[Senate Hearing 107-836]
[From the U.S. Government Publishing Office]
S. Hrg. 107-836
HOUSING AND COMMUNITY
DEVELOPMENT NEEDS
=======================================================================
HEARING
before the
COMMITTEE ON
BANKING,HOUSING,AND URBAN AFFAIRS
UNITED STATES SENATE
ONE HUNDRED SEVENTH CONGRESS
FIRST SESSION
ON
THE EXAMINATION OF HOUSING AND COMMUNITY DEVELOPMENT NEEDS, FOCUSING ON
THE FISCAL YEAR 2003 HOUSING AND URBAN DEVELOPMENT BUDGET, PROVIDING A
MORTGAGE CUT RATE FOR NATIONAL GUARDSMEN AND RESERVISTS CALLED TO
ACTIVE DUTY, RELIEF ON FHA MORTGAGES FOR THE VICTIMS FAMILIES OF THE
SEPTEMBER 11, 2001 ATTACKS, AND FOR NEW YORK CITYS' ECONOMIC RECOVERY
__________
NOVEMBER 29 AND DECEMBER 13, 2001
__________
Printed for the use of the Committee on Banking, Housing, and Urban
Affairs
84-038 U.S. GOVERNMENT PRINTING OFFICE
WASHINGTON : 2002
____________________________________________________________________________
For Sale by the Superintendent of Documents, U.S. Government Printing Office
Internet: bookstore.gpr.gov Phone: toll free (866) 512-1800; (202) 512�091800
Fax: (202) 512�092250 Mail: Stop SSOP, Washington, DC 20402�090001
COMMITTEE ON BANKING, HOUSING, AND URBAN AFFAIRS
PAUL S. SARBANES, Maryland, Chairman
CHRISTOPHER J. DODD, Connecticut PHIL GRAMM, Texas
TIM JOHNSON, South Dakota RICHARD C. SHELBY, Alabama
JACK REED, Rhode Island ROBERT F. BENNETT, Utah
CHARLES E. SCHUMER, New York WAYNE ALLARD, Colorado
EVAN BAYH, Indiana MICHAEL B. ENZI, Wyoming
ZELL MILLER, Georgia CHUCK HAGEL, Nebraska
THOMAS R. CARPER, Delaware RICK SANTORUM, Pennsylvania
DEBBIE STABENOW, Michigan JIM BUNNING, Kentucky
JON S. CORZINE, New Jersey MIKE CRAPO, Idaho
DANIEL K. AKAKA, Hawaii JOHN ENSIGN, Nevada
Steven B. Harris, Staff Director and Chief Counsel
Wayne A. Abernathy, Republican Staff Director
Martin J. Gruenberg, Senior Counsel
Mark Calabria, Republic Economist
Sherry Little, Republic Legislative Assistant
Joseph R. Kolinski, Chief Clerk and Computer Systems Administrator
George E. Whittle, Editor
(ii)
C O N T E N T S
----------
THURSDAY, NOVEMBER 29, 2001
Page
Opening statement of Chairman Sarbanes........................... 1
Prepared statement........................................... 32
Opening statements, comments, or prepared statements of:
Senator Allard............................................... 3
Senator Reed................................................. 4
Prepared statement....................................... 32
Senator Miller............................................... 5
Senator Stabenow............................................. 5
Senator Corzine.............................................. 6
Prepared statement....................................... 33
Senator Carper............................................... 21
Prepared statement....................................... 34
WITNESSES
Patty Murray, A U.S. Senator from the State of Washington........ 1
Barbara Sard, Director of Housing Policy, Center on Budget and
Policy
Priorities..................................................... 7
Prepared statement........................................... 35
Raymond A. Skinner, Secretary of Housing and Community
Development,
the State of Maryland, Testifying on Behalf of The National
Council
of State Housing Agencies...................................... 9
Prepared statement........................................... 55
Response to written questions of Senator Sarbanes............ 86
Edgar O. Olsen, PhD, Professor of Economics, University of
Virginia....................................................... 12
Prepared statement........................................... 59
David W. Curtis, Executive Vice President and Chief Executive
Officer,
Leon N. Weiner & Associates, Inc., Testifying on Behalf of The
National
Association of Home Builders, Inc.............................. 14
Prepared statement........................................... 65
Response to written questions of Senator Sarbanes............ 87
Kurt Creager, President, National Association of Housing and
Redevelopment Officials, and Chief Executive Officer, Vancouver
Housing
Authority, Vancouver, Washington............................... 16
Prepared statement........................................... 71
F. Barton Harvey, Chairman and CEO, The Enterprise Foundation.... 19
Prepared statement........................................... 79
Response to written question of Senator Sarbanes............. 88
Additional Material Supplied for the Record
Statement submitted by U.S. Conference of Mayors, National
Association
of Counties, National Association for County Community Economic
Development, National Association of Local Housing Finance
Agencies,
National Community Development Association, dated November 29,
2001......................................................... 90
Additional testimony submitted by Kurt Creager, dated
December 10, 2001.............................................. 94
----------
THURSDAY, DECEMBER 13, 2001
Page
Opening statement of Chairman Sarbanes........................... 109
Prepared statement........................................... 149
Opening statements, comments, or prepared statements of:
Senator Gramm................................................ 111
Senator Reed................................................. 113
Senator Allard............................................... 114
Senator Bayh................................................. 115
Senator Crapo................................................ 117
Senator Miller............................................... 118
Senator Bunning.............................................. 118
Senator Stabenow............................................. 118
Prepared statement....................................... 153
Senator Corzine.............................................. 119
Senator Schumer.............................................. 145
WITNESS
Mel Martinez, Secretary, U.S. Department of Housing and Urban
Development.................................................... 121
Prepared statement........................................... 153
HOUSING AND COMMUNITY
DEVELOPMENT NEEDS
----------
THURSDAY, NOVEMBER 29, 2001
U.S. Senate,
Committee on Banking, Housing, and Urban Affairs,
Washington, DC.
The Committee met at 10:05 a.m., in room SD-538 of the
Dirksen Senate Office Building, Senator Paul S. Sarbanes
(Chairman of the Committee) presiding.
OPENING STATEMENT OF CHAIRMAN PAUL S. SARBANES
Chairman Sarbanes. Let me call this hearing to order.
There is a vote scheduled at 10:30 a.m. and we will do as
much business as we can before we have to leave to go and vote.
I am going to defer my opening statement because Senator Murray
is here to introduce one of the people who will be on the
panel, and I know she has some other pressing engagements.
Senator Murray, why don't you go ahead. We will be very happy
to hear from you.
Senator Murray. Well, thank you very much, Mr. Chairman and
Members of the Committee.
Chairman Sarbanes. I might add, a former, very
distinguished Member of this Committee.
STATEMENT OF PATTY MURRAY
A U.S. SENATOR FROM THE STATE OF WASHINGTON
Senator Murray. Well, thank you, Mr. Chairman, and Members
of the Committee. I really do appreciate the opportunity to
take just a minute this morning to introduce a very good and
long-time friend of mine, Kurt Creager.
Kurt is the Chief Executive Officer of the Vancouver
Housing Authority in my home State of Washington. That is the
housing authority that serves all of Clark County, Washington,
which is one of the fastest-growing communities in the entire
country.
Kurt has always been an effective and articulate spokesman
for affordable housing and community development in Washington
State, and I am pleased that he is now President of the
National Association of Housing and Redevelopment Officials,
which allows him to bring his passion for these issues to the
national level.
Mr. Chairman, I know that you have shared many of my
concerns about the first HUD budget proposed by the Bush
Administration and I applaud your decision to hold this hearing
today on the fiscal year 2003 HUD budget.
Programs like the Community Development Block Grant Program
and the Public Housing Capital and Operating Funds are really
critical to serving low-income people and communities from
coast to coast. We need to make sure that the Administration
understands their importance.
In my home State of Washington, we are experiencing
tremendous layoffs and increased unemployment, and we know that
at a time when the economy is slowing down, we should not be
reducing our investments in affordable housing and communities.
Mr. Chairman, I thank you for holding this hearing. On
behalf of the people of Washington State, I want to thank Mr.
Creager for his leadership and his testimony and for coming all
the way across the country today.
Thank you very much, Mr. Chairman.
Chairman Sarbanes. Thank you very much, Senator Murray. We
appreciate you being here and introducing Mr. Creager.
I want to thank all of the witnesses for joining us today
to help explore and examine the housing and community
development needs of the American people and the communities in
which they live. Earlier this week, the President signed the
HUD appropriations bill into law for the fiscal year in which
we now find ourselves. Despite the narrow limits within which
the Appropriations Committee was required to work, I do think
they substantially improved the Administration's budget
request, and I am very pleased that that is the case.
I very much hope that the Administration will take into
account the extent to which poor and even moderate-income
working families are facing an affordable housing crisis as
they prepare the HUD budget for fiscal 2003.
By HUD's own data, 5 million very low-income American
families pay over half their income in rent. A study by the
National Housing Conference that looked at a broader sample
found that nearly 14 million families, including working
families earning more than the median income, face critical
housing needs.
In fact, while the number of worst-case needs among poor
families actually seemed to stabilize a bit, the number of
working families carrying the severe burden has risen quite
sharply.
A recent low-income housing coalition study shows that two
full-time, minimum wage earners in a family is not sufficient
in 33 States to rent a modest apartment which would require
paying 30 percent of a family's income, a level widely assumed
to be a measure of affordability.
In other words, you have two full-time workers at the
minimum wage, and in two-thirds of our States, that is not
sufficient income to rent a modest apartment at 30 percent of
the family's income.
In the past decade, the number of units available to
extremely low-income renters has dropped by about 15 percent, a
loss of almost a million units. And nationally, apartment
vacancy rates have declined by 1.7 percentage points, making it
more difficult for all renters to find an affordable place to
live.
We should take a moment to think of what it means to pay so
much of one's income for housing alone. It means insecurity and
uncertainty. It may well mean rootlessness. These families live
one unexpected medical bill, one car repair, one bout of
unemployment away from homelessness. And many end up moving
from one apartment to another, move in with relatives or
friends just to keep a roof over their house. And obviously,
the impact on the children of these families is extremely
marked.
I think it is important as we move ahead that both the
Congress and the Administration should seek to expand aid to
low-income families. Programs that help create a ladder of
housing opportunity, such as FHA multifamily programs, need to
be increased. For many the final rung on the ladder is
homeownership assistance programs, and with some Federal
assistance, many American families can take this final step
toward the American Dream.
I want to commend the Bush Administration last year for
proposing additional downpayment assistance for homeownership.
But I regret that the proposal came only at the expense of
other programs, which I think were also sorely needed. It was
an additional commitment of resources.
Actually, the Appropriations Committee tried to straighten
that out a little bit. I hope we do not face a similar
situation in the budget that we will be receiving in the new
year.
The panel of witnesses we have here today come with broad
experience and expertise to discuss America's housing needs and
how we should go about meeting them. I am very much looking
forward to hearing from them.
Before we do that, I will turn to my colleagues for any
statements they may have.
Senator Allard.
STATEMENT OF SENATOR WAYNE ALLARD
Senator Allard. Thank you, Mr. Chairman for holding this
hearing today on housing and community development needs for
the fiscal year 2003 HUD budget. HUD's budget has been
increasing in recent years and that trend I expect will
continue in 2002.
To merely focus on dollars 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 those desired
results?
I want to make a point to emphasize The Government
Performance Results Act, which is legislation that we passed
some time back in this Congress which directed agencies to
begin to measure their performance through measurable results.
Many county commissioners, city council people, use this
type of management tool in order to have accountability. Even
businesses will have this accountability on how those dollars
are spent and what the results are.
I would hope that this Committee, working with the
Subcommittee on Housing, would focus on trying to develop some
measurable results from HUD so that, as policymakers, we can be
more responsible on how these programs are administered.
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. But what is most striking is the amount of
unobligated money in the HUD pipeline which has already been
appropriated by the Congress. At the end of last year, there
was at least $12 billion of unobligated and unspent HUD money.
It should also be noted that over the last several years,
we have significantly increased Federal resources for
affordable housing. Both the low-income housing tax credit and
private activity bond authority were increased at the end of
2000.
In addition, this year Congress increased the FHA
multifamily loan limits. It is also important to note the
private sector's primary role in providing affordable housing.
Mortgage bankers, homebuilders, and realtors are all working
harder to create more affordable housing. It is very
encouraging that the Fannie Mae and Freddie Mac conforming loan
limits will rise in January from $275,000 to $300,000. This
will help get many more families into affordable housing and
affordable home mortgages.
Before I close, I want to raise a concern with the Chairman
if I might. HUD has not had an inspector general for nearly 6
months. The President has nominated Ken Donohue, and my
understanding is that his paperwork has been received by the
Committee. And I hope that we can hold a hearing and confirm
Mr. Donohue before the session ends, Mr. Chairman.
Thank you.
Chairman Sarbanes. His paperwork is complete. I discussed
his situation yesterday with the Secretary. So it is not off
the radar screen.
Senator Allard. Are you planning a hearing shortly?
Chairman Sarbanes. Well, I want to have a further
discussion with the Secretary.
Senator Allard. Okay.
Chairman Sarbanes. Senator Reed.
COMMENTS OF SENATOR JACK REED
Senator Reed. Mr. Chairman, thank you very much for
scheduling this hearing. I have the great opportunity to serve
as the Chairman for the Housing and Transportation
Subcommittee, along with Senator Allard as the Ranking Member.
The Chairman's comments today are precisely on point. There
is an affordable housing crisis across the country, measured
not simply in statistics, but in the lives of American
families.
We are all in this room, I suspect, lucky enough to be able
to think back to where we grew up, one address or two addresses
of a house we knew, a house with stability. For so many
American families, that is not the case, particularly in city
center areas.
In addition, the crisis in affordable housing forces
families to make very difficult choices to live in an
inadequate and, indeed, dangerous, house, or to have no place
at all to live. And one of the real dangers that we find,
particularly in the northeast, but across the country, is the
pervasive nature of lead-based paint in houses that poison
children. It is the number-one preventable pediatric disease in
this country.
And yes, it is not just about money. But, frankly, the
scope and the nature of this housing crisis requires more
resources. It requires them to be spent well and wisely. But
anyone who would suggest simply by reorganizing HUD we are
going to deal with this problem, I think is missing the point.
We have to put real resources to address a real crisis. And I
thank the Chairman for scheduling this hearing. I would also
like to make my full statement a part of the record.
Chairman Sarbanes. It certainly will be included in the
record.
Senator Miller.
COMMENT OF SENATOR ZELL MILLER
Senator Miller. I have no statement at this time, Mr.
Chairman.
Chairman Sarbanes. Thank you.
Senator Stabenow.
STATEMENT OF SENATOR DEBBIE STABENOW
Senator Stabenow. Thank you, Mr. Chairman, for holding this
important hearing. And I think one of the opportunities that we
have now with the extended session is to focus on our oversight
responsibilities. And I think this is incredibly important and
we appreciate everyone being here today.
I am hopeful that we can focus in a way that brings some
consensus among all the stakeholders about where we need to go
in terms of the next year's budget.
I certainly share the concerns, though, of the Chairman and
of Senator Reed in terms of the challenges that real families
are facing and with the downturn, and in fact, the official
designation now of a recession, we certainly are seeing
families that are being squeezed greatly by the economy, by
layoffs.
And I think all of us want to have a home for our children,
to have safe housing that is free of lead paint and is a house
that is not your car or some tent that is out in a park, which
we have seen too many people finding themselves in this
situation.
I did want to stress, Mr. Chairman, that I am very
concerned about the cuts that were made in Community
Development Block Grants. I hope we are going to see a reverse
in that and a commitment to move forward for those kinds of
resources that are important for communities and for individual
homeowners.
And I am very concerned, and I know my good friend, Senator
Jon Corzine, has mentioned this as well, his concern. But the
fact that the budget eliminates the Public Housing Drug
Elimination Program earmark is of real concern to me.
This is a broad, bipartisan program. And when you couple
that with the fact that we have seen a retreat in funding for
Operation Same Home in the Office of the Inspector General of
HUD, I am very concerned in terms of what this means as it
relates to safe and drug-free public housing and communities.
I would assume that the Administration's position is not
that we are seeing a lessening of the problem of illegal drugs
in public housing, but that we need to be very focused on safe
homes and effective programs that eliminate access to drugs for
our children in public housing and for all of our residents.
So, I am very concerned and interested in knowing what the
strategy is in terms of enforcing against illegal use of drugs
and trafficking of drugs in our housing complexes.
With that, I would just again welcome those who are with us
today and thank you, Mr. Chairman, for a very important
hearing, and know that we have a lot of work to do. Families
are counting on us and hoping that we will put together
effective programs that obviously use the dollars wisely, but
certainly make sure that resources are available for families
to be able to have what is a fundamental American Dream, which
is a home for their family.
Thank you.
Chairman Sarbanes. Thank you very much, Senator Stabenow.
Senator Corzine.
COMMENTS OF SENATOR JON S. CORZINE
Senator Corzine. Thank you, Mr. Chairman. I appreciate, as
the other Members do, your holding this hearing. This is one of
the most important topics I think we face in the Congress.
Making sure that we do those things that help provide American
families with decent, safe, affordable housing is a
responsibility that I take very seriously and I know my
colleagues on the Committee do. And we share your commitment to
that, Mr. Chairman.
I have a formal statement I will put in the record. But I
want to underscore the things that Senator Stabenow just spoke
about, the drug elimination program, which, starting with
testimony by then-designate Martinez, the idea that this
program was going to be supported was commented on both
verbally and in writing and then dropped, I think just flies in
the face of the facts of what we see when you go into public
housing projects across this country.
Decent, safe, affordable housing is something that is our
responsibility and I am absolutely frustrated beyond belief
with the elimination of this program. The Community Development
Block Grants that Senator Stabenow spoke about strike at the
very heart of our elderly, disabled, low-income communities.
We have a lot of work to do here, and I appreciate the
witnesses' participation. I have a formal statement, but this
is one that I do not think we can give enough attention to.
Chairman Sarbanes. Thank you very much, Senator Corzine.
Ms. Sard, I think we will begin with you, and then we will
move across the table.
Barbara Sard is currently the Director of Housing Policy at
the Center on Budget and Policy Priorities here in Washington.
Prior to working at the center, Barbara Sard, a graduate of
Harvard Law School, was the Senior Managing Attorney of the
housing unit at the Greater Boston Legal Services, where she
served for some----
Ms. Sard. A long time.
[Laughter.]
Chairman Sarbanes. A long time. I accept that
characterization.
We are very pleased you are here. We know the terrific work
you have done in working on renewal of tenant-based Section 8
contracts, changes in the project-based voucher program, the
development of policies and rules to implement the merger of
the tenant-based certificates and voucher programs.
You have really made a number of very significant
contributions which we are aware of and grateful for, and we
would be happy to hear from you.
STATEMENT OF BARBARA SARD
DIRECTOR OF HOUSING POLICY
CENTER ON BUDGET AND POLICY PRIORITIES
Ms. Sard. Thank you very much, Senator, and I appreciate
the opportunity to testify today before the Committee.
I am going to touch on three issues in my testimony:
reviewing some of the recent data on housing needs,
highlighting some of the recent research that substantiates
what I think we know in our gut, which is that housing makes a
difference in the lives of families and children, and finally,
making a few recommendations related to voucher program funding
for next year.
On the data side, recent data show that despite the
increased level of work effort in the population, poor and
near-poor families continue to have serious housing problems.
As the Senator said, in 1999, there were 4.9 million households
with incomes under half of the median who either paid more than
half of their income for housing or lived in severely
substandard housing.
Even among those households with such low incomes, most who
are not elderly or disabled are relying on earnings primarily
for their livelihood. Four out of five rely primarily on
earnings. So this is not a problem just of the so-called
dependent poor or welfare poor. This is a problem of low-income
working families.
If you have the testimony there is a graph which we did not
have the funds to blow up. I apologize. That takes the data
from the 1999 housing survey and shows that more than three-
quarters of the families problems are solely that they are
paying more than half of their income for housing.
They live in decent housing. They live in uncrowded
housing. For those families in particular, vouchers can solve
their housing problem. They can potentially use vouchers right
where they are and solve their affordable housing problem.
But for many families, vouchers have been more difficult to
use recently because of the declining vacancy rate, as the
Senator mentioned. And in all regions, there is a reduced
supply of units affordable even to families with vouchers, at
rents that are appropriate for the program.
And that is particularly true of larger units, the units
needed for families with three or more bedrooms. And so, that
is really an important thing to think about in terms of the
production side, that for vouchers to work for these larger
families, we need more units.
I also want to highlight location of housing as a very
important issue. The steepest decline in available rental units
at the right rents for the voucher program was in the suburbs.
But as we know, the suburbs are where most of the job growth is
occurring.
If families are going to have a chance of working, or a
better chance of working, it is very important that we target
production of rental housing substantially to those suburban
areas or other areas of high job growth and link that newly
produced housing with vouchers.
As you probably also know, renter households at the lowest
incomes, those called extremely low income, below 30 percent of
area median, have by far the highest incidence of housing
problems.
And another important feature of the voucher program is
that it is the only one of the current Federal housing programs
that is primarily targeted on these extremely low-income
families. Every year 75 percent of vouchers have to go to these
households. If we want to get scarce resources to the people
that need them the most, it is important to have new vouchers.
On the production side, our current tools, the Low-Income
Housing Tax Credit and the HOME program, have been shown to
work without additional subsidies only for households with
income above about 45 percent of the area median.
My testimony includes data from two recent HUD studies that
show the extent of extreme rent burdens for families in tax
credit and HOME developments if they do not also have rental
assistance through the voucher program.
Given our priority on welfare reform and its timeliness
with the reauthorization coming up next year, it is important
to look at the data on what families leaving welfare earn.
The recent studies have shown that the typical family
nationally who goes to work from welfare still has to pay 57
percent of its income for housing. If you look at the chart, we
took the data on earnings from the 14 jurisdictions where HHS
has financed what are called welfare leaver studies. You can
see that these families would have to pay from 52 to 129
percent of their income simply for modest housing.
There is a growing body of research that indicates that
having housing subsidies makes welfare reform efforts more
effective. In Minnesota, the evaluation of the MFIP
demonstration showed that almost all of the increases in
employment and earnings that were shown to be so significant in
that demonstration were attributable to the families who had
housing assistance of some kind. Families without affordable
housing basically did not benefit from the welfare reform
effort.
The studies that have been done looking at children have
shown that having affordable housing, particularly having
vouchers that families use to move to better-off areas, makes a
great difference in children's lives, most notably in
education. The education results have been stunning. Given our
current priority on education reform, I would suggest that if
we ignore housing, it is like trying to reform education with
one hand tied behind our back.
Finally, on the budget. As you know, the number of new
vouchers funded this year was 70 percent below the number that
had been funded in 2001. Indeed, the number of new vouchers
funded in 2002 was the lowest under a Republican President
since the first budget of the Reagan Administration. There is a
chart that we updated from HUD's data that shows that only in
the fiscal 1982 budget were there fewer new vouchers funded
when there was a Republican President in office than this past
year.
One thing to be very carefully on the look-out for in the
HUD budget this next year is the fact that about $1.8 billion
in additional budget authority is going to be required just to
stay even. And that is because of the multiyear Section 8
contracts that are expiring, as well as a few other
technicalities that I explain in the testimony.
So-called increase of $1.8 billion is no increase at all.
It is only holding the ground, which obviously is a problem and
a squeeze for other parts of the HUD budget. But for all the
reasons I have talked about, it remains very important to
continue to increase the Federal investment in vouchers and
expand the number of families helped. And I would suggest, in
particular, that we look at the need for new vouchers targeted
on families moving from welfare to work in this coming year of
TANF reauthorization.
It is also important in order to make vouchers more usable
in communities of high job growth, that housing authorities be
able to pay an adequate amount of money with the vouchers. And
one proposal that is in our testimony that we hope this
Committee will seriously consider is increasing the amount that
housing authorities can pay to 120 percent of the fair market
rent. If this Committee proposes legislation that would change
the statute in that way, that also has a fiscal effect that
would have to be considered in the budget.
There are a number of other proposals as well in the
testimony that can improve the effectiveness of the voucher
program which have a small financial impact, but that are yet
important to pay attention to.
Thank you.
Chairman Sarbanes. Thank you. The vote has started. And I
think, Mr. Skinner, probably rather than starting with you
since we are already into the vote, we would better recess and
go and vote and then we will return and resume the hearing.
You all appreciate that this is the way it works.
[Laughter.]
Mr. Skinner. We understand.
[Laughter.]
Chairman Sarbanes. The hearing will stand in recess,
subject to the call of the Chair.
[Recess.]
Chairman Sarbanes. The hearing will resume.
We will now turn to Ray Skinner, who has a quarter-century
of experience in housing, economic development, community
revitalization, real estate development, and urban planning.
Since 1988, he has been the Secretary of the Maryland
Department of Housing and Community Development.
Mr. Skinner. Since 1998.
Chairman Sarbanes. 1998, yes. What did I say?
Mr. Skinner. You said 1988.
Chairman Sarbanes. No, I am sorry. 1998.
Mr. Skinner. I have not been there that long.
Chairman Sarbanes. Well, you have done a good job, so we
are pleased with your presence there.
We are very pleased to have Ray here and we would be happy
to hear from him.
STATEMENT OF RAYMOND A. SKINNER
SECRETARY OF HOUSING AND COMMUNITY DEVELOPMENT
THE STATE OF MARYLAND
TESTIFYING ON BEHALF OF
THE NATIONAL COUNCIL OF STATE HOUSING AGENCIES
Mr. Skinner. Good morning, Senator Sarbanes. It is always a
pleasure to see you. Actually, before beginning my testimony, I
would just really like to thank you on behalf of my department,
and really, on behalf of all the citizens of Maryland, for your
unwavering support for housing and community development
programs. We really do appreciate that.
Chairman Sarbanes. Thank you.
Mr. Skinner. Mr. Chairman, Members of the Committee, my
name is Raymond Skinner and I am Secretary of the Maryland
Department of Housing and Community Development. It is a
pleasure to be here today. I really appreciate the opportunity
to testify on behalf of the National Council of State Housing
Agencies. NCSHA, as you know, represents the housing agencies
of the 50 States, the District of Columbia, Puerto Rico, and
the U.S. Virgin Islands.
I want to thank you, Mr. Chairman, and many of the Members
of this Committee who cosponsored and helped enact legislation
last year to increase the caps on housing bonds and housing tax
credits. However, unfortunately, even with those increases,
many people qualified to receive bond and credit help still
will not get it, in some cases because of three obsolete and I
guess somewhat obscure Federal requirements that prevent it.
I will not go into what they are in the interest of time,
but they are outlined in my testimony. However, we believe that
Senate Bill S. 677 fixes these problems. Forty-seven Senators
have already cosponsored it and more than half the House has
cosponsored an identical bill, H.R. 951. The National Governors
Association and 20 other major State and local government,
public finance, and housing groups have also endorsed this
legislation.
We want to thank the Members of the Committee who have
cosponsored S. 677, and certainly urge all Senators, especially
my Senator from the Great State of Maryland, to cosponsor it
and to press for its inclusion in a tax bill very soon.
Last year, Congress did more than just restore the
purchasing power of the bond and credit caps that the bond and
credit caps had lost since they were established in 1988. What
you did was also index those caps for future inflation so that
they would never again be robbed of their purchasing power due
to inflation.
Regrettably, Congress has made no similar provision for
Federal housing spending programs. Today's HUD budget is a
third of what it would have been had it kept pace with
inflation since 1976. Had HUD budgets been adjusted for
inflation over the last 27 years, $1 trillion more would have
been invested in affordable housing. The HUD budget has
remained flat in nominal terms. It has barely grown from $29.2
billion in 1976 to $30 billion in 2002, and has lost two-thirds
of its purchasing power due to inflation.
The HOME program dramatically illustrates the tool
inflation has taken on Federal housing funding. Congress
authorized HOME at $2 billion in 1992, but appropriated only
$1.5 billion that year. Since then, it has funded HOME at
levels steadily outpaced by inflation. If Congress had funded
HOME at its authorized level of $2 billion and adjusted that
amount annually for inflation, HOME today would be funded at
over $3 billion. That is more than 1\1/2\ times the $1.85
billion that you just appropriated.
As the Federal housing resources shrink, the number of
families with critical housing needs remains startlingly high,
as we have already heard. One out of eight American families
has a critical housing need. That is 14 million families,
including homeowners and renters, ranging from the very poor to
those actually in what would be considered the middle class.
Families hardest hit, of course, are those with the least
incomes. Of those 14 million families, 84 percent earn 50
percent of their area's median income or less. A stunning two-
thirds have incomes of 30 percent or less.
In my State of Maryland, we also have acute unmet housing
needs, particularly among the very low-income and extremely
low-income families. We estimate that about 70 percent of all
extremely low-income renters in Maryland pay more than 30
percent of their income in rent, and half pay more than 50
percent of their income.
And even with the housing cap increase, requests for
credits exceed our supply. In fact, we just completed a housing
tax credit round where we had $4 of requests for every dollar
of tax credits available. We also exhaust our private activity
bond cap annually and it too is vastly oversubscribed. Pressure
on the bond cap will continue to build as the 10 year rule
increasingly prevents us from recycling mortgage revenue bond
mortgage payments into new mortgages.
Our HUD monies are also woefully insufficient. For example,
this year, we received requests for more than two times our
homeless assistance funding. We could immediately use another
$13 million in HOME funds, and these are for projects that are
already on the drawing boards and really could be funded within
the next 6 months or so. And also, we received requests for two
times our available CDBG housing funds. Most people do not
normally think of CDBG as a housing program. But States do use
CDBG funds for housing. Nationally, the average is about 20
percent of the CDBG funds. In Maryland, we use about 35 percent
of our CDBG funds for housing, for housing rehabilitation and
for site acquisition.
Some would say more tenant-based vouchers are the answer.
Clearly, vouchers are an important tool and we certainly need
more of them. But in Maryland, and in many other States, and in
fact, the first witness has already mentioned this, vouchers
are of no use in a number of areas where there is simply no
affordable housing to rent. In Howard County, Maryland, for
example, the housing department reports the vacancy rate is
actually less than 1 percent--0.57 percent, to be precise. And
there are other counties in Maryland where the vacancy rate is
less than 2 percent. More vouchers will not address the problem
of the lack of supply. Simply put, we need to produce more
units.
Unquestionably, Congress must find a way to devote
substantially more Federal resources to affordable housing. But
whatever Congress provides undoubtedly will not be enough to
meet the total demand. So it is essential that we make the most
of every Federal housing dollar.
This requires eliminating unnecessary and outmoded Federal
rules and regulations that slow the delivery of funds, increase
the costs, and frustrates results. The changes we propose to
the bond and credit cap programs in S. 677 are just a few of
the examples of the changes that are needed to maximize dollars
spent. We also have a number of ideas for streamlining HOME and
other HUD programs to make them work more effectively and
efficiently, both separately and, even more importantly, to
work together, and we look forward to sharing them with you,
some of which are, again, in the longer testimony.
Finally, existing resources are insufficient to meet the
Nation's affordable housing needs, particularly those of
extremely low-income renters. That is one of NCSHA's highest
legislative priorities, and a priority of the National
Governors Association, is the creation of a new, State-
administered, rental production program targeted to very low-
income families. We want to work with you to
design a program that builds on the success of programs like
the housing bonds, the housing credit, and HOME, that utilize
existing, proven State delivery systems, is integrated with
existing State housing allocation plans and funding systems,
and provides States the flexibility we need to tailor
innovative solutions to our unique housing needs. And clearly,
they are unique from State to State.
In conclusion, we have a long way to go to close the ever-
widening gap between housing need and housing resources. There
is no simple single answer. But, clearly, three steps would
make a significant difference. First, housing program funding
at least sufficient to keep pace with inflation. Second, the
deregulation and devolution of existing programs. And third,
new, flexible, State-administered resources to fill the gaps,
particularly in our ability to house our most needy families.
I want to thank you for the opportunity to testify today.
NCSHA and our member State housing agencies are very grateful
for your enthusiastic and sustained support of affordable
housing and we stand with you and ready to assist you in any
way we can.
Chairman Sarbanes. Thank you very much, Ray.
I would say to all of our witnesses, your full statements
will be included in the record. I have had a chance to look
through them and I very much appreciate the obvious effort and
work that went into giving the Committee a very full
presentation. And it will give us and the staff an opportunity
to work through them very carefully and digest the material you
have provided to us.
The fact that we have to truncate the oral presentations is
not--I want it understood that we appreciate the written
presentations and we certainly will devote attention to them.
But by the nature of how we have to function, we have to try to
hold down the oral statements to a reasonable time.
Next, we will hear from Professor Olsen, Professor of
Economics at the University of Virginia. He has been a Post-
Doctoral Fellow in applied urban economics at Indiana
University and has served as a consultant to HUD in a number of
administrations.
Professor Olsen, we are pleased to have you here.
STATEMENT OF EDGAR O. OLSEN, PhD
PROFESSOR OF ECONOMICS, UNIVERSITY OF VIRGINIA
Mr. Olsen. Thank you, Mr. Chairman. I welcome this
opportunity to talk with you and the Members of your Committee
about the HUD budget. I speak from the perspective of a
taxpayer who wants to help low-income families, a taxpayer who
has spent the last 30 years studying the effects of low-income
housing programs. My testimony will focus on the HUD budget for
these programs.
Given the current economic slowdown and the added expense
of fighting international terrorism, it is clear that little
additional money will be available for low-income housing
programs over the next few years. The question is: How can we
continue to serve the families who currently receive housing
assistance and serve the poorest families who have not been
offered assistance without spending more money? The answer is
that we must use the money available more wisely.
Research on the effects of housing programs provides clear
guidance on this matter. It shows that tenant-based housing
vouchers provide equally desirable housing at a much lower
total cost than any type of project-based assistance.
My written testimony contains references to these studies
and a brief description of them. These results imply that we
can serve current recipients equally well--that is, provide
them with equally good housing at the same rent and serve many
additional households without any increase in the budget by
shifting resources from project-based to tenant-based
assistance.
The magnitude of the gain from this shift would be
substantial. The smallest estimates of the excess cost of
project-based assistance imply that a total shift from project-
based to tenant-based assistance would enable HUD to serve at
least 600,000 additional households with no additional budget.
These findings have important implications for how the HUD
budget should be spent.
First, the money currently spent on operating and
modernization subsidies for public housing projects should be
used to provide the tenant-based vouchers to public housing
tenants, as proposed by the Clinton Administration and by
Senator Dole during his Presidential campaign. If housing
authorities are unable to compete with private owners for their
tenants, they should not be in the business of providing
housing.
Second, contracts with the owners of private subsidized
projects should not be renewed. Instead, we should give their
tenants portable vouchers and force the owners to compete for
their business. There is no reason to believe that the mark-to-
market initiative will improve the cost-effectiveness of the
programs involved.
Third, the construction of additional public or private
projects should not be subsidized. No additional money should
be allocated to HOPE VI and there should be no new HUD
production program.
These reforms will give taxpayers who want to help low-
income families more for their money by greatly increasing the
number of families served without spending more money or
reducing support for current recipients.
Two main objections have been raised to exclusive reliance
on tenant-based assistance. Specifically, it has been argued
that
tenant-based assistance will not work in markets with the
lowest vacancy rates, and construction programs have an
advantage compared with tenant-based assistance that offsets
their cost-ineffectiveness, namely, they promote neighborhood
revitalization to a much greater extent. My written testimony
explains the conceptual problems with these arguments and, more
importantly, shows that they are inconsistent with the
available evidence.
We do not need production programs to increase the supply
of units meeting minimum housing standards. The Experimental
Housing Allowance Program demonstrated beyond any doubt that
the supply of units meeting minimum housing standards can be
increased rapidly by upgrading the existing stock of housing
even in the tightest housing markets. This happened without any
rehabilitation grants to suppliers. It happened entirely in
response to tenant-based assistance that required families to
live in units meeting the program standards in order to receive
a subsidy.
In the Housing Assistance Supply Experiment, tenant-based
assistance alone produced a much greater percentage increase in
the supply of adequate housing in these localities in 5 years
than all the Federal Government's production programs for low-
income families have produced in the last 65 years.
The available evidence also shows that housing vouchers
enable us to move eligible families into adequate housing
faster than any construction program under any market
conditions.
The consequence of using the costly construction and
substantial rehabilitation programs has been that more than a
million of the poorest families who could have been provided
with adequate housing at an affordable rent with the money
actually appropriated for housing assistance have continued to
live in deplorable housing or no housing at all.
I urge the Committee to take the bold steps necessary to
serve these families, and I appreciate the willingness of the
Members of this Committee to listen to the views of a taxpayer
whose only
interest in the matters under consideration is to see that our
tax revenues are used effectively and efficiently to help low-
income families.
Chairman Sarbanes. Thank you very much, sir.
David Curtis is the Executive Vice President and Chief
Financial Officer of Leon N. Weiner & Associates, a
multifaceted real estate development firm which has long been
recognized as an industry leader and innovator, particularly in
providing affordable housing to individuals and families of
moderate means.
Mr. Curtis is here today representing the National
Association of Home Builders.
We are very pleased to have you here. We would be happy to
hear from you, sir.
STATEMENT OF DAVID W. CURTIS
EXECUTIVE VICE PRESIDENT AND CHIEF FINANCIAL OFFICER
LEON N. WEINER & ASSOCIATES, INC.
TESTIFYING ON BEHALF OF
THE NATIONAL ASSOCIATION OF HOME BUILDERS, INC.
Mr. Curtis. Thank you, Mr. Chairman. As you indicated, I am
here representing the 205,000 members of the National
Association of Home Builders. And like the other speakers, we
want to thank you and the Committee for holding this very
important hearing. It is an honor for me to be here.
We think the hearing is timely for many reasons. As we have
already heard from you and from other speakers, affordable
housing needs have reached a critical stage and impact a broad
spectrum of households across the country.
In NAHB's opinion, the HUD budget should reflect the
importance of addressing these needs. We think that by doing
so, we can benefit families and communities, while allowing
housing to play its traditional role in leading toward an
economic recovery.
I want to focus my remarks predominantly on production and
preservation because at NAHB, we believe that adequate supply
of housing is central to addressing our Nation's housing needs.
Some of the most important Federal tools for housing have
been the FHA multifamily programs. However, in recent years,
these programs have been subjected to a start and stop cycle
that has frustrated participation and production.
NAHB has repeatedly expressed concern about HUD's decision
to raise the mortgage insurance premiums on these programs from
50 to 80 basis points for the simple reason that those
increases translate into increased rents and decreased
affordability. We believe that the model utilized by HUD and
OMB is outdated and unnecessarily pessimistic.
Congress has directed HUD to work with the industry to
review the technical assumptions in the model and FHA
Commissioner Weicher agreed to complete a study by October 1,
so that a revised formula could be in effect for the 2003
budget.
NAHB believes that completing that study, in cooperation
with industry representatives, and implementing any changes for
the 2003 budget cycle, is fundamentally important.
We applaud Congress for raising, as has already been
mentioned, the FHA multifamily mortgage loan limits by 25
percent in the 2002 appropriations bill. Those limits had
remained static since 1992 and had made the program unworkable
in many areas.
Unfortunately, the bill did not include indexing for
inflation, nor did it allow the HUD Secretary to make
allowances in some cities for exceeding the 110 percent high-
cost factor. We hope to work with Congress to include these
modifications in the next year.
NAHB is very supportive of both the HOME and CDBG programs.
HOME funds have become a critical source for gap financing for
the production of affordable housing, according to locally
identified needs, and I think that is important.
We support a funding level of at least $2 billion for the
HOME program, as well as a significant one-time special
allocation as an economic stimulus.
We also support an increase of CDBG funding to a level of
at least $4.8 billion. We are pleased that HUD changed its
position and allows CDBG funds for the construction of single-
family new homes, and we would urge Congress to make the same
accommodation for multifamily production.
With regard to Section 8, we would urge Congress to provide
funds so that all Section 8 contracts can be renewed, including
those under the mark-to-market program, and in this way, we can
preserve the affordable housing stock that is in place now. As
other speakers have suggested, we would also recommend that
funding be provided for 79,000 new incremental vouchers.
As has already been mentioned, we are facing a critical
housing shortage and large numbers of working families have
urgent needs, but are not eligible for assistance under the
current Federal housing programs. NAHB believes that the
production of housing for those working families should be a
top priority for next year.
We have developed a program that is designed to increase
and maintain the affordable housing stock over the long term.
The program would foster mixed-income housing and is designed
to use Government resources efficiently with small amounts of
subsidy relative to the amount of housing produced.
No new program bureaucracy would be needed because we
propose that it be administered in the same fashion as the HOME
and the tax credit programs, and we believe funding should be
made available for this new production program.
Finally, the Office of Policy Development and Research
provides information that is very useful to the housing
industry and we would suggest that HUD should collect data to
assist in the development of new housing finance sources.
Specifically, more consistent, comprehensive and detailed
data on multifamily loan performance is needed to more
efficiently attract funds from the capital markets. Sufficient
funding should be made available to support this data-
collection effort by PD&R.
We at NAHB look forward to continuing to work with
Congress, HUD, and our industry partners in achieving our
mutual goal of a decent and safe home for every American.
Thank you very much.
Chairman Sarbanes. Thank you very much, sir.
Kurt Creager is Chief Executive Officer of the housing
authority in Vancouver, Washington. He is also the President of
the National Association of Housing and Redevelopment
Officials, an organization, of course, which we know very well
and whom he is representing here today.
And we would be very happy to hear from you, sir.
STATEMENT OF KURT CREAGER
PRESIDENT, NATIONAL ASSOCIATION OF HOUSING AND
REDEVELOPMENT OFFICIALS AND
CHIEF EXECUTIVE OFFICER,
VANCOUVER HOUSING AUTHORITY
VANCOUVER, WASHINGTON
Mr. Creager. Thank you, Mr. Chairman and Members of the
Committee, and I want to thank Senator Murray for her gracious
and warm introduction of me at the beginning of this hearing.
We have had a long and cooperative working relationship dating
back to her days as a State Senator.
For those of you who are not familiar with NAHRO, NAHRO
members represent 95 percent of the public housing stock in the
United States and are responsible for its management on a day-
to-day basis. Our members also administer 93 percent of the
Nation's Section 8 portfolio. And we have many members that are
also CDBG, HOME, and housing finance agency administrators.
