[Senate Hearing 108-175]
[From the U.S. Government Publishing Office]
S. Hrg. 108-175
$5.2 BILLION FOR LOW-INCOME SENIOR HOUSING NOT REACHING THE ELDERLY:
WHY?
=======================================================================
HEARING
before the
SPECIAL COMMITTEE ON AGING
UNITED STATES SENATE
ONE HUNDRED EIGHTH CONGRESS
FIRST SESSION
__________
WASHINGTON, DC
__________
JUNE 17, 2003
__________
Serial No. 108-13
Printed for the use of the Special Committee on Aging
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WASHINGTON : 2003
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SPECIAL COMMITTEE ON AGING
LARRY CRAIG, Idaho, Chairman
RICHARD SHELBY, Alabama JOHN B. BREAUX, Louisiana, Ranking
SUSAN COLLINS, Maine Member
MIKE ENZI, Wyoming HARRY REID, Nevada
GORDON SMITH, Oregon HERB KOHL, Wisconsin
JAMES M. TALENT, Missouri JAMES M. JEFFORDS, Vermont
PETER G. FITZGERALD, Illinois RUSSELL D. FEINGOLD, Wisconsin
ORRIN G. HATCH, Utah RON WYDEN, Oregon
ELIZABETH DOLE, North Carolina BLANCHE L. LINCOLN, Arkansas
TED STEVENS, Alaska EVAN BAYH, Indiana
RICK SANTORUM, Pennsylvania THOMAS R. CARPER, Delaware
DEBBIE STABENOW, Michigan
Lupe Wissel, Staff Director
Michelle Easton, Ranking Member Staff Director
(ii)
?
C O N T E N T S
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Page
Opening Statement of Senator Larry E. Craig...................... 1
Statement of Senator James Talent................................ 45
Prepared Statement of Senator John Breaux........................ 63
Panel I
John C. Weicher, Assistant Secretary, Housing/Federal Housing
Commission, U.S. Department of Housing and Urban Development,
Washington, DC................................................. 2
Panel II
David G. Wood, Director, Financial Markets and Community
Investment, General Accounting Office, Washington, DC.......... 13
Cynthia Robin Keller, Vice President, Affordable Housing and
Development, Volunteers of America, Alexandria, VA............. 28
Tom Herlihy, Development Specialist, National Church Residences,
Columbus, OH................................................... 37
Lee Ann Hubanks, Executive Director, Plano Community Homes, Inc.,
Plano, TX...................................................... 45
APPENDIX
Testimony of Paul Hazen, President and CEO, National Cooperative
Business Association and Douglas Kleine, Executive Director,
National Association of Housing Cooperatives................... 64
(iii)
$5.2 BILLION FOR LOW-INCOME SENIOR HOUSING NOT REACHING THE ELDERLY:
WHY?
---------- --
TUESDAY, JUNE 17, 2003
U.S. Senate,
Special Committee on Aging,
Washington, DC.
The committee met, pursuant to notice, at 10:03 a.m., in
room SD-608, Dirksen Senate Office Building, Hon. Larry E.
Craig, (chairman of the committee) presiding.
Present: Senators Craig and Talent.
OPENING STATEMENT OF SENATOR LARRY E. CRAIG, CHAIRMAN
The Chairman. Good morning, everyone. We thank you for
attending this Senate Special Committee on Aging hearing. In
our daily legislative discourse, it is our fiduciary
legislative duty to address a variety of issues. On this
committee, we have oversight responsibility over all issues
affecting our aging citizens. One such issue is housing. Both
the ranking member, Senator Breaux, and I are always keenly
interested in this. The Senator would be here this morning, but
he is on the floor managing another important issue for
seniors, and that is the Medicare prescription drug legislation
that is currently on the floor of the Senate. So he will not be
able to be in attendance this morning.
In meeting our oversight obligation, we are charged to
exercise constructive reviews and critiques of the Federal
programs we have created. Today we exercise that constitutional
responsibility and examine the bureaucratic administration by
the Department of Housing and Urban Development and the
meritorious and needed Section 202, Supportive Housing for the
Elderly program.
The most widespread and urgent housing problem facing
elderly households today is affordability. About 3.3 million
elderly rental households in the United States have very low
incomes, which HUD defines as 50 percent or less of the area
median income. The Section 202 program provides two types of
financial support. The first type of funding provides capital
advances grants to nonprofit organizations to purchase land and
construct affordable rental housing exclusively for these
households. The second type of funding, which interplays with
the first type, is monthly support in the form of rental
assistance payments that defray some of the operating expenses.
