[House Hearing, 108 Congress]
[From the U.S. Government Publishing Office]
SAVING TAXPAYER MONEY THROUGH
SOUND FINANCIAL MANAGEMENT
=======================================================================
HEARING
BEFORE THE
SUBCOMMITTEE ON
OVERSIGHT AND INVESTIGATIONS
OF THE
COMMITTEE ON FINANCIAL SERVICES
U.S. HOUSE OF REPRESENTATIVES
ONE HUNDRED EIGHTH CONGRESS
FIRST SESSION
__________
JUNE 25, 2003
__________
Printed for the use of the Committee on Financial Services
Serial No. 108-44
91-772 U.S. GOVERNMENT PRINTING OFFICE
WASHINGTON : 2003
____________________________________________________________________________
For Sale by the Superintendent of Documents, U.S. Government Printing Office
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HOUSE COMMITTEE ON FINANCIAL SERVICES
MICHAEL G. OXLEY, Ohio, Chairman
JAMES A. LEACH, Iowa BARNEY FRANK, Massachusetts
DOUG BEREUTER, Nebraska PAUL E. KANJORSKI, Pennsylvania
RICHARD H. BAKER, Louisiana MAXINE WATERS, California
SPENCER BACHUS, Alabama CAROLYN B. MALONEY, New York
MICHAEL N. CASTLE, Delaware LUIS V. GUTIERREZ, Illinois
PETER T. KING, New York NYDIA M. VELAZQUEZ, New York
EDWARD R. ROYCE, California MELVIN L. WATT, North Carolina
FRANK D. LUCAS, Oklahoma GARY L. ACKERMAN, New York
ROBERT W. NEY, Ohio DARLENE HOOLEY, Oregon
SUE W. KELLY, New York, Vice Chair JULIA CARSON, Indiana
RON PAUL, Texas BRAD SHERMAN, California
PAUL E. GILLMOR, Ohio GREGORY W. MEEKS, New York
JIM RYUN, Kansas BARBARA LEE, California
STEVEN C. LaTOURETTE, Ohio JAY INSLEE, Washington
DONALD A. MANZULLO, Illinois DENNIS MOORE, Kansas
WALTER B. JONES, Jr., North CHARLES A. GONZALEZ, Texas
Carolina MICHAEL E. CAPUANO, Massachusetts
DOUG OSE, California HAROLD E. FORD, Jr., Tennessee
JUDY BIGGERT, Illinois RUBEN HINOJOSA, Texas
MARK GREEN, Wisconsin KEN LUCAS, Kentucky
PATRICK J. TOOMEY, Pennsylvania JOSEPH CROWLEY, New York
CHRISTOPHER SHAYS, Connecticut WM. LACY CLAY, Missouri
JOHN B. SHADEGG, Arizona STEVE ISRAEL, New York
VITO FOSSELLA, New York MIKE ROSS, Arkansas
GARY G. MILLER, California CAROLYN McCARTHY, New York
MELISSA A. HART, Pennsylvania JOE BACA, California
SHELLEY MOORE CAPITO, West Virginia JIM MATHESON, Utah
PATRICK J. TIBERI, Ohio STEPHEN F. LYNCH, Massachusetts
MARK R. KENNEDY, Minnesota ARTUR DAVIS, Alabama
TOM FEENEY, Florida RAHM EMANUEL, Illinois
JEB HENSARLING, Texas BRAD MILLER, North Carolina
SCOTT GARRETT, New Jersey DAVID SCOTT, Georgia
TIM MURPHY, Pennsylvania
GINNY BROWN-WAITE, Florida BERNARD SANDERS, Vermont
J. GRESHAM BARRETT, South Carolina
KATHERINE HARRIS, Florida
RICK RENZI, Arizona
Robert U. Foster, III, Staff Director
Subcommittee on Oversight and Investigations
SUE W. KELLY, New York, Chair
RON PAUL, Texas, Vice Chairman LUIS V. GUTIERREZ, Illinois
STEVEN C. LaTOURETTE, Ohio JAY INSLEE, Washington
MARK GREEN, Wisconsin DENNIS MOORE, Kansas
JOHN B. SHADEGG, Arizona JOSEPH CROWLEY, New York
VITO FOSSELLA, New York CAROLYN B. MALONEY, New York
JEB HENSARLING, Texas CHARLES A. GONZALEZ, Texas
SCOTT GARRETT, New Jersey JIM MATHESON, Utah
TIM MURPHY, Pennsylvania STEPHEN F. LYNCH, Massachusetts
GINNY BROWN-WAITE, Florida ARTUR DAVIS, Alabama
J. GRESHAM BARRETT, South Carolina
C O N T E N T S
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Page
Hearing held on:
June 25, 2003................................................ 1
Appendix:
June 25, 2003................................................ 17
WITNESSES
Wednesday, June 25, 2003
Antonelli, Hon. Angela M., Chief Financial Officer, Department of
Housing and Urban Development.................................. 4
Dorr, Hon. Thomas C., Under Secretary for Rural Development,
Department of Agriculture, accompanied by Mr. David Grahn,
Associate General Counsel for Rural Development................ 7
APPENDIX
Prepared statements:
Kelly, Hon. Sue W............................................ 18
Antonelli, Hon. Angela M..................................... 19
Dorr, Hon. Thomas C.......................................... 24
Additional Material Submitted for the Record
Antonelli, Hon. Angela:
Written response to questions from Hon. Sue W. Kelly......... 27
Dorr, Hon. Thomas C.:
Written response to questions from Hon. Sue W. Kelly......... 31
Department of Housing and Urban Development, Inspector General
Kenneth M. Donohue, prepared statement......................... 34
SAVING TAXPAYER MONEY THROUGH
SOUND FINANCIAL MANAGEMENT
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Wednesday, June 25, 2003
U.S. House of Representatives,
Subcommittee on Oversight and Investigation,
Committee on Financial Services,
Washington, D.C.