With me today is Larry Lloyd, who is Vice President of
housing, and also Executive Director of the Anne Arundel,
Maryland Housing Authority. Saul Ramirez, Executive Director-
Designee for NAHRO, who will begin in January. And Rick Nelson,
who some of you know as Montgomery County HOC Board Member. He
is outgoing Executive Director of NAHRO and retiring at the end
of this calendar year. I know you have appreciated his good
work over these many years.
In Vancouver--America's Vancouver--the Vancouver Housing
Authority is a diversified local housing provider. Half of our
stock is not regulated by HUD. It is financed through bonds and
tax credits. We are the managing general partner of many tax
credit partnerships. We operate and own emergency shelters, and
we also provide homeownership assistance to people throughout
the region. As Senator Murray mentioned, we have been the
fastest-growing urban county in the Pacific Northwest over the
last decade.
I will focus on three areas--housing and community
development as economic stimulus, the need for reliable and
predictable capital funding for the public housing capital
fund, and the loss of the Public Housing Drug Elimination Grant
Program.
First, as mentioned by the other speakers, housing is, and
has proven to be, an effective economic stimulus. It provides
family wage jobs, direct expenditures trickle very quickly
through the economy, and in a resource-based economy such as
the Pacific Northwest, it is quite important. Washington
currently leads all 50 States in unemployment. And that is
seasonally adjusted for October, before the 30,000 cuts that
Boeing has announced are counted.
Housing and community development programs are as important
today as they were in 1983, when the Congress provided
supplemental funding under the jobs bill program. To give you
one example, we are permit-ready as a local developer for a
mixed-income, mixed-use project called Anthem Park. It is a
$14.5 million project that will be built for us by Westwood
Swinerton of San Francisco, the general contractor. Less than 2
percent of this budget is Federal dollars. So you will be
leveraging with merely a couple of hundred thousand dollars,
$14.3 million worth of private investment and tax credit
equity.
Second, I would like to speak about the public housing
capital fund because we are deeply troubled about the perceived
unre-
liability of appropriations for the capital fund.
In the Quality Housing and Work Responsibility Act of 1998
(QHWRA) you gave us a great new tool. You gave us a predictable
source of capital finance which we could then bond against for
the provision of capital improvements that are needed in the
first year.
In the Pacific northwest, we have good housing stock. But
we also have earthquakes. Senator Murray would like to remind
you that we had a disaster actually before September 11, in the
Nisqually earthquake and it took several housing units in the
Seattle area out of service.
And when I look at my 5 year plan for capital investment,
in Vancouver, it includes seismic retrofitting to senior high-
rises. That is most effectively done at one time, rather than
phased out over several years. And one way to do that is to
bond against the future receipt of capital grant funds, as
Chicago has done.
I must say, though, when the President's budget came out
with a 25 percent cut, that threw the investment markets into
disarray. Standard & Poor's and Moody's needed to understand
that this was a reliable source of financing in which to bond
against.
For small housing authorities which could not likely absorb
the cost of financing individual securities using capital
grant, housing authorities across the country, from Maryland to
Washington, are looking at joint pooled projects, either
through joint powers agreements or in the case of Maryland,
through working with the State housing finance agency. That
way, we can access lower-cost money at the bottom of the
interest rate cycle, we hope, and to put that capital
investment to work right away. Reliable capital expenditures
are important to us, as is the predictability of
appropriations.
The third issue has to do with the PHDEP, or the Public
Housing Drug Elimination Grant Program. The loss of this
program is, I think, profound because it signals a larger
issue. We have heard the Department talk about its need to
return to its core mission, which means, apparently, that
support services are not part of the Department's core mission.
We know that most of this money was either used for youth
activities, which is a prevention activity, or for law
enforcement, which is a direct enhancement to the service of
public housing neighborhoods.
Both of those are a great loss, and especially after
September 11. Local governments are in no position to provide
even a modicum level of support to public housing
neighborhoods, which is deeply troubling because they have a
disproportionate share of children and frail, vulnerable adults
living in them.
It is not adequate to provide a baseline of public service
to those neighborhoods. They need additional support and
services. And this program is one way to pay for that. Seattle
and King County alone are experiencing a $1.5 million cut. They
serve 35 cities and those cities will not replace those
services with law enforcement.
I think it is appropriate to call into question the
Department's belief that they are returning to their core
mission. We learned in the last 20 years that we need more than
sticks and bricks to make public housing neighborhoods
effective, vital, and safe places to live. And if we accept
that reasoning, then we must also accept that family self-
sufficiency and services for the homeless throughout McKinney
would be vulnerable, which we cannot accept.
In closing, I would like to say that we have found a great
deal of common ground with the new Administration. We are
working cooperatively on issues such as restructuring the so-
called PHAS system, the Public Housing Assessment System. NAHRO
and Standard & Poor's are developing a replacement for PHAS,
which we are working cooperatively with the Department on. So I
want you to know that while we have differences on budget
matters, we continue to work cooperatively together in the
future.
In summary, please do consider these programs as they are
essential to the health of cities across the country.
Thank you.
Chairman Sarbanes. Thank you very much, sir.
Our final panelist is Bart Harvey, who is Chairman of the
Board of Trustees and Chief Executive Officer of the Enterprise
Foundation. Enterprise is a national, nonprofit organization
that mobilizes private capital to support community-based
organizations in a wide range of neighborhood revitalization
initiatives.
And many of us, I think, are personally acquainted with the
fine work which Enterprise does. They are really one of the
leading nonprofit organizations in the field.
We are very pleased to have Bart Harvey here. We would be
happy to hear from you.
STATEMENT OF F. BARTON HARVEY
CHAIRMAN AND CEO, THE ENTERPRISE FOUNDATION
Mr. Harvey. Thank you very much, Chairman Sarbanes. And I
would like to thank the whole Committee for having this hearing
today.
As you heard, Enterprise Foundation is a national nonprofit
organization. It was started by Jim Rouse in 1982, and it is
the original public/private partnership. We partner with over
2,000 nonprofits, mostly grassroots around the country. We have
raised and committed over $3.5 billion of private funding,
which has
leveraged another $8 billion of private and public funding to
help produce over 120,000 affordable homes.
Mr. Chairman, we also thank you, Senators Kerry, Reed, and
Leahy, for their efforts to include housing in the Senate's
economic stimulus plan. And certainly, it deserves to be there.
It generates jobs and other economic development and it helps
those who have been most affected by this crisis at the same
time.
You all have heard about the need for affordable housing.
My only comment on it is that it will get worse if this
recession deepens. And it will affect people even more, those
that can least afford it.
I also would like to thank Congress for intervening in the
last fiscal year 2002 appropriation to try and increase what
the Administration had proposed. And I certainly expect that
that may need to be the case again for year 2003.
Finally, Senator Reed, you and others mentioned the need
for lead-safe housing and the scourge of lead poisoning. And
Enterprise and others have got housing and health practitioners
and the Centers for Disease Control and created the National
Center for Lead-Safe Housing. And there is a prototype out
there that works very closely with HUD. And HUD's funding is
very much needed in this area as well.
I have been honored to be one of the commissioners on the
Millennial Housing Commission. And the commission has had
hearings all across the country, from Washington, DC to Chicago
and rural areas, all the way to California. And we get the same
story back from those hearings. Over and over again, city,
rural areas, that, first of all, housing has to be seen in the
context of community, work, and transportation.
Therefore, what HUD needs to do most is to have flexible
funding. It needs to be devolved to the States and localities
where they can make that decision, the best decision. It needs
to be able to be leveraged with private resources. And people
do not want to figure out the regulations for a lot of new
programs. Rather, they would like to see some common sense
changes in current regulations.
While everything that everyone has said on this panel is
important, and I think vouchers are important, public housing
is important, new private mechanisms are certainly important,
it is not an either/or situation we are looking at. It is a
both/and.
Vouchers make sense in some cases. Production makes a lot
of sense in others. I would like to just focus in on three
specific programs that are terribly important to the work that
we are doing in our public/private partnership.
First of all, the HOME program. We have a shortage of 2.8
million rental apartments affordable to extremely low-income
people. Three quarters of a million apartments affordable to
such renters were lost between 1997 and 1999 alone. And there
is the threat to more units being lost.
A simple, effective way that Congress can help fill this
gap and increase production would be to increase the annual
HOME appropriation. If you remember what I said about the
Milliennial Housing Commision's hearings, it is flexible. It is
locally administered. It is a leveraged program, and it is
highly targeted to those that most need it. There is a decade's
worth of evidence that certainly argues for it. It is financed
more than 617,000 affordable homes and currently produces more
than 70,000 homes a year. Of HOME-assisted renters, nearly 90
percent were very low income. Every home dollar generates
almost $4 in additional private and other
investment.
HOME is especially important for the community-based groups
that Enterprise works with. And we would certainly encourage
HUD to request and Congress to provide $2.9 billion in HOME
funding for fiscal year 2003, and that is merely an inflation
adjustment to the program from when it started in 1990.
Second, we also think that HUD and Congress should make a
priority in 2003 to expand the capacity of the community-based
groups that deliver housing. And here, we are talking about
pennies in the overall budget. But capacity building is an
important outreach by HUD to match private funds and to help
these organizations retain staff, upgrade computer systems,
develop business plans, and form new partnerships. Enterprise
and other entities help distribute these funds to increase the
capacity of grassroots groups, of nonprofit groups.
The Urban Institute found that the community group
strength, production, and local support systems have grown
significantly, thanks in part to capacity-building investments.
The Urban Institute went on in its report to say, grassroots
groups, ``In many cities, are now the most productive
developers of affordable housing, outstripping private
developers and public housing agencies.'' And again, the cost
is relatively small. There is a program called Section Four,
which says that every Federal dollar needs three private
dollars to be leveraged before it can go out, so that these
groups are not unduly dependent upon Federal money. Again, a
way of priming the pump and a public-private partnership across
the country.
Finally, we think you need more programs that gets private
capital to work, particularly for affordable housing. Everyone
knows the low-income housing tax credit and it is a terrificly
successful program. But HUD also encourages a similar type of
program called the Community Development Financial Institutions
Fund. And this fund stimulates the creation and nurtures the
growth of community-based financial institutions working to
revitalize distressed and underserved communities.
In 1999, entities that receive this funding finance nearly
25,000 homes and apartments, virtually all of which were
affordable to low-income people. Nearly 60 percent of funds
certified--CDFI's, as they are called--serve smaller urban
areas and 62 percent serve rural communities. This is creating
capital in areas that need it, focus it on the immediate issues
and problems, and leveraging it with private sources. Again, it
is a very small part of the budget. But, regrettably, it was
cut by almost a third in the 2002 HUD appropriation. We would
certainly like to see that funding restored.
The Administration talked, and President Bush talked about
a homeownership tax credit, and we wholeheartedly subscribe to
having a homeownership tax credit and we hope the
Administration will come forward with it. Looking at the low-
income housing tax credit, it would be a wonderful vehicle for
private capital to flow in a system that people already
understand and again leverage other dollars.
Let me just conclude, if I may, by saying that post-
September 11, now, more than ever, our Nation needs to be
strong and united. We believe that the sources of that strength
and unity include family, faith, community, and a place called
home. Now, more than ever, home matters. Home is the family's
foundation and an anchor in times of turbulence. Home means
security and stability. Home helps define and sustain
communities, forming the fabric of our neighborhoods and the
relationships that bind us.
I would just urge Congress that it have the public do the
public part of a public/private partnership and allow the
resources so that we can stimulate private investment, public/
private partnerships that will make a difference, and allow
people to solve problems in localities across this country.
Thank you very much.
Chairman Sarbanes. Thank you very much. We have been joined
by Senator Carper. And before we go to questions, Tom, did you
have any statement, brief statement.
COMMENT OF SENATOR THOMAS R. CARPER
Senator Carper. I will be very brief.
[Laughter.]
Uncommonly brief.
[Laughter.]
I want to welcome each of our witnesses today. We thank you
for your testimony. I especially want to welcome Dave Curtis
from Delaware, someone who we have a lot of respect for in our
State on these matters.
I have a statement I would like to ask unanimous consent to
be included in the record, and thank you, Mr. Chairman.
How was that? Uncommonly brief.
[Laughter.]
Chairman Sarbanes. Mr. Skinner, I know you have some other
pressing engagements and at some point, you will have to leave.
When that point comes, I would just invite--if you ever saw
``The Sound of Music,'' you know, when they disappeared off the
stage quietly----
[Laughter.]
You can do that whenever you feel it is necessary to do so.
Mr. Skinner. Thank you, sir.
[Laughter.]
Chairman Sarbanes. Given the number of Members that are
here, I think we will have 5 minute rounds. And then if we want
to continue, we will come back around again. But I want
everyone who has been here, and some have been here for quite a
while, to have a chance to ask some questions.
I want to start with the first building block. Often, we do
not discuss preserving the stock of existing affordable
housing. We talk about providing additional housing, and I
think that is a very important thing and we are focused on
that. And obviously, there is a tremendous need, as I outlined
in my statement.
We talk about new housing, either through vouchers or new
construction, some combination thereof. But I want to go back
to what we need to do to preserve the stock of existing
affordable housing because we are losing a significant amount
of that stock.
I understand Enterprise has a partnership with the National
Housing Trust, called the Preservation Corporation. Bart, could
you talk briefly about what you do in this area, and what role
you think preservation should play in HUD's budget proposal and
in housing policy generally? And if others want to add
comments, we would be happy to receive them.
Mr. Harvey. Thank you, Senator.
The Enterprise Foundation teamed up with the National
Housing Trust. It is probably one of the best organizations
that had chronicled every single apartment or rental unit
across the country that is at risk of being lost as far as its
affordability goes, either from opt-out or a whole number of
other issues.
We came together and provided capital and said, well, why
don't we help go out and preserve those units because, first of
all, it is the most cost-effective thing you can do. The cost
of preservation is far less than the cost of new production in
most places.
In a whole number of places that are gentrifying, there has
been a long fight to get private investment and then the very
people that have led that fight are, in essence, going to be
squeezed out of their neighborhoods. So there is a question of
equity as well.
And there are some things that are very important. First of
all, we believe it should be handled through States and
localities. You will need funds like HOME funds, which are
flexible funds that can be used to buy out owners. And then
there is the need for exit tax relief. And the Millennial
Housing Commission, this is one of the prime issues they will
be coming back with some recommendations around the exit tax
relief issue. But even after that, you are going to need
flexible funds. And you should have decisions made locally as
to what are the most important areas of preservation. This is a
very cost-effective, very important issue for the country.
Chairman Sarbanes. Does anyone want to add anything?
Yes, Mr. Olsen, go ahead.
Mr. Olsen. Any housing unit can be made affordable with a
sufficient subsidy. All of the units in the tenant-based
Section 8 voucher program, are adequate units made affordable
with tenant-based vouchers. The real issue here is, what
programs will get families into adequate housing that is
affordable at the lowest cost to taxpayers? And the answer to
that is tenant-based vouchers.
Guaranteeing subsidies to particular units that are
independent of the condition of the units, provided only that
the units just meet minimum standards, is one of the reasons
for the excessive cost of project-based assistance. So I would
say, let us let the tenants do the monitoring.
Chairman Sarbanes. Well, I want Ray Skinner to address
this. But don't you have a situation in which you have
established project-based affordable housing. If you do not
sustain it, the owners of it, given developments that have
taken place in some instances, will simply take it out of the
affordable housing market and shift it over into an entirely
different market?
Maybe if the project is a pretty good one, it has in effect
helped to upgrade the neighborhood, and you will lose that
housing altogether for affordable purposes. What do you think
about that, Ray?
Mr. Skinner. Well, we certainly believe that preservation
is a critical issue. As you have indicated, and others have,
there has been in fact a net decrease in the number of
affordable housing units. In Maryland, many of the projects
that we now finance, both with our tax credit program and our
mortgage revenue bond, the multifamily mortgage revenue bond
program, are in fact preservation projects. These are projects
where new owners come in and acquire and rehab those units and
put them back into affordable use. And as has just been
mentioned by Bart, we also use HOME funds to help to bring down
the rents in those projects. And we are fortunate here in
Maryland that we have a great State commitment to affordable
housing and we use State-appropriated dollars also to help keep
those projects affordable.
Not only that, but we require long-term affordability
requirements beyond 30 years. Many of our projects, when we go
through the acquisition rehab process, are required to be
affordable for another 40 years, in some cases, as much as 50
years.
Mr. Creager. I would also mention, Mr. Chairman, this is a
particular challenge for rural America. The preservation of
existing affordable housing, the RDA and USDA financed stock
that dates back to the 1960's, and is often the only affordable
stock in the community. They have their challenges because they
are now 30 years old and need significant reinvestment.
You took a major step in the right direction by
reauthorizing and expanding on bonds and tax credits because a
lot of those debt and equity instruments can be used to
refinance those properties.
We are also looking, of course, in 2002 at the first
generation of long-term housing tax credit projects that were
placed into service in 1987, which are now at the end of their
15 year regulatory term.
You may recall that from 1987 to 1989, most States only
imposed the minimum 15 year affordability requirement, and
after that point had extended affordability requirements. Local
housing providers, nonprofits, housing authorities, and others
will be working with the owners of those properties to extend
them 30 to 50 years into the future.
Mr. Harvey. Could I just comment back on one of the
statements by Mr. Olsen? I do not think it is only what is the
cheapest way of doing something because you are dealing with
human beings here. And there are people who have lived in a
community that are elderly, that would get displaced, and maybe
you could send them somewhere else with a voucher.
But a lot of the segregation we get comes from the places
that will take vouchers and those that will not, and that there
is an adequate supply near work places, there is not the
ability for people to live in certain communities along the
way.
It is not just cost. And I am happy to take on the issue of
cost as well. But it is about community and people and where
they live and where they want to live, and how do you do that
effectively, and cost effectively.
Chairman Sarbanes. One of the things we have been working
on, particularly with the elderly and the disabled, is to put
into play a range of services along with housing. I am going to
yield to Senator Allard as I notice that my time is up.
And it is difficult for me to see how you accomplish that
if you completely depart from project-based housing because
that gives you a sufficient way to bring in those services. And
you are talking about elderly people--I mean, we could carry
the analysis out further, and the argument weakens a bit.
But it seems to me, on the elderly and the disabled, you
have a real challenge in terms of providing them a housing
situation which adequately addresses their needs. And it seems
to me that their challenge is different from, say, a younger
working family that can take a voucher and go somewhere else,
assuming they can find the housing, and address their housing
needs. Yes?
Ms. Sard. Senator, if I may respond to that. In terms of
Bart Harvey's comment, it is important to recognize that there
are about a million tenants in the project-based Section 8
stock who are elderly and disabled. And I agree with his
comments about the importance of community and yours about the
importance of being able to link services to those people.
I want to note for the Committee that last year, Congress
enacted a new tool within the voucher program called Project-
Based Vouchers, which is an important tool for expanding, I
think, what everyone would agree with here. It makes service-
linked or service-intensive housing possible while providing
the market discipline mechanism because this new project-based
voucher is one that the tenant can move with if the tenant
chooses to, while the development has a guaranteed stream of
subsidy as long as it remains in good condition. We have some
new tools that housing authorities can now use and more
vouchers would make it even more possible for them to do more
of such housing for an aging population.
Chairman Sarbanes. Senator Allard.
Senator Allard. Thank you, Mr. Chairman.
You have all supported in your comments the HOME program.
It has been noted by myself at least that support. There have
also been people who are proposing new housing programs.
I would like to have you comment on just simply going ahead
and increasing over time the amount of money that we put into
the HOME program in lieu of creating new programs. And I would
like to have each member of the panel who would like to comment
on that thought.
Mr. Harvey. Let me start, since I am in agreement with you.
There are a number of other options that have been
proposed. There is a housing trust fund. Again, the Millennial
Housing Commission is working on some other offshoots of it.
Basically, they are variations on a theme. And again, the theme
is to have a flexible program that is targeted to serve who
most need that service. And that can work with tax credits and
other Federal programs.
And I do not think they are mutually exclusive and I think,
in essence, through the HOME program, or even alterations in
the HOME program, you can achieve very close to what these
other programs are proposing. I do not think there is any
disagreement and there are some merely variations on a theme
here.
Senator Allard. Mr. Creager.
Mr. Creager. Senator, thank you for the question. We at the
Vancouver Housing Authority actually implement projects using
HOME funds.
I was pleased to be here in the early 1990's when Senators
Cranston and D'Amato led this Committee and spoke to the
reauthorization of the HOME program in 1992. I believe that
HOME is a little too restrictive. If you recall the legislative
history, the program was put upon a Secretary of HUD that did
not support it. Therefore, many of the program rules and
regulations were codified into the Act. So that has really
limited administrative flexibility of the
Department to use it.
Senator Allard. So these were rules and regulations put in
by the Congress.
Mr. Creager. That is correct.
Senator Allard. And not by HUD?
Mr. Creager. Jack Kemp did not want the program.
Senator Allard. So if we work to remove some of those rules
and regulations, then the possibility of that flexibility that
we granted there makes it less likely, less of an appeal to go
to new programs.
Mr. Creager. I would say that if you do not do a production
program and look to HOME, then improve upon HOME. Do not just
add money to it. That said, NAHRO does support a $2 billion
appropriation level, which is the initial authorization for the
program, and does not have a position beyond that as expressed
by others.
Senator Allard. We will just go down the table.
Mr. Curtis.
Mr. Curtis. Thank you. I suppose in a very simple sense,
what we need to produce affordable housing is subsidy in some
form, so that increasing HOME dollars with the elimination of
some of the restrictions that have been alluded to may in fact,
given appropriate flexibility, provide the additional subsidy
that is needed for a new housing production program.
At NAHB, we are focused on trying to create mixed-income
housing because we think that is most advantageous for the
families that live in the developments, as well as the
community, developments that look like anywhere in the United
States, rather than a warehouse of poor people, if you will. In
order to do that, one of the approaches that we have been
working on is to combine a moderate subsidy with debt that
would be issued by the Government, whether it be in the form of
Ginnie Mae securities.
What I am saying is I do not think it is as simple as
simply increasing HOME dollars. We would need to wed some of
these structures together to create a production program. But
we think we can do that and agree that it should be done
through the present delivery mechanisms of the HOME program and
the tax credits.
Senator Allard. Mr. Olsen.
Mr. Olsen. To the best of my knowledge, there is no serious
independent study of the effects of the HOME program. And I am
absolutely certain there is no cost-effectiveness study of the
HOME program relative to tenant-based vouchers.
I would say two things about that. One, such a study is
long overdue. Two, I see no reason to believe that HOME is
going to be any more cost effective than the other production
programs. HOME is mainly used for production-type programs.
Until such a cost-
effectiveness study is done, I would favor no additional money
for the HOME program.
Chairman Sarbanes. Professor Olsen, let me just interject.
Is it fair to say that you oppose all programs that could be
used to produce new affordable housing?
Mr. Olsen. Yes.
Chairman Sarbanes. Low-income housing tax credit, HOME,
CDBG, mortgage revenue bonds--you are against all of those,
right?
Mr. Olsen. Absolutely.
Chairman Sarbanes. Are you against the mortgage interest
deduction tax credit?
Mr. Olsen. Yes.
Chairman Sarbanes. You are against that as well?
Mr. Olsen. Yes.
Chairman Sarbanes. Okay.
Senator Allard. Ms. Sard.
Ms. Sard. Returning to Senator Allard's question, my view
is perhaps a little different from others on the panel.
I think more money into HOME would not accomplish as much
as a new production program that was targeted on extremely low-
income households. If you look at HOME, more than half of HOME
funds have been spent on homeownership uses--in fact, largely
on repairs for existing homeowners and then another share for
expanding homeownership.
I am not intending to criticize homeownership. I think it
is a question of what the Congress wishes to accomplish. More
money into that stream is likely to be spent in similar ways.
And less than half of the dollars are now used for rental
housing production.
Also, a recent HUD study which is cited in my testimony
shows that, of the extremely low-income households who live in
HOME-funded rental units, those without housing assistance are
paying 69 percent of their income on average for rent.
So HOME alone cannot produce rental housing that extremely
low-income people can afford. If you are going to use that kind
of shallow subsidy stream, it needs to be coupled with some
kind of operating subsidy or voucher program in order to make
it usable for the people with the greatest needs.
Senator Allard. Mr. Chairman, I see that my time is
expired. I would like to just briefly request of those of you
who would like to see some regulatory changes in HOME, in order
to not have to look at new programs that perhaps are less
restrictive, to suggest some changes to me. I do not know,
maybe the Committee would be interested in getting that
information. But certainly, I would be interested in getting
where those rules and regulations are creating a problem in
flexibility within HOME.
And if those are what is driving the new programs, as
opposed to just expanding dollars in HOME, I would like to know
what rules and regulations you think that is a problem in.
Chairman Sarbanes. If it is not covered in the statements
you have submitted, if you could submit a supplementary
statement that addresses that issue to the Committee, it would
be helpful.
Mr. Creager. I do want to make sure that you know that
NAHRO does support a new production program and it is of course
in my written testimony.
What you will find on review of a regulatory framework, is
that it is easier to use the money for homeownership. That is
why the majority of the money is being used for that purpose
rather than rental housing production.
So some of the barriers are actually at the expense of
rental housing production. It is not necessarily a bias of
local government administration of the program.
Mr. Harvey. And if I could just interject one final
comment.
I have no disagreement. I am talking about the vehicle of
HOME, and there are a lot of common-sense things that you could
do to make it more productive. But if Congress wanted to
target--and we think it ought to--extremely low-income people,
it would have to set up those sets of regulations within HOME,
which could be easily done, to say that, look, this portion of
it goes to X, Y, Z, or have a parallel program that works the
same way so that people do not have to relearn it; that can be
used specifically for extremely low rental housing.
Chairman Sarbanes. Of course, that then runs counter to the
effort to devolve a lot of this decisionmaking down to the
local level, which was one of the arguments used for HOME when
we put it into place. So it is a balance question.
Mr. Harvey. Again, we strongly believe that there should be
some Federal targets that are in it. But, then, within that,
the local jurisdictions can say, great. We can use x amount as
they are, for homeownership, y for rental, et cetera.
Chairman Sarbanes. Senator Reed.
Senator Reed. Thank you, Mr. Chairman.
Let me turn to the issue of the Section 8 reserves. Ms.
Sard, as you might realize, in the appropriations process, we
were compelled, or the Committee was compelled, to cut these
reserves in half. And CBO has estimated that this will decrease
voucher utilization, meaning that fewer families will be served
by Section 8 programs. Do you agree with this assessment? And
can you elaborate why fewer families would be served?
Ms. Sard. The question of whether fewer families would be
served depends on how HUD chooses to administer the change that
was made in the Appropriations Act. The score, the assumption
of outlay savings, was based on the language in the House bill,
which was incorporated in the final legislation.
However, the conference committee report has important
language in it which directs HUD to ensure that agencies that
need more than the 30 days of reserves in order to maintain
voucher assistance to the authorized number of families, should
get it.
If HUD indeed follows the direction of the conference
committee and gives appropriate signals to housing agencies
that they can rely on that money being there, then I think that
the CBO anticipation will not prove to be the case. And I hope
that will happen and I certainly hope that this Committee will
help ensure that HUD does that.
Senator Reed. Thank you very much. Mr. Creager, can you
comment on that?
Mr. Creager. I would like to elaborate because this a
bread-and-butter issue for local administration of the program.
We have appreciated the chance to work with Barbara Sard on
this issue over the last couple of years. As you know, the
reserve level is computed based on past practice, the prior-
year experience. And there are two economic conditions that
could adversely affect local agencies as they administer the
program, which could cause them to dip into a second month of
reserves.
One is if your market deteriorated to the point where your
vacancy rates increased dramatically, your utilization rate
could go up, which is great for consumers. If you are at 95
percent, you could quickly go to 100 percent. More consumers
would find housing. And yet, your reserves are predicated on
your past year's experience. So that would be an immediate
fiscal impact on the local agency, which would be problematic.
The other example is a flip side of a soft economy. Voucher
holders of course, are paying an affordable rent and if they
lose their jobs, and many of our residents have moved from
welfare to work rather recently, and therefore, are often the
first to lose their jobs. In this instance their income falls
rapidly, which means that the portion of Housing Assistance
Payment (HAP) payment paid to their landlord goes up
dramatically. And it can go up very quickly.
So the local housing authority is putting out more HAP
payment than they have authority to do so and the local housing
authority must dip into that second month of reserves to cover
the shortfall.
What we would like to see is the access to that second
month codified rather than just buried in report language some
place. So that those agencies that do need it--those are two
examples that I have given you, there would be other examples--
would have access to it. That said, you need to know that I
administer a Moving-To-Work (MTW) agency and we have been
granted 2 months' reserves. So we are held harmless from this
new rule. But I know that it will affect my colleagues.
Senator Reed. Thank you very much.
Mr. Curtis, in the last few months, the new Administration
is taking some action, first, with respect to the FHA
multifamily program that was shut down in April essentially
because of the lack of credit subsidy. This is one issue.
And the second issue is increasing insurance premiums in
FHA programs from 50 to 80 basis points. When Secretary Weicher
was here, he said that this would be good for the industry
because it would provide predictability. Have these
developments been good for the industry? What is your position?
Mr. Curtis. No, I do not think we can say that it has been
good for the industry. FHA has a tremendous product. And much
like--well, any place with a tremendous product, when you have
a demand for that product, but you have uneven ability to
provide the product--and in this case, when the window closed,
there were some 50,000 units' worth of jobs financed to be left
standing at the door. That is inconsistent and, as I said, that
discourages participation in the program and it really affects
the ability particularly to produce new housing.
There may be refinance sponsors who can afford to wait 6
months. But when you have your suppliers and contractors ready
to go, they cannot hold their lumber prices for 6 months
waiting for the window to open up again. So, the stop-and-start
nature is a big problem. Fortunately, we think that it can be
solved and it can be solved without the increase in the premium
from 50 to 80 basis points.
As I said earlier, the increase in the premium is based on
experience from the early 1980's, which is far different from
what current models we think would show.
And Commissioner Weicher has been instructed and has
agreed, which is now overdue, to study that issue and see what
the appropriate level for a self-sufficient fund without the
need for a credit subsidy would be. And we have every reason to
believe that, with appropriate, up-to-date assumptions, that
would be within the previous 50 basis points, and that we would
not have to allocate credit subsidy and not have to play this
red light/green light game.
So we think it is, again, just fundamentally important that
that study is followed through and the results of that study
are implemented before the 2003 budget because the 2002 budget
is based on the 80 basis points, and if we are right, there is
going to be a surplus. And we all know that surpluses do not
necessarily get back into the production of housing.
Senator Reed. Thank you. Final question to Mr. Creager.
Secretary Martinez justified his proposed $700 million cut
in the public housing capital fund by claiming that an ABT &
Associates report stated that the PHA's can only absorb $2.3
billion in capital funds per year. And then he argued that
there was a huge backlog in capital funds as evidence of this
problem.
This raises a few questions. In your view, is there a
serious backlog problem in the capital fund with public housing
authorities?
Mr. Creager. There is a backlog, but it was overestimated,
and I think dramatically overestimated by the Secretary by
including the fiscal year 2001 appropriations in his estimate,
which had not been released yet by the Department. We did not
have access to the money. We could not spend the money.
Mark Twain said you could use statistics like a lamppost--
either for illumination or for support. And I think he was
probably using it for support rather than illumination.
[Laughter.]
Senator Reed. Well, the ABT report makes the point that
there is a finite limit of absorption, which sounds like a
scientific analysis. Funds totalling $2.3 billion annually, do
you agree with that?
The more colloquial way to say it, if we gave public
housing authorities more money to address capital issues, you
could use more than $2.3?
Mr. Creager. Absolutely. I think it has been
mischaracterized; hence, the comment about statistics. The ABT
report does not say that local housing authorities can absorb
only $2.3 billion a year. It says that there is an accrual of
need of $2 billion a year and that the backlog is $20 billion.
NAHRO is supporting an appropriation of $3.5 billion. And I
believe very confidently that the capacity issues are being
addressed. As I said, they were dramatically overestimated in
the first place for political purposes, I think to make a
point.
For many years, up until 3 years ago, most of the Nation's
housing authorities, the mainstream housing authorities only
had access to CIAP dollars, which were an on-again/off-again
resource. You cannot do capital investment planning when your
source of capitalization is subject to competitive rounds of
grantsmanship, which it was until 3 years ago. It is now a
consistent, predictable capital grant. And the larger housing
authorities, such as Vancouver, are actually receiving less
money in order to give something to all the other smaller
housing authorities, which we accept.
Under QHWRA, you asked that we all do 1 and 5 year plans.
And those 1 and 5 year plans are now fully dialed in, which
identify exactly how those monies will be used. And we are now
moving to the capital markets to create multiyear
capitalization of those funds. So I am very confident that $3.5
billion can be fully justified and we would be happy to provide
supplemental information to that effect for illumination, not
for support.
Senator Reed. Thank you. We all need a little support, too,
occasionally. So, thanks.
[Laughter.]
Mr. Chairman.
Chairman Sarbanes. Well, we had a sharp exchange with the
Secretary about this. And we are going to have another sharp
exchange with him. When we did the Public Housing Act in 1998,
we brought you within a 4 year parameter, as I recall.
Is that correct? Getting this money and committing it.
Because before, you had money that was hanging around in the
pipeline over an extended period of time.
Now my understanding is that all the housing authorities
are within the 4 year parameter. So now you come along and you
say, well, we have this money backed up in the pipeline, so we
will skip a year and we will not put any money in there. I
mean, that was the proposal, because we have money already in
there, so we do not, in a sense, really need it.
That completely undercuts the effort to assure a steady
stream against which the public housing authorities could
collateralize their public housing capital funding in order to
raise a larger amount than the annual appropriation, in order
to do these projects. Wasn't that the concept?
Mr. Creager. It is very counterproductive.
Chairman Sarbanes. Could you develop that a little bit?
Mr. Creager. The Vancouver Housing Authority is very active
in the securities markets and we are considered strong with a
stable outlook by Standard & Poor's, one of the few housing
authorities in the country with that designation. We are very
proud of it.
And your reliability in the capital markets is key to your
pricing of your bonds. And if you have unstable credit and
unstable source of revenue to service that security, then you
are going to pay a premium in the interest rate pricing.
I think the Secretary, perhaps unwittingly, undercut QHWRA
by proposing that reduction. Believe me, the capital markets
were in serious disarray this summer when it was heard.
Standard & Poor's and Moody's took stock of it.
I think their general conclusion is that as long as you
have never placed more than 25 percent of your annual
appropriation as security for a specific bond issue, that you
would be okay, giving you some headroom. That is not a signal
for the Secretary to come back and propose a 75 percent cut to
the capital grant, however.
So we do need this as a reliable tool. Using seismic
repairs as an example, it is more efficient to have a
contractor come into a building and do the seismic repairs all
at once, rather than to spread them out over 3 years.
So we may choose to hold within that 4 year period of time
an appropriation to the second year so we have enough money to
engage the contractor once, instead of engaging and disengaging
and paying the mobilization cost to the contractor and
disrupting the tenants over an extended period of time.
Chairman Sarbanes. Well, this has been an extremely helpful
panel. We obviously could go on indefinitely. We will be
looking to you for counsel and advice. We have great respect
for the expertise that is reflected at the table.
Chairman Sarbanes. Senator Allard, do you have anything
further to discuss?
Senator Allard. No, Mr. Chairman. I would just like to
thank the panel for their testimony. I found it very helpful.
Chairman Sarbanes. We very much appreciate it. The hearing
stands adjourned.
[Whereupon, at 12:15 p.m., the hearing was adjourned.]
[Prepared statements, response to written questions, and
additional materials supplied for the record follow:]
PREPARED STATEMENT OF SENATOR PAUL S. SARBANES
Good morning. I want to thank the witnesses for joining us today to
help us explore and examine the housing and community development needs
of the American people and the communities in which they live.
Earlier this week, the President signed the HUD appropriations bill
into law. This bill, despite the very strict limits within which the
Committee was forced to work, was considerably better than the
Administration's original request.
It is my sincere hope that the Administration will take into
account the extent to which poor and even moderate-income working
families are facing an affordable housing crisis in this Nation as they
prepare their HUD budget for fiscal year 2003. HUD's own data show that
nearly 5 million very low-income American families pay over half of
their income in rent, or live in severely substandard housing.
A study by the National Housing Conference that looks at a broader
sample, found that nearly 14 million families, including working
families earning more than the median income, face such critical
housing needs. In fact, while the number of worst case needs among poor
families actually stabilized a bit, the number of working families
carrying this severe burden has risen dramatically.
A recent Low-Income Housing Coalition study shows that two full-
time minimum wage earners in a family is not sufficient in 33 States to
rent a modest apartment paying 30 percent of a family's income--the
level widely assumed to be a measure of affordability. These trends are
not surprising. In the past decade, the number of units available to
extremely low-income renters has dropped by 14 percent, a loss of
almost a million units. Nationally, apartment vacancy rates have
declined by 1.7 percentage points, making it more difficult for all
renters to find an affordable place to live.
It is worth considering what it means to pay so much of one's
income for housing, alone. It means uncertainty, insecurity, and, most
likely, it means rootlessness. These families live one unexpected
medical bill, one car repair, one bout of unemployment away from
possible homelessness. As a result, many of them are forced to move
from one apartment to another, or to move in with relatives or friends,
just to keep a roof over their heads.
The children in these families will not be able to receive an
adequate education. Their parents will not be able to take full
advantage of job training offered to them, or other important services,
until they have the kind of stability that affordable housing in a safe
neighborhood can bring. In my view, housing is a first step to bringing
many poor families and their children to economic self-sufficiency.
These statistics make it clear that, in developing its fiscal year
2003 budget for HUD, the Administration should seek to expand its aid
to low-income families. Programs that help create a ladder of housing
opportunity, such as the FHA multifamily program, must also be
increased. Finally, homeownership assistance programs are, for many,
the final rung on the ladder. With some Federal assistance, many
American families can take this final step to reach the American Dream.
The Administration did propose additional downpayment assistance last
year; however, this would have come at the expense of other programs.
It was not additional money.
We have a distinguished panel of witnesses with broad experience
and expertise here this morning to discuss exactly what the housing
needs in America are, and how we should go about meeting them.
----------
PREPARED STATEMENT OF SENATOR JACK REED
I would like to thank Chairman Sarbanes for scheduling this hearing
on our Nation's housing and community development needs and the fiscal
year 2003 HUD budget. I also would like to thank all of the witnesses
this morning for time and input.
America is rich in resources, talent, blessings, and promise. The
hard work and ingenuity of men and women across the country has led us
to take on and succeed at many monumental challenges. However, one
challenge we have yet to conquer is decent, safe, and affordable
housing. While we are the best-housed Nation in the world, 15 million
low-income households pay too much for their housing, live in severely
substandard housing, or are homeless. We have much more to do to reach
our true potential as a Nation. In the absence of good housing, a
family's ability to do all the other things society expects of it--
parenting, employment, education--is clearly impaired.
Unfortunately, the recent National Low-Income Housing Coalition
``Out of Reach'' report shows that the gap between incomes and housing
costs has grown in every State during the past year. The number of
States where people need an income equivalent to at least two full-time
minimum wage jobs to afford modest rental housing has increased from 27
to 33 in the last year. In my State of Rhode Island, the wage to afford
the fair market rent for a two-bedroom home is $12.87 an hour. This
means that a worker earning minimum wage, which in Rhode Island is
$6.15 an hour, would have to work 84 hours per week in order to afford
a two-bedroom unit at the State's median fair market rent. No where in
the country does the minimum wage work of one person come close to
paying the rent. It would seem self-evident that if one goes to work
every day and collects a regular paycheck, that should be enough to
secure a reasonable place to live and take care of one's family.
As Chairman of the Subcommittee on Housing and Transportation, one
of my priorities is to focus attention on this affordable housing
crisis and the many factors that are contributing to it--including
market failure and Federal disinvestment in housing assistance for low-
income families. We need to consider creative solutions like a National
Affordable Housing Trust.
We also need to focus on make our Nation's housing stock safe. No
child in this country should have to live in a home that is hazardous
to her health because of environmental hazards like lead-based paint.
Finally, we need to do more to prevent and end homelessness in this
country. As most of you are all too aware, we have seen an increase in
homelessness around the Nation--especially in the number of children
and working families entering the homelessness system. Lack of
affordable housing is only one piece in the puzzle. The McKinney-Vento
Homeless Assistance Act was intended to be an emergency response to the
``crisis'' of homelessness. Instead, it increasingly appears that it is
providing a safety net not only for those who are homeless, but also
for people who are not being served adequately by mainstream housing
and service programs. I hope to have hearing on this issue within the
next few months.
In short, now is not the time to see another period of
disinvestment by the Federal Government in housing. HUD was forced to
sacrifice its budget during the Reagan Administration and it should not
be asked to do so again, especially during a recession. In fact, a
number of us believe that Federal spending on housing could play an
important role in restoring the economy to health. By including funding
in a stimulus package for programs like the Emergency Food and Shelter
Program, the Public Housing Operating Fund, and HOME, we would help
some of the Americans most vulnerable to the economic slowdown.
It is our hope today to focus on these issues and the growing
importance of a strong fiscal year 2003 budget for HUD. Decent, safe,
and affordable housing is not only the American Dream and the American
Promise, it also needs to be the American Commitment.
----------
PREPARED STATEMENT OF SENATOR JON S. CORZINE
Thank you Mr. Chairman, for holding this hearing. I also want to
thank all of the witnesses for appearing here today to discuss the 2003
HUD budget and for offering their insights as to how we can best seek
to provide American families with decent, safe, affordable housing.
Mr. Chairman, I share your commitment to this cause, and believe
that one of our primary responsibilities on this Committee is to ensure
that the Department of Housing and Urban Development is held to the
highest standards as they seek to carry out this important mission. It
is a responsibility that we must never abdicate or shy away from.
Maintaining an adequate supply of affordable housing and making it
available to those who need it is of the utmost importance to our
Nation. The need for affordable housing has been exacerbated given our
current economic situation when more and more Americans face
unemployment and our Nation stands in the midst of a recession which
may be prolonged as a result of the effects of the September 11
attacks.