However, due to a myriad of HUD requirements in the
application process, coupled with chronic and oftentimes
insensitive bureaucratic delays by HUD in the processing of
grant applications and monetary commitments, the nonprofits are
placed in untenable economic positions. Today we will listen to
their litany of concerns.
We will examine what I call the bureaucratic treatment of
nonprofit organizations in the application process conducted by
the Department of Housing and Urban Development which has
caused the Section 202 program's overall balance of unexpended
appropriations by the end of fiscal year 2002 to total $5.2
billion. These unexpended funds in the only Federal program
devoted exclusively to providing the type of most needed
affordable housing for the elderly represent nearly 86,339
housing units in 1,936 projects affecting needy seniors.
We will also focus on the findings of the General
Accounting Office report on elderly housing provided by the
Department of Housing and Urban Development through the Section
202 program. These findings will detail the administrative and
planning problems encountered by the nonprofit associations who
utilize the funding of these programs and GAO's recommendations
for improvements.
We will hear testimony today from two panels of witnesses.
Our first witness is John C. Weicher, Assistant Secretary,
Housing/Federal Housing Commission, Department of Housing and
Urban Development.
On our second panel of witnesses, we will be joined by
David Wood, Director, Financial Markets and Community
Investment, General Accounting Office; as well as Ms. Cynthia
Robin Keller of Volunteers of America; Mr. Tom Herlihy of the
National Church Residences; and Ms. Lee Ann Hubanks of Plano
Community Housing, representing the umbrella association of
American Association of Homes and Services for the Aging.
I want to thank all of our witnesses beforehand for being
here today. This is a most important inquiry, and I look
forward to hearing your respective testimonies and exploring
ways to provide better, affordable, more timely access to this
money that ultimately produces the kind of housing that so many
of our seniors need.
So, with that, I turn to our first panelist, Dr. John C.
Weicher, Assistant Secretary, Housing/Federal Housing
Commission, Department of Housing and Urban Development.
Doctor, welcome to the committee this morning. We look forward
to your testimony.
STATEMENT OF JOHN C. WEICHER, ASSISTANT SECRETARY, HOUSING/
FEDERAL HOUSING COMMISSION, U.S. DEPARTMENT OF HOUSING AND
URBAN DEVELOPMENT, WASHINGTON, DC
Mr. Weicher. Thank you, Mr. Chairman, and thank you on
behalf of Secretary Martinez for inviting the Department to
testify on the subject of the Section 202 Supportive Housing
Services program. We are happy to discuss the program in the
context of the findings and recommendations in the recent GAO
report.
I would like to start with the issue of timely processing,
the pipeline problem. Section 202 has been frequently
criticized because it takes too long to close projects after
they are funded. Secretary Martinez has made it a priority to
clear out the pipeline. Shortly after I became Assistant
Secretary for Housing in the summer of 2001, the Office of
Housing compiled a list of projects that had been in the
pipeline for at least four years, double the processing period
permitted under our regulations. These projects had been
approved in fiscal year 1997 or earlier. I asked our staff to
determine the status of each one. We learned that many had
already been processed through initial closing and many others
had been canceled. Having determined which projects really were
in the pipeline, we then made it a priority to bring those
projects to closing.
I am pleased to say that we have cut the aged pipeline from
48 projects to just 7, and we expect to close 6 of them during
the remaining quarter of this fiscal year. Those are certainly
the hardest projects to close. They have site problems or
litigation, and as time goes by, the costs rise.
We have funded 977 projects that were approved between
fiscal years 1992 and 1997. More than 99 percent of those
projects have been completed.
For the period from 1998 to 2000, the years that were the
focus of the GAO report, we have closed 84 percent of those
projects, 409 out of 489. At the time of the GAO report, in
December, we had only closed out 74 percent. We have cut the
number that had not been closed from 127 last December to 80 at
the end of last month.
While cleaning out the pipeline, we have not neglected the
timely closing of recently funded projects. In the past, HUD
typically closed between 50 and 55 percent of projects within
two years. For projects funded in fiscal year 2000, we closed
60 percent. I am pleased to be able to say that two weeks ago I
attended the grand opening of a Section 202 project that was
funded in fiscal year 2001, Denali View in Chugiak, AK. This
project was funded in September 2001 and is open and fully
occupied in June 2003. It is a beautiful project, and you can
indeed see Denali, see Mount McKinley, from their front door.