The subcommittee met, pursuant to call, at 2:13 p.m., in
Room 2128, Rayburn House Office Building, Hon. Sue Kelly
[chairman of the subcommittee] presiding.
Present: Representatives Kelly, Green, Inslee, Crowley and
Matheson.
Chairwoman Kelly. [Presiding.] This hearing on the
Subcommittee on Oversight and Investigations will come to
order.
Without objections, all members' opening statements are
going to be made part of the record.
Far too often, we in Washington see much reckless and
wasteful spending without regard for American taxpayers. I
believe we have to carefully examine every penny the federal
government spends to ensure that hardworking American families
are getting the most for their tax dollars.
The budget resolution passed by the House for the next
fiscal year includes a pledge to search for and eliminate
waste, fraud or misuse in federal spending. This pledge
represents a commitment to all Americans that this Congress
will not take their hard-earned dollars for granted. The
subcommittee is meeting today to discuss how to fulfill this
promise immediately.
With the committee's encouragement, senior managers at the
Department of Housing and Urban Development and the Rural
Housing Service, an agency within the Agriculture Department,
are scouring decade-old accounts and contracts under their
control. I would like to commend both of these agencies for
working diligently with this subcommittee to identify funds
that are available to reduce spending needs in future years.
After careful investigation, I am pleased to be able to
announce that we have discovered, they have discovered for us,
over $1 billion that were appropriated and obligated for a
specific grant or subsidy, but for a variety of reasons the
money was never spent and the money is no longer needed for its
original purpose. To date, we have officially found a total of
$1.7 billion in unspent funds at HUD that can be used to reduce
future spending. We have also located an additional $737
million in unspent funds at the Rural Housing Service, which
the Agriculture Department is still investigating. To assist in
these efforts to protect taxpayers, I would like to announce
our request for a GAO study to determine how much of these
funds can be recaptured.
Today, we have with us senior officials from both agencies
to discuss their findings and what they hope to do with the
funds they have found. We have asked for and received a
statement from the Inspector General of HUD, Kenneth Donohue,
on his office's initiatives to halt waste, fraud and abuse.
These include work to recover improper payments for housing
assistance and a new initiative to detect and prosecute fraud
in the Section 8 program in collaboration with HUD management.
The subcommittee applauds these steps. By eliminating waste
in important housing programs, Secretary Martinez and Inspector
General Donohue are ensuring that vital program funds are spent
to help the beneficiaries as Congress intended. I ask the
subcommittee's unanimous consent to insert this statement into
the record.
I really thank the witnesses for appearing before the
subcommittee today. I look forward to your testimony.
I will turn now to my fellow New Yorker.
Mr. Crowley. I thank the chairwoman. And I would like to
read an opening statement.
I would like to thank her for holding this hearing today in
the Oversight and Investigations Subcommittee regarding the
Republican directive inserted into the budget resolution for
each committee to identify and weed waste, fraud and abuse out
of mandatory spending. Let me begin by stating that I opposed
the Republican budget resolution as it was, and as I believe it
to be a sham document that cuts vital spending programs,
including mandatory veterans benefits and discretionary housing
accounts.
But today we are not here to discuss the overall budget,
again a budget that will produce well over $1 trillion in new
deficits over the next several years, further eroding our
nation's economy, an erosion which began in the winter of 2002
after 8 straight years of growth and prosperity. We are here to
discuss a specific section of that document, Section 301 of
Title III which pertains to the weeding out of waste, fraud and
abuse. This is one thing that should be bipartisan, with
Democrats and Republicans working together. We are all
taxpayers here and no one likes to see any of our taxpayer
dollars wasted.
But the gist of this hearing is off, in my opinion, as
Section 301 pertains to mandatory spending programs only, not
discretionary programs as the chairwoman is highlighting in the
hearing today. In fact, both Section 8 and the rural housing
programs are discretionary programs, not mandatory programs. So
when my colleagues talk of eliminating waste, fraud and abuse
in mandatory programs, what are they actually referring to? I
believe they are referring to federal employee benefits,
something I will be interested in getting the take of our two
witnesses here today as they are both federal employees. The
Republican Caucus I believe is referring to Medicare,
veterans's benefits and Social Security. These are mandatory
programs.
In fact, with respect to the housing programs Chairwoman
Kelly wants to have a discussion on today, I will quote budget
chief Jim Nussle who stated that the Budget Committee, ``wants
to put the same discipline that the appropriators put into
their disciplinary spending process into the mandatory side,''
meaning we should be looking at only mandatory spending, not
the discretionary programs that we will be discussing here
today. In fact, Mr. DeLay says that these mandatory cuts will
save the government over $10 billion a year, but again, what
are the mandatory cuts? Veterans, Medicare, Social Security,
they are not the HUD programs in question today as they are
discretionary, as opposed to mandatory in nature.