I have great concerns about cuts that were made in the HUD budget,
in particular the elimination of the Public Housing Drug Elimination
Program, a program that had been heralded as reducing crime in and
around our Nation's public housing
developments.
Additionally, I am concerned about the cuts made to programs that
provide housing aid to the elderly, disabled, and low-income
communities. I also look at the Community Development Block Grants as
an important part of addressing the housing shortage. I have great
concern about the cuts made to that program as well.
Mr. Chairman, it is my hope that as we look at the HUD budget for
fiscal year 2003, the needs of American families will be the paramount
consideration. If it is not, then we, and HUD, will have failed in our
duties.
I look forward to the discussion today and to hearing the
recommendations of our witnesses. Again, Mr. Chairman, I thank you for
holding this hearing.
----------
PREPARED STATEMENT OF SENATOR THOMAS R. CARPER
Thank you Mr. Chairman for holding this important hearing. I would
like to thank Dave Curtis for appearing before the panel today and
sharing his expertise with us. Mr. Curtis is well known for his
knowledge on a wide array of financing and development programs
including those offered by HUD, Housing Finance Agencies and GSE's. He
recently led the successful effort to secure a $16,800,000 HOPE VI
grant to assist in the revitalization of Wilmington's oldest public
housing community. I am proud to have such an accomplished Delawarean
appearing before the Committee. I would also like to thank the other
witnesses for coming today and sharing their views and their expertise
with the Committee. I look forward to all of the testimony.
Last week, I toured the various homes built by the Cornerstone West
project in Wilmington. The Cornerstone West project revitalizes homes
on Wilmington's West Side for low- and moderate-income first-time
homebuyers and I was really impressed by what I saw. One of the
persistent problems we have had in Wilmington, and I am sure we are not
alone, is boarded up housing, vacant units, a preponderance of rental
units instead of owner-occupied housing, as well as long waiting lists
for assisted housing. Cornerstone is one project that is tackling these
problems. I am sure there are similar projects in other cities, and
Congress should ensure that it provides successful projects and
programs with the funds they need to make housing more affordable.
It is clear that there is a lack of affordable housing in the
United States. Currently, there are nearly 5 million very low-income
households with worst case housing needs; about 94 percent of these
families pay more than half of their income in rent each month. To
address this shortage we have to find the best use of every dollar at
our disposal, as well as the most effective use of existing Federal
programs to stimulate new production and substantial rehabilitation.
That is why I joined Senator Corzine in sponsoring legislation
increasing the FHA multifamily loan limits. I was pleased that this
increase passed as part of the VA/HUD appropriations legislation,
although I was disappointed that it did not include the indexation that
Senator Corzine and I had in our bill.
I look forward to working with my colleagues on other initiatives
that address the affordable housing crisis in our communities.
PREPARED STATEMENT OF RAYMOND A. SKINNER
Secretary of Housing and Community Development, The State of Maryland
Testifying on Behalf of
The National Council of State Housing Agencies
November 29, 2001
Mr. Chairman, Senator Gramm, and Members of the Committee, I am
Raymond Skinner, Secretary of the Maryland Department of Housing and
Community Development. I am testifying today on behalf of the National
Council of State Housing Agencies (NCSHA), which represents the Housing
Finance Agencies (HFA's) of the 50 States, the District of Columbia,
the Commonwealth of Puerto Rico, and the U.S. Virgin Islands.
First, I want to thank you, Mr. Chairman, and the many other
Members of this Committee who cosponsored and helped enact legislation
last year to increase substantially the caps on tax-exempt private
activity bonds (Bonds) and the Low-Income Housing Tax Credit (Housing
Credit) and index them for future inflation. With this increased
authority, tens of thousands of additional low-income families each
year will buy their first home or rent a decent, affordable apartment.
Unfortunately, even with these increases, many people qualified to
receive Bond and Housing Credit help still do not get it. Three
obsolete Federal requirements prevent it:
The Ten-Year Rule, which forbids States to recycle billions of
dollars in Mortgage Revenue Bond (MRB) loan payments to make new
MRB mortgages;
Artificially low MRB home price limits, based on eight-year-
old home sales data, despite a 40 percent increase in home prices
in the last 8 years; and
Inflexible Housing Credit income and rent rules, which often
make development infeasible in very low-income, frequently rural,
areas.
Senators John Breaux and Orrin Hatch have introduced S. 677, the
Housing Bond and Credit Modernization and Fairness Act of 2001, to fix
these problems. Forty-seven Senators already have cosponsored that
bill. More than half of all House Members have cosponsored an identical
House bill, H.R. 951.
The National Governors Association and nearly 20 other major State
and local government, public finance, and housing groups have endorsed
this legislation, including the National Association of Home Builders,
the National Association of Realtors, the Mortgage Bankers Association
of America, The Bond Market Association, the U.S. Conference of Mayors,
the National Association of Counties, and the National Association of
Housing and Redevelopment Officials. Twenty-four governors believe so
strongly in the importance of this legislation, they have personally
written the President, the Congressional leadership, or their own
Congressional delegations to urge its immediate enactment.
Thank you, Senator Allard and the many other Members of the
Committee who have cosponsored S. 677. We urge all Senators to
cosponsor S. 677 soon and to press your leadership and Finance
Committee colleagues to include it in a tax bill at the earliest
possible opportunity.
Federal Housing Investment Is Woefully Insufficient
Congress did much more than increase the Bond and Housing Credit
caps last year. You also recognized the need to adjust those caps
annually for inflation, so they would never again be robbed of their
purchasing power as they were over the past 14 years.
Regrettably, Congress has made no similar provision for Federal
housing spending programs. Today's HUD budget is a third of what it
would have been had it kept pace with inflation since 1976. Had the HUD
budget been increased even just to keep up with inflation over the past
27 years, the Federal Government would have invested $1 trillion more
in affordable housing and millions more needy families would have
received housing help.
The HUD budget has remained relatively flat in nominal terms over
the last 27 years, barely growing from $29.2 billion in 1976 to $30
billion in 2002, and losing nearly two-thirds of its purchasing power.
During the same period, total Federal discretionary budget authority
has grown from $194 billion to $635 billion, a three-fold increase,
narrowly outstripping inflation.
Although created little more than a decade ago, the HOME program
dramatically illustrates the toll inflation has taken on Federal
housing funding. Congress authorized HOME at $2 billion in 1992,
because it believed that amount was necessary for HOME to accomplish
its housing production goals. However, Congress appropriated only $1.5
billion for HOME in 1992 and has funded HOME since below its authorized
level, at amounts steadily outpaced by inflation.
If Congress had funded HOME at its authorized level of $2 billion
and adjusted that amount annually for inflation, HOME today would
provide nearly $3 billion to States and localities, more than 1\1/2\
times the $1.85 billion Congress just appropriated. Even if HOME's
original $1.5 billion appropriation had been increased annually just to
account for inflation, HOME funding by now would have reached $2
billion.
The Federal housing funding shortage is exacerbated by the
increased diversion of resources to maintenance of effort activities.
More than half of the fiscal year 2002 HUD appropriation will be
devoted to renewing rental assistance contracts and preserving existing
assisted housing. By comparison, virtually none of HUD's budget in 1976
funded such activities.
Though these investments are crucial to the continued provision of
tenant rental assistance and the preservation of our precious and
scarce affordable housing stock, Congress must recognize that these
activities crowd out funding for new affordable housing production and
assistance as long as total HUD funding remains relatively stagnant.
Critical Housing Needs Persist
While new Federal housing investment shrinks and is increasingly
devoted to preservation activities, the number of low- and moderate-
income families with critical housing needs remains startlingly high.
One out of every eight American families has a critical housing need,
according to Harvard University's Joint Center for Housing Studies'
2001 report, The State of the Nation's Housing. That is 14 million
families, including homeowners and renters, ranging from the very poor
to the solidly middle class.
Indisputably, families hardest hit are those with the least income.
Of the more than 14 million families with critical housing needs, 84
percent earn 50 percent of their area's median income (AMI) or less. A
stunning two-thirds have incomes of 30 percent of AMI or less.
Meanwhile, we are not even maintaining our affordable housing
stock, let alone increasing it. HUD's 2001 Report on Worst Case Housing
Needs in 1999 reports that the number of rental units affordable to
extremely low-income households (with incomes of 30 percent of AMI or
less) dropped by 750,000, and the total number of units affordable to
very low-income households (with incomes of 50 percent of AMI or less)
fell by 1.14 million between 1997 and 1999. HUD found that in every
region of the country, rental housing affordable to extremely low-
income renters was in shorter supply than housing affordable to other
income groups.
The Joint Center's report also reveals that, ``the total number of
unsubsidized units affordable to extremely low-income households is
just 1.2 million. With 4.5 million unsubsidized renters earning less
than 30 percent of the area median income, the shortfall in affordable
housing for the very poorest now stands at 3.3 million units. These
numbers, in fact, understate the shortage because higher income
households occupy 65 percent of the units affordable to extremely low-
income households.''
In 2001, HUD reported that 4.9 million poor households suffered
``worst case housing needs'' in 1999, defined as paying more than 50
percent of their income in rent and/or living in severely substandard
housing. HUD also documented that only one of every three extremely
low- and very low-income households eligible for Federal housing
assistance actually receive it, leaving 9.7 million poor households in
desperate need of housing help.
In the face of growing housing needs among extremely low-income
families, State housing agencies report increased difficulty housing
them. Though the GAO reported in 1997 that Housing Credit properties
with additional subsidies were reaching families with average incomes
of 25 percent of AMI, State agencies simply do not have the sufficient
subsidies to begin to meet the need. With the victory of the Credit Cap
Increase has come the realization that States will be more limited in
our ability to invest credits in housing serving extremely low-income
families without significant increases in subsidy dollars that can be
combined with the credit.
My State of Maryland has acute unmet housing needs, particularly
among very low- and extremely low-income families. We estimate that
about 70 percent of all extremely low-income renters in Maryland pay
more than 30 percent of their income in rent, and about half pay more
than 50 percent of their income in rent. The National Low-Income
Housing Coalition estimates 39 percent of Maryland renters pay more
than 30 percent of their income in rent.
Even with the Housing Credit cap increase, requests for credits
exceed our supply by a 4-to-1 ratio. Maryland also exhausts its private
activity bond cap annually, and it too is vastly oversubscribed.
Pressure on the bond cap will continue to build as the Ten-Year Rule
increasingly prevents us from recycling MRB mortgage payments into new
mortgages, forcing us to use new cap authority to finance new MRB
loans. We estimate the Ten-Year Rule will cost Maryland over $400
million in MRB mortgage money over just the next 5 years.
Our HUD monies are also woefully insufficient. For example, this
year, we received requests for more than two times our homeless
assistance funding. Demand for our HOME funds also exceeded their
supply. We estimate we could commit an additional $12 to $13 million in
HOME funds in just the next 6 months. This includes $9 million for
multifamily projects that are ready to go forward and are currently
waiting for funding and $3 to $4 million for rehabilitating single-
family homes and financing group homes for the disabled, persons with
mental illness, and persons with AIDS.
While not a housing program per se, the Community Development Block
Grant (CDBG) program has provided flexible funding for housing-related
activities for low-income people for more than 25 years. States spend
approximately 20 percent of their CDBG funds on housing. In Maryland,
we have used about 30 percent of our CDBG funds for housing activities.
Total CDBG requests exceed available funds by more than 2-to-1. This
year, Congress cut the formula allocation for the CDBG program by $60
million, or 1.3 percent. From October 2000 to October 2001, the
country's inflation rate was 2.1 percent. While these percentages seem
small, in real terms, the formula program would have needed an increase
of about $90 million for the fiscal year 2002 budget to keep things
where they are. For fiscal year 2003, the formula portion of the CDBG
program would need to increase by about $250 million to offset this
year's cut and inflation.
Some will propose more tenant-based vouchers as the answer to our
affordable housing needs. Vouchers are an important tool, and we
certainly need more of them. In Maryland and many other States,
however, vouchers are of no use in a number of areas where there is
simply no affordable housing to rent. In Howard County, for example,
the county housing department reports the rental vacancy rate is .57
percent--there are only 57 vacant rental units for every 10,000 rental
units in the county. Preliminary 2000 census figures show that a number
of counties in Maryland have vacancy rates below 2 percent. More
vouchers will not address the lack of available units. Simply put, we
need to produce more units.
Make Federal Housing Resources Work Smarter, Go Farther
Unquestionably, Congress must find a way to devote substantially
more Federal resources to affordable housing if we are to even begin to
meet our country's housing needs. But, we must also recognize that
whatever increased investment our collective best efforts might produce
will not be enough to solve the dire housing problems we confront. So,
it is essential that we make the most of every housing dollar the
Federal Government provides.
This requires eliminating unnecessary and outmoded Federal rules
and regulations that slow the delivery of funds, increase costs, and
frustrate results. The changes we propose to the Bond and Housing
Credit programs in S. 677 are just a few examples of the kinds of
changes in Federal housing programs that are sorely needed to maximize
dollars spent and to reach as many eligible families as possible. NCSHA
has proposed to the Millennial Housing Commission many more
recommendations for streamlining HOME and other HUD programs to make
them work more effectively and efficiently both separately and
together. We are hopeful that the Commission will include these
recommendations in its report to the Congress next spring, and you will
swiftly enact them.
One sure way to deliver Federal housing resources more efficiently
and target them more effectively is to devolve greater responsibility
for their administration to the States. During the last three decades,
State housing agencies have assumed a primary role in financing
affordable housing. Our success in blending business-like efficiency
with accomplishing our public mission has earned us the respect of the
Congress, our States, and the community at large.
Congress, in turn, has entrusted States with the administration of
the bond and housing credit programs, the only Federal programs
dedicated to financing lower income first-time homebuyer mortgages and
low-income apartment construction. Congress has also empowered the
States to administer the HOME program, FHA-HFA multifamily risk-
sharing, and Section 8 restructuring and contract administration and to
borrow funds directly from the Federal Home Loan Banks. Employing these
and other programs and resources, State agencies administer the full
range of
affordable housing programs, including homeownership, rental, homeless,
and all kinds of special needs housing.
State agencies have strong management, broad experience in
underwriting and
finance, and expert staffs, which number as many as 300 in the larger
agencies. We have issued nearly $140 billion in bonds to finance
homeownership and apartment construction without a single default and
with foreclosure and delinquency rates far lower than industry
averages.
State housing agencies have achieved significant results, but we do
not work alone. We have built strong partnerships with local
governments, nonprofits, the private sector, resident and community
groups, and service providers to address the unique and diverse housing
challenges we confront. The results are dramatic. We have financed more
than 2 million first-time, lower-income homebuyer mortgages and more
than 1.8 million apartments, including more than 1.2 million through
the housing credit.
State housing agencies have also been strong and successful
partners with HUD, when HUD rules have permitted us to use our talent
and expertise to do the job. Most recently, 35 HFA's have assumed HUD's
responsibility for the administration of 750,000 Section 8 project-
based units.
States have accomplished these results because Congress has
empowered us to employ Federal resources flexibly and leverage them to
meet a variety of affordable housing challenges. As you well know,
housing needs and conditions vary dramatically among and within States.
One-size, Washington-driven housing solutions simply do not fit all.
That is why programs like the Housing Credit and Bonds are so
successful. They let States and our partners respond effectively,
efficiently, and imaginatively to our most pressing housing needs.
Establish and Fund a New Production Program
Clearly, existing resources are insufficient to meet the Nation's
affordable housing needs, particularly those of extremely low-income
renters. That is why one of NCSHA's highest legislative priorities and
a priority of the National Governors Association is the creation of a
new, State-administered rental production program, targeted in
significant part to extremely low-income families. We want to work with
you to design a program that builds on the success of programs like
bonds, the housing credit, and HOME, utilizes the existing, proven
State delivery system, and is integrated with existing State housing
allocation plans and funding systems.
We know that builders are willing to build affordable rental
housing if funds are available. The demand for the rental housing
programs we operate bears this out. For example, we received about
$12.5 million in State funds this year to provide rental housing.
Developers requested $47 million in State funds, almost four times the
amount available. As mentioned, even with the increase in the housing
credit cap, demand exceeds supply by almost 4-to-1. We received $7.9
million in credits this year and had requests for $31 million in
credits.
States are in the best position to combine new, flexible funding
with bonds, housing credits, and other resources and to target limited
funds to our most critical needs. We know our housing needs and markets
and have proven delivery systems in place that can provide one-stop
shopping to the development community. State administration will also
assure that the impact of whatever limited funding Congress makes
available is not diluted by the distribution of funds to hundreds of
local communities, as under the HOME program.
A new program will only work, however, if States are given the
flexibility we need to tailor innovative solutions to our unique and
varied housing problems. HUD regulation must be limited to that which
is necessary to assure nondiscrimination and accountability for the use
of funds to achieve the goals Congress sets. Irrational and
unnecessarily burdensome rules, regulations, and reporting requirements
frustrate States and our partners, smother creativity, increase costs,
and delay results.
We propose that the new funds be allocated by State housing
agencies, subject to a State allocation plan, modeled on the housing
credit qualified allocation plan. The plan, developed with extensive
pubic input, would identify the State's priority rental housing needs
and strategies for using the funds to address them.
States should be empowered to use funds for a wide range of
activities, including tenant and project-based assistance, new
construction, rehabilitation, preservation, and operating assistance
and to deliver funds through an array of capable partners, including
the public and private sectors, and nonprofit and for profit entities.
Funds should not be encumbered with program set-asides.
Finally, it is essential that any new program's income, rent, and
other rules be compatible with those of other Federal housing programs,
for its combination with them will almost always be necessary to reach
extremely low-income families.
In conclusion, we have a long way to go to close the ever-widening
gap between housing need and housing resources, and there is no single,
simple answer. But, clearly, three steps would make a significant
difference: housing program funding at least sufficient to keep pace
with inflation; the deregulation and devolution of existing programs;
and new, flexible State-administered resources to help fill the gaps,
particularly in our ability to house our most needy families.
Thank you for the opportunity to testify today. NCSHA and our
member State housing agencies are very grateful for your enthusiastic
and sustained support of affordable housing. We stand ready to assist
you in any way we can.
----------
PREPARED STATEMENT OF EDGAR O. OLSEN, PhD
Professor of Economics, University of Virginia
November 29, 2001
Mr. Chairman and Members of the Committee on Banking, Housing, and
Urban Affairs: I welcome this opportunity to talk with you about the
fiscal year 2003 HUD Budget. I speak from the perspective of a taxpayer
who wants to help low-income families. I have no other financial
interests in the matters under consideration at this hearing.
My views are influenced not only by this perspective but also by my
knowledge of the systematic evidence about the effects of low-income
housing programs. I have been involved in housing policy analysis since
the late 1960's. Since then, I have done many empirical studies of the
effects of low-income housing programs, and I have read carefully a
very large number of other studies. During the Nixon Administration, I
was an analyst on the Housing Policy Review Task Force that led to the
Section 8 Certificate Program. As a visiting scholar at HUD during the
Carter Administration, I worked on an evaluation of this program and
reviewed the final reports from the Experimental Housing Allowance
Program. More recently, I have written a lengthy survey of what is
known about the effects of low-income hous-
ing programs for a National Bureau of Economic Research volume on
means-
tested transfer programs, and I did a substantial amount of work as a
consultant to the GAO on their study comparing the cost-effectiveness
of tenant-based
vouchers and major construction programs such as the Low-Income Housing
Tax Credit and HOPE VI. My testimony will focus on the HUD budget for
low-income housing programs.
Given the current economic slowdown and the added expense of
fighting international terrorism, it is clear that we will not be able
to spend more money on housing assistance over the next few years. The
question is: How can we continue to serve current recipients equally
well and serve some of the poorest families who have not yet been
offered assistance without spending more money? The answer is that we
must use the money available more wisely.
Research on the effects of housing programs provides clear guidance
on this matter. It shows that we can serve current recipients equally
well (that is, provide them with equally good housing for the same
rent) and serve many additional families without any increase in the
budget by shifting resources from project-based to tenant-based
assistance.
Five major studies have estimated both the cost per unit and the
mean market rent of apartments provided by housing certificates and
vouchers and the largest older production programs, namely Public
Housing, Section 236, and Section 8 new construction.\1\ These studies
are based on data from a wide variety of housing markets and for
projects built in many different years. Three were multimillion dollar
studies conducted for HUD by respected research firms during the Nixon,
Ford, Carter, and Reagan Administrations. They are unanimous in finding
that housing certificates and vouchers provide equally desirable
housing at a much lower total cost than any of these production
programs, even though all of these studies are
biased in favor of the production programs to some extent by the
omission of certain indirect costs.
---------------------------------------------------------------------------
\1\ The studies are Mayo and others (1980), Olsen and Barton
(1983), Schnare and others (1982), U.S. Department of Housing and Urban
Development (1974), and Wallace and others (1981). Olsen (2000)
provides a description and critical appraisal of the data and methods
used in these studies as well as a summary of their results.
---------------------------------------------------------------------------
The studies with the most detailed information about the
characteristics of the housing provided by the programs found the
largest excess costs for the production programs. One study estimated
the excessive cost of public housing compared to housing vouchers for
providing equally desirable housing to be 64 percent and 91 percent in
the two cities studied and the excessive cost of Section 236 to be 35
percent and 75 percent in these two cities (Mayo and others, 1980).
Another study estimated the excessive cost of Section 8 new
construction compared to tenant-based Section 8 certificates to be 37
percent even when all of the indirect costs of the Section 8 new
construction program are ignored (Wallace and others, 1981). These
indirect subsidies include GNMA Tandem Plan interest subsidies for FHA-
insured projects and the forgone tax revenue due to the tax-exempt
status of interest on the bonds used to finance SHFA projects. Based on
previous studies, the authors argue that these indirect costs would add
20 to 30 percent to the total cost of the Section 8 new construction
Program.
The recently completed GAO study produced similar results for the
major active construction programs--LIHTC, HOPE VI, Section 202,
Section 515, and Section 811. Using the conceptually preferable life
cycle approach, the excess total cost estimates range from at least 12
percent for Section 811 to at least 27 percent for HOPE VI.\2\ (The GAO
calculations exclude HOPE VI construction costs that are not related to
housing.) These estimates are lower bounds on the excessive cost
because some costs of the production programs were omitted due to the
difficulty of collecting the relevant data. For example, all public
housing projects receive substantial local property tax abatements. The
GAO analysis ignores this cost to local taxpayers. An earlier study
(reported in Olsen, 2000, p. 16) estimated that these abatements
account for 22 percent of the cost of this program to taxpayers.
---------------------------------------------------------------------------
\2\ The GAO study also reports first-year excess costs of the
production programs. The first-year cost of a production program is the
sum of the annualized development subsidies and the tenant rent and
other Government subsidies during the first year of operation. The
estimates of excess cost of production programs based on this method
are much higher than estimates based on the life-cycle approach.
Although these estimates may be closer to the truth due to the omission
of some of the costs of production programs and deviations between the
assumptions of the life-cycle analysis and reality, this methodology is
defective for the reasons explained in Olsen (2000, pp. 18-21).
---------------------------------------------------------------------------
The GAO study also contains evidence concerning whether production
programs are more cost-effective than tenant-based vouchers in the
tightest housing markets. In addition to the national estimates, the
GAO collected data for seven metropolitan areas. The data for the GAO
study refer to projects built in 1999. In that year, the rental vacancy
rates in the seven metropolitan areas ranged from 3.1 percent in Boston
to 7.2 percent in Baltimore and Dallas, with a median of 5.6 percent.
The overall rental vacancy rate in U.S. metropolitan areas was 7.8
percent. So all of the specific markets studied were tighter than
average. Only five of the largest 75 metropolitan areas had vacancy
rates lower than Boston's. In each market, tenant-based vouchers were
more cost-effective than each production program studied.
The GAO study will not be the last word on the cost-effectiveness
of the programs studied. Improvements in its implementation of the
life-cycle methodology are possible and desirable. However, it provides
the only independent cost-effectiveness analysis of these programs.
The magnitude of the gain from shifting from project-based to
tenant-based assistance would be substantial. Even the smallest
estimates of the excess costs of project-based assistance imply that
shifting 10 families from project-based to tenant-based assistance
would enable us to serve two additional families. Since HUD provides
project-based assistance to more than three million families, a total
shift from project-based to tenant-based assistance would enable us to
serve at least 600,000 additional families with no additional budget.
The most reliable estimates in the literature imply much larger
increases in the number of families served. For example, the Abt study
of the Section 8 New Construction Program implies that tenant-based
vouchers could have provided all of the families who participated in
this Program with equally good housing for the same rent and served at
least 65 percent more families with similar characteristics equally
well without any additional budget. Since this program served over
900,000 families at its peak, this amounts to an additional 585,000
families. These findings have important implications for how the HUD
budget should be spent.
First, the money currently spent on operating and modernization
subsidies for public housing projects should be used to provide tenant-
based vouchers to public housing tenants, as proposed by the Clinton
Administration and by Senator Dole during his Presidential campaign. To
enable housing authorities to provide decent housing despite this loss
in revenue, they should be allowed to rent their apartments to any
household eligible for housing assistance for whatever rent this market
will bear. Families with tenant-based vouchers would occupy many of
these apartments. Other families eligible for housing assistance would
occupy the rest. Housing authorities could raise additional money by
taking advantage of the current regulation that allows them to sell
projects. At present, they have little incentive to do it. Without
guaranteed Federal operating and modernization subsidies, many
authorities may well decide to sell their worst projects. These are the
projects that will be abandoned to the greatest extent by their tenants
with vouchers, and they are the most expensive to operate. They should
be sold in their current condition to the highest bidder in order to
maximize the revenue available to modernize other projects. If housing
authorities are unable to compete with private owners for their
tenants, they should not be in the business of providing housing.
Second, contracts with the owners of private subsidized projects
should not be renewed. Instead we should give their tenants portable
vouchers and force the owners to compete for their business. Tenants
who choose to move should be given a modest grant for moving expenses.
This is far less expensive than continuing with these costly forms of
project-based assistance.\3\ It is important to realize that for-profit
sponsors will not agree to extend the use agreement unless this
provides at least as much profit as operating in the unsubsidized
market. Since these subsidies are provided to selected private
suppliers, the market mechanism does not insure that profits under the
new use agreement will be driven down to market levels. If this is to
be achieved at all, administrative mechanisms must be used. Proponents
of all previous programs of this sort argued vigorously that their
program would insure that excessive costs were not paid for apartments.
Cost-effectiveness studies of these programs indicate that they failed
badly to control costs. There is no reason to believe that the mark-to-
market initiative will produce better results. It will merely hide the
excess cost to a greater extent. We should leave the job of getting
value for the money spent to the people who have the greatest incentive
to do it, namely the tenants.
---------------------------------------------------------------------------
\3\ See Weicher (1997) for a detailed analysis of vouchering out
project-based assistance.
---------------------------------------------------------------------------
Third, the construction of additional public or private projects
should not be subsidized. For example, no additional money should be
allocated to HOPE VI. This program is an improvement over traditional
public housing in that it avoids concentrating the poorest families at
high densities in projects. However, the GAO study reveals that it is
highly cost-ineffective compared with tenant-based vouchers that also
avoid these concentrations. For the same reason, there should be no new
HUD production program.
Most people who develop and operate subsidized housing projects
will oppose these reforms. However, they will give taxpayers who want
to help low-income families more for their money by greatly increasing
the number of families served with a given budget without reducing
support for current recipients.
Two main objections have been raised to exclusive reliance on
tenant-based assistance. Specifically, it has been argued that tenant-
based assistance will not work in markets with the lowest vacancy rates
and construction programs have an advantage compared with tenant-based
assistance that offsets their cost-ineffectiveness, namely they promote
neighborhood revitalization to a much greater extent.
Taken literally, the first argument is clearly incorrect in that
Section 8 certificates and vouchers have been used continuously in all
housing markets for more than two decades. A more precise version of
this argument is that tenant-based assistance will not work in the some
markets because these markets do not have enough vacant apartments that
meet minimum housing standards and are affordable to voucher
recipients. The defects of this argument are easy to understand, and it
is inconsistent with the empirical evidence.
All vouchers authorized in a locality can be used even if the
number of vacant apartments that meet minimum housing standards and are
affordable to voucher recipients is less than the number of vouchers
authorized. Some recipients offered vouchers might already occupy
apartments meeting the program's standards. In this case, the family
can participate without moving. In the absence of assistance, these
recipients typically devote a high fraction of their income to housing
and skimp on other necessities. The housing voucher reduces their rent
burden. Other families who are offered vouchers will live in housing
that does not meet Section 8 standards. However, these apartments can
be repaired to meet the standards. Similarly, vacant apartments that do
not initially meet the program's standards can be upgraded to meet
them. In short, we do not need new construction to increase the supply
of apartments meeting minimum housing standards.
The evidence shows that these are not theoretical curiosities. The
tenant-based Section 8 certificate and voucher programs have
substantially increased the supply of affordable housing meeting
minimum housing standards. The most recent detailed analysis is based
on data from a national random sample of 33 public housing authorities
in 1993 (Kennedy and Finkel, 1994). Thirty percent of all recipients
outside of New York City continued to live in the apartments that they
occupied prior to participating in the program (Kennedy and Finkel, p.
15).\4\ Forty-one percent of these apartments already met the program's
standards and 59 percent were repaired to meet the standards (Kennedy
and Finkel, p. 83). About 70 percent of all recipients outside of New
York City moved to a new unit. About 48 percent of these apartments
were repaired to meet the program's standards (Kennedy and Finkel, p.
84). The rest moved to vacant apartments that already met the
standards. Therefore, the apartments occupied by about half of the
families that received certificates and vouchers outside NYC during
this period were repaired to meet the program's standards. The
previously mentioned sources contain similar results for NYC. In this
city, only 31 percent of the apartments occupied by recipients had to
be repaired to meet the program's standards.
---------------------------------------------------------------------------
\4\ The authors analyzed New York City separately from the other
housing authorities.
---------------------------------------------------------------------------
The Housing Assistance Supply Experiment of the Experimental
Housing Allowance Program (EHAP) provides even more powerful evidence
on the ability of tenant-based vouchers to increase the supply of
apartments meeting minimum housing standards even in tight housing
markets. The Supply Experiment involved operating an entitlement
housing allowance program for 10 years in St. Joseph County, Indiana
(which contains South Bend) and Brown County, Wisconsin (which contains
Green Bay). These were smaller than average metropolitan areas with
populations of about 235,000 and 175,000 people, respectively. The
general structure of the housing allowance program in the Supply
Experiment was the same as the Section 8 Voucher Program that EIM
operated from 1983 until its merger with the new Housing Choice Voucher
Program, except that homeowners were eligible to participate in the
Supply Experiment. About 20 percent of the families in the two counties
were eligible to receive assistance (Lowry, 1983, pp. 92-93). By the
end of the third year when participation rates leveled off, about 41
percent of eligible renters and 27 percent of eligible homeowners were
receiving housing assistance (Lowry, pp. 24-25). Data for analysis was
collected during the first 5 years of the experiment in each site.
During that period, about 11,000 dwellings were repaired or improved to
meet program standards entirely in response to tenant-based assistance
and about 5,000 families improved their housing by moving into
apartments already meeting these standards (Lowry, p. 24). This
represented more than a 9 percent increase in the supply of apartments
meeting minimum housing standards. So, tenant-based assistance alone
produced a much greater percentage increase in the supply of adequate
housing in these localities in 5 years than all of the Federal
Government's production programs for low-income families have produced
in the past 65 years. The annual cost per household was less than
$3,000 in current prices.
The Supply Experiment sites were chosen to differ greatly in their
vacancy rates and the size of their minority populations in order to
determine whether the outcomes of an entitlement housing allowance
program depend importantly on these factors. At the outset of the
Supply Experiment, the vacancy rates in Brown and St. Joseph County
were 5.1 percent and 10.6 percent (Lowry, p. 53). So the average
vacancy rate in the two sites was almost exactly the average vacancy
rate in 2000 for U.S. metropolitan areas (7.7 percent). In 2000, only
26 percent of the 75 largest metropolitan areas had vacancy rates less
than the vacancy rate in Brown County at the outset of the experiment
and 20 percent had vacancy rates greater than the vacancy rate in St.
Joseph County. The participation rate differed little between the two
sites. Indeed, it was higher in the locality with the lower vacancy
rate (Lowry, p. 122).
We do not need production programs to increase the supply of
apartments meeting minimum housing standards. The Experimental Housing
Allowance Program demonstrated beyond any doubt that the supply of
apartments meeting minimum housing standards can be increased rapidly
by upgrading the existing stock of housing even in tight markets. This
happened without any rehabilitation grants to suppliers. It happened
entirely in response to tenant-based assistance that required families
to live in apartments meeting the program's standards in order to
receive the subsidy.
Those who express concern about the ability of tenant-based
assistance to work well in the tightest housing markets usually mention
the low success rates in some localities. In discussing this matter, it
is important to distinguish between an authority's so-called success
rate and its ability to use Section 8 vouchers. An authority's success
rate is the percentage of the families authorized to search for a unit
who occupy a unit meeting the program's standards within the housing
authority's time limit. An authority's success rate depends on many
factors including the local vacancy rate. The most careful study of
success rates (Kennedy and Finkel, 1994) indicates that among
localities that are the same with respect to other factors those with
the lowest vacancy rates have the lowest success rates.
An authority's success rate bears no necessary relationship to the
fraction of the authority's vouchers in use at any point in time. No
matter what an authority's success rate, the authority can fully use
the vouchers allocated to it by authorizing more families to search for
apartments than the number of vouchers available. For example, if an
authority has a success rate of 50 percent, authorizing twice as many
families to search as the number of vouchers available will result in
full utilization of the vouchers on average. If each housing authority
adjusted its issuance of vouchers to its success rate in this manner,
some authorities would exceed their budget and others would fall short
in a given year. However, the national average success rate would be
very close to 100 percent.
For many years, public housing authorities have over-issued
vouchers and thereby achieved high usage rates despite low success
rates. In recent years, they have had a reserve fund for this purpose,
and current regulations call for penalties on authorities with usage
rates below 95 percent. The national average usage rate is high (about
92 percent).
Almost all tenant-based certificates and vouchers are in use at
each point in time. Even more would be in use if housing authorities
were more aggressive in over-issuing vouchers. Local housing
authorities rarely, if ever, return certificates and vouchers to HUD.
Although it is true that some families who are offered vouchers do not
find housing that suits them and meets the program's standards within
their housing authority's time limits, other eligible families in the
same locality use these vouchers. This indicates clearly that the
problem is not that there are no vacant apartments that meet program
standards and are affordable to voucher recipients or apartments whose
landlords are willing to upgrade them to meet program standards. In the
tightest housing markets, these apartments are extremely difficult to
locate. Unsubsidized families also have trouble locating apartments in
tight housing markets.
The real issue is not whether tenant-based vouchers can be used in
all market conditions but whether it would be better to use new
construction or substantial rehabilitation programs in tight markets.
In this regard, the key question is: Will construction programs get
eligible families into satisfactory housing faster than tenant-based
vouchers in some market conditions?
Based on existing evidence, there can be little doubt that tenant-
based vouchers get families into satisfactory housing much faster than
any construction program even in the tightest housing markets. Two
major studies of success rates under the tenant-based Section 8 program
have been completed over the past 15 years (Leger and Kennedy, 1990;
Kennedy and Finkel, 1994). These studies collected data on more than 50
local housing authorities selected at random. The lowest success rate
observed was 33 percent for New York City in the mid-1980's.\5\ If a
housing authority with this success rate issued only the vouchers
available at each point in time and allowed recipients up to 3 months
to find a unit meeting the program's standards, about 80 percent of new
vouchers would be in use within a year. If they followed the current
practice of authorizing more families to search for apartments than the
number of vouchers available, almost all of the vouchers would be in
use within 3 months.
---------------------------------------------------------------------------
\5\ The success rate in New York City in the mid-1980's was much
lower than the second lowest (47 percent in Boston in the mid-1980's)
and much lower than in New York City in 1993 (65 percent). An earlier
study based on data from the late-1970's found lower success rates.
However, at that time housing authorities were still figuring out how
to administer this new program. So these success rates are of no
relevance for predicting the effects of expanding the program today.
---------------------------------------------------------------------------
How long does it take from the time that money is allocated for
construction programs to the time that the first units are available
for occupancy? Based on data on a national random sample of 800
projects built between 1975 and 1979, Schnare, Pedone, Moss, and Heintz
(1982) found the mean time from application for project approval to
completion of the project ranged from 23 months for Section 236 to 53
months for conventional public housing. Mean times ranged from 26 to 31
months for the variants of the Section 8 New Construction and
Substantial Rehabilita-
tion Program. Occupancy of the completed apartments required additional
time.
Although the authors did not report results separately for different
markets, it seems reasonable to believe that these times were greater
in the tightest housing markets because the demand for unsubsidized
construction would be greatest in these locations.
So if Congress were to simultaneously authorize an equal number of
tenant-based vouchers and apartments under any construction program, it
is clear that all of the vouchers would be in use long before the first
newly built unit was occupied, no matter what the condition of the
local housing market at the time that the money is appropriated.
The second major objection to the exclusive reliance on tenant-
based assistance is that new construction promotes neighborhood
revitalization to a much greater extent than tenant-based assistance.
The evidence from the Experimental Housing Allowance Program is that
even an entitlement housing voucher program will have modest effects on
neighborhoods and the small literature on the Section 8 Voucher Program
confirms these findings for a similar nonentitlement program (Lowry,
1993, pp. 205-217; Galster, Tatian, Smith, 1999B). These programs
result in the upgrading of many existing dwellings, but this is
concentrated on their interiors. It is plausible to believe that a new
subsidized project built at low-density in a neighborhood with the
worst housing and poorest families would make that neighborhood a more
attractive place to live for some years after its construction. The
issue is not, however, whether some construction projects lead to
neighborhood upgrading. The issues are the magnitude of neighborhood
upgrading across all projects under a program over the life of these
projects, who benefits from this upgrading, and the extent to which
upgrading of one neighborhood leads to the deterioration of other
neighborhoods.
The primary beneficiaries of neighborhood upgrading will be the
owners of nearby properties. Since the majority of the poorest families
are renters, it is plausible to believe that most of the housing
surrounding housing projects located in the poorest neighborhoods is
rental. Therefore, if a newly built subsidized project makes the
neighborhood a more attractive place to live, the owners of this rental
housing will charge higher rents and the value of their property will
be greater. Since the occupants of this rental housing could have lived
in a nicer neighborhood prior to the project by paying a higher rent,
they are hurt by its construction. The poor in the project's
neighborhood will benefit from the neighborhood upgrading only to the
extent that they own the property surrounding the project.
With the passage of time, the initial residents will leave the
neighborhood in response to the project and others who value a better
neighborhood more highly will replace them. In short, housing programs
involving new construction will shift the location of the worst
neighborhoods to some extent. The aforementioned possibilities have not
even been recognized in discussions of housing policy, let alone
studied.
What has been studied is the extent to which projects under various
housing programs affect neighborhood property values. The existing
studies find small positive effects on average for some programs and
small negative effects for others (Lee, Culhane, and Wachter, 1999;
Galster, Smith, Tatian, and Santiago, 1999A; Galster, Tatian, and
Smith, 1999B). No study finds substantial positive effects on average
for any program.
The consequence of using the costly construction and substantial
rehabilitation programs has been that several million of the poorest
families who could have been provided with adequate housing at an
affordable rent with the money appropriated for housing assistance have
continued to live in deplorable housing or paid a substantial fraction
of their income to live in adequate housing. We should learn from our
past mistakes and not heed the call for a new HUD production program.
Indeed, we should go further and disengage from project-based
assistance to existing apartments as soon as current contractual
commitments permit.
I appreciate the willingness of Members of the Committee to listen
to the views of a taxpayer whose only interest in the matters under
consideration is to see that tax revenues are used effectively and
efficiently to help low-income families.
References
Galster, George; Smith, Robin E.; Tatian, Peter A.; and
Santiago, Anna M. with Mary Cunningham and Charlene Y. Wilson.
Assessing Property Value Impacts of Dispersed Housing Subsidy
Programs: Final Report. Washington, DC: The Urban Institute,
May 1999A.
Galster, George C.; Tatian, Peter; and Smith, Robin. ``The
Impact of Neighbors Who Use Section 8 Certificates on Property
Value.'' Housing Policy Debate 10 (1999B): 879-917.
Kennedy, Stephen D. and Finkel, Meryl. Section 8 Rental
Voucher and Rental Certificate Utilization Study. Cambridge,
MA: Abt Associates Inc., 1994.
Leger, Mireille L. and Kennedy, Stephen D. Final
Comprehensive Report of the Freestanding Housing Voucher
Demonstration. Volume 1 & 2. Cambridge, MA: Abt Associates
Inc., May 1990.
Lee, Chang-Moo; Culhane, Dennis P.; and Wachter, Susan M.
``The Differential Impacts of Federally Assisted Housing
Programs on Nearby Property Values: A Philadelphia Case
Study.'' Housing Policy Debate 10 (1999): 75-93.
Lowry, Ira S. (ed.) Experimenting With Housing Allowances:
The Final Report of the Housing Assistance Supply Experiment.
Cambridge, MA: Oelgeschlager, Gunn & Hain, 1983.
Mayo, Stephen K.; Mansfield, Shirley; Warner, David; and
Zwetchkenbaum, Richard. Housing Allowances and Other Rental
Assistance Programs--A Comparison Based on the Housing
Allowance Demand Experiment, Part 2: Costs and Efficiency.
Cambridge, MA: Abt Associates Inc, June 1980.
Olsen, Edgar O. ``The Cost-Effectiveness of Alternative
Methods of Delivering Housing Subsidies.'' Thomas Jefferson
Center for Political Economy, Working Paper 351, December 2000.
http://www.virginia.edu/-econ/TJpapersx.htm
Olsen, Edgar O. ``Housing Programs for Low-Income
Households.'' National Bureau of Economic Research, Working
Paper 8208, April 2001. http://papers.nber.org/papers/W8208
Olsen, Edgar O., and Barton, David M. ``The Benefits and
Costs of Public Housing in New York City.'' Journal of Public
Economics 20 (April 1983): 299-332.