The GAO report discusses the unexpended balances in this
program, and the committee is focused on that issue. GAO
observed that only a small part of the unexpended funds, about
14 percent, about $700 million, are associated with pipeline
projects that have exceeded HUD's processing time guideline.
This is an indication of the progress we have made in clearing
out the pipeline.
As GAO reports, almost half of the $5.2 billion in
unexpended balances consists of PRAC balances for projects that
have been completed and are now occupied. That money is being
spent year by year as Congress intended. For those projects
awarded between 1991 and 1994, the unexpended balances are the
remaining years of the original 20-year PRAC. For those
projects awarded in later years, the unexpended balances are
the remaining years on the original 5-year PRAC. These PRACs
amount to $2.5 billion.
Another quarter of the unexpended balances, $1.3 billion,
consists of the funds Congress appropriated in fiscal years
2001 and 2002. These projects are still within the original
schedule for reaching timely initial closing. We anticipate
that most of them will come to initial closing on a timely
basis. The remainder is money for projects which have started
construction but have not yet been completed. That category
amounts to about $700 million.
We will continue to work to bring projects to closing and
to occupancy and in the process to further reduce our
unexpended balances on projects that have not yet been
completed.
In its report, GAO made recommendations to the Department
to improve the administration of the program. Overall, the
Department concurs with the recommendations, and we have taken
steps to implement them.
GAO recommended that we evaluate the effectiveness of the
current methods for calculating capital advances. We have begun
to examine how Section 202 development cost limits compare with
other objective indicators of local construction costs, and we
anticipate this evaluation will be completed next year.
GAO recommended that we make the necessary changes to our
cost calculation methods based on this evaluation so that
capital advances adequately cover the development costs. The
Department will be discussing this recommendation with Section
202 program stakeholders this summer, and we will complete the
evaluation prior to making any changes in the current methods.
GAO recommended that we provide regular training to ensure
that all field office staff are knowledgeable and are held
accountable for adhering to current processing procedures.
During fiscal year 2002, the Department provided training to
field staff for the first time in 10 years. Subject only to
resource limitations, we are committed to continuing to
implement an effective training program. Our next training will
include technical processing training for field staff to assure
that there is consistent processing nationwide.
GAO recommended that we update our handbook to reflect
current processing procedures. We have initiated the process of
consolidating and updating the Section 202 program handbooks.
We hope to complete this process by the end of fiscal year
2004, and that will allow the Department to incorporate any
changes to the program that are a result of the meeting with
the 202 stakeholders and the completion of the cost limits
study.
GAO recommended that we improve the accuracy and
completeness of information entered in the Development
Application Processing system by field office staff and expand
the system's capabilities to track key processing stages.
During fiscal year 2002, there was an intensive effort to
verify the accuracy of the information in the system, and the
Department is committed to expanding its capabilities.
In addition, the Department has taken other steps to
improve our program delivery. We have strengthened the
structure of the program by tightening the selection criteria
for new projects. I describe these changes in detail in my
prepared statement. We have drafted regulations to implement
the mixed finance provisions of the American Homeownership and
Economic Opportunity Act of 2000. These regulations are now
being reviewed at OMB.
We have issued a notice to implement other provisions of
the American Homeownership and Economic Opportunity Act of
2000, permitting existing Section 202 loan projects to
refinance their mortgages, a priority for both the Department
and the stakeholders. These procedures were announced last
summer.
Of course, we have established a management plan goal
focusing on the reduction and elimination of the aged pipeline.
I want to assure the committee, I want to assure you, Mr.
Chairman, that the Administration and the Department are
committed to the ongoing viability of the Section 202 program,
and we are committed to working with you, with the nonprofit
organizations that sponsor these projects, and with the elderly
persons who need these apartments to make sure that Section 202
remains a successful program and a viable housing resource for
the elderly.
Thank you, and I will be glad to answer your questions.
[The prepared statement of Mr. Weicher follows:]
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The Chairman. John, does your time allow you this morning
to stay until the next panel testifies? What I would like to do
is have you all at the table because I would like to have you
respond possibly to some of their testimony. Does your schedule
allow that? That would probably take another 20 minutes, 30
minutes.
Mr. Weicher. I can make myself available for that, Mr.
Chairman.
The Chairman. I would appreciate that if you could.