While I welcome the opportunity for the other side to
finally come clean in their ultimate goal which I believe is to
gut key social service programs like veterans's benefits, we
must be 100 percent honest in this debate. Let us remember that
the head of the Disabled American Veterans himself wrote to
Speaker Hastert and called the Republican budget shameless as
it cut disabled veterans's services and benefits. Let us also
not forget the Administration recently moved to cut benefits
for 164,000 veterans citing the same waste, fraud and abuse
claims being made here today.
These are the mandatory spending programs threatened by Mr.
DeLay on the other side of the aisle, and this pursuit of
destroying veterans's benefits or Medicare will not be a
bipartisan issue.
Moving on to the claims of waste, fraud and abuse at HUD,
the other side cites the unobligated balances in the Section 8,
236, and 521 programs. But these are not caused by waste, fraud
and abuse on the part of local housing authorities, low-income
tenants or assisted housing landlords. Such balances only come
about through contracts entered into where all of the obligated
funds are not needed once the long-term contract expires or is
canceled due to prepayment. The funds are not wasted.
Eventually, they are routinely rescinded, recaptured or
reallocated, meaning the government takes them back and uses
them again, either for housing or for some other purpose. In
fact, unobligated funds are routinely used as a piggy bank so
to speak to fund non-housing programs in supplemental spending
bills.
According to preliminary data provided by CBO, the Congress
rescinded $6.8 billion in Section 8 budget authority in
supplemental spending bills from fiscal year 1997 through
fiscal year 2002, the overwhelming majority of which were used
to fund non-housing expenditures, meaning the money was spent,
not wasted as they would have many believe here today.
More recently, Congress rescinded $300 million in Section
236 balances in the fiscal year 2002 supplemental spending
bill, and $100 million in fiscal year 2003 appropriations
bills. These funds were previously earmarked by authorizing
statute for rehabilitation of low-income housing units. Again,
the funds went elsewhere and did not disappear into thin air.
In fact, the rescission of unobligated Section 8 balances would
leave a gaping hole in the HUD budget, which would require as
much as $1 billion in additional cuts to housing program on top
of the cuts recommended by the president's budget. This is as
the Administration proposed to use 100 percent of the estimated
$1 billion in unobligated Section 8 balances in fiscal year
2004 to help cover the cost of Section 8 renewals, again seeing
the money go back into other programs and again not wasted.
The only real issue of accountability is whether HUD and
RHS are properly accounting for and reporting to Congress the
accurate level of balances in these accounts. This waste, fraud
and abuse issue I believe is a red herring to justify further
cuts in important housing programs.
With that, Madam Chair, I yield back.
Chairwoman Kelly. Thank you.
Just to set the record straight, Mr. Crowley, the budget
which was passed included $63.8 billion for veterans, which is
more than they have ever allocated for the veterans issues.
Mr. Green?
Mr. Green. Madam Chair, thank you for adding that point of
clarification.
I appreciate your holding this hearing today. This hearing
is an opportunity for good news, ways that we can make the
taxpayer dollar go further. The opening statement from the
gentleman from the other side did not seem to focus on that.
Instead, tossed the usual partisan rhetoric about gutted
programs and so on and so forth. I look forward to a hearing in
which we find ways to make things work and find ways to make
those dollars go further and further.
Thank you, Madam Chair.
Chairwoman Kelly. Thank you, Mr. Green.
There are no more opening statements, so I will introduce
our witnesses.
We have with us the Honorable Angela Antonelli, who is the
Chief Financial Officer of the Department of Housing and Urban
Development; the Honorable Thomas Dorr is the Under Secretary
for Rural Development at the Department of Agriculture. He is
accompanied by David Grahn, the Associate General Counsel for
Rural Development.
We thank you very much for testifying before us today. I
welcome you on behalf of the entire committee. Without
objection, your written statements and any attachments that you
have will be made part of the record. You will be recognized
for a five-minute summary of your testimony. The lights in the
box on the table will indicate, it is green when you have the
full five minutes; within one minute of the time your time is
ended at the end of four minutes, the yellow light will go on;
when your time is up, the red light will go on. I want to warn
you that I tend to keep on time because I think other people
need to be heard. With that, we start with you, Ms. Antonelli.
It is a great pleasure to have you here. I look forward to your
testimony.
STATEMENT OF HON. ANGELA M. ANTONELLI, CHIEF FINANCIAL OFFICER,
DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT
Ms. Antonelli. Thank you very much.
Chairwoman Kelly and other distinguished members of the
House Subcommittee on Oversight and Investigations, on behalf
of HUD Secretary Martinez, thank you for inviting the
department to testify on the status of unexpended balances that
remain from funds that were previously appropriated by the
Congress for HUD programs.
I believe that HUD's leadership has worked diligently and
successfully to reduce unexpended balances and to ensure that
funds reach their anticipated beneficiaries as quickly as
possible. After all, the benefits of federal programs that are
authorized and funded by the Congress are not realized until
the funds are actually put to use providing assistance to low-
and moderate-income families.
There are many who criticize HUD for what are perceived as
very high unexpended funds balances with large savings
potentials. At first glance, this is not an unreasonable
criticism or reaction. At the end of May of this year, HUD had
$108 billion in unexpended appropriated funds. However, these
balances do not represent either an inability of HUD's
leadership to award and obligate funds or an opportunity to
recapture these funds and use them for other purposes because
the program recipients no longer need them.
