
million renter households have worst-case housing needs for
rental housing. This number represents an 8 percent decline,
but it is still an unacceptable number.
In order to expand the production of affordable housing,
President Bush proposes to raise the limits for FHA multifamily
lending by 25 percent. And this, by the way, is the first
increase in this lending in almost 10 years.
The budget renews all expiring Section 8 vouchers, at a
cost of $15.1 billion, and an increase of $2.2 billion over
fiscal year 2001. And it also funds an additional 34,000 new
Section 8 vouchers at an additional new cost of $200 million.
Market conditions can affect the utilization of vouchers.
But what we find is that the under-utilization of vouchers,
which is a problem across the country and has been a chronic
problem at this Agency, is a problem of mismanagement at the
public housing authority level.
This problem last year alone left 300,000 families without
assistance, for which there were vouchers funded by the
Congress. This is something that we must work on and the
supervision that we exercise over local housing authorities and
how they do their work.
This budget also fully funds last year's administrative
CDBG request of $4.4 billion. In addition to full formula
funding for CDBG, we will provide $80 million in grants for
community technology centers in economically distressed areas.
This Administration believes that no child should be left
behind and by increasing the access to information
technologies, we hope to shrink the digital divide in many of
our communities.
The budget recognizes the needs of the most vulnerable
people in our society--the elderly, the disabled, the homeless,
and individuals with AIDS. All of HUD's programs for these
vulnerable populations receive sustained levels of funding or
increased funding.
The budget also recognizes the damage done by lead-based
paint, especially to young people. And we have increased
funding for lead-based paint hazard reduction by $10 million.
While most of the Department's programs are funded at last
year's historically high levels, or have received an increase,
there have been a few programs that we have chosen to reduce
and these have been well publicized and we have heard about
them here today. But in order to restore the confidence in this
Department, I believe that we must continue to focus on our
core mission.
The first program that has been much talked about, and I
will try to respond to some of the comments here today, is the
Drug Elimination Grant Program. Let me say that I am, as is
every American, responsible American, should be extremely
committed to the drug fight.
When I was in local office and as a local elected official,
I did much to create a new intolerance for drugs in my
community. I began a wide-ranging drug testing program of
employees at the county level so that we could not just
identify problems, but that we could help people to move out of
addiction, to seek a better life, and to be healed from the
problems of addiction.
But what I have found here upon arrival at this Department
is that this is a program which started, as was mentioned,
during Secretary Kemp's tenure at the Department, with about $8
million and focused on certain housing authorities that had a
specific drug problem. But in classic fashion, this program has
now mushroomed to $309 million.
And let me just say that as a newcomer to Washington, I
think it is a little daring to eliminate a program called the
Drug Elimination Grant Program. By title alone, a program that
is destined to survive forever.
But the fact is that compassionate intentions have to be
really measured by compassionate results. And as you look at
this program and the results of this program, they are quite
mixed. So what we have done here is, number one, eliminate the
program so that it will give us one less program to manage at
HUD.
We put $150 million, or almost 50 percent of the funding,
under general grants to the housing authorities which will
continue to grow and will hopefully fund the good programs that
these good officers are here to support today. There are a
number of good programs that the Drug Elimination Grant Program
supports that have been successful across the country.
But there have also been abuses. And there have also been
programs that have taken us far afield into areas that, number
one, are at best, in the esoteric healing sort of arts, but
also have plain and simply been for foreign travel and things
that are far from the intention of the good people in the
Congress.
So what we have done is taken half the money and put it in
a general grant to the housing authorities for those places
where they have programs that work, so that they can continue
to work. But there is another thing that I would mention to
you, and maybe it is my perspective as a local official.
And that is that local law enforcement, local mayors and
local executives and local officials cannot have a different
standard for policing in the public areas of their communities
than they might have in other areas of their communities.
It is not up to HUD to be the local policeman or to fund
local police activities. I believe that these are shared
responsibilities of local officials and if we are really going
to seek to have a better day, we need to look for ways of
partnering with local officials on how we eliminate drugs in an
effective and courageous way.
The ``One-Strike-And-You're Out'' policy at HUD will
continue. We are in the midst of appeals on that. We have
encouraged the Department of Justice to continue to pursue that
so that we can rid public housing authorities of residents who
are more involved in drugs than they are in seeking to build a
better community.
Another reduction in our budget is the Public Housing
Capital Fund. And I appreciate the thoughtful comments that
have been made about the need for us to maintain the stock of
public housing.
Again, I draw on my local experience as a local housing
official. I can remember how vital it was to receive those
modernization funds. If we were going to fund a new roof, that
if we did not cover it pretty soon, the walls would also be
rotting, it would be a much greater maintenance headache and
problem. But even correcting it for inflation, that our housing
authorities could not utilize more than $2.3 billion in
modernization funds. And that is exactly the number that we are
seeking in this new budget.
The fact is that these are unencumbered funds. There will
be no single housing authority anywhere in the United States
that will have a roof unfixed, a water heater replaced that
should be replaced, or a kitchen modernized that should be
modernized, or any other weatherization, modernizations or
anything else that they have in their drawing plans.
Senator Sarbanes, as your local housing authority informed
you of what they felt would completely devastate them, the fact
is that these are funds that are accrued and unencumbered.
These are not funds that any housing authority would need to do
that which they need this coming year. It is just putting
unused funds on top of unused funds.
If we were to come to a year from now, have drawn down
these unspent balances, and found that we needed additional
funds for modernization, I would be here to ask you for it. I
believe it is important that we do not let our housing stock
deteriorate.
But what I am told, and I have asked it eight ways from
Sunday of the people behind me here, is there going to be a
single housing authority in America that will not be able to
fix a roof because of what we are doing here? The answer has
been, time and again, no, we will not.
So at some point, I have asked the question in every
conceivable way, as I have seen the criticisms and as I have
seen people concerned about this. The answer I have received,
very concisely, very clearly, is that these are funds that are
accruing on top of funds that are unspent, and that we will not
be jeopardizing the opportunities for local housing authorities
to maintain and upkeep in this coming year by this reduction.
At some point, I do believe that it is sensible to think
about whether or not the funds are needed, and whether they can
be absorbed. I am appreciative of the generosity, Senator Reed,
that you offer in terms of additional funds.
The fact is that I think some of the growth in this
Department's budget over the last couple of years are really
unsustainable in a responsible budgeting sense, but also
unabsorbable. I do not think that we can responsibly absorb 16
percent increases in a $30 billion budget and prudently go out
and manage those funds for you.
The fact is that as I have traveled the country and I have
visited with HUD offices that, by the way, for the first time
may be meeting a HUD Secretary, I am astonished at the
difficulties in man-
agement, at the misallocation of personnel and resources that
we
have at HUD throughout this country. So the ability of this
Agency
to manage an ever-expanding agenda of programs or ever-increas-
ing budgets in double-digit rates, I fear may not be
sustainable or
really appropriate.
But let me just say that we have labored mightily, I think,
to strengthen this Department over the last many years, but we
still have a ways to go. Too much emphasis has been put on
programs rather than people, on dollars spent rather than on
results accrued.
The President is openly and strongly committed to focus on
programs and an efficient Government that works. My approach to
the task will focus on four governing principles.
First, our mission will be to serve people, not programs.
Second, we will have the discipline to stick to our mission. We
must avoid mission-creep at HUD. Third, we will be good
stewards of our resources. Fourth, and this is important to me,
we will observe the highest ethical standards. This means more
than prosecuting graft. It also means rejecting the subtler
corruption of settling for good appearances rather than
insisting on good results.
This also includes the public housing authorities that
operate under local leadership. And let me just say that I am
going to ask for a renewed commitment by our mayors and local
officials to insist that we have well managed and ethically run
public housing authorities.
I have been astonished as I look at the daily clips from
across the country which show the number of troubled housing
agencies across America that are misspending and misutilizing
much of the funds that you send with good intentions to them,
and that oftentimes get diverted for inappropriate purposes.
So I look forward to working with the Congress on the many
issues that face HUD. The Congress has funded two important
Commissions--the Millennial Housing Commission and the
Commission on Affordable Housing and Health Care Facility Needs
for the 21st Century.
The Department is looking forward to the recommendations of
these Commissions. We are committed to continuing a strong
relationship with the Congress so that, together, we can make
effective and efficient use of the funds that you entrust upon
us and on behalf of the housing needs and the community
development needs of our country. Thank you.
Senator Allard. Thank you very much, Mr. Secretary.
According to your testimony we have a 7 percent increase in
overall spending at HUD. The rest of the budget has a 4 percent
increase. And you say that is a commitment to affordable
housing. I agree. That seems like a rather substantial
commitment to affordable housing.
You also noted that even though you have eliminated the
Drug Elimination Grant Program, per se, the dollars are still
there. You have moved them into a general grant. So that if a
local housing authority sees a need for drug intervention
purposes, they can use that in the housing authority. I assume
that is correct.
Secretary Martinez. Right.
Senator Allard. So those housing authorities that have come
to rely on that program can still use it. The point is that
there might be other communities that have needs other than
just drug enforcement and those dollars are flexible enough
that they can use it for whatever need they happen to have.
Secretary Martinez. Correct.
Senator Allard. You say that there is a total of $8 billion
of unspent dollars already in the public housing maintenance
account.
Secretary Martinez. Correct.
Senator Allard. I want to talk a little bit about the
dollars at HUD that are unobligated. Now the $8 billion that I
think has raised the concern of some of my colleagues is part
of the $96 billion of unspent but obligated funds. In other
words, they are obligated already to the program for
maintenance and operation.
Secretary Martinez. Absolutely.
Senator Allard. But I would point out to the Secretary and
also Members of this Committee, we have $12 billion of
unobligated dollars out there. In other words, they are not
tied in to any program. I would note that this information is
based on a GAO report that this Committee requested.
I am looking at the HUD total budget request for 2002,
which is $30 billion. By comparison, we have $12 billion of
unobligated and unspent dollars. In other words, for lack of a
better term, there is a slush fund over here. But if you
consider all of those dollars, there is about $108 billion in
the pipeline.
I do not know of any other Agency that has this kind of
accounting system. There is no way that we can blame you for
this. After all, this is a problem that you are taking on.
Secretary Martinez. My fear is that at some point, you will
be able to blame me and I am trying hard for that not to happen
at some point.
[Laughter.]
Senator Allard. This is my question. Does this concern you
and how do you deal with this large amount of unallocated
dollars?
Secretary Martinez. Well, it is a concern, Senator, and I
think that we need to move carefully to try to make sure that
we stay within structures as we receive funds from the
Congress.
The fact is that you are correct in the Drug Elimination
Grant Program and what you stated. We have seen over the years,
as you examine the records, the Office of Inspector General has
been critical of the uses of these funds in many of the
programs and the ways that they have been used.
Twenty-one audits of these funds showed the need for more
accountability of these funds. We identified approximately $18
million in unexpended funds that grantees were expending after
the grant termination date. In the same report, the audits
disclosed a combined $6.2 million in unsupported and ineligible
costs. That was from the 1999 OIG report on this particular
Drug Elimination Grant Program. And that is rife with those
kinds of problems.
There are many housing authorities that do not have a drug
problem, fortunately, thankfully. Many elderly, and it is not
the same situation as it might be in other cities.
And for those, these are funds that are not available to
them. So if we give them as an at-large grant, all authorities
can take part in it to the extent that they need them.
For the authorities that are managing the programs well and
have a successful drug program, the $150 million will still
allow them to continue those good programs.
But it enforces a certain discipline, a pocketbook
discipline, that will make them move out of the silly things
that they are doing with this money. Some are not only
unauthorized uses, but also fall in the category of poor
judgment. And so, those would be hopefully eliminated by the
stringent nature of the funding that we are giving them.
Senator Allard. Well, Mr. Secretary, I want to thank you
for that clarification. I just have a quick question here
before I call on the Ranking Member.
In Colorado, and across the country, local HUD offices
cannot make decisions because the decisionmaking process has
been centralized out of Washington. I think this is a mistake.
I would like to know what your views are on this matter and how
do you plan to decentralize decisionmaking during your tenure?
Secretary Martinez. Senator, I think it is a real serious
problem. It has become very acute and I have become very aware
of it as I have traveled.
I had a member of our staff in Kansas City tell me that
when he was Regional Manager of HUD in that area, that he felt
like he was a manager of a regional branch bank, is what he
thought it was likened to. He told me that now he has been
reduced to an ATM because he has no authority to make any
decisions.
I was in West Virginia last week and the HUD office there
was telling me, people in West Virginia, they have a public
housing issue and have a question for HUD and have to go to
Baltimore to have a decision reached. The fact is that
authority has been so centralized as to make HUD an ineffective
and inflexible Agency to deal with local problems.
We want to restore local autonomy in much of what HUD does
in the decisionmaking, with also accountability, of course, and
good check marks and guideposts. But the fact is that we need
to empower our local offices to do more of the decisionmaking
there to be a concentrated effort.
One of the management challenges that we have is, in the
same visit to West Virginia, I learned that out of the 25 or so
HUD employees there, only five report to the head of the HUD
office for the State of West Virginia. Some staff report to
Baltimore, other staff report to Kansas, and others report to
Philadelphia. It is difficult to run an Agency with that kind
of management fragmentation.
Some of this has been I think part of the 2020 management
reforms. I am very reluctant to initiate a new management wave
at HUD. But we are going to have to do some things to put back
local controls in management and decisionmaking, so that we can
be an effective Agency.
You see, this impacts our ability to get more production of
affordable housing. When you have a local developer who may
want to get into an affordable housing project, the local HUD
office cannot make a deal because they have to go back to
Washington and wait months for a reply, the fact is that those
deals go away.
Local developers have told me that they do not want to do
business with HUD. It is too inflexible, too difficult. And so
what occurs is that they go on and do business elsewhere and we
then do not have a continuing new stock of affordable housing
being constructed and we have people taking advantage of our
programs just simply because we are too difficult to do
business with.
Senator Allard. Thank you.
The Senator from Rhode Island, the Ranking Member.
Senator Reed. Mr. Chairman, I will yield to Senator
Sarbanes.
Senator Sarbanes. Well, thank you.
Senator Allard. Sure. That will be fine.
Senator Sarbanes. Thank you very much, Senator Reed.
Unfortunately, I am going to have to go to another hearing.
But I want to hang in here on this Public Housing Capital Fund
for just
a minute.
Secretary Martinez. Yes sir.
Senator Sarbanes. Because your analysis of the situation
does not jibe with the one I have made.
In 1998, we passed major public housing reform legislation.
Senator Mack of your State of Florida took the lead on that,
along with Congressman Lazio. I was pleased to join with them
in that effort. And in fact, it came out of this Committee I
think unanimously, as I recall, and very strong support in the
Congress.
One of the problems that legislation addressed was the
build-up of balances with respect to these capital monies. And
we set up timetables in order to try to address that situation,
both in terms of obligating the money and expending the money.
Now you are coming back and you are now arguing an entirely
different standard than what was set out in that legislation,
because these monies are within the standard, the 2 years for
obligation and the 2 years for expenditure.
The first fact to start with is that there is a huge
backlog of capital needs and public housing. There have been
public studies that have said as much as a $20 billion backlog
in needs.
You are saying, well, they cannot assimilate it, so we
cannot do more. We can only do so much. We cannot do more.
There is a limit on how much the public housing authorities can
assimilate. Not a bad point. It needs to be subjected to
careful analysis. The law allows 2 years for the funds to be
obligated, 2 years for the funds to be spent. Small housing
authorities have no time limit.
In addition, public housing authorities can apply to HUD
for a waiver on those time limits. Many have done so in order
to bank the money for larger projects. So part of the build-up
is an effort to bank the money to address larger projects.
There are always going to be unexpended balances when you
deal with capital programs. But the PHA's have been obligating
and spending their money on a regular schedule within the
allotted 4 years, which was a major reform of the 1998 Act.
In other words, this is not some new perception. The 1998
Act addressed the problem of what was then argued was too much
of a build-up in balances. And it set up a time frame within
which this situation was to be addressed.
That was a major reform. And it is one that Senator Mack
and Congressman Lazio pushed very hard. We were pleased to go
along with them in trying to accomplish that.
The housing authorities have to follow Federal procurement
procedures--competitive bidding, development of RFP's, documen-
tations, other processes. They cannot bid the work unless they
have the funds. They are trying in many instances to combine
Capital Funds with tax credits or other sources of leverage.
Now if you stop the money moving into the pipeline, you are
going to jeopardize some of those efforts.
PHA's have been increasingly innovative about using their
Capital Funds. Standard & Poor representatives met with
Committee staff and said that the proposed cuts may well create
fears of appropriation risk and therefore, raise the cost of
such effort or undermine them altogether in terms of drawing in
private money to help in this effort of capital renewal. And of
course, one of the key provisions in the 1998 reform law was to
encourage efforts to find additional non-Federal fund sources.
If some housing authorities are not spending timely, you
can recapture the money and redistribute it to high-performing
PHA's, which have of course pressing needs. We have asked the
Department actually for the names of the PHA's where spending
is not timely. We have not gotten that information. Apparently,
you may well not have that information. But we intend to
continue to press that issue with the Department.
From our analysis of HUD's records, everything is working
within the timeframe periods established by the 1998 Act. What
I want to be clear about is there was a big problem before the
1998 Act, which everyone conceded in the build-up of these
balances.
In order to address the build-up of those balances, we
established these time periods--2 years for obligation and
another 2 years for expenditure.
It is all working within that period. The 1997 funds have
been obligated and expended. The 1998 funds have been 100
percent obligated, 71 percent expended. The 1999 funds, 67
percent obligated, 38 percent expended.
The 2000 funds, the immediate funds, 18 percent thus far
obligated and only 5 percent spent. But they have a period
here, a timeframe within which to do this.
You are now coming along and looking at this timeframe and
saying, well, there is some money sort of floating around in
there and we are going to pull that money back in.
Now, conceivably, you are going to be here next year and I
will be here next year, and this flow is going to stop. And you
are going to grind this whole thing to a halt.
There is already concern that the effort to use these
funds, the assurance of these funds to attract private funds to
do the modernization, is going to be undermined.
So I think this analysis is missing the mark and
particularly missing the framework established by the 1998
major public housing reform act, in which Senator Mack, who of
course you know very well, very close to you--in fact, I think
I quoted his letter at your nomination hearing.
Secretary Martinez. You did.
Senator Sarbanes. Yes I did.
Secretary Martinez. You did.
Senator Sarbanes. I mean, this was a major Mack reform. Now
he is not with us any more, but I am going to stand up for
Senator Mack's reforms.
[Laughter.]
And I want to try to proceed according to the schedule he
set up, which seemed to make a lot of sense and has certainly
commanded unanimous support. You just cannot start drying up
this flow of capital monies. You are going to bring the whole
thing to a grinding halt.
I mean, the public housing authorities are already in
something of a panic. And if you have some public housing
authorities that cannot do the job, recapture the money and let
it go to those public housing authorities that can do the job
and who have these pressing needs.
Secretary Martinez. Senator, what I would offer is two or
three things in response.
Number one----
Senator Allard. Before you respond.
Secretary Martinez. Yes.
Senator Allard. I want to caution. The Senator from
Maryland has gone 3 minutes over his time allocation. And so,
as Chairman, I want to be careful. I want to give you an
adequate opportunity to respond, but I want to caution the
Senator from Maryland that we have other Members here that I
think have other appointments. I would like to get a round so
that everybody has an opportunity to ask questions. Please go
ahead and respond.
Secretary Martinez. I will be brief. The first thing I
would say, Senator, is that your office and you and I have had
a good working relationship in the months that we have had that
opportunity and I look forward to working with you so that we
can find a fair understanding of what this is about.
Now the second thing is, HUD, in March 2000, released a
report from Abt & Associates, a very respected research firm.
They concluded that in 1998 dollars, housing authorities'
capital needs for modernization were $2.03 billion.
Bringing those to 2002 dollars, our request is still within
the number of their report. Now----
Senator Sarbanes. Those are the needs for that year, not
the backlog of needs, are they not?
Secretary Martinez. Correct. So if we are funding the
current year needs, there is at some point a need for us to
acknowledge how much--I mean, these are the needs for a year.
This is what they can absorb in a year.
What I am suggesting to you is that there is no desire not
to allow housing authorities to do that which they could do.
But it is not a pulling back of funds. It is not a drying up of
the pipeline. It is not adding money that is unspent on top of
new money. In other words, not putting new money on top of
unspent money.
We need to be more comfortable with this whole discussion.
I intend for us to come back to you and try to explain and be
more responsive to your questions about the impact that it
could have on housing authorities. I do not think our intent is
one to deter the modernization or the upkeep of our stock of
public housing. But one of not wanting to accrue on top of
accrual.
Senator Allard. Fair enough. Senator----
Senator Sarbanes. Is it your position that the use of funds
is outside the parameters of the 1998 housing reform act?
Secretary Martinez. No sir, it is not.
Senator Sarbanes. That is all I want to know. Thank you.
Secretary Martinez. No, it is not.
Senator Allard. The Senator from Pennsylvania.
Senator Santorum. But you are very clear that you believe
that all the housing authorities will have all the money they
need and they can spend at the time, period.
Secretary Martinez. That is correct. This coming year, no
roof will go unfixed.
Senator Santorum. And just because the law says that the
money can sit around for a longer period of time does not mean
that they can spend that money.
Secretary Martinez. That is correct. Nor that we should add
money to it.
Senator Santorum. So the law is in fact a little broader
and more encompassing than really what we need to get these
agencies to be able to spend the money on a timely basis. Is
that correct?
Secretary Martinez. That is correct.
Senator Santorum. Okay. So that is what I think. So it is
not your intention to limit housing authorities' ability to
spend money on capital improvements.
Secretary Martinez. Correct.
Senator Santorum. You believe that fully funds all the
requirements that are out there.
Secretary Martinez. Now there is a historical, life-long
backlog.
Senator Santorum. I understand.
Secretary Martinez. And we cannot do anything about that
this year. We will do what we can on a year-to-year basis. But
on a year-to-year basis, the study from Abt & Associates told
us $2.3 billion is a good number.
Senator Santorum. I just have a question about something
that is a great interest of mine and I know you have an
interest in it, too. We are having a summit here on Capitol
Hill today of faith-based leaders from across the country. I
think there is almost a thousand up here on Capitol Hill today
to talk about the President's initiative.
I wanted to know if you had any initiatives that you are
pursuing within this budget to begin to implement the
President's vision on a Department basis.
As you know, we have the faith-based office in the White
House. But what is going on out in the Department? You are one
of the Departments that is the most affected by this policy
initiative, and I would like to know what you are doing on that
subject.
Secretary Martinez. Well, thank you for bringing that up.
We are very enthusiastically embracing the President's
initiative in this area. I think it bears great promise for the
opportunity of, as the President has said, releasing the armies
of compassion, of bringing more people from communities that
really make communities work into assisting Government in the
work that we are trying to do in helping build better
communities.
We have a $5 billion--million--billion/million. I am
getting to be a Washingtonian here.
[Laughter.]
A $5 million commitment in this new budget to be devoted to
the Office of Faith-Based Initiatives. HUD had an office
already, and a budget, so we have increased that budget to
account for what we need to be doing, given the President's new
initiative.
In fact, we are going to be setting up the web site for all
of this. We are going to be a clearinghouse for information.
The person who is going to be running that office just reported
on the job on Monday. We are very excited about what we can do.
As I have traveled around the country, you have to be
impressed by the number of faith-based organizations and the
things that they are doing in their communities to make them
work.
I know in your State of Pennsylvania, in Philadelphia,
Reverend Luske in Philadelphia is doing phenomenal things that
I saw from a charter school to housing initiatives to beyond
that. So there is a number of folks around the country that are
doing things that are much better than what Government could
ever do if we did it alone. I have great hopes for the program
and look forward to its implementation.
Senator Santorum. I have a few other questions that some of
my housing authorities have asked, I will submit those for the
record. If you could provide a written response, I would
appreciate it.
Secretary Martinez. Certainly, I would be happy to do that.
Senator Santorum. Thank you, Mr. Secretary.
Senator Allard. I thank the Senator from Pennsylvania. You
were well within your time limit.
The Senator from New Jersey.
Senator Corzine. Mr. Secretary, I continue to be a little
troubled about the Drug Elimination Grant Program, as I think I
expressed questions about that and your feelings about it in
your confirmation hearing.
I think there is a difference in how you are speaking about
it today than what you did at the time of the hearing. I think
your words were that you thought it contributed effectively to
progress in eliminating drugs in public housing.
I also then checked some of the objective factors of
whether the rate of crime is falling in a number of the public
housing authorities. And I think one of the later witnesses
will cite specific examples across the board.
In Asbury Park, NJ, drug-related crime has been reduced 22
percent through the 1990's. They would attribute a lot of that
to the public housing Drug Elimination Grant Program. I think
there is a whole series of these that are cited, as I said, by
a number of other groups.
Has there been an effective objective measurement of how
this program is working, rather than anecdotal impressions of
whether it has sometimes failed in certain areas, which I think
you have pointed out earlier in your testimony?
Have we matched funds with performance with regard to
reduction of crime or drug problems in the various programs?
And is not that something that should be done first before we
move to eliminate a program that in many people's eyes has been
effective?
Secretary Martinez. Senator, I am aware of your question
during my confirmation process. And let me say that, at that
time, I was, as I think you probably are, enamored with the
title of the program. And being one who believes strongly in
building strong communities requires drug-free communities, I
am certainly committed to the fact that public housing
authorities, that people who live in public housing should live
in drug-free environments.
And I know the blight that they can bring and I know what
public housing agencies have dealt with over the years in terms
of the drug problems in their communities. Let me just say
first of all that the President's budget is a budget for all of
America, in which there is a very strong commitment to fighting
drugs, almost $19 billion to the drug fight.
In the Department of Justice, in the Drug Czar's Office,
there are many programs that deal, and will deal directly, with
the drug issue. The fact is whether HUD has the capacity within
its mandate to also be a drug-fighting Agency and step into the
law enforcement arena.
There have been successes in many instances and this has
been a program which I think in many ways has benefited public
housing offices. One hundred and fifty million dollars of this
money will continue to be there for those good and worthwhile
programs.
But after I came to HUD, I began to see anecdotal evidence
because there is no study of successes. As is often the case,
those can be difficult to obtain and success can be measured in
different ways by different people. But I have just been
appalled by some of the uses that were made of this money.
I am particularly troubled, frankly, by the whole Gun Buy-
Back Program and all of that, which I think many law
enforcement folks would question the validity of it or the
beneficial effect of it.
I was also----
Senator Corzine. Of the $300 odd million that was spent on
the program last year, how much went to the Gun Buy-Back
Program?
Secretary Martinez. Senator, I do not know the exact
number, but it was a small amount because it was so ineffective
and so poorly managed. Fifteen million dollars went to that.
Let me say, that is a program that the GAO found was
probably outside the legal authority of the Congress for this
program to have. What I would say to you is that there should
not be a diminished commitment to fighting drugs in public
housing agencies.
What there must be is a concerted partnership with local
law enforcement, with $150 million that will still be there for
the good and worthwhile programs. I also believe that we have
gone far afield here from the core mission of what HUD should
be doing.
Senator Corzine. Again, my concern is anecdotes versus
study and objective evidence. That is one point. The other
point I would make is that this $150 million that we are
talking about, if I understand this correctly, either comes
from operating funds or Capital Funds. And we are talking about
reducing them if a particular housing authority wants to use
those for these purposes that have previously been a part of
the Drug Elimination Grant Program.
Secretary Martinez. No sir. They would be in a position to
use the funds. One hundred fifty million dollars would be
precisely devoted for at-large grants that at their own local
discretion, they can use for drug programs if they so choose.
They should not use the money for some of the things that
they have used it for in the past. And hopefully, we would have
the management ability to monitor those. But they can use them
for the drug programs if they choose to use them.
Senator Corzine. It would not be coming out of the
operating funds?
Secretary Martinez. It will be new money to their operating
fund grants. So there will be new money in there that they can
devote to the drug problem if they choose to do so. It is a
matter of prioritizing at the local level, letting them make
that decision.
Senator Allard. Senator Stabenow, you missed the opening
statements. You are welcome to make an opening statement and
then ask some questions. Or if, you want to just make it a part
of the record so that you have more time for your questions, we
can do it that way.
STATEMENT OF SENATOR DEBBIE STABENOW
Senator Stabenow. Thank you. I would like to do that.
Senator Allard. Without objection.
Senator Stabenow. Thank you, Mr. Chairman.
Mr. Secretary, it is a pleasure to see you again. And we
appreciate your being here.
Secretary Martinez. Thank you.
Senator Stabenow. In looking at the overall proposed budget
and the impact on the citizens that I represent in the State of
Michigan, I just want to share with you what you are proposing
and what I am told after analysis would happen in Michigan, and
the concern that I have.
The number of elderly households that would be affected by
the cuts that you are talking about are 14,398. So we have our
senior citizen households, those oftentimes most vulnerable,
who are impacted by what you are presenting. The number of low-
income people that would be affected by the cuts--44,320
people. The amount of reductions to the State of Michigan--
$17,772,330.
I want to indicate that for the record because that
certainly is of concern to me, as I have visited with
communities around Michigan and certainly, you have a standing
invitation to come in and see the good things that are being
done.
Secretary Martinez. Thank you.
Senator Stabenow. It sounds like you have been hearing a
lot about problems. I would love to share with you success
stories that are occurring in Michigan.
And the fact that over and over again, what I am hearing
about is a general deep concern about affordable housing. And
HUD plays a very significant role in that. I am concerned about
the direction that I am seeing in these numbers.
Specifically, when we talk about, first of all, the Capital
Fund, I would welcome your comments, but I also want to just
put forth the counter-argument when we are talking about
obligating funds and the time delay between an authorization,
we designate funds to be spent, and then when they are actually
spent.
This certainly is not new in Government. In the Department
of Transportation, we allocate funds for a project and they are
not expended immediately. It can take several years. That is
why we have a 5 year authorization for the Transportation
Department.
The Department of Defense does not spend all of the dollars
given in a particular project the year that it is given.
The Department of Energy--I could go on. And so, we all
know that in the area of capital improvements, Capital Funds,
that by the very nature, are spent over a series of years.
So I guess the question that I would have, first, would be,
it is my understanding that according to a recent study by
Arthur Andersen & Company, they have indicated that almost all
of the funds have been expended in a timely manner, not
necessarily in the same year, but in a timely manner.
And as Senator Sarbanes talked about with the reforms, the
housing reforms, that they are being done within the 4 years
that has been allocated as a reasonable timeframe for the
projects.
Are you saying, in fact, that that is not correct, that the
Arthur Andersen study was not correct? That in fact these are
not being obligated and spent within the timeframes allocated
under law?
Secretary Martinez. Senator, let me respond to several
issues that you raised.
First and foremost, let me say that as I have traveled the
country and in the time that I have been HUD Secretary, I have
been enormously impressed by the good things that are being
done around the country, by the incredible commitment of people
in local communities to help one another, to help those in
need. And those are the kinds of efforts that we want to make
sure that we encourage at HUD and that we build upon. So it is
not about the half-empty glass, but it really is about the
half-full glass.
So I am enormously encouraged and optimistic about what we
can do at HUD to bring affordable housing, to bring
opportunities to people.
Unfortunately, the Drug Elimination Grant Program does get
us talking in the negative. The fact is that the fight against
drugs is something to which we all should be committed, to
which I am terribly committed.
The question is that we also have a larger responsibility
to ensure that we are properly directing our funds not in
compassionate intentions, but with compassionate results. You
see, I think that we often maybe mistake a good idea and a good
intention with what really is helping people to achieve an
outcome that is desired by all. Your analyst and ours should
get together because we do not have the same fund of
information.
We did not create any cuts in elderly housing programs. So
if anyone from Michigan is telling you that elderly housing
will be cut under this budget, they are wrong. Period. End of
paragraph.
We have a $6 million increase to our elderly housing
programs in this budget for this year. Insofar as the funds for
the Capital Fund, these are not obligated funds in the pipeline
that have not been spent. These are unobligated, unallocated,
and unspent funds.
These are funds that we are not pulling back because they
were not spent. We are just not adding more than what Abt &
Associates has told us can be needed in any given year to
modernize and maintain the public housing stock. We are putting
all the money in it that is necessary to keep going forward
where we are. We are not adding to an unspent fund for
unallocated expenses more money than is needed for this coming
year.
Senator Stabenow. I would suggest that there is a real
difference of opinion on how that is viewed. And that, just as
in transportation practice, if you do not keep dollars in the
pipeline so that you can continue to move forward, at some
point, things stop.
And that has to be the result if you are pulling back on
dollars and given the incredible need as it relates to housing.
If there are dollars being pulled back in that Capital Fund,
then you are unable to plan and make decisions about the
future. And so, I think there is a real difference.
I understand that there are certainly legitimate concerns
that need to be addressed about efficiency. I also know that
given the pressure in this budget for dollars to be spent in
other areas, that there is a real pressure to cut in housing as
well as many, many other areas, and redirect money and do
accounting changes that take money out.
I really believe that what is happening here, is that there
are
efforts to pull dollars out overall of the system when we look
at
this. And that is of concern to me. Am I getting the high sign,
Mr. Chairman?
Senator Allard. You are a couple of minutes over.
Senator Stabenow. Okay.
Senator Allard. We need to move on.
Senator Stabenow. I will conclude and just indicate that I
also have a number of very specific examples under the Drug
Elimination Grant Program where crime has gone down in
communities that I represent very specifically, and hope that
you take another serious look at that because people's lives
are being affected. Children are safer. Families are safer as a
result of that program.
Thank you, Mr. Chairman.
Senator Allard. And I would ask that my chart be pulled
back up, if you would, please. In the meantime, I just want to
say that we are going to go into our second round.