So, with that, I will withhold questions until the next
panel, and then we will bring you all to the table, and I will
ask questions of all of you, because I would like to have you
hear their testimony if you would, please. John, thank you very
much.
Now let me call our second panel: Mr. David Wood, Director
of Financial Markets and Community Investment, General
Accounting Office; Cynthia Robin Keller, Vice President of
Affordable Housing and Development, Volunteers of America; Tom
Herlihy, development assistant, National Church Residences,
Columbus, OH; and Lee Ann Hubanks, Executive Director, Plano
Community Homes.
We are going to ask that you adhere to the 5-minute rule,
and your full statements will become a part of the record.
Mr. Wood, we will start with you. Thank you.
STATEMENT OF DAVID G. WOOD, DIRECTOR, FINANCIAL MARKETS AND
COMMUNITY INVESTMENT, GENERAL ACCOUNTING OFFICE, WASHINGTON, DC
Mr. Wood. Thank you, Mr. Chairman. I appreciate the
opportunity to be here today.
My statement addresses the two principal topics covered in
our report to you and Ranking Member Breaux: first, the
relative importance of the Section 202 program in meeting the
housing needs of the low-income elderly, and, second, the
timeliness with which projects move through the planning and
approval process.
According to the 2001 American Housing Survey, nationwide
there were about 3.3 million elderly renter households with
very low incomes. About 1.3 million of the households received
some type of Government housing assistance. We estimate that
the 202 program was responsible for assisting about 20 percent
of those households.
However, despite its exclusive focus on very low-income
elderly renters, the 202 program serves only about 8 percent of
target households. More than half of the very low-income
elderly renter households did not receive any form of
Government housing assistance. HUD considers the large majority
to be rent burdened because they pay more than 30 percent of
their incomes for rent. Accordingly, it is important that
Section 202 projects are developed in a timely manner.
HUD's development approval process is directed at
completing specific plans needed to start construction. Among
other things, project sponsors must prepare and HUD field
offices must review architectural plans and detailed cost
estimates. The agency's goal is generally to complete these
steps within 18 months of selecting the projects for funding.
However, HUD's field offices may extend this period by up to
six months. HUD headquarters has to approve any further
extensions.
We specifically looked at all 494 projects that were
selected for funding in fiscal years 1998 through 2000. We
found that more often than not, the projects took longer than
HUD's 18-month guideline. Specifically, we found that as of
December 2002, 132 projects, or about 27 percent of the total,
had met the 18-month guideline. Another 140 projects, about 28
percent, had been processed within 24 months. One hundred
twenty-seven projects were still pending, including 11 that
were funded in 1998 and 34 that were funded in 1999. All
together, 73 percent of the projects did not meet HUD's 18-
month guideline.
To explore the potential reasons for this, we surveyed HUD
field office staff as well as selected program sponsors and
consultants. We also looked at HUD headquarters' oversight of
the program. We identified a number of factors that can affect
project timeliness.
The first concerns the amount of funds that HUD makes
available for each project called the capital advance. HUD's
policy is for capital advances to fund the total development
cost of modestly designed projects that meet minimum property
standards and applicable codes. However, about 90 percent of
sponsors and consultants and nearly two-thirds of HUD's field
offices reported that capital advances were often or even
always insufficient. In such cases, sponsors must either seek
additional funding from other sources, redesign their projects
to lower costs, or both. These activities take time.
A second factor was variation in the procedures that HUD's
field offices used to approve projects for construction. At the
time of our review, HUD's field office staff was relying on
out-of-date program handbooks that did not reflect streamlining
steps the agency adopted in 1996. Further, most field office
staff had not received any formal training on Section 202
projects. Last year, HUD offered the first formal training on
the program in at least 10 years.
Third, we found that to monitor projects, HUD headquarters
relies on an automated system with limited ability to track
projects through each stage of development.
Finally, our survey identified some factors outside of
HUD's control, such as inexperienced project sponsors and local
government permitting and zoning requirements, that can prolong
project development.
As a result of our work, we made the recommendations that
Dr. Weicher just discussed, and HUD outlined its plans for
acting on them. As in all such cases, we will be tracking the
agency's actions as part of our normal follow-up procedures.
That concludes my prepared statement. I will be happy to
take any questions.
[The prepared statement of Mr. Wood follows:]
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The Chairman. David, thank you very much for that
testimony.
Now let me turn to Cynthia Keller, Volunteers of America.
Cynthia, welcome to the committee.