Let me begin by trying to put the total unexpended balance
of $108 billion in perspective. First, of the total balance,
$34 billion has yet to be awarded and obligated by HUD. The
vast majority of the funds are not obligated because Congress
only enacted the fiscal year 2003 Appropriations Act in
February. And because several of HUD's programs are in fact
competitive grant programs, and given the time required to run
a competitive funding program, those funds are often not
obligated until late in the fiscal year or in some cases until
the next year. This leaves a total of $74 billion in obligated
balances yet to spend out.
I would like to break this into two groups; first, the
balances for terminated programs. Congress enacted long-term
low-income assistance programs in the 1970s and 1980s, many of
which no longer receive annual funding for new project
activity. However, these long-term programs were either fully
funded at their inception or sufficient funds were provided to
obviate the need for additional appropriations for many years
in the future. All of these funds are obligated against the
projects and have steadily been spending out for the past two
decades and will continue to do so for many years to come. In
total, over $34 billion in obligated funds remain for a variety
of programs such as the Section 236 interest rate reduction
program, project-based Section 8 contracts, and other smaller
programs. Although many of these programs were terminated, the
contracts and therefore obligations have not expired and will
continue to be expended over time.
Should the Congress determine that these balances should be
reduced and be used for other purposes, it must be aware that
future appropriations will be required to complete the
contractual obligations into which the government has entered.
Hence, the Administration does not necessarily see these funds
as excess and available for recapture. However, please
understand that once these contracts do expire or for other
reasons project owners or grantees opt out or the contract is
terminated, HUD moves to recapture any funds that remain.
One example is the 236 IRP program from which HUD recently
recaptured approximately $700 million. We are now completing a
reevaluation of the original estimate of need throughout the
remaining active life of each contract. The president's budget
assumes that $300 million of the $700 million recaptured will
be available to offset the overall cost of HUD's program in
fiscal year 2004.
Of the balance that remains in terms of obligated balances
in current programs, there is about $40 billion. In the case of
the Section 8 housing choice voucher program, there are about
$8 billion in obligated balances. However, of this amount, $6
billion are obligations for fiscal year 2002 and 2003
appropriations, reflecting the fact that public housing agency
recipients have different fiscal years than the federal fiscal
year, and there is a lag in the receipt of funds.
These balances do not necessarily reflect a failure by PHAs
to expend the funds properly, since they are current-year
contracts that have not yet expired. Over the past few years,
HUD has moved to recapture all unused tenant-based Section 8
funds from all expired contracts with a long-term project base
or annual tenant-based contracts. In fiscal year 2004, the
president's budget assumes approximately $1.4 billion in fiscal
year 2002 and prior year unused Section 8 funds will be made
available to offset the costs of this program.
HUD is working as hard as possible to ensure that it
annually sweeps both the project-based and tenant-based
programs and makes funds to offset the costs of the program.
Thus, combined with the budget reforms enacted in 2003, we will
ensure that future obligated balances will always be the lowest
possible. This reform represents one of the most significant
management improvements since the start of the Administration.
In the case of the public housing capital fund, of the $4.4
billion in obligated funds for modernization appropriated from
1997 to 2002, PHAs have four years to spend the funds once they
are obligated. HUD is working closely with Congress to enforce
the new law that requires PHAs to spend these funds within that
time frame or if not, Congress requires that HUD recapture the
funds.
We have already seen a dramatic drop in obligated balances,
particularly for funds that are more than two years old. In the
case of our special populations program, there are $4.4 billion
in unexpended obligations in the case of our elderly and
disabled housing program. Seeing such a large amount of funds
yet to be expended may make people think that the department is
not using its funds in a timely manner. However, the majority
of the funds, about $2.5 billion, are associated with the
elderly 20-year and 5-year project rental assistance contracts
for support of completed and occupied projects.
A recent GAO report on the elderly stated that at the end
of September 30, 2002, only about $700 million represented
funding for projects that remained in the pipeline. The $700
million represents funds for some of the most difficult
projects to bring to closure because of unanticipated issues
with the site or litigation. However, we have made it a
priority to clear the pipeline and have significantly reduced
the number of projects in that pipeline.
In conclusion, I hope that I have been able to give you a
different perspective on what many believe are these excessive
unexpended balances in HUD programs. I hope that I have been
able to demonstrate that where the real excess balances do
exist, HUD has been aggressive in recapturing those funds and
using them to offset the costs of HUD programs or for other
uses.
In fiscal year 2004 alone, HUD's budget assumes that over
$1.7 billion in recaptured balances will be used to reduce the
overall budgetary requirements of the department. I want to
emphasize that while it is important to recapture funds, our
first goal at HUD is to ensure that our grantees or other
intermediaries expend the funds as fast as possible, consistent
with the rules Congress has enacted, so that low-income
families and communities across the country can enjoy the
benefits that are intended by Congress. The real success story
at HUD is the tremendous effort that is now going into reducing
these unexpended obligations through improved program
performance, rather than recaptures.
Thank you very much. I would be happy to answer any
questions.
[The prepared statement of Hon. Angela M. Antonelli can be
found on page 18 in the appendix.]
Chairwoman Kelly. Thank you very much.
Mr. Dorr?
STATEMENT OF THOMAS DORR, UNDER SECRETARY FOR RURAL
DEVELOPMENT, DEPARTMENT OF AGRICULTURE, ACCOMPANIED BY DAVID
GRAHN, ASSOCIATE GENERAL COUNSEL FOR RURAL DEVELOPMENT
Mr. Dorr. Thank you, Chairwoman Kelly, members of the
committee. Thank you for this opportunity to testify on the
multi-family housing Section 521 rental assistance program. The
rental assistance program currently helps 264,000 rural
households maintain their rental residence by providing a
subsidy to pay the difference between the basic rent for the
apartment and up to 30 percent of an eligible tenant's income.