Go ahead. I am sorry.
Senator Reed. Quite all right. Thank you, Mr. Chairman.
Mr. Secretary, let me try to cover some ground that we have
been plowing back and forth with respect to the Capital Funds.
As I understand the Abt report, it says that on an annual
basis, public housing authorities accrue $2.3 billion in
capital needs. Is that----
Secretary Martinez. Correct.
Senator Reed. But it also, I believe, says that on an
historical basis, there is a $20 billion backlog basis in
place.
Secretary Martinez. That is correct.
Senator Reed. You are leaving the impression that this
report specifically says that there is the ability to absorb
additional Capital Funds which is limited to $2.3 billion. Is
that what the Abt report says?
Secretary Martinez. No sir. I am not talking about the
ability to absorb. I am talking about the professed need on a
year-to-year basis. Given the number of housing units and given
what the allocations have been, that the Abt report suggests
that that is the number----
Senator Reed. But I think you are leaving the impression,
Mr. Secretary, that there is a limited capacity of public
housing authorities to use these funds on an annual basis, and
it is about $2.3 billion. Let me suggest, and we will ask Ms.
Glover from Atlanta for some first-person experience, but, in a
way, the way I conceptualize this, on an annual basis, there is
about $2.3 billion of newly deteriorated roofs. But there is
also $20 billion of roofs that deteriorated. And if you are a
public housing resident, you do not particularly care whether
the roof went bad this year and it is part of the $2.3 billion
or went bad 5 years ago because it is still a deteriorated
roof.
I think the point, the impression that you are leaving is
that there is just no way that these housing agencies can spend
more than $2.3 billion a year when in fact, we know there is
much more work to be done, and in fact, in the past, they have
been able to go above this total.
Secretary Martinez. I suppose the only way to totally fund
the problem is by funding $20 billion this year in this fund to
take care of all of the problems.
Senator Reed. No, Mr. Secretary. What I suggest you do is
not say that we cannot spend more than $2.3 billion. There is a
number between $2.3 and $20 billion that can be absorbed by
public housing authorities, that is needed by public housing
authorities, that will improve the lives of tenants in public
housing. And so the point, I think, the impression you are
leaving is that we are doing all we can, when in fact, we could
do much more.
If you would support, if this Administration would support
a $20 billion, one-time appropriation----
Secretary Martinez. Senator, I think that, as I said
earlier, the increases that HUD has received over the last
couple of years, I do not believe are sustainable over time in
any responsible way, either in the sense of responsible
budgeting or in the sense of responsible absorption. You see
the chart of unallocated funds.
So I think you make a good point. I understand. There are
public housing agencies with needs. And I think we are getting
at the problem. We are doing a sensible figure in our budget
that will allow us to repair and to do the maintenance things
that I think are needed on a year-to-year basis.
Senator Reed. Let me turn to another topic. And that is the
operating funds.
You have eliminated the Drug Elimination Grant Program and
that is something that is both a political and policy debate
about effective ways of preventing and eliminating drugs. But
as I understand the new concept, essentially you are increasing
PHA operating subsidies by $150 million. Local agencies can use
this for drug elimination grants if they choose. Is that
correct?
Secretary Martinez. Yes sir.
Senator Reed. But they also might have to use it for other
things, one of which is utility costs.
Secretary Martinez. Obviously, they have the local
prerogative to use it as they see fit. So it gives them local
autonomy in the utilization of the funds.
Senator Reed. I understand that. The reality that most
housing agencies--and it has been estimated, I believe, and I
think it might be anecdotal, but the utility costs are going to
go up somewhere around $350 million this year for public
housing authorities.
And you have taken away a program, a drug elimination
program, which was significant. You are putting up $150 million
extra that is going to cover increased utility costs, other
unexpected costs, and then, within that, they are expected to
replicate the drug elimination grants. I think the reality,
frankly, is, as much as they want to do it, it is a local
option that is not really an option.
Secretary Martinez. Senator, well, the utility cost issue
is one where we still must allocate funds on the basis of the
Department of Energy projections. And so, we are looking to the
Department of Energy for that guidance. The budget accounts for
what the Department of Energy has indicated to us was
appropriate.
Now we do recognize that there have been some incredible
increases in utility costs. And we responded this year within
the allocated funds to HUD with a $105 million emergency
allocation for utility costs.
We took care of the most dire problems with $50 or so
million in housing authorities in the western States and the
States that have been most affected by utility cost increases.
And then the additional $50 million went to all housing
authorities that had experienced utility cost increases.
Senator Reed. Mr. Secretary, just to follow up, because
this issue is a really important issue every place, not just
the west. Last year, you somehow through your accounts, came up
with $105 million. How much extra funding have you put in
specifically because of increased utility costs in this budget,
this year?
Secretary Martinez. It is formula-driven, given the
formulas
by which utility costs are factored into the cost of running
public
housing.
Senator Reed. If it is a formula, you have the numbers. You
ran the numbers through your budget. How much extra are you
going to have to commit?
Secretary Martinez. I do not have the specific number. I
would be happy to get it to you.
Senator Reed. Thank you, Mr. Secretary.
Senator Allard. For the Members of the Committee, I would
like to go through a second round of questioning. In order to
have time for the second panel, I am going to limit each Member
to 3 minutes. Then we will proceed to the second panel.
It amazes me, Mr. Secretary, that we have Members of this
Committee and we have Members of the Senate who frequently talk
about how supportive they are of local control.
Then in your budget, you reflect local control. You say you
do not cut drug enforcement, but you transfer it to general
funding. You give control to the local authorities to decide
how to best meet the needs of their community. I am
flabbergasted that whenever you make an effort to provide local
control, you get criticized for it.
I want to address briefly this matter of the Arthur
Andersen study. Many accounting reports that have come to this
Committee have been qualified opinions. These qualified
opinions, have helped make HUD an at-risk Agency.
The Inspector General, the GAO, the oversight agencies,
have all said that it is an agency at risk. Nearly every time
you ask an accountant to come in and they try to apply their
accounting principles, they cannot do it because they cannot
account for the dollars. Part of the reason that they cannot
account for the dollars is there is $12 billion out there that
is not obligated. They are just floating around out there.
I want to compliment you on your efforts to try to make an
accountable Agency, one that is going to focus on results and
one that the taxpayers of this country can feel that their
taxpayer dollars are being spent wisely.
In your testimony, you mentioned unauthorized funds, which
brought up a question I had on the Community Builders. They
comprise nearly 10 percent of the previous administration's
workforce. There was a lot of concern--in fact, we had a
hearing on the Community Builders. What have you decided to do
with the Community Builders Program?
Secretary Martinez. Senator, we are going to be changing
that program completely. We are not going to go forward with
it. We are going to be looking at how we reallocate the
resources of that program in a more broad-based area.
The fact is that we have a cadre of people that are
designed as the liaisons to local government, with unspecified
obligations, as I have talked to some of them. They have no
real job role. They are just there as a goodwill ambassador to
the communities. The fact is that we need to have a better
handle on how that work is done. We still need the manpower.
What we need to do is allocate it in a different way.
We are going to allow those people to have a more function-
oriented role, or programmatic role, while at the same time
asking really all of the leadership at HUD and the local
offices to be community partners, to be out there in the
community and doing the role of a community builder.
You have been through that territory, I do not need to
replow the reasoning. The fact is that it has been a huge
morale issue in the Agency and one of the reasons for changing
the titles and the way that operates is not only the
misallocation of resources, but also the fact that it has had a
very negative effect on the morale of the career people. And we
need their cooperation and support.
As you know, about 9,200 people work at HUD. Very few of
those are people that I will be bringing with me. We need to
make sure that the sense of mission of what we are trying to do
at HUD is going to be something that is shared by our workforce
and that they are enthused and motivated in their challenge.
And so, I think the changing of that program will bring that
about.
Senator Allard. The Senator from Rhode Island.
Senator Reed. Mr. Chairman, Senator Schumer has just
arrived. I would yield to him. I ask that he be given the full
5 minutes?
Senator Allard. Yes. I thought out of fairness, I would go
ahead and give him the full 5 minutes. I would ask that you
stay within the timeframe, if you would, please. We are trying
to move forward to another panel, and we are running out of
time.
STATEMENT OF SENATOR CHARLES E. SCHUMER
Senator Schumer. I thank you, Mr. Chairman, and appreciate
your fairness.
I thank the Secretary for being here and for his enthusiasm
and hard work in his few early months of the job.
I guess, like most of the people, at least on my side here,
I am really troubled by the cuts you have proposed. We estimate
that this will cost New York $160 million. That is a 25 percent
reduction in New York's Capital Fund dollars.
We have had a strong tradition of public housing in New
York. In New York City, something like 600,000 people live in
public housing, more than in most cities in the country. And
just like with your own home, when you cut back on capital
expenditures, you are going to pay a price.
One example is that Brooklyn's Williamsburg Houses received
$1.3 million to replace a 40-year-old heating system. In the
long run, the investment saves HUD money in that a newer system
is less likely to need repairs. It also adds to the benefit of
lower electricity bills. Why would anyone want to cut that?
And then it is very troubling to put the two funds
together. It is telling people, make a choice. Make your
housing project safe in terms of the drug-free initiative and
the safe-housing initiative, Drug Elimination Grant Program, or
$150 million for these kinds of things. Why are people being
put in that kind of position?
I do not know. These are hard-working people. Most of them
in New York City are the working poor. They work as hard as you
or me. They do not make much money. With the high cost of
housing in New York City, they have nowhere else to go if they
lose their home. And what we are saying is that somebody
getting a tax cut that makes $2 million, will now get $45,000
rather than $42,000, takes a greater priority than this. It is
just wacky to me.
I believe in tax cuts. But when tax cuts become the
overwhelming rationale, so that they take up the whole surplus,
so that you are put in a position, of saying you either get rid
of drug elimination or get rid of the Capital Fund, it is sad.
I would just like to ask the Secretary, does he recommend
to places like the Williamsburg Houses and all these others,
that they stop making investments? We are not asking to build
new public housing. We are asking to keep what we have, which
is a vital 50 year investment.
The cuts that we have made will prevent us from upgrading
them. What do you think?
Secretary Martinez. Senator, at the risk of having you
think less of me, let me just tell you that I am very
enthusiastic about the cuts we have made because they are where
they needed to be made, particularly in the Drug Elimination
Grant Program because I think it is a program flawed with
problems.
One hundred and fifty million dollars is being put in the
general Capital Grants so that they can be utilized for those
places that have a good drug program and they can use it for
that.
In addition to that, it is going to give local authorities
the local option of what to do. It is not a Hobson's Choice,
but it is a local option. They can decide in those places where
there is not a drug problem--and trust me, there are some
places in America where that is not the issue. The fact is that
they can use it for other needs.
Senator Schumer. I do not have a problem with that. What
about the places that have a drug problem?
Secretary Martinez. Okay.
Senator Schumer. That is a Hobson's Choice.
Secretary Martinez. The money is still there so that they
can continue those programs because, in addition to that, we
are not cutting the maintenance necessary--we have been in this
discussion now for sometime. And I am repeating myself, but for
your benefit, we are not cutting the monies that are needed to
carry out the maintenance programs that are upcoming in the
coming year.
We are cutting out of a backlog of unspent, unallocated
funds which, frankly, we are simply not asking to put money on
top of dollars that are already not allocated.
And let me just say, that a tax cut for Americans when
there is a surplus, after we have paid off our priorities,
after we have increased education by 16 percent, after we have
helped our military to modernize their payments to our people
so that they can not be on welfare as they are in the military,
and done all of our priorities. We then pay off the debt to the
most that can be paid.
Senator Schumer. And we are not talking about Medicare.
Secretary Martinez. We still have money left over for a
healthy tax cut that will help all Americans.
Senator Schumer. Let me ask you this. That is an easy thing
to say, we have enough for everybody. I would ask you this. If
the choice were--let us assume for the sake of argument,
upgrading the existing public housing with expenditures that
everyone agrees is necessary, 50-year-old boilers, outdated
wiring, et cetera, or a tax cut, if it were a choice, which
would you pick? If you had to make that choice? Because we may
read the budget differently than you.
Secretary Martinez. Senator, if there were people in public
housing today that did not have adequate public housing, that
they were suffering because of the conditions that they were
living in, and the choices were simply down to that, providing
for them, or get a tax cut, the fact is that that might not be
appropriate.
The fact of the matter is that with the current
projections, it depends on what you believe and who you
believe. But I do not believe that the debate today between
$1.2 trillion and $1.6 trillion is really going to mean that
there is someone in public housing in New York that is going to
go unassisted because of that tax cut, at whichever level you
agree upon. I presume that--at least I am led to believe that
there are some in your party that support a $1.2 trillion cut.
And I am going far afield from housing. But the fact is that--
--
Senator Schumer. It is all interrelated, Mr. Secretary.
[Laughter.]
But I thank you. We could go on. The Chairman has been
generous in his time. I was late.
Secretary Martinez. Thank you.
Senator Schumer. I appreciate your answer.
Senator Allard. We will go ahead and move on to our 3
minute time limit and call on the Senator from Rhode Island.
Do you want to allocate over to the Senator from New
Jersey?
Senator Reed. Why don't you go ahead?
Senator Corzine. I will be quick. As you might guess, I am
not totally convinced of the initiative with regard to the Drug
Elimination Grant Program.
My calculation says we had $309 million allocated there
last year. And even if the operating fund had $150 million set
aside for these kinds of purposes, it could be used for other
things, as Senator Reed did suggest.
I personally would love to have an objective study on the
effectiveness of this, not just the adequacy of reports.
Understanding whether this program worked or did not work. And
there is no question that one can justify most anything on
anecdotal information, including citing reduction of statistics
within certain areas.
Secretary Martinez. That is right.
Senator Corzine. But I do believe that a priority of local
folks, law enforcement and others, to provide the focus in an
area where it is a clear and present danger with regard to drug
practices, and it certainly is in New Jersey because I have
been touring a lot of the public housing projects to get a
sense of this issue as I have prepared myself for, not just
this meeting, but for housing issues in general. And there is a
serious drug problem in our public housing projects in a number
of places in New Jersey. This program by the people that are
running those programs at the local level is something that
they believe is very important.
Now we can call that anecdotal. What I would like to do,
would like to suggest, is that we have objective information
about this before we throw the baby out with the wash.
Secretary Martinez. I believe that crime data that allows
for--I mean, it is going to be very difficult to collect the
kind of data that you would need to have a meaningful study.
But I would say to you that this program, as with many
things, works in some places, does not work in others, has
worked beautifully in some instances and been well applied and
well administered. In other places, it has been horribly
misused. There has been a misallocation of funds. There has
been unauthorized use of the funds for things that are far
afield from what it was intended.
But I do not think that that should be the basis for us to
make a determination. It works well in some places. It does not
work well in others.
I think we have a broader philosophical issue about whether
the Department of Housing and Urban Development really ought to
be in the law enforcement business. Or whether we should focus
on the delivery of our housing programs and then allow law
enforcement, the Department of Justice, the drug czar's office
in partnership with local law enforcement, to work at the issue
of local law enforcement.
Some of the things that are done with this program in many
places is that they have an additional three or four policemen.
But if there are three or four policemen additionally that are
needed in that municipality, as coming from local office, I
would have felt a responsibility to provide for people in
public housing, just like I would for the fancy neighborhoods
of Orlando.
The fact is that local law enforcement has an obligation,
and if four more policemen are needed in a public housing
Agency, I think we should be talking to the mayor about why we
do not have them and why it takes a Federal program from
Washington, with new and separate funding, to allocate for
that, when in addition to that, they receive drug money from
any myriad of Federal programs.
In my local experience, I am here to tell you that there is
a number of pots that you can go to to get drug money, to fight
drugs. The HIDA areas that are designated as high-drug
intensity areas, they provide funding. The whole gamut of the
COPS program, they provide additional law enforcement
resources.
What I am saying is, it is a miscast for this Agency, in
addition to doing the things that we have as a core obligation
to do, that only we can do, to also be put into the law
enforcement area, where we now have one more program to manage
and where we are seeing monies being spent on things that I
think, Senator, you would not approve of.
Senator Corzine. Thank you.
Senator Allard. The Senator from Rhode Island.
Senator Reed. Just quickly, I want to follow up on Senator
Corzine's questions about the drug program.
But does that logic extend to your eviction programs? I
mean, you evict people who use drugs. So, clearly, you feel
responsibility in that sense.
Secretary Martinez. That is a landlord responsibility,
Senator.
Senator Reed. I agree with you.
Secretary Martinez. So I would hope that we have your
support in that.
Senator Reed. I agree with you. But that is something that
you might decide to say, well, that is law enforcement. That is
a landlord-tenant relationship and it is not HUD's province, et
cetera. I support that initiative, actually.
Secretary Martinez. And I do, too. I support it strongly.
And I support, frankly, us doing things that will help us make
our communities more drug-free. People that live in poverty
should not be--they are the most vulnerable. We need to help
them the most to see that we can get this drug issue out of
their lives.
Senator Reed. But you just said a moment ago that that is
not HUD's role at all.
Secretary Martinez. No. HUD's role--I am saying in terms of
administering yet one more program that is focused on law
enforcement activities, as is intended, by the way. It is
focused on a whole lot of things.
Senator Reed. It seems to me, Mr. Secretary, that the logic
for your cancellation of this program is that it is abused,
poorly managed at the local level, represents the misuse of
Federal dollars.
But your solution is to essentially give $150 million extra
to local communities to continue to do that, to say that if
they want to run a gun buy-back program, which I think is
absolutely a waste----
Secretary Martinez. No.
Senator Reed. Well, Mr. Secretary, that is what you have
been saying all morning. You said they have the choice now.
Secretary Martinez. I think the gun buy-back program is
something that was outside the legal authority provided by
Congress. And so, any time you have an expenditure in that
vein, I do not think it is going to ever be something that we
should be tolerating.
Senator Reed. But that is the logic that you have used to
eliminate this program. Rather than simply saying that the
program was misused by certain local authorities and they
should not be allowed to do that, but we continue the overall
program. You seem to say that the program does not work.
Secretary Martinez. It is a broader premise than that,
Senator. It is about the focus of our Agency and where it
should be.
And I understand--I think one positive thing is that we all
seem to have a shared concern for making our public housing
entities drug-free. And I think in that very positive note, we
should all work together to see how we can make that be a
reality.
Senator Reed. No one here will argue with you, Mr.
Secretary, on that point.
Senator Allard. I want to thank you. And I want to thank
you, Mr. Secretary.
As Chairman, I look forward to working with you. I think,
truly, you are trying to focus on those programs that HUD was
originally designed to work on and that is to provide
affordable housing, to help the poor and to help the
disadvantaged.
I believe that you are trying to enhance local control. And
I think that there is still an option there. You have not cut
the dollars for drug programs. If a community has that need,
they can meet it.
I am proud of the fact that you have a 7 percent budget
increase at HUD, with the rest of the budget increasing 4
percent. There is a strong commitment from this Administration
and from you to make this an accountable program that is
result-oriented. I think that is key, a result-oriented
program. I want to thank you for coming before the Committee.
We need to move to the second panel.
Secretary Martinez. If you would just indulge me for a
moment.
Senator Allard. Yes.
Secretary Martinez. And let me just say that,
unfortunately, I think too much of our conversation today was
focused on a small portion of what we are doing in this budget.
There is a lot of exciting, good, positive things that are
going on with this budget.
As you say, Government at large will grow at 4 percent. We
are (HUD) at 6.7 percent increase. But we are also very focused
on the whole issue of homeownership, bringing more
homeownership to more Americans, particularly in our minority
communities.
We have some exciting opportunities going on there. I
believe, Senator, that as we better manage this Agency, as we
become more accountable to what you want us to do, that we will
be more effective in delivering these services to those in
need.
So I am encouraged and excited and I appreciate your
indulgence in allowing me to not only come and explain our
budget, but also to have these last couple of minutes because I
think there is good news and there is a lot of positive news.
And while there are some areas in which we feel that fiscal
responsibility and proper management dictates that we do some
things, I think, overall, this is an increase. It is a positive
budget that will help many, many new American families taste
the dream of homeownership or for those to whom that dream is
not yet attainable, to be in safe and decent housing.
Thank you.
Senator Allard. Thank you, Mr. Secretary.
If the next panel would please come forward: Ms. Gaffney,
Mr. Czerwinski, Ms. Glover, and Ms. Sard.
While the panel is coming forward, I would like to enter
into the record written testimony from the Denver Housing
Authority. The Denver Housing Authority is one of the most
successful large housing authorities in the Nation and I value
their input.
I would like to get started with the panel. Ms. Gaffney,
you have been here before the Committee, and we always look
forward to your testimony. We look forward to what you have to
say today.
Mr. Czerwinski--welcome back--you will be next, and I
thought we would then move to Ms. Glover and Ms. Sard. Please
limit your testimony to 5 minutes apiece, if you would. We have
to watch our time here. The Committee probably will not have an
opportunity to ask as many questions as we would like, but we
will rotate around for our questioning period.
I would like to get the Committee adjourned by 12:25 p.m.,
if we possibly can. Would you agree to that?
Senator Reed. Surely.
Senator Allard. I would like to do that. There are only two
of us now, so there is hope.
[Laughter.]
We will go ahead and start with you, Ms. Gaffney.
STATEMENT OF SUSAN GAFFNEY, INSPECTOR GENERAL
U.S. DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT
Ms. Gaffney. Mr. Chairman, Senator Reed, thank you for
inviting me here today. You asked me to talk about challenges
at HUD from the IG's perspective. I have laid out three and I
would like to summarize them for you.
First, we believe there is an absolutely critical need to
tighten HUD's mission and to streamline its programs so that
for once you give HUD an opportunity to function effectively.
This is not a new idea. You will remember that Henry
Cisneros, back in--I think it was 1994--proposed a major
streamlining restructuring of HUD programs.
You will also remember that that proposal got nowhere. It
was overtaken by the Congress' delight with the idea of
downsizing the HUD staff and leaving the programs pretty much
intact.
There has been some progress in the intervening years. We
have NAHASDA, which eliminated a lot of individual Indian
housing programs.
We have the Quality Housing and Work Responsibility Act,
which certainly represented a step forward in terms of
consolidation within the public housing program.
But I do not think we have gone nearly far enough. And
HUD's ability to administer programs is now seriously out of
joint with the programs that HUD has to administer.
You need to consider not just eliminating programs. Not
just consolidating programs. Consider devolution of
responsibilities to other governmental entities. You need to
consider things like, for instance, FHA and Ginnie Mae, who are
nominally government corporations and whether there is not some
opportunity for them to operate in fact like government
corporations. That is kind of the fundamental need the OIG
sees.
The second need is organizational; Secretary Martinez
alluded to it. He is going to have to look at and probably make
some changes in HUD's organizational structure. I do not think
there is a right or wrong answer to how you organize anything.
The truth is, though, that right now, HUD is organized on a
pretty extreme model of central authority and control. It is
likely that, from what I have heard Mr. Martinez say, he will
want to change that.
And I would say to you, that is going to be difficult and
you should understand how difficult that is going to be in the
context of what HUD has already been through in terms of
reorganization.
The third major area of our concern is management issues.
And I think you have seen in my testimony that we are very
heartened that HUD has pointed out and said that they are going
to address three major management problems.
We agree that those are three major management problems.
Some progress has been made in each of them. But they are
intractable problems. And it is going to take a whole lot of
effort to get near solving them. Those three management
problems that are highlighted in HUD's budget are, first, the
mismatch between HUD's responsibilities and HUD's staffing.
I must be boring you because I have said the same thing for
8 years. But you know, I think there are people who think that,
oh, well, if you do not have enough staff, you can just go out
and
hire contractors.
Contracting out is not an easy answer. And we are now to
the point where we have contractors in HUD who are carrying out
inherently governmental functions. And I doubt very much that
that is limited to HUD. I think it is probably happening
Government-wide. Someone needs to face up to that issue.
The second management issue in the budget is trying to do
something about ensuring that rent subsidies that we pay are
correct.
And I am heartened that HUD is now taking a broad approach,
wanting to work with public housing authorities to make sure
rent calculations are correct, rather than limiting our efforts
just to income matching with Social Security and IRS data. I
think a more collaborative approach is a better approach.
Finally, the budget talks about the problems with FHA--
internal controls and systems.
And I have said this to you before. Fraud in the FHA
single-family program is rampant, is expanding, is a disgrace,
is victimizing the same people we are supposed to be helping
with that program, and something has to be done about it. And I
do not think it is that difficult. We just have to recognize it
and mobilize ourselves.
My final comment is, if we do nothing else at HUD, there
are two things that have to be done. First, we have to get
staff in line with their responsibilities. We have to make sure
we have the capability to administer the programs.
Second, we have to get the information systems in shape.
They are 20, 30, 40 years old. I think you should ask HUD
whether they have devoted enough money in their budget to do
that.
At the end of the last Administration, they regrouped. I
think they have an Information Technology organization now that
could move forward. But it is a very serious deficiency that
undermines everything HUD does.
Thank you.
Senator Allard. Mr. Czerwinski.
STATEMENT OF STANLEY J. CZERWINSKI
DIRECTOR, PHYSICAL INFRASTRUCTURE ISSUES
U.S. GENERAL ACCOUNTING OFFICE
Mr. Czerwinski. Thank you, Mr. Chairman.
Mr. Chairman, Mr. Reed, each of you individually requested
GAO to look at HUD's budget. We got HUD's budget about 2 weeks
ago. We have some preliminary observations to share with you
today. There has been a lot of debate over whether HUD's budget
is an increase or a decrease, and if so, how much?
And to be frank, plausible explanations can be made for
each case. In addition, program recipients have been interested
in how their programs are going to be affected.
My written statement discusses these issues. It also talks
about HUD's management of the budget process. In the interest
of time, I would like to focus today on the management issues,
because I believe they have significant impact on resources, as
that chart shows, Mr. Chairman, and how to use them.
As you pointed out, Mr. Chairman, unexpended balances is
the key. Unexpended balances are funds not yet spent, either by
HUD or the recipient. And these unused funds can be recaptured.
That is, swept up by HUD and then reprogrammed, either to other
programs or other recipients in the same program.
The information that HUD needs to do this is key. And then
taking action on the information is the other important step.
As the chart to your right shows, results have already been
significant. Three to four billion dollars in each of the last
few years has been recaptured. But if you notice, the
projection for this coming year is little or no recaptures. And
this is even though, as we have talked about, there are still
significant unexpended balances, with a rich vein of balances
from past budgets and, frankly, there is gold in this budget,
too. I want to point to one particular promising area, and that
is Section 8.
The Section 8 program has an unexpended balance that
carries over from year-to-year. This year's budget projects an
obligated balance in Section 8 that will be $4.2 billion for a
carry-over that is actually a legacy from the advanced
appropriation that was established a few years ago.
This $4.2 billion is for contracts that are coming due
during the first quarter of fiscal year 2003. HUD needs some
money to fund these contracts in the first 3 months of fiscal
year 2003, but two questions we think you should ask are: do we
want to fund 15 months of contracts with this year's
appropriation? And if we do, how much do we need to pay?
When you look at the chart showing HUD's total recaptures,
what you see is primarily funds HUD has been sweeping up from
Section 8 in the past. So then the question you may want to ask
is: how much of those recaptures should go to fund the 15 month
transition year?
The answer then determines how much extra money you will
have in HUD's budget. And frankly, those recapture numbers can
dwarf anything that we have talked about in overall proposed
increases and decreases for this coming year.
HUD itself has made significant progress in looking at
unexpended balances. They have identified targets of
opportunity: the Section 8 program that I have just mentioned,
both project-based and tenant-based. As Mr. Martinez mentioned,
the unused vouchers are something that you want to be looking
at.
We have also talked a lot about the housing Capital Fund.
Significant unexpended balances also exist there.
In addition, there are two other programs that HUD has
pointed to, and we think they are absolutely right to point
to--Section 202 and Community Development Block Grants.
But the problem is that HUD does not know exactly how much
is available in each of these program's unexpended balances and
where it exactly is. Yet, that is what good management
requires.
As I mentioned, Congress at times has come to HUD for
excess balances. But it has not been done in a systematic way.
It is nice to have such a bank. But in a bank, you want to
know how much is there and where it is. And we do not think
HUD's mission is to be our bank.
The last few years, at our urging and that of Congress, HUD
has begun to get a handle on its unexpended balances. But there
have been starts and stops along the way.
This Administration has signaled its intent that unexpended
balances are important to them. This budget matches that
intent, but it also sends a mixed signal. For example, we have
talked a lot about the Public Housing Capital Fund. As
Secretary Martinez pointed out, the idea is to use unexpended
balances to cushion cuts in that fund. There is a problem to
this.
The cuts are uniform across the board. However, unexpended
balances occur in some projects, some PHA's, and not others.
Typically, when you find an unexpended balance, it is the first
indicator of a management problem at that local level.
To remedy this, what HUD should consider doing is taking
unexpended balances from those projects and PHA's that have
them, yet may not be able to use them, and then distribute that
excess to those who need them.
Excess balances also signal where HUD should be looking to
help with management problems. Unfortunately, HUD lacks the
detailed information to identify the PHA's, the projects, the
plans, and the problems.
This is central to a request that we have just received
from you, Mr. Chairman. We have a team looking at public
housing management and, as you know, we plan to be reporting
back to you later this year with our suggestions on how to help
HUD improve PHA's management.
So, in conclusion, HUD is moving in the right direction. It
knows the programs and the targets of opportunity for
unexpended balances. It also, though, needs to go further and
take advantage of those targets of opportunity.
I think this hearing is really important because it signals
to HUD that the Congress is watching. In the past, oversight,
typically has been looking at programs or dollars, but not
both. This time you are looking at both programs and dollars. I
think that is a very key step forward in the progress of
managing this Agency, because I think that we will find that
there are dollars in HUD's unexpended balances and these
dollars can be used to serve the programs and the people who
need them.
That concludes my statement. I would be glad to answer any
questions you may have.
Senator Allard. Ms. Glover.
STATEMENT OF RENEE L. GLOVER
EXECUTIVE DIRECTOR, ATLANTA HOUSING AUTHORITY
AND PRESIDENT OF THE COUNCIL OF
LARGE PUBLIC HOUSING AUTHORITIES
Ms. Glover. Thank you.
Chairman Allard, Ranking Member Reed, and the other
distinguished Members of the Committee, I want to thank you for
this opportunity to provide from the practitioner's point of
view the
Department of Housing and Urban Development budget for fiscal
year 2002.
I have provided detailed written testimony which I am not
going to read to you today because I know, first of all, you
can read and it is a lot of detail and probably requires some
study.
First, I wanted to extend on behalf of the Council of Large
Public Housing Authorities and the other housing authorities
around the country our hand of partnership to Secretary Mel
Martinez and the other HUD officials, to Susan Gaffney and the
Office of Inspector General, and to the office of the General
Accounting Office and to you, so that we can provide excellent
housing. I think that for too long, we have been at odds with
each other and I think if we can work together, we can get more
done together.
Second, I want to extend the fact that we believe, and
certainly in Atlanta, that the public housing program can be an
excellent program without the stigma and the kind of debate
that goes on probably in every locality.
I have a document with me today that features a number of
our communities, and a number of our mixed-income communities
where we have leveraged our public housing dollars on a
leveraged basis of about 5:1.
And we are having a major impact in local communities and
doing community building. But most importantly, with
substantially improving the quality of life for the families.
We believe in the President's focus, and our own governor
has
focused very much on education. But place does matter and
envir-
onments do matter. And excellent housing is a key part of any
education strategy.
I want to also point out that in terms of what we have been
doing in Atlanta, under the old PHMAP (HUD's assessment)
system, the housing authority earned at the end of June 30,
1999, a perfect score of 100. And under the new, highly
contested PHAS's system, we have earned a 90.5 percent score.
And we also are free of all outstanding audit findings of
any sort, including the Inspector General, GAO, et cetera.
So I wanted to at least let you know that we are working
very hard and achieving great results. And I think this is
really true of so many of the agencies that are out there. But,
unfortunately, most housing authorities get painted with the
negative brush of a few offenders. And I think that is really
reflected in the proposed HUD budget. So I want to share with
you very quickly the perspective from a professional provider
of affordable housing.
First of all, the public housing program serves about 3.2
million very low-income families, including a million elderly
and disabled families, including veterans, and about 1.2
million children.
Most of these individuals earn well below 30 percent of
area median income. The reason I point that out is that the
families who are served by this program are not served by any
other program that is out there, not the low-income housing tax
credit program, not the private activity bonds, because,
typically, the families earn somewhere between 50 and 80
percent of area median income.
The incomes of families we serve in the program, either
through Section 8 or the public housing program, is well below
the 30 percent of area median income.
In fact, the average income of public housing assisted
families in Atlanta is equal to $8,600, about 13 percent of
metro area median income, which for a family of four, is about
$66,000.
As a result of the great prosperity that exists in the
country, and certainly Atlanta has enjoyed it as well, we are
experiencing a very high level of occupancy in the conventional
residential multifamily rental market. It is somewhere between
95 and 97 percent, which leaves about 3 percent vacancies to
provide housing opportunities for families.
In addition, the housing authority is at 99 percent
occupancy, which leaves about 1 percent vacancy, which also
shows the need. And we have already talked about the 5.4
million or so families who are paying in excess of 50 percent
of their income for housing.
In simple terms, we believe that the commitment that has
been made by the U.S. Government to the families and to housing
authorities is that the families in the public housing and
Section 8 programs will be able to pay 30 percent of their
adjusted income--which means in some cases, families are paying
as little as $50 a month for rent.
The differential, that is the difference between the cost
to operate and maintain and make capital improvements, will be
made up by the funding from HUD, either through the operating
subsidy or the Capital Fund.