Schnare, Ann; Pedone, Carla; Moss, William; and Heintz,
Kathleen. The Costs of HUD Multifamily Housing Programs: A
Comparison of the Development, Financing and Life Cycle Costs
of Section 8, Public Housing, and Other Major HUD Programs.
Volume 1 & 2. Cambridge, MA: Urban Systems Research and
Engineering, Inc., May 1982.
U.S. Department of Housing and Urban Development. Housing in
the Seventies. Washington, DC: Government Printing Office,
1974.
U.S. General Accounting Office, Federal Housing Programs:
What They Cost and What They Provide. GAO-01-901R, July 18,
2001. http://www.gao.gov/new.items/d01901r.pdf
Wallace, James E.; Bloom, Susan Philipson; Holshouser,
William L.; Mansfield, Shirley; and Weinberg, Daniel H.
Participation and Benefits in the Urban Section 8 Program: New
Construction and Existing Housing. Volume 1 & 2. Cambridge, MA:
Abt Associates Inc., January 1981.
Weicher, John. Privatizing Subsidized Housing. Washington,
DC: American Enterprise Institute for Public Policy Research,
1997.
----------
PREPARED STATEMENT OF DAVID W. CURTIS
Executive Vice President and Chief Financial Officer
Leon N. Weiner & Associates, Inc.
Testifying on Behalf of
The National Association of Home Builders, Inc.
November 29, 2001
Introduction
On behalf of the 205,000 members of the National Association of
Home Builders, I want to thank you for inviting us to speak on the
fiscal year 2003 Department of Housing and Urban Development (HUD)
budget. My name is David Curtis, and I am a builder from Wilmington,
Delaware. I currently serve as Executive Vice President of Leon N.
Weiner & Associates, Inc., which is a Wilmington-based home building,
development and property management firm. The Weiner organization and
its affiliates are recognized as industry leaders, particularly in the
area of providing affordable housing to individuals and families of
moderate means. The company has developed and constructed more than
4,500 homes, 9,000 apartments, and several hotels, office and retail
facilities.
Two recent reports, one by the Center for Housing Policy,
``Paycheck to Paycheck: Working Families and the Cost of Housing in
America,'' and the Joint Center for Housing Studies of Harvard
University's, The State of the Nation's Housing Annual Report 2001,
have extensively documented the growing problem of housing
affordability for low- and moderate-income households. The Joint
Center's report states that, at the end of the last decade, over 14
million owner and renter households spent more than half their incomes
on housing. Two million households lived in homes with serious
structural deficiencies, and many of those households were also
severely cost-burdened. The Center for Housing Policy estimates that
3.7 million households who fall within the category of the ``working
poor'' have critical housing needs.
NAHB strongly supports the mission of HUD and its efforts to meet
the Nation's housing and community development needs through single-
family, multifamily, and urban and rural development initiatives. Most
of these efforts include a public-private partnership that involves
private, for-profit home builders and that is facilitated through
coordination with many other partners including community organizations
and State and local governments. In addition to developing and
overseeing most of the key Federal programs in these areas, HUD also
conducts important research and analysis on housing needs and solutions
to housing problems.
NAHB views HUD's role in housing as critical to achieving the
Nation's goal of safe and decent housing for every American. Success in
these efforts requires adequate funding and effective and efficient
operation of the Department. We recognize there are significant
challenges in meeting funding requests throughout the Federal budget,
but we urge Congress to provide sufficient funds to give HUD the staff
and resources necessary to make meaningful progress in addressing the
Nation's housing and community development needs. Our detailed
recommendations follow.
In addition, the HUD budget is a factor in the degree of economic
stimulus received by the housing sector and the economy. Our statement
also includes observations and recommendations on economic stimulus
measures.
The Federal Housing Administration (FHA) Multifamily Programs
The FHA is the only Federal program that supports the production
and rehabilitation of affordable rental housing units for a range of
incomes, not just the very low end of the market.
However, while the FHA programs continue to serve a vital function
within the housing finance system, the legislative, regulatory, and
policy framework under which these programs operate are often
unnecessarily restrictive and burdensome. On the multifamily side, the
programs have been subjected to a series of start-stop cycles that have
resulted in significant losses of time and money to developers and
longer waits for affordable housing by residents.
Of particular concern to NAHB is HUD's decision to raise the
mortgage insurance premium from 50 to 80 basis points for a number of
the FHA multifamily mortgage programs, in particular the 221(d)(4)
program. According to the model used by HUD and the Office of
Management and Budget (OMB) to determine credit subsidy requirements,
the higher mortgage insurance premium allows the FHA Section 221(d)(4)
multifamily mortgage insurance program to operate without a credit
subsidy appropriation. The Administration's budget for fiscal year 2002
continues the higher premium level.
NAHB has expressed its opposition to the mortgage insurance premium
increase as burdensome and unnecessary. NAHB; believes the premium
increase in the Section 221(d)(4) program will lead to higher rents and
reduced production of affordable rental housing. NAHB believes that the
assumptions in the model used by HUD and OMB to determine the credit
subsidy requirements for the Section 221(d)(4) program are excessively
pessimistic. For example, the model places too much weight on the
performance of loans from the early 1980's, which were insured under
much weaker underwriting standards than employed today and were
impacted by the unprecedented retroactive provisions of the 1986 Tax
Act. If the model were revised to address these and other problems, the
Section 221(d)(4) program would not require credit subsidy
appropriations or an increase in insurance premium.
Congress recognized this problem by directing HUD, in the fiscal
year 2002 HUD/VA appropriations bill conference report, to work with
the industry to review the technical assumptions provided by HUD to OMB
for inclusion in the risk model. FHA Commissioner John Weicher and his
staff held several meetings with NAHB where HUD requested and NAHB
offered recommendations for alterations to the model. Commissioner
Weicher agreed to complete a study of the credit subsidy model by
October 1, 2001, so that a revised formula could be in effect for the
fiscal year 2003 budget, but has failed to do so. NAHB believes that
completing the study of the model and implementing any changes in time
for the fiscal year 2003 budget cycle is of utmost importance. We also
believe that HUD needs to follow through in working with the industry
in finalizing any changes.
Also related to the FHA multifamily programs, we appreciate the
support of HUD and applaud the action taken by Congress in the HUD
fiscal year 2002 appropriations bill, which raises the FHA multifamily
mortgage loan limits by 25 percent. The limits, which remained at the
level last set in 1992, made the program unworkable in many major urban
areas. The increase in the mortgage loan limits will now help provide
affordable housing in many areas where the programs could not be used
previously.
We were disappointed, however, that the increase was not indexed to
account for inflation each year. Without indexing, the loan limits will
rapidly become outdated, leaving us in the same position as before. We
urge you to include an inflation index to the mortgage loan limits in
the fiscal year 2003 budget, and we recommend using the U.S. Bureau of
the Census Annual Construction Cost Index. This index is used to derive
the annual value of general construction costs put into place and is a
measure of the impact of inflation on construction costs. It is the
best readily available index published on an annual basis.
Additionally, there are a few cities where costs, particularly for
land, have risen so dramatically over the past several years that the
25 percent increase will not be sufficient to enable developers to use
the FHA programs. While the Secretary has discretion to adjust the
limits by a high cost factor, we believe that a legislative change is
needed to recognize that there are some very high cost cities that
should be permitted to exceed the current 110 percent high cost factor.
We encourage you to consider making such a legislative change.
HUD Budget Recommendations
NAHB believes that it is essential to maintain a strong Federal
commitment to housing assistance programs for low- and moderate-income
families and provide incentives for greater involvement by State and
local governments to develop affordable housing solutions. As such, we
support adequate funding levels for the housing programs that will help
achieve these goals.
HOME Investments Partnerships Program
NAHB is very supportive of the HOME program. It is an important and
flexible block grant that State and local governments use to address
their locally identified affordable housing needs. HOME funds have
become an important source of gap financing for developers using tax-
exempt bonds, low-income housing tax credits and other affordable
housing financing. HOME funds are also an important source of
assistance for first-time homebuyers. We support a funding level of at
least $2 billion, without funds earmarked for specific purposes. We
believe the participating jurisdictions already have the flexibility to
use HOME funds to meet their specific housing needs, which can vary
considerably.
Community Development Block Grants (CDBG)
NAHB was disappointed that the funding for the CDBG program was
reduced from $4.4 billion in fiscal year 2001 to $4.34 billion in
fiscal year 2002. NAHB supports a funding level of $4.8 billion. This
program, which provides flexible funding so that communities can meet
housing and economic development needs as they see fit, is a
cornerstone in the effort to revitalize our Nation's cities and rural
areas. We were pleased that HUD recently changed its position on
prohibiting the use of CDBG funds for the new construction of single-
family housing. We urge Congress to consider allowing the use of CDBG
funds for the new construction of multifamily housing as well.
Section 8
While NAHB understands the reason Secretary Martinez requested
fewer vouchers for fiscal year 2002, it is nonetheless a dramatic
reduction from the fiscal year 2001 level of 79,000 vouchers. We
understand that, in some localities, vouchers were not being utilized
efficiently; however, HUD is taking steps to address this issue, which
should help improve utilization rates. At the same time, Congress needs
to be aware that demand for Section 8 vouchers has not declined. In
fact, in many localities, residents face waits of 5 or more years
before they can receive a voucher. We urge Congress to provide funds
for all Section 8 contract renewals and, additionally, provide funding
for 79,000 new incremental vouchers in fiscal year 2003. The Section 8
voucher program is critical to addressing the housing needs of
extremely low- and very low-income residents, especially during
economically difficult times when more families are facing unemployment
and rising housing costs.
Partnership for Advancing Technology in Housing (PATH)
NAHB is supportive of the $8.75 million that was included in the
fiscal year 2002 budget. This program is vital to the accelerated
development of new housing technologies, designs, and practices that
can significantly improve the quality of housing and save energy
without raising the cost of construction. We urge you to continue
funding of this innovative program.
The Rural Housing and Economic Development Program
While much progress has been made in improving housing in rural
America, there remains a considerable unmet need, particularly among
very low- and low-income rural households. NAHB supports the Senate's
restoration of the Rural Housing and Economic Development Program
because it provides funding for important technical assistance, such as
homeownership counseling, to those who live in rural communities. Our
members report that credit problems and lack of knowledge about the
home buying process are serious issues in rural communities and that
programs to address these issues are valuable and needed services. We
support maintaining a funding level of at least $25 million.
HomeAid
Finally, under the Economic Development initiative, we support
funding for the HomeAid America program, whose mission is to build or
renovate shelters for temporarily homeless men, women, and children
across America by establishing chapters in affiliation with home
building associations throughout the country. We are very appreciative
of the $490,000 earmark for fiscal year 2002, and we look forward to
working with the Committee next year on continued funding.
Housing Preservation--Restructuring the Portfolio of HUD-Assisted
Multifamily Properties
HUD, through the Office of Multifamily Housing Assistance
Restructuring (OMHAR), is carrying out a program, created by Congress
in 1996, to restructured the portfolio of HUD-assisted multifamily
properties. The goal of the program, often referred to as ``Mark-to-
Market,'' is to keep properties with expiring Federal rental assistance
contracts in the affordable housing stock while, at the same time,
reducing the amount of Federal budget dollars required to provide
rental assistance to residents of those properties. This is
accomplished by either a restructuring of the mortgage and a rent
reduction or by just a rent reduction.
NAHB strongly supports the goals of the Mark-to-Market program and
looks forward to the completion of work by Congress to pass
reauthorization legislation for the program, which sunsets this year.
And, as mentioned earlier, we urge Congress to continue to provide the
funding needed by HUD to renew the rental assistance contracts on the
Mark-to Market properties. This initiative is the only Federal program
available to preserve this major component of our stock of affordable
rental housing, representing more than 1.3 million housing units. While
the program got off to a slow start, it appears to be picking up
momentum and clearly has the potential for making significant progress
toward the goals it is charged to pursue.
As the program moves forward, some improvements and clarifications
should be made in administrative processes and procedures. In
particular, NAHB is very interested in working with HUD and other
interested parties to develop more accurate and equitable processes for
determining rents and to improve the operation and productivity of the
Mark-to-Market program.
New Rental Housing Production Program
Despite the Nation's general prosperity, there continues to be a
critical shortage of affordable rental housing. As mentioned
previously, two recent reports, one by the Center for Housing Policy,
``Paycheck to Paycheck: Working Families and the Cost of Housing in
America,'' and the second, the Joint Center for Housing Studies of
Harvard University's The State of the Nation's Housing Annual Report
2001, have extensively documented the growing problem of meeting the
housing needs of 3.7 million households who are the ``working poor.''
The Center is focusing on this group because there are signs of
persistent and worsening housing affordability for them in all parts of
the country, including cities, suburbs, and rural areas, despite the
recent economic prosperity.
Workers in municipal jobs, such as teachers and police officers,
and in the services sectors, such as janitors, licensed practical
nurses, and salespeople, fall into this group of people and are a large
and growing component of many local economies. The growth in such jobs,
however, is not matched by the growth in the supply of affordable
housing, creating an increasingly difficult situation for both renters
and homeowners.
NAHB believes there is a need for a new multifamily rental housing
production program that would meet the affordable housing needs of
households with incomes between 60 and 100 percent of AMI, America's
``working poor,'' as described in the reports. These households are not
eligible for housing assistance through most current Federal housing
programs.
NAHB has developed a program that is designed to increase and
maintain the affordable housing stock over the long term. The program
would not require large Federal budget outlays. Instead, affordability
would be generated through lower interest rates available by securities
backed by the full faith and credit of the Federal Government. Federal
subsidies would be required in some instances and would
be provided through modest interest-rate buydowns. A portion of the
units (up to
25 percent) would serve households below 60 percent of AMI, although a
modified rental assistance voucher program would be needed to assist
these households.
The program is designed to use Government resources as efficiently
as possible, with the amount of subsidy required per development small
relative to the amount of housing produced. A wide range of households
will be served by producing mixed-income housing. The program ensures
long-term affordability (40 years+) and provides incentives to owners
through the deferral of profits, contingent on property performance
(both financially and physically) until long-term affordability is
satisfied. It builds in adequate reserves from cashflow for on-going
maintenance and future capital improvements. Finally, the NAHB proposal
avoids the establishment of new program bureaucracy, because it could
be administered in the same fashion as the HOME, CDBG, and tax credit
programs.
NAHB believes that the establishment of a new rental housing
production program should be a top housing priority for the
Administration and Congress in the coming year. Several bills have
already been introduced in Congress, and the Millennial Housing
Commission is expected to offer a recommendation on a new rental
production program as well. NAHB is committed to continuing its work
with its housing partners, HUD, and Congress toward this goal.
Economic Stimulus
HUD's focus should also reflect the current economic situation, and
the realization that housing can and should play a major role in
leading an economic recovery. To that end, NAHB has proposed an
economic stimulus package designed to produce jobs, income and new
revenue to Federal, State and local governments. Among the initiatives
included in this package are a temporary first-time home buyer tax
credit, a temporary increase in the low-income housing tax credit
(LIETC), and a temporary removal of the tax-exempt bond ceiling.
The NAHB proposal for a 10 percent first-time home buyer tax credit
is similar to the one proposed by President Bush in 1992. The estimated
economic impact of this credit would total $27 billion in labor and
business income in the community where the homes are built, and $15.6
billion to workers outside the area producing goods and services for
the new homes. This translates into an additional 1.2 million jobs
created. The local governments in the area would see an added $4.3
billion and all other governments would receive an additional $18.7
billion. The Federal Government's revenues would increase by $15.8
billion alone.
The temporary increase in the dollar amount of LIHTC's awarded to
States would be similar in magnitude to the permanent per capita
increase enacted in the recent past. This would stimulate the
production of $28,000 additional low-income units, $780 million in
income, and support over 21,000 full-time jobs.
Tax-exempt bonds are used by themselves and in combination with the
LIHTC and other programs to produce affordable rental housing. To
achieve a strong short-term economic stimulus, we recommend temporarily
removing the limits on the amount of private activity tax-exempt bonds
a State may issue. We estimate the impact on multifamily production
would be an additional 15,000 units, generating $470,000 million in
income and 13,300 full-time jobs. In addition to this, expansion of
other private activities financed by these bonds would provide further
stimulus.
NAHB's economic stimulus package also targets two HUD programs,
recommending increases in the FHA multifamily mortgage limits and HOME
grant spending. The 25 percent FHA loan limit increase in the fiscal
year 2002 appropriations bill was a step in the right direction and
should provide an annual economic stimulus on the order of 4,000 units
of new construction and $150 million in wages, enough to support over
4,000 full-time jobs. As mentioned previously, however, that bill
failed to provide further increases for high-cost metropolitan areas,
such as Boston, New York, and San Francisco. Not only are additional
increases necessary to make the program work effectively in those
areas, we estimate that the total economic impact in terms of income,
jobs, and Government revenue generated would be roughly one-fourth
greater than the stimulus provided by the 25 percent loan limit
increase alone.
We have already expressed our support for the HOME program as a
proven mechanism for producing affordable housing. In addition to an
annual funding level of at least $2 billion, we recommend a one-time
increase in the dollar amount of HOME grants awarded to States as a
desirable way to provide a short-term boost to the U.S. economy
stimulus. An increase of $500 million would produce approximately 6,400
new multifamily units, which would generate about $175 million in wages
and support 4,800 full-time jobs.
Single Family FHA
A 1996 change in a HUD regulation may create problems for 10 year
warranty programs and for the home builders using those programs. The
result of the regulation will be to increase the risks to warranty
providers, which will in turn result in increased costs for warranty
coverage.
On July 9, 1996, HUD published a Final Rule that dealt with a broad
range of issues relating to FHA-insured single-family loans. HUD viewed
these changes as ``technical improvements'' and, therefore, did not
publish the proposed changes for public comment prior to publication in
final form.
The problem relating to 10 year insurance-backed warranty programs
arises from a change in the Code of Federal Regulations, section
203.204(g) wherein the word ``or'' in the following sentence is changed
to ``and.'' Before this change, this section read as follows:
``. . . A Plan must contain prearbitration conciliation
provisions at no cost to the homeowner, or provision for
judicial resolution of disputes, but arbitration, which must be
available to a homeowner during the entire term of the coverage
contract, must be an assured recourse for a dissatisfied
homeowner.''
This change did not come to light until recently, when HUD told a
large home building company that their warranty program, based on an
in-house risk retention group, would have to contain the ``and''
language.
Warranty programs are reviewed and approved by HUD on a 24-month
cycle. At the time of the last renewal in 1999, one major warranty
provider was permitted by HUD to retain the ``or'' language in its
warranty. Another major warranty firm has addressed HUD's requirements
by adding an addendum to their warranty documents that permits the
judicial alternative on warranties for homes purchased using FHA-
insured loans while retaining an arbitration-only warranty for
conventionally financed homes.
NAHB is concerned that, by requiring warrantors to offer the
judicial alternative, HUD is opening the door for homeowner lawsuits,
which greatly increases the risk exposure to warranty providers thereby
adding to consumer home buying costs, since any additional risk borne
by warranty providers would be passed along to home buyers in the form
of increased premiums. For example, one warranty provider has indicated
its average warranty premium would increase approximately 29 percent on
warranties that offer the home buyer a judicial option and premiums
would increase by a significantly larger margin for high-risk states
such as Texas and Colorado.
In addition, a Uniform Limited Warranty, which was proposed to HUD
by NAHB's Home Buyer Warranty Task Force in May 2000, calls for binding
arbitration. Therefore, the current rule also negatively impacts the
proposed Uniform Limited Warranty.
NAHB believes that the Federal Arbitration Act and recent case law
support the use of binding arbitration as a legal and desirable method
of resolving disputes in warranty matters and that HUD's requirement
that a judicial option must be offered to homeowners, while legal, is
not necessary or desirable.
NAHB agrees with home builders and warranty firms that arbitration
is a fair and legal means of resolving warranty disputes, and that HUD
should not mandate that 10 year insurance-backed warranties contain a
provision offering home buyers the right to seek either a judicial
remedy or arbitration.
Surveys and Housing Information
The budget of the Office of Policy Development and Research (PD&R)
supports several current surveys of housing activity and conditions.
HUD sponsors current construction activity surveys of homes built for
sale, apartments for rent, and manufactured housing produced. These
vital housing indicators are important to the
industry and to the rest of the economy as indicators of the health of
the housing sector.
PD&R also supports the American Housing Survey, a survey of the
condition of the housing stock and household characteristics. The
survey has been conducted since 1973 and provides the housing community
with consistent information about the American housing stock,
condition, affordability, and change. We urge you to continue funding
both of these information sources.
In addition, there are a number of areas where a lack of data is
hampering efforts to develop new sources of financing for housing. For
example, more consistent and comprehensive data on multifamily
properties and related mortgages are needed before additional steps can
be taken to develop new ways to attract funds for affordable
multifamily housing from the capital markets. Sufficient funding should
be available to support such data collection efforts by PD&R.
Conclusion
Mr. Chairman, NAHB appreciates the opportunity to share our
priorities and concerns with you as the fiscal year 2003 HUD budget is
developed. We look forward to continuing to work with Congress, HUD,
and our industry partners in achieving the goal of a decent and safe
home for every American.
PREPARED STATEMENT OF KURT CREAGER
President, National Association of Housing and Redevelopment Officials
and Chief Executive Officer, Vancouver Housing Authority
Vancouver, Washington
November 29, 2001
Good morning, Mr. Chairman and Members of the Banking Committee. My
name is Kurt Creager and I am here in my capacity as President of the
National Association of Housing and Redevelopment Officials (NAHRO).
NAHRO is the Nation's oldest and largest membership organization in the
United States devoted to affordable housing and community development.
NAHRO represents more than 5,600 individuals, including approximately
2,500 housing agencies. NAHRO members own or manage more than 1.3
million units of public housing, representing 97 percent of all public
housing in the United States. In addition, our members administer more
than 1.3 million, or 93 percent, of Section 8 vouchers. Funds used by
NAHRO's Community Development/Redevelopment members serve communities
with populations of more than 148 million.
I am also the CEO of the Vancouver Housing Authority (VHA) in
Vancouver, Washington. The VHA is a countywide housing provider,
immediately across the Columbia River from Portland, Oregon. Standard
and Poor's has classified the VHA as a ``Strong'' local housing
authority with a ``Stable'' outlook. We are a HUD high-performer and
were part of the first wave of Moving-to-Work (MTW) agencies selected
by HUD for the MTW deregulation demonstration. We are responsible for
about 4,500 dwelling units, about half of which are Federally financed
and half of which are privately financed with tax exempt bonds, tax
credits, and/or State and local resources. Our portfolio also is made
up of 575 public housing units and 1,850 vouchers.
Thank you for the opportunity to testify before you on the recently
approved fiscal year 2002 budget for the Department of Housing and
Urban Development (HUD) and provide comments on the pending fiscal year
2003 budget. Before I begin my remarks, it is important to understand
that while NAHRO may have disagreements with the budget proposed by
this Administration, we are continuing to work with its members to find
areas of common ground.
Unfortunately, the President's proposed fiscal year 2002 budget
misrepresented the facts on how key housing programs, such as the
Capital Fund and the drug elimination program, are administered. This
misrepresentation, which I will reference in my comments, established a
framework of discussion during the appropriation process that distorted
the significant amount of work that is being done in communities
throughout the country to serve the needs of our Nation's poorest
citizens. As a result of some of this distortion, we witnessed cuts to
many key programs that generate jobs and address local needs. In our
view, the fiscal year 2002 budget falls short of meeting local needs
and illustrates the need for additional resources in the fiscal year
2003 budget.
Stimulus Debate Misses Opportunity
Clearly, the attacks that occurred on September 11 have forced
Congress to reevaluate its priorities. However, while Congress attempts
to determine how to respond to terrorism, it must understand that a
strong financial commitment to local housing and community development
needs is a means to strengthen homeland security and a means to
stimulate the economy. The exclusion of housing and community
development programs from the stimulus debate that has consumed
Washington over the last 2 months is a missed opportunity to highlight
the benefits that HUD-funded programs provide to local economies. These
programs infuse local economies with resources that create jobs, build
housing units, and improve infrastructure projects. For example, a new
production program attached to a stimulus bill will immediately create
jobs in the construction and building supply industries, while
providing housing for low- and extremely low-income households.
Our country needs a new production program that provides funds
directly to local communities to build housing units for low- and
moderate-income households. Organizations such as NAHRO have been
advocating for a new affordable housing production program for close to
2 years. The need for increasing the supply of affordable housing is
well documented and does not need to be repeated here. A production
program will provide an infusion of dollars that can help spur local
economies, address pressing affordable housing needs and sending a
clear message that the Federal Government has not allowed the war on
terrorism to deflect resources from pressing homeland needs.
Even if a production program was not enacted, funding of HUD
programs creates jobs. Investment in Federal programs generates a
multiplying effect in local communities. For example, Washington State
University's Real Estate Research Center determined that residential
real estate is the second largest contributor to the State's economy,
after international trade. The Boeing Company is fifth and Microsoft is
sixth, in comparison. Washington State is heavily dependent on trade.
It leads the Nation in unemployment with a seasonally adjusted
unemployment rate of 6.6. percent in October. This rate was computed
before any of Boeing's 30,000 layoffs took effect.
An investment in housing is a good investment in local and State
economies. This is as true today as it was in 1983 when the Congress
appropriated supplemental CDBG funds to entitlement cities, urban
counties and States. NAHRO analysis, by department, of the major
programs funded (CDBG, HOME, Capital Fund, Operating Fund, HOPE VI,
etc.) indicates that approximately 680,000 jobs are either created or
sustained, through these programs, in local communities throughout the
country. A cut to these programs means that jobs will be lost, while an
increase means that jobs will be gained. It is also important to note
that the population served by NAHRO members is among the poorest in our
society. The downturn in the economy has resulted in a loss of the
marginal jobs low-income workers tend to hold. As their incomes
decrease, the demands for public housing, Section 8, and other
Federally supported services increase.
Fiscal Year 2002 Budget and Its Implications for Fiscal Year 2003
The fiscal year 2002 budget sends a very dangerous message to local
communities struggling to meet the basic needs of their constituents.
For example, Congress appropriated $68 million less this year (fiscal
year 2002) for the CDBG formula than in fiscal year 2001. The fiscal
year 2002 VA/HUD bill contains $4.34 billion for the CDBG formula,
compared to $4.409 in fiscal year 2001. All of this has occurred
despite these programs' proven track record in creating new jobs.
According to the Department, local programs funded by CDBG created more
than 116,000 jobs in fiscal year 2001. Over the course of its 25 year
history, the CBDG program generated, on average, approximately 87,000
jobs per year, according to NAHRO's report, More Than Bricks and
Mortar: The Economic Impact of the Community Development Block Grant
Program. In addition to decreased funding, formula allocations to
entitlement communities will decrease due to the higher number of
entitlement communities receiving formula allocations. Population data
from the 2000 Census led to the establishment of more than 20 new
entitlement communities over the past 2 years. Therefore, more
communities will share a decreased pot of formula funding in fiscal
year 2002. CDBG also benefits communities in a variety of ways. For
example, in fiscal year 2001, 170,000 homes were repaired as a result
of CDBG funds. CDBG also funds daycare centers for working families,
nonprofits offering services to low-income families, and infrastructure
improvements. The program provides localities with the needed
flexibility to address community needs in a timely fashion.
Additionally, the HOME program is another stimulator of local
economies. In the fiscal year 2002 budget, the HOME program was
essentially level funded at $1.846 billion. However, it did include a
$50 million set-aside for a Down Payment Assistance Initiative, subject
to subsequent authorizing legislation that must be passed by June 2002.
This is the first year that HOME has had a set-aside taken from the
formula to create a new program. Most distressing about this set-aside
is that it already is an eligible activity under HOME. Many communities
are already providing down payment assistance using HOME dollars. This
new program simply duplicates existing activities and does not give
communities the flexibility to best meet their local needs. NAHRO
strongly opposes this set-aside. In fiscal year 2003, the HOME formula
should be funded at $2 billion with no set-asides.
It is important to note that the HOME program has never been fully
funded at the authorized level of $2 billion. This is unfortunate given
the program's success since its inception. Since it is beginning, the
HOME program has produced, on average, 50,000 units a year and has
created approximately 400,000 units of affordable housing for low- and
moderate-income households. In fiscal year 2001, HOME produced
approximately 70,000 units of affordable housing.
Public Housing Capital Fund
We appreciate Congress's efforts to restore the deep cut proposed
by the Administration to the Capital Fund in fiscal year 2002. Despite
Congressional efforts, the Capital Fund still experienced a 5.5 percent
reduction from the fiscal year 2001 level of $3 billion. We hope that
the focus for fiscal year 2003 will be to increase funding to $3.5
billion; expand flexibility in the use of these funds; enhance support
for agencies that seek to develop and use new financing tools; and
provide greater emphasis on public-private partnerships to close the
gap between Federal funds and program needs.
The Administration's proposal created an unfortunate distortion of
the facts, which made it appear that nearly $6 billion was unexpended
and $3 billion unobligated through fiscal year 2000. In fact, though,
fiscal year 2000 funds should not have been included since the
obligation and expenditure time limits have not yet occurred. We
estimate the amount to be $2.6 billion unspent and $1 billion
unobligated through fiscal year 1999 funding. We recognize that there
are a few large agencies that do have problems with obligation and
expenditures and a few that have legitimate delays.
We also continue to be concerned about the mismatch between the
Administration's push toward more marketable, mixed-income communities,
including those with incomes below 30 percent of area median, and the
downturn in funding for capital improvements. The funds appropriated,
which are subject to set-asides, will not help housing agencies reach
the goals for public housing set by Congress and the Administration.
Building on the success of the HOPE VI program, the Quality Housing
and Work Responsibility Act of 1998 (QHWRA) provides housing agencies
with the flexibility to leverage their capital funds to attract more
private investment to address backlogged modernization needs that have
resulted from this provision. Chicago and Washington, DC have already
sold securities backed by the future revenue anticipated from the
Capital Grant. NAHRO agrees that housing agencies must be partners with
the private sector. For that reason, NAHRO has formed a partnership
with the Bank of America, the Enterprise Foundation, and the Local
Initiatives Support Corporation. This partnership, the NAHRO Access
Alliance, will provide local housing agencies with opportunities to
access the capital markets. Reductions in the Capital Fund undercuts
the innovative activities we want to achieve. Any reduction in Public
Housing Capital Fund sends an alarming signal to private markets
interested in participating in mixed-finance agreements with local
housing agencies. We must be seen as reliable partners by the capital
markets to attract significant new private capital. Our reliability
will be called into question should the Public Housing Capital Fund be
reduced.
We ask that in fiscal year 2003, Congress provide at least $3.5
billion for the Capital Fund to ensure that resources are available to
address capital needs. This will underscore Congressional commitment to
foster public/private partnerships that will meet the growing need for
quality housing affordable to extremely low-income and low-income
households.
Public Housing Drug Elimination Program (PHDEP)
The decision to eliminate the Public Housing Drug Elimination
Program (PHDEP) is very disconcerting at a time when security concerns
have increased dramatically as a result of the September 11 terrorist
attacks. The Drug Elimination Grant Program is an effective tool in
reducing crime and drug activity in public housing throughout the
country. In fact, there is a great deal of support for prevention
programs that have proven to alter the behavior of at-risk populations
and effectively address security concerns within local communities. The
Journal of the American Medical Association concluded that intensive
parent-child involvement is critically important to enabling teens to
avoid substance abuse and other at-risk behaviors. A significant
percentage of PHDEP funds go to activities designed to facilitate such
involvement and alter the environmental influences, risks, and
expectations that may lead youth to drug abuse or violent crime.
Sixty-five percent of the funds are spent on prevention and law
enforcement activities. Prevention is less costly than eradicating an
entrenched criminal element. Eradicating drug-related and violent crime
from a community is costly--more costly than the level of law
enforcement already provided by a jurisdiction. PHDEP provided funds
for housing agencies to pay for the additional services they needed to
eradicate these problems. Establishing new behavior and expectation
after eradication requires services targeted to at-risk youth and
adults--PHDEP grantees spent 35 percent of their funds on these
efforts.
Rolling PHDEP funds into the fiscal year 2002 Operating Fund budget
may provide a few extra dollars to all local housing agencies (LHA's),
but will not provide funds at the level needed to sustain youth
prevention programming and other activities that create and maintain
safe communities. LHA's faced with the decision to pay utility bills to
keep residents warm or pay for drug and crime prevention efforts, will
obviously deal with their most immediate and vital needs. PHDEP funds
also have leveraged other Federal and local funds to expand services
for their communities. Furthermore, the events of September 11 have
placed additional demands on local police departments to increase
security in areas designated as high-priority areas. Many of these
local police departments will be unable to compensate for the lost drug
grant funds that were directed to protect public housing residents.
During the hearings on the fiscal year 2002 budget, Secretary Mel
Martinez said it was virtually impossible to measure PHDEP's program
successes. However, HUD requires agencies to submit data explaining
their accomplishments and has published studies, guidebooks, and GIS
mapping software to measure the success of the program.
In fiscal year 2002, the Operating Fund has been boosted by about
$250 million from the merger of PHDEP funds. These funds could result
in housing agencies receiving at least 100 percent of their operating
subsidy request. But the increase comes at the expense of the PHDEP
program. There is no net gain in funding; in fact, funding for safety
and security is now lower than ever--the lower amount of $250 million
must be divided among all 3,400 housing authorities. Programming and
activities formerly supported by PHDEP funds may be discontinued in
order for housing agencies to meet operating expense needs. NAHRO has
already received calls from many agencies preparing their Agency Plans
for fiscal year 2002 who are struggling with these decisions.
NAHRO supports funding the Operating Fund at least at the level of
$3.5 billion for fiscal year 2003, but not at the expense of
eliminating the drug elimination program. This funding level is
critical as HUD receives information from the Harvard Cost Study Group
that is attempting to determine the appropriate formula for the
Operating Fund. There are a number of issues in the current approach
that concerns NAHRO. These include the methodology, the public process,
and the progress of the study. However, our principal concern is that
the researchers are not studying the real costs of operating public
housing. They are using a proxy-based study that uses the Federal
Housing Administration (FHA) data. The researchers will simply
approximate the cost of public housing by using the FHA cost data and
apply an adjustment factor to compensate for public housing's unique
operating environment.
NAHRO is very concerned with this adjustment factor. It is unclear
how the study team will craft a numeric adjustment factor from
qualitative data that it plans to collect by questionnaire. Combined
with the use of nonpublic housing cost data, our concern grows since
the cost study will do little to accurately demonstrate the cost of
operating public housing, and will be of little use in finalizing the
Operating Fund formula. Throughout their work, the study team has
maintained that it would be too expensive and take too long to collect
data from public housing agencies. We disagree and believe the tools
can be developed to help housing agencies calculate their actual costs
from the information they now maintain, but do not submit to the
Department. They have not been asked to submit this data. To reject
this method is simply losing an opportunity to improve efficiency and
effectiveness in public housing and understand its true operating
costs.
Revitalization of Severely Distressed Public Housing (HOPE VI)
NAHRO strongly supports reauthorization for the HOPE VI program
with funding at $625 million for fiscal year 2003. We support
programmatic changes that would include more small agencies as
grantees, and adapt application and grant management procedures to
small agencies. Appropriations for the program should be increased to
assure that grants would be awarded to previously submitted and
approvable applicants. The program should continue to award grants to
additional, new applicants. The definition of ``severely distressed
public housing'' should be amended to enable local housing agencies to
serve all public housing populations in addition to families; to give
equal emphasis to physical and social or community distress;
and to reduce the emphasis on, or requirement for, demolition of public
housing
units as a criteria for approving an application or redevelopment plan.
Programmatic and process changes must be made to improve the
application, selection, and award process and to simplify
implementation of the program, especially for small agencies.
NAHRO supports the provision in the fiscal year 2002 appropriations
conference report that requires HUD to provide Congress with a report
covering the program's best practices, lessons learned, impact on
surrounding communities, and the extent to which the program has
leveraged private investments and revitalized economic development in
the target communities. We believe this would be a useful analysis that
can guide the program in the future.
Section 8
The fiscal year 2002 appropriations bill raises two critical budget
issues that need to be addressed in the Section 8 program. NAHRO is
encouraged by the fact that the fiscal year 2002 appropriations bill
includes sufficient resources to ensure that all expiring Section 8
contracts will be renewed. We are also encouraged that report language
was included that directs the Department to provide the necessary
resources for agencies that will require more than 1 month of reserves
to serve their authorized number of families. The Department agrees
that housing agencies in need of the additional resources will receive
them.
Housing agencies need assurances that Congress will continue to
renew all Section 8 contracts in succeeding years and ensure that
sufficient reserves are available when program costs become excessive.
The Section 8 program is a market-driven program with costs that can
vary from year to year. Successful implementation of the Section 8
program is complicated by the many factors that affect utilization of
the vouchers. Any one of these issues, or a combination of issues, can
impact a recipient's ability to use their voucher.
Local Market
Both the cost and availability of units are the two principal
factors that have the biggest impact on the Section 8 program. Between
1997 and 1999, the number of units with rents affordable to households
with incomes below 50 percent of area median income (AMI) dropped by
1.1 million units, a loss of 7 percent in the affordable housing stock.
HUD's A Report On Worst Case Housing Needs in 1999 found that 4.9
million households endure worst-case housing needs, including 10.9
million people. Among this group are 3.6 million children, 1.4 million
elderly, and some 1.3 million disabled adults. Over three-fourths of
renters with worst-case housing needs, had a severe rent burden of 50
percent or more as their only housing problem. In addition, waiting
lists for housing assistance are longer than ever before.
The national call for a new production program geared toward
providing new units for those below 50 percent of median income
indicates that there is a significant need for housing units for our
Nation's poor. Available housing resources for those earning less than
50 percent of median income are dwindling throughout the country. When
private market rental units are available, families are spending more
than 50 percent of their income for rents due to the cost of the unit.
Landlord Participation
Landlord participation determines the number of units that are
available for voucher holders. When the economy is good, landlords
often choose not to participate in the program. They can charge higher
rents to unassisted households without worry about paper work or
compliance with program regulations.
Housing Agency Management
Much has been said about the ability of housing agencies to
administer the Section 8 program. According to HUD, 92 percent of
current vouchers are being used in communities. To put this in
perspective, if our school systems were graduating students with a
grade point average equal to the utilization rate of Section 8,
education reform would be unnecessary. Clearly, we must find a way to
more successfully use the remaining 8 percent of vouchers. Where
management failures are the problem, HUD should exercise its authority
to address them. The few management failures that exist do not warrant
a wholesale change in the Administration of the program. Housing
agencies are in the best position to administer this program. They have
a track record of working with landlords, know their local markets, and
spend a great deal of time counseling voucher holders in helping secure
housing. There are many factors, outside an agency's control, that
affect its ability to assist families in finding housing.
Local zoning policies determine the type and location of housing in
communities. These policies, controlled by the local government,
dictate where certain types of housing can be built and whether they
are multifamily or single-family dwelling units. This impacts where
families may look for units, the cost of those units, and the
availability of units. Family decisions also affect where vouchers are
used. Proximity to family, work, church, etc. also factor into the
search for housing and is not a reflection of mismanagement.
Congressional and HUD Actions Needed To Improve the Program
Fair Market Rents
Fair market rents (FMR's) are estimates of rent plus the cost of
utilities. They are market-wide estimates of the rent subsidy that
should be provided to families to allow them to rent standard quality
housing throughout the geographic area's competitive market. Despite
the rental assistance program's overall success, NAHRO believes there
is a need to increase the FMR to the 50th percentile for all
communities to help alleviate the increasing concern of underutilized
vouchers. NAHRO completed a survey in 2000 that demonstrated that
increasing the FMR would help families find housing. HUD recognized the
increasingly difficult task of finding sufficient numbers of units at a
lower percentile and authorized increases in a limited number of
jurisdictions. While the increase will cost the Federal Government more
money, the reality is that it will guarantee that more voucher holders
will be successful in their search for housing.
One criticism of the Section 8 program is that the vouchers are
underutilized
in some markets. Increasing the FMR provides recipients of this
assistance with
greater housing choices in order to utilize the vouchers they have been
given. HUD took the appropriate first step when it raised the FMR to
the 50th percentile in fiscal year 2001 for a limited number of
communities. There must be increases in resources to extend this
increased FMR to all communities.
Forty Percent Cap
In 1998, statutory changes limited the family's contribution on any
newly executed Section 8 contract (regardless of whether the family is
new to the Section 8 program or just moving to a different Section 8
unit) to 40 percent of the family's adjusted income. There are no
exceptions to this limit. NAHRO believes participants in the program
should have the flexibility to pay more than 40 percent of their income
for the initial rent to secure an apartment. Many NAHRO members have
raised concerns that participants must turn down units because they are
prevented from paying more than 40 percent of their income to secure
the apartment. We agree with the concern that families should not pay
an excessive amount of their income on rent, however, if a family is
willing to exceed the 40 percent cap, they should have the option to do
so if that is necessary to secure an apartment of their choice. If they
are paying 42 to 45 percent of their income for a Section 8 unit, it is
still less than they are paying in the open market. One solution is to
allow housing agencies to base the 40 percent cap on gross income
versus adjusted income.
Flexible Use of Housing Assistance Payment (HAP)
The HAP is the portion of assistance that is paid to the landlord.
The tenant is responsible for the balance of the rent amount. Because
some voucher holders are unable to find units, many housing agencies
believe they should have greater flexibility in using the HAP for
purposes that will assist participants in securing housing. This could
include assisting with security deposits, credit problems, moving
expenses, etc. If housing authorities have greater flexibility in using
the HAP, it allows more ability to provide housing opportunities for
low-income families.
Any unused Section 8 funds should be placed back in the program.
Congress needs to exercise more care in deciding whether there should
be further reductions in reserve accounts. NAHRO contends Congress
needs to enact language codifying a reserve account for the program.
Without a codified reserve, housing agencies will not know for certain
whether there will be a buffer for rising market costs.
Rescissions
The second critical issue pertains to rescission. Dropping
utilization rates are used to justify rescissions to the program. The
fiscal year 2002 appropriations bill rescinds $1.2 billion from
unobligated balances remaining from funds appropriated to the HUD's
Annual Contributions for Assisted Housing or any other HUD account for
fiscal year 2001 and prior years. HUD must meet the rescission by
September 30, 2002. The final bill includes language proposed by the
House to prohibit the rescission of funds governed by statutory
reallocation provisions, which is welcomed. However, there is a
propensity to rescind Section 8 dollars at an alarming rate.