Section 515 multi-family housing borrowers operate the rental
assistance program under contract with USDA. These contracts
consist of a commitment from the borrower to operate an
affordable housing property to the life of the mortgage and a
commitment from the United States Government to provide funds
to help residents make rent payments.
At the start of the rental assistance program in 1978 until
1982, contracts were executed for 20 years for new construction
projects, and five-year contracts were executed for existing
properties. Contracts executed after that period are all five-
year contracts. All contracts continue until the obligated
rental assistance funds are depleted. The General Accounting
Office is reviewing the Section 521 rental assistance program
and has raised concerns about the unliquidated balances on the
20-year contracts and five-year contracts on which rental
assistance payments continue to be paid on units beyond the
original terms.
Rural Development has determined that there is $737 million
approximately outstanding on these active contracts that were
obligated between 1978 and 1998. This obligated amount remains
outstanding for several reasons. First, the 1978 to 1982
contracts were vastly overestimated, mostly due to the newness
of the program. Second, lower than projected rental assistance
usage occurs as tenant income goes up and the gap narrows
between 30 percent of income and the basic rent. As a result,
less rental assistance is needed.
Third, lower usage is also experienced when vacancies at
the property are higher than expected. This reduces the number
of occupied units and may reduce the amount of rental
assistance used by the property. And fourth, rental assistance
units exist in our program in perpetuity. If a property no
longer needs rental assistance on several units, the rental
assistance on those units is transferred to another property to
provide rental assistance for rent-overburdened tenants. The
usage on these units is subject to adjustment due to changes in
tenant income and property occupancy conditions.
Of the outstanding $737 million, and this is as of March
11, 2003, $525 million represents unlimited authority through
the U.S. Treasury to fund the 20-year contracts made between
1978 through 1982. The outstanding obligations are termed
``unliquidated obligations,'' which means unused authority to
fund contractual obligations for that period. These are not
dollars that rural development can access to spend to fund RA
for new construction. These RA funds are only available for the
current contracts or may be transferred to other units on
existing contracts.
Unliquidated obligations are not unique to the rental
assistance program. Every program has obligations to be paid in
the future by the government. The contract executed by Section
515 borrowers identifies a specific amount of rental assistance
obligations. Changes in use would require these contracts to be
renegotiated with the borrowers and legislation would be needed
to provide more flexibility in the use of these funds. This
would allow funds set aside for RA payments in the distant
future to be used to fund more rental assistance units today.
We are willing to work with your committee and the
Appropriations Committee, General Accounting Office and Office
of Management and Budget to explore more flexibility in using
this funding source, provided that this can be done without
increasing the government's exposure to future unmet funding
needs.
The committee has inquired about the inactive contracts in
our portfolio. Those contracts fall into three categories.
First, contracts that have not yet started paying out because
the contract they are replacing had not yet exhausted all
funds. Secondly, we have contracts that have not yet started
paying out because a new construction project has not been
completed and started operations. And thirdly, for any property
whose debt has been accelerated or is in foreclosure, rental
assistance is held in abeyance until those legal actions are
completed. On completion of these servicing actions, the rental
assistance will begin flowing at that property or another that
needs rental assistance. In each case, these inactive contracts
will be started or re-started.
Rural Development has taken steps to become more accurate
in our projections of rental assistance, including automation
initiatives, rental assistance review, management control
review, and the implementation of our Regulation 3560 proposed
changes. Rural Development will continue to work with the
committee and other interested parties in reviewing the
unliquidated obligations.
Madam Chairwoman, this concludes my testimony. I would like
to thank you for allowing me the opportunity to testify today
and I would answer any questions you may have or the committee
members may have.
[The prepared statement of Hon. Thomas C. Dorr can be found
on page 24 in the appendix.]
Chairwoman Kelly. Thank you very much, Mr. Dorr. Actually,
I do have a couple of questions.
Of the total rental assistance contracts, what percentage
are inactive? I didn't get that number.
Mr. Dorr. What percentage of them?
Chairwoman Kelly. Yes, what percentage of the rental
assistance projects that you now have are inactive?
Mr. Dorr. Of the contracts themselves, we have about 3.5
percent that are inactive. Of the total dollar value of
obligations, it amounts to about 7 percent.
Chairwoman Kelly. About 7 percent and 3.5 percent. The
reason for the inactivity again is?
Mr. Dorr. Well, it is three-fold. Essentially, we have new
construction or renewal contracts. The new construction
contracts are contracts that have been obligated. The
properties are not yet functioning and therefore they are not
authorized to draw on the rental assistance. Of that 7 percent,
about half of them are contracts that will run out of rental
assistance this year, and we are obligating another five-year
contract, but that has not been activated at this point. Then
we have a third category which involves the servicing and
transferring of certain contracts including those that have
various legal actions pending or are in some other minor form
of transition that is not easy to categorize. That is a small
number of the total inactivity.
Chairwoman Kelly. Mr. Dorr, you said in your testimony that
changes in the use of the unliquidated obligations would
require the renegotiation of the contracts. That is really what
we are asking GAO to resolve with you. For the record, can you
please specifically describe the language in the contracts that
is at issue?
Mr. Dorr. I would not have specific language for you today,
but we will get that to you.
Chairwoman Kelly. Does Mr. Grahn have that?