STATEMENT OF CYNTHIA ROBIN KELLER, VICE PRESIDENT, AFFORDABLE
HOUSING AND DEVELOPMENT, VOLUNTEERS OF AMERICA, ALEXANDRIA, VA
Ms. Keller. Thank you. Mr. Chairman, I have been involved
in the 202 program for approximately 20 years. On behalf of our
organization, I want to express our sincere appreciation for
your interest and concern for the Section 202 elderly program
and for inviting us to be here today.
Volunteers of America is one of the Nation's largest and
most comprehensive nonprofit, faith-based service organizations
and is of the Nation's leading nonprofit providers of
affordable housing. We currently have 151 Section 202 and
Section 811 programs in operation, and we have an additional 24
facilities in various stages of development.
The problems we face as a nonprofit human organization and
as a Nation in attempting to provide more and better facilities
to house and serve America's seniors will be severely
compounded by the expected rapid growth in the Nation's aging
population in the coming decades and by the lack of adequate
public policy and resources to meet that growth.
Clearly, as a Nation we have a problem of extraordinary
scale and urgency as the housing and social services programs
and funding we have in place today will not keep pace with the
situation. Therefore, it is so important that programs that we
have in place like the Section 202 Elderly Housing operate in
an efficient and expeditious manner.
We are concerned, as our members of this committee, about
the amount of pipeline time it takes from receiving
notification from HUD that the Section 202 funds have been
awarded to the actual time of construction start. On average,
our experience shows that the process takes between 2 and 2-1/2
years.
In 1996, HUD issued Notice 96-102. The purpose of the
notice was to make significant changes in the way that the 202
development processing was administered. Although one of the
specific goals was to decrease the processing time, one of the
changes in the notice actually had the effect of increasing
processing time and increasing the cost to build the project.
This change was the requirement that owners could not apply for
additional funding from HUD for the project. As David said, our
experience is the same. Approximately 90 percent of the
facilities that we develop require additional money due to
insufficient funding allocated at the time of the award. HUD
will grant waivers to the requirement but only if the sponsor
first demonstrates they have attempted to get funding from
other sources prior to requesting additional monies from HUD.
Typically, the most common source of the additional funds
is CDBG or HOME funds obtained either from the local
municipality, the State, or both. State and local
municipalities receive their CDBG and HOME funds from HUD. If
sufficient funds are not available from those sources, the
sponsor can try to obtain funds from the Federal Home Loan Bank
or private foundations. Funding from the latter sources are
quite difficult to obtain, and many private foundation grants
are incompatible with the 202 program requirements.
All of the barriers to capital availability are intensified
in the case of affordable housing development for the elderly
due to the fact that the 202 program doesn't permit repayment
of secondary financing until after the 40-year term of the HUD
grant. This creates a barrier to obtaining supplemental funding
when it is needed.
After the sponsor has tried the additional sources and
still has insufficient funds to build the facility, the sponsor
can request a waiver of HUD Notice 96-102 from the local
office. In most instances, the local office will then request
amendment money from HUD headquarters. The added processing
time creates increases in the cost of the facility because of
the financing search.
During this time, the sponsor is often forced to purchase
the site out of their own resources, due to the fact that the
sellers are normally not willing to continue to extent the
option on the property. When a site has to be purchased, we
incur costs such as insurance, property taxes, and interest on
the funds used to purchase the site. Unfortunately, these costs
are not reimbursable from HUD funds and can amount to several
thousands of dollars. Therefore, for nonprofit sponsors, this
understandably is a huge incentive to close on the loan as
quickly as possible.
We at Volunteers of America encourage this committee to
consider the following issues and suggested courses of action
that will greatly assist in reducing processing time.
Recommendation 1, which you have also heard today, is in
the future provide adequately funding to build the project at
the time of the award. This can be done by ensuring that the
high cost factors used in calculating the award are realistic.
Currently, in our experience, only the North Carolina and
Minnesota HUD offices have sufficient funds at the time of the
grant to build the facility. Perhaps these offices could be
consulted on their methods of determining the high cost factor.
We believe the outcome would decrease the processing time by 6
to 12 months.
Recommendation 2, which we believe could happen almost
immediately, would be to eliminate the requirement to seek
funds from outside sources for the shortfall. You could allow
local HUD offices to grant waivers to the 96-102, which would
allow sponsors to receive amendment funds without first
applying to outside agencies who receive their funds in most
cases from HUD. The processing time, in our opinion, would
decrease by 3 to 6 months.