The level of rent charged by the housing authorities is set
by Congress and by HUD's regulations. Housing authorities
cannot levy taxes. We cannot raise rents. We cannot do
financing against net operating income because there is none.
We cannot establish or maintain capital reserves under HUD's
regulations.
So this discussion is critically important because the fact
of the matter is that if Congress does not appropriate adequate
funding, we do not have the necessary resources to do what we
need to do to provide excellent housing to working poor
families, the elderly and disabled.
In addition, from our perspective, there is about a $1
billion cut proposed in the fiscal year 2002 budget. There is
$700 million of Capital Fund cuts proposed and the total
elimination of the Drug Elimination Grant Program of $310
million. In addition, housing authorities across the country--
--
Senator Allard. Excuse me. Can you summarize your statement
here so that we can move on.
Ms. Glover. Okay. Let me just do this very quickly.
Senator Allard. Okay.
Ms. Glover. There has been discussion about the $150
million of drug elimination money that is being made available
for operating subsidy purposes.
The fact of the matter is that there is about $300 to $400
million of excess utility costs. There is not an adjustment at
the end of the year to account for or absorb these excess
costs.
So notwithstanding that the $150 million has been proposed
as a choice available for housing authorities to do something
to combat drugs in their communities, the reality is that those
dollars will more likely than not be used to cover the
shortfall in utilities.
There is no adjustment at the end of the year, so if you
guess wrong against utility rates, that is a direct hit to the
operating subsidy--monies needed to operate and maintain the
properties.
In addition, in terms of the obligation and expenditure of
the Capital Funds, we believe, in Atlanta, all of our dollars
are being obligated and expended within the permitted
timetable.
The proposed cuts to the Capital Fund will result in a $5
to $6 million cut to our Capital Fund, which will in fact put
us in a position where we would have to make a choice about
which roofs get fixed and which do not. That is just the
reality of it.
There is no reallocation by HUD of the unobligated or
unexpended dollars to agencies who can get their monies
obligated and expended timely. The only thing I think there is
agreement about is that no system should be so complex that
there is this wide a difference in terms of understanding how
much unobligated money is out there.
In terms of the Drug Elimination Grant Program, I think it
is a classic case of if it ain't broke, don't fix it.
What I mean is that if there are abuses of the program,
then I think those particular abuses should be addressed. The
Drug Elimination Grant Program is not law enforcement. It is
enhancement of law enforcement and good property management
because, by doing the kind of additional security, working with
the law enforcement agencies, it allows local housing
authorities to do the evictions under the one strike and you
are out. It allows us to get the criminal trespassers and the
loiterers off of our properties, to do lighting, fencing,
gating, and et cetera.
There are a number of police officers here today from
Boston, Philadelphia, Washington, DC, to support the program
because it does work. And I think the cities are working with
the housing authorities. But it is a matter of again not being
able to pass increased costs for security improvements on
because we cannot raise rents. And I see that I am getting the
high sign.
Senator Allard. We are going to put your full statement in
the record. If you could just briefly summarize, please.
Ms. Glover. What I would like to summarize and say is the
program can be excellent. The monies are needed. I think if
there are abuses or issues, that the solution to those abuses
should not be eliminating the monies, but directing the focus
and concern of HUD's technical assistance to those areas. If
there are excess unobligated monies, reallocate them to
agencies that can obligate and spend the monies timely.
And I hope that the Senators and Congress and the U.S.
Government will continue to support the public housing assisted
and Section 8 programs. They are critically needed. They can be
excellent. But it takes resources to run those programs.
Thank you.
Senator Allard. Thank you, Ms. Glover.
Ms. Sard.
STATEMENT OF BARBARA SARD
DIRECTOR OF HOUSING POLICY
CENTER ON BUDGET AND POLICY PRIORITIES
Ms. Sard. Thank you, Senators Allard and Reed, for having
this hearing today. I will try to be brief, having the slight
honor of being the last speaker.
Despite the strong economy during much of the 1990's, as of
1999, there still were 4.9 million households that are renters,
that have very low incomes, and that pay more than half their
income for housing or live in severely substandard housing.
Indeed, one sixth of all households in the United States are
renters that have moderate or severe housing problems--one
sixth.
Relatively few of these families will benefit from the
Administration's home ownership initiatives, as praiseworthy as
those may be.
Many people do not want to own a home, at least at this
particular stage in their lives. Maybe later, not today. And
for many others, they may want to, but it is not financially
feasible. Their need is rental housing.
We have heard a lot about how rising tides will lift all
boats and that if everyone just goes to work, their housing
problems will be solved. Unfortunately, that is not true. Many
of the households with the greatest need for assisted housing
are elderly or disabled. And most of the others are in fact
working. Eighty percent of the nonelderly, nondisabled
households with worst-case needs were working in 1999.
Some of the studies of welfare reform throw some light on
why earnings are not sufficient to render housing affordable.
Typically, those studies show that families earn about $3,500
per quarter. Even if they worked full-time year-round, which is
unlikely, that would mean $14,000 a year.
For the average two-bedroom apartment in the United States,
if your income is $14,000 a year, you must pay more than 50
percent of your income for rent. In fact, a family needs
$25,000 per year to be able to afford average rental housing in
this country. And in the areas where you gentlemen are from,
they need more.
So to make housing affordable, more families simply need
housing vouchers. For more than three-fourths of the families
with worst-case needs, their only problem is housing
affordability. They could use a voucher where they are, and
their housing problem would be solved.
A growing number of studies of welfare reform show that
having affordable housing enhances the effectiveness of welfare
reform efforts, helps families go to work, helps them earn
more, and responds to what the Senator said at the beginning
about measuring HUD's programs in terms of how they increase
self-sufficiency.
But in addition to vouchers, we also need new major
investments to produce more housing, new construction as well
as rehabilitation. Vacancy rates are too low in many areas for
what is considered a healthy housing market.
In Denver, there were two recent studies showing that in
the city, the vacancy rate was only 4.7 percent, leading to an
increase of more than 8 percent in the last year alone in
rents. And outside of metropolitan Denver, the vacancy rate had
fallen to 3.2 percent. With such tight markets, rents are bound
to rise--basic law of supply and demand.
In addition, the market tightness has reduced the number of
units available to families with vouchers, and it has been a
particular problem in suburbs where jobs are growing. So,
again, these housing problems tie together with self-
sufficiency.
Turning to the HUD budget, the Administration's only
proposal that is directed at improving the situation of very
low-income renters is the proposed increase of 33,700 vouchers.
Now, we support that. We think that that is an important,
positive step. But it simply does not go far enough in terms of
the unmet needs. It is less than 40 percent of the 87,000
voucher increase that we saw last year. My written testimony
explains that in more detail.
The proposed increase of $2.2 billion to renew expiring
Section 8 contracts is something of a mirage. It looks good
until one looks at it closely. And then it disappears.
No additional families are aided by that $2.2 billion
increase. Indeed, it looks to us like the budget under-
estimates the dollars needed for full renewal because it is
counting on taking $640 million away from housing agencies that
have been part of their reserves in order to meet the renewal
needs.
Now the reserves is a complicated issue. But the short
story is that agencies are funded based on their former year's
costs. If their costs go up, they need to draw on reserves.
I am told that in Denver, the Agency has had to already use
all 2 months of its reserve and cut its program as a result.
And so, this renewal budget, while it says it is full renewal,
we are very concerned that is only on paper and the budget will
in fact create a reduction in the number of families with
housing vouchers.
In this era of budget surpluses, we can and should help
pro-
vide more families with decent, affordable housing that they
simply
cannot obtain on the private market. A greater share of house-
holds with worst-case housing needs is working than ever
before,
but their earnings are not sufficient to enable them to obtain
decent housing.
Lack of affordable housing may lessen the success of
welfare reform by making it more difficult for families to
obtain and retain employment.
If we really want to leave no child behind, as the
President has urged, we should increase our investment in low-
income housing substantially, through production and
rehabilitation of rental housing and additional housing
vouchers.
Thank you.
Senator Allard. Thank you very much for your testimony.
If it is all right with the Ranking Member, I thought we
would give each of us 5 minutes and then wrap it up.
Senator Reed. Sure.
Senator Allard. Mr. Czerwinski, what is the history of
HUD's budget increases from 1998 to the present?
Mr. Czerwinski. There has been a steady increase in the
budget over that time.
Senator Allard. A steady increase in the amount of
increases, or every year we have had increases?
Mr. Czerwinski. Over all that time, there has been an
increase. I think there was 1 year that there was a dip. But
overall, it has been increasing.
Senator Allard. Do you have an average in mind?
Mr. Czerwinski. I think we are talking about in the single
digits per year.
Senator Allard. Six, seven percent, something like that?
Mr. Czerwinski. That is a fair number.
Senator Allard. And is the proposed HUD budget an increase
or a decrease?
Mr. Czerwinski. It depends on how you look at it. You can
get increases or decreases, depending on the assumptions. And I
would want to go back to the point that I made in my statement.
We are arguing over maybe--it may sound odd--a relatively small
number, like a billion or two here or there. The point is that,
we have much more than a billion or two sitting out there in
the unexpended balances. And that is what I would urge you to
look at.
Senator Allard. Now in actual dollars, without adjustments
from year-to-year, is there an increase in spending?
Mr. Czerwinski. There is an increase in requested budget
authority. I do not know that you want to go down this road,
though.
Senator Allard. Okay.
Mr. Czerwinski. Because we will start getting into all of
these appropriation and budgeting terms. There has been an
increase in requested discretionary budget authority. Then you
have to look at the assumptions behind the request. A point
that I tried to make in my statement is that it really is in
the eye of the beholder.
Senator Allard. Okay. That explains some of the arguments
that we are having.
Senator Reed. That is right.
[Laughter.]
Mr. Czerwinski. And I do not want to be in the middle.
[Laughter.]
Senator Allard. Would you please explain to the Committee
how much unexpended money there is at HUD and why?
Mr. Czerwinski. Sure. I do not mind getting in the middle
of that one.
Senator Allard. Okay.
Mr. Czerwinski. There is approximately $100 billion of
unexpended funds at HUD. And the reason for this is that HUD
gets a very large share of its money in no-year appropriations,
which means it can carry over from 1 year to the next.
These monies are usually tied to a lot of long-term
obligations--let's take the Section 8 program for an example--
the contracts can be up to 30, 40 years. Those obligations are
then tied to assumptions that we make about what is going to
happen in the future.
HUD has made assumptions about what rents are going to
cost. As they should, they have been cautious, and assume
things would maybe cost little more than they sometimes turn
out. And that is prudent. What needs to be done, though, is HUD
should periodically revisit these assumptions, comparing them
with actual costs, and sweeping out the difference. That has
not been done routinely.
Senator Allard. That is what we were having you do here
with your report.
Mr. Czerwinski. Absolutely.
Senator Allard. You reported $12 billion in unobligated
funds.
Mr. Czerwinski. That is unobligated at HUD. That is the
small wedge on the chart to your right. That is not to say that
all of that is recapturable.
You have to look at those on a case-by-case basis. That
requires the information systems we have talked about. In
addition, the bigger piece of the pie, the $96 billion, that is
obligated by HUD. But then you have to look at, whether the
recipients have obligated that money or not. If it is
unobligated, then you have to think about why, how long, what
purposes, what plans? And again, that becomes a case-by-case
basis.
HUD has done a very good job of identifying the programs to
look at. Section 8, both project- and tenant-based. Housing
Capital Fund, CDBG, and Section 202. Those are the greatest
targets of opportunity. What HUD has not done as well, though,
is give you the detailed information that you need to make
decisions about what you want to recapture, what you want to
reprogram, how much you have, and where.
Senator Allard. What should the Agency do about the
unobligated dollars?
Mr. Czerwinski. The Agency needs to essentially integrate
their budgeting, their planning, and their program management
processes, so that they have information about the unexpended
balances: the reasons why those balances are there, the causes
at the programmatic levels so that they can help recipients who
are not spending their funds. A lot of times, unspent money is
an indicator of a local capacity problem.
They then have to take that information and money and put
them back in the planning process, and reprioritize.
Senator Allard. What can the Congress do about it?
Mr. Czerwinski. Well, the Congress can do what you did last
fall when you held your hearing on HUD's management. Also,
exactly what you are doing today: zeroing in on a key piece of
HUD's management. And what you have talked about doing with us
in the future: HUD's priorities and how they are going to try
to achieve them. The oversight that you are exercising is
probably the most important thing.
The second thing that the Congress can do is once it gets
the information it needs, you have to make some hard decisions
as to what you want to do with that money.
Senator Allard. The Senator from Rhode Island.
Senator Reed. Thank you very much, Mr. Chairman.
Mr. Czerwinski, let me follow up. When you calculated the
unobligated funds, your assumptions were no increase--I am
asking. This is not a conclusion. Did you assume no increase in
the number of people being served in the Section 8 program, a
constant total?
Mr. Czerwinski. Actually, when we calculated that chart, we
only looked back and we saw how much already was there. That is
what is sitting there right now. That number is as of the end
of fiscal year 2000. So we did not have to make any assumptions
at all.
Senator Reed. But why is it unobligated, then? Let me ask a
very simple and maybe naive question.
Mr. Czerwinski. The reason why it is unobligated, ties into
the multiyear and no-year appropriations HUD receives and the
nature of the programs that HUD runs.
Senator Reed. So as you look forward, and as HUD looks
forward, they have this pile of money.
Mr. Czerwinski. Yes.
Senator Reed. But as they look forward, are they preparing,
or are you preparing for an increase in the number of people
served, or expecting that the population will stay constant and
the costs will go up on a certain slope?
Mr. Czerwinski. The question you ask is a very good one. It
is actually at the heart of what HUD needs to do as it goes to
the next step that we have been talking about.
They need to look at what the true needs are, which assumes
a projection of what is going to happen. Then they have to say,
given those needs, what is prudent, what is cautious, what do I
need to set aside? That will then use up some of the expended
balances. Once they have done that, they then need to say, and
here's the rest that I have left over.
Senator Reed. But your conclusion is that they do not have
the management tools yet to make those fine judgments. Is that
fair?
Mr. Czerwinski. Yes.
Senator Reed. But there is at least a theoretical
possibility that all of those unobligated funds can and will be
used to fund Sec-
tion 8 vouchers in a reasonable, prudent and efficient way.
Mr. Czerwinski. In the terms of Section 8 vouchers, the way
that would play out----
Senator Reed. Or project-based Section 8.
Mr. Czerwinski. Either one is a good example. The way that
would play out is--let's take the vouchers. That is probably a
simpler example. The way that would play out is that you would
see an increased number of vouchers that you could fund.
Senator Reed. Going back to Ms. Sard and I think Ms.
Glover, what it also says is that the demand seems to be out
there. I mean, there are lots of people.
Mr. Czerwinski. Absolutely. And I am really glad you made
that connection. Actually, when Ms. Sard was talking, I was
thinking about that very point.
There are tremendous unmet needs. We have all agreed to
that. And that is the shame of it: we have some resources that
our process has allowed to be essentially set aside. And it is
time to bring them out and make our decisions.
We may decide to take that money, as has often been done in
the past, and use it for a different purpose. Or it may be that
the decision is made to apply it to housing. That goes back to
the heart of the question that you are asking.
Senator Reed. It does, and that is a decision that we have
to make. But actually, I do not think, and I do not want to put
words in your mouth, that you want to leave the impression that
there is this pile of money sitting at HUD that never can be
used, that never will be used, that serves no purpose other
than just cluttering up their offices. I mean, frankly----
Mr. Czerwinski. HUD is not getting rich on this.
Senator Reed. Down the line, we could make or they could
make the policy decision that they have identified excesses in
certain cases and they could apply those excesses to increased
vouchers, increased projects, to meet their core mission, which
is to house America.
Mr. Czerwinski. Yes, exactly. And if you go back to the
chart that we showed, that HUD already has been doing that to a
certain extent. Our point is that is a great first step. But it
has to become part of their routine process, and they need to
continue and do it even more.
Senator Reed. Fine. And I think your analysis, as always,
has been very helpful.
Ms. Glover, thank you for your testimony. As always, it is
been very well presented. And I want to thank the police
officers for joining us today. I feel very secure.
[Laughter.]
You indicated that the effect of this cut on your capital
expenditures is that you will actually lose money this year. Is
that correct? Did I hear you correctly?
Ms. Glover. For fiscal year 2002, we will lose about $5 to
$6 million, period.
Senator Reed. Now the other issue that I went back and
forth on with the Secretary is, if, through some magical
recalculation of the budget, we are able to offer you more
money, could you use that effectively for capital expenditures?
Ms. Glover. Absolutely.
Senator Reed. What is your backlog down there?
Ms. Glover. We have about a $250 million backlog.
Senator Reed. And that is roofs and windows and all sorts--
--
Ms. Glover. All of the things. We conducted a so-called
``physical needs assessment'' of the entire stock.
Now we have been wearing away at it. When I started in
1994, we had about a half-billion dollar backlog. We are
working through that backlog now.
Senator Allard. Have you submitted that request to HUD?
Ms. Glover. What, for the $250 million?
Senator Allard. What you are talking about, the backlog. Is
that a request that you have made to HUD?
Ms. Glover. Well, HUD is aware of the overall physical
needs assessment. And in fact, I think all of the agencies have
rolled that information in, which ties into that overall $22
billion accrued backlog, if you will.
Senator Reed. Let me, Ms. Gaffney, address a question to
you.
I think I heard the Secretary basically conclude his
justification for the elimination of the Drug Elimination Grant
Program is that HUD should not be involved in law enforcement
activities. Would you say that Operation Safe Home is a law
enforcement activity?
Ms. Gaffney. The part of Operation Safe Home that deals
with drug trafficking and violent crime is absolutely law
enforcement.
Senator Reed. So the Secretary seems to be saying, on the
one hand, when it comes to drug elimination grants, which I
tend to be sympathetic to Ms. Glover's characterization as
really a complement to law enforcement, should be eliminated
because they are not part of the HUD mission.
But when it comes to the Operation Safe Home Program, for
which I understand there is $10 million specially set-aside
from the operation budget for, that law enforcement mission
should be pursued. If I am right, we are either wrong on one
count or wrong on the other count.
Ms. Gaffney. They actually are two different functions.
Could I clarify one thing, though, about drug elimination
grants? And if I am wrong about this, Renee will be able to
tell me.
The last time I looked at the allocation of funds under the
Drug Elimination Grant Program, almost 50 percent of the funds
were not at all related to law enforcement. They were related
to drug treatment, prevention--and that is just a point of
clarification I would like to make in this discussion.
Senator Reed. Well, I appreciate that, Ms. Gaffney, because
it tends to undercut the Secretary's characterization of it as
a law enforcement program.
Ms. Gaffney. Well, I am not trying to argue one way or
another. I am just trying to state the facts.
Senator Reed. Thank you.
Ms. Gaffney. And with respect to the difference between
Safe Home and the law enforcement purposes of drug elimination,
as Renee said, typically, the drug elimination grant funds are
being used for supplemental community policing, for additional
security with local law enforcement.
Operation Safe Home is geared to working with Federal and
local law enforcement on discrete criminal investigations.
Senator Reed. Well, you can see my confusion here.
Ms. Gaffney. Yes.
Senator Reed. Thank you, Ms. Gaffney.
Senator Allard. Very good. I want to thank the panel. I
want to thank the Ranking Member for his cooperation.
Before we adjourn, I would like to note that the record
will remain open for 10 days, should other Members wish to
submit statements or questions for the witnesses.
I would appreciate it if the witnesses would respond within
10 days of receiving questions.
With that, again, thank you for your testimony. We very
much appreciate it. It was a good hearing. We stand adjourned.
[Whereupon, at 12:30 p.m., the hearing was adjourned.]
[Prepared statements, response to written questions, and
additional material supplied for the record follow:]
PREPARED STATEMENT OF SENATOR JACK REED
Senator Reed, Mr. Chairman, I rise today to discuss an issue of
critical importance to our Nation; the housing crisis in America.
Despite the economic prosperity that our country has experienced, many
Americans are still struggling with the lack of safe and affordable
housing. The economic surge that our country has undergone has had the
unintended effect of tightening up housing markets and driving up
rents, and unfortunately, wages have not been keeping up. As a result,
the number of affordable apartments has dramatically declined in many
communities.
In my home State of Rhode Island, a recent National Low Income
Housing Coalition report estimated that the average rent for a two-
bedroom apartment in Rhode Island was at least $638 a month. Forty-six
percent of Rhode Islanders are unable to afford this rent without
spending over 30 percent of their income on housing. In terms of
homeownership, the average sales price of a home went up by $24,000
between 1999 and 2000. In the same period, the number of houses on the
market decreased by over 50 percent, and only 25 percent of these homes
were affordable to low-income families.
However, this housing affordability crisis affects citizens all
over the Nation, not just in New England. The latest HUD worst case
housing needs study indicates that there are over 4.9 million very low-
income Americans who pay more than 50 percent of their income for rent.
In addition, a more expansive study done by the National Housing
Conference, the mortgage bankers, and others shows that 14 percent or
13.7 million American families have worst case housing needs. Ten
million of these people are elderly or work full or part-time.
Unfortunately, the President's budget proposal ignores this
reality. Although the Administration claims that the HUD budget is
being increased by 7 percent, upon closer examination, this does not
appear to be true. Once you remove the approximately $4 billion
increase in budget authority for renewal of Section 8 rental contracts,
the President's budget actually cuts housing programs by $1.7 billion
or
6 percent. If you factor in inflation, the budget cuts housing programs
by $2.2 billion, which is an 8 percent real spending decrease compared
to last year.
These general conclusions appear to be confirmed by the specifics.
First, there is an $859 million net cut for public housing--which is
not even listed as a core HUD program in the budget. Next, the $310
million cut in the Public Housing Drug Elimination Program (PHDEP), a
flexible, community-based program that has been helping local housing
agencies develop comprehensive anticrime and antidrug strategies.
Finally, there has been a cut in Section 8 reserves by $640 million--
from
2 months to 1 month), and a cut in Section 8 housing vouchers of $358
million (49,000 incremental, 8,000 disabled, and 10,000 tenant
protection vouchers.
At a time of record budget surpluses, we should be increasing
funding for affordable housing programs and community development, not
cutting them. In addition, we should be creating a housing production
program that helps build new affordable housing. As more and more
communities are realizing, vouchers only work if there are apartments
to use them on.
Many of us also believe that the expansion of homeownership
opportunities represents one of the best possible opportunities for
disadvantaged groups to build
family wealth and economic security. As a result, I plan to reintroduce
the homeownership tax credit bill I introduced last Congress. I believe
that the tax code is one of the most effective tools we have to
stimulate an increase in homeownership. My bill would provide a tax
credit to lenders extending low- or zero-interest second mortgages to
lower income families--helping to make homeownership a reality for
about 500,000 new families over 10 years. I am glad that the President
has also shown interest in a type of homeownership tax credit. However,
President Bush's proposal appears to go only to certain low-income
communities for building or rehabilitating homes, while my bill is
targeted at helping low-income families live wherever they would like
to live. That being said, these approaches could prove in many ways to
be complementary in expanding homeownership for low-income families.
We also need to solve our homelessness problem. This winter in
Rhode Island, nearly three thousand people had to sleep on the floor of
a homeless facility because there were not enough beds. Congress passed
the McKinney-Vento Homeless Assistance Act to deal with the ``crisis''
of homelessness. Instead, we have come to realize that McKinney funding
is being used to provide a safety net not only for those who are
homeless, but also for those not being adequately served by mainstream
housing and social programs. Within the next few weeks, I plan to
introduce legislation that will reauthorize the McKinney-Vento Act,
increase funding for HUD's homelessness programs, set aside a
substantial amount of money for the creation of permanent housing for
the disabled homeless, and realign the incentives behind our HUD's
homelessness programs. We should be trying to prevent and end
homelessness, not institutionalizing it.
I also would like to commend the Administration for increasing
funding for HUD's Office of Lead Hazard Control by $10 million.
Nonetheless, much more needs to be done. I, and a number of my
colleagues, believe that this number should be much higher. No family
in this country should be forced to live in housing that can cause
permanent brain damage to their children.
Finally, we also need to deal with some of the economic issues that
are making it difficult for people to obtain safe and affordable
housing. Most workers earning the minimum wage do not earn enough
working 40 hours a week, 52 weeks a year, to pay for adequate housing.
Unless they are lucky enough to be in some type of subsidized housing
program, most minimum wage workers must pay almost all of their $10,700
a year income toward their rent. Job training, day care, and health
care are also part of the solution to the housing affordability crisis.
However, policies in all of these areas are going to be
dramatically impacted by the President's tax cut proposal. Thus, I hope
that today's testimony will help everyone here reflect on how a better
balance might be achieved between tax relief and providing appropriate
funding for the provision of decent, safe and affordable housing for
some of our country's most vulnerable citizens.
----------
PREPARED STATEMENT OF SENATOR MICHAEL B. ENZI
Thank you, Mr. Chairman, for conducting this hearing today to
discuss the U.S. Department of Housing and Urban Development's Program,
Budget, and Management Priorities for Fiscal Year 2002. I want to
welcome Secretary Martinez to the Subcommittee as well as the other
witnesses. Secretary Martinez's commitment to housing and community
development has created a network of people nationwide that is excited
and knowledgeable about these public policy issues. I am heartened that
this excitement and knowledge will continue to encourage community
leaders nationwide to find solutions to their housing and community
development needs.
Homeownership is often portrayed as an integral part of the
``American Dream.'' Raising the homeownership rate is the goal and
desire of most community leaders and social activists in this country.
As an economic indicator, the housing market component impacts many
sectors of the economy. Homeownership can improve the economy by making
citizens self-sufficient and more stable. Homeownership rates have
increased nationally over the past couple of years. Industry sources
predict the market to continue to grow, though slowed somewhat by
decreased demand. Increases in housing sales coupled with the high rate
of homeownership point to a healthy outlook for the U.S. housing
industry.
I believe the HUD fiscal year 2002 budget is a perfect example of
President Bush's goals in proposing a compassionate yet responsible
budget for the U.S. Department of Housing and Urban Development. On one
hand, the budget provides approximately $2 billion in additional
funding to promote homeownership among low-income and minority
families, to expand the number of families served by HUD's rental
subsidy programs, and to cover increased costs of HUD's existing
housing programs. At the same time, the budget emphasizes
responsibility by slowing the overall growth in HUD's spending,
minimizing the number of new initiatives that undermine HUD's capacity
to administer its core programs and taking steps to improve the
efficiency of HUD's existing programs. I support the President's
housing and community development public policy goals in the fiscal
year 2002 budget which shift the focus of HUD to providing affordable
housing and promoting community and economic development.
In my home State of Wyoming, approximately 70 percent of the
population own homes, ranking Wyoming 22nd among the 50 States.
Nevertheless, rural States need better assistance in establishing
homeownership opportunities for their constituents. I support the
President's initiative to promote homeownership opportunities by
proposing a $1.7 billion tax credit that will support the
rehabilitation or new construction of an estimated 100,000 homes of
purchase by low-income households over a 5 year period and the $200
million to provide homeownership down payment assistance to 130,000
low-income, first-time homebuyers. These programmatic increases will
assist Wyomingites in creating strong communities and sustaining
economic growth in my home State. In addition, I support the
elimination of $25 million for Rural Housing and Economic Development
because I agree that the U.S. Department of Agriculture should be
designated as the primary Agency to administer rural housing needs.
This Agency consolidation will allow USDA to better administer housing
dollars to rural areas like Wyoming.
Some States have begun housing and community development policy
reforms on their own admission. Because Wyoming does not have one
single State housing Agency, Wyomingites have mobilized their
initiatives in order to ensure greater homeownership in my State. For
example, HUD, the Wyoming Community Development Association, Habitat
for Humanity, Housing Partners Incorporated, Fannie Mae, and the Bureau
of Indian Affairs have come together to create an Indian Housing
Coordinating Committee in order to facilitate better access to
affordable housing for the Arapaho and Shoshone tribes on the Wind
River Indian Reserva-
tion. With this strong partnership at the local level, Wyomingites will
be able to
better access both private and Government dollars to ensure an increase
of afford-
able housing and community and economic development in our State. I
believe
that HUD's fiscal year 2002 budget ensures these consumers,
organizations, and
manufacturers alike would enjoy reforms that call for an increase of
safe and
affordable housing nationwide, especially for the more rural areas of
our country
like Wyoming.
I am concerned about the effects of fraud, waste and abuse at HUD.
I have had a keen interest in the measurable progress of management
reforms in all Federal agencies since I came to Washington in 1997. I
have conducted Agency visits at the
Occupational Safety and Health Administration, the U.S. Forest Service,
Small
Business Administration, Internal Revenue Service, and Federal Deposit
Insurance Corporation to discuss each Agency's implementation of the
Government Performance and Results Act (GPRA). I would welcome the
opportunity to come to HUD to begin these GPRA discussions with you,
Secretary Martinez. I believe GPRA's accountability and strategic
planning measures assist Federal agencies in effectively and
efficiently accomplishing their missions--to serve the American people.
In closing, I support HUD's fiscal year 2002 budget. Thank you,
Secretary Martinez, and the other witnesses for taking time out of your
busy schedules to meet with us today. I definitely look forward to
further discussing housing and community development issues with each
of you and your staff in the months to come.
----------
PREPARED STATEMENT OF SENATOR JON CORZINE
Chairman Allard, I want to thank both you and Senator Reed for
holding this hearing this morning and I also want to welcome and thank
the witnesses who are here today to testify before the Committee, most
notably HUD Secretary Martinez. Welcome.
As many know, the Department of Housing and Urban Development was
an Agency once considered to be terminally ill. It had been a poster
child for mismanagement, abuse and scandal, and it struggled mightily
to meet its important mission of providing decent, safe, affordable
housing to all Americans and the economic development and
revitalization of American communities. But today, HUD has begun to
improve. HUD has sought to transform itself to more closely resemble
the Agency that President Kennedy, who upon establishing HUD in the
1960's envisioned would provide a focal point for thought and
innovation and imagination about the problems of our cities.
With the help of Congress and the Clinton Administration, HUD has
sought to restore its credibility by remaining singularly focused on
improving services for
the poor, low-income and working-class families, the disabled and
senior citizens.
It has transformed itself by launching new-market initiatives;
integrating lower-
income communities into the free market and creating renewal
initiatives that spur
private sector investment in both urban and rural communities. HUD has
also
helped America reach its highest homeownership rate ever--67.7
percent--and in the process helped African-American and Latino
households attain record levels of homeownership.
There is a great deal of work to do, administrative oversight,
management issues and incidences of fraud--most notably in the FHA
203(k) program and in the Officer and Teacher Next Door Program have
made recent news. But I personally believe that, overall, HUD has begun
to turn the corner. But I fear now that we may be reverting back to the
type of policy and budget making decisions which led HUD to its
ineffectiveness back in the 1980's. A period when the Agency, and its
resources, where used as spare parts to fund other priorities of those
administrations.
The fiscal year 2002 HUD budget--while conservative--is totally
lacking in compassion and will do harm to 2.8 million low-income
American families. While I have problems with several elements
contained in this budget, including the cut to what I believe is an
underfunded Capital Fund, what I find most disconcerting is the plan to
eliminate the Public Housing Drug Elimination Program (PHDEP).
This program has provided much-needed resources to bolster safety
in public housing through crime prevention, law enforcement, security,
intervention programs, resident patrols, treatment and other related
activities. Last week, I visited a housing authority in Atlantic City
and heard, and more importantly witnessed, why we must not allow this
program to be eliminated. The Drug Elimination Program has worked--and
it has helped change the quality of life for the residents of our
Nation's public housing.
To that end, I plan on introducing a resolution to Congress that
will seek to keep the Drug Elimination Program fully funded. This
program has historically been supported in a bipartisan manner and I
feel strongly that we as a Congress must affirm our commitment to
reducing crime and drug use and ensure that public housing residents
and their children are not left behind.
Mr. Secretary, the cuts to the Capital Fund and elimination of the
Drug Elimination Program will cost my State of New Jersey $32 million
dollars. And they will adversely affect 80 housing agencies, 45,235
public housing units and 110,000 low-income and elderly households that
rely upon them. These cuts are flat-out wrong. I urge you to revisit
these flawed elements of your budget plan and continue the work of
restoring the credibility of this agency.
I thank you, Mr. Chairman.
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PREPARED STATEMENT OF SENATOR PAUL S. SARBANES
I want to start by saying how much I appreciate the effort made by
Senator Reed to have this hearing scheduled as soon as possible, and I
want to thank Senator Allard for his cooperation in this effort. I also
welcome back Secretary Martinez and thank him for appearing.
The HUD budget has to be understood in the broader context of the
overall housing needs in this country. A HUD study found that almost 5
million very low-income American households have worst-case needs. This
means 5 million families pay over half of their income in rent or live
in severely substandard housing. A more comprehensive study shows that
almost 14 million families, or 14 percent of all American households,
actually have worst-case needs. This number includes 10 million
working, elderly, or disabled families.
In this era of great prosperity, when we in Congress are debating
how to use a projected surplus of trillions of dollars, it is a
national disgrace that this many families, including working families,
are unable to afford decent and safe housing.
This is not an academic concern. These families live in constant
fear of homelessness. They are often forced to move from one apartment
to another, or to move in with a relative. These temporary arrangements
undermine the ability of their children to get a good education, or
their own efforts to get job training and take advantage of new
opportunities. Affordable housing in a safe neighborhood is the first
step we must take to help people achieve economic and social self-
sufficiency.
Looking at the HUD budget through the eyes of these 14 million
households makes it clear that the Administration's proposal is sorely
inadequate. The proposal for fiscal year 2002 cuts almost all the core
HUD programs. As we can see in the charts, public housing is down; the
Drug Elimination Program is terminated; new housing vouchers are down;
disabled vouchers are eliminated altogether; the HOME formula grant is
cut. I want to spend a moment to discuss the 25 percent cut to the
Public Housing Capital Fund. The Capital Fund pays to modernize and
make needed repairs to public housing.