In the last several years, rescissions have been included in the
VA, HUD appropriations bill in the neighborhood of $1 billion per year.
At the same time, 4.9 million families with worst-case housing needs, a
third of whom are on waiting lists and two-thirds who are not, spend
more than half of their income on housing costs. Many families
fortunate enough to reach the top of waiting lists still end up
returning their vouchers after being unsuccessful in finding an
affordable unit or a landlord willing to rent to a voucher holder.
Utilization rates are of such a concern that HUD came up with a success
rate payment standard a year ago, in recognition that few voucher
holders could secure housing at the 40th percentile, even when LHA's
were using their maximum allowable payment standard.
The tools needed to ensure that the voucher program ebbs and flows
with the market simply do not exist in the program. However, housing
agencies are held responsible for a family's inability to find a unit.
To add insult to injury, rather than recycling excess reserve funds
throughout the year, HUD will begin to permanently reduce an LHA's
annual budget authority if it does not achieve a 95 percent leasing
rate. The aforementioned statutory measures are critical for housing
agencies to achieve some measure of ability to help poor people find
decent housing.
Conclusion
The HUD budget must be increased in direct proportion to the need
that exists in local communities. I appreciate and respect the fact
that tough decisions needed to be made for the fiscal year 2002 budget.
I also appreciate the circumstances surrounding September 11 and how it
has affected the priorities in Washington. However, as we approach the
fiscal year 2003 budget, we must be mindful of the fact that we are
making great advances in the health of cities and improved housing
quality. Yet, we have far to go in the area of affordability, which is
why we need a commitment to these programs. The need for affordable
housing grows every day. It is our hope that the fiscal year 2003
budget will be an improvement on the fiscal year 2002 and provide some
response to the needs of our communities.
Yet as the Nation is now three-quarters into a recession, it is
important that the most vulnerable citizens--the homeless, disabled,
and seniors--are not forced to bear the burden of the need to pay for
homeland security or nation-building abroad. Instead, this is a time to
redouble our efforts to help people move from welfare to work and to
ensure that our cities, our counties and our States are part of a
concerted effort to stimulate the national economy. We have a huge
investment in affordable housing and safe, viable communities across
the country. We need not sacrifice their future in the fiscal year 2003
budget debate. It is our hope that the fiscal year 2003 budget will be
an improvement on the fiscal year 2002 and provide some response to the
needs of our communities.
Thank you, Mr. Chairman, for the opportunity to address the
Committee today. I would be happy to respond to questions that you deem
appropriate.
Attachment One
The following is a summary of programs that were highlighted in a
NAHRO brochure on PHDEP extolling the benefits of the Drug Elimination
Grant Program. The brochure was published in April.
Drug Elimination Committees
New York City Housing Authority, New York City, New York
To combat the twin problems of drug-abuse and drug-related crime,
which affect the lives of its tenants, the New York City Housing
Authority established Drug-Elimination Committees in 85 Federally
sponsored developments. Funded by HUD's Drug Elimination Program, Drug
Elimination Committees are grass-roots coalitions of tenants, housing
authority staff, law enforcement officials, and community leaders who
joined together to identify specific drug-elimination needs of each
community where they operate. Drug Elimination Committees are the
central local unit with responsibility for implementation of drug-
prevention strategies.
The Sky's The Limit School Incentive Program
Housing Authority of the City of Reno, Reno, Nevada
The School Incentive Program was created to help students strive
for excellence and provide alternatives to gang and drug involvement.
It is part of the housing authority's Public Housing Drug Elimination
Program (PHDEP). The program is tailored to each student. Students set
their own goals for each grading period. Goals are set in academics,
social citizenship, and school attendance. When a child successfully
attains his or her goal, a reward is presented in a ceremony at the
monthly resident council meeting. Thirty-seven percent of the youth
living in Reno public housing complexes participate.
Comprehensive Drug Elimination Program
Richmond Housing Authority, Richmond, California
The Richmond Housing Authority, the Richmond Police Department, a
resident management corporation, and two community-based agencies have
developed an innovative drug elimination program. The program
implements a nationally acknowledged innovative and effective school-
based drug intervention model within a public housing community. The
model comprises an intensive and interrelated set of services for youth
and their parents, which include recreational and socialization
services, family and individual counseling, parent support and
advocacy, and education and environmental support for the public
housing community. The program funds a Family Drug Counselor, a Family
Services Counselor, and Recreation Counselors.
The RHA's major role has been to function as a facilitator to bring
together the various agencies to develop a comprehensive drug
elimination program. PHDEP provides $250,000. Additional local
resources from the City and the Police Department valued over $500,000
have been committed to support the goals of the program.
Preserve Our Neighborhoods
Housing Authority of the City of Auburn, Auburn, Alabama
The Auburn Housing Authority developed ``Preserve Our
Neighborhoods'' in response to the illegal drug activities that had
been taking place in the city's public housing communities in recent
years. The program is based on the principles of enforcement and legal
actions against those involved in the illegal drug trade and was
created through cooperative efforts between the housing authority, the
City of Auburn, the Auburn Police Department, and the Auburn Housing
Authority Tenant Council. Two activities that have proven extremely
successful are the Police Foot Patrols and ``No Trespassing'' letters.
There has been a 42 percent decrease in drug-related activity since the
program began 24 months ago. The City of Auburn pays for approximately
one-third of this program.
Nueva Maravilla Drug Elimination Program
Housing Authority of the City of Los Angeles, Los Angeles, California
Residents living in Nueva Maravilla Housing Development located in
East Los Angeles were exposed routinely to drug dealing, gang violence,
and related criminal activity. The Housing Authority of the City of Los
Angeles put into effect a comprehensive Drug Elimination Program funded
by HUD to address these problems. The major components of this program
are the employment of narcotics and gang investigators, a multiagency
Anti-Drug Task Force, prevention and intervention programs, a family
development program, and physical site security. Surveys performed at
the inception of the program and a year later indicate that it has
reduced the number of crimes, eased residents' fears, and improved the
overall quality of life in the community. Funding was provided by PHDEP
and was matched with funds from the housing authority.
Economic Self-Sufficiency
Housing Authority of the City of Meriden, Meriden, Connecticut
The Drug Elimination Program combats drugs and crime and provides
Meriden Housing Authority's (MHA) residents with the tools necessary to
promote personal betterment and achieve self-sufficiency. While
continuing to battle crime, MHA's program has focused on Welfare-to-
Work activities for adults. The housing authority's efforts revolve
around facilitating community collaboration in the program to the
greatest extent possible. A variety of funding sources were sought out
and combined with community volunteers to increase and improve the
scope of resident services. The program seeks to increase resident
employability through computer-based training and job-placement
assistance. Community agencies continue to support and strengthen MHA's
efforts to achieve its goals.
Combating Fear and Hopelessness
Meriden Housing Authority, Meriden, Connecticut
The Meriden Housing Authority's Drug Elimination Program also was
created to answer a need of public housing residents to feel safe in
their own homes. Drug dealing, gang activity, and shootings had
produced a sense of fear and hopelessness among people living in
Meriden's public housing developments. Foot patrols, educational and
recreational programs, parent tutoring programs, and a resource center
have addressed the feeling of despair that had plagued the community.
In place of these feelings are those of hope and increased opportunity.
Over 25 arrests have taken place and public housing residents have
stated that they perceive a reduction in crime.
Neighborhood Assistance Office
Springfield Metropolitan Housing Authority, Springfield, Ohio
The drug problem at the Springfield Metropolitan Housing Authority
had gotten out of control. The housing authority used capital
improvement funding to hire off-duty Springfield city police officers
to assist in the eradication of crime from the area. Later, PHDEP
grants gave the SMHA the opportunity to open the Neigh-
borhood Assistance Office to provide additional support to the
residents in the
Springfield Metropolitan Housing Authority's successful battle to
remedy the drug problem.
Accelerating Public Housing Drug Eradication
Paducah Housing Authority, Paducah, Kentucky
To control the influx of crack into the community, the Paducah
Police Department and the Paducah Housing Authority accelerated its
Public Housing Drug Eradication Program by focusing on taking marketing
space away from drug dealers and their customers. In the spirit of
community-oriented policing, this new approach goes beyond the criminal
and involves direct contact with the public housing
community. The creation of the Thomas Jefferson Police Substation
within the
public housing community has resulted in an increase in drug arrests
and a de-
crease in drug-related activity. Funding came from PHDEP and the
Paducah Police Department.
Community Policing Reduces Drug-Related Activity
Housing Authority of the County of Salt Lake, Salt Lake City, Utah
The Housing Authority of the County of Salt Lake (HACSL) sponsors
its Community Policing Program under the drug elimination program for
nine public housing neighborhoods. Salt Lake County Sheriff 's
Department works closely with public housing and resident services
staff to employ community police deputies. The deputies provide
surveillance, conduct investigations, attend tenant meetings, meet
monthly with staff from the program and HACSL housing managers, provide
police reports about criminal activity, and keep program staff posted
about new problems. The Community Policing Program has resulted in a
reduction in drug activity, gang problems, vandalism, and graffiti.
These programs demonstrate that PHDEP is making a difference in many
communities
----------
PREPARED STATEMENT OF F. BARTON HARVEY
Chairman and CEO, The Enterprise Foundation
November 29, 2001
Introduction and Overview
Thank you, Chairman Sarbanes, for this opportunity to share with
you The Enterprise Foundation's views on the Administration's fiscal
year 2003 budget request for the Department of Housing and Urban
Development (HUD).
The Enterprise Foundation is a national nonprofit organization
founded in 1982 by Jim and Patty Rouse that mobilizes private capital
to support community-based organizations and a wide range of their
neighborhood revitalization initiatives. We have raised and invested
more than $3.5 billion to produce more than 120,000 affordable homes.
Our community partners have used these resources to leverage an
additional $7.5 billion in investment in their neighborhoods.
Enterprise's network of local partners includes 1,900 community and
faith-based groups, public housing authorities, and Native American
Tribes in more than 700 locations.
Mr. Chairman, we commend you for calling this hearing. It is
typical of your longstanding leadership that you would focus the
Committee's attention on a vital issue others often overlook: the
important role the Federal Government, primarily through HUD, must play
in helping meet our Nation's housing needs. We hope today's hearing
initiates a bipartisan effort to forge consensus on steps Congress and
the Administration can take to assure housing needs do not worsen
during this time of great uncertainty in the country and the world.
We also deeply appreciate your and Senator Reed, Senator Kerry, and
Senator Leahy's efforts to include housing assistance in the Senate's
economic stimulus legislation. Housing help--especially the $3 billion
for the HOME program you have proposed--absolutely should be part of
any economic stimulus plan. Housing generates jobs and other economic
activity and provides assistance to people who need it most during an
economic downturn.
Mr. Chairman, this country faces an affordable housing crisis. Even
before September 11, housing needs were far outstripping the capacity
of States and localities to meet them. The most current data show
nearly 14 million families with critical housing needs, another two
million who will experience homelessness this year and a loss over the
past decade of more than one million apartments affordable to
``extremely low-income'' renters (those earning 30 percent or less of
area median income). These figures reflect conditions before the
terrorist attacks, during a time when the economy was growing. Now that
those terrible events have pushed the economy into what could be a
prolonged recession, housing needs likely will worsen further.
We commend Congress for increasing funding for many HUD programs in
the fiscal year 2002 HUD appropriation above the levels the
Administration proposed in its budget request. Your colleague from
Maryland, Senator Mikulski, along with Senator Bond, was instrumental
in that effort. Regrettably, HUD's budget for the current fiscal year
still results in slightly less net new housing assistance than in
fiscal year 2001. With the economy worsening, States, cities, and
communities likely will fall further behind in their efforts to meet
their most vulnerable citizens' housing needs.
Congress and the Administration cannot allow this to continue in
the fiscal year 2003 appropriations process. We urge HUD to request
more adequate funding and Congress to assure that the Federal
Government does its part to help meet our Nation's housing needs next
year. We would make the following three broad recommendations to the
Administration in developing its fiscal year 2003 HUD budget
priorities:
Increase housing production, especially for extremely low-
income households;
Expand the capacity of community-based groups to deliver
housing help; and
Encourage and empower the private sector to do more to help
meet housing needs.
Increase Housing Production, Especially for
Extremely Low-Income Households
Without a substantial increase in Federal investment in housing
production, this Nation will never solve its affordable housing crisis.
The Federal Government
has largely withdrawn from housing production over the past 20 years.
HUD's
budget in real terms is less than half of what it was in 1980 and only
about one-quarter of the Department's shrunken funding today goes to
new production and
rehabilitation.
Is it any surprise that the Nation now faces a growing deficit of
affordable homes for its poorest citizens? The 1999 American Housing
Survey reveals an absolute shortage of 2.8 million rental apartments
affordable to extremely low-income people.\1\ And the problem is
worsening rapidly. The number of apartments affordable to extremely
low-income renters dropped by 750,000 nationwide between 1997 and 1999
alone, according to HUD.\2\
---------------------------------------------------------------------------
\1\ Dolbeare in The 2001 Advocates' Guide to Housing and Community
Development Policy, National Low-Income Housing Coalition, 2001, p. 11.
\2\ Nelson, ``What do we know about shortages of affordable rental
housing,'' Testimony before the House Committee on Financial Services
Subcommittee on Housing and Community Opportunity, May 3, 2001, p.2.
---------------------------------------------------------------------------
A simple and effective way Congress could increase affordable
housing production would be to increase the annual HOME appropriation.
A decade's worth of evidence certainly argues for it. HOME has financed
more than 617,000 affordable homes and currently produces more than
70,000 homes a year. Of HOME-assisted renters, nearly 90 percent are
very low-income and 56 percent are extremely low-income. More than half
of all HOME-assisted homebuyers earn 60 percent or less of area median
income. Every HOME dollar generates an additional $3.93 in public and
private investment in housing.\3\
---------------------------------------------------------------------------
\3\ ``HOME Program Data as of 10/31/01,'' HUD Web site.
---------------------------------------------------------------------------
HOME is an especially important tool for community-based groups,
which have received almost half of all HOME funds, according to The
Urban Institute.\4\ HOME dollars often provide critical resources to
housing developments financed with the Low-Income Housing Tax Credit
(Housing Credit), which is vital to neighborhood organizations, because
they typically do the most difficult developments requiring the deepest
subsidy to serve the neediest families. HOME also provides crucial
technical assistance and operating support to community-based groups to
help them become stronger organizations.
---------------------------------------------------------------------------
\4\ The Urban Institute, Expanding the Nation's Supply of
Affordable Housing: An Evaluation of the HOME Investment Partnership
Program, U.S. Department of Housing and Urban Development, Washington,
DC, 1999, p. 31.
---------------------------------------------------------------------------
HOME works because it is flexible and allows States, cities and
communities to solve whatever housing needs they--not the Federal
Government--determine are most important: homeownership or rental; new
construction, rehabilitation, or preservation; elderly, disabled,
homeless, or working family.
HOME received roughly $1.8 billion in formula funding for fiscal
year 2002, the same as fiscal year 2001, plus an additional $50 million
for a new downpayment assistance program. We encourage HUD to request
and Congress to provide $2.9 billion in HOME funding for fiscal year
2003. This amount would roughly equal an inflation adjustment to HOME's
initial 1993 authorization level of $2 billion.
In addition to a HOME increase, we, like many affordable housing
advocates and growing numbers of Members of Congress, support a new
production program targeted to extremely low-income people. A
substantial HOME increase would help significantly address affordable
housing needs of families with incomes between 30 percent and 80
percent of area median income. It also would partially alleviate, but
not solve, the far more severe housing crisis facing those earning less
than 30 percent of area median income. To achieve that objective
completely, a new program is needed.
Extremely low-income people face by far the most acute affordable
housing needs. In 1999, for every 100 extremely low-income renters
there were available only 39 affordable apartments nationwide.\5\ And,
as noted earlier, that inadequate supply of housing is shrinking fast.
---------------------------------------------------------------------------
\5\ Nelson, ibid., p.3.
---------------------------------------------------------------------------
Fortunately, HOME has shown us what a successful program should
look like. It should be flexible, allowing for virtually any type of
housing development, with an emphasis on rental production, including
rehabilitation. It should be administered by States and cities,
pursuant to public input. It should leverage additional public and
private investment. It should provide a strong role for community-based
groups. Beyond those broad, largely noncontroversial principles, we
offer the following more detailed suggestions for structuring a new
production program.
Any new program should serve low-income people exclusively, with
the large majority of resources dedicated to extremely low-income
people. We recommend that any new program target 75 percent of its
funds to extremely low-income households. Of that amount, 30 percent of
funds should be targeted to households earning the equivalent of the
minimum wage or less. The remaining 25 percent of funds should be
targeted to households earning up to 80 percent of area median income,
provided that they live in low-income communities. This targeting would
assure that the vast majority of resources benefit those that most need
housing help, while allowing (and facilitating) some level of mixed-
income development in high-poverty neighborhoods that would benefit
from it.
Also, any new program should work in combination with existing,
effective resources, especially the Housing Credit. The only way to
serve extremely poor people with a capital subsidy is to combine
resources from several programs. It is particularly important that any
new program work with the Housing Credit, which can cover up to 70
percent of construction costs. The Housing Credit generally penalizes
developments that receive Federal grants, with exceptions for HOME and
the Community Development Block Grant. One way to assure that a new
program would work with Housing Credits could be to allow, but not
require, jurisdictions that receive the new resources to run them, or
some portion of them, through their HOME program accounts. This could
be accomplished without altering either the HOME statute or the deeper
targeting and any longer affordability requirement of a new program.\6\
---------------------------------------------------------------------------
\6\ We understand that many jurisdictions impose much longer
affordability requirements on HOME-assisted housing than required by
law. We recommend that any new program contain an affordability
requirement that lasts for the duration of the property's useful life.
---------------------------------------------------------------------------
Finally, any new program should set a minimum rent contribution
affordable to extremely low-income people to allow developers, lenders,
and investors to underwrite developments that serve them. Simply
pegging tenant rents to a percentage of their income, which varies by
family, prevents sound financial underwriting. We recommend that any
new program set a minimum tenant contribution to rent for the extremely
low-income apartments of either the greater of 30 percent of the
tenant's income or a standard amount affordable to a tenant whose
income is 15 percent of the area median income (State median income for
apartments in nonmetropolitan areas).
Another important production program for low-income people is the
HOPE VI public housing revitalization program. HOPE VI also stands out
as one of the most effective Federal initiatives ever to facilitate
mixed-income affordable housing and stable neighborhoods. HOPE VI
represented a bold admission by Congress that past public housing
policy regarding high-rise concentration of the very poor had failed
and a radically new approach was needed. The program--and the
localities, developers, and residents that have worked together to
implement it--have delivered. HOPE VI has helped transform dozens of
the most distressed neighborhoods in America by building community
services and resident support systems along with new homes. HOPE VI
received $574 million for fiscal year 2002, the same amount as fiscal
year 2001. We encourage HUD to request and Congress to provide this
level of funding in fiscal year 2003.
Authorization for HOPE VI expires next year. The work of public
housing revitalization is far from over, however. Many high-rise and
mid-rise public housing developments, while not ``severely
distressed,'' are physically obsolete or are fast approaching that
point. Many are still home to high concentrations of extremely poor
people. We look forward to working with the Committee and HUD to create
a new, successor program to HOPE VI to address these housing needs and
turn more dysfunctional, detrimental environments into healthy
communities. The new program should incorporate the core principles
that have characterized HOPE VI's success: mixed-income housing; ``new
urbanist'' planning and design elements; provision for infrastructure,
community facilities, and supportive services; and financial
leveraging.
Expand the Capacity of Community-Based Groups to
Deliver Housing Help
One of the best ways to assure that Federal housing funds assist
the neediest households and most distressed communities is to build the
organizational strength of community and faith-based groups dedicated
to helping them. Congress can do that through an existing, proven
initiative called ``Section 4 Capacity Building for Community
Development and Affordable Housing.''
``Capacity building'' is abstract jargon, but it means the very
life of an organization. Capacity building funds help community-based
groups hire and retain staff, upgrade computer systems, develop
business plans, and form new partnerships. There are no ground
breakings or ribbon cuttings for capacity building, but without it,
neighborhood groups could not achieve the bricks and mortar
transformation of their communities. This kind of support is especially
vital for smaller organizations with less experience in community
development. And it is a wise investment for the Federal Government,
because it ensures that organizations that use Federal resources can do
so efficiently and effectively.
Congress enacted Section 4 in 1993 to allow HUD to participate in a
private sector-led collaborative called the National Community
Development Initiative (NCDI). The NCDI had been formed 2 years earlier
by a group of national foundations, financial institutions, Enterprise
and the Local Initiatives Support Corporation (LISC), another leading
national community development organization.\7\ The purpose of the NCDI
was to strengthen community groups, attract additional resources to
expand their work and build continuing local support for community-
based revitalization. Under the initiative, the funders channel
resources through Enterprise and LISC to community-based groups in 23
cities.\8\ (In 1997, Congress began appropriating capacity building
funds through HUD to other intermediaries, such as Habitat for Humanity
International and YouthBuild, for use outside NCDI cities, including
rural and tribal areas.)
---------------------------------------------------------------------------
\7\ The participants in the NCDI are The Annie E. Casey Foundation,
Bank of America, Deutsche Bank, The Robert Wood Johnson Foundation,
W.K. Kellogg Foundation, John S. and James L. Knight Foundation, John
D. and Catherine T. MacArthur Foundation, The McKnight Foundation,
Metropolitan Life Insurance Company, J.P. Morgan Chase & Co., Pew
Charitable Trusts, The Prudential Insurance Company of America, The
Rockefeller Foundation and Surdna Foundation.
\8\ The cities are Atlanta, Baltimore, Boston, Chicago, Cleveland,
Columbus, Dallas, Denver, Detroit, Indianapolis, Kansas City (MO), Los
Angeles, Miami, Newark, New York, Philadelphia, Phoenix, Portland (OR),
San Antonio, San Francisco Bay Area, Seattle, St. Paul, and Washington
(DC).
---------------------------------------------------------------------------
The NCDI's overwhelming, documented success shows that capacity
building is a high yielding investment in which limited Federal
resources leverage substantial private capital for a significant
community development impact. According to an independent analysis by
The Urban Institute, community group strength, production and local
support systems have grown significantly thanks to NCDI investment. As
a result of the NCDI, The Urban Institute concluded that community-
based groups ``in many cities are now the most productive developers of
affordable housing, outstripping private developers and public housing
agencies.'' \9\
---------------------------------------------------------------------------
\9\ Walker and Weinheirner, Community Development in the 1990's,
The Urban Institute, Washington, DC, 1998, p. 1.
---------------------------------------------------------------------------
After a decade, we have learned a few lessons about why Federal
support for nonprofit capacity building is so essential and why it
represents a wise investment of very limited Federal dollars:
First, Federal participation is limited but indispensable. Overall
private funding in the NCDI increased dramatically in subsequent
funding rounds after HUD joined in 1993. In addition, most HUD funds
committed through the NCDI have been in the form of grants, on which
neighborhood groups especially depend to build their organizational
strength. (Private NCDI funds more often are deployed as loans.)
Furthermore, according to The Urban Institute ``The single best
predictor of the number of capable [community-based groups] in a city
is the amount of Federal funding channeled by that city government to
neighborhood revitalization.'' \10\
---------------------------------------------------------------------------
\10\ Ibid., p. 9.
---------------------------------------------------------------------------
Second, Federal participation leverages substantial additional
private investment. Recipients of Federal capacity building funds are
required to match every dollar they receive with three additional
dollars of private or public funds. In practice, they leverage even
more than that. Private funds account for 85 percent of the roughly
$250 million committed through the NCDI through this year, a leverage
ratio of more than 4-to-1. That $250 million has leveraged more than $2
billion in total community revitalization investment from more than 250
State and local partners.
Finally, Federal participation does not limit local innovation.
Almost as important as the scope of HUD's participation in the NCDI has
been the nature of it. As The Urban Institute noted, ``EIM's
participation in NCDI was a significant move for the Federal Government
because HUD pledged to act as an equal to the other funders--not
imposing its own criteria for selecting cities or [community groups],
but instead tailoring its regulatory requirements where possible.''
\11\
---------------------------------------------------------------------------
\11\ Ibid., fn., p. x.
---------------------------------------------------------------------------
Congress appropriated $25 million in capacity building funds to
Enterprise and LISC to split equally in fiscal year 2002. (Additional
capacity building funds were appropriated to Habitat for Humanity
International and YouthBuild.) Enterprise and LISC receive far more
requests for capacity building assistance than they can meet each year.
We urge HUD to request and Congress to provide $30 million in nonprofit
capacity building funds to Enterprise and LISC for fiscal year 2003.
Encourage and Empower the Private Sector to Do More to
Help Meet Housing Needs
While we believe the Federal Government must do much more to help
meet the Nation's housing needs, the private sector has a significant
role to play as well. Programs like the Housing Credit have shown that
limited, targeted Federal incentives can generate large private
investment in affordable housing that contributes substantially to
community revitalization. We recommend that the Administration and
Congress continue to encourage similar public-private partnerships.
One such example is the Community Development Financial
Institutions (CDFI) Fund. While administered by the Treasury
Department, the Fund's budget is funded in the VA, HUD, and Independent
Agencies appropriation. The Fund stimulates the creation and nurtures
the growth of community-based financial institutions working to
revitalize distressed and underserved communities. The Fund has made
more than $430 million in awards to support a wide range of financial
institutions, including community development banks, credit unions,
loan funds, venture capital funds, and microenterprise loan funds. The
Fund provides direct assistance to such institutions, as well as
incentives for larger banks to invest in them.
Recipients of funding must match every dollar of Federal assistance
with at least a dollar from other sources. In practice they leverage
Federal funding much further. According to a recent Treasury Department
survey, 106 recipients of CDFI Core Component funding that received a
total of $114 million from 1996-1998 made $3.5 billion in community
development loans and equity investments during that period. In other
words, these institutions leveraged every dollar of Federal assistance
with an additional $31.\12\
---------------------------------------------------------------------------
\12\ CDFI Fund, CDFI Fund Quarterly, Spring 2001, Volume 4 Number
2.
---------------------------------------------------------------------------
While some CDFI's are engaged in nonhousing activities, such as
small business and community facilities development, many focus heavily
on housing. In 1999, entities that received CDFI Fund Core Component
awards financed nearly 25,000 homes and apartments, virtually all of
which were affordable to low-income people. Nearly 60 percent of fund-
certified CDFI's serve smaller urban areas and 62 percent serve rural
communities.\13\
---------------------------------------------------------------------------
\13\ Ibid.
---------------------------------------------------------------------------
Regrettably, the fiscal year 2002 HUD appropriation cut the CDFI
Fund by almost one-third, from $118 million in fiscal year 2001 to $80
million. We deeply appreciate Congress' efforts to increase funding
above the Administration's request--which would have cut the fund by
more than 40 percent--especially the Senate, which provided $100
million for the fund in its version of the appropriations bill. We
cannot understand why the Administration would propose such a sharp cut
to a program with a proven track record that leverages an extraordinary
amount of additional investment to meet pressing national needs. We
urge the Administration to request restored funding for the CDFI Fund
to the fiscal year 2001 level of $118 million and for Congress to
provide that amount in fiscal year 2003.
Another excellent proposal for increasing private investment in
affordable housing is the homeownership tax credit the Administration
included in its fiscal year 2002 budget request. While HUD would have
no direct role in the credit, the Administration last year included a
description of it in its HUD budget request. And while the Banking
Committee would not have jurisdiction over the credit, we believe it is
important that the Committee, and its many Members dedicated to
affordable housing, understands and supports this promising proposal.
Most Federal low-income housing assistance is for rental housing
help. Far fewer resources are available to help produce homeownership
housing for low-income families. Homeownership rates for minorities,
families earning less than their area's median income and central city
residents are well below the rate for the Nation as a whole. The main
reason for the lack of affordable homeownership development in many
distressed neighborhoods is that it costs more to build or
substantially rehabilitate homes than homes can sell for in such areas.
Thus, a resource is needed to bridge the difference between the
construction cost and market value of homes in low-income communities.
A homeownership production tax credit would fill a glaring gap in the
housing finance system, increase affordable homeownership opportunity
for low-income people, encourage mixed-income development and community
revitalization and help combat sprawl.
The Administration's proposal wisely incorporates many aspects of
the housing credit that have made it such an effective rental housing
production program. We support the Administration's core proposal: 50
percent present value tax credit claimed over 5 years; allocated by the
States under a competitive process based on annually determined housing
needs; in an amount equal to $1.75 per capita, with a small State
minimum, both of which would be indexed to inflation; targeted to
families earning 80 percent or less of area median income; available in
census tracts with median incomes of 80 percent or less of area median
income; awarded to developers to fill the gap between construction
costs and market value; limited to 50 percent of development costs;
buyer subject to recapture of a portion of any resale gain if the home
is sold to a nonqualified buyer within 3 years of original purchase.
In addition, we recommend the following modifications to the
Administration's proposal: the credit also should be available in rural
areas, as defined by Section 520 of the 1949 Housing Act, and on Indian
reservations; States should be able to serve buyers earning up to 100
percent of area median income in ``Qualified Census Tracts'' as defined
under the housing credit statute (census tracts where more than half
the families have 60 percent or less of area median income or where
development costs are disproportionately high); and nonprofit
developers should receive a minimum of 10 percent of each State's
annual allocation of credits. We urge the Administration to include the
proposal in the fiscal year 2003 budget request and for Congress to
enact it next year.
Federal Housing Policies and Priorities Beyond Fiscal Year 2003
While our testimony deals with HUD's budget request for fiscal year
2003, we want to conclude with a few words about the future of Federal
housing support beyond next year. As a member of the Millennial Housing
Commission, I have spent much time recently discussing with leaders
from throughout the housing industry numerous ideas for improving the
affordable housing finance and delivery sys-
tem. Three ideas in particular have resonated with me. I hope they are
helpful to
HUD and the Committee in thinking about the ``big picture'' aspects of
Federal
housing policy, which while part of the annual HUD appropriations
process, also transcend it.
First, housing programs and policies are too often isolated from
broader goals of enhancing economic opportunity for families and
strengthening communities. Viewing housing through such a narrow lens
has led to myopic policies that disregard the interconnections between
housing and other human and community needs. Housing is the foundation
of most families' savings and many neighborhoods' stability. In making
housing policy, Congress and HUD should consider how housing assistance
fits into a larger family and community context.
Second, and very much related to the first point, housing programs
must be more flexible. States and localities must be given greater
authority to combine housing resources with one another and with other
programs that serve the same constituencies and communities, such as
welfare, workforce development, child care, and transportation
programs. We encourage Congress and HUD to explore ways to enable more
efficient combination of Federal resources, especially when and where
they target very low-income people and/or extremely distressed
neighborhoods as part of comprehensive community revitalization
strategies.
Third, we implore Congress and HUD to develop policies and devote
resources to preserving the existing affordable housing stock. The
Federal Government has made a huge investment in the current inventory.
Most of it provides decent, affordable housing for low-income people.
But we are losing more and more of this precious resource every year to
deterioration and conversion to market rate use. More than 1 million
low-cost rental apartments were lost during the 1990's. Up to 4 million
more affordable apartments (including 1 million Federally assisted
apartments) are at risk over the next decade.\14\ Congress and HUD must
address preservation before it is too late. We would look forward to
working with both in that effort.
---------------------------------------------------------------------------
\14\ John D. and Catherine T. MacArthur Foundation, Capacity and
Capital for Housing Preservation, June 2001, p.3.
---------------------------------------------------------------------------
Conclusion
Mr. Chairman, now more than ever, our Nation must be strong and
united. We believe that sources of that strength and unity include
family, faith, community--and a place called home. Now more than ever,
home matters. Home is a family's foundation and an anchor in times of
turbulence. Home means security and stability. Home helps define and
sustain communities, forming the fabric of our neighborhoods and the
relationships that bind us.
Now more than ever, a decent, safe, and affordable home is out of
reach for too many working Americans. More than 15 million low-income
families pay too much in rent, live in rundown housing or are homeless.
The supply of affordable apartments is rapidly shrinking nationwide.
The slowing economy, along with the recent and substantial loss of jobs
in the United States, will put the prospect of an affordable home out
of reach for even more low-income Americans. This will strain the
fabric of many communities.
The Federal Government, working with States and localities, the
private sector and community-based organizations, has a responsibility
to help meet the Nation's most dire housing needs. We sincerely hope
that the Administration's fiscal year 2003 HUD budget request will
provide the tools necessary to meet this responsibility. Thank you for
this opportunity to testify.
RESPONSE TO WRITTEN QUESTIONS OF SENATOR SARBANES FROM RAYMOND
A. SKINNER
Q.1. You point out in your written testimony, the low-income
housing tax credit is an extremely popular program that has
proven to be highly effective in attracting private investment
to the construction of affordable housing. Last year, we
increased the amount of tax credits each State could use.
However, to be effective, particularly in serving those most in
need, the tax credit must be supplemented by other funds.
Discuss for the Committee the importance of HOME and CDBG in
the context of the tax credit.
A.1. In the past two calendar years, the Maryland Department of
Housing and Community Development (DHCD) has funded a total of
74 rental housing projects. Forty-three of these projects
received Federal Low-Income Housing Tax Credits, and 23
utilized tax-exempt bond financing. Fully 25 percent of all
projects funded by DHCD relied on some HOME funding, either
from the State's allocation or from funds provided by local
HOME entitlement jurisdictions. The percentage of projects with
HOME funding was higher for tax credit projects, with over 45
percent of the tax credit projects receiving HOME funds.
Without this important resource, DHCD would have been unable to
assist 19 tax credit properties, which would have resulted in
the loss of 1,619 affordable rental units.
HOME funds are vitally important for reaching the lowest
income families. Maryland's experience shows that housing
receiving subsidies only from IRS resources--tax credits and
bonds--have difficulty in providing rents affordable to
families earning less than 60 percent of median income, much
less in making rents affordable to extremely low- and very low-
income families. Most recently financed projects depend on soft
debt either from HOME or our State-funded programs to achieve
rents affordable to households earning 40 to 50 percent of
median income.
CDBG funds are far less likely to be tied with tax credit
projects. There are a number of reasons for this. First, the
CDBG program discourages the use of its funds for most new
construction of housing, and rehabilitation loans are primarily
focused toward owner-occupied dwellings. Second, unlike HOME,
CDBG grants are awarded to units of local government, which are
generally not housing developers. Finally, the schedules,
activity, and allocation requirements are so different between
the CDBG program and the tax credit program that we have found
a local government would have to receive funds several years in
advance of when the funds would actually be needed by a
developer.
Q.2. In addition, what importance does the Community
Reinvestment Act (CRA) plan in your efforts to build affordable
housing?
A.2. The impact of the CRA on total investment in affordable
housing is difficult to track. This is because while private
lenders are important partners in the provision of affordable
housing, it is impossible to trace that motivation specifically
back to the CRA. However, a large number of commercial lenders
have participated in the projects we have funded, either as
direct lenders or indirectly through syndication of the tax
credits.
RESPONSE TO WRITTEN QUESTIONS OF SENATOR SARBANES FROM DAVID W.
CURTIS
Q.1. What is the impact of the premium increase in FHA
multifamily programs and the cost of development and on
potential tenants of the affordable housing being constructed
under these FHA programs?
A.1. The premium increase will result in higher development
costs, because the higher premiums are paid during the
construction period as well as over the life of the loan. This
means a jump in the up-front development costs, as well as
higher debt service. In some cases, builders will not go
forward with projects because higher rents cannot be charged in
their markets and/or they cannot absorb these costs.
As far as the impact on tenants, industry experts estimate
that raising the mortgage insurance premium from 50 basis
points to 80 basis points could raise rents by 3 to 4 percent.
In an example from the Richmond, Virginia, area provided by a
large 221(d)(4) lender, the impact of a 4 percent increase
would be as follows:
The impact of a 4 percent increase would be significant,
ranging from $326 to over $500 annually. To maintain spending
30 percent of income on rent, incomes for these residents would
need to increase by almost $1,100 annually for the smallest
one-bedroom unit to nearly $1,700 for the three-bedroom unit.
It should also be noted that currently interest rates are
fairly low. Should interest rates fluctuate upward, the impact
on affordability would be even more onerous.
Q.2. How important is project-based assistance in developing
and financing housing that serves very low-income people?
A.2. Two recent reports, one by the Center for Housing Policy,
``Paycheck to Paycheck: Working Families and the Cost of
Housing in America,'' and the Joint Center for Housing Studies
of Harvard University's, The State of the Nation's Housing
Annual Report 2001 have extensively documented the growing
problem of housing affordability for low- and moderate-income
households. The Joint Center's report states that, at the end
of the last decade, over 14 million owner and renter households
spent more than half their incomes on housing.
The Joint Center report also discusses the imbalance
between the supply of affordable units and the growing demand
for such housing. According to the report, the multifamily
sector was hard hit by losses in both small (under 4 units) and
larger (5 or more units) apartments in the 1990's. Overall, new
construction in the multifamily sector added over 1.6 million
units in the 1990's, but 1.25 million were removed from the
market during that time. The report states that ``. . . net
losses of the smallest multifamily buildings and only minimal
additions of larger multifamily buildings are worrisome because
of their critical importance in meeting low- and moderate-
income housing demand.''
The ``State of the Nation's Housing'' report also points
out that the limited production of units affordable to
moderate-income households is troubling and likely to cause the
critical housing needs problem to spread further to moderate-
income families.
It is well documented that many areas of the country have
poor tenant-based housing voucher utilization rates, in large
part due to the lack of affordable units in the market where
vouchers can be used. We believe that project-based rental
assistance is of critical importance in increasing the stock of
housing affordable to low- and moderate-income households. In
addition, project-based assistance is a critical ingredient in
the success of efforts to preserve affordable housing through
such programs as Mark-to-Market.
Project-based rental assistance aids efforts to expand the
stock by making a significant difference when underwriting a
new multifamily development or securing funds for a major
rehabilitation. The guarantee of Federal funding for a portion
of the rental income reduces the risk to the lender providing
the loan. Tenant-based vouchers, because they move with the
tenant, do not provide this impetus to financing and
production.
Also of importance to note is that many affordable housing
developments with project-based assistance provide social and
community services to residents with special needs, such as
senior citizens and people with disabilities. The Federal
Government provides funding for many of these services, in
partnership with owners and service providers, which are
provided on-site because residents may not be able to access
them elsewhere. Households in need of such services and who
have tenant-based assistance cannot be assured that they will
be able to access these important services. Also, even if such
services were available in other properties, residents with
special needs may not have the mobility to relocate and use a
tenant-based voucher.
RESPONSE TO A WRITTEN QUESTION OF SENATOR SARBANES FROM F.
BARTON HARVEY
Q.1. Professor Olsen's testimony says that the primary
beneficiaries of neighborhood revitalization are owners of
surrounding properties and that production programs will simply
``shift the location of the worst neighborhoods.'' As CEO and
Chairman of one of the premier organizations working to better
communities around the country, do you see evidence to support
Mr. Olsen's statement, or does your experience lead you to a
different conclusion about the effects of producing new housing
in neighborhoods undergoing revitalization?
A.1. Thank you for the opportunity to address this important
question. Housing production programs have been proven to
contribute to community revitalization.\1\ Even Professor Olsen
in his written testimony acknowledges: ``It is plausible to
believe that a new subsidized project built at low density in a
neighborhood with the worst housing and the poorest families
would make that neigh-
borhood a more attractive place to live for some years after
its
construction.''
---------------------------------------------------------------------------
\1\ See, for example, Hevesi, Dennis, ``Programs That Promote
Homeownership Help Neighborhoods as Well, a Study Finds,'' New York
Times, Monday, July 30, 2001, A17 and Higgins, Lindsey R., ``Measuring
the Economic Impact of Community-Based Homeownership Programs on
Neighborhood Revitalization,'' The Local Initiatives Support
Corporation's Center for Homeownership and George Mason University,
April 2001.
---------------------------------------------------------------------------
Neighborhoods with the worst housing and the poorest
families are where Enterprise and our community-based partners
work and where we believe the Federal Government must focus
much more resources. Sometimes, housing rehabilitation and new
construction in such areas boosts the values of surrounding
properties. More often than not, that is a good thing for the
entire community and all its residents. Increased property
values are a tangible sign that a neighborhood is coming back,
which attracts additional residential and new economic
development investment in the area.
But let us not be mistaken about who benefits most from
affordable housing production in distressed neighborhoods:
human beings. Low-income families and individuals who
previously were forced to live in run down, unsafe housing, for
which they may well have been charged a disproportionate share
of their income for rent, often in dysfunctional, dangerous
neighborhoods, are the primary beneficiaries of a decent,
affordable place to live.
Gentrification is a concern in some communities that
otherwise have benefited from revitalization efforts. But there
are ways to mitigate its negative effects, all of which are
referenced in our written testimony, including: increased
investment in affordable production programs, which guarantee
long-term affordability to low-income people; initiatives to
preserve the existing affordable housing stock; and strong
community-based organizations looking out for low-income
residents' interests.
STATEMENT SUBMITTED BY
U.S. CONFERENCE OF MAYORS
NATIONAL ASSOCIATION OF COUNTIES
NATIONAL ASSOCIATION FOR COUNTY COMMUNITY
ECONOMIC DEVELOPMENT
NATIONAL ASSOCIATION OF LOCAL HOUSING FINANCE AGENCIES
NATIONAL COMMUNITY DEVELOPMENT ASSOCIATION
November 29, 2001
The U.S. Conference of Mayors, National Association of Counties,
National Association for County Community Economic Development,
National Association of Local Housing Finance Agencies, and National
Community Development Association, represent a mixture of elected
officials and local government agencies which administer HUD's housing
and community development programs, principally the Community
Development Block Grant Program and the HOME Investment Partnerships
Program. We appreciate the opportunity to provide our written views and
recommendations on HUD's housing and community development needs in
fiscal year 2003. Our comments will focus primarily on the Community
Development Block Grant Program and the HOME Investment Partnerships
Program.