Mr. Dorr. Mr. Grahn, would you care to comment? Go ahead.
Mr. Grahn. Madam Chairwoman, the Rural Development
Administration, and particularly at that time the Farmers Home
Administration, entered into a series of amendments in the
early 1990s with these contracts. If you take a look at Section
8(a) of the amendment, it talks about the terms of the contract
expiring upon the total disbursement or credit at the
borrower's account. At the bottom of the amendment, it
indicates how much money that is. So we have interpreted that
contract to mean that the contract will run until the dollars
are expended.
Chairwoman Kelly. I wonder if you could provide a good copy
of the kind of contract that is at issue here for our records,
and a legal opinion about your interpretation. I think we would
find that to be very helpful in understanding the questions
about the contract. Would you do that for us please?
Mr. Grahn. Yes.
Chairwoman Kelly. Thank you.
Ms. Antonelli, I really want to compliment Secretary
Martinez and Deputy Secretary Jackson and you and the other HUD
officials for your leadership in identifying and attempting to
recapture these funds. I urge you to continue.
For instance, you testified that the obligated balances in
the public housing authorities have dropped from $3.4 billion
in 2001 to $700 million as of this March 31. Would you please
very briefly describe the specific procedures that you put into
place when you arrived at HUD to try to ferret out and
recapture unspent funds?
Ms. Antonelli. Much of what we have done within the
department since the beginning of this Administration has
really been very generally focused on the entire department and
all programs, to focus on the level of unspent balances.
Obviously, that includes the PIH programs as well. Again, you
are referring specifically to the comment in the testimony
regarding the public housing capital fund. There have been
efforts that have been put in place in terms of those programs,
as well as other programs, to expedite the expenditure of funds
and to streamline the processes by which those funds would be
expended by the public housing authorities.
I am also being told that part of the reason that we have
been able to see the drop in the level of funding that has been
out there is because of efforts to work with the appropriators
to try to speed the ability to get the money out towards the
modernization projects. So we have worked very closely, again,
with the appropriators as well to address some of these issues,
particularly in the area of public housing.
Chairwoman Kelly. Thank you very much. I am out of time.
Mr. Crowley?
Mr. Crowley. Thank you, Madam Chair. When HUD rescinds,
recaptures or reallocates funds from Section 8 programs, for
example, are they lost; do these funds just disappear; or are
they reused for other purposes, whether it be for housing or
other governmental purposes?
Ms. Antonelli. Most of the time, the money that is
recaptured from tenant-based Section 8 is often put back and is
used for Section 8. For example in the case of the president's
fiscal year 2004 budget, as you know, there is $1 billion in
offsets anticipated to contribute to reducing the level of
appropriations for the Section 8 tenant-based program going
forward.
Mr. Crowley. Would you describe that as fraud or waste or
abuse?
Ms. Antonelli. Absolutely not. Obviously in terms of the
discussion of the Section 8 program, the tenant-based program,
there have been efforts to try to improve the utilization of
funds within the program; the fact that every year the
department annually recaptures a significant amount of funds
from the tenant-based program. It is something that we have
been working very, very hard to resolve. In the context of the
2003 Appropriations Act, for example, we had worked very
closely with the appropriators to make modifications that would
allow us to begin to drop the level of recaptures over time
that we would see in this program.
It is certainly not waste, fraud and abuse. It reflects
issues with regards to the management of the program and we
need to work to improve the management of the program and have
begun to do that in the context of 2003 with these management
improvements to try and reduce the level of recaptures that we
have so that the money in fact is flowing out to the public
housing authorities and those who need them.
Mr. Crowley. Thank you. I have a limited time for
questions, but I appreciate your answer.
Just let me take it one step further. The Inspector General
is not here today. Kenneth Donohue has submitted testimony that
will be the basis of some of my questions as well. He talked
about contract excesses, as well as what I mentioned before in
terms of what is rescinded or recaptured or what is reallocated
funds. Is the same true about contract excesses in Section 8
programs? Are they also recaptured or are they spent or are
they lost?
Ms. Antonelli. Again, as I mentioned, we don't necessarily
see the funds as excess per se because, again, we have
contractual obligations that we are legally required to uphold.
In the case of project-based Section 8, for example, if you
look at the funds that are there and that have not yet been
spent, these are dollars that are attached to projects. Again,
if those monies were to be rescinded, then ultimately it is
entirely possible that we would have to seek additional
appropriations in fact to meet those legal obligations. That is
just one example of, again, we would not necessarily see these
as excess funds.
They are in fact funds that when these programs were
initially created, the money was provided up front. It spends
out over a long period of time. And again, to the extent that
those funds would be removed, ultimately somewhere down the
road the money would have to be appropriated again to uphold
those legal obligations, contractual obligations.
Mr. Crowley. Let me ask you and Mr. Dorr, if you can. If
you could answer these questions with just one word yes or no
answers to the first two parts of the questions. Does Congress
allocate an annual appropriation for Section 8 and Section 238
housing programs, as well as Section 521 of the rural housing
programs? Does Congress make an annual allocation through the
appropriations process towards those programs?
Mr. Dorr. Yes, we get an annual appropriation.
Mr. Crowley. Thank you.
And the same would be said for HUD?
Ms. Antonelli. Not for 236.
Mr. Crowley. Okay, 238? Section 8?
Ms. Antonelli. Section 8, we do have annual appropriations,
yes.