HUD defends this cut by saying there are unexpended balances in the
Capital Fund. HUD's own data show that Capital Funds are being spent
well within the legal time frames established in the bipartisan public
housing bill in 1998.
The Government has an obligation to ensure that Federally assisted
housing is not left to deteriorate and fall into disrepair. This cut
guarantees that some public housing residents will live in housing that
is unfit. The impact of this cut will be real and direct and felt by
residents of public housing.
For example, the housing authority in Washington County, MD has
written me to say that, if the cut goes through, he will have to shelve
plans to install heat pumps for elderly housing residents. Heat pumps
would both save energy costs, and provide needed air conditioning
relief to elderly housing residents who have respiratory problems.
I am also surprised by and strongly opposed to the proposed
termination of the Public Housing Drug Elimination Program. This
program provides needed funds for police and safety officers and
activities for drug prevention such as after-school and mentoring
programs. We have a number of police officers from Baltimore City here
today, and I want to thank them and the other officers for coming to
today's hearing to show their support for this program.
The budget states that the Drug Elimination Program is unnecessary
because it is duplicative. However, HUD's own web page says that these
funds support a number of critical programs that empower residents to
turn the tide against drugs and drug-related crime in their own
communities. This cut would mean that housing authority police officers
would be laid off, after-school centers shut down, and safety
improvements left unmade. Making public housing safe is indeed within
the mission of HUD, and part of our obligation in providing housing to
families in need. There are other proposed cuts that concern me, cuts
such as the termination of the Rural Housing and Economic Development
Program, the reduction of HOME formula grants by $200 million and the
cut in new Section 8 vouchers and in reserves, which could lead to the
reduction in the number of families receiving assistance.
I believe that we need to do more, and that we can do more. At a
time when many people have prospered in the growing economy, too many
have been left out of the boom. We have an obligation to make sure that
they are not left out of the Federal budget as well.
----------
PREPARED STATEMENT OF MEL MARTINEZ
Secretary, U.S. Department of Housing and Urban Development
April 25, 2001
Chairman Allard, Ranking Member Reed, and distinguished Members of
the Committee, thank you for this opportunity to discuss the Department
of Housing and Urban Development's budget for fiscal year 2002.
I am both humbled and energized by the challenges that face us, in
this Department and this Nation, as we work to improve housing and
expand opportunities for families seeking to move ahead. President Bush
and I are committed to restoring the confidence of the Congress the
Department's constituents, and the American people in the operation of
this Agency.
This budget is the first step toward restoring that confidence. It
is a compassionate and responsible budget that will allow us to serve
people more effectively, empowering individuals and communities across
this great land. We cannot face this challenge alone. We look forward
to the support of this Congress and particularly this Subcommittee to
accomplish this.
The American taxpayer will measure our success not by how much
money we spend, but by how many families have a better home, by how
many immigrants get the chance to buy their first house, and by how
many children grow up in the kind of neighborhood we all want to live
in.
Our existing programs must operate efficiently and effectively
before we create additional programs. Over the past 2 decades, the
Department has grown to include more than 300 programs. Simply adding
new Government programs does not necessarily improve the lives of the
citizens who need the most help.
The Administration's overall growth for Federal spending of 4
percent is a responsible and appropriate level. Nevertheless, the
President also recognizes that we have an obligation to increase
homeownership opportunities and serve those that cannot afford decent
housing. The Department of Housing and Urban Development's proposed
budget requests an increases of nearly 7 percent in budget authority
for fiscal year 2002.
Buying a home is the biggest investment most families ever make. By
building equity in a home families can pass on wealth from one
generation to the next, can provide for a child's higher education, or
can access venture capital for small businesses--all the while
strengthening their communities. All Americans should have these
opportunities, no matter the color of their skin.
Nearly 70 percent of all families have come to realize the American
Dream and own their own home. Yet, despite this record number of
homeownership, there are still communities that lag behind: less than
half of African-American and Hispanic-American families own their
homes.
We can do better. We need to tear down barriers to homeownership
for families that are financially able to sustain homeownership.
President Bush's budget includes three new homeownership initiatives to
expand opportunities for hundreds of thousands of low-income and
minority families.
The ``American Dream Downpayment Fund'' provides $200 million to
match down payment assistance, helping more than 130,000 low-income
families overcome the single greatest obstacle to homeownership.
President Bush also proposes a tax credit to support the rehabilitation
or construction of at least 100,000 homes for low-income families over
the next 5 years. The Administration will seek authority to offer low-
income families new adjustable-rate mortgages that protect new
homebuyers from dramatic changes in market rates until they can
establish an economic foothold. The American Homeownership and Economic
Opportunity Act of 2000 provided low-income families the ability to use
rental vouchers for down payment on a home. President Bush proposes to
make this provision permanent and not subject to appropriations,
enabling the Department to help more low-income families become
homeowners. This builds on the existing authority to use vouchers for
mortgage payments.
Finding affordable and decent housing continues to be a problem for
many Americans. Almost five million very low-income renter households
have ``worst case needs'' for rental housing. While this number
represents an 8 percent decline from 1997 to 1999, it is still
unacceptable.
In order to expand the production of affordable housing, President
Bush proposes to raise the limits for FHA multifamily insurance by 25
percent. This is the first increase in nearly 10 years and will help
spur the development of affordable housing in moderate to high cost
urban areas.
We are strengthening our traditional obligations to public housing
by increasing the public housing operating budget by $150 million. This
money can be used by local housing authorities to fund those programs
that best meet urgent needs, including the rising costs of utilities.
President Bush and I are continuing our strong commitment to
helping families with the costs of rental housing through Section 8
housing vouchers. This budget renews all expiring Section 8 contracts
at a cost of $15.1 billion--an increase of $2.2 billion over fiscal
year 2001 and funds an additional 34,000 Section 8 housing vouchers at
an additional cost of nearly $200 million.
The budget proposal does not request as many new housing vouchers
as in previous years for two reasons. First, we cannot continue to
increase the Department's budget each year by 12 to 16 percent. At the
previous year's rate of increase, our budget would surpass $100 billion
by 2010. Second, there has been a serious problem with the utilization
of existing Section 8 vouchers by State and local agencies and some
vouchers do not get used as quickly as they should. I will work with
Congress to improve the utilization of Section 8 vouchers by State and
local
housing agencies.
Vouchers are much more than just a piece of paper; for many
families they are the first step in the process of greater economic
opportunity and homeownership. There are two issues regarding the
voucher utilization problem: making vouchers easier to use and
improving the management capacity of local housing agencies. First, we
should take additional steps to ensure that more families are able to
use their housing vouchers. Vouchers work well in most markets, there
is growing evidence that families are having difficulties using
vouchers in certain markets. We should resolve that.
Although market conditions affect the utilization of vouchers in
different areas, under-utilization is ultimately a management issue.
Good managers can overcome difficult market conditions and ensure that
all of their vouchers are used. I plan to work with housing authorities
to help them become better managers so that they can serve more
families. We can do this through a combination of management
techniques: fully employing the Section 8 Management Assessment Program
(SEMAP) that gives substantial weight to utilization rates, giving
priority in fund allocation to housing authorities with high
utilization rates, and implementing HUD's new authority to make some
vouchers project-based.
While we focus on our goal of improving housing opportunities, this
budget does not neglect the Department's traditional role of supporting
community and economic development. Much of this support is carried out
by the Community Development Block Grant (CDBG) Program and this
Administration continues strong support of this important program. CDBG
will receive almost $4.4 billion in funding for formula grants to meet
the specific needs of local governments. CDBG funds locally developed
programs that revitalize communities and help spur economic growth.
I would like to point out that, while we have kept funding for CDBG
formula grants at historically high levels, the new Census data will
inevitably result in changes in the funding level for each community.
Some communities will get more money and some will get less. I
emphasize this to explain why, even though the funding level for CDBG
formula grants is kept constant for fiscal year 2002, some communities
will experience a reduction in funds. Others, of course, will
experience an increase. Any estimates that we generate at this time
rely on the old Census data and are subject to change.
In addition to the $4.4 billion in formula funding for CDBG, we
will provide $80 million in grants to help create or expand community
technology centers in economically distressed communities and provide
technical assistance to those centers. Through these centers, low- and
moderate-income individuals will have access to computers and
technology that will improve their educational opportunities and job
skills. We cannot sustain homeownership without greater economic self-
sufficiency. President Bush and I are committed to beginning to close
the digital divide so that low- and moderate-income Americans are not
left further behind. Every American deserves the opportunity to succeed
in the 21st century workforce.
The President's proposed budget strongly recognizes the needs of
the most vulnerable people in our society--the elderly, persons with
disabilities, the homeless and individuals with AIDS. All of HUD's
programs that provide assistance to these vulnerable populations will
receive funding at or above current levels.
The budget increases funding for elderly housing programs by $6
million to $783 million. The largest Department program targeted to the
elderly is the Supportive Housing for Elderly Program, which provides
capital advances to finance the construction and rehabilitation of
supportive housing for low-income senior citizens, including converting
some properties to assisted-living facilities for frail elders. This
program also provides the elderly with rent subsidies to help make
living in these homes affordable.
To assist those with disabilities, we also fully fund the
Supportive Housing for Persons with Disabilities Program, as well as
providing an additional $20 million to fund the ``Improving Access
Initiative.'' This proposal will assist those nonprofit groups and
community organizations across the country that are exempt from the
Americans with Disabilities Act, but who still want their facilities to
be accessible to persons with disabilities.
In addition, we are funding at current levels--$1.123 billion--
homeless assistance programs. These not only aid those with the most
pressing need for shelter, but provide services, temporary housing and
permanent housing to reduce homelessness. For those who lack adequate
shelter, our goal should be to end chronic homelessness by getting
people the help they need. At HUD that means increasing the availabil-
ity of permanent housing. This Agency is committed to continuing its
homeless
programs, but in the future we see ourselves spending more of our
resources on
permanent housing, and less on social services. We will work with HHS
to reduce the barriers that prevent the homeless from accessing much-
needed social services for which they are eligible.
Housing Opportunities for Persons With AIDS--also known as the
``HOPWA'' program--will see its budget increased by an additional $20
million, for a total of $277 million. These grants, provided to State
and local governments, help low-income individuals stricken with AIDS
find housing assistance, as well as support services.
This budget also recognizes the damage done by lead-based paint,
especially to young children. The Administration increased funding for
lead-based paint hazard reduction by $10 million. I want to do
everything I can to ensure that our children are protected from such
dangers so that they can grow up in safe and healthy homes. Since the
late 1970's, incidents of lead poisoning have declined from 3 million
to 890,000. Yet despite this progress, lead poisoning remains one of
the most common diseases our children face. The solution lies in
preventing lead-based paint hazards in housing.
The Department of Housing and Urban Development has been leading
the effort to eliminate lead-based paint hazards in our Nation's
housing stock. Our lead-based paint grant program, which began under
the first Bush Administration, now funds lead hazard control operations
in over 200 jurisdictions across the Nation. Since HUD cannot solve
this problem alone, this additional money will go into a special grant
program that will leverage more resources from the private sector to
meet the needs of our children.
The President also increased the amount of funds available for fair
housing enforcement. If this Agency is to fulfill its mission of
increasing homeownership and affordable housing opportunities for all
citizens, we must pledge ourselves to the principles embodied in our
fair housing laws.
While most of the Department's programs are funded at last year's
historically high levels or have received a slight increase, there have
been a few well-publicized reductions. Let me take a few minutes to
address these specific reductions.
One such program is the Public Housing Drug Elimination Program.
Though no one can argue with the good intentions behind this program,
unfortunately it suffered from a large number of abuses. Not only did
the Inspector General find that it was nearly impossible to measure the
program's effectiveness, but she has also criticized the program for
funding activities such as unauthorized travel, bank loans, and
Christmas parties. Some funds were used by the Department to implement
a gun buy-back program, which the Comptroller General concluded was not
a legal use of funds. Drug Elimination funds were also spent to provide
public housing residents with ``creative wellness'' programs. These
scientifically questionable programs are a significant diversion from
this Agency's mission and undermine public support for HUD's programs.
We need to restore confidence that the Department of Housing and
Urban Development can carry out its core mission. We are not a law
enforcement Agency or an Agency with expertise in dealing with drug
abuse. To the extent that there are law enforcement issues surrounding
our public housing projects, we will work with the Justice Department
and State and local police departments. To the extent that there are
drug problems in public housing, we will work with those Federal,
State, and local agencies that are in a much better position to address
these problems.
Although we have eliminated this $309 million program, we have
taken, as I mentioned earlier, $150 million of those funds and placed
them in the Public Housing Operating Fund. This extra $150 million can
be used for a wide variety of purposes, including the continued funding
of successful antidrug efforts. But rather than mandating that housing
authorities use this money for drug elimination programs, we trust
these authorities to make those tough decisions about what programs
best meet their needs.
As an example, if a certain housing authority found that fences,
lighting, and greater police patrols funded by the Drug Elimination
Program helped reduce crime and drug use, then it will have the
opportunity to continue funding these worthwhile programs from the
additional $150 million in the Operating Fund. Good antidrug programs
in our public housing projects will continue to find funding, while we
filter out the waste and abuse that tarnished a program that began with
such noble intentions.
Another reduction in our budget occurs in the Public Housing
Capital Fund. Our fiscal year 2002 budget provides nearly $2.3 billion
for the fund, which is a reduction of $700 million from the previous
fiscal year. This money is sufficient to cover 100 percent of the
modernization needs of housing authorities that are expected to accrue
next year.
The purpose of this reduction is to draw down Capital Funds that
have already been appropriated, but not yet expended by public housing
authorities. Currently, there is $5 billion in unspent Capital Funds
from fiscal year 2000 and previous fiscal years. These figures do not
include the $3 billion that was appropriated for fiscal year 2001. Once
the Department distributes fiscal year 2001 Capital Funds, and approves
plans for the use of those funds, housing authorities will have a total
of $8 billion in unspent Capital Funds available to meet their
modernization needs.
These billions of dollars of unspent Capital Funds ensure that no
roof at any public housing project has to go unrepaired, and no severe
modernization need has to be neglected. Public housing authorities
currently have the funds that are necessary to begin addressing the
backlog of modernization needs. Our fiscal year 2002 budget encourages
them to spend those funds to address their priority needs.
We are not just looking to housing authorities for solutions to the
problem of unspent funds. We are also examining the Department's
practices to determine whether funds are distributed and spent in a
timely manner. Among other steps that we plan to take is a change in
the timing of our initial allocation of funds to housing authorities,
ensuring that they get funds sooner than in prior years.
I look forward to working with the Congress on the many issues
facing the Department of Housing and Urban Development. Congress is now
conducting two important commissions--the Millennial Housing Commission
and the Commission on Affordable Housing and Health Care Facility Needs
in the 21st Century. The Department is ready to offer any assistance it
can to aid the work of these two commissions. I look forward to working
together to assure that the Department of Housing and Urban Development
can efficiently and effective meet America's housing and community
development needs.
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PREPARED STATEMENT OF SUSAN GAFFNEY
Inspector General, U.S. Department of Housing and Urban Development
April 25, 2001
Chairman Allard, Ranking Member Reed, and Subcommittee Members, I
appreciate the opportunity to appear before you today to discuss
challenges confronting HUD in the areas of mission and programs,
organizational structure, and management operations.
HUD's Mission and Programs
HUD is the principal Federal Agency responsible for programs
concerned with housing needs, fair housing, and improving and
developing the Nation's communities. It has a fiduciary responsibility
over a multibillion dollar housing business and a social mission to
assist in serving the housing needs of millions of low- and moderate-
income families. HUD's mission is multifaceted and complex. For a
relatively small Agency of about 9,500 staff, it has a lot of work to
do. The National Academy of Public Administration's report on HUD in
1994 summed it up well. ``Because of the mismatch of goals and
resources and its many communities of users, HUD faces a tandem
performance deficit--the gap between what HUD is supposed to do and has
the ability to accomplish--and expectations glut--unrealistic
perceptions of what HUD can accomplish--the result is a prescription
for problems.''
Four years ago I testified before the Congress about the importance
of coming to a definition of HUD's mission that bears some reasonable
relationship to HUD's capability to meet that mission. The revised
mission statement must then be used as a springboard for a major
streamlining of HUD programs and activities. We must also come to an
understanding that HUD staff cannot be all things to all people. We owe
HUD employees a clear definition of their roles with respect to policy
development, providing technical assistance, motivating the community,
overseeing program implementation, and taking enforcement action for
inadequate performance.
In 1994, the Office of Inspector General (OIG) counted 240 separate
HUD programs and activities. With new programs and activities added
since 1994, that number is approaching 300. More often than not, when
new HUD programs or activities have been announced, staff resources
have not been discussed or considered. But it takes staff and resources
to assure that programs are designed properly and that programs include
proper checks and balances. Without the proper internal controls and
oversight, new programs can, of course, be abused. We have observed
this recently with the Officer Next Door Program. Should HUD be
discounting thousands of dollars worth of real estate assets to police
officers without any follow-up mechanism to assure these recipients are
meeting their end of the bargain?
HUD's proposed 2002 budget acknowledges this issue in a statement
that ``the budget emphasizes . . . minimizing the number of new
initiatives that undermine HUD's capacity to administer its core
programs. . . .'' Obviously, the OIG believes that the Administration
needs to go much further in tightening HUD's mission statement and
streamlining its programs. We also recognize that such an effort would
be enormously time-consuming and difficult, requiring the support of
HUD's customers as well as the Congress. We recommend the effort,
nonetheless, as we believe it is a fundamental requirement for HUD's
shedding its ``high risk'' reputation and better serving its intended
beneficiaries.
HUD's Organizational Structure
In the last 4 years, HUD has changed significantly. The former
Secretary's 2020 Management Reform Plan envisioned correcting
longstanding HUD problems in areas such as resource allocation,
financial management, procurement and information systems, and bringing
the skill levels of HUD staff up to par.
These planned reforms involved massive reorganizations that shook
up nearly every Departmental component. When the changes started taking
place late in 1997, we asked the former Secretary to slow down the
process, but our calls went unanswered. The push was on for rapid
change. Indeed, that was the advice the Secretary received from various
reinvention experts. Unfortunately, at HUD, this meant that
organizational and process changes were made before a sound management
infrastructure was in place. The organizational/process changes were to
be made while establishing the management infrastructure, without the
benefit of program consolidation or empowerment and within the context
of staff reductions. This was an extraordinarily complicated plan. It
has resulted in many staff resources being moved to new highly
centralized organizational units in the Department and
such as the Real Estate Assessment Center, the Enforcement Center, the
Troubled
Agency Recovery Centers, and the Grants Management Center, as well as
to the new Community Builder function.
Not surprisingly, given the scope of HUD 2020, OIG audits have
noted several serious problems with the changes that have taken place.
For example, we have observed that certain newly established centers
were not operating as intended--planned workload expectations had been
seriously overstated. In other cases, we have found that staffing of
new organizational units was inadequate or not trained to perform the
work. We have, in addition, questioned whether the Community Builder
function is the best use of HUD's limited staff resources.
Over the next months, as a priority matter, Secretary Martinez will
need to decide if HUD 2020 organizational changes meet his management
needs. Existing performance data will assist his decisionmaking, but he
will also need to consider the types of relationships he seeks within
HUD and between HUD and its customers, and how HUD's current
organization affects those relationships.
HUD's Management Operations
HUD's proposed 2002 budget states that resolving the following
management challenges will be a top Secretarial priority:
Rationalizing the distribution of staff resources in light of
program needs;
Continuing to improve oversight of the local housing agencies
and property owners that administer HUD's housing programs;
Improving income and rent determinations to reduce subsidy
overpayments;
Insuring recipients' full and timely utilization of HUD funds;
and
Improving FHA internal systems and controls to reduce fraud in
FHA programs.
HUD's acknowledgement of these problems and the Secretary's
commitment to fix them is good news from the OIG's perspective, as
these are--apart from the issue of recipients' full and timely
utilization of HUD funds--the same management deficiencies that the OIG
has been reporting, in our annual audits of HUD's financial statements,
as weaknesses in HUD's internal controls. The not so good news is that
these problems have existed for many years, and they have proved to be
intractable. Permit me to illustrate the intractability by discussing
OIG work in each of the areas of material weakness.
Rationalizing the Distribution of Staff Resources in Light of Program
Needs
As noted in HUD's proposed budget, the new Resource Estimation and
Allocation System will help the Department to assess where staffing
should be increased or decreased to effectively administer its
programs. HUD is also working to develop a long-term staffing strategy
to meet the rapid increase in retirements expected over the next
several years.
Last year, we completed an assessment of the Department's progress
in developing and implementing the Resource Estimation and Allocation
System. In October 1999, former Secretary Cuomo conveyed to the
Congress that HUD needed a resource management system and that he
planned to implement such a system within 18 months. We found that HUD,
with the National Academy of Public Administration (NAPA), developed a
methodology for resource estimation and allocation.
Further, NAPA briefed each Assistant Secretary on the resource
estimation and
allocation methodology and the impact it would have on their programs.
Also,
HUD selected a contractor to do the measurement studies at various
program offices throughout the Department to determine resource
estimate requirements. Despite these plans, our audit found the
implementation of the Resource Estimation and Allocation System did not
progress with any urgency and only a portion of the contract scope was
funded. We are very supportive of Secretary Martinez's commitment to
completing this important activity.
Continuing to Improve Oversight of the Local Housing Agencies and
Property Owners That Administer HUD's Housing Programs
Although the Department recognizes that the physical inspections
protocol used to assess public housing and multifamily assisted housing
needs further refinement to ensure consistent and fair results, it
plans to continue to assess the physical condition of HUD-assisted
housing to ensure that it is decent and safe.
Last year, we conducted an audit of the Office of Housing's use of
physical inspection assessments generated by HUD's Real Estate
Assessment Center (REAC) on multifamily properties insured by the
Federal Housing Administration and/or receiving project-based subsidy
under the Section 8 program. The purpose of our review was to evaluate
actions taken to address and track corrections to the physical
deficiencies disclosed through the REAC property inspections. We found
that although the Office of Housing utilizes the REAC property
inspections within their servicing responsibilities, the report
addresses the need for the Office of Housing to reinforce its
assurances and improve its processes to strengthen the Department's
oversight of its portfolio of insured and subsidized multifamily
properties. Specifically, we determined that the Office of Housing does
not have the proper assurances that corrective action is completed by
the owner to the extent of all the physical
deficiencies reported by the property's REAC inspection. This includes
assurances
that exigent health and safety violations are corrected within the
required time
frame and that complete property surveys identifying the magnitude of
the physical deficiencies are performed. Further, we determined that
the Office of Housing could improve the current notification process to
field office staff of completed property inspection reports and exigent
health and safety violations released by REAC.
Improving Income and Rent Determinations to Reduce Subsidy Overpayments
Subsidy overpayments are a problem that has plagued the Department
for more than 20 years. Since HUD serves such a small portion of those
in need of housing assistance, every dollar needs to be spent properly.
HUD provides housing assistance funds under various grant and subsidy
programs to multifamily project owners--both nonprofits and for
profit--and Housing Authorities (HA's). These intermediaries, in-turn,
provide housing assistance to benefit primarily low-income households.
HUD spent about $19 billion in fiscal year 2000 to provide rent and
operating subsidies that benefited over four million households.
Weaknesses exist in HUD's control structure such that HUD cannot be
assured that these funds are expended in accordance with the laws and
regulations authorizing the grant and subsidy programs. HUD overpays
hundreds of millions of dollars in low-income rent subsidies due to the
incomplete reporting of tenant income, the improper calculation of
tenant rent contributions, and the failure to fully collect all
outstanding rent. We have reported this as a material weakness in our
annual financial audit since we began this reporting process in 1991.
A recently completed contracted study of rent determinations under
HUD's major housing assistance programs estimates that substantial
errors are made by project owners and HA's. The study projected that
annually, about $1.9 billion in subsidies was overpaid on behalf of
households paying too little rent and about $0.7 billion in subsidies
was underpaid on behalf of households paying too much rent based on HUD
requirements. In response to this high incidence of error, HUD's
proposed budget commits to implementing a number of measures to resolve
this problem, including the development of tools to assist housing
agencies and assisted housing owners in the determination of income and
calculation of rent and the introduction of a quality control program
to monitor the performance of these intermediaries. HUD also plans to
review the current laws and regulations regarding income and rent
determinations to ascertain whether their simplification would
facilitate program complicate. This constitutes a broader scope
approach than previous income matching efforts, and we believe that the
broader scope approach makes sense.
Improving FHA Internal Systems and Controls to Reduce Fraud in FHA
Programs
HUD's proposed budget recognizes the need to strengthen the
integrity of FHA internal systems and controls to reduce fraud in FHA
programs. Promised actions include improving the loan origination
process and providing better monitoring of lenders and appraisers.
In the last few years, the OIG audit and investigative staffs have
been actively involved in examining many aspects of the FHA single-
family operations. We have identified rampant origination frauds,
property flipping scams, and scandals in the sale of HUD owned
properties. Needless to say, all these problems have an impact on the
soundness of FHA's Mutual Mortgage Insurance Fund. There are many
factors beyond HUD's control--such as interest rates and unemployment
rates--that affect the soundness of the MMI Fund. But assuring that
programs are run efficiently and effectively and that programs are
sufficiently managed to minimize the opportunities for fraud and abuse
is within HUD's control. The Secretary's commitments to making
improvements in this area are important to the financial health of the
FHA program.
We have performed numerous audits of FHA's operations in the last 2
years including a comprehensive audit of loan origination activity and
a nationwide review of Properity Disposition Operations. FHA's single-
family program personnel are in the process of taking corrective
actions on most of our audit recommendations. We appreciate the
Secretary's commitment to continuing these actions.
Recognizing that HUD's single-family staff have been through
downsizing, reorganization, and heightened workload expectations, we
need to step back and figure out how we can make the internal control
requirements that are on HUD's books actually work to prevent fraud and
abuse. Internal controls will not work without sufficiently trained
staff to assure that checks and balances are in place. If the Congress
and the Secretary of HUD send a clear message that that is what they
really want, then I am confident that the single-family staff will be
able to figure out how to do it.
Mr. Chairman, that concludes my testimony, I appreciate the
opportunity you have afforded me to appear here today.
PREPARED STATEMENT OF STANLEY J. CZERWINSKI
Director, Physical Infrastructure Issues
U.S. General Accounting Office
April 25, 2001
Mr. Chairman and Members of the Subcommittee: We are here today to
testify on the U.S. Department of Housing and Urban Development's (HUD)
fiscal year 2002 budget request. Because HUD's fiscal year 2002 budget
request was released only about 2 weeks ago, we can offer only a
general discussion of its policy implications and program trade-offs.
Accordingly, our objective today is to raise some issues for your
consideration as you evaluate HUD's fiscal year 2002 request and to
identify opportunities for improving HUD's management of its financial,
program, and budget processes.
First, with an eye toward examining the level of resources devoted
to HUD's program activities, we will provide a preliminary analysis of
HUD's fiscal year 2002 budget request. Second, we will explore the role
that unexpended balances play in HUD's fiscal year 2002 budget request
and overall management of its programs. Unexpended balances are
appropriations that HUD received in earlier fiscal years but has not
yet spent. These balances may therefore be available for recapture. In
recapturing funds, HUD deobligates excess funding that was previously
obligated but that HUD has determined will not be needed. In some
cases, HUD can use a portion of the recaptures to fund program
activities, reducing its need for new appropriations. In other cases,
the Congress can rescind--that is, take away--some of these recaptures.
Our examination will focus, in particular, on whether HUD has taken the
steps necessary to manage unexpended balances effectively. To do so,
HUD needs to identify what portion of these balances is available for
recapture and then account for that available portion when formulating
its current budget request.
In summary, most attention in the press and elsewhere has focused
on HUD's request for discretionary funding authority. That request is
for $30.4 billion, which HUD has characterized as a 7 percent increase
over last year's discretionary budget authority. There are additional
factors that must be considered in evaluating this budget request,
including HUD's ability to expend requested funding. The budget is also
being debated at the program level, where some programs would grow,
some would shrink, and some would be eliminated.
In recent years, HUD has had significant unexpended balances. These
balances have made it more difficult for the Congress to assess the
Department's need for new appropriations. Without accurate and timely
information about the nature, amount, and availability of HUD's
unexpended balances, decisionmakers cannot fully and fairly evaluate
the Department's funding needs. HUD has initiated several short-term
efforts to identify, quantify, and recapture some unexpended balances
and has, in fact, recaptured about $3 billion each year between fiscal
year 1998 and fiscal year 2000. In addition, in each of the past 2
years, the Congress has rescinded almost $2 billion of balances, using
the funds for other purposes. In spite of these efforts, HUD has not
yet integrated the processes needed to routinely and accurately account
for unexpended balances into its ongoing financial, program, and budget
management. As a result, HUD does not have the information it needs to
(1) determine with assurance how much of the unexpended balances should
be recaptured and (2) clearly factor these funds into its budget
request. Our analysis of its current requests for the Public Housing
Capital Fund illustrates these points.
Comparison of HUD's Budget Requests for Fiscal Years 2001 and 2002
For fiscal year 2002, HUD is requesting $30.4 billion in
discretionary budget authority, which HUD has characterized as a $2
billion, or 7 percent, increase over its fiscal year 2001 discretionary
funding. Currently, there is a lot of debate about the size of HUD's
budget request in comparison to previous years. But the more important
issue is whether HUD has sufficient justification for the amount
requested.
One key issue that needs examination is the amount of additional
funding HUD needs in its Housing Certificate Fund in light of the $4.2
billion advance appropriation provided in fiscal year 2001 that will be
available in fiscal year 2002. According to HUD officials, this advance
was to cover rental assistance contracts expiring in the first quarter
of fiscal year 2002. However, HUD's fiscal year 2002 budget also
includes new budget authority to cover expiring contracts. HUD's budget
request shows that it expects to end fiscal year 2002 with a $4.2
billion unobligated balance in the Housing Certificate Fund. HUD
officials indicated that the $4.2 billion in
unobligated funds was needed in the first quarter of fiscal year 2003
to cover the
renewal of contracts that are funded on a calendar-year basis and
expire between
October 1 and December 31, 2002. Hence, this $4.2 billion would support
no program activity in fiscal year 2002. The officials further
explained that in the future, budgetary resources would only need to
cover 1 year, rather than the 15 months covered by the fiscal year 2002
budget. While HUD may need to carry over some unobligated funds from
one fiscal year to the next, HUD has not provided rationale supporting
$4.2 billion as the amount of unobligated balances it needs to carry
over to renew contracts expiring in the first quarter of fiscal year
2003.
In addition to consideration of the overall size of HUD's budget
request, the level of funding for individual programs should also be
considered. The budget proposes changes in a number of HUD's programs.
We would now like to discuss some of these changes.
Housing Certificate Fund: $2 Billion Increase
HUD's budget request proposes increasing the Housing Certificate
Fund from about $14 billion to about $16 billion. This fund helps low-
income families afford the high cost of rental housing by subsidizing
their rents.\1\ Starting in the 1970's and 1980's, HUD entered into
long-term contracts to provide Section 8 project-based rental
assistance. According to HUD, each year, more long-term contracts
expire. As a result, HUD says it needs about $2 billion more this year
for contract renewals. Renewing these contracts requires more budget
authority, but it does not increase the number of households receiving
assistance this coming year. In addition, HUD is proposing to expand
the tenant-based program to serve approximately 34,000 more households
at an additional cost of about $200 million.
---------------------------------------------------------------------------
\1\ These subsidies are linked either to the unit--project-based--
or to the resident--tenant-based--under the project-based program, HUD
contracts with property owners to provide housing assistance for low-
income families. Under the tenant-based program, families receive
rental assistance housing vouchers or certificates.
---------------------------------------------------------------------------
As discussed earlier, according to HUD, the funding level requested
for this program would leave it with an unobligated balance of $4.2
billion at the end of fiscal year 2002.
Public Housing Operating Fund: $150 Million Increase
The fiscal year 2002 budget proposes increasing the Public Housing
Operating Fund by $150 million over last year's budget. The operating
fund subsidizes the day-to-day operating expenses of public housing
agencies. HUD's fiscal year 2002 budget increases this fund to $3.4
billion to accommodate public housing needs such as maintenance, crime-
prevention activities, and utility costs. This $150 million program
increase must be considered in the light of the elimination of the $309
million Public Housing Drug Elimination Grant Program, which we will
discuss later.
American Dream Downpayment Fund: $200 Million Set-Aside
HUD's fiscal year 2002 budget introduces the $200 million American
Dream Downpayment Fund. This fund, within the HOME Investment
Partnership Program (HOME), would match the down payment assistance
provided by third parties to approximately 130,000 low-income and
minority families seeking to buy their first homes. HOME is a flexible
block grant that provides support for local affordable housing efforts.
HOME funds are allocated by formula to States, counties, and large
cities. The total funding for HOME would remain the same as last year
at approximately $1.8 billion. However, HUD officials stated that the
American Dream Downpayment Fund requires that States, counties, and
large cities use $200 million of their formula block grant funding for
this down payment program.
Public Housing Capital Fund: $700 Million Decrease
The largest decrease in HUD's fiscal year 2002 budget proposal is
the $700 million reduction in the Public Housing Capital Fund. This
fund provides formula grants to public housing agencies for such
activities as rehabilitation and modernization. The budget provides
$2.3 billion for this fund. Based on a contracted study, HUD believes
this amount will be sufficient to meet all new capital needs.
Furthermore, HUD states that public housing agencies have large amounts
of unspent Capital Funds from previous years that they can use to
address any backlog of capital needs. HUD states that the purpose of
the reduction in this program is for the public housing agencies to
draw down Capital Funds that have been obligated but not expended.