HOME Investment Partnerships Program
The HOME Investment Partnerships Program (HOME) has been a catalyst
in spurring new affordable housing development since 1992. Since its
inception, the program has expanded the supply of decent, safe,
affordable housing for low- and moderate-income families, strengthened
public-private partnerships in developing affordable housing, and
provided funding to communities to assist in meeting their housing
challenges. The flexibility of the program allows local participating
jurisdictions to use the program funds in combination with other
Federal, State, and local funds, and to work with their nonprofit
partners, to develop affordable housing, both ownership and rental,
based on locally defined needs.
According to cumulative HUD data as of October 31, 2001, since HOME
was created in 1990, it has helped to develop or rehabilitate over
617,513 affordable homes for low- and very low-income families.
Targeting is very deep in the HOME program. The majority of HOME funds
have been committed to housing that will be occupied by very low-income
people and a substantial amount will assist families with incomes no
greater than 30 percent of median (extremely low-income). As of the end
of October 2001, more than 81 percent of home-assisted rental housing
was benefitting families at or below 50 percent of area median income,
while 41 percent was helping families with incomes at or below 30
percent of area median income. In addition, approximately 29 percent of
the home buyer units assisted with HOME was targeted to families at or
below 50 percent of area median income.
HOME funds help low- and very low-income families realize the dream
of homeownership by providing for construction and rehabilitation of
housing as well as providing the down payment and/or closing cost
assistance. Since 1992, HOME funds have been committed to 352,200
homeowner units (this includes assistance to 229,612 first time home
buyer units and rehabilitation assistance to 122,578 occupied homeowner
units).
HOME is cost effective and provides the gap financing necessary to
attract private loans and investments to projects. For each HOME
dollar, $3.93 of private and other funds is currently being leveraged.
This clearly illustrates the judicious use of HOME funds by local
governments.
HOME is a sound program, with an excellent track record in
developing affordable housing for households at various income levels.
However, HOME is limited by the amount of funding that is appropriated
each year. Funding for the program has increased very little since it
first began in 1992. The amount allocated under the program in 1992 was
$1.460 billion. The amount appropriated for 2002 was $1.85 billion. Of
this amount, $87 million was provided to set-asides within the program.
In addition, the increasing number of new participating jurisdictions
and consortia will decrease the formula allocation further. Moreover,
the formula allocation for the program was not increased from fiscal
year 2001 to fiscal year 2002. This concerns us greatly. In order to
expand efforts to meet the enormous need for affordable housing in this
country, adequate resources must be appropriated for programs such as
HOME. We propose a funding level of $2.25 billion for the basic HOME
program in fiscal year 2003, along with an additional appropriation of
$2 billion for a rental production program within HOME, which is
further described below. We also propose that the set-asides within the
program be scaled back, or eliminated altogether.
We were pleased to see that the initial $200 million set-aside
requested by the President within HOME for a down payment assistance
program was reduced to $50 million. We are opposed to this set-aside
and ask that it be eliminated altogether in fiscal year 2003. HOME
funds may already be used for down payment and/or closing cost
assistance. In fact, since 1992, $1.06 billion of HOME funds have been
used to help families buy their first home. There is no need to create
a separate program for this purpose for it would result in a
proliferation of set-asides that further dilute the program.
Besides an increase in the formula allocation of the program, we
also strongly recommend that technical assistance funding under HOME be
continued, and increased. We are pleased that HUD continues to receive
technical assistance funding annually; however, the funding amount is
diminishing. We have heard from sources at HUD that the amount
available for HOME technical assistance funding at the national level
will be severely cut this year, or possibly eliminated altogether. Our
associations have applied for this funding through HUD's SuperNOFA
process in past years to directly provide technical assistance to our
members. We use this funding to provide training workshops, develop
publications, and provide on-site technical assistance, all targeted to
helping grantees better administer their HOME funds. We ask that you
continue to make HOME technical assistance funds available at the
national level for our associations and others to help their grantees
better implement the HOME program.
Housing Production
According to HUD's most recent edition of its Report on Worst Case
Housing Needs, over five million renter households have severe housing
needs. These households contain renters with incomes below 50 percent
of area median income who pay more than half their income for rent or
live in severely substandard housing. Progress in assisting these
households is diminished by the substantial shortages of affordable
housing. Between 1997 and 1999, the number of units with rents
affordable to households with incomes below 50 percent of area median
income dropped by 1.1 million, a loss of 7 percent. The report's
findings on the accelerated reduction in the number of affordable
rental units show that the private market is not producing enough
affordable rental housing to meet existing demand. One answer to this
crisis is to produce more affordable housing using effective Federal
housing programs such as HOME.
In the past couple of years, there have been a number of bills
introduced in Congress to increase housing production, primarily
targeted to households at or below 30 percent of area median income.
These proposals have mainly focused on creating a National Housing
Trust Fund, a new and separate program from existing HUD programs. In
an effort to avoid a situation where such a program would compete with
HOME, our associations propose that a housing production element be
incorporated within HOME. The infrastructure is already in place within
HOME to implement such a program.
Our proposal would provide grants for new construction, substantial
rehabilitation, and preservation of multifamily housing. Mixed-income
projects would be encouraged. All of the resources made available under
our proposal must benefit households at or below 80 percent of median
income, with at least 50 percent befitting those at or below 30 percent
of median income. Funds would be apportioned 60 percent to local
participating jurisdictions and 40 percent to States using a formula
that measures inadequate housing supply. We would be pleased to work
further with the Committee in crafting a production program.
In addition to this proposal, there are several other
modifications/refinements to the HOME program that we offer for the
Committee's consideration:
We recommend that a loan guarantee program be added to HOME,
modeled after the very successful Section 108 program under CDBG.
Such a program would enable participating jurisdictions to
``borrow'' against future entitlement grants in order to undertake
large-scale projects. The House passed this proposal in 1994, but
the Senate never acted;
We recommend that the statute be changed to allow
participating jurisdictions to provide matching funds on a program
year, rather than the current Federal fiscal year basis, to
simplify program administration;
We recommend permitting the substitution of a substantially
equivalent State or local environmental review requirement for the
environmental review requirements under NEPA;
We recommend providing an exemption from the environmental
review requirements for rehabilitation of one to four units and all
owner-occupied rental and homeownership projects;
We recommend deleting the current law requirement that the
Secretary establish per-unit subsidy limits. The statute already
requires participating jurisdictions to certify that they have not
provided more funds than are necessary to assure a project's
financial feasibility.
Community Development Block Grant Program
Now in its 27th year, the Community Development Block Grant program
is the Federal Government's most successful domestic program. CDBG
helps communities tackle some of their most serious community
development challenges. The CDBG program's success stems from its
utility, that is, providing cities and counties with an annual,
predictable level of funding, which can be used with maximum
flexibility to address unique neighborhood revitalization needs.
Based on the fiscal year 2001 CDBG data reported by grantees, CDBG
provided funding to 172,445 housing units. Of this number, CDBG
provided funding for the new construction of 3,878 units, assisted
11,812 first time homebuyers, and rehabilitated 156,755 housing units.
In addition to providing funding to housing units, the program created
or retained 116,777 jobs. This is just in fiscal year 2001 alone. In
fiscal year 2001, entitlement communities spent their CDBG funds in the
following manner: housing (30.98 percent), public works and
infrastructure (25.56 percent), planning, monitoring and program
administration (15.48 percent), public services (13.25 percent),
economic development (8.32 percent), and preventing or eliminating
slums and blight (6.21 percent).
Even though the program has performed well, the annual
appropriations for CDBG have remained static over the last decade,
increasing only slightly in some years. Most recently, the program
received a cut in fiscal year 2002, reducing its annual appropriation
from $5.057 billion in fiscal year 2001 to $5.0 billion in fiscal year
2002. We were very surprised and disheartened to see a cut to the
program, particularly a program that has such a stellar track record in
benefitting our communities across the country, and particularly given
the fact that very few other HUD programs received a cut. More
importantly, the formula allocation to grantees has begun to erode
because of the increased set-asides allotted by Congress under the
program. In fiscal year 2002, the formula allocation was cut by
approximately $59 million because of decreased appropriations and
continued funding of a large number of set-asides under the program. If
the set-asides continue to flourish, the formula allocation to grantees
will continue to diminish over time, providing fewer and fewer funds to
grantees for their community development needs, which are also
increasing. In addition, the number of new entitlement communities has
increased which has further decreased the formula allocation to
existing communities. We implore Congress to increase funding for CDBG
in fiscal year 2003, especially given the set back in funding to the
program this year. Given the fact that the program has increased very
little in its 27 years, we are seeking at least $5.0 billion in formula
funding in fiscal year 2003. This would represent a $659 million
increase in formula funding from fiscal year 2002. In addition to the
increase in the program's formula allocation, we are also seeking
funding for technical assistance under the program. For reasons unknown
to us, Congress discontinued funding for CDBG technical assistance a
few years ago. Since that time there has been no funding for technical
assistance for the program. Like in the HOME program, technical
assistance is crucial to ensuring better implementation of the program.
In addition to increased funding for the program, there are several
refinements to the CDBG program that we offer for the Committee's
consideration:
We recommend that the threshold for application of the Davis-
Bacon requirements for CDBG conform to that of the HOME program,
that is 12 units or more;
We recommend making CDBG expenditures for fair housing a
directly eligible activity, rather than its being subject to the 20
percent administrative cap. This will take some of the pressure off
the administrative cap;
We further recommend eliminating the current law requirement
that housing service activities under CDBG be subject to the 20
percent administrative cap. This is a technical correction. The law
prior to the 1992 amendments did not place these activities under
the cap;
We recommend permitting the substitution of substantially
equivalent State or local environment review requirement for the
environmental review requirements under NEPA.
IDIS
Both HOME and CDBG grantees utilize HUD's Integrated Disbursement
Information System (IDIS) to report their accomplishments as well as
drawn down funds. Our associations, as well as grantees, continue to
work with HUD to iron out the last remaining ``kinks'' in the system.
Overall, the system provides valuable information to grantees, HUD, and
Congress on how HOME and CDBG funds are being used nationwide. It is
imperative that Congress appropriate sufficient funding to ensure that
IDIS continues in operation until HUD has finalized its Departmental
Grants Management System (DGMS). No direct funding was appropriated for
IDIS in fiscal year 2002. The program will now have to try to seek
funding through HUD's working capital fund, with no assurances that
funding will be provided. We ask that Congress provide adequate funding
for the system in fiscal year 2003 and direct HUD to provide adequate
funding for the system this year from its resources. HUD is currently
working on developing its DGMS system, which is years away from
becoming operational. Until that system is fully operational to the
satisfaction of our grantees, Congress must continue to fund IDIS to
ensure that grantees can properly administer their CDBG and HOME
projects.
Other Important Programs
There are two other programs that play a key role in expanding the
supply of affordable housing Low-Income Housing Tax Credits and tax-
exempt Private Activity Bonds. Tax credits provide equity investments
for affordable rental housing, while tax-exempt bonds provide debt
financing for affordable rental housing and first mortgage assistance
for income-qualified, first-time homebuyers (Mortgage Revenue Bonds).
We worked very hard over the past 4 years to convince Congress of the
need to increase the Statewide volume caps that apply to these two
programs. We were very pleased that Congress increased both volume caps
in a two-step process as part of the fiscal year 2001 omnibus
appropriations bill. Under the legislation, the tax credit cap
increased on January 1, 2001 from the previous $1.25 per capita, per
State to $1.50 per capita, per State. On January 1, 2002 it will
increase to $1.75 per capita, per State. Similarly, the volume cap for
Private Activity Bonds increased on January 1, 2001 from the previous
greater of $50 per capita or $150 million per State to the greater of
$62.50 per capita or $187.50 per State. On January 1, 2002 it will
increase to the greater of $75 per capita or $225 million per State.
Both caps are indexed for inflation going forward. In most States
housing gets the lion's share of the bond volume cap.
However, the bond cap increase will be undermined by an obscure
provision added to the tax code in 1988 applicable to Mortgage Revenue
Bonds. It requires that mortgage prepayments made 10 years after the
date that the bonds were issued be used to redeem the bonds, rather
than recycling them into new mortgages. Recycling is permitted within
the first 10 years. We believe it should be permitted after the first
10 years, and therefore support H.R. 951. This legislation, introduced
by Reps. Houghton and Neal, would repeal the 10 year rule. H.R. 951
also provides an optional method for calculating the maximum allowable
purchase price of a home that a first-time homebuyer can purchase with
Mortgage Revenue Bond assistance.
The final issue upon which we wish to comment is the need to renew
expiring rent subsidy contracts under the McKinney Act's homeless
housing programs. In order to assure continuity of services and rental
assistance in these projects we recommend that the Supportive Housing
Program renewals and Shelter Plus Care renewals be transferred to the
regular Section 8 rental program. This would allow more funding to be
available under HUD's homeless assistance programs for the development
of new projects to assist the homeless.
We would also like for the Committee to give serious consideration
to combining HUD's homeless assistance programs into a single, flexible
formula-allocated block grant program. While we recognize that there is
continued resistance from other groups on this idea, we also recognize
that the current system is not perfect. Grantees have to spend months
planning and applying for the funds, and then waiting for many more
months to hear as to whether or not they were awarded funding through
HUD's SuperNOFA competition. We do recognize the importance of the
partnerships that have been formed and supported through the current
system and agree that the planning process should continue within our
block grant proposal. We also recognize that a lot more funding is
needed to assist communities in meeting the needs of the homeless. To
that end, we request that Congress increase the appropriations level of
HUD's homeless assistance programs, including funding the Supportive
Housing Program and Shelter Plus Care renewals.
We again thank you for the opportunity to provide written comments
on the need for funding for these very important programs. We look
forward in working with you and your staff in the year ahead.
HOUSING AND COMMUNITY
DEVELOPMENT NEEDS
----------
THURSDAY, DECEMBER 13, 2001
U.S. Senate,
Committee on Banking, Housing, and Urban Affairs,
Washington, DC.
The Committee met at 10:05 a.m., in room SD-538 of the
Dirksen Senate Office Building, Senator Paul S. Sarbanes
(Chairman of the Committee) presiding.
OPENING STATEMENT OF CHAIRMAN PAUL S. SARBANES
Chairman Sarbanes. Let me call this hearing to order. Good
morning. I am pleased to welcome everyone to the Committee's
second hearing on housing and community development needs. I
want to welcome Secretary Martinez and extend the Committee's
appreciation to him for appearing today. We have been looking
forward to this session. Mr. Secretary, we are pleased to have
you here.
Two weeks ago, the Committee heard from a number of experts
about the growing affordable housing problem in the country.
Today, we are anxious to hear the Housing Secretary's
perspective.
As my colleagues know, the Administration is in the midst
of putting together its budget proposal for fiscal year 2003.
Because that process has not yet been completed, and
recognizing the constraints that the Executive Branch operate
within, we have indicated to the Secretary that we understand
that he cannot talk about budget levels for specific programs--
not to us. He can talk to OMB, and we are hopeful that he is
doing that, of course.
However, we have asked him to discuss what he sees as the
Nation's needs in the area of housing and community
development, particularly as the country finds itself in the
first recession in about a decade now.
Let me talk about some good news. After stagnating and even
falling in the 1980's, the homeownership rate rose to historic
levels in the 1990's, particularly in the latter part of the
decade. Improvements in minority homeownership drove much of
this improvement. In fact, 40 percent of all new homeowners
from 1994 to 1999 were minorities, even though minorities make
up only 24 percent of the population. African-American and
Hispanic homeownership rates grew twice as fast as the white
homeownership rate.
Nevertheless, there continues to be a significant gap in
homeownership rates between white and minority Americans.
Closing that gap, we know is a priority for the Secretary. He
testified to it right at the beginning in his confirmation
hearing, and I am sure other Members of this Committee want to
be helpful in that effort.
In this regard, let me just say that I am concerned about
the Department's so-called clarification on the issue of yield-
spread premiums, put out a month ago by the Secretary.
I do not want to divert over into that issue this morning,
but I just want to note it because it is our intention to hold
hearings on that subject early in the new year.
We are concerned because Assistant Secretary Weicher said
that HUD was compelled to issue the new policy statement
because of the decision in the Culpepper case. But in that
case, the court actually found that brokers collected thousands
of dollars in unnecessary out-of-pocket fees from FHA
borrowers, in addition to steering them to higher interest rate
loans in exchange for yield-spread premiums paid by the lender.
I understand that there is some rulemaking now going on in
the Department with respect to this matter, and we obviously
are very interested in that. Now as I mentioned we will come
back to that subject, I anticipate, early in the new year.
I mentioned the general progress on homeownership. But
there is obviously a growing problem in terms of affordable
rental housing. In fact, HUD's own data show that nearly five
million very low-income American families pay over half of
their income in rent. A study by the National Housing
Conference that looked at somewhat broader criteria than used
by the Department, found that nearly 14 million families,
including working families, face this same critical problem.
Actually, the situation, worst-case needs among poor families,
seemed to stabilize a bit, but the number of working families
carrying severe housing cost burdens has risen rather
dramatically.
There are 33 States in the country in which two full-time
minimum-wage earners in a family were not sufficient to rent a
modest apartment, paying 30 percent of a family's income. And
we will put a chart up that shows this development.
We find that in the past decade, the number of units
available to extremely low-income renters has dropped by almost
a million units, a loss of 14 percent. Obviously, this is a
matter of some concern and it is something we will go into with
the Secretary in the course of the question and answer period.
The Committee is anxious, Mr. Secretary, to work with the
Department in a cooperative way to get at this problem. We know
of your own commitment to addressing affordable housing issues,
both in your testimony here and in your speeches around the
country, and we want to join together in a partnership effort
to really get at this problem. We appreciate your being here.
I yield to Senator Gramm.
Senator Gramm. Mr. Chairman, could you give us a quick
summary of what these colors mean over here? Housing wage.
Chairman Sarbanes. Yes. What that shows is what--if you
accept the standard that you pay 30 percent of your income for
housing, then this shows what a two-bedroom apartment would
cost.
Senator Gramm. Okay. Got it. At 30 percent of your income.
Chairman Sarbanes. At 30 percent. It would show what income
you would have to have to be able to afford that. Now the dark
areas are worse than the white areas.
Senator Allard. That is the hourly wage?
Chairman Sarbanes. That is the hourly wage.
Senator Gramm. It must be a monthly wage.
Chairman Sarbanes. The dark area is the hourly housing wage
at more than twice the Federal or State minimum wage.
For instance, in Texas, you would have to have a wage of
$12.56 an hour.
Senator Gramm. Okay. Got it.
Chairman Sarbanes. In order to be able to--so it shows the
gap between minimum wage, and that wage is needed to be able to
afford housing.
Senator Gramm. To meet that goal.
Chairman Sarbanes. Which is the standard criteria. It is
the one HUD itself uses, as I understand it, in measuring
needs.
So it shows you the gap between what people earn,
conceivably what they earn, and what they have to earn in order
to be able to afford housing.
Senator Allard. And so, is that all rentals or is that just
housing rentals?
Chairman Sarbanes. That is the fair market rent for a two-
bedroom unit at 30 percent of income.
Senator Allard. Two-bedroom unit, whether it is a house or
whatever.
Chairman Sarbanes. Yes. Actually, it is a helpful
illumination of the problem of this gap between income and the
cost of affordable housing. I think it is a fairly illustrative
way of demonstrating that.
Senator Gramm.
STATEMENT OF SENATOR PHIL GRAMM
Senator Gramm. Well, Mr. Chairman, thank you for holding
this hearing and Mr. Secretary, thank you for testifying.
I would have to say that next year, I will enter my 18th
year as a Member of the Banking Committee, and I have been very
actively involved in many issues in this Committee, but HUD is
an area that I do not feel that I have ever gotten my hands
around, nor do I believe this Committee has ever done that.
Chairman Sarbanes. And he may do it this coming year.
[Laughter.]
Senator Gramm. This is my last year.
[Laughter.]
Let me first say that when I came to Congress, as an
intellectual debate I had with myself was whether or not it was
rational that the American society has decided to provide such
heavy levels of subsidy to homeownership.
From an economic production point of view, in allocating
resources to maximize gross domestic product, at least in the
short run, you can make a very strong case that we grossly
over-invest in homeownership.
I believe the problem with that argument, however, is that
homeownership has a profound impact in a democracy. It gives
people a stake. I do not want to turn this into a partisan
issue, but I think my colleagues might be interested in this.
In 1990, I was running for reelection. I had a lot of money
and I did not have a very well-financed or strong opponent. And
so, I did something very few politicians do. I did a poll of
3,000 samples. I did not ask a lot of questions about what
people thought, but I asked a very large number of questions
about people.
I found 258 people who said that they were on welfare. I
looked at a lot of factors, but a thing that struck me, and I
have never forgotten, as no politician would ever forget such a
number--if you were going to pick one variable in all that data
to determine whether someone had a favorable impression of me,
the guy paying for the poll, homeownership was the strongest
predictor.
Interestingly enough, the second strongest predictor was
someone working in the private sector of the economy. At the
same income and education, whether they worked for the
Government or the private sector made a profound difference. So
I have been a strong believer that homeownership is vitally
important.
[Laughter.]
I think that our achievement in the 1990's in expanding
homeownership in that golden economic age that we were in, in
expanding homeownership among minorities, will pay big
dividends in America's future. I do believe it changes family
histories when people get an opportunity to own their own home.
So it is something that I am very much committed to.
And the points I would like to make are the following. I am
interested in what the budget's going to be. But I am far more
interested in your effort to look at all these programs that we
have added over the years and to try to determine, do we have a
rational set of programs? Should we try to consolidate some of
these programs? To what extent are programs efficient in
actually getting the help to the people we are trying to help?
To what extent is public housing a way station on the road
toward homeownership? To what extent is it a dead end? Those
are the things that I am interested in. And these are very
difficult problems.
So I just want to say to you, when you were here being
confirmed, the point that I made and I wanted to reiterate now,
is that you are in the process of learning your new job. But
one of the things I want to urge you is to commit the time,
energy, and resources to really understanding all these
programs.
We add new programs. We never get rid of old programs.
Often, they overlap or they are contradictory. I believe that
this Committee would be receptive to proposals where you could
show that we could improve the bottom-line effectiveness in
improving housing and improving homeownership that would
represent some substantial changes in housing programs.
So I hope as we get into the spring, as you reach the point
where you have learned how to do this job and you have gotten
your staff in place, I hope you will make recommendations to us
as to how we could help improve the effectiveness of this
program.
We are spending a lot of money. We want to spend it wisely.
And any input you would have, I can at least commit that we
would work to give it serious consideration.
Thank you, Mr. Chairman.
Chairman Sarbanes. I would just note that despite this
political correlation that has just been established, I still
remain a very firm proponent of expanding homeownership. Either
that demonstrates my undying commitment to homeownership or it
demonstrates some political softening of some sort or the
other.
[Laughter.]
Senator Gramm. No, I think it represents the triumph and
love of America with self-interest.
[Laughter.]
And I commend you.
[Laughter.]
Chairman Sarbanes. Senator Reed.
STATEMENT OF SENATOR JACK REED
Senator Reed. Thank you very much, Mr. Chairman, for
holding this hearing. And thank you, Mr. Secretary, for joining
us today.
I believe that that chart indicates that in many regions of
the country, rural and urban, there is a housing crisis, an
affordable housing crisis. My home State of Rhode Island is no
exception to that. We fall in that band of places where you
have to work exceptionally hard just to meet the minimum
requirements for affordable housing. And as Senator Gramm
pointed out, not just homeownership, I believe, but also decent
housing has a profound effect on many things.
We are today finishing up an education bill. One of the
things we found, that children who move from house to house,
rental unit to rental unit, do not seem to do as well as
children who are in stable, decent homes. And so, your task of
affordable housing impacts fundamentally on so many other
different aspects of American life, and that is why it is so
important.
We have found, interestingly enough, in Rhode Island, even
with the significant subsidy to homeownership, that our
homeownership rate has fallen, actually. The rest of the
country is rising--it is falling. One reason is the fact that
there is a growing gap between affordability for homes and the
price of homes.
The luxury market is fine. You can buy a $600,000, $700,000
house in Rhode Island. What is difficult to buy, in fact, these
listings have fallen 50 percent, is the modest, first-time
homebuyer's special, if you will. And that is a crisis.
A lot of our problems go, particularly in the multifamily
area, to production. We have not provided the incentives and
support for production we need. We have a growing population,
growing concern, growing need, but not the supply.
And I would hope that in the budget that we face next year,
and particularly in my capacity as Chairman of the
Subcommittee, we will work very closely to see if that
production bottleneck can be breached and we can produce more
homes, more rental units in the United States.
Finally, there is one area that is sometimes overlooked,
and that is, we still have a profound homelessness problem in
this country. We have families that are literally sleeping on
the floors of our social welfare agencies in Providence, Rhode
Island because there is not affordable rental housing for them,
even on a temporary basis.
So, the challenges are great and our commitment will be
measured not just by this hearing, but by what is in this
budget coming up. And I urge you to work so that it is a good
budget for housing.
Thank you, Mr. Chairman.
Chairman Sarbanes. Thank you very much, Senator Reed.
I will recognize Senator Allard now.
I would comment that Senator Reed, as the Chairman of the
Subcommittee on Housing and Senator Allard is the Ranking
Member, have been working quite hard on a number of housing
issues and we are most appreciative to them for the work that
is being done in the Subcommittee.
Senator Allard.
STATEMENT OF SENATOR WAYNE ALLARD
Senator Allard. Well, thank you, Mr. Chairman. I want to
commend you for holding this important hearing and follow up on
your comments. It is a pleasure to work with both you and
Senator Reed on these housing issues.
I also want to join you in welcoming Secretary Martinez to
today's hearing on housing and community development needs for
America. I would like to follow up a little bit on what Senator
Gramm had mentioned.
When I was Chairman, just a little over a year ago now, we
did have a number of hearings on what could be done to
consolidate some programs. And one of the areas that we looked
at is whether the program was authorized by Congress or not.
I would suggest that maybe you have your staff go back and
review some of that testimony that we had collected if you are
really concerned about following up with Senator Gramm's
comments, and Senator Reed's comments on production.
Also, I do think that we need to solicit the support of
local governments with a national effort because there is some
prejudice at the local level against affordable housing
projects. For example, there are some manufactured homes in the
State of Colorado which I represent that are very nice homes.
In fact, I am not sure they are better than standard
construction homes.
We passed some recent legislation in here that actually
helped improve that even more. And there is a prejudice
sometimes among neighbors and City Council people and county
commissioners not wanting to have that kind of construction.
But what has developed in Colorado--actually, there is
community living with swimming pools, game rooms, recreation
rooms, and everything else. And there is plenty of opportunity
in that area if we seek it out.
I would also say that after your first year, it is hard to
imagine that almost a year has gone by now since you have been
in office. It is clear that you and the Administration are
working hard to focus on HUD on its core mission of increasing
affordable housing. And I want to congratulate you on that.
In my office, we are receiving regular reports that the
morale of the Department has risen and that there is a real
sense that you value the professionals at the Department and
that you are determined to move HUD aggressively away from its
troubled past. And it is clear that you and your team are
acting quickly to streamline management, reduce duplicative
programs, and create a more efficient agency.
The tone which agency heads set is very important. You have
indicated a strong desire to work with Congress, the General
Accounting Office, and HUD partners to improve the quality of
services. I would urge you to continue to emphasize the
Government Performance and Results Act. Through this tool, we
judge programs here in the Congress by the results and not
their budgets.
I also want to thank you, Chairman Sarbanes, for having the
Committee act on the HUD Inspector General nominee. It is
critical to have an IG in place. Mr. Secretary, you deserve a
full team.
I am pleased to see the Administration's strong emphasis on
the expansion of homeownership, particularly among minorities.
HUD plays a critical role in expansion of the American Dream.
This commitment is reflected in the President's American
Dream Downpayment Fund and programs to make FHA more
competitive in the home mortgage arena. It is also encouraging
to see a focus on simplifying the home-buying process. I hope
we can begin to see a reduction in some of the paperwork
involved in a home purchase.
Let me conclude by noting that earlier this year, the U.S.
Senate committed to work with Habitat for Humanity to build a
home in each State. Last weekend, we dedicated one in my
hometown of Loveland, Colorado.
I want to commend the President and the Secretary for their
commitment to this and similar sweat equity programs. This is
an example of where HUD can work with nonprofits and faith-
based partners to create more affordable housing in our Nation.
And thank you for being here, Mr. Secretary. I look forward
to your testimony.
Chairman Sarbanes. Thank you very much, Senator Allard.
I might note, Mr. Secretary, that we passed that
manufactured housing bill here in the Committee.
Senator Allard. Yes.
Chairman Sarbanes. That was when Senator Gramm was the
Chairman.
It is administered and implemented by HUD. But part of our
thinking in doing that was that by, in effect, raising the
standards, we give people more assurance and confidence about
the quality of the manufactured housing that would address the
issue that Senator Allard was raising.
So that is down in your bailiwick now.
Secretary Martinez. Yes, Senator.
Chairman Sarbanes. Senator Bayh.
STATEMENT OF SENATOR EVAN BAYH
Senator Bayh. Thank you very much, Mr. Chairman. And thank
you for holding this hearing today.
As Senator Gramm mentioned, it really involves more than
economics and just housing per se. It really involves here the
American Dream and what percentage of the American people have
the opportunity to achieve the American Dream, as Senator Gramm
said, or having a stake in the economic vitality of the
country.
Mr. Chairman, as you mentioned, for too many Americans,
this is still beyond their means. Nearly five million very low-
income people, defined as those 50 percent at the median income
level and below, live with worst-case housing needs. Ninety-
four percent of these families, I think as you mentioned, Mr.
Chairman pay more than half of their income each month in rent.
So for these Americans, affordability is a very real issue.
And I think about 11 percent, Mr. Chairman, live in every
substandard housing conditions. With all of the progress that
has been made, we still have important work to do.
As we focus on these important housing needs, I would like
to raise an issue that directly impacts the housing and
community development of my State of Indiana, Mr. Secretary. I
believe it also affects this important issue in Senator
Santorum's State, and Senator Allard's State.
Over the previous months, we have been seeking a
legislative remedy to a number of technical limitations that
the community builders, in conjunction with the cities of
Indianapolis, Pittsburgh, and Denver, have encountered under
the Multifamily Assisted Housing Reform and Affordability Act.
Our amendment would allow the community builders in the
cities of Indianapolis, Pittsburgh, and Denver to replace old
and dilapidated public housing buildings with new townhouse-
styled housing for low income families. We proposed an
amendment that, according to the CBO, would have almost no
cost. Our proposals are based on plans that are supported by
the tenants and the mayors of all three communities.
Mr. Secretary, without this legislative fix, the project at
Indianapolis will not be able to go forward. The property would
remain in HUD's hands and end up costing the American taxpayers
more money. This is just the kind of wasteful, senseless
outcome that has really led too many Americans to not have
confidence in government's competence to manage our affairs.
And I regret to report, Mr. Secretary, that so far, HUD has
not been very cooperative. As a matter of fact, has obstructed
our ability to get this amendment passed and continues to
obstruct our ability to get this amendment passed. In fact, I
have been informed that your staff has not been very responsive
at all and has really been unwilling to engage in any
meaningful discussions about this amendment whatsoever.
I cannot stress enough the importance of this proposal to
low-income families in Indianapolis and the economic
development of our capital city. If this legislative remedy
does not go forward, HUD will have caused the City of
Indianapolis and other communities to undergo a substantial
setback in the area of affordable housing.
So it is my hope that this initial reaction by the
Department and the staff will not cause you to not address this
issue in a positive manner. I hope that we can have a dialogue
here later today about a prompt resolution of this matter
because it is important.
Until then, Mr. Secretary, I must say that my confidence in
the Department has been undermined to such a degree, that every
appointment and every item in the budget deserves added
scrutiny, because if HUD can be so in error and unresponsive on
this important matter, quite frankly, the possibility of error
and unresponsiveness on other important matters is heightened
in my mind.
I regret the need to point this out to you today, but we
have tried continually and just have not gotten any
satisfactory response yet. So I hope we will have an
opportunity to address this and again, I thank you for coming,
and I look forward to working with you on this issue.
Secretary Martinez. Thank you, Senator.
Chairman Sarbanes. Thank you very much, Senator Bayh.
Mr. Secretary, I might say, I have discussed this
Indianapolis situation with Senator Bayh and it seems to me the
merits are very strong in favor of what Senator Bayh has said.
And we hope that the Department can take a more careful look at
that situation.
Secretary Martinez. What I would like to do, Senator, if I
may, is just comment momentarily on this, is to give you our
reasoning and then, of course, this lies within the prerogative
of the Congress as to what you wish to do with the proposed
amendment. But I want you to understand at least where we are
coming from.
It is not our desire to be obstructive and it is not our
desire not to cooperate with what seems to me an obvious good
reason. But there are some policy implications that you should
be aware of, and then you can make a judgment as to----
Chairman Sarbanes. Well, we may pursue that during the
question and answer period.
Senator Bayh. I would be happy to. It does lie within the
prerogative of Congress, Mr. Secretary. But my understanding is
that the House conferees have been carrying HUD's water on this
issue.
Secretary Martinez. Well, do we want to go ahead and get
into it now, or should I wait?
Senator Bayh. No, wait.
Chairman Sarbanes. Why don't we wait. I hear a rumbling
here about waiting.
[Laughter.]
Senator Crapo.
STATEMENT OF SENATOR MIKE CRAPO
Senator Crapo. Thank you very much, Mr. Chairman. Mr.
Secretary we appreciate you coming to visit with us today about
the critical issues we are going to cover.
And I appreciate the fact that you will not be able to
discuss the fiscal year 2003 budget in any detail. But I
believe that we can discuss a number of the critical issues
relating to the core mission of HUD, which has already been
indicated to be helping families get affordable and good
housing.
In reviewing your testimony that you have prepared, I was
pleased to note the strong support that HUD is giving to the
kinds of programs that do make a big difference for those who
would like to get into first-time homeownership and to improve
their homeownership situation, as well as focusing on those who
may not be in a position to seek homeownership, but will need
to have rental opportunities that are important to them.
I was pleased in particular to see that you were a strong
advocate for the Habitat for Humanity program and I think most
of us here have participated in that in one way or another. But
it is good to see HUD focusing on programs that recognize that
the right kind of policies that we need to pursue in this
country to truly make a difference.
I believe the more we recognize what happens in the
marketplace and how we can incentivize and provide the
opportunities for people to obtain first-time homeownership or
to improve their homeownership circumstances, or to get better
advantages in the rental markets, then we will make a very big
difference. I also was very pleased to see that you have a
strong focus on reform of RESPA--the Real Estate Settlement
Procedures Act.
I believe that that is one of the things that can make a
very big difference in this country. As we have seen the
regulatory burdens and the bureaucracy around the mortgage
process and just the process that a person has to go through to
purchase a home increase to the point where it has become an
economic obstruction to the ability to purchase a home. I will
not go into any other details, except to say that I wish that I
had talked to Senator Gramm before this hearing today.
I was criticized in my home State about a week ago by a
newspaper editorial, amazingly, in my opinion, for supporting a
tax credit for first-time homebuyers. I wrote back what I
thought was a fabulous response, but I missed one really good
reason that I did not know about that Senator Gramm has
identified here. And that is the political aspect of
homeownership. So I am going to investigate that a little bit
further.
However I believe that we have to do everything we can in
this country to focus on the right kind of policies to increase
the opportunities for all Americans for homeownership in
particular. And I appreciate the work that the Department is
undergoing to identify the right policies that we need to focus
on and give us guidance here in Congress as we develop the
national policy.
Thank you.
Chairman Sarbanes. Thank you very much, Senator Crapo.
Senator Miller.
COMMENT OF SENATOR ZELL MILLER
Senator Miller. Thank you, Mr. Chairman, and thank you, Mr.
Secretary.
I have no statement at this time.
Chairman Sarbanes. Thank you.
Senator Bunning.
COMMENTS OF SENATOR JIM BUNNING
Senator Bunning. Thank you, Mr. Chairman, for holding this
very important hearing. And I would like to thank the Secretary
for taking time out of his busy schedule to testify before us
today.
We have already heard from many different interest groups,
housing experts and State and local authorities, on what they
think should be in HUD's budget. Now we are going to get a
chance to hear from you. Since everyone here is much more
interested in your statement than mine, I will stop now.
[Laughter.]
Secretary Martinez. Thank you.
Chairman Sarbanes. Senator Stabenow.
STATEMENT OF SENATOR DEBBIE STABENOW
Senator Stabenow. Thank you, Mr. Chairman. I would submit
my full statement for the record.
But I do want to welcome the Secretary and stress, as my
colleagues have, that we are all aware that there is no
question that we face a critical housing shortage in this
country and that we all have a responsibility to work together
to address this on behalf of our families.
In Michigan, a person must make $12.35 an hour in order to
be able to afford a two-bedroom unit at fair market rent using
the 30 percent of his or her housing expenses, as has been
indicated on the chart. This is 2\1/2\ times the minimum wage.
It is not just in Michigan, but across the country, that we
have families that are working hard every day and struggling to
be able to provide housing and a roof over their heads for
their children.
Further, in the midst of the recession, with mixed signals
about when we will see an economic recovery, there is going to
be an even greater demand for HUD services in the coming year.
So we have a real challenge in front of us. And I must say, Mr.
Secretary, that when you came before the Committee last April,
I expressed my disappointment in the White House-proposed HUD
budget at that time. And as the Chairman and others had pointed
out, there were serious accounting questions such as how yet
unexpended but already obligated funds were treated. And
equally alarming, the White House budget consolidated funds in
a way that are forcing those underfunded programs to compete
against each other.
I am also very concerned about the fact that the Public
Housing Drug Elimination Program earmark was eliminated and I
am hopeful that in this coming budget, that you will explain to
us how you intend to move forward through the HUD budget in
promoting a comprehensive drug prevention strategy because,
certainly, the challenges have not gone away and the safety
issues for our families have not gone away just because we have
not been designating specific dollars for drug treatment and
drug enforcement programs.
I would also indicate that as we are talking about HUD
programs and the importance of homeownership, that I would urge
you to continue to be supportive and to speak out on issues of
predatory lending, when we do have our low-income or moderate-
income homeowners that find themselves with equity in their
home and then they become victims to predatory lending, to
attempt to strip that equity out of their home.
We are defeating the whole goal of homeownership and the
ability to save through equity in a home. And I am very
appreciative of the Chairman's leadership on the issues of
predatory lending and see that there is a direct correlation.
And finally, Mr. Chairman, I would just, on a personal note
from Michigan, want to indicate that the holiday tree in front
of the U.S. Capitol is from the great State of Michigan this
year. It is called the Tree of Hope.
And I mention it because we have made a commitment that the
lumber from this 73-foot tall tree that is 44 feet wide will be
going back to lumber for Habitat for Humanity homes in
Michigan. It is a very strong commitment on the part of all of
us in Michigan that that excellent program is part of our
housing strategy.
Chairman Sarbanes. Thank you very much, Senator Stabenow.
Senator Corzine.
STATEMENT OF SENATOR JON S. CORZINE
Senator Corzine. Thank you very much, Mr. Chairman, and I
appreciate your holding this hearing as well.
I certainly welcome the Secretary. I want to identify with
the remarks from the Senator from Texas. I do not know whether
I am correlated with homeownership in the vote that we have
gotten, but it is a fundamental foundation to the success of
our Nation. That is why this issue is so important.
Frankly, I am very concerned about the growing depth and
lack of affordable housing. I will not cite the statistics that
a number of my colleagues have on worst-case needs and the
growing percentage of people there.
I will cite in my own home State, we beat Michigan. It is
$17.87 an hour to afford fair market rent for a two-bedroom
dwelling. It is the third-highest in the country. And we have a
very real and growing homeless problem because of lack of
affordable housing. It is over three times the minimum wage and
is a serious burden for people who live in our community.
I also identify seriously with accountability and making
sure we have efficient programs. But the commitment that we
have made not only in this Administration, but over the last 25
or 30 years, is less than I think is reflective of the needs of
our country or the value of homeownership and quality living.
When we have only gone from a budget of $29.2 billion in
1976, which we heard in testimony 2 weeks ago, to a budget of
$30 billion, when you put that in the context of cuts in the
public housing capital fund that were in last year's program,
the zeroing-out of the Public Housing Drug Elimination Program,
which you and I have talked about before, I have very serious
concerns and many issues raised by the people in my community
about this.
I have serious concerns whether the commitment to this is
more than words. I believe we need to both have accountable
programs that work, but we also need to make sure that we
invest properly to make sure it happens.
I also want to align myself with comments made by Senator
Stabenow on predatory lending. To the best of my knowledge, of
understanding what yield-spread premiums are about, it is going
to exacerbate some of those problems, some of the new rulings,
to the extent that I understand how the secondary mortgage
market works. And I am concerned whether it is moving in the
right direction on those concerns.
I look forward to your testimony. I know your desire to
have a strong and affordable housing base is sincere and I
really do want to work with you to make that commitment
something that works for working families and families across
this country.
Chairman Sarbanes. Thanks very much, Jon.
I might note to the Members of the Committee, that the
Federal Reserve Board yesterday, in a unanimous decision,
approved amendments to the implementing regulations of HOEPA,
which will enhance consumer protections for mortgage borrowers.
So it is a very significant and important step in this effort
to deal with the predatory lending issue.
Mr. Secretary, we are pleased you are here. We look forward
now to hearing from you. This actually gives all the Members of
the Committee an opportunity to kind of leave their concerns
with you as we prepare to complete the first session of this
Congress.
So please go ahead.
STATEMENT OF MEL MARTINEZ, SECRETARY
U.S. DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT
Secretary Martinez. Well, first of all, Chairman Sarbanes,
and Ranking Member Gramm, and distinguished Members of the
Committee, it is a pleasure to be here with you today. I
appreciate the invitation and I am delighted to talk with you
about the ways in which the Department of Housing and Urban
Development is trying to address the needs of the housing
community in our country.
I also want to begin by thanking you, Mr. Chairman, and the
Members of this Committee, for the advice, assistance, and your
expertise as I have settled into this new community for me and
new job. I also appreciate the positive working relationship
that we have had. I also want at this time to thank you and the
Members of the Committee, Mr. Chairman, for the timely action
on all of the nominees. We still have a few pending, as we
discussed. It has made a very important part of the process
come to fruition.