Also, another recommendation which you have heard today is
to provide additional HUD staff and training for the local
staff. HUD headquarters offered training for the first time in
August 2002. Approximately one person from each office was
trained. While there has been some improvement in the uniform
interpretation of the regulations, many offices are in need of
additional training and staffing. With adequate staff, the HUD
in-hour grant processing could decrease from 11.8 months, which
is what the average of our portfolio is, to 2 months from the
time it reaches HUD. This is the amount of time that HUD Notice
96-102 recommends, thereby clearing up most of the perceived
pipeline issues.
We believe the HUD Section 202 program is one of the finest
affordable housing programs that Congress has created. The
program is fair, it is managed well once it is developed, and
reaches those low-income elderly age 62 and over in an
effective way.
We appreciate the opportunity to bring you our ideas and
perspectives and want to assure you and all members of the
committee that we are strongly committed to helping resolve the
issues before the growing demand for elderly housing and
supportive services spirals out of control. Mr. Chairman, we
are confident that sound solutions can be found and implemented
in a way that is fiscally responsible and fair to all parties.
We appreciate your commitment to the cause and look forward
to working with you throughout the process. Thank you.
[The prepared statement of Ms. Keller follows:]
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The Chairman. Thank you very much, Cynthia.
Now let us turn to Tom Herlihy, National Church Residences.
STATEMENT OF TOM HERLIHY, DEVELOPMENT SPECIALIST, NATIONAL
CHURCH RESIDENCES, COLUMBUS, OH
Mr. Herlihy. Senator Craig and committee members, thank you
for the opportunity to be here this morning. National Church
Residences has approximately 225 properties in 25 States.
Approximately 150 of those are 202 facilities, and the
remainder for the most part are low-income housing tax credit
facilities. I would just like to echo that it is a very good
program, but I would like to go into a few items that do cause
delays in the developing process.
First of all, I would like to refer over to the board at
Steps 6, 7, and 8. One of the initial delays coming right out
of the block is the application and review period from when we
apply for funds to the time that we receive the funds. We have
just recently submitted 12 applications just on last Friday for
funding in this program. This is one application of which we
submitted 12 in 10 different States. I believe one of the
things that could be done to improve the program would be to
decrease the review period. Right now it is approximately six
to seven months. If you took a review of the different State-
run tax credit programs, they typically review those and award
funds within a three to four-month period. Also, approximately
a third to 50 percent of this application covers information
that is basic information on the sponsor and so on, and it is
not necessarily site-specific. When these applications are
turned in to the individual field office for their review, I
believe they are somewhat burdened by having to review these,
just as we are somewhat boggled by the amount of information
that we have to provide.
Perhaps if we split the application process into possibly
two steps where you had basic information that is sponsor-
provided that would be provided to HUD, and that could be done
at once at one field office, or perhaps once you attained a
certain score, then that score would be held for a number of
times. So in the application process, all we would be
submitting would be site-specific information. That would
facilitate their ability to review in a quicker process.
Second of all, something that could cause a delay is just
the nature of the zoning process, and that really has nothing
to do with whether the project is funded through HUD or whether
it is a private development process. The local zoning process
is often very cumbersome. It is typically a two-step process
where we go before the planning commission first, and then
after their approval and review, then we go to city council.
Even if property is properly zoned, it is not uncommon that
elderly housing is sometimes what they refer to as a
conditional use. That means that you just can't apply for a
building permit; you still have to go through the planning
commission and city council review process.
It is not uncommon that the zoning process takes
approximately four months. It is also very difficult for us to
begin that process prior to the time when we are awarded the
funds. It is typical that we have to have the property
surveyed, and we would have to have engineering plans for some
of the site plan review type stuff, and so that would preclude
us from being able to initiate that process prior to the award
of funds. So part of it is just the sequence of activities that
we have to go through, and we have to take those in the proper
order.
There have also been times, since it is a conditional use,
where we are in essence kind of burdened by having to do some
type of development that otherwise we wouldn't count on. A good
example is a recent facility that I am working on right now. I
had to install 450 feet of 6-foot-wide concrete sidewalk all
the way across my property, and there are no sidewalks at
either end that it adjoins to. It is just an example of a local
requirement that we could be forced to do.