However, HUD plans to implement the $700 million cut across-the-board,
which may have the unintended consequence of penalizing those public
housing agencies that have few or no unexpended balances because they
spent their funds in a timely manner.
Community Development Block Grant Program: $311 Million Decrease
HUD's fiscal year 2002 budget proposes eliminating selected set-
asides in the Community Development Block Grant (CDBG) Program. The
CDBG program provides State and local communities with a flexible
source of funds for economic de-
velopment and community revitalization. Most of the funding--about $4.4
billion--
is distributed by formula and would remain at the fiscal year 2001
level. HUD's budget would cut approximately half of the CDBG set-
asides. The principal targets for elimination are the Economic
Development Initiative set-aside, which supports local job-creation
projects, and the Neighborhood Initiative Demonstration, a
Congressional set-aside that funds local neighborhood improvement
strategies. HUD's budget suggests that the types of projects funded by
these set-asides would still be eligible for funding under the formula
portion of the CDBG program.
Public Housing Drug Elimination Grant Program: $309 Million Decrease
HUD's fiscal year 2002 budget proposes the elimination of the
Public Housing Drug Elimination Grant Program, which provides formula
grants to local public housing agencies to help reduce drug activity in
public housing. HUD cites three reasons for eliminating the program:
(1) It duplicates activities eligible under the Public Housing
Operating and Capital Funds; (2) other Federal programs and funds, are
available for these activities; and (3) HUD's Inspector General has
identified certain inappropriate uses of such funds. HUD's budget
suggests that public housing agencies could utilize operating or
capital funds for these antidrug activities, as previously mentioned,
HUD has also proposed that the Capital Fund be reduced by $700 million.
In addition, the operating fund would be reduced by $10 million, which
is scheduled for transfer to HUD's Inspector General to continue
Operation Safe Home. To date, Operation Safe Home has been funded by
the Public Housing Drug Elimination Grant Program that HUD is proposing
to eliminate.
For years, unexpended balances have clouded HUD's budget needs
because HUD has not adequately determined what portion of them is
available for recapture. While these balances have been very large, HUD
has not had the information they needed to quantify the amount
available for recapture from them. With such information, HUD could
then take the steps necessary to recapture the extra funds. We have
worked with HUD and the Congress to identify funds available for
recapture. As shown in figure 1, from fiscal year 1998 through fiscal
year 2000, HUD recaptured over $3 billion a year in unexpended
balances. However, HUD officials told us they did not estimate any
recaptures for fiscal year 2002.
In response to our previous recommendations, HUD has also
established short-term task forces to quantify and recapture unexpended
fund balances. For example, in March 1998, we recommended that HUD
review unexpended balances and ensure that excess balances were
recaptured from its project-based Section 8 program, in which HUD
contracts with owners to provide housing for low-income families.\2\ In
response, in September of that year, HUD initiated a review of
unexpended balances in all of its programs to determine whether these
balances could be recaptured. According to HUD officials, this review
identified and recaptured unexpended balances, but the effort was
suspended.
---------------------------------------------------------------------------
\2\ Section 8 Project-Based Rental Assistance: HUD's Processes for
Evaluating and Using Unexpended Balances Are Ineffective (GAO/RCED-98-
202, July 22, 1998) and Housing and Urban Development: Comments on
HUD's Fiscal Year 1999 Budget Request (GAO/T-RCED-98-123, March 12,
1998).
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In September 1999, as part of our review of HUD's fiscal year 2000
request, we again recommended that HUD identify programs with a history
of unexpended balances and work to determine their obligation status
and availability for recapture.\3\ In response, HUD established an
unexpended balance task force to study these balances in all its
programs. As part of this effort, HUD contracted for studies of five
programs \4\ with large unexpended balances to determine the reasons
that funds were underutilized in these programs and to identify
possible solutions. However, the studies focused primarily on the
reasons for slow expenditure of funds and did not provide HUD with
enough information to determine whether the unexpended balances were
available and could be used to reduce future program needs. For
example, in the study of the Public Housing Capital Fund, the
contractor evaluating the program reported that there were not enough
data to evaluate the use of all unexpended capital program funds.
---------------------------------------------------------------------------
\3\ HUD's Fiscal Year 2000 Budget Request: Additional Analysis and
Justification Needed for Some Programs (GAO/RCED-99-251, September 3,
1999) and Housing and Urban Development: Comments on HUD's Fiscal Year
2000 Budget Request (GAO/T-RCED-99-104, March 3, 1999).
\4\ HUD contracted to study the Section 202 Supportive Housing for
the Elderly Program, CDBG, Public Housing Capital Fund, and Section 8
Project-Based and Tenant-Based programs under the Housing Certificate
Fund.
---------------------------------------------------------------------------
Such information could help HUD better determine the extent to
which unexpended balances could be used to offset the funding
reductions it is proposing for this program. For fiscal year 2002, HUD
is requesting $2.3 billion to fund the Public Housing Capital Fund
Program, $700 million less than last year. HUD said its request is
based on the assumption that unexpended balances in this program can
cushion the cut. However, HUD has been unable to determine the amount
of recapturable funds in the program.
The Capital Fund consolidates the funding for a number of HUD's
public housing programs, including the Public Housing Development
Program, the Comprehensive Grant Program, and the Major Reconstruction
of Obsolete Projects Program, as well as the Public Housing Debt
Service Account. HUD, however, does not have an information system that
integrates the obligation data from all these different parts of the
Capital Fund. HUD also lacks aggregate information on the status of
individual capital fund activities undertaken by public housing
agencies. Without such information as the amount of funds housing
agencies have under contract, when projects will be completed, and what
project plans have fallen through, HUD will not be able to routinely
quantify unexpended balances that might be available for recapture. HUD
officials agreed that such detailed information was needed, but they
pointed out that public housing agencies are not required to submit
such details on the status of their capital projects.
Conclusions
In conclusion, the ability of the Congress to assess HUD's overall
funding needs for fiscal year 2002 is complicated by its incomplete
analysis of unexpended balances in its programs. The most significant
example is the $4.2 billion unobligated balance stemming from HUD's
treatment of the advance appropriation for the Housing Certificate
Fund. HUD has started to move in the right direction by beginning to
study unexpended balances and attempting to factor them into its budget
request. However, it has not yet adequately determined what portion of
these balances can be used to offset the need for new appropriations.
As requested by both the Subcommittee Chairman and Ranking Member, we
will continue to work with the Subcommittee and HUD to further clarify
these issues for Congressional oversight and to encourage HUD to
develop systems, integrate and analyze needed information, and
appropriately factor unexpended balances into its budget requests.
However, until HUD routinely and fully determines what portion of its
unexpended balances is available and clearly presents this information
in its budget requests, the Department's need for new appropriations
will remain unclear, and the Congress will continue to have difficulty
evaluating HUD's funding requests.
Recommendations for Executive Action
In order for HUD to fully account for unexpended balances in its
funding requests, we recommend that the Secretary (1) develop systems
that routinely provide timely, reliable information on the status of
unexpended funds for the purpose of quantifying the amount available
for recapture or rescission; (2) routinely incorporate this information
into the management and operation of programs; and (3) consistently use
this information in formulating its budget request, clearly
demonstrating how it is taking these balances into account when setting
forth its budget needs. For example, for the Public Housing Capital
Fund, HUD should (1) develop information systems to aggregate data on
the obligation status of individual housing agencies' capital fund
projects, (2) use that information to reallocate funds among public
housing agencies as needed, and (3) adjust its budget request for the
Public Housing Capital Fund accordingly. Mr. Chairman, that concludes
our prepared statement. We would be happy to answer any questions that
you or Members of the Subcommittee may have.
----------
PREPARED STATEMENT OF RENEE L. GLOVER
Executive Director, Atlanta Housing Authority and
President of the Council of Large Public Housing Authorities
April 25, 2001
I am Renee Glover, Executive Director of the Housing Authority of
the City of Atlanta, GA and President of the Council of Large Public
Housing Authorities (CLPHA). CLPHA's members manage over 40 percent of
the Nation's public housing and about 20 percent of the Section 8
tenant-based assistance. Also with me today are members of the police
forces that serve CLPHA housing authorities in Boston, Philadelphia,
Baltimore and Washington, DC. They are here representing the thousands
of officers in communities across the country who oppose the
Administration's plan to end the Public Housing Drug Elimination
Program (``PHDEP'').
The Proposed HUD Budget Does Not Adequately Address the Growing
Affordable Housing Crisis and Signals A Lack of Commitment to
Preserving in the Nation's $90 Billion Public Housing Stock
The public housing program provides decent, affordable housing to
over 3.2 million very low-income Americans, including almost one
million elderly and disabled,
including veterans, and about 1.2 million children. But for the public
housing
program, many of these residents would not be decently housed, as
neither the private real estate market nor any other Government program
provides housing units for this extremely vulnerable population. Many
of our residents are members of minority groups, immigrants, elderly
and disabled families who are often at the greatest risk of being
homeless. In this time when recent HUD studies find that more than 5.4
million American households spend over 50 percent of their monthly
income for housing and newspapers report an economic slow-down, we can
only expect the need for public housing to grow in the coming years.
In metropolitan Atlanta, we have already been feeling the effects
of the affordable housing crisis on our poorest residents for several
years. The Atlanta area has an average area median income of about
$66,000 for a family of four, while the average income for a family in
public housing of the same size is $8,600. With the private rental
market in Atlanta reporting 97 percent occupancy, many working families
are being priced out of the market. Moreover, the Atlanta Housing
Authority occupancy rate is 99 percent. There are almost 7,000 families
in Atlanta waiting for public housing and we expect that approximately
25,000 will sign-up for our waiting list for Section 8 assistance when
it opens up this summer. There are currently over 5,000 households on
this list. These numbers do not include countless other families, who
are not yet seeking Government housing assistance, but are struggling
to make their housing payments each month. This situation is far from
unique to Atlanta. My colleagues who run other housing authorities in
other communities, large and small, urban and suburban, are seeing the
size of their waiting list grow while funding levels shrink.
The Nation's 3,200 local public housing authorities have a contract
with the Federal Government to provide funds sufficient to make up the
difference between the amount public housing residents pay in rent of
about 30 percent of their income and the actual cost of maintaining and
operating public housing units. Public housing has no other means to
raise funds needed to maintain its units--we can not raise rents, levy
taxes, establish replacement reserves, or borrow against net operating
income. Public housing residents rely solely on you, Congress, to
appropriate the funds necessary each year to ensure they have a decent
roof over their heads.
Enacting HUD's proposed budget for fiscal year would signal the
Federal Government's repudiation of its contractual obligation to
support the taxpayers' $90 billion investment in the Nation's public
housing stock. More serious is the sentence it imposes on our residents
to less secure, less healthy, more deteriorating housing the blight to
our neighbors. The justifications for the proposed under-funding of
public housing are based on mistaken assumptions and would be
devastating to the residents we serve. We can only believe that due to
the abbreviated transition period, the Secretary was unable to get
sound advice about the impact of these reductions. We hope this
Committee will help us work with the Administration and the
Appropriations Committee to secure funds sufficient to provide safe
housing for our vulnerable residents.
Public Housing Residents Would Be Devastated by the Proposed Shortfall
for the Public Housing Program of Over $2 Billion
HUD's budget request would mean an overall shortfall in funding for
public housing of over $2 billion. This funding gap is in two parts:
First, HUD's budget represents a cut to public housing programs of over
$1.7 billion from last years level, including a $700 million reduction
to the Public Housing Capital Fund, a $309 million loss due to the
termination of the PHDEP program and a $640 million cut to housing
authority Section 8 reserve accounts. Second, even with the addition of
$150 million for the Public Housing Operating Fund over fiscal year
2001, the HUD proposal still fails to provide another $400-$500 million
needed to meet the Federal Government's obligations under its agreement
with local housing authorities, largely due to dramatic increases in
utility rates. It also does not include the $362 million in utility
cost shortfalls from the past 2 years for which no new funds have been
provided. To our knowledge, no other program in HUD's $30 billion
budget is slated for such dramatic reductions. This is even more
troubling given that the public housing authorities provide housing for
the greatest percentage of very low-income families, elderly, and
minority citizens served by HUD.
There Are Not Large Amounts of Public Housing Capital Funds Available
From Prior Fiscal Years to Address the Backlog of Public Housing
Modernization Needs Estimated By HUD to Exceed $22 Million
Perhaps the single most devastating proposal in the HUD budget is
the planned cut of $700 million from the Public Housing Capital
Account. This is the fund that provides funds for major modernization
of public housing properties to ensure they are decent, safe places for
residents to live. While HUD states that the cut is justified because
there are $6 billion in unspent capital funds from prior fiscal years,
these funds are not ``available'' as HUD purports--they are already
obligated or otherwise committed to meet on-going capital needs. The
fact is that, based on the information we have from HUD's own records
as of February 2001, illustrated in the chart below, there are not
substantial sums of capital fund monies which are not being spent in
accordance with Congressionally mandated deadlines.
Section 9 of the U.S. Housing Act of 1937, as amended by the Public
Housing Reform Act of 1998, states that housing authorities have 2
years from the date of receipt of Capital Fund monies to ``obligate''
or place under contract, and additional year, as provided by statute
and with HUD approval, and 4 years from the date funds are received to
spend those monies. HUD has consistently not made funds available to
housing authorities for 9 months to a year after they are appropriated,
thereby contributing significantly to any delays in expending these
funds. In addition, the Public Housing Reform Act required HUD, in
September 1999, to recapture any unobligated Capital Funds appropriated
in 1997 and years prior. HUD, to our knowledge, did so. With one
possible small exception which was the result of a court settlement, it
is our understanding that all money in years 1997 and before has been
spent.
As you can see from the chart, of the $6 billion in unspent funds
cited in the HUD budget, $3 billion was the appropriation for fiscal
year 2000 that was not made available to housing authorities to spend
until August 2000. As we understand that the $6 billion figure was
based on unexpended balances as of September 30, 2000, one could hardly
expect any of the fiscal year 2000 funds to be through the public
contracting process and spent by that date. As the additional $3
billion appears to all be within the time frame for expenditure as
provided by law, there is no valid justification for the assertion that
Capital Funds are going unused.
Even absent the statutory obligation and expenditure deadlines,
virtually all substantial capital projects require a multiyear planning
phase and spend out of funds. This is the same for public housing as it
is for any other Federally funded construction or capital improvement
project of the same magnitude and scale. The need to plan, in
consultation with public housing residents and other stake holders, was
reiterated in one of the Public Housing Reform Act's key provisions
requiring housing authorities to develop annual and 5 year capital
plans. The idea that funds are not needed this year because they were
appropriated last year and have not yet been fully depleted defies all
notions of responsible asset management. Moreover, HUD's representation
that the $6 billion is not currently being used and could be available
to housing authorities to address backlog needs is misleading. While $6
billion in unspent funds have not left the U.S. Treasury, much of that
money is already obligated or earmarked for on-going, planned capital
projects. HUD's assertion could only be true if housing authorities
could use the same dollars twice--once for the purposes for which they
are already obligated and again, for backlog needs. Clearly, this is
not possible.
The proposed reduction in capital would have severe consequences
for the public housing stock and for the residents. A 1999 HUD study
reestablished the need for almost $22 billion to modernize public
housing.\1\ The Administration's proposed funding level covers only the
estimated cost of ``accrual'' needs--the amount of money needed to keep
pace with general wear and tear on the properties for 1 year. However,
it falls to recognize that the cost of addressing the $22 billion
backlog, which grows exponentially each year they are not met. For
example, a hole in a roof that cost $100 to fix today if not repaired,
could cost $250 the next year, and if not addressed for another year,
could cause additional property damage, resulting in a $1,000 repair
bill. If the Administration's proposal is enacted, the cost of
addressing the backlog will continue to increase over the current $22
billion estimate. This policy not to address the backlog not only
postpones needed repairs to units, but it results in dramatically
increased repair cost until, eventually, these units will become so
distressed that they need to be demolished. Even at fiscal year 2001's
$3 billion, it will take 28 years to bring our public housing stock up
to basic standards. Allowing buildings that house low-income families
to slowly deteriorate is irresponsible in a time of serious crisis in
affordable housing.
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\1\ Conference Report 106-379, Fiscal Year 2000 VA, HUD, &
Independent Agencies, page 90, cited the backlog as more than $20
billion.
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Another unwanted result of the proposed drastic Capital Fund
reduction is that it will hamper current efforts of housing authorities
to leverage their capital allocations to obtain private funds through
bank loans and bond issuances--a major innovation that this Committee
helped to enact as part of the Public Housing Reform Act. This type of
leveraging enables a housing authority to accelerate the capital
improvement work at its properties. At least one such multimillion
dollar bank loan has been closed with repayment pinned on a housing
authority's future allocation of capital funds. In addition, several
major bond issues are now being negotiated by housing authorities with
Wall Street and the established bond rating agencies including Standard
& Poor's, Moody's and Fitch. These borrowings are possible because the
financiers and the bond rating agencies have seen, up to now, the
stability of capital appropriations, upon which they rely for
repayment. Now, the rating agencies have become rattled by the HUD
proposal. An article, dated March 8, 2001, in the Bond Buyer, pointed
to the problem: ``President Bush's proposal last week to cut funding
for the public housing capital program by 23.3 percent from fiscal 2001
levels could complicate . . . housing bond deals expected to be backed
solely by Federal housing grants, sources say.'' What a tragic loss of
opportunities to step up the renovation of the $22 billion backlog of
modernization needs and to broaden private partnerships in public
housing.
Last, our experience in Atlanta has shown us that maintaining
properties properly is a ``pay-me-now or pay-me-later'' proposition.
Unmaintained and deteriorating projects are costly to operate, a blight
on neighborhoods, and thwart efforts to broaden the income mix in our
communities. This proposed cut will seriously undermine the promise of
the Public Housing Reform Act of 1998.
PHDEP Provides Housing Authorities Resources That Are Not Available
From Any Other Source to Implement Effective Crime Prevention
Strategies Based on Local Circumstances
As these officers who are with me today, and thousands like them
across the country could tell you, public housing residents now feel
safer in their homes, thanks to PHDEP. Contrary to assertions made by
HUD, PHDEP is not simply another source from which basic police and
other services are funded. Rather, it is a locally driven program that
provides assistance above baseline services and enables each community
to have broad discretion in implementing strategies that reduce crime.
Residents and police officials hail the program. Without PHDEP-funded
activities, as the HUD budget proposes, all of the work that has gone
into making public housing communities safer and better will be lost.
As part of its justification for seeking the repeal of PHDEP, HUD
notes that PHDEP eligible activities can be carried out under operating
funds. Yes, they are eligible under the law, but they are not included
in the funding formula in the Performance Funding System (PFS).
Moreover, PHDEP funds can and are used by many housing authorities for
security fencing and other capital improvement designed to make public
housing communities safe. PHDEP was adopted by Congress in recognition
that public housing did not otherwise have sufficient capital or
operating funds carry out such activities.
Indeed, the elimination of PHDEP may not be altogether to the
Secretary's liking. During his confirmation hearing before this
Committee, Secretary Martinez, in response to a question about his
views on the matter said: ``HUD's Public Housing Drug Elimination
Program (PHDEP) supports a wide variety of efforts by Public and Indian
housing authorities to reduce or eliminate drug-related crime in public
housing developments. Based on this core purpose, I certainly support
the program.''
In addition to enhanced law enforcement and security programs that
have supported successful evictions for which HUD advocates in its
budget, PHDEP is used for a variety of crime prevention and educational
programs for youth. The Boys and Girls Clubs of America have been major
recipients of funds along with other local nonprofit and faith-based
service providers. These programs will no longer be available to
thousands of low-income children if HUD's budget proposal is
implemented.
In Atlanta, PHDEP funded strategies have resulted in an overall
reduction in serious crimes of about 9 percent in 2 years. The most
dramatic reductions have been in some of the most violent crimes,
including a drop in aggravated assaults of about 18 percent and a
reduction in rapes of about 45 percent. Our strategies have been to
supplement baseline services provided by the Atlanta Police Department,
including employing off-duty officers and security firms to provide
foot and mobile patrols and designing and staffing security check
points at various sites to cut down on trespassing and loitering. We
have just implemented a check-point service at all of our elderly sites
which has already given our elderly residents piece of mind which they
have not had in the past.
One of our most successful PHDEP funded programs has been our
investigative unit, composed of off-duty officers who target high crime
areas in and around our communities. It is this group that has
conducted all of the investigations which have lead to enforcement of
our ``One Strike, You're Out'' eviction policy for drug offenses.
Without this targeted assistance from PHDEP, we would not have the
evidence needed to evict residents who do not follow the rules. Without
PHDEP, the majority of law abiding public housing residents will again
be subject to being victimized by a few bad actors.
HUD Budget Proposal for the Public Housing Operating Fund
Is Not An Increase, As Stated, and Does Not Provide Sufficient Funds
For HUD to Meet Its Contractual Obligations To Housing Authorities
In its budget materials, HUD states that Public Housing Operating
Funds are increased by $150 million. In real terms, the alleged
increase actually results in a significant shortfall in the public
housing operating account.
The actual need, as defined by the current Performance Funding
System, for the Public Housing Operating Fund for fiscal year 2002 is
approximately $3.8 billion. In some places, HUD states that the
additional $150 million is to offset the loss of PHDEP funds of $309
million, in other places, it states that these monies are to fund
increased utility costs, estimated to be approximately $300 million,
and no where does it account for additional overall increases in
operating cost due to inflation, determined by OMB to be about $54
million. HUD proposes only to fund about $3.38 billion, leaving a
shortfall of between $400 and $500 million. This is in addition to
operating subsidy shortfalls that housing authorities have incurred
over the last 9 years totaling over $1.2 billion.
Escalating Energy Costs Have Diverted Housing Authority Funds from
Maintenance and Other Management Items and Should Be Restored
Soaring energy prices, coupled with severe winters, have resulted
in dramatic increases in energy prices. In both fiscal years 2000 and
2001, utility cost increases greatly outpaced HUD's estimates resulting
in a Public Housing Operating Fund shortfall today of approximately
$362 million for which housing authorities and public housing residents
have no source of payment. The $105 million identified in a recent HUD
Notice (PIH Notice 2001-9) that the Department says it will use to
cover utility cost increases in public housing are not additional
monies. These funds already have been appropriated by Congress to meet
operating needs in a given fiscal year, however, it appears HUD intends
to distribute them differently. We are not aware of any legal authority
that allows HUD to withhold these funds and redistribute them as the
Notice describes.
This amount consists of $50 million in undistributed funds from
fiscal year 2001 and $55 million in funds Congress appropriated over
the Administration's request in fiscal year 2001. Since HUD has not yet
notified PHA's as to whether they will receive full funding in fiscal
year 2001, or partial funding as has been the case in recent years, it
is not accurate to characterize this amount as a ``supplement'' to
assist with utility cost increases. The $55 million in undistributed
balances from fiscal year 2000--a year in which PHA's were funded at
only 98.5 percent of full eligibility under the established funding
formula is also not extra money. HUD's proposal is really recycled
funds held back from a previous funding year in which PHA's were not
fully funded--fiscal year 2000--and sets aside existing--and quite
possibly insufficient--fiscal year 2001 appropriations to cover cost
increases for certain PHA's. While nationally utility rates have
increased on average by about 20 percent, in
Atlanta, we experienced natural gas rate increases of about 100 percent
during the
winter months.
HUD's Proposed $640 Million Reduction In Housing Authority Section 8
Reserves Will Make Using Section 8 Vouchers Even More Difficult for
Low-Income Families
HUD's proposal to cut $640 million from the local housing
authority's Section 8 reserves will make it even more difficult than it
already is for families to use their Section 8 vouchers. As HUD and
Congress are aware, low-income families across the country are
reporting difficulty in using Section 8 vouchers due reduced
availability of decent housing at the price provided by the voucher.
Housing authorities have been using the 2 month reserve accounts
mandated by HUD to make additional
resources available, so that families can have more housing choices.
HUD, the pub-
lic housing authorities, residents, and other interested parties
gathered for a
Negotiated Rulemaking last year, as authorized in the Public Housing
Reform Act of 1998, determined that housing authorities needed at least
2 months of reserves to make the Section 8 program effective. HUD's
proposed reduction in the reserve accounts will mean fewer low-income
families will be able to use the Section 8 program to obtain decent
housing.
Summary
Members of the Committee, the country is awash in surpluses. At the
same time we are facing a national affordable housing crisis; working
families, elderly and the disabled are being priced out of the real
estate market. The President is proposing multibillion dollar tax cuts
and a limited 4 percent increase in domestic programs, though not for
public housing. Surely, no one could have intended that, in this period
of prosperity, benefits for low-income persons would be squeezed so
much to further those goals. We do not propose new activity. Unlike
other HUD budget items, public housing funds are designed to protect a
$90 billion existing asset for the country. We seek your help in
providing our 3.2 million residents decent and safe housing, and,
improving the lives for our elderly, disabled, youth, and working
families.
----------
PREPARED STATEMENT OF BARBARA SARD
Director of Housing Policy
Center on Budget and Policy Priorities
April 25, 2001
I appreciate the invitation to testify today. I am Barbara Sard,
Director of Housing Policy for the Center on Budget and Policy
Priorities. The Center is a nonprofit policy institute here in
Washington that specializes both in fiscal policy and in programs and
policies affecting low- and moderate-income families.
My testimony today focuses on the Administration's budget for the
Department of Housing and Urban Development in the context of the
persistence of affordable housing shortages and unmet housing needs for
low-income families and individuals. The testimony also discusses the
critical link between affordable housing and welfare reform, and
examines the Administration's proposals concerning the Sec-
tion 8 voucher program.
Affordable Housing Shortage and Unmet Housing Needs \1\
The strong economy during much of the 1990's helped lead to
significant increases in homeownership and an 8 percent drop from 1997
to 1999 in ``worst case'' housing needs among very low-income renters--
HUD defines ``worst case'' housing needs as unsubsidized renter
households with incomes at or below 50 percent of area median income
that pay more than half of household income for rent and utilities or
live in severely substandard rental housing. But the strong economy had
its downside as well, contributing to the continuing decrease in the
number of affordable housing units on the private market. Between 1997
and 1999, the total number of units affordable to renters with very
low-incomes--those with incomes below 50 percent of the area median--
fell by 1.14 million, a 7 percent decline in just 2 years. The supply
of rental housing is of major importance because one of every three
households rents its housing.
---------------------------------------------------------------------------
\1\ The data for this testimony have been culled from analyses of
the 1999 American Housing Survey by HUD staff and by Cushing Dolbeare
on behalf of the National Low Income Housing Coalition. See U.S.
Department of Housing and Urban Development, A Report on Worst Case
Housing Needs in 1999: New Opportunity Amid Continuing Challenges,
January 2001; U.S. Department of Housing and Urban Development, Office
of Policy Development and Research, U.S. Housing Market Conditions,
November 2000; and Cushing N. Dolbeare, ``Low Income Housing Profile,''
2001 Advocate's Guide to Housing and Community Development Policy,
National Low Income Housing Coalition, March 2001.
---------------------------------------------------------------------------
Despite increased involvement in the labor market, millions of poor
and near-poor families remain unable to afford decent housing. The most
recent data from the American Housing Survey show that in 1999,
approximately 4.9 million very low-income renter households that did
not receive housing assistance paid more than half of their income for
rent and utilities or lived in severely substandard housing. This means
that 10.9 million people, including 3.6 million children, 1.4 million
elderly, and 1.3 million disabled adults, have severe housing needs
that the Nation's economic progress has not remedied. Nonetheless, work
effort among households with worst case housing needs has increased. In
1999, 80 percent of households with worst case housing needs that had
an adult who was not elderly or disabled relied on earnings as their
primary source of income, compared with 74 percent of such households
in 1997.\2\
---------------------------------------------------------------------------
\2\ The analysis of the 1997 AHS data by the Joint Center for
Housing Studies of Harvard University contains more detail on working
families than HUD's latest report. Among unsubsidized very low-income
renters with earnings equal to or exceeding the equivalent of full-time
employment at the Federal minimum wage--$10,300 per year--71 percent
paid more than 30 percent of their income for housing costs. Most of
these cost-burdened families paid more than half their income for rent
and utilities despite their earnings. Joint Center for Housing Studies
of Harvard University, The State of the Nation's Housing 2000.
---------------------------------------------------------------------------
For more than three-fourths of the households with worst case
housing needs, a severe housing cost burden is their only housing
problem. Some 17 percent pay more than half their income to live in
physically inadequate or overcrowded housing. HUD's analysis of worst
case needs is restricted to households with incomes at or below 50
percent of area median who do not have housing assistance. HUD found
that in 1999, 14.3 percent of renters had worst case needs. If one
looks instead at the housing problems of all renters, without limiting
the analysis to those with very low-incomes and without housing
assistance, fully half of all renter households had either moderate or
severe housing problems in 1999.\3\
---------------------------------------------------------------------------
\3\ Moderate housing problems include paying more than 30 percent
of income for rent and utilities, overcrowding, and physical
deficiencies that are not considered severe. Dolbeare's detailed
analysis of the housing problems of renters in 1999 shows that 43
percent of all renters, regardless of income, had high housing cost
burdens, with 22 percent having severe housing cost burdens--paying
over 50 percent of income for rent and utilities--and another 21
percent having moderate housing cost burdens--paying 30-50 percent of
income for rent and utilities--twelve percent of renters lived in
housing with severe or moderate physical quality problems, and
5 percent of renter households were overcrowded. Most of these
households living in physically inadequate or overcrowded housing had
more than one housing problem.
---------------------------------------------------------------------------
Many communities have experienced an accelerated loss of affordable
rental units in recent years due to escalating rents, conversion of
rental housing to other uses, or abandonment. The number of units
affordable to renters with extremely low-incomes dropped by 750,000, or
13 percent, between 1997 and 1999. The number of units affordable to
households with incomes between 31 and 50 percent of the area median
income also declined. Some 400,000 such units either ceased to be used
as rental housing or increased in price sufficiently as to become
unaffordable for such households. In every region of the United States,
rental housing affordable to extremely low-income renters--those with
incomes at or below 30 percent of the area median income--was in
shorter supply than housing affordable to other income groups. The West
and the Northeast suffered particularly from having insufficient units
available for rent.
These changes in the housing market also have reduced the number of
housing units potentially available to families with Section 8
vouchers. Between 1997 and 1999, the number of units with rents below
the HUD-determined Fair Market Rent (FMR) dropped significantly.
Vacancy rates for units renting at or below the applicable FMR fell in
every region except the Midwest. Everywhere the units in shortest
supply were those with three or more bedrooms and rents below FMR,
making the search for housing particularly difficult for voucher
holders with three or more children. Not surprisingly, in every region,
suburbs had the lowest vacancies in units renting below the FMR. These
are the areas that are most likely to have the greatest job growth.
In addition, there is recent anecdotal evidence from many areas
that vacancy rates have declined far below the 5 percent level that is
generally considered the minimum for a healthy rental market. For
example, recent studies in Colorado have shown that the rental vacancy
rate in the Denver metropolitan area in the last quarter of 2000 was
4.7 percent. In the period from September 2000 to February 2001, the
rental vacancy rate outside of the Denver metro area fell from 4.1
percent--already very low--to 3.2 percent. Not surprisingly, rents have
escalated in these tight housing markets. The average rent in the
Denver area was $792.67 at the end of 2000, an increase of 8.1 percent
in 1 year. Statewide, rents rose 4.9 percent, to an average of $753.\4\
It is clear that finding available low-rent housing has become a
difficult proposition in urban and suburban communities alike.
---------------------------------------------------------------------------
\4\ Kristi Arellano, ``Rents Gain Eight Percent in Tight Market,''
Denver Post, January 25, 2001; Tom McGhee, ``Apartment vacancy rates
dip, rents up outside metro area,'' Denver Post, April 10, 2001.
---------------------------------------------------------------------------
Extremely low-income renter households have by far the greatest
incidence of acute housing problems. Fully 87 percent of these
renters--some 6.8 million households--had severe or moderate housing
problems in 1999. More specifically, 65
percent of extremely low-income renters had severe cost burdens, 14
percent had
moderate cost burdens, 15 percent lived in physically defective
housing, and 6 percent lived in overcrowded conditions. Some had
multiple problems.These data include a substantial number of households
receiving housing assistance. The vast majority of the households
living in physically defective or overcrowded housing also were paying
more than 30 percent of their income to rent such inadequate housing.
What should we learn from these data? That even if a rising tide
were to continue and were to lift all boats, so to speak--and there is
increasing evidence that neither assumption can be relied on--the boats
of far too many of our citizens would still be leaking. That is, even
if their incomes did rise, without additional resources, millions of
extremely low-income families will remain unable to obtain decent
quality housing that they can afford. In many areas and for many
families, new housing needs to be constructed or run-down housing fixed
up to solve the problems of poor housing quality, overcrowding, and low
vacancy rates that are driving up prices. For other areas and other
families, rental assistance alone will remedy their housing problems.
Any effort to produce or rehabilitate additional housing should focus
primarily on extremely low-income households, as these are the
households with the greatest needs.
Lack of Affordable Housing May Undermine Welfare Reform Efforts
Most families that leave welfare for work do not earn enough to
afford decent quality housing. Typically, households that previously
received welfare benefits and have at least one working member earn
less than $3,500 per quarter--many studies report average earnings far
below this amount.\5\ Even if these earnings continue without periods
of unemployment or underemployment, which is unlikely, families with
incomes of $14,000 per year typically must pay more than half their
income for decent housing if they do not have housing assistance. On
average, a family must earn at least $12.47 per hour of full-time
work--about $25,000 per year--to afford a two-bedroom housing unit at
the Fair Market Rent. In no county, metropolitan area, or State does a
family earning the equivalent of full-time employment at the minimum
wage have enough income to pay the Fair Market Rent for housing with
one or more bedrooms without spending more than 30 percent of income
for rent and utilities.\6\ Federal guidelines set during the Reagan
Administration provide that rental housing is affordable when the costs
of rent and utilities do not exceed 30 percent of a family's adjusted
income.