I am very pleased with the people that have joined me at
HUD. I think we have surrounded ourselves with people with
public- and private-sector experience, with a great diversity
of background and experience. And with your continued
assistance, we hope to have our entire management team in place
in the very near future.
Chairman Sarbanes. The ones that are pending just got here.
But we will see what we can do in the next few days.
Secretary Martinez. One has been here. Two others just got
here, correct. None have been delayed, by the way. It is all
been happening pretty quickly. So we are just anxious to get it
done, hopefully, before the break would be wonderful.
I should tell you that our job at HUD is made easier by the
support of a President who is committed to HUD's mission of
serving those in need, as well as revitalizing our urban
centers.
President Bush is an active advocate for our work at HUD.
He speaks passionately about the dreams a family can achieve
through homeownership. He has joined me on two occasions to
stress that point by building homes with Habitat for Humanity
and wants to triple the funding for HUD for the programs that
support the good work of Habitat and other like organizations.
President Bush has directed this Department to serve those in
need, and I strongly believe that we have a real opportunity to
help more of them achieve their own American Dream. Despite the
success of welfare reform, too many families still live below
the poverty line. As a catalyst in our communities, HUD is
putting its resources to work empowering citizens to lift
themselves out of poverty and into prosperity. We have touched
many lives this year in many different ways.
The Department reacted quickly and energetically after the
events of September 11. I immediately required lenders to
provide relief on FHA-insured mortgages for families of the
victims and we urged conventional lenders to do the same. They
responded and we have protected these families from the
possibility of losing their homes. A short time later,
Secretary Rumsfeld and I also announced the activation of the
Soldiers and Sailors Relief Act, which provides assistance to
National Guardsmen and Reservists who are called to active
duty. It helps with their leases and it helps to ensure that
they do not become prey to foreclosures. It also assists in
keeping the interest rate at no more than 6 percent.
We all heard the news reports that housing rights of some
Muslims, Arabs, Indians, and Pakistanis in our country were
being threatened as a reaction to the violent attacks. I made
it clear in a letter to more than one million realtors,
bankers, home-builders, landlords, and other concerned parties
that our country's laws enforced by HUD do not allow any
individuals seeking housing to be singled out and discriminated
against because of their heritage or religious beliefs.
HUD is also providing an additional $700 million in
Community Development Block Grant funds to help stimulate New
York City's economic recovery. We also allowed waivers of
regulatory provisions for the HOME, Section 8, and public
housing programs for the City of New York.
Helping families find affordable and decent housing has
always been one of HUD's core missions. This means ensuring
housing opportunities for those who rent, whether out of
necessity or by choice. It also means creating new
opportunities for homeownership so that more families can
achieve what is envied around the world know as the American
Dream of homeownership.
Soon after arriving at HUD, I took steps to focus the
Department's attention on meeting these critical housing needs.
As the Chairman pointed out, the Census Bureau reported in
October that the homeownership rate reached an all-time high at
68.1 percent of all Americans. Historically, minority
homeownership rates have been lower than the rest of the
population. Minority homeownership stands at 49.2 percent, and
while this is a record high and positive news, we must continue
to do more to close this gap.
This year, HUD reached out to thousands of low-income
families who find the road to homeownership blocked by high
downpay-
ments and as a result proposed the President's American Dream
Downpayment Fund. We also put forward a new Federal Housing
Administration hybrid adjustable rate mortgage which promotes
homeownership by reducing initial home-buying costs. I thank
the Congress for taking action on these two important
initiatives.
If we are to expand the ranks of America's homeowners, we
must address the challenge of making the home-buying experience
less complicated, the paperwork demands less time-consuming,
and the mortgage process itself less expensive.
To ensure that homeowners have information they need in
order to make informed choices in the financing of their homes
and settlement services, I have initiated an overhaul of the
Real Estate Settlement Procedures Act rules. My intention is to
improve the process of obtaining a mortgage so that consumers
get simpler, clearer, and easier disclosure, thereby allowing
them to effectively shop for the best mortgage to meet their
needs.
My goal is to reduce the cost of a mortgage through
informed shopping and competition. We also have preserved
yield-spread premium as a valuable tool for opening the doors
to homeownership. And Mr. Chairman, while I know we have a
point of disagreement on that issue, and I know we may discuss
it at more length at another time, I do want you to understand
that Mr. Weicher's comments about Culpepper are rooted in the
fact that the Culpepper decision itself found that our rule,
the 1999 HUD rule, was ambiguous, and we felt it was important
to clarify that ambiguity. The needs for RESPA reform is even
more urgent during times of economic uncertainty. Homeownership
helps create financial stability for families. It also helps
Senators from Texas. But it also returns and brings economic
stability to our communities.
Homeownership is an important goal, but it is obviously not
an option for everyone. I appreciate the need to expand the
availability of affordable rental housing and ensure quality
and options for its residents. The just-enacted 25 percent
increase in the limits for FHA multifamily insurance will help
to spur the construction and rehabilitation of affordable
rental housing. I am also awaiting the recommendations of the
Millennial Housing Commission as we look for ways to increase
the supply of affordable housing and I will continue to urge
our partners in the industry to do more in the area of
affordable housing.
On the issue of affordable housing, and I would like to
just point out that the fair market rent, which is a median
rent, which is the basis of the chart, Mr. Chairman, is not the
minimum housing, but it is a much higher standard. Most poor
people are not seeking median housing. They are seeking minimum
housing. So I think the standard of the chart and the premise
of it may be subject to some discussion as to where we may end
up on that.
Predatory lending and property flipping are abusive
practices that continue to plague homebuyers in cities across
the country. Senator Sarbanes, the Administration is
particularly concerned about the situation in Baltimore. Since
April, our Housing Fraud Initiative has resulted in 40
indictments, six Federal arrests, two State arrests, 27
successful prosecutions, and 66 debarments. We have provided
relocation assistance to 46 families. We also worked with you,
Mr. Chairman, to develop the Credit Watch legislation that was
included in the fiscal year 2002 budget.
I am pleased with these accomplishments, but we know that
there is more work to be done. HUD remains committed to
addressing the problems in Baltimore, and we feel confident
that the lessons that we are learning there can be applied
around the country.
Exposure to lead-based paint is a serious problem and one
that citizens, especially low-income citizens, deal with every
day. Every American child deserves the opportunity to grow up
in a healthy home, safe from the debilitating and often
irreversible effects of lead exposure. Because the most common
source of exposure is lead paint in older housing, HUD has a
critical role in protecting our children. HUD awarded more than
$67 million in grants nationwide in October to protect children
from lead-based paint, with a focus on eliminating lead hazards
in low-income housing.
At HUD, we are working to ease the daily struggles of those
who live in the most difficult circumstances. And those
certainly include the people in the colonias. Earlier this
year, I traveled to the colonias--the communities along the
United States-Mexico border that are steeped in poverty--to see
the difficult living conditions for myself and to put in place
a game plan for help. HUD has stepped in to offer assistance
through grants that will bring water and sewer hook-ups, and a
Colonias Task Force that I established to ensure that HUD
programs make an impact in these communities.
In January, President Bush directed HUD to assist in his
Faith-Based and Community Initiatives. We have studied the
barriers that prevent grassroots social service providers from
reaching out in partnership with the Federal Government to help
Americans in need. HUD has prepared a report examining what the
Department can do through regulatory and management
improvements to level the playing field and encourage greater
acts of charity in our communities, while preserving necessary
constitutional safeguards.
I would urge the Senate to take up the President's faith-
based legislation before the Congress adjourns. This
legislation is critical to helping HUD expand its partnerships
with groups working to meet housing needs of low-income
Americans, the elderly, the disabled, and those living with
HIV/AIDS.
HUD has a special duty to the Nation's vulnerable
population and this includes those who have no place that they
can call home. Last month, President Bush announced the
awarding of more than $1 billion to organizations serving
homeless Americans--the largest homeless assistance in history.
To streamline and focus the
response of the many Federal agencies involved in delivering
homeless services, I have reactivated the Interagency Council
on the Homeless, which had been inactive for more than 5 years.
In addition, the Administration remains committed to
expanding housing opportunities for people with disabilities.
For example, the voluntary compliance agreement signed recently
with the District of Columbia Housing Authority will provide
more than 500 fully accessible public housing units to disabled
residents. HUD continues to strive to ensure equal housing
opportunities for all.
During the confirmation process, Mr. Chairman, I was led to
understand from many Members of this Committee that HUD was
plagued by mismanagement at many levels. I understood that
meeting the needs of the American people meant improving HUD's
management, and I assure you that I was prepared to take on
this challenge.
In the past 11 months, HUD has significantly streamlined
its management structure to improve the quality and delivery of
services and restore the agency's credibility in the eyes of
the Congress and the American people.
I set a goal that HUD address audit findings made by the
Inspector General in a timely manner and make corrections that
actually fix serious management problems. As a telling sign
that we are committed to doing better, HUD completed the 6
month period ending September 30, with no overdue management
decisions on any audit of the Inspector General that has 363
audit recommendations. This is only the second time that HUD
has met the goal of no overdue decisions in all the years that
the OIG has been reporting audit resolution activity to the
Congress. Our goal is to deliver the best possible services to
those in need and we have moved aggressively to ensure that HUD
programs are getting the job done.
With the support of the National Education Association, the
American Federation of Teachers and the Fraternal Order of
Police, I suspended HUD's Officer and Teacher Next Door Program
in April. This came after criminal charges were brought against
buyers who purchased their homes fraudulently. We put into
place aggressive monitoring and tightening controls to prevent
homebuyer fraud and restarted the programs in August.
Working with the Congress, we terminated HUD's drug
elimination program this year. This was a well-intentioned
program that suffered from a large number of abuses, and
duplicated the work of other Cabinet Departments. Despite the
termination of this program, HUD's commitment to ensuring safe
and drug-free homes for American families has not wavered. In
fact, to partially offset the elimination of this program, the
President's fiscal year 2002 budget proposed, and the Congress
appropriated, an enhancement of the Public Housing Operating
Subsidies, which local officials may use at their discretion,
including for activities formerly supported by the drug
elimination program. I will work with the Office of National
Drug Control Policy to determine how best to capture and
account for departmental funds used for drug control
activities. In addition, I am working with the ONDCP, the
Department of Justice, and other agencies in exploring ways to
effectively meet this commitment.
Until this year, HUD's credit subsidy--which was used to
cover expected losses on FHA multifamily loans--was fraught
with uncertainty due to regular appropriations shortfalls. The
department restructured the program to make it more self-
sufficient and less dependent on taxpayer dollars. Since the
restructuring became effective on October 1, 2001, HUD has
issued firm commitments
totaling $869 million for more than 10,000 housing units,
nearly double the amount of the previous year.
I am proud of the strides we have made in identifying the
programs that are meeting the needs of the people and
identifying and fixing those that are not. HUD is quickly
becoming a more efficient, more effective provider of the
services no agency but ours can deliver. Mr. Chairman, I look
forward to dealing with some of the questions that have been
raised.
In closing, I just want to mention to you that I well
understand that housing is really a nonpartisan issue, one that
crosses the lines of party and politics, and I look forward to
working with the Committee, and continuing to work with the
Committee, in that spirit that will guide us into the future in
a way that I believe will help the people of our country.
Chairman Sarbanes. Thank you very much, Mr. Secretary. We
appreciate your statement.
I would note that my understanding is that the fair market
rent is set at the 40th percentile of rents in a metro area,
not at the median. But we will develop that point.
Secretary Martinez. We should probably have some discussion
on that. I think it would be good for all of us to be sure we
have numbers that we can agree on.
Chairman Sarbanes. There is a vote scheduled for 11:00 a.m.
Since I will be here in any event until the conclusion of the
hearing, I know there may be colleagues who may not be able to
return. And so, I am going to yield my time to any such
colleague so that they have an opportunity now to engage in a
discussion.
Senator Gramm.
Senator Gramm. Mr. Chairman, thank you very much.
Mel, I want to raise one issue. I know how we can cut the
cost of buying a house by between a quarter and a third for
people that are participating in Federal programs aimed at
lowering the cost of buying a house. And the way to do it is to
do something about title insurance.
Now let me make it clear that I am sure that everybody in
the title insurance business are very fine people. It is not a
question of any abuse whatsoever. I worked very hard against a
determined lobbying effort to open up title insurance in our
Financial Services Modernization Act. But that is not going to
solve the problem.
The problem with title insurance is that the entity that
requires it does not pay for it. So it is costless to the
lender to require the title insurance. And basically, what
happens is that I buy a title policy when I buy a house. They
thoroughly search the deed. And then I sell the house to
somebody else and in their closing, they have to buy a brand-
new policy which does not build on the policy I have. We have
had some minor reform when people refinance their note under
certain circumstances. But even there, often you have to buy a
new policy.
Now I am not saying that title insurance does not add
value. But I am saying that it adds nothing like the value that
it costs. And what has happened is--I do not know whether it is
the power of the lobby or whether it is just inertia. But it
seems to me that if a lot of the Government programs, including
Freddie Mac and Fannie Mae, change their policy on title
insurance. I mean, it is not as if this is a country that has
clouded title any more. The risks involved in not having title
insurance are minuscule as compared to the cost. And we are
talking about big dollars on a closing.
I urge you to get your people to look at somebody who is
getting Federal assistance, FHA or some similar program, look
at their closing statements and look at the big chunk of money
for title insurance. This cries out for something to be done
about it. I just want to urge you to look at this. We could
probably do more by fixing that than any increase in
appropriations for HUD for housing that will be made in the
next 8 years combined.
This is a really big item and you are going to run into a
buzzsaw of political opposition in doing it. But heaven knows,
it is the right thing. And I want to urge you to please look at
this thing. This should be fixed. And it is not as if this is
some trivial issue. The title insurance policy on the kind of
house that the people who worked hard and bought their first
home in Texas, and you look at what they have to put down on
it, it is a big item.
So I want you to look at it and figure what you could do in
changing your policy to do something about this requirement of
title insurance. My guess is the cost, the social cost of its
elimination--and I am not saying--if people want to buy it,
great. But you are making them buy it. Your programs are making
them buy it. And my guess is the social cost of not having it
would not be one tenth of the cost of purchasing the policies,
maybe not one hundredth. So anything in that range--I made
those numbers up. But my guess is they are true.
[Laughter.]
Anything in that range ought to be looked at. And I plead
with HUD to do that.
Secretary Martinez. Thank you, Senator. I will take that to
heart. And this is part of this comprehensive RESPA review that
we are doing.
The fact is that the whole settlement process of homebuying
and even refinancing is not transparent enough. There is not
enough clarity in it. People do not know what they are paying
for a lot of times. And the bottom line is that the
mysteriousness of the process does not allow them to also
compete for services. That gets back to the issue of yields per
premium, a perfectly legitimate tool to assist the homebuyer
with the initial cost. But at the same time, badly abused. And
so, as we go through this process, I think that we will add
title insurance to the list. I believe it is always on that
list and I am aware of what you are discussing.
Senator Gramm. Well, my guess is that most Americans have
never had a closing that was not unpleasant.
Secretary Martinez. Or that they understood, by the way.
Senator Gramm. Well, because they did not understand it
going in and they felt gouged.
Secretary Martinez. And typically, because the good faith
estimate was not particularly accurate at the end of the
transaction where they had to come up with even more money. So
this is what this RESPA effort that I am now undertaking is
going to try to do. It is going to be controversial, I warn you
now. It is going to require--I am just planning to call them as
I see them, and that includes your suggestion.
Senator Gramm. You look at title insurance.
Secretary Martinez. So we will be there. Thank you.
Chairman Sarbanes. Senator Reed.
Senator Reed. Thank you very much, Mr. Chairman. And thank
you, Mr. Secretary, for your testimony.
The FHA multifamily program has shut down because of a lack
of credit subsidies. And the industry estimates that just the
last year alone, 55,000 apartments were not built because the
program stopped. In an effort to ensure that the programs are
able to continue in the future, HUD increased premiums on the
program.
There are many in the industry that would argue that if the
credit subsidy is calculated and allocated properly, there
would be no need to increase the insurance and the subsidy
would be adequate for a full year of production. And when
Secretary Weicher was here, he commendably volunteered to work
with industry to try to resolve the issue. I wonder, has HUD
completed its review? And if so, can you share your findings
with us?
Secretary Martinez. I am not at this point able to share
the findings with you. We are closing in on that process, and I
believe it will be positive news to the industry. But I do not
think that we are in a position today where I can disclose the
numbers to you.
One thing that I will say, by the way, that the elimination
of the subsidy has had a very positive effect. I think the dire
warnings that there would be a stop to multifamily housing
production have not taken place and, in fact, the numbers that
I have discussed in my testimony suggest that there has been
almost a doubling of the business that we did a year before. So
I believe the certainty of the subsidy being there, even at a
premium increase, is well worth the offset of having a subsidy
that was there and not there.
But we will get back to you very soon with some finality to
that. And as I say, my sense is that the 80 basis points is
higher than it is going to be in the future.
Senator Reed. Well, thank you, Mr. Secretary. Again, I
think this is an important issue because we all, I believe, and
hope, recognize that there is a production problem in the
country that is causing higher rental rates in terms of payment
of rents. This seems to me not completely costless, but a very
efficient way to perhaps increase production.
Secretary Martinez. Another way, I might point out, to
increase production, the Congress just acted in the prior
budget year on the 25 percent increase of FHA minimums for
multifamily housing.
This again is going to have a very positive effect. We are
already seeing the impacts of that. We are getting loan
applications from communities that we had not heard from in
many years--Los Angeles--I cannot think of others, but three or
four around the country, where very pointedly, they are coming
in now where none had in the past. So, clearly, this raising of
the loan limits for FHA multifamily, the credit subsidy issue,
there are several things that I think we have done already and
are in the process of doing, I believe will have a very
positive impact on the affordable housing shortage around the
country.
One other thing I will say on that issue, too, Senator, is
the fact that I believe dislodging HUD's management tangle with
improved management in our field operations, more direct
reporting, more autonomy in the local field offices, will make
HUD a more, develop a friendly agency, which will encourage
people who have not been in the affordable housing business, to
perhaps get back in it and gin up production of multifamily
housing in the affordable area.
Senator Reed. Thank you, Mr. Secretary. Let me turn to
another issue--the mark-to-market reauthorization legislation.
We have tried to move it expeditiously through the
Congress. One reason is that there was a fear that the staff of
OMHAR would leave if there was an uncertain resolution to the
mark-to-market. We are hearing now that because HUD has not
moved quickly enough, that the staff is leaving and that the
program integrity is being lost because the very skilled people
are leaving there or propose to leave there. Can you comment
upon that situation?
Secretary Martinez. There is a long lingering sensitivity
between the Department and OMHAR, that the direction in which
it is moving is to be part of HUD in a more integrated way.
I think that we are doing all that we can in what is a
difficult situation in terms of just people and personalities
and so forth. But, ultimately, OMHAR, which took a long time to
ramp up and do the things that we needed it to do, is now
moving in a positive direction. We want that to continue to
occur. We hope that the
people who are there will choose to continue to be employed by
the restructured OMHAR. The program is vitally important to
keeping a lot of affordable housing out there. And we will do
all we can within reason to keep those people and to make that
transition as smooth as possible.
Senator Reed. Thank you, Mr. Secretary.
Turning to another issue, and that is Section 8 vouchers.
One of the challenges that you face is the increased cost of
renewing Section 8 vouchers as we go forward. Those costs
increase both to cover the natural cost of inflation and
because a number of long-term contracts are expiring and need
to be renewed. We heard an estimate at our last hearing that
the cost of renewing Section 8 will be about $1.8 billion next
year. I wonder if you have a sense of whether or not that
number is accurate and also, whether or not you will have the
resources to cover those costs.
Secretary Martinez. I think the number is too high. I think
the number is lower than that. It is still a substantial
figure. The whole issue of Section 8, whether it be project-
based or tenant-based, I think that while it provides a very
useful vehicle for families to receive rental assistance, the
fact is that one of the real problems in the Section 8 program,
as we always see increased vouchers, is the recaptures. About
$2\1/2\ billion of Section 8 vouchers come back and get
recaptured every year and then get spent in things other than
housing.
I would like to see the Congress in this coming budget year
to give us the authorization to reallocate Section 8 vouchers
on a permanent basis because we just have to face the fact that
Section 8 vouchers work in some communities, and do not work as
well in others. There is a historical pattern where some
entitles at the local level are able to use all their Section 8
vouchers and have a waiting list and there are others where
they year after year do not get used. We need to be able to
equalize that in a better way than we have been able to do in
the past.
Senator Reed. Well, let me make a final comment and yield
my time, whatever is remaining, back to the Chairman.
Secretary Martinez. Yes.
Senator Reed. In some respects, all roads seem to lead back
to production, or at least availability of affordable housing,
because if you do not have enough money to renew the Section 8
voucher program, then you will lose units. And indeed, if you
are struggling with renewal of Section 8's versus other housing
production programs, and with respect to the nonuse of Section
8, many times--and I am speaking from my experience in Rhode
Island--it is the fact that the voucher just does not cover the
prevailing rent, and that people have a voucher. They walk
around with it for a couple of weeks or months, and they cannot
find anything that they can spend it on. And as a result, they
are turned back, which goes again back to production, to having
affordable housing there that they can use the vouchers.
So I thank you, Mr. Secretary, not only for your testimony
today, but for your leadership.
Secretary Martinez. Thank you.
Chairman Sarbanes. Senator Allard.
Mr. Secretary, I might point out, Senator Bayh had to go
preside in the Senate at 11:00 a.m. And he said he will get in
touch with you personally and take up the Indianapolis issue.
Secretary Martinez. I think I would like to get with the
Senator, and perhaps Senator Santorum and perhaps Senator
Allard as well, and have our Housing Commissioner and go
through a thorough explanation of what I think is a honest
difference of opinion that I think bears no relationship to
whether, frankly, our nominees are qualified people or not. But
the bottom line is that I want to resolve it in a way that at
least allows us to agree to disagree, but at least to
understand the basis for it.
It is not a desire to obstruct or not do something that
appears to be sensible. It is something that would be quite a
departure from current policy, to policy that has not been in
effect since 1983, and frankly, I am being told would have a
significant cost implication by subsidizing the rentals in
these units for the next 20 years.
It is something that the Department a long time ago quit
doing. And so, the bottom line is that there is clearly--I see
some heads shaking behind you, Mr. Chairman and the fact is
that there is obviously not a common view of the problem.
So we should sit down and resolve it and probably, this
would not be the best place. But I am happy for Mr. Weicher and
myself to visit with the Senators.
Chairman Sarbanes. Well, if he were here, it might be the
best place. But he is not here because he does not control the
situation. He had to be where he had to be.
Secretary Martinez. I understand.
Chairman Sarbanes. Senator Allard.
Senator Allard. Well, just to follow up on Senator Bayh's
concerns. We have a similar concern in my State of Colorado.
My understanding of the way the appropriations process is
working right now is that the project in Pennsylvania is going
to get
accepted by the appropriators and the one in Indianapolis and
Denver, Colorado, is not.
And if that is the case, then I think you need to relook at
that because I think when you do it piecemeal like this, and if
the appropriators can go ahead and do that, then I think that
is the problem. Now I may be misinformed on that.
Secretary Martinez. We clearly would oppose that. We do not
favor the program in any one of the situations involved. They
are all the same in terms of the implications to what I believe
existing policy to be.
Senator Allard. But the fact is that the appropriator might
have the final say on that.
Secretary Martinez. Correct.
Senator Allard. And that may mean that the Pennsylvania
project gets treated a little differently than the one in
Indianapolis. And if that happens, then I think maybe we need
to sit down and review the whole program and see where we are
at, because once that begins to happen, then you are going to
have more projects.
Secretary Martinez. Basically, the difference is that we
have a program--the purpose of OMHAR, and this is through
OMHAR, is to preserve the properties that we now have, not to
tear them down and build new projects. This is to tear down and
rebuild. It is putting a Section 8--it is a HOPE VI spin on
Section 8.
Senator Allard. Yes.
Secretary Martinez. There is not a HOPE VI for Section 8.
HOPE VI is for public housing. So it is attempting to do what
HOPE VI does in the public housing arena, to do it in the
Section 8 arena.
Basically, Senator, the thing that I want to make clear is
that this is not out of some desire to just obstruct. It is out
of a very honestly and deeply held opinion that this is not the
direction that HUD has gone for many years. The restructuring
through OMHAR is not to do what this is intending to do.
And in addition to that, it is a major change in policy.
There would be about a thousand multifamily projects with
Section 8 contracts eligible that are due to expire in the next
3 years, and a lot of this could be coming on. So we are
starting a very significant precedent here if we do this.
I think with the eyes wide open as to what it implies, I
think that the Congress can make a choice about what it wishes
to do with it.
Senator Allard. I would just conclude my argument by making
this point.
It is rental facilities on the same lot, the same location.
What they determined is that it is easier and less expensive to
tear down what you have and build new, and that needs to be
looked at.
Secretary Martinez. Well, I have gone around and around
that with Senator Santorum on a few occasions. I think
basically we are trying to protect the way the program is
structured currently to be.
If it is the will of the Congress to change that and we
want to take a different approach and allow for--I mean, it
makes perfect sense. Senator Santorum has told me that this is
going to make a huge difference in this neighborhood. If this
does not happen, it is just going to be a bad project
continuing to----
Chairman Sarbanes. Well, if that is the case, why don't we
make it work? The same thing in Colorado.
Secretary Martinez. It ought to happen throughout. I do not
think it ought to be treated differently in one community as
another. The policy principles that we are opposed to are true
in all three projects. It is not any different.
Senator Allard. Let me move on, Mr. Chairman.
Secretary Martinez. Yes, sir.
Senator Allard. As you are aware, I am a strong proponent
about the results act, which is outcome-based management. I use
it in my business. When I was a Community Health Officer, we
used it. We used it in management of our city and it was used
in the management of the county in the area in which I grew up.
I believe that it is a good way to have accountability as
you move into the budget process where you have specific
measurable goals in which you can measure your outcomes. Will
HUD's budget reflect the use of outcome-based management
principles, either totally or partial? And if it is only
certain agencies, I would be interested to know which agencies
you would begin to move with.
Secretary Martinez. Senator, we are trying to do that
across the board. It lends itself more in some places than in
others. And I do not know that I can detail for you which
specifically today.
But the fact is that other principles in results management
are well validated in the private sector and I think Government
should operate with those same principles in mind.
I look at programs, for instance, and I want to mention one
in specific--Youth Build. It is a very popular program and it
gets funded very amply, and in fact, this year it got increases
beyond what we had asked for. I really question whether Youth
Build, for the amount we are spending, is having the kinds of
results that are warranted given the expenditure of the
dollars. I love kids and I love for young people to get a
start. If it had not been for people helping young people, I
would not be here sitting today.
But the fact of the matter is that we still have to be good
stewards. It is a program that when you do simple math and you
look at the per capita of it, I am not sure that it has the
bang for the buck that we would like to see. So I am not saying
by that it is not a program that we would continue, but the
fact of the matter is that we ought to look at it and decide
how we can make that program more effective to reach out to
more kids.
It is only a $65 million program only helping 3,300 kids.
Well, I was shocked when I saw how few kids we were helping
through that program. There ought to be a way to make that
apply to more.
Senator Allard. I think those kinds of programs get
identified if we apply the principles in the results act.
Secretary Martinez. Correct.
Senator Allard. I think it helps us as policymakers. There
may be another program that does a better job. And right there
within your budget, you can measure those results.
The other thing I wanted to bring up with you is, I have
been informed that you are working on a project to identify the
current number of programs in HUD. And I am wondering if you
have completed your survey or not and what you found out.
Secretary Martinez. Well, HUD is an agency where it has
been a repository of all good ideas at one time or another.
Some 350 programs are at HUD now. We are trying to identify
each and every single one and each and every single
authorization for the programs that we have.
We are not completed in that process. But I assure you,
what I am trying to do is have a better handle and, if we can,
combine programs, as we did with drug elimination. I think that
we are going to end up with in that vein is a much stronger
effort at drug fighting than we were by the drug elimination
grants that were going directly to the housing authorities. So
I believe that shows a willingness to try to correct something
that was not working appropriately and to reduce the programs
at HUD.
It is not about doing less for people. It is about how to
best do it for people. And so, in that context, we will
continue to aggressively look at our programs, try to continue
to focus on our core mission. I think that what happens
sometimes is that our good intentions leave us in places where
we end up not serving what we are there to do.
If we do not provide shelter in the homeless arena, no one
else can do that. But if we get bogged down and service
programs that are really more designed for departments like HHS
to carry out, or job training issues that are really more of
what Labor does better, or Education, the fact is that then the
shelter part of our programs suffer. And no one else is there
to provide the shelter part of our programs. So I am trying to
get better interaction with other Departments, creating the
interagency council on the homeless is a good example of that,
to try to make sure that we are at cross-departmental levels,
working to ensure and to better see our programs have the
desired effect.
Senator Allard. I want to congratulate you on trying to
stick with the core mission of HUD.
Mr. Chairman, you have been very generous with your time.
Thank you.
Chairman Sarbanes. Senator Stabenow.
Senator Stabenow. Thank you, Mr. Chairman. And again,
welcome, Mr. Secretary.
There is no question that I think we all support the
efforts to be effective with the resources available and to
certainly ask the tough questions and make sure that we are
meeting the goals, whether it is addressing homelessness--and
you have talked in the past about chronic homelessness.
I believe we also, as we are looking at those who are
chronically homeless, whether through addiction or mental
illness, that while we are addressing this population, we need
to also make sure that we are addressing those who are homeless
as a result of post-September 11, the economic downturn, and
that there are many challenges as it relates to the homeless
and those who are wishing to purchase housing and making sure
that that is available and that the right kind of quality of
life is available to those who are in housing in terms of
safety and so on.
I would like to go back to the issue of predatory lending
for a moment. I know that the Chairman talked about the Federal
Reserve and a very important change that they made as it
relates to HOEPA yesterday. And I congratulate the Federal
Reserve for moving forward. I know that Treasury Assistant
Secretary for Financial Institutions, Sheila Bair, has recently
been making comments on work that Treasury is undertaking to
address predatory lending, including setting up a formal task
force to develop best practices. And I am wondering if you are
working with Treasury or what your intent is in terms of the
issues of predatory lending.
Secretary Martinez. Well, first of all, overall, let me say
that we are very committed to the issues of predatory lending.
Our Department has been working with Treasury in the Home
Ownership and Equity Protection Act that the Chairman referred
to and the Acts that were taken by Treasury--I am sorry, by the
Fed--yesterday.
We continue to work very closely with the Baltimore task
force on predatory lending and are using that as a bit of an
example of what can be done in one community with very focused
effort.
We have given the resources and the people to stay the
course in Baltimore and to deal with predatory lending in one
of the communities where it was most rampant and most difficult
to stamp out. I think the results that I detailed are in my
opening statement and speak for the fact that it is working in
Baltimore. We look forward to replicating that in other
communities where predatory lending is a particularly difficult
problem.
So we are very much committed there and we continue to work
with Treasury. Some of these issues relate to TELA more than
they relate to things that we do at HUD. But nonetheless,
working very closely with them in whatever comes up in that
arena.
Senator Stabenow. Well, Mr. Secretary, I would invite you
to come work with us in Michigan. We have been following the
Baltimore model. Freddie Mac has been supporting our efforts in
Detroit through their program, called Don't Borrow Trouble.
We have a very broad coalition that includes Freddie Mac
and Fannie Mae and local lenders and fair housing alliance
members, nonprofits that are very focused on this issue. We
would very much welcome your involvement and HUD's involvement.
Let me just ask one other specific thing as it relates to
policies, because one of the things that has come up over and
over again as I have held community forums in Michigan and also
as a constituent of mine, Carol Mackey, testified before this
Committee back in July, on the issue of good faith estimates. I
am wondering what your position is as it relates to a good
faith estimate within 3 days of an application, whether or not
that is adequate, whether there should be penalty for either
failing to give the estimate or exceeding the costs of the
estimate.
We are hearing over and over again of the good faith
estimate 3 days before closing, substantially changing at the
time of closing, and individuals not having the opportunity to
look in detail at the changes, and finding, in fact, that what
they thought they were doing in terms of signing on the bottom
line, is very different from the reality of what happens at the
time of the closing on the loan. So do you have a position as
it relates to good faith estimates and consumer information
being given ahead of time?
Secretary Martinez. Absolutely, Senator. I think your
constituent is absolutely correct. It is a bad practice for the
public to receive a good faith estimate and only have 3 days to
react.
My hope is, and what we are doing through this RESPA review
of the rule process, is to try to give folks an opportunity to
have a firm estimate at the time of application.
So prior to giving any money, turning over any money, that
they would have a firm estimate of what the closing costs, the
settlement costs, are going to be. That will then allow the
consumer, with great transparency as to what is being charged
and why and the costs on each and every subject of the closing
costs. And the consumer then will have the opportunity to shop
before they put down any money.
The problem with the good faith estimate at the tail-end of
the process is it is only an estimate and it is not a firm
figure, often subject to change. But it is also at the end of
the process, when the person is now ready for closing. They
really have no option to shop for services, to shop the prices
of the settlement. So I am very committed to RESPA reform, and
that is at the core of what RESPA reform will be about.
Senator Stabenow. Thank you.
Secretary Martinez. Can comment on the issue of the
homeless?
Senator Stabenow. Yes.
Secretary Martinez. I believe that--I set a goal a few
months ago that we should eliminate or should end chronic
homelessness in a 10 year timeframe. Chronic homelessness is
probably a third to 50 percent of our homeless population, and
they are typically addicted or mentally ill. And they require a
whole host of support that they are not always now getting.
There is another very vulnerable segment of that population
of the homeless, which are the families. And oftentimes, that
gets overlooked when we talk about that issue.
You speak about vulnerable communities and post-September
11. I am well aware of the difficulties that some communities
face. My home community in central Florida has been terribly
impacted by the events--the stoppage in travel, people not
traveling to attractions, and air travel. It has had a very
devastating impact in that community.
And in fact, part of what I hope would happen is that, in
enacting the Faith-Based Initiatives now before the Senate,
that this will assist us in getting more entities at the local
level working with us and partnering with us to bring services
to homeless populations, to break down so many barriers that
are artificial, that really should not exist, and that will
level the playing field.
Right now, we can do business with big people, like Habitat
for Humanity. They have the resources to go through our very
complicated process of dealing with, as a faith-based
organization, of dealing with an agency like HUD. Smaller
organizations do not have the patience or the resources to hire
the lawyers and do the things they need to do to be able to do
business with us.
We look forward to streamlining that and making that
process more easy to access so that more organizations can work
with us and bring those services in partnership with our
dollars to local communities that need them.
Senator Stabenow. Let me just say in conclusion, Mr.
Chairman that I would share your concern about eliminating the
bureaucracy. I think that is a general challenge that we have
across the board as we are addressing Government programs.
And certainly in HUD, I would welcome your simplifying that
process, whether it be a current faith-based organization that
is currently working with HUD. We have many groups that,
regardless of what happens legislatively here, our faith-based
organizations, faith-based nonprofits, that do wonderful work,
that I would love to see expanded upon, as well as other
important, nonprofits. I think if you can see that so that
smaller organizations can be more directly involved, that would
be extremely helpful.
Let me just emphasize again that the chronic homeless are a
very important part of the homeless population. But as you
indicated, there is a broader group. And unfortunately,
oftentimes, when we start creating subsets, they end up being
pitted against each other for limited resources, rather than
expanding the resources to meet the true need of what is there.
So, I would challenge you to look beyond and to expand what is
available, working in partnership with the community to make
sure that we are addressing the real needs.
Thank you.
Chairman Sarbanes. Before I yield to Senator Corzine, I
just want to make sure of where you stand. Is it the HUD
position that it is not your job to provide supportive services
with respect to the homeless?
Secretary Martinez. No, that is not what I said. What I am
saying is that there are a number of programs.
Chairman Sarbanes. You said that you were going to focus on
bricks and mortar, as I understand it.
Secretary Martinez. Well, in a perfect world, Senator, we
would do just that and then HHS would come in with the kind of
services that they typically would provide in issues of mental
health or addiction recovery and things like that. What is
happening is that over a period of time, the HUD dollars that
go to homeless organizations, because of the lack of services
being provided by other organizations like HHS, have gone more
to services and less to bricks and mortar.
What I would like to do, and what I am working on doing, is
without leaving any gap in the provision of services, shift it
so that HHS can take a stronger role in doing that which they
should be doing, allowing HUD dollars to then be more geared
toward the shelter dollars that are needed. So that none of
this would be done in a way that would leave any programs
ongoing without the assistance that they would need.
Chairman Sarbanes. Are you familiar with the Culhane study
out of the University of Pennsylvania with respect to providing
support of housing for homeless people and the cost-
effectiveness of doing that?
Secretary Martinez. No, I am not.
Chairman Sarbanes. Well, I would certainly bring that to
your attention.
I would just make this comment and then I would yield to
Senator Corzine. Then I may come back. I am getting more and
more concerned here as I listen to this testimony today that
there is more and more dogma beginning to gain ascendancy in
the HUD approach to some of these problems.
I am very interested in practical, pragmatic solutions to
these problems. I am not very interested in HUD drawing kind of
fixed lines and saying, well, we do not do that kind of work.
That is somebody else's work to do, even though that may mean
that the problem does not get resolved.
I have a little of that concern over this Indianapolis and
Colorado situation as well. Apparently, people have come
forward with very carefully developed programs that would
really solve a real problem that exists on the ground, and we
do not seem to be able to get there. And I am concerned about
getting there.
But I will pursue it later. Senator Corzine.
Senator Corzine. Thank you, Mr. Chairman.
I want to go back to a basic question because I am not
convinced that I am hearing the same thing from you that we may
have heard from the witness panel that we had 2 weeks ago and
what I certainly feel.
Do you think there is a crisis in public housing with
respect to the shortage with respect to the amount of resources
we as a society dedicate to the general problems that we have?
Are we doing what we should be doing as a society? I am all for
management. I believe strongly in making sure that we get bang
for our dollar.
Secretary Martinez. I think, Senator, there has been a
pretty clear consensus over some years that public housing
probably is not the solution to the housing needs of America.
We have a number of public housing units that we have had for
many years, going back to the late 1930's. And through HOPE VI,
many of these projects which have fallen into disrepair and
really were problematic are reemerging more as mixed-income
communities and that type of thing.
Senator Corzine. But HOPE VI is public housing.
Secretary Martinez. Sure, it is public housing.
Senator Corzine. No one is arguing that we need to stay in
the same pattern of the kind of public housing that was
created----
Secretary Martinez. No.
Chairman Sarbanes. I think if you struck the word public
housing and used affordable housing, it would go more to the
point that I think Senator Corzine is getting at. Do you think
there is a problem with sufficient affordable housing in this
country?
Secretary Martinez. I think there is a need for more
availability of affordable housing. There is affordable housing
needs in my home community that I dealt with as a local
official. And Senator Allard did point out the very serious
problem, is that a lot of times you do get into conflict in
communities that do not want to have affordable housing.
But, clearly, there is a problem and clearly, there is a
need. And clearly, there is a number of things that we must do
to address the need, including some of the things that I have
talked about today that we have already begun to do--raising
the multifamily limits in FHA, the credit subsidy issue, and
things like that. But, clearly, there is a need.
Senator Corzine. I think there are a number of individual
steps. A number of us, including Senator Allard and myself,
sponsored that here, the multifamily limit. But that was
reflective of inflation and growth in the cost of housing. It
was out of step with the real world to not have an increase in
it.
But when you go back and, we had a budget of $29.2 billion
in 1976, and now we have one of $30 billion, even whether we
are managing well or we are not managing well, we are certainly
not making a statement that in the world today, that this is
the same kind of priority that others were thinking it was in
those particular areas. I think we need to admit we have a very
serious problem. I know we do in our State.
Secretary Martinez. Correct.
Senator Corzine. Whether you are using 40 percent of fair
market value or 50 percent, $17,500, that is about a $40,000
income for an individual, maybe a little less than that.
That is what a lot of people consider the middle class. We
have an availability, an affordability problem that I think
needs to be dealt with.
Secretary Martinez. I agree with you, Senator, and I am
prepared to work on trying to find ways in which we can attack
that problem, and I think we are doing some things on that
already. More needs to be done. I agree.
May I point something out, though? I am not going to talk
about the historical perspective here. Senator Sarbanes has
been at this much, much longer than I have. But when you look
at this Department and what the budget might have been in years
past and what it is today, a lot has changed. This is a
Department that had like 18,000 people, which is now being
managed by 9,100 people.
So much has changed in the intervening years. I think your
point is well taken as to the growth of the budget in this
Department. But I think also a lot of underlying assumptions
have to be also consistent in order for that analogy to be
correct.
Senator Corzine. As you know, one of my hot buttons is the
Public Housing Drug Elimination Program.
Secretary Martinez. Yes, sir.
Senator Corzine. It was stated that we were going to
reallocate a lot of these resources to other areas, that the
purpose was good, that there were things that needed to be
done. We had a difference of view about how much of it was
poorly directed. Do you have a number about how much of the
resources that were allocated--it is roughly $300 million, if I
am not mistaken.
Secretary Martinez. Three hundred fifty-eight million
dollars.
Senator Corzine. Yes. How much of that has been
reallocated. And then to go at something that Senator Allard
asked you--are we going to have standards of measurable results
to see that those programs or those other initiatives are
accomplishing what it was that at least I was hearing from the
public housing officials in New Jersey, was a very meaningful,
effective program in trying to hold back crime in the public
housing arenas?
Secretary Martinez. Let me answer that in two ways.
First, $150 million of the $358 million was reallocated
at--I am sorry. Two hundred fifty million dollars out of the
$350 million was reallocated to the operating fund for public
housing. So it is a total drop-off of $108 million, not any
more than that.
Senator Corzine. That could be available for other elements
other than drug elimination.
Secretary Martinez. Right.
Senator Corzine. This gets at the point.
Secretary Martinez. No, but here is the thing. If an entity
feels that they have a good program in drug elimination and
they were using the program before, they can continue to use it
now. If there was a place in which they were not particularly
using the drug elimination program, they now have dollars
available that they can use for something else. So it gives
some local flexibility on whether or not they use the dollars--
I mean, they have more availability now for these dollars and
different usages.