Mr. Crowley. Okay. Does Congress allocate an annual
appropriation for Social Security or Medicare? To your
knowledge, I know it is not your field, but to your knowledge,
does Congress allocate an annual appropriation for Social
Security or Medicare?
Ms. Antonelli. These are mandatory programs.
Mr. Crowley. Right. We don't allocate them, do we? We don't
make appropriations for them, do we?
Ms. Antonelli. You have to meet the need.
Mr. Crowley. Right.
The HUD programs in question are discretionary.
Ms. Antonelli. That is correct.
Mr. Crowley. As opposed to mandatory spending, which
veterans' benefits, Social Security and Medicare are. I am
holding up a copy of the Section 301 of the budget resolution
where it stipulates that the committee needs to look into
mandatory spending. None of the programs we are talking about
here today are mandatory spending. They are all discretionary
spending. Is that correct?
Ms. Antonelli. I should just point out, we do have about
$27 billion in mandatory obligated balances, but those are
reserves that are in our FHA fund.
Mr. Crowley. Is Section 8 a mandatory program or is it a
discretionary program?
Ms. Antonelli. No, sir, it is not. It is a discretionary
program.
Mr. Crowley. My feeling is here that the hearing is taking
place. I think it is a red herring. I will say it again,
because I think this is an attempt to make cuts in the Section
8 program which would have a very serious effect on my city and
my district particularly. I think it is wrong to be doing this.
Clearly, the excess monies that are recaptured are spent again,
either in HUD in Section 8 programs or in other programs.
Actually, it is used by Congress for defense spending and other
emergency spending that comes up. I think it is wrong to hold
in the cloud of trying to find out waste, fraud and abuse, to
have members on this side of the aisle vote against any cutting
of Section 8, and declare that we are against waste, fraud and
abuse. I think it is wrong to do that, and I yield back the
balance of my time.
Chairwoman Kelly. Mr. Crowley, I really need to remind you
that when the budget passed, embedded in the budget was the
mandate that every chairman of every committee who controlled
the budget of any executive agency attempt to work with that
agency to cut at least 1 percent out of the budget. The
committee chairmen all accepted that challenge. These are not
cuts that we are talking about. What we are talking about is
streamlining things here in the effort to recapture money. That
does not necessarily revolve around waste, fraud and abuse, but
management problems, as Ms. Antonelli said, and if it is
appropriate, the idea is if we need to make legislation
available to these agencies to free up funds and allow
flexibility so that money that is residing in those agencies
can be used now and appropriately, rather than being held in
accounts for 20 years because they are held up and that money
will probably never be used, then it is important that we do
what we can to provide flexibility and free-up these funds so
that they are available.
Too many programs, especially in these two areas, with
rural housing and with HUD, don't have as much money available
to them because there are funds frozen in various ways. That is
exactly what I am applauding HUD about because I think the HUD
officials have worked very hard to identify and ferret out and
recapture these unspent funds that have been frozen in the
agencies. So I applaud them for this and I think it is
important that we make clear what is happening here. We are not
worried about cuts. We are worried about making available the
money that is there.
Mr. Green?
Mr. Green. Thank you, Madam Chair.
I have listened carefully to the testimony and I will read
the written testimony in great detail later on. I would like to
step back and just ask a couple of general questions. First
off, if each of you could simply bottom-line your testimony for
us, if there is one message that you would like us to take from
your testimony, what would it be?
Ms. Antonelli. I am sorry, Congressman. I apologize.
Mr. Green. No, not a problem. We have talked a lot about
details and specifics. I would like to step back a second. What
is the bottom line of your testimony? Can you summarize as best
you can if there is one message that you would like us to hear
with respect to the discussion points, what would it be?
Ms. Antonelli. I think the most important message that we
would like to convey from the Department of Housing and Urban
Development is just how seriously we take our responsibilities
in terms of being good stewards of the taxpayer dollar and
improving the financial management of the department. As the IG
has outlined and has the responsibility annually in terms of
doing an audit of our financial statements, they have
highlighted areas where we can and should be doing better.
I think the department has already done a great deal in the
past and will continue to do what we have been doing in terms
of keeping track of and very carefully reviewing the level of
unexpended funds program by program within this department. To
the extent that we can, we will recapture those funds where we
know that we are able to do that, and not have an impact on our
programmatic needs. We have been very successful in doing that.
In the context of the 2002 audit, there were some things
that the Inspector General had highlighted in a couple of our
programs. We are happy to work with them. We continue to work
with them. As a result of their work, we have very detailed
corrective action plans in place that will allow us to continue
to do an even better job in the issue of the review of
unliquidated obligations. So that, again, we are making the
most effective and efficient use of the taxpayer dollars as
Congress has allocated them to the Department of Housing and
Urban Development.
Mr. Green. Mr. Dorr?
Mr. Dorr. Yes, Congressman Green, I would first of all
generally echo what Ms. Antonelli has expressed. But in
addition to being good stewards, I would clearly point out that
we are very sensitive to our responsibility to provide housing
for those elderly and single and others in rural areas who have
diminished resources and need access to this program. If there
is one thing that I would like you to come away with from this
is that, first of all, we need management flexibility. In the
long run, what we need is flexibility to administer these
programs in a way that allows us to steward these resources
effectively, as is what I think is the intent of this
committee.
In our case, we are fully engaged in an automation review
so that our rental assistance budget forecasting mechanism is
going to be much improved. I feel comfortable in saying that.