---------------------------------------------------------------------------
\5\ See studies gathered in Barbara Sard and Jeff Lubell, The
Increasing Use of TANF and State Matching Funds to Provide Housing
Assistance to Families Moving from Welfare to Work, Center on Budget
and Policy Priorities, February 2000, p. 18, notes 46-49, available on
the Internet at http://www.cbpp.org/2-17-00hous.pdf, and in U.S.
Department of Health and Human Services, Office of Assistant Secretary
for Planning and Evaluation, ``Leavers'' and Diversion Studies: Summary
of Research on Welfare Outcomes Funded by ASPE, available on the
Internet at http://aspe.os.dhhs.gov/hsp/leavers99/ombsum.htm. Studies
of welfare leavers' household incomes generally look at income on a
monthly or quarterly basis, rather than annually.
\6\ National Low Income Housing Coalition, Out of Reach 2000: The
Growing Gap Between Housing Costs and Income of Poor People in the
United States, September 2000, available on the Internet at
www.nlihc.org.
---------------------------------------------------------------------------
Families that pay too much of their income for housing or live in
severely inadequate or overcrowded housing may have to move frequently.
Such moves may interrupt work schedules and jeopardize employment and
also may adversely affect children's educational progress. A recent
study in Ohio found that 42 percent of families that had recently left
welfare and paid more than half their income for housing moved in the 6
month period after leaving welfare. In contrast, roughly 8 percent of
the general population moves in a 6 month period.\7\
---------------------------------------------------------------------------
\7\ Claudia Coulton et al., Issues of Housing Affordability and
Hardship Among Cuyahoga County Families Leaving Welfare Quarter 4,
1998-Quarter 3, 1999, Center on Urban Poverty and Social Change,
Special Topics in Welfare Reform Report No. 1, 2001.
---------------------------------------------------------------------------
High housing costs can leave families with insufficient remaining
income for basic necessities or to pay for child care, clothing for
work, transportation, and other expenses that often must be met if
families are to navigate successfully the transition from welfare to
work. Without housing subsidies or other assistance to help families
close the gap between housing costs and limited incomes, families may
not be able to move to areas with greater employment opportunities. By
helping recipients rent apartments they could not otherwise afford,
tenant-based subsidies can enable poor families to move to areas with
better access to jobs or to areas where parents feel safe enough to go
to work and leave older children unattended or return from work at
night on public transportation. In many areas, however, vouchers must
be coupled with strategies to increase the production of units that
families can rent with their vouchers.
Affordable housing also may enhance welfare reform efforts.
Research increasingly suggests that vouchers and other Government
housing subsidies can help promote work among long-term welfare
recipients when combined with a well-designed welfare reform program.
Of particular note is the recently released evaluation of the Minnesota
Family Investment Program (MFIP) by the Manpower Demonstration Research
Corporation (MDRC). Taken as a whole, the gains it found--including
reductions in poverty, increases in employment and earnings, and even
increases in marriage--are among the strongest ever documented for a
welfare reform undertaking in the United States. Most of the success of
MFIP was due to the substantial increases in employment and earnings it
generated among families receiving housing assistance, primarily
Section 8 vouchers, in contrast to the limited or no gains among
families without housing assistance. This is one of a growing number of
studies that find significantly greater welfare reform effects among
families with housing vouchers--and sometimes other forms of housing
assistance--than among other low-income families, suggesting that
housing assistance may enhance the effects of welfare reform strategies
in promoting employment.\8\
---------------------------------------------------------------------------
\8\ Center on Budget and Policy Priorities, ``Research Evidence
Suggests That Housing Subsidies Can Help Long-Term Welfare Recipients
Find and Retain Jobs,'' June 2000, available on the Internet at http://
www.cbpp.org/6-27-00hous.htm; Cynthia Miller, Virginia Know, Lisa A.
Gennetian, Martey Dodoo, Jo Anna Hunter, and Cindy Redcross,
``Reforming Welfare and
Rewarding Work: Final Report on the Minnesota Family Investment
Program, Vol. 1: Effects
on Adults.'' New York: Manpower Demonstration Research Corporation,
August 2000. See
also, Barbara Sard and Jeff Lubell, The Value of Housing Subsidies to
Welfare Reform Efforts,
Center on Budget and Policy Priorities, February 2000, available on the
Internet at http://www.cbpp.org/2-24-00hous.htm.
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The current shortage of affordable housing and the critical link
between housing and welfare reform underscore the need for additional
funds for housing vouchers, as well as for the production of new rental
housing. The fact that millions of families are paying a
disproportionate share of their income on rent or are living in
substandard housing should signal that significant investments in low-
income housing programs are overdue. To fail to make such investments
when as a Nation we have the necessary resources will only exacerbate
these problems.
The HUD Budget Proposals
In light of the affordable housing shortage, the millions of
families with worst case housing needs, and the apparent importance of
affordable housing to sustaining progress in the transition of families
from welfare to work, the Administration's new housing budget proposals
must be carefully examined. Other witnesses today will explain how
proposed reductions in public housing funds may over time reduce the
number of livable public housing units, and in the short run may reduce
the qual-
ity of life for families with children and elderly and disabled
individuals living in
public housing.
I will address the Administration's housing voucher proposals. In
particular, I
will discuss the proposal to increase the number of families and
individuals receiving housing vouchers by less than 40 percent of the
number of additional vouchers funded in 2001. In addition, I will
discuss why the proposed halving of Section 8 reserve funds may, if
enacted without change, result in fewer families receiving voucher
assistance without an explicit decision by Congress to take such a
step.
Reducing Section 8 reserves also is likely to make it more difficult
for families
that do receive vouchers to use them, particularly in areas with
greater employment opportunities.
Incremental Vouchers: Less than 40 Percent of Number Funded in Fiscal
Year 2001
The Administration's budget includes a request for $197 million for
33,700 incremental vouchers. While we strongly support the funding of
additional Section 8 vouchers, we respectfully suggest that this
proposal is inadequate in light of the magnitude of families' needs and
the essential role of vouchers in a comprehensive housing strategy.
The Administration's proposed increase in the number of new
vouchers is less than 40 percent of the number of additional vouchers
funded in 2001. In the fiscal year 2001 budget, Congress provided
funding for 79,000 so-called ``incremental'' housing vouchers, as well
as 8,000 new vouchers for disabled applicants. Despite the labels, both
sets of new vouchers represent additions to the overall supply of
Federal housing subsidies. If any of these 8,000 earmarked vouchers are
not needed to offset the reduction of housing opportunities for
disabled persons that occurs when certain developments are restricted
to elderly tenants--so-called--``designated housing''--the remaining
vouchers are made available to agencies that are willing to distribute
them to disabled applicants. The designation of public housing or
privately owned assisted housing as elderly-only does not displace
disabled tenants in residence. It does, however, prevent new disabled
individuals from residing in the buildings. Because the earmarked
vouchers are not used for the relocation of current assisted tenants,
but only for new applicants, they increase the supply of federally
assisted housing. In fact, then, 87,000 new, incremental vouchers were
funded in fiscal year 2001. In contrast, the Administration has
proposed only 33,700 ``incremental'' vouchers and no additional
vouchers for disabled applicants.
The HUD briefing book states, ``PHA's will be encouraged to provide
up to $40 million in voucher funds for nonelderly disabled persons.''
It is unclear what steps HUD intends to take and what the likely
results may be. The most that PHA's could be asked to do, however,
would be to move disabled applicants ahead of others on their waiting
lists. Encouraging PHA's to rearrange their waiting lists does not
increase the supply of housing assistance--it only serves to delay
further the receipt of voucher assistance by other applicants.
Moreover, the chances that HUD's actions will result in additional
vouchers for disabled applicants appear to be slim, in light of HUD's
previous reluctance to prescribe conditions for approval of designated
housing plans. This is of particular concern in light of HUD's recent
finding that very low-income households with disabled members have a
higher incidence of worst case housing problems than any other
group.\9\
---------------------------------------------------------------------------
\9\ HUD 2001 at 5.
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Ten Thousand Fewer ``Tenant Protection'' Vouchers
In addition, the Administration's budget reduces another component
of new voucher funding in comparison with the fiscal year 2001 budget
approved by Congress. The Administration seeks funding for only 30,300
``tenant protection'' vouchers in fiscal year 2002. For the current
year, Congress appropriated funding for 40,300 ``tenant protection''
vouchers--10,000 more than the Administration proposes. Tenant
protection vouchers provide continuing housing assistance when public
housing is demolished or private owners terminate their HUD contracts.
If such vouchers are distributed only to families that previously
received Federal housing assistance, they are not ``incremental''
vouchers because the number of federally assisted units is not
increased. In such cases, the number of families with voucher
assistance increases while the number of families with public housing
or project-based Section 8 assistance decreases by an equivalent
amount.--When PHA's receive vouchers to replace previously unoccupied
and uninhabitable public housing units, however, tenant protection
vouchers represent a real increase in the number of households
receiving Federal housing assistance.
It is possible that HUD anticipates fewer public housing
demolitions and/or fewer Section 8 opt-outs in fiscal year 2002 than in
recent years, and thus less need for tenant protection vouchers. HUD
has not provided a rationale for the reduced request for tenant
protection vouchers, and it is not clear if or why there would be less
need for such vouchers next year.
It is important to note, however, that the proposed budget language
deletes the HOPE VI program--Section 24 of the U.S. Housing Act--from
the list of the purposes for which tenant protection vouchers may be
issued. This may indicate that HUD is not intending to provide new
voucher funding to replace previously unoccupied units that are
demolished with HOPE VI funds. (HUD's policy has been to provide such
replacement vouchers when requested by a PHA.) In addition, HUD may be
expecting that new voucher funding needed to relocate families in
conjunction with HOPE VI demolition or revitalization grants will come
from the HOPE VI account. This, however, would force PHA's that did not
want to reduce the amount of HOPE VI grant funds available for
construction of replacement public housing units to relocate families
using existing resources--either vacant public housing units in other
developments or vouchers that become available through turnover. If
displaced public housing tenants get priority for these existing
housing resources, families on the agencies' waiting lists will have to
wait longer to receive housing assistance. Either possibility would
mean a net reduction in the supply of federally assisted housing, as
the number of newly constructed or rehabilitated public housing units
plus new vouchers would be less than the number of public housing units
demolished.
Potential Problems with Reduction of Section 8 Reserves From Two to One
Month
The Administration's budget proposes to reduce PHAs' reserves for
the Section 8 voucher program from 2 months to 1 month of annual budget
authority in fiscal year 2002. This proposal would ``save'' $640
million in budget authority, which the Administration uses to offset
the cost of renewing Section 8 contracts in fiscal year 2002. While
this proposal may appear to be harmless, for the reasons discussed
below it may result in a silent reduction in the number of families
receiving voucher assistance. It also may discourage PHA's from taking
the actions necessary to use all their voucher funds and to facilitate
families' moves to better neighborhoods. In 1999, senior HUD staff
expressed their belief that the 2 month reserve is necessary and that
reducing it to 4 weeks would represent ``a serious threat to housing
the baseline families.'' \10\ HUD has not released any analysis
indicating a basis to change this conclusion.
---------------------------------------------------------------------------
\10\ See Summary of the Negotiated Rulemaking Session of July 19-
20, available on the Internet at http://www.hud.gov/pih/programs/s8/
jul19-20.pdf, page 3.
---------------------------------------------------------------------------
As described below, reserves play an important role in the Section
8 program even for the agencies that do not draw on them. The
Administration's proposal to reduce Section 8 reserves by half may
undercut efforts to increase the utilization of voucher funds and to
make families' search for housing more successful.
At best, the Administration's proposal would result in only a one-
time savings of budget authority and make no difference in outlays--
there would be no effect on outlays if all PHA's can serve the
anticipated number of families with only 1 month of reserves. This is
unlikely to be the case, however, for some PHA's, as explained below.
The BA savings would result from recapturing reserve funds that are not
spent in fiscal year 2001 and not having to reallocate these funds in
fiscal year 2002. After fiscal year 2002, the status quo of 1 month of
reserves would be maintained, and there would be no further BA savings.
This means that for the fiscal year 2003 budget, an additional $640
million in BA--plus inflation--will be required to renew Section 8
contracts in comparison with fiscal year 2002, on top of the increase
that will otherwise be required to renew additional expiring contracts
and maintain assistance to the same number of families. Today's
``savings'' may set up tomorrow's program cut.
A Possible Compromise: A HUD Headquarters Reserve
There may be a compromise solution that would allow the one-time
recapture of some Section 8 budget authority while ensuring that funds
are available to those PHA's that need them. Instead of continuing to
commit $640 million in budget authority to a second month of reserve
funding for each PHA, some lesser amount could be placed in a HUD
headquarters reserve. Funds from the headquarters reserve would be
available to those agencies--probably less than half of all PHA's--that
need more than 1 month's reserve to provide voucher assistance to the
number of families they are authorized to serve. Through such a
mechanism the problems detailed below could potentially be avoided.
In addition to stating clearly that HUD is permitted to hold a
certain amount of appropriated funds in a headquarters reserve, it
would be important for Congress to direct HUD to establish a simple and
reliable method for PHA's that need additional funds to obtain them to
serve the number of families authorized by HUD. As explained below, if
PHA's do not trust HUD to make needed funds available, they are
unlikely to incur additional costs in their voucher programs, and as a
result problems with using vouchers are likely to increase.
The voucher statute authorizes a HUD headquarters reserve. In
merging the certificate and voucher programs into a voucher-based
model, Congress authorized the HUD Secretary to set aside up to 5
percent of annual Section 8 budget authority as an ``adjustment pool.''
The stated purpose of the set-aside is to permit PHA's to increase
their voucher payments so that the change from a certificate to a
voucher form of assistance does not require families to pay too much of
their income for housing.\11\ Despite this authorization, the
appropriations committees and the Congress have in the past directed
that funds that were not obligated to PHA's were to be recaptured and
rescinded.
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\11\ See 42 U.S.C. Sec. 1437f(o)(1)(C). Under the certificate
program, families paid 30 percent of their income for rent and
utilities. The PHA paid the remainder of the rental charge to the
owner. Certificates could be used only in units that rented below the
HUD-determined Fair Market Rent. Under the new merged voucher program,
PHA's set a voucher payment standard between 90 and 110 percent of the
FMR, with some exceptions. Families can choose to rent units with costs
that exceed the PHA's payment standard--if the PHA determines that the
rent is reasonable. If they rent much more expensive units they pay 30
percent of their income plus the rent in excess of the payment
standard.
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The paramount goal in considering the Administration's proposal to
reduce Section 8 reserves should be to keep the commitment to renew
fully all expiring Section 8 contracts. This requires the appropriation
of sufficient funds to provide voucher assistance to the total number
of families that Congress has authorized over the years. A technical
change in Section 8 reserves must not operate as a largely invisible
means to shrink the size of the Section 8 voucher program. If access to
reserves is restricted, agencies with annual budgets that do not
include sufficient funds to meet increased costs may be required to
reduce the number of families served and possibly to terminate rental
assistance payments to property owners, causing families to lose their
housing. Even for agencies that do not need to draw on reserve funds to
maintain assistance to families, the reduction in reserves may
discourage adjustments in voucher payments to meet rising rent and
utility costs. If agencies do not increase voucher payments despite
increased housing costs, more families may be unable to use their
vouchers or may be restricted to areas of poverty and minority
concentration. As a result, the Administration's proposal to reduce
Section 8 reserves by half may undercut efforts to increase the
utilization of voucher funds and to make families' search for housing
more successful.
Below is a brief explanation of why up to 2 months reserves in
addition to annual funding may be important for the effective operation
of the voucher program.
The Role of Reserves in the Renewal of Section 8 Funding
Most Section 8 voucher contracts between HUD and PHA's are annual.
Under the current system of renewing voucher contracts, a PHA receives
a budget allocation in advance of the calendar year based on its prior
fiscal year's average cost per month for each family assisted.\12\ HUD
adjusts the prior year's average cost for inflation and multiplies the
adjusted average cost by the number of vouchers the PHA is authorized
to administer. If a PHA's costs in 2002 are much higher than the base
year's costs plus the inflation factor that was used to calculate the
PHA's budget, it will not have enough funds in 2002 to pay landlords
unless it reduces the number of families it serves.
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\12\ The renewal formula may be based on actual costs two fiscal
years previously, depending on the timing of the PHA's fiscal year in
relation to the calendar year, the PHA's provision of an audited year
end statement to HUD, and HUD's review.
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The negotiated rulemaking panel that helped HUD develop the new
renewal policy recognized the weakness of a methodology that calculates
the cost of renewing voucher contracts based on previous average
costs--I was a member of that panel. To remedy this problem, access to
reserves is a linchpin of the new renewal policy. Each year, HUD
generally sets aside an amount equal to 2 months of each PHA's annual
budget as program reserves. If a PHA has not used any of its reserves
in the previous year, the existing reserve is merely adjusted to be
equal to 2 months' worth of a given year's budget. PHA's that have not
been found by HUD to have serious management deficiencies may draw on
at least 1 month's reserve, and a second month with HUD approval, to
meet the costs of assisting the authorized number of families--if a PHA
uses its reserves to serve additional families, in excess of the number
authorized by HUD, HUD will not reimburse the PHA and the PHA will have
to operate with reduced reserves. \13\
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\13\ HUD explained the critical role of PHAs' increased flexibility
to access reserves and how the new reserve policy works in a notice
issued April 19, 2000. See 65 Fed. Reg. 21,090.
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Reasons a PHA's Average Costs May Increase
A PHA's average cost to provide housing assistance through the
voucher program may increase from year-to-year for a number of
reasons--average costs also may decrease, but decreased costs do not
require the use of reserves. The most obvious is an increase in the
voucher payment standard, which determines the maximum amount a PHA
contributes for a family's rent and utility costs. Generally, PHA's may
set the payment standard between 90 and 110 percent of the HUD-
determined Fair Market Rent, and may set the payment standard higher or
lower with HUD approval.
HUD publishes FMR's annually. When rent and utility costs are
increasing, it is likely that FMR's will increase as well. When HUD
increases the applicable FMR, a PHA is likely to increase its payment
standard. A PHA also may exercise its discretion to increase its
payment standard in light of escalating housing and utility costs. If
PHA's in areas hit by rapidly rising rents and/or utility costs are
forced by a reduction in reserves to choose between a needed increase
in the payment standard and a reduction in the number of families they
can assist, families in need of housing assistance, as well as those
that already have vouchers may suffer as a result. If a PHA responds to
the quandary by keeping payment standards down, families that receive
vouchers may not be able to use them and those that already have
voucher assistance will have to pay an increased share of income if
rent or utility costs increase. If a PHA instead chooses to increase
its voucher payment standard, families on the waiting list will have to
wait longer to receive assistance.
Recently, HUD has increased FMR's substantially in many areas to
help deconcentrate the areas in which voucher holders locate within a
metropolitan area and to enhance the likelihood that families will
succeed in using their vouchers. In January 2001, HUD increased the FMR
to the 50th percentile--from the 40th percentile--in 39 metropolitan
areas that contain about 500 PHA's. HUD made this change based on data
indicating that in these areas, Section 8 users were overly
concentrated in a small number of census tracts. In calendar 2002,
these PHA's will receive renewal funding based at least in part, and
possibly entirely, on their costs prior to the FMR increase. They are
unlikely to have sufficient funds within their annual budgets to
provide assistance to the number of families they are authorized to
serve without using reserves.
Similarly, beginning in October 2000 HUD has permitted PHA's with
voucher success rates below 75 percent to increase their payment
standards as if their FMR's had been increased to the 50th percentile.
Agencies that have used this new flexibility to increase their voucher
payment standards, enabling voucher holders to find qualifying units,
also will need to access reserves to avoid reducing the number of
families served. Reducing reserves in 2002 may undermine the
programmatic gains achieved through these changes.
HUD has indicated that the fiscal year 2002 FMR's are likely to be
substantially higher in many areas due to increased rents and utility
costs. To implement the increased FMR's without reducing program size,
more PHA's are likely to need to draw on reserves, as their 2002
budgets will be based on the lower costs they incurred in 2000 or 2001.
Vulnerability of Small PHA's to Increased Costs
Small PHA's and the families they serve are particularly vulnerable
to a reduction in Section 8 reserves. About 1,800 of the 2,600 PHA's
that administer the voucher program have fewer than 250 vouchers. Such
small agencies have virtually no cushion in their regular annual
budgets to accommodate a sharp cost increase, even for a few families.
If an unusual number of large families come to the top of the waiting
list or a few families move with their vouchers from inexpensive rural
communities to more expensive cities or suburbs in search of work, an
Agency's average costs could substantially exceed its budget. In such a
case, the PHA must rely on reserves to assist as many families as it is
authorized to assist.
Similarly, an Agency may issue vouchers to additional families to
achieve full utilization of its voucher funds, expecting that not all
families will succeed in finding units. If more families than
anticipated do succeed, however, a small PHA will not have the
flexibility in its regular budget to meet its full obligations. It will
need to draw on reserves to make payments to owners until some families
leave the program through attrition.
The Completion of the Merger of the Certificate and Voucher Programs
May Affect Program Costs in 2002
In addition to the general factors that may affect a PHA's need to
access reserves--such as rising costs or small agency size--reducing
reserves in 2002 may be particularly risky. The first full year of
complete merger of the certificate and voucher programs will be 2002--
HUD rules required up to a 2 year lag to convert families from the
certificate program to the new voucher program. Conversion will not be
complete until October 2001. Because subsidies were generally capped at
the FMR in the certificate program, but may exceed the FMR in the
voucher program, it is reasonable to anticipate that conversion will
cause some increase in average costs. This is likely to be the case
even in areas that have not experienced rapid increases in rent and
utilities in the last 2 years. Renewal funds in 2002 are based on a
PHA's actual costs in 2000 or 2001, when most families were still under
the certificate program. As a result, many PHA's may need to access
their reserves to continue providing assistance to families previously
on the Section 8 certificate pro-
gram, as well as to new families that receive vouchers that become
available through turnover.
The Role of Reserves in Influencing PHA Decision-Making
There is an important subjective factor that must be considered in
assessing the likely impact of the proposed reduction in reserves to 1
month. To avoid exhausting their budgeted resources, many PHA's would
be likely to avoid increasing their average costs. If they are limited
to 1 month's reserves rather than the extra cushion that 2 month's
reserves provides, PHA's may be discouraged from increasing their
voucher payment standards. This may be especially true if HUD were to
return to the practice of making PHA's provide burdensome justification
of the need to access reserves before granting permission. If PHA's
decline to increase payment standards in order to avoid having to
request access to reserves, with the resulting risk of HUD's delay or
denial, fewer units will fall within the price range accessible to
families with vouchers. Families may have less success in using their
vouchers and voucher holders may be further concentrated in poor
neighborhoods. The net result may be that PHA's are unable to use all
the funds appropriated for the voucher program, reducing the number of
families receiving Federally assisted housing.
Predicting Need for Reserves Based on Available Data
A comprehensive analysis of the potential problems that may be
caused by reducing Section 8 program reserves by half requires current
data on reserve use, as well as projections using current cost data.
HUD will hopefully make such data publicly available.
Data models that were developed for the 1999 negotiated rulemaking
on the Section 8 renewal formula may, however, be instructive. HUD had
consultants model the likely need for reserve usage under the renewal
system ultimately adopted--as well as under other proposed methods.
Based on actual costs in the mid-90's, the model showed that
approximately 15 percent of PHA's would need to use 1 month or more of
their reserves in order to serve the authorized number of families
during the period between incurring increased costs and receiving
increased funding. Due to the factors enumerated above which are likely
to cause actual average costs to increase to an unusual extent in 2002,
the projection that about 15 percent of PHA's would need more than 1
month's reserves to maintain program size under the current renewal
funding system is likely to understate the number of PHA's that may
need to use a second month of reserve funds in 2002.
The model shows that if PHA's experience ``extreme variation'' in
costs, with average monthly costs changing from $460, to $650, to $690,
to $500 over a 4 year period, such PHA's would need all 2 months of
reserves in year 2 to maintain program size, in year 3 the 2 months of
reserves--assuming HUD had replenished the reserve account--would be
insufficient to provide assistance to the authorized number of
families. If such PHA's did not receive additional funds on top of
their 2 months of reserves, they would have to reduce the number of
families served in year 3. If enough households did not leave the
program to reduce program size by attrition, some families' subsidies
would have to be terminated. In either case, such PHA's would not be
able to issue vouchers in year 3 to any families on the waiting list;
they would have to reduce the number of families served to try to stay
within budgeted funds plus available reserves. If PHA's incur increased
average costs but have only 1 month's reserve available, they would be
forced to reduce the number of families served more rapidly than under
this model. If attrition is not sufficient to keep program costs within
the annual budget plus 1 month reserves, payments to property owners
would have to be terminated and families would lose their housing.
Conclusion
A decade of prosperity has done little to alleviate America's
housing needs. The recent reduction in the number of families with
severe housing needs is good news, but at the same time the decrease in
the number of affordable rental units on the private market has
accelerated. Half of all renters--about one-sixth of the households in
this country--have moderate or severe housing problems; 4.9 million
very low-income households without housing assistance pay more than
half their income for housing or live in severely substandard housing.
Relatively few of these households are likely to benefit from the
Administration's proposed tax credit to reduce the costs of
homeownership. The Administration's HUD budget request largely fails to
respond to this unmet need for affordable rental housing.
The Administration's request for 33,700 incremental vouchers is a
positive step but one that does not go far enough in light of the
magnitude of unmet needs. The requested increase is less than 40
percent of the 87,000 additional vouchers approved for fiscal year
2001--79,000 ``fair share'' vouchers and 8,000 for the disabled.
Further, the proposed reduction of 10,000 ``tenant protection''
vouchers compared with fiscal year 2001 may reflect a real decrease in
the supply of federally assisted housing. The proposed increase of $2.2
billion to renew expiring Section 8 contracts does not represent more
households receiving Federal housing assistance. This increase in
budget authority is like a mirage: it looks good until one looks at it
closely, and then it disappears. No additional families receive Federal
housing assistance as a result of this increase in budget authority--it
is merely the necessary means to transform multiyear obligations into
annual funding. Indeed, the $2.2 billion requested increase for Section
8 renewals may be less than is required, as it relies on the offset of
$640 million from public housing Agency reserves for the voucher
program. To realize this offset the Administration proposes to reduce
PHA reserves from 2 to 1 month. This proposed reduction may require
PHA's with significant cost increases to reduce the number of families
they serve.
Rather than renewing all expiring Section 8 contracts as it
purports to do, the Administration's budget may require a reduction in
the number of families served by the voucher program. In addition, if
the reduction in program reserves deters PHA's from increasing voucher
payments when rents and utility costs increase, fewer families may be
able to obtain housing with their vouchers and more voucher funds would
not be utilized.
In this era of budget surpluses, we can and should help provide
more families with the decent, affordable housing they cannot obtain on
the private market. A greater share of households with so-called worst
case housing needs are working than ever before, but their earnings are
not sufficient to enable them to obtain decent housing they can afford.
Lack of affordable housing may undercut the success of welfare reform
by making it more difficult for families to obtain and retain
employment. If we really want to leave no child behind, we must
increase our investment in low-income housing substantially through
production and rehabilitation of rental housing and additional housing
vouchers.
RESPONSE TO WRITTEN QUESTIONS OF SENATOR SARBANES FROM MEL
MARTINEZ
Capital Fund Unexpended Balances
Q.1.a. During your testimony, you stated that Public Housing
Authorities had a large amount of unspent Capital Funds. Which
PHA's have unexpended balances in the Capital Fund? Please
provide detailed information on how much and what percentage of
each PHA's funds are unexpended.
A.1.a. See the attached reports which are being submitted and
contain the requested information for the top 100 PHA's. A com-
plete report containing this information for each of the over
3,200
PHA's is approximately 600 pages in length, and is available
upon
request.
Q.1.b. When did these PHA's receive the funds that are
currently unexpended?
A.1.b. See the report submitted in response to Q.1.a. The
Federal fiscal year designator is used to identify the funding
source year.
Q.1.c. Which PHA's have unobligated balances in the Capital
Fund? Please provide detailed information on how much and what
percentage of each PHA's funds are unobligated?
A.1.c. See the report submitted in response to Q.1.a.
Q.1.d. When did these PHA's receive the funds that are
currently unobligated?
A.1.d. See the report submitted in response to Q.1.a. The
Federal fiscal year designator is used to identify the funding
source year.
Q.1.e. Which PHA's with unexpended balances have failed to meet
the time deadlines for expenditure established in the 1998
Public Housing Reform Act?
A.1.e. For Federal fiscal years 1996, 1997, 1998, and 1999, the
Office of General Counsel advised that, with respect to the 2
and 4 year obligation and expenditure deadlines, the language
in the 1998 Public Housing Reform Act did not apply. The Annual
Contributions Contract for fund obligation was signed on
different dates near the end of the fiscal year for each PHA.
Therefore, the Department used September 30 as the date for
starting the clock on fund obligation and expenditure. The
obligation and expenditure period based on prior regulations
and notices was as follows:
Federal fiscal year 1996. Obligation Deadline: 3/31/98.
Federal fiscal year 1996. Expenditure Deadline: 9/30/99.
Federal fiscal year 1997. Obligation Deadline: 3/31/99.
Federal fiscal year 1997. Expenditure Deadline: 9/30/00.
Federal fiscal year 1998. Obligation Deadline: 3/31/00.
Federal fiscal year 1998. Expenditure Deadline: 9/30/01.
Federal fiscal year 1999. Obligation Deadline: 3/31/01.
Federal fiscal year 1999. Expenditure Deadline: 9/30/02.
The language in the PHRA does apply to funds provided in
Federal fiscal year 2000. However, this was the first year of
program implementation and the PHA's were not made aware of
their funding amounts until June and they signed their ACC's
thereafter. Therefore, HUD will use September 30 as the start
date and the funds must be obligated under the statute by
September 30, 2002 and expended by September 30, 2004.
Q.1.f. Which of these PHA's has HUD worked with to identify the
cause of delays?
A.1.f. Currently, there is not a data system that collects such
information. However, it is standard operating procedure for
HUD staff, when reviewing PHA performance, to provide technical
assistance to PHA's that are performing poorly or to declare
them troubled and assist them through the Troubled Agency
Recovery Centers.
Q.1.g. Which of these PHA's has HUD provided assistance to in
correcting problems related to unexpended balances?
A.1.g. As a matter of operating procedures, when HUD staff meet
with a PHA, either on a monitoring visit or in providing
program technical assistance, the issue of obligations and
expenditure of funds in a timely manner is raised. In the past
several years, notices and general letters have emphasized to
housing authorities their need to move funds through the
pipeline expeditiously and responsibly.
Section 8 Program Reserves
Q.2.a. HUD's budget proposes to reduce the amount of reserves
in the Section 8 program from 2 months to 1 month. This
represents a reduction of almost $640 million available for
operating the Section 8 program. During the Negotiated
Rulemaking on the Housing Certificate Fund, senior HUD staff
indicated that a reduction in reserves to 1 month ``would
represent a serious threat to housing baseline families'' and
that the 2 month reserve is necessary. The Negotiated
Rulemaking recommendations on Section 8 also reiterate that a 2
month reserve is necessary. What data do you have to show that
there has been a change in the last year that would reduce the
need for reserves, as determined in the Negotiated Rulemaking?
A.2.a. Because most PHA's continue to be under leased, a
limited number access reserves to any significant degree. While
the Department foresees some increased use of reserves in the
future, it cannot currently justify maintaining a 2 month--\1/
6\ of budget--reserve level, given that PHA's are not generally
relying on reserve funding. The Department has the capability
to shift the necessary funding to protect families in instances
in which a 1 month reserve proves to be inadequate.
Q.2.b. Did HUD conduct an analysis of the need for Section 8
reserves prior to the budget submission? Please provide this
analysis if it was completed.
A.2.b. After the fiscal year 2000 recapture, there were
approximately 165 PHA's that required varying degrees of
restoration of reserves to maintain a 2 month reserve. The
total cost of such a reserve restoration is a modest $47
million. There are only 130 PHA's that have accessed the 2nd
month of reserves. Restoration of a 1 month--\1/12\ of budget--
reserve level for these PHA's would cost only $7.4 million.
Please see the attached restoration of the
1 month reserve list.
Q.2.c. Has HUD done an analysis of how many and which PHA's are
using more than 1 month of reserves, and how many and which
PHA's have requested the ability to use more than 1 month of
reserves? Please provide any data/analysis on the use of
reserves by each PHA, and requested use of reserves.
A.2.c. As indicated previously, there are only 130 PHA's that
have accessed the 2nd month of reserves. In order to restore a
1 month--\1/12\ of budget--reserve level, HUD would need to
allocate $7.4 million to these PHA's reserve accounts. Please
see the attached restoration of 1 month reserve list.
Q.2.d. Policy changes may result in increased use of reserves
by PHA's. What are HUD's projections of how many and what PHA's
will need to use more than 1 month of Section 8 reserves based
on recent and expected increased FMR's and payment standards?
A.2.d. The PHA's that will be most impacted by FMR increases
and payment standard increases are generally the PHA's with the
lowest utilization rate. HUD hopes that over time these PHA's
will
increase their lease-up rates so as to approach 100 percent
utilization. Once they achieve full utilization they will
perhaps need to access reserve funding. HUD does not believe
that these reform measures will lead to accessing more than 1
month--\1/12\ of budget--of established reserve levels in 2002.