I have also encountered delays in part due to the Davis-
Bacon wage rates. If you would refer to Steps 9, 10, and 11,
what the delay is, what is caused there is at times I have
submitted a firm application and had the project in for final
review. This is after we have building plans and everything
complete at the point where we are ready to pull a building
permit. At that point, we have a budget that we have worked on
based on what the current Davis-Bacon wage rates are, and then
once we have submitted the application for review, if there is
a new wage decision which increases the labor rates
significantly, then automatically our project is over budget.
If we were right at the point where we basically can't pull
anything else out of the building, we are forced to request for
additional funds at that point. If that happens right prior to
our initial closing, it can cause a substantial delay. It would
be very beneficial if somehow we could lock in a wage rate at
the time that the project is awarded perhaps for a 2-year
period or something like that within the timeframe that we
could reasonably expect to develop the project.
Last of all, I would just like to go into purchasing the
land. That is a burden sometimes. Somewhat it is made more
difficult by the process of these do take some time, and when
we negotiate an option to purchase and control the site that is
for an anticipated closing that is approximately a year and a
half off, it puts us in a very poor bargaining position to
attempt to negotiate land to purchase for that far off.
That is all I have at this time. Thank you.
[The prepared statement of Mr. Herlihy follows:]
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The Chairman. Well, Tom, thank you.
Ms. Hubanks, before I turn to you, let me turn to my fellow
Senator from Missouri, Jim Talent, who has just joined us, for
any opening comments he would like to make.
STATEMENT OF SENATOR JAMES M. TALENT
Senator Talent. Well, Mr. Chairman, I want to thank you for
holding yet another extremely relevant hearing. This is an
issue that I encounter all the time in Missouri. It is one of
the reasons I am so interested in what you all have to say. I
am going to ask some questions, Mr. Chairman, related to
something that I think we are all learning about how we should
best provide services to people who need services, and that is,
to the extent that the Government can push control down to some
kind of integrated and local boards or local control mechanisms
and have standards of accountability that measure performances
rather than trying to measure so much the kinds of inputs that
you have been talking about Mr. Herlihy, you know, in other
words, what is the overall performance of boards or providers
or developers in this case, how can we measure that and fund
based on that rather than up front try and regulate everything
people put into projects would--in other areas of social
service, for example, that really speeds up and energizes this
kind of work. So I will probably be asking questions along
those lines.
But I am mostly here to listen, Mr. Chairman, and, again,
thank you for holding this hearing.
The Chairman. Well, thank you very much for joining us.
Now let us turn to our last witness on this second panel,
Lee Ann Hubanks, Executive Director, Plano Community Homes.
Welcome.
STATEMENT OF LEE ANN HUBANKS, EXECUTIVE DIRECTOR, PLANO
COMMUNITY HOMES, INC., PLANO, TX
Ms. Hubanks. Thank you. Thank you for the opportunity to
testify today. My name is Lee Ann Hubanks. I am the Executive
Director of Plano Community Homes in Plano, TX. We currently
operate 299 HUD Section 202 units and have another 60 in
development. I am also here representing the American
Association of Homes and Services for the Aging. AAHSA
represents more than 5,600 mission-driven, nonprofits serving
more than 1 million seniors each and every day, including the
majority of HUD Section 202 sponsors.
Plano Community Homes has been building HUD Section 202
housing since it was established in 1983. We have also applied
for additional grant monies to make the development process
viable due to inadequate capital advances. We have full-time
service coordinators and transportation on each of our housing
campuses. We have over 300 seniors on our waiting list and have
been working with the city of Plano, the Collin County
Committee on Aging, and the Plano Housing Authority, which has
about 1,500 households on its waiting list, to reach creative
solutions in our own communities for our community's housing
needs.
On behalf of AAHSA, I would like to share with the
committee some specific recommendations for making the Section
202 development process more efficient. We concur that we need
to increase the number and training of HUD staff so the
development processes can move as efficiently as possible.
Whenever there is a slowdown during the initial stages of the
development process, it affects the cost and/or availability of
the land. If HUD staffing or training levels are insufficient,
the property is at risk. This in turn can put the entire
project at risk. If land needs to be renegotiated because we
miss opportunities, we must start back a square one and make
our way through zoning issues and possible local opposition to
affordable housing.
Second, we feel that we need to set adequate total
development cost limits. These were increased substantially
years ago but have remained static these last years. Given the
strength of the real estate market, HUD needs to pay better
attention to real-world development costs. Inadequate
development costs inevitably lead to the time-consuming
necessity to secure other resources. HUD's total development
cost limits should be routinely reviewed and appropriately
amended.