We also have initiated a very aggressive internal agency review
to find out why these obligated unliquidated balances have
accrued; what is the cause of them. I think we are very close
to determining that. We are also putting in place some
management control review processes that we hope will become
much more effective, particularly as we implement our new
multi-family housing rules.
In conjunction with everything that Ms. Antonelli said,
management flexibility is clearly the one thing that would help
us the most.
Mr. Green. I guess you anticipated my next question. What
are the most significant financial management challenges that
you are facing right now? And what steps are you taking to
address them? I suspect you have partially answered that
question already.
Mr. Dorr. The four things that I have outlined are clearly
steps that we are taking to address them. Counselor Grahn
indicated that he was going to get to you some contract
language that I think you are interested in that may cast some
additional light on this. And finally, I think collaboratively
and collectively we need to review what it takes to essentially
make a three-legged stool out of this, which involves more
effective management, looking at our internal processes, as
well as developing management flexibility. We generally know
where we have to go, but I think it takes a little work to
flesh it out in ways that make it clear and sensible to
everyone involved.
Mr. Green. Ms. Antonelli, my time is running out, but if
you could address that question as well?
Ms. Antonelli. We face a number of financial management
challenges at the department and we are very determined to
overcome them. Some of the management challenges that we face
deal basically with people and systems. We have a very strong
financial management team, first of all. That was a priority
put in place, get some excellent people in here who could help
us address some of our problems. Some of the priorities that I
focused on, again, have related to our financial statements
and, again, the proper accounting for our funds and making sure
that we get clean audits.
We have updated our funds control policies and procedures
for the first time in 20 years in the department, and we have
detailed funds control plans for every single program now in
the department. These are annual funds control plans, and
within those plans all of our programs have to tell us what
they will be doing in terms of the review of their obligated
balances so we can determine again in looking at unexpended
funds and what we should be doing there.
With respect to the financial audit, the Department of
Housing and Urban Development has three material weaknesses and
10 reportable conditions. So again, we have significant
challenges that we have to address. We have worked very closely
with our IG and have a very good relationship, and have worked
with them to develop corrective action plans for the first
time. That puts the department on a path to eliminating these
major material weaknesses that relate to our financial systems
and many of our reportable conditions, one of them being
addressing the issue of the review of obligation balances.
So we have challenges in many respects that we need to
address. We are up to that challenge. We have detailed plans of
actions. We are committed over the longer term by 2006 to
significantly overhaul our financial systems. That will help us
significantly improve the job that we are doing, to do it even
more effectively, more efficiently, and provide better
information in a more timely manner for Congress.
Mr. Green. Thank you. Thank you very much. Thank you, Madam
Chair.
Chairwoman Kelly. Thank you.
I would like both of you to know that I am interested in
whether there is an unnecessary duplication in housing subsidy
programs. I am interested in redundancy. I am interested in
overlap, because these are also areas where we can perhaps
recapture funds, and if we can eliminate anything that might be
a turf battle out there, so much the better, because our desire
here is to get federal funds to the people who truly need to
get housing from these programs.
Do either of you want to address that issue today, because
I am probably going to pursue this a little bit further at some
other venue, but if you would like to talk about that, if you
feel prepared to do that, I would like to hear an answer.
Mr. Dorr. Specifically with regard to the multi-family
issues, I can honestly say that we have not pursued as
aggressive a working relationship with HUD to tap into their
resources or vice versa, as we have in our single-family
programs. But I will tell you that Dr. John Weicher, the
Commissioner for their FHA programs, and I have developed a
very good relationship. They have been very cooperative in
helping us to utilize some of their resources that enable us to
automate some of our systems more cost-effectively and more
quickly.
There is willingness, at least on our part, I know, and I
believe at HUD, to work and collaborate on issues that
specifically impact us in ways that reduce or eliminate
redundancy. There is clearly a delivery mechanism in rural
areas that is different from HUD programs in urban areas. I am
fairly new at this, but my sense is that some of those delivery
mechanisms are unique to rural areas versus the urban area
delivery mechanism. There are some things that I think are
unique that we effectively deal with. But we are definitely not
opposed to collaborating, cooperating and looking for ways to
ferret out redundancy and have in fact done this already in our
single-family area.
Chairwoman Kelly. Good.
Ms. Antonelli?
Ms. Antonelli. I would just echo much of what Under
Secretary Dorr has just said. The Department of Housing and
Urban Development has and is more than happy and will continue
to look at opportunities and work with the Department of
Agriculture with respect to our programs, and again look at
areas where we can work together more effectively, to the
extent that that has not already been happening.
Mr. Dorr. Madam Chairwoman, I would also like to point out
that we just executed a memorandum of understanding between the
U.S. Department of Agriculture and HUD with regard to
collaborative working relationships on programs in the
southwest border Colonias region. That was something that has
been very effective. And we at USDA also executed an MOU with
the National Association of Credit Unions to enhance our
ability to finance housing and bring these opportunities more
effectively to folks in those areas that need them.
Chairwoman Kelly. That is wonderful news. We appreciate
that.
I note that some members, this is a busy day for a lot of
people, and some members may have questions for this panel that
they may submit in writing. So without objection, the hearing
record will remain open for 30 days for members to submit
written questions to these witnesses and to place their
responses in the record.
We thank you very much for your time. We appreciate your
testimony. This panel is excused with our great, deep
appreciation. I want to briefly thank the members and staff for
their assistance in making the hearing possible.
The hearing is adjourned.
[Whereupon, at 3:00 p.m., the subcommittee was adjourned.]
A P P E N D I X
July 8, 2003
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