Voucher Utilization
Q.3.a. You note in your testimony that voucher utilization is a
major concern to the Department and to families who are in need
of housing assistance. You said that 300,000 families were not
assisted last year because of unutilized vouchers. Of these
300,000 vouchers, how many were newly allocated in fiscal year
2001?
A.3.a. HUD has allocated almost 79,000 new incremental vouchers
for fiscal year 2001. At this time, the Department is in the
process of obligating these vouchers to the PHA's.
Q.3.b. Of these 300,000 vouchers, how many were special purpose
vouchers--that is reserved for litigation, etc.?
A.3.b. HUD's data systems only track utilization at the housing
authority level. HUD is in the process of upgrading its data
systems to keep closer track of utilization and to be able to
track utilization rates associated with special allocations.
Because of the importance of this issue, this system upgrade is
in the process of being funded on a priority basis this year.
Q.3.c. What is HUD's analysis of the reasons that the remainder
of vouchers went unutilized?
A.3.c. There are a number of reasons that PHA's do not fully
use their allocation of vouchers. In some instances, there is
simply a scarcity of units that voucher assisted families can
afford. PHA's have tools at their disposal to ameliorate this
situation, including the ability to: (1) raise payment
standards up to 110 percent of the Fair Market Rent; (2) reach
out and recruit landlords; (3) counsel families so that they
can focus their search in areas where they have a greater
chance of success; (4) use exception rents, and (5) give
families extra time to find a unit. HUD has adjusted the Fair
Market Rent to the 50th percentile in some areas with tight
rental markets to expand the pool of affordable housing. If a
HUD established Fair Market Rent appears to be inadequate,
PHA's can conduct a ``Random Digit Dialing'' survey of the
local market and based on the results request a change to the
Fair Market Rent. Many PHA's do not take full advantage of the
tools available to them. There are, however, some cases in
which there is simply a small supply of affordable housing in
which case, there is little a PHA can do.
Other reasons for underutilization of vouchers are as
follows. PHA's, in some instances, can aggravate utilization
problems through poor management practices that reduce the
chance of a family successfully finding a unit. Some PHA's do
not process Housing Quality Standards inspections fast enough
leading to families losing units to other private sector
renters that can act faster. PHA's sometimes under issue units
to avoid having to rely on voucher reserve funding. In some
cases, landlords do not want to rent to voucher families
because of a perception that there will be an administrative
burden associated with voucher families, and/or a perception
that voucher families are not responsible tenants. These
perceptions make it harder for voucher families to find
housing. In addition, sometimes there is a diminished need for
voucher assistance because there are few families on the
waiting list. Finally, some PHA's are not properly managing
their waiting lists to maximize voucher utilization.
Q.4. It is important to understand where vouchers go unused.
Please provide data on each PHA and their voucher utilization
rates. Please include information on how many vouchers at each
PHA are special purpose vouchers?
A.4. Please see attached information regarding PHA voucher
utilization rates.
Voucher Success Rates Study
Q.5. In addition to voucher utilization, voucher success rates
are important in understanding whether families are receiving
the housing assistance they need. I understanding that HUD has
contracted for a study on voucher success rates. Please provide
information on when this study is expected to be complete, what
phase the study is currently in, and any information that has
been provided to HUD by the contractors about the findings of
that study.
A.5. HUD has a contract with Abt Associates, Inc. to examine
the voucher success rates at 48 public housing agencies
(PHA's), and to determine a national success rate as well. The
success rate is defined as the percentage of families that are
provided vouchers and who, within the allotted time period, are
able to lease a housing unit that meets all program
requirements. The study also compares success rates according
to the demographics of the voucher holders.
The study will be completed on August 10, 2001. Abt
Associates has provided HUD with an initial draft report. The
Department is in the process of reviewing this report at this
time. The contractors have suggested that the national voucher
success rate now appears to be between 65 and 75 percent.
FHA Multifamily Insurance Premiums
Q.6. Secretary Martinez, I want to applaud your recent decision
to raise FHA multifamily loan limits. This will make the
program useful in many more jurisdictions that have been shut
out. Unfortunately, your proposal to raise FHA mortgage
insurance premiums by 60 percent undercuts part of what you say
you want to accomplish. The increased premium will, in fact,
undercut the feasibility of some projects and lead to an
increase in rents. In order to maintain these projects as
affordable, the Government will have to provide subsidy that
would likely end up costing far more than the premium increase.
Clearly, there is an alternative. My understanding is that,
taken as a whole, the programs within the FHA's General
Insurance and Special Risk Insurance programs make money for
the Federal Government. If these programs were treated as one
for budgetary purposes, we would not need any credit subsidy,
and many more
affordable units could be built. Would you be willing to work
with us to get this change made to budgetary treatment of FHA?
A.6. I am glad that we agree FHA should be an effective and
reliable source of housing development financing. Our proposal
to raise the mortgage insurance premium is intended to avoid
the type of disruption that has occurred in the last 2 years as
subsidy funding was being depleted. We think the 30 basis point
premium increase is a modest price to pay for this stability
and the value of the Federal guarantee.
Your suggestion that we cross-subsidize risk categories in
the General Insurance Fund as a means of eliminating the need
for positive subsidy appropriations, unfortunately is contrary
to the Federal Credit Reform Act of 1990 which was intended to
increase annual budgetary control of credit activities. We
believe our budgetary proposals address the financing needs for
new apartment construction, without resorting to such a shift
in budgetary policy.
We share your concern over the possibility of adversely
affecting residents, but since rents in these developments are
market rate, there should be minimal if any impact. The
mortgage insurance premium is just one rather minor cost
element that developers will have to include in their project
plan and feasibility analysis.
FHA Credit Subsidy Supplemental
Q.7. Last year, Congress appropriated an additional $40 million
in multifamily credit subsidy. My understanding is that there
are a number of obstacles to having those funds released. If
those obstacles are legislative, will you commit to working
with us to quickly eliminate those obstacles?
A.7. Yes. The Department agrees that $40 million is needed and
has proposed that this sum be appropriated along with the
immediate implementation of the annual premium change. These
two actions will permit our multifamily mortgage insurance
programs to continue for the balance of this fiscal year
without further interruption. The supplemental enacted last
year requires an emergency designation which waives budgetary
controls with respect to this spending. We do not feel this is
appropriate and will be unnecessary with action on our new
proposal.
Rural Housing and Economic Development
Q.8. One recently created program at HUD has been dedicated to
serving the capacity needs of rural areas--the Rural Housing
and Economic Development Program. This important program,
sponsored by Senator Bond, provides capacity building to rural
local and State organizations in an environment where these
groups are vital for the survival of rural housing. During the
first year of funding in 1999, 749 applicants competed for only
91 grants. There was a similar competition in the second year.
There is obviously an overwhelming demand for this program. The
need for this program is highlighted in the Administration's
fiscal year 2002 budget justifications, which says, ``The
previous rounds of funding recognize that rural communities
face different socio-economic challenges than do cities. Many
rural areas have been by-passed by employment, and low,
stagnating wages. It is imperative that rural regions have
greater access to community and economic development funds that
would foster investment in economic opportunities.
If this program is imperative, what are the justifications
for your proposal to cut the Rural Housing and Economic
Development Program? Please provide information about how the
specific needs addressed by this program will now be met.
A.8. The HUD Rural Housing and Economic Development Program
provides competitive grants for capacity building and support,
including seed money, for housing and economic development in
rural areas. The Department of Agriculture already administers
programs that are targeted specifically to rural
revitalization. To include the Rural Housing and Economic
Development Program in HUD's funding is a duplication of
efforts by HUD and Agriculture and distracts HUD from its core
mission.
RESPONSE TO WRITTEN QUESTION OF SENATOR SANTORUM FROM MEL
MARTINEZ
Public Housing Authorities
Q.1. Secretary Martinez, the Quality Housing and Work
Responsibility Act of 1998 enabled public housing authorities
to leverage their capital funds. The Philadelphia Housing
Authority is in the process of finalizing a bond issuance
totaling between $125 to $175 million to meet affordable
housing demands. Public housing
authorities and the public finance community, including rating
agencies, investors, and bond issuers, views these transactions
as breaking new ground.
What effect if any, do you anticipate the proposed cuts to
the Public Housing Capital Fund will have on innovative
investment strategies, such as the Philadelphia Housing
Authority's bond issuance, and the ability of public housing
authorities to address the risk concerns of the public finance
community regarding capital grant appropriation levels?
A.1. The Department has only approved two PHA's to utilize
future capital appropriations to amortize a loan or bond
issuance to date. However, the Department has had discussions
involving four other PHA's contemplating such financing. Each
approval was done on a case-by-case basis. The current policy
thinking, not yet in any published format, such as a proposed
regulation or HUD Notice, is that a PHA may not pledge more
than 25 percent of its annual capital grant to amortize the
bond or loan. That level of borrowing should serve two
purposes: first, prevent a PHA from getting into financial
trouble based on its borrowing and; second, provide a measure
of accommodation for its total capital needs in other areas.
Should the annual funding level go down, as would be the case
in fiscal year 2002 over fiscal year 2001, there will still be
more than sufficient funding to meet the annual debt payment
and to fund other planned capital needs.
The Department has held several meetings with
representatives of the public finance community, including
major banks, bond rating firms and bond issuers, both before
and after the fiscal year 2002 budget proposal, and has
discussed issues and procedures the financial community would
like to see implemented. At this time, the Department does not
feel that the proposed budget level for the Capital Fund
Program will have an impact on the investment strategies of the
PHA's contemplating borrowing against future Capital Fund
appropriations.
RESPONSE TO WRITTEN QUESTION OF SENATOR SHELBY FROM MEL
MARTINEZ
FHA's Supplemental Appropriation
Q.1. Mr. Secretary, the Omnibus Appropriations bill that was
passed last December contained a provision providing $40
million for the Federal Housing Administration's general and
special risk program account for the cost of guaranteed loans
contingent upon the funds being designated as emergency
spending. Mr. Secretary, do you intend to pursue such a
designation for these funds?
A.1. The supplemental enacted last year requires an emergency
designation which waives budgetary controls with respect to
this spending. We do not feel this is appropriate and will be
unnecessary with action on our new proposal. Instead we have
proposed the appropriation of a regular supplemental of $40
million, along with the immediate implementation of the new
premium rate, will permit us to continue multifamily mortgage
insurance activities without further disruption for the balance
of this fiscal year.
RESPONSE TO WRITTEN QUESTIONS OF SENATOR REED
FROM MEL MARTINEZ
Homelessness Coordination with HHS and VA
Q.1. Secretary Martinez, I have noted from your public
statements your interest in homelessness, and particularly the
importance of working with the Department of Health and Human
Services. There is widespread agreement among people concerned
with this issue that HHS needs to play a bigger role,
particularly when addressing the needs of homeless people with
disabilities for services such as behavioral health care. What
are your plans for coordinating HUD's homelessness programs
with relevant efforts at HHS? What are your plans for
coordinating with other departments such as the Department of
Veterans Affairs?
A.1. I am committed to refocusing HUD's homelessness efforts
on providing housing. Since coming to HUD, I have learned that
year in and year out, over half of HUD's homeless assistance
funds
have been awarded for supportive services. Of all homeless
funds
awarded last year, for instance, 43 percent were for housing
while
53 percent went for supportive services--the remaining 4
percent
of funds were for administration.
We have taken steps in this year's application to help
address this housing/services imbalance. First, the application
emphasizes, more than in past years, the importance of using
mainstream programs to address the needs of homeless persons.
Specifically, the application requires each community to
describe its strategy to
coordinate homeless assistance with each of the following
mainstream assistance programs: Medicaid, State Child Health
Insurance Program (SCHIP), TANF, Food Stamps, and service
funding through the Mental Health Block Grant and Substance
Abuse Block Grant Programs, Workforce Investment Act, and the
Welfare-to-Work Grant Program. As stated in the application,
the local strategy should, at a minimum, provide for the
systematic identification and enrollment of homeless persons
eligible for these programs. Second, this year's application
incorporates the requirement contained in the 2001
Appropriation Act regarding the use of mainstream programs. As
stated in the law and described in application materials, all
applicants must certify that, if selected for funding, they
will coordinate and integrate their individual homeless project
with other mainstream health, social services and employment
programs for which their homeless populations may be eligible.
The certification cites each of the mainstream programs cited
above.
There is clearly more that can and will be done to correct
the imbalance of HUD funds going to services versus housing.
Secretary Thompson of the Department of Health and Human
Services and I recently met and discussed how we can better use
available HHS mainstream programs to address the service needs
of homeless persons, particularly for the chronically homeless,
thus freeing up limited HUD's resources for providing more
permanent housing. Our two Departments are now developing a
plan of action and expect to announce a joint initiative in the
coming weeks. We recognize that increased coordination with
other Federal agencies, such as the Department of Veterans
Affairs, is also needed. With the reestablishment of the
Federal Interagency Council on the Homeless this year, which I
strongly support, I foresee significant improvement in
interagency efforts to address homelessness.
Permanent Housing for the Homeless
Q.2. As you know, for the past 3 years Congress has worked to
keep the homelessness system focused on results, by, among
other things, requiring that at least 30 percent of funding for
HUD's homelessness programs be spent on permanent housing for
people who are homeless. I note that this requirement is
included in the Administration's budget request for fiscal year
2002. What is HUD doing to ensure that this requirement is met,
and that more permanent housing is available for people who
otherwise would remain homeless for long periods of time?
A.2. The annual Homeless Assistance competition is largely
based upon local decisionmaking and local priority setting.
Mindful of this policy, the Department included language in the
2001 NOFA that strongly encouraged Homeless Assistance to begin
planning for new permanent housing projects, if they have not
already, to be included as part of the 2001 and future
competitions. In addition, as a powerful incentive in the 2001
funding round, the ``permanent housing bonus'' for eligible,
new permanent housing projects placed in the number one
priority slot, was doubled to up to $500,000. Almost $40
million in bonus funds were awarded to new permanent housing
projects in the 2000 competition and this total is expected to
more than double this year. Finally, by establishing a funding
selection process that resulted in the replacement of over 300
nonpermanent housing projects--valued at approximately $100
million--with lower scoring permanent housing projects in the
2000 funding round, the Department sent the strongest possible
message, and inducement, for applicants to submit permanent
housing projects instead of nonpermanent housing projects going
forward. By having taken such dramatic action in 2000, HUD has
made clear its seriousness in emphasizing permanent housing. By
the nature of the competition, applicants can be expected to
submit many more new permanent housing projects than would
otherwise have been the case due to HUD's forceful stand in
implementing the 30 percent requirement in the 2000 funding
round.
Preventing HOPE VI from Causing Homelessness
Q.3. HOPE VI has the beneficial aim of upgrading communities
that have formerly been marred by badly functioning public
housing developments. The concern has been expressed, however,
that by reducing the number of deeply subsidized units a HOPE
VI initiative can lead to increased homelessness. What is HUD
doing to find out whether residents who are relocated from
public housing as a result of HOPE VI later enter the homeless
assistance system, and to prevent that result from occurring?
A.3. HUD is very concerned that all the residents of a HOPE VI
development, including those who do not wish to return to the
revitalized site, receive services that will assist them in
becoming economically self-sufficient. In making sure that HOPE
VI residents do not become homeless we are requiring the Public
Housing Authority (PHA) to submit a relocation plan to HUD, and
to track all of their HOPE VI residents.
One of the fundamental tenets of the HOPE VI program is the
choice of housing. The relocation plan includes a section where
a PHA details the choices of the residents--for example return
to the site, receive a Section 8 voucher, or relocate to
another public housing development--and lists the available
resources that the PHA has, to accommodate those preferences.
HUD works with each HOPE VI grantee to develop a comprehensive
community and supportive services plan that has at its core a
case management system. This system allows the PHA's staff to
work with each family and helps provide an early warning, if a
family is moving toward homelessness. HUD has also contracted
with the Urban Institute to interview past--1993-1998--
grantees, and present--1999-2000--HOPE VI residents, to
determine how the relocation process is working. The Urban
Institute will follow the present residents over the next 3
years.
RESPONSE TO WRITTEN QUESTIONS OF SENATOR SARBANES FROM STANLEY
J. CZERWINSKI
Q.1. You discussed in your testimony how the cut of $700
million in the Public Housing Capital Fund will have the
consequence of penalizing all public housing agencies. Can you
explain how recapturing funds would work and why this would be
a fairer system than cutting Capital Funds across the board?
A.1. HUD has informed us that, should they receive $700 million
less than the fiscal year 2002 Capital Fund appropriation, they
will not alter how they distribute Capital Funds. This has the
effect of an across-the-board cut in funding for the Nation's
public housing agencies. Currently, HUD uses a formula that
allocates funds to public housing agencies based on the number
of units, age of the housing stock, the Public Housing
Assessment System (PHAS) score, estimated need, and prior grant
amounts. This formula would be applied to the reduced
appropriation and thus, each PHA would receive less funding
than in fiscal year 2001 because the amount of the funding for
all public housing agencies would be $700 million less. HUD
states that unexpended balances in this program can cushion the
cut. However, all public housing agencies do not have
unexpended balances. As a result, public housing agencies that
have spent funds efficiently may not have unexpended funds to
cushion any fiscal year 2002 funding reduction.
Instead of cutting funding for all public housing agencies,
HUD could identify those public housing agencies that have
unexpended balances that are not being used to support current
or on-going projects. HUD would then recapture the excess
funding from those public housing agencies and redirect it to
public housing agencies that have been efficiently spending
their Capital Fund grants. This approach does not have the
effect of penalizing all public housing agencies because some
are carrying large unexpended balances. However, as we
testified, HUD lacks the detailed information to identify what
project funds are no longer needed at the public housing Agency
level.
Q.2. Data provided by HUD shows that most Capital Funds are
expended within 4 years, the legal time frame. Given that
capital programs spend out funds slowly across the board, has
GAO iden-
tified the Capital Fund as having a problem with unexpended
balances?
A.2. We have not specifically identified the Capital Fund as a
problem, but it is certainly a program effected by HUD's
management of its unexpended balances. In our testimony on
HUD's fiscal year 2000 budget proposal, we stated that HUD had
large overall unexpended balances and that these large balances
could indicate inefficient utilization of funds. Accordingly,
we recommended that HUD's Budget Office work with the program
offices to identify programs with a history of large unexpended
balances and the grantees that hold these balances--and the
Capital Fund was one of those programs. Subsequently, HUD
commissioned studies of programs with the largest unexpended
balances to determine why they exist and how funds can be
utilized more efficiently. In its April 2000 report to HUD on
the Public Housing Capital Fund,
Arthur Andersen reported that 93 percent of fiscal year 1996
funds were expended within 4 years of appropriation. The report
did, however, identify ways that funds could be utilized more
efficiently. The suggested improvements included changes to
planning, financing, cost estimating, and contracting.
As part of our work reviewing HUD's fiscal year 2002 budget
request we determined that the Capital Fund has about $13.4
billion in unexpended balances. Approximately $6 billion of
unexpended balances are related to paying debt service on
various types of bonds and securities used to build public
housing years ago. This funding will be spent at about $500 to
$700 million per year over a 20 year period and HUD has
provided documentation of their need for these funds. Of the
remaining $7 billion, we recognize that some of this unexpended
funding may be recently appropriated and not yet obligated to
housing agencies and some may be obligated by housing agencies,
but not yet spent on long-term projects. However, HUD lacks the
information needed to determine what portion of the remaining
funds is available for recapture. As we stated above, HUD does
not have needed information on unexpended balances at the
public housing Agency project level that would allow ready
determination of funds no longer needed and therefore available
for recapture.
Q.3. I understand that you are conducting a review of Operation
Safe Home. Can you provide us with information on the status of
that review and any results.
A.3. We issued our report on Operation Safe Home in response to
a request from Congressman Barney Frank on June 29, 2001. We
were asked to report on: (1) the amount and source of Operation
Safe Home funding and how it was spent; (2) the number of
arrests and convictions resulting from Operation Safe Home
investigations; (3) complaints lodged against OIG's special
agents engaged in Operation Safe Home activities; and (4) the
impact Operation Safe Home activities could have on the OIG's
independence to conduct audits and investigations of HUD's
programs.
In summary, we reported that: (1) since fiscal year 1996,
the Congress has earmarked $92.5 million to the HUD OIG to fund
Operation Safe Home from HUD's the Public Housing Drug
Elimination Program; (2) the HUD OIG cannot accurately
determine the number of arrests and convictions that have
resulted from Operation Safe Home activities because the data
it maintains are unreliable; (3) OIG's officials told us that
they were aware of seven complaints lodged against HUD OIG's
special agents while engaged in Operation Safe Home activities
from January 1997 through May 2001; and (4) the HUD OIG's
independence to conduct audits and investigations of HUD's
programs to reduce violent and drug-related crime in public and
assisted housing is subject to question given its role in
Operation Safe Home.
Q.4. What has your office found about the HUD Inspector
General's Operation Safe Home and its ability to evaluate the
program's effectiveness, monitor its benefits and outcomes, and
account for its expenditures? How much of Operation Safe Home's
funding is obligated or unexpended?
A.4. While we did not undertake an overall assessment of the
benefits, outcomes, and effectiveness of Operation Safe Home,
we did address both its ability to account for its
expenditures, as well as how it collects, maintains, and
reports investigative data. In both cases, we concluded that
Operation Safe Home does not have the necessary information
systems and management controls to ensure that the HUD OIG's
managers can readily monitor the obligation and expenditure of
funds and track the numbers of arrests and convictions.
In particular, while the OIG provided us overall
information on the level of obligations and expenditures for
task force activities, it could not readily identify how much
money was allotted to and obligated and expended by individual
task forces or readily provide detailed information on how the
money was specifically spent. Thus it did not have a reliable
mechanism for estimating its funding needs, allocating program
resources, and determining how funds were spent.
In addition, the HUD OIG cannot accurately determine the
number of arrests and convictions that have resulted from
Operation Safe Home activities because the data it has
maintained are unreliable. We found that the OIG lacked a
single and reliable information system and instead used
multiple data collection methods of questionable reliability.
Moreover, the OIG could not provide documentation supporting
summary data, including the number of arrests, contained in 12
semiannual reports to the Congress. In the absence of complete,
consistent, accurate, and properly documented information, the
OIG has not had the means to accurately report the results of
its investigations and thus to provide the Congress with
reliable and supportable information on what Operation Safe
Home has accomplished.
Regarding your second question on obligations and
expenditures, from fiscal year 1996 though 2000, the HUD
Inspector General allotted $37.5 million the funds earmarked by
Congress from the Public Housing Drug Elimination Program to
pay for Operation Safe Home task force activities and $35
million to pay for the salaries and expenses of special agents
involved in Operation Safe Home activities. We found about $10
million of the $37.5 million allotted for task forces was not
obligated. In addition, of the $27.5 million that had been
obligated, about $8 million had not been expended by the end of
fiscal year 2000. While these funds remain available to the OIG
until expended, more than half of the unexpended funds were
obligated in fiscal year 1999 or earlier. We plan to review
these unexpended balances as part of our budget justification
review of HUD's proposed 2002 budget. In contrast, the OIG
expended all the funds it allotted for salaries and expenses
and also used about $3.9 million of other OIG funds to
supplement the Operation Safe Home salaries and expenses
allotment.
I think it is important to note that the OIG has recognized
weaknesses in its information systems and management controls
and has begun to address the problems. HUD's proposed fiscal
year 2002 budget request for Operation Safe Home was reduced
from $20 million to $10 million, and OIG officials told us that
Operation Safe Home's unobligated balances would finance task
force activities through fiscal year 2002. In addition, the OIG
is taking action to improve financial accountability, including
developing an improved and more detailed method of tracking
Operation Safe Home funds. The OIG has also implemented a new
management information system designed--among other things--to
improve the reliability of its arrest and conviction data. We
believe that these and other actions planned by the OIG, once
fully implemented, should improve accountability over task
force activity funds and enhance the reliability of Operation
Safe Home investigative data. Our report contains specific
recommendations to the OIG to fully implement these corrective
actions.
RESPONSE TO WRITTEN QUESTIONS OF SENATOR SARBANES FROM BARBARA
SARD
Q.1. The Administration and many in Congress have voiced
concern over the underutilization of vouchers.
A.1. The answer to both of these subquestions is ``yes.''
First, I will explain what I believe are the key causes of and
solutions to the problem of underutilization of vouchers. Then,
I will provide specific suggestions of what HUD and Congress
could do to ameliorate the problem.
Publicly available data from March 2001 indicate that
approximately 88 percent of vouchers were in use that month--
these data are posted on HUD's web site and are based on
housing agencies' reports to HUD. Some of the unutilized
vouchers are reserved for future uses such as the relocation of
tenants from public housing that will be demolished. But a
substantial portion of the unutilized vouchers reflect the
inability of families to lease housing with vouchers they have
received. Indeed, far more than 12 percent of families issued
vouchers are probably unable to use them currently. Similar to
airlines' practices of overbooking flights, housing agencies
that predict that some families will not succeed in renting
units over issue vouchers to achieve full utilization of the
authorized number of vouchers.
While there is no good data available to track voucher
utilization over time, anecdotal reports suggest that the
utilization problem has worsened in recent years. It should be
noted, however, that utilization appears to have improved
somewhat since August 2000, when only 86 percent of vouchers
were reported to be in use. The apparent increase in voucher
utilization in the 7 month period from August 2000 until March
2001 may reflect additional measures that HUD took beginning in
the fall of 2000 to facilitate voucher use. Nonetheless,
failure to utilize approximately 200,000 of the vouchers
authorized by Congress is most unfortunate in the face of
continuing severe needs for housing assistance.
Solving the problem of underutilization of vouchers may
require measures to:
assist families to search more efficiently for
available units;
bring more owners into the program;
increase the amount of subsidy that a voucher
provides; and
increase the number of rental units of adequate
quality.
Measures directed at each of these objectives are not necessary
in all areas. Many areas have an adequate number of decent
quality units for rent at moderate prices. In such areas
vouchers may still be underutilized because too few of the
owners of these units accept vouchers. To remedy the problem of
underutilization of vouchers in areas with an adequate supply
of moderately priced housing requires bringing more owners into
the program and enabling families to search more efficiently
for the units that are available. In areas with available but
overly expensive housing, an increase in voucher payments is
necessary. In areas where the limited number of vacancies in
rental housing of decent quality poses a serious barrier to
voucher use, additional supply side measures are needed to
rehabilitate existing units or produce new housing.
Housing agencies that administer the voucher program
already have some of the tools necessary to undertake the types
of measures necessary to improve voucher utilization. Agencies
can use their administrative fees or partner with other
agencies to initiate outreach programs to landlords or to
provide services and benefits to assist families to obtain
housing. Housing agencies are also permitted to increase the
amount of subsidy provided by a voucher to 110 percent of fair
market rent (FMR), and they can request HUD approval of a
further increase if justified based on available data. They can
now ``project-base'' up to 20 percent of their vouchers in
particular developments, as well as use vouchers for
homeownership. Yet many agencies that are not able to use all
their vouchers have not initiated such programs or taken
advantage of the flexibility currently offered by the voucher
program rules.
Recent data indicate that approximately 70 percent of the
public housing agencies (PHA's) that administer voucher
programs set their voucher payment standard at 100 percent or
less of the HUD-determined FMR.\1\ Less than a quarter of the
PHA's that acknowledge that over concentration of poor and
minority households is a problem in their voucher program
undertake special efforts to attract owners in nonconcentrated
areas to participate in the voucher program or to provide
counseling or other assistance to voucher holders to obtain
units in such areas.\2\
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\1\ Office of Policy Development and Research, U.S. Dept. of
Housing and Urban Development, The Uses of Discretionary Authority in
the Tenant-Based Section 8 Housing Program, January 2001, 46-56.
\2\ Id. at 26-32.
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Why don't more PHA's do more to help families locate units
with their vouchers or to ensure that vouchers pay enough to
bring sufficient units within the reach of voucher holders?
Some are hindered by a lack of understanding of the flexibility
afforded by current rules, and are not aware of the steps they
could take to improve
voucher use. Some are accustomed simply to complying with
program rules rather than making their own decisions about how
to achieve program goals. I agree with Secretary Martinez's
statement at the Committee's April 25 hearing that a central
cause of the current underutilization of vouchers is inadequate
administration of the program by some PHA's. More effective
management by the agencies that administer the voucher program
directly is central to improved program performance. Both HUD
and Congress could take a number of steps to improve program
management, as I will explain below. Yet for a substantial
number of PHA's, underutilization of vouchers cannot fairly be
blamed on management practices. These PHA's are doing what is
possible within their funding and market constraints. For the
well-managed PHA's that nonetheless have inadequate program
outcomes, additional policy changes are needed. These policy
changes also are outlined below.
While the policy changes noted below are likely to improve
the administration of the voucher program somewhat, achieving
excellent and efficient administration of the Section 8 program
requires a fundamentally different delivery system at the local
level. Approximately 2,600 PHA's administer the voucher
program. More than two-thirds of these agencies have fewer than
250 vouchers. The proliferation of small agencies greatly
multiplies the obstacles to effective HUD oversight or support.
With an average of more than 50 administering agencies per
State--Texas has more than 400!--multiple administrators need
to learn and understand complex program rules and policy
interactions. In the absence of economies of scale, many of the
rules are not followed, policies are not understood, and scarce
funds are spent on duplicative and sometimes ineffective
program administrators. In addition, the existence of numerous
program administrators within a single metropolitan area in
itself creates barriers to the neediest families obtaining
vouchers or using them to move to better neighborhoods. Program
reforms should be designed to reduce or consolidate the number
of administering agencies, promote regional operation of the
voucher program and improve Agency performance, in addition to
whatever specific objective they may seek to achieve.
Q.1.a. Are there changes that you believe HUD could make to
improve the voucher program?
A.1.a. Changes HUD could make to improve the voucher program:
As discussed above, improved administration of the voucher
program at the local level could increase owner participation,
enhance families' ability to obtain housing, and improve
planning and coordination with other agencies. HUD could
improve local program administration through targeted training
and technical assistance and by aggressive enforcement of
current remedies for poor program enforcement, including
competitive award of the right to administer the voucher
programs of underperforming agencies. These important proposals
are explained briefly below.
To provide targeted training and technical assistance to
improve voucher utilization, HUD should regularly monitor each
PHA's utilization of voucher funds and the percent of families
searching for housing that are able to use their vouchers--on
June 1, 2001, PHA's will have to report this ``success'' data
to HUD through the regular tenant characteristics reporting
system. To carry out such monitoring in a timely manner, HUD
may have to develop new internal procedures. Scores from HUD's
existing management assess-
ment tool for Section 8 programs, SEMAP, are not available
until 120 days after the end of a PHA's fiscal year. HUD should
target for training and technical assistance those PHA's that
are having difficulty utilizing Section 8 funds and do not
appear to be aware of current policy options or the range of
``best practices'' in use by other agencies. HUD may need
additional funds for this purpose.
Over the course of 2001 each PHA that administers a Section
8 voucher program will receive its initial SEMAP score,
enabling HUD to know which PHA's have not performed adequately
under the SEMAP performance indicators. In addition, during
2001 PHA's that utilized less than 90 percent of their voucher
funds and leased fewer than 90 percent of their authorized
number of vouchers in fiscal year 2000 will be subject to the
sanction provisions of the new Section 8 renewal rule--the
renewal rule permits HUD to reduce permanently the allocation
of vouchers of PHA's initially identified as underutilizing
vouchers that do not increase their rate of utilization of
voucher funds to 95 percent. HUD should enforce the remedial
provisions of SEMAP and the renewal rule aggressively, and seek
new administrators for any agencies that do not make adequate
improvement within the corrective action period.
To achieve the best possible program management that
advances the deconcentration and self-sufficiency goals of the
Section 8 program, HUD should use competitive criteria in
seeking new program administrators. Where possible, vouchers of
low-performing agencies should be consolidated with the
existing voucher programs of top-performing neighboring,
statewide or regional PHA's that would serve the initial
Agency's area. In a memorandum submitted in January 2000 in
response to the request of the Senate Subcommittee on VA-HUD
Appropriations, HUD proposed to use competitive criteria to
reassign the administration of the voucher
program away from agencies that have ``troubled'' status under
SEMAP, and to consolidate the programs of such agencies that
have fewer than 250 vouchers. Congress should encourage HUD to
proceed with this plan.\3\
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\3\ HUD has the statutory authority to contract with a public or
private nonprofit entity, including a PHA that is not otherwise
authorized by State or local law to serve the area in question, to
administer the voucher program when a PHA in an area ``is not
performing effectively.'' Section 3(b)(6)(B)(iii) of the U.S. Housing
Act of 1937. Consequently, no further statutory change is required for
HUD to implement its proposal.
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In addition to these general measures, HUD could take a
number of particular steps that will enable PHA's to achieve
the program changes necessary in their areas to improve voucher
utilization.
To increase funds available to PHA's to provide services
and benefits to help families obtain housing with vouchers, HUD
should authorize PHA's to use unutilized voucher funding for
this purpose, with certain protections--on behalf of the Center
on Budget and Policy Priorities and the National Low Income
Housing Coalition, I submitted a specific proposal to HUD in
March 2001 to enable certain PHA's to use otherwise unutilized
voucher funds to help families use their vouchers to obtain
housing. This change will help PHA's that do not use all their
voucher funds to enable families to search more effectively for
the housing that is available, but it will not help PHA's that
manage to use all their voucher funds but still have low
voucher success rates. To help families served by these
agencies, additional administrative funds are needed. HUD
should provide these agencies with supplemental administrative
fees--HUD has authority to provide supplemental fees under
current law but may need additional funds for this purpose. In
addition, HUD should issue a NOFA for the $10 million
appropriated in fiscal year 1999 for Regional Opportunity
Counseling subject to PHA agreement to participate in a
rigorous evaluation of the effectiveness of different services
and benefits in increasing voucher success and deconcentration.