But, Senator, I expect for you to hold me accountable as to
whether or not we improve the climate in public housing as time
goes on in terms of what we do to effectively fight drugs and
other problems in public housing.
Second, there is about $800 million yet unencumbered in
that fund that will be available over the next couple of years
for public housing authorities to continue to draw on the drug
elimination program. So while that is being drawn down, we are
going to put other things in place which we think will be
helpful in fighting drugs in public housing.
One thing I will say also is that my experience in this
Department is that, oftentimes, frequent times, public housing
agencies have difficulties in management. We are dealing now
with serious problems at the New Orleans Housing Authority. It
seems like we deal with these across the country at one time or
another. San Francisco recently. Puerto Rico.
The bottom line is that when it comes to things like law
enforcement, that there may be at the local level a disparity
in the ability of local housing authorities to be good agents
as it relates to managing public safety.
So my thrust is going to be to try to support them by
having other governmental agencies that deal with issues of
public safety and drug problems to assist public housing so
that they can continue to do the things that they do and allow
these other entities to come in and provide the support.
Oftentimes, what has happened is that public housing has been
set apart. The police do not go there. The local law
enforcement says that is public housing.
I do not think that is fair. I do not think that is right.
By having a drug elimination drug program, we are not taking
the place of effective local law enforcement and other things
like HIDA funds and other drug funding that comes through our
drug czar's office.
Senator Corzine. In the fullness of time, I would love to
see how we are doing with regard to measurable statistics with
respect to how crime in public housing is doing.
Secretary Martinez. We will work with you, Senator, and
bring to you----
Senator Corzine. And make sure that we are actually having
the kind of response we are talking about relative to where we
were.
Secretary Martinez. Thank you.
Senator Corzine. Thank you, Mr. Secretary.
Senator Reed. Mr. Chairman, would you yield for one moment?
Chairman Sarbanes. I was going to do my round of
questioning. But go ahead.
Senator Reed. For just one moment. Mr. Secretary, since my
colleagues have made eloquent pleas for specific projects that
require pragmatic--indeed, inspired--action by the Department,
I would be remiss. We have a project in Rhode Island, 430
Section 8 units in Wynsocket and Central Falls that are in a
similar category of requiring some support by HUD and a
legislative solution. So I would request that you add that to
your list as you go back and search your soul and your heart.
Secretary Martinez. Yes, sir.
[Laughter.]
Senator Reed. And we are praying together.
Secretary Martinez. The right thing to do.
Senator Reed. The right thing to do. And as the Chairman
said, the pragmatic thing to do.
Secretary Martinez. Yes, sir.
Senator Reed. I am somewhat lighthearted. But it is a very
serious issue with us and I appreciate your attention to that.
Chairman Sarbanes. The frustrating thing for us is that we
are very much aware of how much effort it takes at the local
level and, presumably, you are as well, as a former local
official, to put
together support for addressing blighted housing and, in
effect, moving through with a project that provides affordable
housing for low-income people.
We recognize the amount of effort that has to go into that
on the part of local elected officials, community activists,
the tenants, the organizers of the project who have to come up
with creative solutions, and so forth and so on.
Now, when that happens and you have a situation in which
there is general agreement that housing should be done and you
are not encountering the kind of resistance you ordinarily run
into, it is extremely frustrating not to be able to move
forward with that. Now, clearly, the one thing that has emerged
out of this hearing, it seems to me, is that we need to have
more hearings.
[Laughter.]
Secretary Martinez. I am really delighted to hear that.
[Laughter.]
Chairman Sarbanes. I think it is very clear to me, we have
given you a year down there to get your sea legs and
everything. But it is very clear to me that we need to really
have a more intense kind of exchange, and to do some of it
right out on the public record. To the extent that these
involve important principles, we need to lay them out and
examine them very carefully.
Secretary Martinez. It does not make me happy to be the
stubborn bureaucracy standing in the way of progress,
particularly for local communities. That is not what I came
here to try to do.
Chairman Sarbanes. Well, if there are statutes or rules
that frustrate it, then we ought to examine them and see what
can be done about them.
Secretary Martinez. I think it is just going to require a
basic difference in how we have approached the whole issue of
Section 8 restructuring. And if we want to do that, we should
go about doing it with open eyes of what we are doing and
knowing that there will be other projects similar to this that
are going to come up, and that this is not without a cost
implication from what I am being told.
So I do not want to be the fly in the ointment here on
something that makes a lot of sense to see happen. So I look
forward to working with the Senators on this. Bureaucracies are
stubborn things.
Chairman Sarbanes. Section 8 reserves are critical in
ensuring that the public housing authorities can serve families
under Section 8 when costs unexpectedly rise because of
increased utilities or a jump in the number of large families
served.
At the Administration's request, Congress cut these
reserves in half in the fiscal year 2002 appropriations bill.
Report language was included by the appropriators directing HUD
to ensure that utilization does not decrease as a result of
this cut, and in fact, Congress directed HUD to ensure that
PHA's have the funds to administer all Section 8 contracts in a
normal manner, including vouchers that turn over during the
year.
Now I understand that HUD has unfortunately sent out
letters to PHA's directing them to stop reissuing turn-over
rental certificates. Now this would seem to be in direct
conflict with the intention of the Congress as spelled out in
the conference report and will result in a cut in the number of
families being served. Were you aware, Mr. Secretary, that
these letters were being sent out?
Secretary Martinez. No, sir, I was not. In fact, what I
have been reassured time and again and in preparation for this
hearing was that the reduction of the reserves from 2 months to
1 month was not going to have a problem, was not going to
present a problem, and that 1 month's reserve was really going
to be sufficient.
In addition to that, I am told that we also have recaptured
funds from other funds that can be utilized for this purpose
and that at no time would there be a situation where a Section
8 tenant would not have their voucher honored because of this 1
month's reserve.
Chairman Sarbanes. Well, am I mistaken in the understanding
I have that HUD has sent out letters to PHA's directing them to
stop reissuing turn-over rental certificates?
Secretary Martinez. I see a lot of faces drawing a blank
behind me and I certainly was unaware of that. So I do not
believe that has occurred. But I certainly will look into it,
Senator, and will try to get back to you today with an answer
to that because I have been assured and reassured now for close
to a year that this was without consequence, an accounting
adjustment.
Chairman Sarbanes. Well, such letters have been made
available to us from housing authorities. I am holding one in
my hand.
Secretary Martinez. I wish to communicate on that.
Chairman Sarbanes. I will defer identifying the housing
authority because I am sure they would be concerned about it.
But we can engage in a discussion about this.
Secretary Martinez. Well, we are not the Taliban at HUD. I
am happy to know who they are and try to solve their problem.
[Laughter.]
Chairman Sarbanes. Well, the letter says, amongst other
things, your housing authority is instructed to stop reissuing
turn-over rental certificates.
Secretary Martinez. There is some misunderstanding there.
But I will certainly look into it and we will get with your
staff.
Chairman Sarbanes. I am glad I asked the question and
perhaps we can clear that matter up. Let me proceed to my next
subject. OMHAR has restructured about 1,200 deals. This means
that the properties have been put on a sound financial and
physical foundation so that they can continue to serve low-
income families. In all, we have preserved about 75,000 units
of affordable housing, at the same time generating savings to
the Government.
In a June 19 hearing before the Senate Subcommittee on
Housing and Transportation, FHA Chairman Weicher committed to
retaining OMHAR staff and to providing the resources necessary
to keep the program moving forward. Now we were interested in
this because the GAO had surveyed OMHAR and come to the
conclusion that it had a good, competent staff, that it was up
and running finally after an initial period of getting its feet
under it, and that it ought to continue forward.
Now we are receiving reports that OMHAR has lost some key
staff, that they have not been allowed to replace them, that
there was a period in which projects coming into the office
were not assigned for restructuring. We have asked the GAO now
to look into this matter. But we hear that the program is
grinding to a halt.
Now we supported HUD in the effort to shift the
administrative location of OMHAR in the Department. But now we
are getting these reports that it is really impeding or
undercutting OMHAR's ability to carry out its substantive
responsibilities.
Secretary Martinez. Senator, I think that there may be some
people that are disgruntled about the transfer and the
situation that is occurring and you may be hearing from them,
to be quite candid. However, I do not believe that OMHAR is in
crisis. I do not think that the restructurings are grinding to
a halt.
There have been some people who have left, I am told. There
were some consultants who were there, including highly paid
consultants, and some have left.
But we understand the importance of OMHAR and the
restructuring. We know that 1,200 is about 50 percent of what
we have to get done in the restructuring of OMHAR. So we are
very committed to keeping this going forward and intend to do
all we can to see that the transition is as positive as it can
be and continues to get the work done in a timely fashion. I do
not think we need to start over because it did take a long time
to get geared up.
Chairman Sarbanes. Yes. We do not want to knock it down.
Well, we have asked the GAO to come in and look at it.
Secretary Martinez. And that is fine.
Chairman Sarbanes. And so, we will have the benefit of
their inquiry into the matter. But I would be less than fair to
you if I did not alert you to our concern about this matter and
about the reports that we are receiving and the importance of
carrying through with this program. The mark-to-market program
was a very important initiative on the part of the Congress and
the Administration. We want it carried through.
I see there is a vote on. Let me move through here very
quickly.
Secretary Martinez. Senator, may I, before I forget,
because I wanted to do it while Senator Allard was still here.
But I just wanted to mention that John Carson will be leaving
these surroundings to join us as our District Coordinator for
Colorado and that area. We are just so delighted that he is
joining us. And I just wanted to thank the Senate for letting
us have such a well-trained, dedicated servant.
Chairman Sarbanes. We have some very able people up here.
We are pleased at any time to have the Department draw on their
talents. You have one of them sitting right behind you who is
handling your legislative matters, and that is why they have
been going so smoothly up here.
[Laughter.]
Secretary Martinez. That is what she tells me.
[Laughter.]
Chairman Sarbanes. I want to address the public housing
issue, capital funds. I am trying to find out the unexpended
capital funds that are beyond the legal timeframes. We want
data on what amount of unexpended funds are not spent within
the statutory timeframes.
We asked for that data. What we got was the amount of
unexpended funds. We did not get the figures on the amount of
unexpended funds that are beyond the statutory timeframes. So I
want to repeat the request for that information.
Secretary Martinez. We will get that to you, Senator.
Chairman Sarbanes. In other words, we want to know the ones
that are untimely, that have not been dealt with within the
required timeframes. We do not think there is much of a problem
in that regard.
Secretary Martinez. We have that information and we can get
it to you.
Chairman Sarbanes. You do have it?
Secretary Martinez. I do not think we have it here with us.
We have that available to us and we will get it to you.
Chairman Sarbanes. Well, all right.
Secretary Martinez. That information is available and it
will be made available to you, Senator.
Chairman Sarbanes. The GAO said that cutting the $700
million from the capital fund--and of course, the Congress has
put most of that back in, as you are aware, in the budget--
without considering the status of each housing agency's
unexpended capital funds, may have the unintended consequence
of penalizing housing agencies that have few or no unexpended
balances because they spent their funds in a timely manner.
And GAO thinks it is necessary to look at this housing
authority by housing authority, which I think is important.
When you responded on the policing thing, I thought to myself,
well, we need to differentiate between those who are doing the
job well and those who are not.
Secretary Martinez. That is right.
Chairman Sarbanes. And not have a blanket response which
ends up harming those that are doing a good job.
We had very interesting testimony from Kurt Creager, the
Executive Director of the Vancouver, Washington Housing
Authority, in the hearing we held 2 weeks ago. Actually, I
commend that testimony to you. I do not know if you have had an
opportunity to review it or look at it. But if not, I do not
want to burden your Christmas season, but I do think it would
be of benefit to take a look at that testimony. I think we had
some very good witnesses and they obviously gave a great deal
of time and effort in putting it together.
Secretary Martinez. I have seen summaries of it, Senator.
Chairman Sarbanes. Yes. He is retaining capital funds in
order to accumulate enough to complete certain capital
projects. This is the whole problem of the backlog and so
forth.
Now when we did the statutory revisions with Senator Mack,
we instituted a timeframe and said, all right, if you are
outside of that timeframe, your money is going to get
recaptured. But if you are within that timeframe--it is a 4
year period to expend--you can accumulate in order to save for
a project.
Now Mr. Creager had a project, for instance, to retrofit
buildings to make them safe in the event of an earthquake. And
by retaining the capital funds and doing the project all at
once, they can save significant monies on administrative costs,
contracting, and so on.
Secretary Martinez. Yes, sir.
Chairman Sarbanes. So we think that this accumulation of
capital funds within the time period is a very important
management technique, and we invite you to address that issue.
What is HUD's position on supportive services in senior citizen
housing?
Secretary Martinez. Well, I think it is obvious that senior
housing is one of those areas where supportive services are
very helpful and 202 housing typically provides services. I
think it is a rather important part of the provision of service
to seniors--I mean of housing to seniors.
So as I look to the future, I think it is one of the areas
in which we need to probably work on, is to try to find ways
that as our aging population, more active people, living
longer, that we really need to address how we provide for
senior housing in more updated ways than what we have perhaps
in the past.
Chairman Sarbanes. Do you see it as a legitimate charge to
the HUD budget to address the supportive services for senior
citizen housing?
Secretary Martinez. I think they go together pretty much
and I think that--yes. I think what we should do is to find a
way of cooperating in the way that it is done. But if this has
some relationship to the homeless situation, Senator, I want to
assure you that I am not after trying to do less for homeless
people. What I am trying to do is to make sure that we get the
kind of help in providing services to the homeless that other
departments ought to be providing, so that we do not encumber
our programs with services beyond what our ability is.
In other words, we have finite funds. I want our funds to
do the best we can for housing. I do not know if your question
was merging the two, but I am answering on both.
Chairman Sarbanes. It is a parallel track.
Secretary Martinez. It is a parallel track.
Chairman Sarbanes. Yes.
Secretary Martinez. So my point on that is that, in the
elderly situation, I think there is a much closer nexus to the
need for services merging into the whole project because it has
to do with accommodations for handicapped issues and medical
facilities and things like that.
In terms of the homeless population, what I am trying to
do, Senator, is to try to bring back a closer partnership that
I think existed in the past and that has gone away, while at
the same time, the HUD budget has been burdened with having to
provide services at the expense of housing. And so, I am trying
to bring us into better balance by holding other departments'
feet to the fire.
Chairman Sarbanes. If we provide the housing without the
services, it does not seem to work very well.
Secretary Martinez. And that is not the point. The services
need to be there. The question is--and I want to invite your
help--to make sure that we are getting the help so that our
housing budget does not get eaten up providing services that
others ought to be providing. You see, when someone is
homeless, that does not mean that they are not entitled to
Medicare, for instance. They are not entitled to other
supportive services for drug addiction that may be available in
the community through HHS dollars.
Chairman Sarbanes. Yes.
Secretary Martinez. All of these things are available in a
way that should cover everyone. VA veterans sometimes have
available benefits in other places as well. We have been
meeting with HHS and have been making good progress in trying
to find a better way of coordinating their provision of
services with our housing dollars.
Chairman Sarbanes. Well, it is an issue that we will have
to pursue, obviously.
I am going to go and vote. Have you voted, Chuck?
Senator Schumer. I have. I just voted.
Chairman Sarbanes. Well, I will turn the meeting over to
you.
Senator Schumer. Thank you, Mr. Chairman.
Chairman Sarbanes. And we will conclude, unless there are
others who have arrived who also wish to question. You can
adjourn the meeting.
Senator Schumer. Thank you.
Chairman Sarbanes. Mr. Secretary, we very much appreciate
your coming today.
Secretary Martinez. Thank you.
Chairman Sarbanes. And we look forward to seeing you again.
Secretary Martinez. I am sure we will, and I look forward
to it.
Thank you.
Chairman Sarbanes. Thank you very much.
Secretary Martinez. I appreciate your courtesy, as always.
STATEMENT OF SENAOTR CHARLES E. SCHUMER
Senator Schumer [presiding]. Thank you. And I want to thank
the Chairman and you, Mr. Secretary, for your courtesy. So many
things are going on at this close of session, that it is hard
to get balance here. I appreciate your waiting for the last
member to ask some questions.
I would like to thank you for HUD's contribution to the
Federal response to September 11, and particularly for the CDBG
funding that will be a necessity in rebuilding lower Manhattan.
As you probably know, FEMA gives our Government aid when
they need the help--the overtime for the police and fire, the
rebuilding of the subways.
But we have so many other needs--the small businesses, the
large businesses, the nonprofits, the hospitals. And the CDBG
grant, which you have supported, and the Administration
supported, will be very helpful to us. I do want to have, after
this is over, a little discussion with you about some of the
specifics. But it is just great for us.
What I would like to do today, though, is discuss with you
a real problem we are facing in western New York. It may seem
that Buffalo is apart from the September 11 crisis. But it is
not. And the reason is simple.
Like other places in America, but perhaps more so, their
economy has been faltering rather dramatically. A number of
jobs and everything else. Buffalo is way behind most of the
middle west. So it has always been a problem area for the
State. Now in the past, the State would help Buffalo, probably
to a greater percentage at least than it helped any other area,
by giving State aid.
September 11 has made State aid extremely difficult. It has
made it difficult because the State--Governor Pataki estimates
that the State will lose $9 billion in revenue this coming
year. It so happens that New York State will lose more revenue
than the city because of September 11 because the city's
revenue is basically property tax-based and sales tax-based.
But the State revenue, which is based on an income tax, is very
hard hit when Wall Street has--when you lose 100,000 jobs, many
of them the highest-paying jobs on Wall Street. When the firms
on Wall Street decide to cut back on their bonuses, which is
often 25 to 50 percent of the pay, and then the State income
tax loses its slice. And the percentage of revenues to the
State government that come from this is enormous.
As a result, the State has had to cut back on aid to
Buffalo. The school system is in real trouble. We have worked
hard to try and get some money out of the education budget for
the school system. But the city government is in trouble and
there is talk of bankruptcy. There is talk of a control board
and all sorts of things.
What that means is--it is a ripple effect. Since the City
of Buffalo has to tend to the basic needs of fire, police, and
education, it cannot do the kinds of economic development
things that are needed to try and get Buffalo going again to
dig itself out of this hole. And so, that is why I am coming to
you for real help.
Buffalo has applied for a renewal community designation. I
realize that there are a small number of these in the country.
But if ever a place needed it, it is Buffalo-Lackawanna, which
is a city right south of Buffalo, right where the old Bethlehem
Steel mills--if you go there, you will see the old steel mills,
empty and shut down. The application is strong. It has the full
support of the
Congressional delegation and the Governor of New York. And it
meets every one of the renewal community criteria--poverty,
unem-
ployment, below-average income--as required by the application
process.
Just let me give you one statistic, Mr. Secretary. Over the
past decade, the Buffalo-Niagara standard metropolitan
statistical area lost more jobs and a greater percentage of its
population than any other urban area in the entire United
States.
So, we are trying to do our part. They have lowered taxes.
They have made some capital investments. And Erie County, the
county in which Buffalo is, has begun the consolidation of
services to save taxpayer money. There is a private
organization, the Buffalo-Niagara Enterprise Organization, they
have raised $25 million just to promote new business activity
in Buffalo.
The bottom line is all of western New York and virtually
our entire State is focused on saving the economy of
metropolitan Buffalo. And given September 11, the kinds of
money that had been planned by the Governor and the State
legislature to go there for economic development is not likely
to come. It makes this renewal community designation virtually
vital.
If we get it, I am certain that with the talent and the
energy--it has a great labor force, productive people, people
who used to be making $20 an hour are now making $6 or $7. They
do not leave because they love the area.
But we really need the help. And I think we can turn
Buffalo with this designation into a national success story. So
I am just hoping that you, as you review the finalists for the
renewal community designation, give Buffalo-Lackawanna fair
consideration.
Secretary Martinez. Thank you, Senator. I assure you that
it will receive fair consideration.
You make a compelling case. I want you to understand that
this is a competition and various communities, all with
compelling stories, I might say, compete against one another.
And it is not a subjective thing that we can just go say, well,
this happened in New York. Let us pick that one out. So it is a
process. The process is ongoing, so I cannot at this point
comment.
But I appreciate your point of view and you can be assured
that, as we have responded to September 11 at HUD, and I
mentioned during my opening remarks some of the other things
that we have done and I want to just comment on those for you
because I want you to know how very committed the
Administration and our Department has been to the New York
situation.
We immediately acted with FHA lenders to ensure that there
would be no foreclosures for any of the victims and things like
that. We also acted obviously in the CDBG. But we have also
done whatever it took regulatorily to help with Section 8 and
public housing for the public housing of New York.
I have been there now on three occasions, I believe, and I
will be there again next week, where I am happy to tell you
that we are coming very close to a point of closure on the
203(k) problem, which has been pending for some time and the
number of restructured housing projects that were abused some
time back.
So, anyway, with that, I just assure you of every fair
consideration and certainly New York is in all of our hearts
and minds and we will do everything we can to be helpful.
Senator Schumer. Thank you, Mr. Secretary. I have two more
quick questions and then I will let you go. You have been here
a long time.
As you know, I have been interested in the problems of
predatory lending. I know from your previous testimony, you are
as well. I have seen it first-hand. It is the number-one reason
that thousands of people in my State and America who have just
worked for the American way. They have saved their $25 a month
until they have enough for a downpayment and then they are just
robbed by these rip-off artists. So I am just interested in
knowing what steps HUD has taken or intends to take to deal
with the pervasiveness of predatory lending in New York and
around the country and how we can work together to eradicate
this.
Secretary Martinez. Senator, we have been taking a very
aggressive approach to predatory lending. We have been working
in Baltimore specifically with the issues of predatory lending
there. We have been working with a task force that the City of
Baltimore has put together, and the successes there are
successes that we can replicate around the country.
I want to assure you that we are very focused on this and
we are learning a great deal about how to, as we devote
resources specifically to this problem, what results it can
have. And we have seen 40 indictments, 27 successful
prosecutions, 66 debarments.
This is just in Baltimore. So it is had great results. And
that is a model that we can hopefully replicate elsewhere. In
addition to that, RESPA reform.
Senator Schumer. Right.
Secretary Martinez. I think when we give consumers more
information, when they know, and there is more transparency
what the transaction is about, they will have a better chance
to avoid the dangers of predatory lending. But we are
continuing to work on it. Our task force is ongoing, and I look
forward to working with you on the New York issue.
Senator Schumer. I think RESPA is important as well. One of
the things that I have found as I studied predatory lending is
that, because so much of it occurs from these little lenders--
you do not have the larger institutions being involved in this
because they are checked and regulated. But we do not have
enough enforcement.
I do not know if we need new laws, but we need enforcement
of some of these little mortgage lenders and mortgage brokers
because they come in and they just rip people off. I hope that
is some place that you will look at.
Secretary Martinez. Absolutely. Yes, sir.
Senator Schumer. Enforcement of the smaller lenders, who
seem to do most of the predatory lending.
Secretary Martinez. I share your concern and I understand
the problem the same as you do in that sense. I agree.
Senator Schumer. One final question. This is Federalization
of New York City's housing units.
You know we have the problem in New York City. Half, 44
percent of our renters cannot afford the local fair market rent
and 12 percent of all working families in New York live in what
has been determined to be severely or moderately inadequate
housing.
Nearly a million people, about 850,000, live in what HUD
describes as substandard or inadequate housing. These are
disturbing statistics even in the bumper years that our city
has had. And of course, now we do not have those.
One of the few places that has helped us, we have a great
Federal housing program. Unlike other places, we do not have to
go around blowing them up, et cetera. We have been more mindful
of keeping a mix in the housing, having working class as well
as very poor people. I had to make that fight along with some
others, including Congressman Lazio over in the House when I
was there.
We have had very good management and it has worked pretty
well. But, again, because of the new concerns, we would like to
see continued the federalization of these, which helps us
financially.
We had a conversation in June, I believe, where we had
discussed the importance of federalizing an additional 7,000
State housing units in New York and Massachusetts. You
mentioned you were going to make that happen, which I
appreciate. Can you tell me the status of the federalization?
Have the units been federalized? If not, when should they be?
That is my last question.
Secretary Martinez. Okay. And Senator, it is one that I
would prefer to get back to you with a thoughtful response.
Senator Schumer. Yes, sir. Great.
Secretary Martinez. Because at the moment, I have a note
here. But I would be afraid to try to tell you what the note
said because I might say it wrong.
Senator Schumer. Okay.
Secretary Martinez. So if you will allow me a chance to get
back to you in a more thoughtful response, I would be happy to
do that.
Senator Schumer. Fine. Great. Well, I very much appreciate
it.
With your permission, sir, the record will remain open for
1 week so that people can ask questions in writing. I might
have some, and my colleagues may. And with that, we thank you
for your testimony, for your diligence, and for your waiting
around for the last stragglers to wander in.
Secretary Martinez. Thank you.
Senator Schumer. Thanks. The hearing is adjourned.
[Whereupon, at 12:15 p.m., the hearing was adjourned.]
[Prepared statements supplied for the record follow:]
PREPARED STATEMENT OF SENATOR PAUL S. SARBANES
Good morning and welcome to the Committee's second hearing on
Housing and Community Development Needs in the United States. I want to
welcome the Secretary and extend to him the Committee's appreciation
for appearing before us.
Two weeks ago, we heard from a number of experts about the growing
affordable housing crisis in America. Today, we want to get the
Administration's perspective on this problem. As my colleagues know,
the President is in the midst of putting together its budget proposal
for fiscal year 2003. Because that process has not yet been completed,
the Secretary cannot talk about budget levels for specific programs at
HUD, nor can he talk about new programs that might be proposed.
However, we have asked him to discuss what he sees as the Nation's
pressing needs in the area of housing and community development,
particularly as the country enters its first recession in about a
decade.
First, I would like to talk about some good news. After stagnating
and even falling in the 1980's, the homeownership rate rose to historic
levels in the 1990's, particularly after 1995. Improvements in minority
homeownership drove much of this
improvement. In fact 40 percent of all new homeowners from 1994 to 1999
were
minorities, even though minorities make up only 24 percent of the
population. African-American and Hispanic homeownership rates grew
twice as fast as the white homeownership rate.
In spite of this progress, there continues to be a significant gap
in homeownership between white and minority Americans. Closing this gap
is a priority of the Secretary, and I want to be as helpful as I can in
that effort. To that end, I am particularly concerned about the so-
called ``clarification'' on the issue of yield spread
premiums put out by the Secretary in October. I plan to hold a hearing
on this topic early next year, and I do not want to divert us to this
issue this morning. Let me just say, however, that HUD's
``clarification'' will lead to increased costs to
low-income, minority, and middle class homebuyers by opening the door
to mortgage brokers to steer those borrowers into higher interest rate
loans without their knowledge, and without any reasonable recourse. I
am particularly disturbed that Assistant Secretary Weicher recently
said that HUD was compelled to issue the statement because of the
decision in the Culpepper case. In that case, the Court found that
brokers collected thousands of dollars in unnecessary out of pocket
fees from FHA borrowers in addition to steering them to higher interest
rate loans in exchange for a yield spread premium paid by the lender.
FHA is designed to be a tool to increase homeownership, not a cover to
strip owners' equity. As the Court recognized in Culpepper, yield
spread premiums do have a legitimate role in the marketplace as a way
of reducing closing costs, if the borrower chooses to pay certain costs
and fees through a higher interest rate. The Committee will keep a
close watch on the rulemaking that I understand HUD is undertaking,
with the goal of ensuring that it really is helpful to homeowners and
homebuyers.
While there has been general progress on homeownership, the
shortage of affordable rental housing is a serious problem that appears
to be getting worse. HUD's own data show that nearly 5 million very
low-income American families pay over half of their income in rent, or
live in severely substandard housing.
A study by the National Housing Conference that looks at a broader
sample, found that nearly 14 million families, including working
families, face this same, critical problem. In fact, while the number
of worst case needs among poor families actually stabilized a bit, the
number of working families carrying this severe burden has risen
dramatically.
As the chart of the United States shows, there are 33 States in
which two full-time minimum wage earners in a family is not sufficient
to rent a modest apartment paying 30 percent of a family's income--the
general measure of affordability. These trends are not surprising.
Again, referring to the chart on ``Change In Affordable Rental Units,''
we see that in the past decade, the number of units available to
extremely low-income renters has dropped by almost a million units, a
loss of 14 percent. Nationally, apartment vacancy rates have declined
by 1.7 percentage points, making it more difficult for all renters to
find an affordable place to live. As the third chart indicates, many
metropolitan areas have significant percentages of families who live
with the insecurity of knowing that an unexpected medical bill, a car
repair, or a bout of unemployment can lead to a cycle of eviction and
homelessness.
The children in these families will not be able to receive an
adequate education. Their parents will not be able to take full
advantage of job training offered to them, or other important services,
until they have the kind of stability that affordable housing in a safe
neighborhood can bring. In my view, housing is a first step to bringing
many poor families and their children to economic self-sufficiency.
I very much look forward to getting the Secretary's views on these
issues.
PREPARED STATEMENT OF SENATOR DEBBIE STABENOW
Thank you, Mr. Chairman. I appreciate that you have called this
second hearing looking at the housing and community development needs
that we will need to address in the upcoming HUD budget. And, I am glad
that the Secretary was able to join us today for this hearing.
There is no question that we face a critical housing shortage in
this country and Congress is going to need to work on this problem. In
Michigan, a person must make $12.35 an hour to afford a 2 bedroom unit
at Fair Market Rent, using 30 percent of his or her income for housing
expenses. This is almost two and a half times the minimum wage. And it
is not just in Michigan; I know this problem is serious nationwide,
particularly throughout the Midwest, Northeast, and West Coast.
Furthermore, in the midst of a recession, and with mixed signals
about when we will see an economic recovery, there is going to be an
even greater demand for HUD's services. This coming year therefore
should be a time for a renewed commitment to address our national
housing problem.
Mr. Secretary, when you appeared before this Committee in April, I
expressed my disappointment in the White House's proposed HUD budget.
As the Chairman and others have pointed out, there were serious
accounting questions such as how yet unexpended but already obligated
funds were treated. And, equally alarming, the White House budget
proposal consolidated funding in ways that forced already underfunded
programs to compete against each other.
I know my friend, Senator Jon Corzine, has raised this issue as
have Senator Sarbanes and others, but I also need to highlight my
profound disappointment that the Public Housing Drug Elimination
Program earmark was eliminated. In light of this I think we would all
greatly benefit, if HUD would clearly articulate to us, as the fiscal
year 2003 appropriations process moves forward, what its comprehensive
drug prevention strategy in public housing is going to be.
Mr. Secretary, I understand that you are in a difficult position.
The Government through a mix of previous policy decisions as well as
the current economic climate has dwindling resources available to it.
This is going to cause the President and you to make some tough
choices. So, let me be clear and reiterate what I said at our November
29 hearing on this same topic: I want to work with the Administration
and my colleagues to ensure that we pass and enact a strong fiscal year
2003 HUD budget.
If we fail to do so, it will be terribly shortsighted. The fact
that we are not investing in capital repairs and other key programs
will only make matters worse. It is a vicious cycle, costing us
substantially more in the long run.
Finally, Mr. Secretary, while you are before us today, let me also
say that I hope you will work closely with me and other Members of this
Committee as you proceed on a number of new initiatives. Only by
working together, across party lines and through open engaged
discussions between the Administration and Congress, will we be able to
enhance consumer protections, stop predatory lending, bring clarity to
Congressional intent on previously passed housing legislation, and
reform key components of the home buying process.
Again, thank you, Chairman Sarbanes for calling this hearing and
for your unrelenting commitment to addressing our Nation's housing
needs.
----------
PREPARED STATEMENT OF MEL MARTINEZ
Secretary, U.S. Department of Housing and Urban Development
December 13, 2001
Chairman Sarbanes, Ranking Member Gramm, and distinguished Members
of the Committee, thank you for the invitation to testify before you
this morning. I appreciate this opportunity to address the many ways in
which the Department of Housing and Urban Development (HUD) is working
to meet the Nation's housing and community development needs.
Mr. Chairman, I would like to begin by thanking you and the Members
of this Committee for the advice and expertise you provided this year
as I settled into town and took on this tremendous challenge. The
Committee has shown me great respect, which I appreciate, and we have
developed a very positive working relationship.
Let me also thank you for your cooperation in confirming HUD's
Presidential nominees. I consider myself fortunate to be surrounded by
colleagues who bring great expertise to the job from both the public
and private sectors, and have a rich diversity of background and
experience. With your continued assistance, we hope to have our entire
management team in place in the near future.
Our job is made easier through the support of a President who is
firmly committed to HUD's mission of public service. President Bush is
an active advocate for our work at HUD. He speaks passionately about
the dreams a family can achieve through homeownership. He has joined me
on two occasions to stress the point by building homes with Habitat for
Humanity . . . and wants to triple the funding for the HUD program that
supports the good work of similar organizations.
President Bush has directed this Department to serve Americans in
need not simply by raising their quality of life to some minimum
standard, but by fueling their hopes and dreams to achieve the life
they always imagined. Despite the success of welfare reform, too many
families still live below the poverty line. As a catalyst in our
communities, HUD is putting its resources to work empowering citizens
to lift themselves out of poverty and into prosperity. We have touched
many lives this year . . . in many different ways.
The Department reacted quickly and sympathetically following the
tragic events in September. I immediately required lenders to provide
relief on FHA-insured mortgages for families of the victims, and urged
conventional lenders to do the same. They responded, and we have
protected these families from losing their homes. A short time later,
Secretary Rumsfeld and I also announced a mortgage rate cut for
National Guardsmen and Reservists called to active duty. HUD is
providing an additional $700 million in Community Development Block
Grant funds to help stimulate New York City's economic recovery. We
also allowed waivers of regulatory provisions for the HOME, Section 8,
and public housing programs.
Immediately after being sworn in, I took steps to steer HUD's focus
back to its core mission: helping families find affordable and decent
housing. This means ensuring housing opportunities for those who rent
either out of necessity or by choice. And it means creating new
opportunities for homeownership, so that more families can achieve what
is envied around the world as the American Dream.
The Census Bureau reported in October that the homeownership rate
reached an all-time high of 68.1 percent. Historically, homeownership
rates for minority groups have been lower than the rest of the
population. Minority homeownership stands at 49.2 percent and while
this is a record high and positive news, we must continue to do better
in closing the gap.
We have begun to create new opportunities for homeownership, so
that more families can achieve what is envied around the world as the
American Dream. This year, HUD reached out to the thousands of low-
income families who find the road to homeownership blocked by high
downpayments, and proposed the President's American Dream Downpayment
Fund. We also put forward the new Federal Housing Administration (FHA)
hybrid adjustable rate mortgage, which promotes homeownership by
reducing initial homebuying costs. Congress recently provided funds
subject to authorization for the first of these, and authorized the
second, for which you have my thanks.
If we are to further expand the ranks of America's homeowners, we
must address the challenge of making the homebuying experience less
complicated, the paperwork demands less time-consuming, and the
mortgage process itself less expensive.
To ensure that homebuyers have the information they need in order
to make an informed purchase, I have undertaken comprehensive reform of
the Real Estate Settlement Procedures Act (RESPA). In addition to
preserving yield spread premiums as a valuable tool for opening the
doors of homeownership, reform will: (1) ensure better protections for
new homebuyers and those who refinance; (2) offer clarity for the
mortgage lending industry about their disclosure responsibilities, and;
(3) provide an additional tool to fight predatory lending.
The need for RESPA reform is even more urgent during times of
economic uncertainty. Homeownership helps create financial stability
for families, and in return brings economic stability to our
communities.
Homeownership is an important goal, but is obviously not an option
for everyone. I appreciate the need to expand the availability of
affordable rental housing, and ensure quality and options for
residents. The just-enacted 25 percent increase in the limits for FHA
multifamily insurance will help to spur the construction and
rehabilitation of affordable rental housing. I am awaiting the
recommendations of the Millennial Housing Commission, as we look to
ways to address affordable housing needs. I will continue to urge the
industry, and the Government-Sponsored Enterprises in particular, to do
much more in the area of affordable housing production.
But let me say that I look forward to the day when we measure
compassion not by the number of families living in assisted housing,
but the number of families who have moved into a home of their own.
Predatory lending and property flipping are abusive practices that
continue to plague homebuyers in cities across the country. Senator
Sarbanes, the Administration is particularly concerned about the
situation in Baltimore. Since April, our Housing Fraud Initiative has
resulted in 40 indictments, 6 Federal arrests, 2 State arrests, 27
successful prosecutions, and 66 debarments. We have provided relocation
assistance to 46 families. We also worked with you, Mr. Chairman, to
develop the Credit Watch legislation that was included in the fiscal
year 2002 budget.
I am pleased with these accomplishments, but we know there is more
work to be done. HUD remains committed to addressing the problems in
Baltimore, and we feel confident that the lessons we learn there will
be beneficial to the rest of the country. HUD looks forward to joining
with the Treasury Department in its efforts to encourage the
development of national best practices to address predatory lending.
Exposure to lead-based paint is a serious concern that many low-
income citizens deal with on a daily basis. Every American child
deserves the opportunity to grow up in a healthy home, safe from the
debilitating and often irreversible effects of lead exposure. Because
the most common source of exposure is lead paint in older housing, HUD
has a critical role in protecting our children. HUD awarded more than
$67 million in grants nationwide in October to protect children from
lead-based paint, with a focus on eliminating lead hazards in low-
income housing.
At HUD, we are working to ease the daily struggles of those who
live in the most difficult circumstances. Certainly, this includes the
residents of the colonias. Earlier this year, I traveled to the
colonias--the communities along the Mexico border steeped in poverty--
to see the difficult living conditions for myself. HUD has stepped in
to offer assistance, through grants that will bring water and sewer
hook-ups, and a Colonias Task Force I established to ensure that HUD
programs make an impact in the colonias.
In January, President Bush directed HUD to assist in his Faith-
Based and Community Initiatives. We have studied the barriers that
prevent grassroots social service providers from reaching out in
partnership with the Federal Government to Americans in need. HUD has
prepared a report examining what the Department can do through
regulatory and management improvements to ``level the playing field''
and encourage greater acts of charity in our communities, while
preserving Constitutional safeguards.
I urge the Senate to take up the President's Faith-Based
legislation before
Congress adjourns. This legislation is critical to helping HUD expand
its partnerships with groups working to meet the housing needs of low-
income Americans, the
elderly, disabled citizens, and those living with HIV/AIDS.
HUD has a special duty to the Nation's vulnerable populations, and
this includes those who have no place to call home. Last month, we
announced the awarding of more than $1 billion to organizations serving
homeless Americans--the largest homeless assistance in history. To
streamline and focus the response of the many Federal agencies involved
in delivering homeless services, the Interagency Council on the
Homeless is being reactivated.
In addition, the Administration remains committed to expanding
housing opportunities for people with disabilities. For example, a
voluntary compliance agreement, signed recently with the District of
Columbia Housing Authority, will provide more than 500 fully accessible
public-housing units to disabled residents. HUD continues to strive to
ensure equal housing opportunities for all.
Mr. Chairman, Committee Members warned me during the confirmation
process that HUD was plagued by mismanagement on many levels. I
understood that meeting the needs of the American people meant
improving HUD's management, and I assured you that I was prepared to
take on this challenge. In the past 11 months, HUD has significantly
streamlined its management structure to improve the quality and
delivery of services, and restore the agency's credibility in the eyes
of Congress and the American public.
I set a goal that HUD address audit findings made by the Inspector
General in a timely manner and make corrections that actually fix
serious management problems. As a telling sign that we are committed to
doing better, HUD completed the 6 month period ending September 30 with
no overdue management decisions on any of the Inspector General's 363
audit recommendations. This is only the second time that HUD has met
the goal of no overdue decisions in all the years that the OIG has been
reporting audit resolution activity to the Congress. Our goal is to
deliver the best possible services to those in need, and we have moved
aggressively to ensure that HUD programs are getting the job done.
With the support of the National Education Association, the
American Federation of Teachers, and the Fraternal Order of Police, I
suspended HUD's Officer Next Door and Teacher Next Door programs in
April. This came after officials handed down indictments and felony
convictions against buyers who purchased their homes fraudulently. We
put into place aggressive monitoring and tightened controls to prevent
homebuyer fraud, and restarted the programs in August.
Working with Congress, we terminated HUD's drug elimination program
this year. This was a well-intentioned program that suffered from a
large number of abuses, and duplicated the work of other Cabinet
Departments. Despite the termination of this program, HUD's commitment
to ensuring safe and drug-free homes for America's families has not
wavered. In fact, to partially offset the elimination of this program,
the President's fiscal year 2002 budget proposed, and the Congress
appropriated, an enhancement for the Public Housing Operating
Subsidies, which local officials may use at their discretion, including
for activities formerly supported by the drug elimination program. I
will work with the Office of National Drug Control Policy (ONDCP) to
determine how best to capture and account for Departmental funds used
for drug control activities. In addition, I am working with ONDCP, the
Department of Justice, and other agencies in exploring ways to
effectively meet this commitment.
Until this year, HUD's credit subsidy--which is used to cover
expected losses on FHA multifamily loans--was fraught with uncertainty
due to regular appropriations shortfalls. The Department restructured
the program to make it more self-sufficient and less dependent on
taxpayer dollars. Since the restructuring became effective on October
1, 2001, HUD has issued firm commitments totaling $869 million for more
than 10,000 housing units.
I am proud of the strides we have made in identifying the programs
that are meeting the needs of the people . . . and identifying--and
fixing--those that are not. HUD is quickly becoming a more efficient,
more effective provider of the services no agency but ours can deliver.
Mr. Chairman, I will conclude my formal testimony so that I may
dedicate as much of our remaining time as possible to answering
questions from the Committee. As I indicated to you in our last
conversation, HUD's ongoing negotiations with the White House regarding
the fiscal year 2003 budget preclude me from addressing--in anything
more than general terms--budget initiatives we may be considering.
In closing, we all understand that housing is a nonpartisan issue--
one that crosses the lines of politics and party. The families who come
to us for help are not interested in our political affiliations, and
our success in serving them depends on cooperation. I am happy to say
that this is the spirit in which HUD and the Committee have undertaken
our work this year . . . and the same spirit that will guide us
tomorrow and into the future. I would like to thank each of you for
your personal support of my efforts, and I welcome your guidance as we
continue our work together on behalf of the American people.
Thank you.