It is important to take advantage of this prior appropriation
to improve voucher utilization and to learn what types of
measures work best under what circumstances.
Within the existing statutory framework, HUD could take a
number of steps to enable PHA's facing escalating rent and
utility costs to increase voucher payments sufficiently for
voucher holders to be competitive in the local market and in
neighborhoods outside of areas of concentrated poverty. HUD
should:
Streamline its procedures for review and approval of
requests for payment standards above the discretionary
range, including establishing a deadline of 90 days for
action by its Regional Offices and delegating more
decisionmaking authority to the Regional level.
Revise its rules to permit approval of ``exception
payment standards'' above the discretionary range without
PHA submission of rent data when necessary for improved
program performance. This option should be available when
too many participating families are paying too much for
rent and utilities and when too few families succeed in
using their vouchers despite reasonable efforts by PHA's to
improve success rates.
Permit PHA's to increase the payment standard above
the discretionary range without HUD approval for vouchers
used to lease units financed with Low Income Housing Tax
Credits or HOME funds in developments located outside of
poor neighborhoods--up to the maximum reasonable rent
allowed for such units--and for vouchers for persons with
disabilities when necessary as a reasonable accommodation.
Improve the accuracy of FMR's by increasing the number
of annual local rent surveys performed by HUD and by
revising the methodology used to set FMR's in light of
rapidly rising utility costs, current biases of phone
surveys, and lack of adequate data concerning unit
quality--Congress should ensure that annual appropriations
are sufficient for this purpose.
Retain the amount of Section 8 reserves needed for
PHA's with rising costs to assist the authorized number of
families. (See my initial testimony.)
HUD could help increase owner participation in the voucher
program with measures aimed at federally-financed and at other
privately owned housing. To make more housing opportunities
available in Federally financed housing, HUD should:
Direct each Regional Office to post on the web a list
of LIHTC- and HOME-financed multifamily rental properties
in their jurisdictions, and make PHA's and groups assisting
Section 8 holders aware of its availability. These
developments have a duty under Federal law not to
discriminate against families and individuals with Section
8 housing vouchers. HUD, in conjunction with IRS, should
develop guidance on the meaning of this duty in the HOME
and LIHTC statutes. In addition, HUD Regional Offices
should coordinate with State tax credit allocating agencies
to
ensure LIHTC developments are aware of their duty not to
discriminate.
Revise its requirements for State and local
Consolidated Plans to require jurisdictions to identify
barriers to voucher use and to propose remedial strategies,
including how CDBG and HOME funds, as well as other
resources could be used to overcome barriers to voucher use
and rehabilitate or produce additional units in which
vouchers can be used.
To make more private market units available to voucher
holders, HUD should revise its regulations to help reduce
delays in renting units caused by Section 8 program rules. Such
changes should permit PHA's to make Section 8 payments for
certain units after the owner has agreed to rent the unit to
the family and the PHA has approved the rent amount, but prior
to final inspection and approval by the PHA. Such a policy
could apply to units that have minor defects that are being
fixed or lead hazards that are being removed.
Q.1.b. Are there changes Congress could make to increase
voucher utilization?
A.1.b. Changes Congress could make to improve voucher
utilization: In addition to encouraging or requiring HUD to
make the changes suggested above, there are several statutory
changes and appropriations measures that could help improve
voucher utilization. Congress could promote the improvement of
local program administration by authorizing the Secretary to
use performance-based factors in determining agencies'
administrative fees and by requesting a study from the General
Accounting Office of what it should and does cost to administer
the voucher program. Fees now are determined by a formula
governed by the number of vouchers an Agency administers and
the rental and labor costs in an area.\4\ Astonishingly, there
has never been a study of what it should cost to administer an
effective housing voucher program under different market and
geographical conditions. HUD last studied Section 8
administrative fees in 1994. At that time, HUD reported to
Congress that ``fair market rent levels have no apparent
relationship to the cost of administering the certificate and
voucher programs.'' \5\ Yet the basic administrative fee
continues to be based on historic rental costs.
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\4\ Section 8 administrative fees are governed by subsection
(o)(q), 42 U.S.C. Sec. 1437f(q), annual appropriations acts, and HUD
regulations and implementing instructions. HUD clearly explained the
interaction of these provisions in its most recent notice of Annual
Factor for Determining Section 8 Administrative Fees, 65 Fed. Reg.
10,316--February 25, 2000--also available at http://www.hud.gov/pih/
programs/s8/s8merger.html.
\5\ U.S. Department of Housing and Urban Development, Section 8
Administrative Fees: A Report to Congress, June 1994.
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As the current fee system is structured, it rewards PHA's
that maximize the leasing of units at the lowest possible
administrative cost. PHA's earn their formula-based fee for
each month a voucher is used to rent a unit and are entitled to
retain any fees they do not spend on the voucher program to use
for other housing program purposes. While rewarding the leasing
of units is sensible, reliance on this factor alone creates a
disincentive for PHA's to assist families to rent units in less
poverty-concentrated neighborhoods. It also may discourage
PHA's from serving families and individuals that may have more
difficulty obtaining housing--eligibility for the ``hard-to-
house'' supplemental fee of $75 is too narrow to outweigh this
disincentive, as the supplemental fee is available only when
disabled individuals or families with three or more children
lease units. It does not apply to other applicants that may
face greater barriers in obtaining housing, such as those who
are homeless, have a limited prior rental history, lack
transportation to look at new units, are members of minority
groups, and have teenage
sons, etc.
Further, the fact that agencies with small voucher programs
cannot avail themselves of the economies of scale that larger
agencies can does not justify paying more per voucher
administered by a smaller program--the current fee structure
pays more for the first 600 vouchers--rather than rewarding
inefficient program size, the fee structure should reward
performance across a wider range of goals while taking account
of cost differences that agencies can do little to alter, such
as travel time to inspect units in sparsely populated rural
areas. If fees did not differ based on program size, more
agencies may be encouraged to consolidate or form a consortia
for administrative purposes. Congress authorized such consortia
in the voucher program in the Quality Housing and Work
Responsibility Act of 1998 [QHWRA].)
Congress also should ensure that the criteria used to award
new voucher funds contain incentives to improve local program
administration. Current law requires HUD to use competitive
criteria to decide which agencies within a State--or smaller
allocation area--receive incremental ``fair share'' voucher
funds. (Section 213(d) of the U.S. Housing Act, 42 U.S.C.
Sec. 1439.) The determination of the specific selection
criteria is left up to HUD. Congress could revise Section
213(d)(4)(B) to require HUD to use criteria that: (a) encourage
program consolidation, metropolitan area-wide administration
and development of local partnerships to provide assistance to
families to obtain housing; and (b) reward Section 8
administering agencies that are high performers on SEMAP and
have a proven ability to promote program goals of
deconcentration of poverty and resident progress toward self-
sufficiency. It may be helpful to Congress, in advance of
specifying such criteria permanently in the statute, to have
HUD conduct a demonstration of the results of different
competitive criteria. A share of new vouchers for fiscal year
2002 could be dedicated to such a demonstration.
As noted, some PHA's need additional training and technical
assistance to improve voucher utilization and otherwise improve
program performance. Congress should ensure that HUD has
sufficient funds for this purpose. Congress should appropriate
funds for voucher program technical assistance within the
Housing Certificate Fund, rather than including such voucher
program funding within the Public Housing Capital Fund as has
been the previous practice, continued by the Administration's
current budget proposal.
To increase funds available to PHA's to provide services
and benefits to help families obtain housing with vouchers,
Congress should make additional funds available to PHA's that
utilize all of their voucher program funds but have
unacceptably low success rates or over-concentration of voucher
families. With additional funds to provide assistance to help
families locate available housing and pay up-front costs that
may be required in a tight market, PHA's can increase families'
success in obtaining housing with their vouchers and their
ability to move to better neighborhoods. In addition, if HUD
fails to permit PHA's that are unable to use all of their
voucher program funds to use a portion of these funds for
services and benefits to help families obtain housing, as
recommended above, Congress should authorize PHA's to take this
step--a provision similar to this recommendation was included
as Section 206 of the House-passed fiscal year 2001 VA-HUD
appropriations bill.\6\ It also may be necessary for Congress
to clarify that PHA's may use voucher program funds or
administrative fees to provide assistance with security
deposits, moving expenses, or holding fees--to compensate an
owner for the time it takes the PHA to approve the unit for
rental--if PHA's determine that such expenditures will promote
voucher program goals. Apparently some HUD staff believe that
such uses of funds are not permitted by current law.
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\6\ See Barbara Sard, New Administration Proposal Would Make
Significant Improvements in the Section 8 Program But Congress Should
Approve Use of Funds for Services to Help Families Obtain Housing,
Center on Budget and Policy Priorities, September 21, 2000, available
on the Internet at http://www.cbpp.org/9-21-00hous.htm.
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To make voucher payments more adequate, Congress should
amend the Section 8 statute to permit PHA's to set the voucher
payment standard up to 120 percent of FMR without HUD approval.
PHA's now are permitted to set the voucher payment standard
between 90 and 110 percent of the applicable HUD-determined
Fair Market Rent. To set the payment standard above 110 percent
of FMR a PHA must obtain HUD approval. While HUD has made
recent improvements in the process to receive approval of an
ex-
ception payment standard, the revised policies do not cover all
situations where a higher payment standard is needed. In
addition, the burden on PHA's still may be onerous and the
delays are often substantial--as recommended above, HUD should
streamline its current procedures, and could be directed to do
so.
If the top of the discretionary range were increased to 120
percent of FMR, voucher utilization could be improved
substantially. Only PHA's already at the maximum payment
standard allowed without HUD approval--110 percent of FMR--
would be likely to take advantage of this new authority. When
HUD surveyed PHA's in the first half of 2000, approximately 20
percent of PHA's set their voucher payment standard at 110
percent of FMR and did not have HUD approval to exceed this
level. This remedy would be targeted to that fifth of agencies
that is likely to have the greatest need for more flexibility
in setting the payment standard. It is
important to note that 120 percent of the 40th percentile FMR
is
significantly higher than 110 percent of an FMR set at the 50th
percentile. For example, in the Washington DC metropolitan
area, 110 percent of the 50th percentile FMR for a two-bedroom
unit is $998, while 120 percent of the 40th percentile FMR for
a two-bedroom unit is $1,036.
Congress should ensure that Section 8 program reserves
remain adequate to enable PHA's that need to increase voucher
payments to achieve adequate utilization and deconcentration to
do so without reducing the number of families they serve. This
issue is fully addressed in my initial written testimony.
To increase voucher acceptance by private owners, Congress
should clarify that recipients of funds under HUD's Fair
Housing Initiatives Program may use funds to test for Section 8
discrimination where it may violate Federal or State/local law
or when it may be a pretext for discrimination prohibited by
the Fair Housing Act. In addition, to enable PHA's to make
payments to owners for the period between an initial agreement
by an owner to rent to a family with a voucher and the final
approval of a unit after necessary repairs have been made, as
recommended above, it may be necessary for Congress to clarify
that such payments are permitted under the inspection
provisions of the voucher statute, or to modify subparagraph
(8) of the voucher statute.
Voucher utilization could also be increased if more housing
units were available in areas where the supply of rental
housing with the needed bedroom sizes has been inadequate. Any
new or expanded Federal initiative to fund the production of
such new rental housing should ensure that owners are required
to accept vouchers, and that the obligation is easily
enforceable.
Some groups have urged that to increase voucher utilization
Congress should remove or revise the cap on the share of family
income that families may pay when they rent new units under the
voucher program. (Section 8(o)(3) currently limits new
participants in the voucher program and families that move to
new units to paying 40 percent of their adjusted income. All
families must pay at least 30 percent of their adjusted income
for rent, the result of this provision is to prevent a family
from renting a unit if the cost of rent and the PHA's utility
allowance exceeds the voucher payment standard by more than 10
percent of the family's adjusted income.) It may be appropriate
to make a minor change in this provision, such as changing the
cap to 40 percent of gross rather than adjusted income, it is
very important to remember the purpose of this provision.
Congress was concerned that the adoption of a voucher model for
the entire tenant-based program could lead to excessive rent
burdens for families. HUD data indicated that a majority of
families under the voucher component of the program, in
contrast to the certificate program, were paying more than 30
percent of their income for rent and utilities, and many were
paying more than half their income. To avoid excessive cost
burdens in the new merged voucher program, Congress adopted two
provisions as part of QHWRA: the 40 percent cap and the
requirement that HUD monitor participants' rent burdens and
direct PHA's to increase their voucher payment standards when a
significant percentage of families were paying more than 30
percent of their income. Any change in the 40 percent cap
should be consistent with Congress' overarching concern that
most families should pay no more than 30 percent of their
income--the current Federal housing affordability standard.
Thank you for the opportunity to respond to these
questions.
PREPARED STATEMENT OF SALVADORE CARPIO, JR.
Executive Director, Denver Housing Authority
April 25, 2001
Introduction
On behalf of the Housing Authority of the City and County of Denver
(DHA), we would like to thank U.S. Senator Wayne Allard for agreeing to
submit this written testimony into the record of the Proposed Fiscal
Year 2002 U.S. Department of Housing and Urban Development (HUD)
Budget. We would also like to thank the Senator for all his work on the
U.S. Housing and Transportation Subcommittee of the Senate Banking
Committee and his leadership in progressive housing and transportation
legislation.
Denver Housing Authority's written comments focus on three key
areas of the proposed HUD 2002 Budget. The three selected areas,
reflect the areas we believe to have a direct impact on DHA's high
performing housing programs.
They are:
(1) Proposed reduction in Capital Fund.
(2) Proposed reduction of Section 8 reserves to a 1 month
level.
(3) Proposed elimination of the Public Housing Drug
Elimination Program (PHDEP).
Background
The Housing Authority of the City and County of Denver (DHA) is one
of the Nation's most successful large public housing organizations,
providing low- and middle-income residents with quality subsidized
housing. DHA administers 4,570 Section 8 vouchers and 3,788 \1\ public
housing units, approximately one third of which are dispersed or
scattered site units throughout the city. More than half of the
Agency's operating revenue is generated through collected rent and
grants. Federal funding cuts during the 1980's and 1990's spurred DHA
toward self-sufficiency. As such, the proposed 2002 budget cuts will
further impose long-term financial stress on DHA's capacity to
satisfactorily address the growing demands for subsidized safe, decent
and affordable housing to Denver residents.
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\1\ DHA 2001 Comprehensive Budget Documents--DHA Finance
Department, April 10, 2001.
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Capital Fund
Impact--The proposed reduction in Capital Funds will hinder
DHA's ability to maintain quality housing units in the public
housing program. A 20 percent reduction--loss of $1,352,903
\2\--to DHA's Capital Fund will result in delay or elimination
of physical improvements to developments and residential units,
including but not limited to mechanical improvements, windows/
doors/screens, lighting/defensible space, playgrounds/respite
areas and other development common areas.\3\
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\2\ HUD, Capital Funding amounts per DHA Finance Chief Operating
Officer calculations.
\3\ In accordance with HUD's 5 Year Comprehensive Plan, Capital
Improvement needs are identified by residents of the affected
developments.
Further, Capital Funding is the primary source of funding for
physical improvements directly related to the Public Housing Assessment
System (PHAS). Long-term maintenance/improvements will have to be
deferred and may affect DHA's ability to remain either a high-
performing authority or standard housing authority. Last, to be rated
by PHAS/REAC as a ``troubled housing authority'' and under the existing
PHAS's scoring system. DHA could also face additional negative
repercussions--for example, loss of funding, HUD takeover, etc.)
Section 8 Program--One Month Limit on Section 8 Reserves
In 2000, DHA had a 100 percent lease up rate for its Section 8
Program--for 2001 9 percent are still looking for housing/due to lack
of hard units in a tight housing market. Statewide, Colorado has a 95
percent lease up rate--5 percent is due to lack of hard units in a
tight housing market.
Impact--The proposed reduction of Section 8 reserves to a
month level--as opposed to two (2) months) will leave the
Housing Authorities with very minimal resources to fund
increased rent or utility costs during the year. The effect
would reduce the number of vouchers available for the Housing
Authority to assist eligible working poor/low-income residents.
Public Housing Drug Elimination Program
As in many other cities throughout the Nation, Denver has
experienced an increase in population and development. Often crime
rates can be correlated with local growth. Fortunately, this has not
been the case in Denver.
Recently, the city of Denver and the Denver Police Department
reported a ``downward trend in crime rate.'' In our view some of that
``decline'' can be attributed to the Federal funding provided by HUD
and DHA to the Denver Police Department.
Since 1991, DHA has implemented a nationally recognized, successful
Public Housing Drug Elimination Program (PHDEP). The Denver Police
Department (DPD) provides services for the designated sites over and
above baseline services. Additionally, the DHA PHDEP coordinates and
ensures access to local programs as alternatives to drugs and/or drug
related crime.
DHA program--fiscal year 2000 HUD Funding at $947,837--in brief has
three primary components:
1. ``community policing'' strategies through dedicated foot
patrols in and around public housing;
2. on-site neighborhood storefront offices in coordination
with DHA on-site management; and
3. structured programs offered as alternative/prevention to
drugs and drug
related crime.
Impact--DHA and DPD documentation reveals a 19 percent Total
Decrease in Reported Crime at DHA Developments from 1992
through 1999 (Attachment A).
Security in Mixed Population Buildings/High-Rises/Developments
In 1999, DHA enhanced the DEG program with additional security and
monitoring systems--mainly our VCR's and cameras in target high-rise
buildings. These services are in addition to those not usually
performed by local law enforcement agencies on a routine basis.
Impact--This initiative has resulted in a total of 48 DHA
Barring Letters in 2000 sent versus 36 DHA Barring Letters in
1999. To date (4/13/01) we have issued 16 Barring letters to a
tenant whose guest, for one reason or another are considered
``undesirable'' and has been reported to have a negative impact
on quality of life at the DHA property.
Below are selected PHDEP program descriptions and are provided in
collaboration with the local entities that are responsible for
providing such services.
Drug Prevention Centers
Drug Prevention Centers are located on-site and are the
central locations for all drug intervention and prevention
activities implemented throughout the DHA developments.
Storefronts are located at the following developments: North
Lincoln, South Lincoln, Westridge, Westwood, Sun Valley,
Columbine, Quigg Newton and Platte Valley. On-site locations
for the Drug Prevention Centers are in community centers or
units that have been converted for DEG use. Denver Police
Community Resource Officers (CRO) have offices at the Drug
Prevention Centers with private telephone Hotlines for
anonymous calls on crime and problem residences. During summer
months, foot patrols work out of the Centers. The foot patrols
walk the
developments in order to deter crime and document problem units
and
residents. CRO's, as well as, DEG and Learning Center staff
identify residents with drug use problems and refer them to
intervention and prevention services provided by certified
community-based organizations.
Academic Incentive Program
The Academic Incentive Program emphasizes education, working
toward a goal, and earning recognition at the Drug Prevention
Centers. The AIP is staffed by certified teachers. They assist
residents in tutoring and homework assistance, as well as
compiling hours individuals attend the AIP in order to
participate in the Sports Program and earn incentive points.
Youth Sports Program/Youth Leadership
Athletic Leagues support softball, basketball, floor hockey,
soccer, flag football, and volleyball. Youth Sports has been
one of the most popular and effective prevention programs
implemented by DHA. This year-long training for resident youth
includes self-esteem building, drug intervention and prevention
activities, community service projects and wilderness
experience.
Impact of PHDEP by Program Participation Levels--during 2000
a review of the DHA Participation Level at DHA PHDEP sites. Our
documentation shows that we had a total of 17,036 individual
visits to our structured alternative and prevention
programming.
Recommended Action
DHA recommends HUD, the Administration and Congress to sustain the
HUD Public Housing Capital Fund at the previous fiscal year 2001
funding level of $2.9 billion and continue funding of the Public
Housing Drug Elimination Program at $310 billion.
Closing Comments
In closing, and on behalf of the Housing Authority of the City and
County of Denver and the 22,227 \4\ individual family members served by
DHA, we implore HUD and the Committee to accept this testimony as
firsthand experience and as a constructive critique of proposed budget
that is not equitable nor reflective of the needs of constituents of
this Committee.
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\4\ DHA 200a Comprehensive Budget Document--General Information
Program Client Demographics--December 31, 2000.
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DHA commends and appreciates the HUD leadership in the proposed
increase in the Operating Subsidy and proposed increase in Section 8
renewals. Relative to the Operating Subsidy, although it appears to be
funded at this years level, it may not take into account annual
inflation, or may not have sufficient additional funding to cover the
higher cost for utilities. DHA also applauds the HUD Secretary
homeownership initiative and welcomes the opportunity to work together
in the future.
Again, thank you and the Committee for the opportunity to comment
on the HUD proposed 2002 budget. We would be happy to provide you, the
Committee or HUD with any additional information and stand ready to
work with HUD on these critical budget processes.
PREPARED STATEMENT OF D. SCOTT MINTON
Executive Director, Housing Opportunities Commission
Montgomery County, MD
April 25, 2001
Good morning, Mr. Chairman and Members of the Senate Committee on
Banking, Housing, and Urban Affairs. My name is D. Scott Minton, I am
the Executive Director of the Housing Opportunities Commission (HOC) of
Montgomery County, MD. I am pleased to provide written testimony on how
President Bush's fiscal year 2002 budget would impact HOC's operations,
and I ask that it be included for the record.
HOC's mission is to provide affordable housing and supportive
services to residents. We are a multifaceted affordable housing Agency
operating as a suburban public housing, housing finance Agency, and as
a housing developer. HOC's operating budget for fiscal year 2001 is
$145.5 million, which includes 31 percent from Federal grants.
The President's fiscal year 2002 budget is recommending $1.1
billion in cuts for the Department of Housing and Urban Development
(HUD). This includes the discontinuation of $309 million in funding for
the Public Housing Drug Elimination Program. We urge the President and
the Congress to act in the interest of thousands of families across the
State of Maryland and restore these much-needed funds to HUD's budget.
HOC and other public housing agencies across the State of Maryland
desperately need this money to fund security activities and resident
self-development programs. It makes no sense to eliminate this
important program that helps make public housing communities and the
neighborhoods that surround them safe and wholesome.
Last year, HOC received more than $360,000 in PHDEP funds to help
finance community policing and self-sufficiency activities at public
housing sites. And a recent HUD survey found that 86 percent of our
public housing residents felt safe in their communities, no doubt due
to activities paid for through PHDEP funding.
The problems of substance abuse in America have been well
documented over the years. The Drug Elimination Program money is the
primary resource that public housing agencies have to offer educational
and recreational programs to the children in public housing properties.
If these grant funds are not available then HOC will have to eliminate
a variety of programs that are currently serving nearly 500 families.
This includes 92 youth participating in the girl scouts, 300 youth
attending summer camp, and 50 families enhancing their computer
literacy skills for employment or job upward mobility. Other resident
programs that would be discontinued include the youth science club,
General Education Diploma (GED) courses, parenting classes, and the
early head-start program.
Of course, most of our Drug Elimination Program funds are spent on
community policing. The effect of the program on our public housing
communities has been dramatic. Prior to the community policing efforts,
several of HOC's properties were plagued with open-air drug markets.
The drug dealers and their associates terrorized these properties at
night. Fortunately, that has changed dramatically due to the security
measures and the increased police presence funded by the Drug
Elimination Grants. As I previously stated, 86 percent of residents
said they feel safe in their communities. Without the additional police
presence, this would not be so.
Additionally, the community policing program has provided our
residents, particularly the children, with positive interactions with
the police. Montgomery County has an excellent Police Department, and
the officers who have worked in our public housing communities have
taken a personal interest in the people they serve. Last summer, HOC
sponsored an event to honor a group of children who had completed one
of our summer programs. The event featured a disc jockey and a cookout.
A police officer assigned to the property stopped by and immediately
became the center of attention with the children. He joined in their
impromptu ball game and listened to an unbelievable amount of chatter.
Much has been said about measuring effectiveness of the Drug
Elimination Grant. In our experience, the grant has allowed us to add a
certain amount of security in an often troubled and uncertain
environment, and more importantly brings the community and police
together in a positive relationship that is often missing in the normal
patrol. Moreover, thousands of families in Montgomery County have
benefited from Drug Elimination Grant funds since the program was begun
11 years ago.
Ironically, we have witnessed on the evening news a number of
dilapidated public housing structures being imploded in the past
several years. This Committee, in particular, has heard a litany of
horror stories about deferred maintenance, lack of upkeep and
uninhabitable houses in public housing communities. I predict that the
Administration's proposed budget cuts would only exacerbate this
problem.
The funding levels for capital improvements have been barely
adequate for many years. Montgomery County and HOC are already
subsidizing the capital needs of public housing by at least $250,000 a
year. Now, the Administration's proposal will reduce capital funds by
an additional $150,000. Anyone who operates a real estate business
knows that deferred maintenance is not a saving. The leaking roofs,
deteriorating facades and inoperable systems will still be there
creating other problems that will also have to be repaired. The
reduction in Capital Funds is a false savings that will have to be
repaid in future years. Please do not add to the number of public
housing buildings that will have to be demolished because the
Administration is too shortsighted to fund basic maintenance.
In conclusion, HOC strongly opposes the President's proposed cuts
in public housing programs. I hope that this brief statement has
conveyed to you the importance of restoring $1.1 billion in program
cuts to HUD's fiscal year 2002 budget. This will ensure that our
neediest residents have housing that is decent, safe and secure, where
families and senior citizens can live without fear of drug-related
crime or leaky roofs. Thanks again for the opportunity to comment on
this very important issue. We strongly urge the Members of the
Committee to restore adequate funding to HUD's public housing budget.
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PREPARED STATEMENT OF RICHARD WILSON
Housing Authority of Washington County, MD
April 25, 2001
Impacts of Cuts--Capital Fund
Richard Wilson of the Housing Authority of Washington County, Maryland:
``One project that would clearly have to be put on the shelf
is the addition of heat pumps in elderly units. This project is
being planned to respond to increasing energy costs and to provide
a measure of summer comfort. The existing source of heating is
electric resistance baseboard, and heat pumps should shave 20
percent off energy consumption. As our elderly residents age, we
find more respiratory problems. The summer air-conditioning
advantage provided by heat pumps will provide welcome relief for
our elderly clients.''
``In fiscal year 2004 where we see the highest capital costs
falling, cuts in HUD assistance will threaten replacement of
flooring, sidewalks, windows and porches. In fiscal year 2005 a
major parking lot repaving that has a $66,000 price tag will have
to be dropped. Delaying these repairs will result in more
maintenance work leading to higher operational costs for the
Authority. Therefore, it seems to me that the proper capital
investment should be an intentional strategy for HUD and Congress
as it is for our organization which indeed may allow more efficient
future use of operational funding.''
In Baltimore City, the Capital Fund reduction would have a negative
impact of $6.7 million on its Housing Authority. The budget would also
limit the ability of the Housing Authority of Baltimore City to
exercise its option to issue bonds secured by the Capital Fund. The
following reductions would result from the intended cut:
Funding for the Claremont Homes would be eliminated resulting
in the need
to consider the relocation of approximately 200 families. This site
is in desper-
ate need of new roofs, heating and plumbing systems, electrical
upgrades, new
kitchens, bath, etc.
Funding would be eliminated for the Electrical Distribution
System Upgrade at a family development--298--families resulting in
continued power outages, loss of heat, and potential fire hazards
due to system overloads.
Funding for major elevator repairs would be eliminated at two
elderly developments. This will result in continued elevator
breakdowns causing elderly residents to become trapped in
elevators.
Funding for replacement furnaces at a development for adults
and handicap people would be eliminated creating the possibility of
emergency situations regarding loss of heat and frozen pipes.
Funding for repair and replacement of streets, sidewalks, and
other paved areas would be eliminated Authority-wide. This would
result in the inability to eliminate safety hazards for residents,
visitors, and the general public at the HABC's site.
Funding for replacement of an air-conditioning chiller at a
development for adults and handicap people would be eliminated.
This would result in health and safety issues for these residents.
In St. Mary's County Housing Authority, Maryland loss/reduction in
Capital Fund will equal:
No site improvements to existing building/community
facilities--assets--for safety, pride, and accessibility.
No needed roof repairs.
No interior improvements to achieve safety, energy efficiency,
and general replacement of fixtures/interior items based on the end
of their life cycle.
No software, management improvements.
No resources for Housing Authority to participate in new
community housing initiatives, for example, mixed use housing,
homeownership, knowledge, skills, and ability building for
residents.
Ralph Benett of Housing Opportunities Commission of
Montgomery County Maryland:
The reduction in the Capital Fund would cause HOC to eliminate
nearly $750,000 in physical improvements next year alone. ``Our plan to
upgrade the exteriors of some of our multifamily and scattered site
properties will be stretched out. Residents who expected improved
security lighting or replacement of decade-old windows, for example may
simply have to wait.''
Sharon Jordan Legislative Spokesperson for the New York State Public
Housing Authority Director's Association (NYSPHADA) said:
``We are very concerned about the President's Proposed Budget for
HUD. His proposal cuts 25 percent--$700 million--from the Capital
Budget which will result in delays and cancellation of important
modernization projects--for instance: new kitchens and baths, or
updated heating and cooling systems for our Senior Projects.
Temple Housing Authority, Temple, Texas writes:
``The units of our multifamily complexes are scheduled to have
central heating and air conditioning (HVAC) installed in fiscal year
2001 and 2002. HVAC installation is critical to maintaining the THA's
ability to adequately serve our residents. The cut in Capital Funding
would delay this resident supported work indefinitely. Replacement of
20-year-old roof systems would be placed on hold, as well as utility
system upgrades, replacement of appliances, vehicle replacements,
maintenance equipment purchases, staff training and computer upgrades.
Reduction in Capital Funding will lower our ability to pass HUD's
property inspections and effects our ability to keep pace with routine
maintenance.''
St. Paul Housing Authority, St. Paul, Minnesota:
The proposed $700 million reduction in Capital funding would cut
about $3 million from the PHA's modernizing grant of about 9.5 million.
The implications are truly disturbing:
A $3 million annual funding cut could force us to extend the
completion dates of current modernization projects or delay or
cancel plans for future renovation.
We would have to shelve or largely rewrite our 5 year
modernization plan, which has been developed over many months, with
hundreds of hours of staff and resident participation, public
hearings and other community input.
Our Board and staff have to make program decisions almost
monthly in reliance on stable, predictable Capital Funding. The
possibility of a 30 percent cut in modernization funding upsets the
planning and contracting process Agency-wide.
For example, this year we intended to begin working with
staff, residents, and architectural and engineering consultants to
plan the major modernization of all 580 townhouse units at
McDonough Homes. We expected this to be a 6 to 8 year process, with
a cost of $30-35 million. With the possibility of a $3 million
annual funding cut, we must decide soon whether to begin the
process as planned, scale it way back, or put it on hold. If the
project time line would stretch to 12 or more years, we have to
question it.
We have been considering whether to borrow capital to do the
McDonough work more quickly, then pay back the bonds over time. But
if HUD's modernization funds are unpredictable bonds are risky
propositions for both the PHA and for potential investors--hence
higher interest rates.
Comments by the Housing Commission of Anne Arundel County,
Maryland on unexpended balances:
``The argument that there exists a 6 billion-dollar allocation that
remains unspent is totally inaccurate. The Department may have made
funding a decision and obligated funding for housing agencies but as of
this date fiscal year 2001 dollars have not been released and the
fiscal year 2000 funding was just authorized in November. We want to
spend the Capital Funds and our Agency has consistently exceeded HUD's
standards for the expenditure of funds timely, and I trust this is the
same for essentially every authority.''
Drug Elimination Grant Program
In Maryland, the Baltimore Housing Authority will experience:
The loss of 12 police officers who patrol family developments.
Closure of four Youth Development Centers that provide after-
school tutoring and structured recreation.
The elimination of 19 trained counselors who provide resident
services to move from welfare dependency to economic self-
sufficiency.
The elimination of funds for physical safety improvements such
as lighting and fencing.
The elimination of 23 building monitors who serve as tenant
patrols in elderly developments.
The elimination of 370,000 in drug treatment funds which have
assisted over 1,200 families since 1994.
Roger A. John, Peoria Housing Authority, Peoria, Illinois said:
``If the Administration takes away PHDEP, you might as well put up
the welcome sign for gang bangers. Our budget will not tolerate any
more cuts.''
Ruth E. Carlson, Worcester Housing Authority, Worcester, Massachusetts:
``Drug prevention and educational programs made possible by PHDEP
have allowed us to provide antidrug education, homework centers and
community learning centers staffed by school teachers. The ``New Star''
program focuses on young children who sign agreements to improve their
grades, attendance and deportment. All of these programs are geared to
help the children become better equipped to succeed in school and help
the children build self-esteem and confidence to achieve better
education. The mentoring and encouragement that the children receive by
everyone involved is invaluable. So too, are the summer work programs
that keep children off the streets and allow these children the
opportunity to learn work ethics and responsibility.
It would be unconscionable to take these programs away from the
underprivileged children who need them the most. All will be lost, if
PHDEP is lost. Education is the most effective antidrug program there
is.''
Catherine A. Hoener, Resident of the Akron Metropolitan Housing
Authority:
``The Public Housing Drug Elimination Program (PHDEP) is important
to residents of AMHA because many of the programs available at the
family developments give youth and adults something positive in which
to involve themselves. For example, the Boys and Girls Club offers
various activities such as Power Hour (tutoring), Computer Education,
and SMART Moves, which is a national program model for Drug Education .
. .
The PHDEP also provides security to many of our housing
developments which gives me assurance that my building is being
protected. Without PHDEP many of our buildings will no longer have
officers patrolling them.''