To implement the optional ability to leverage mixed
financing sources like low-income housing tax credits and
private activity bonds and use them in conjunction with Section
202 funds to build projects that are both larger and house a
mixed-income population.
In addition, to provide technical assistance funds for site
control and pre-development costs. Today, we are desperately
looking to secure a piece of land to build 60 more Section 202
units. The current market rate for land in Plano is
conservatively $4 to $6 per square foot. Under our cost
constraints, the Section 202 program cannot afford land valued
at greater than approximately $2.50 per square foot. Grants
providing for up-front land purchase or land options would be a
tremendous help.
Last, HUD should publish sample seed money costs as part of
the annual Notice of Funds Availability. The NOFA could then
act as a real-world guidance to nonprofits, especially those
new to the Section 202 development program, on what resources
are actually needed by successful applicants before any funds
from HUD will be available. For example, AAHSA members report a
wide range of up-front costs, ranging anywhere from $50,000 to
$100,000. The range is often attributable to local zoning and
permit fees, land purchase options, environmental reviews, the
Minimum Capital Investment required in the NOFA, and traffic
impact studies. Depending on the locale, there may be numerous
other up-front costs associated with a Section 202 development.
We are committed to the 202 program. I have been doing this
for almost 20 years, and it is a fabulous program. On behalf of
all of the members of the American Association of Homes and
Services for the Aging, I would like to thank you again for the
opportunity to testify today, and I would be happy to answer
any questions that I could.
[The prepared statement of Ms. Hubanks follows:]
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The Chairman. Thank you very much. We appreciate your
testimony.
Tom, if we could get you to move a little this direction,
Cynthia, move a little this direction, we are going to get a
chair and ask Dr. Weicher to come and be seated then, and we
will proceed with our questioning. Again, Doctor, we appreciate
your willingness to stay. Actually, there is another chair
coming there that will probably--it might seat you a bit
higher.
Again, let me thank all of you for your testimony and your
involvement in this program, and as we analyze it based on the
work that GAO did and obviously the testimony already of Dr.
Weicher and the work that is underway as a result of the audit
and their review of programs and their commitment to them.
Doctor, let me first ask you this question: I have here the
application book. I find that in itself daunting. Is it really
necessary that we ultimately require that much information?
This is not a staged involvement here, but Tom brought an
application that is a product of this book's requirements.
Let's put the chart back up, if we could, the 18-month process
chart. Obviously, when Congress appropriates money for these
programs, recognizing the need that we believe is out there,
and, of course, a backlog that was clearly demonstrated that
you have already spoken to that you have come a long way toward
reducing in a significant way. In fact, let's just put all the
charts back up because that backlog is demonstrated there.
Let's talk about the 18-month process and the application
itself and the adequate funding necessary to do that. Could you
respond to those questions? Are you examining them, looking at
them, reviewing them? Is 18 months a reasonable time to assume?
I know that you are dealing with issues that were 4 and 5 years
in pipelines. That is totally unacceptable as far as I am
concerned. But 18 months appears to be a long period of time
when we deal with properties and money values and obvious
needs.
Mr. Weicher. Well, Mr. Chairman, first, if I may say that
four and five years is totally unacceptable to the Secretary
and to the Department and to the Administration as well, and
that is why we have made it a priority and have, I think,
largely succeeded in eliminating the backlog of the aged
pipeline, as I referred to it.
With respect to the application process, we intend--I
mentioned in my statement that we plan to meet with
stakeholders during this summer to talk about the GAO
recommendations and their other concerns, and we intend to take
a look at the concerns that they raise, and that would
certainly include the application process in the handbook.
May I say that these projects are complicated, and we
recognize that it can be daunting when you first begin to try
to apply for a Section 202 project. We do have a demand for
funds by prospective project sponsors that is well in excess of
the funds that are appropriated annually by Congress. We try to
make sure that we select projects which meet needs and which
are a good prospect to be completed within the 18 or the 24-
month period, including the 6-month extension allowable in the
field.
The Chairman. Let me understand again. In the GAO study
released in May, obviously we all focused on the $5.2 billion
in unexpended funding. It is my understanding that it breaks
approximately this way: about 48 percent is tied to units that
are already occupied, and that is rental assistance money. Is
that correct?
Mr. Weicher. Yes, that is correct, Mr. Chairman. As I
mentioned, from 1991 to 1994, Congress appropriated project
rental assistance on a 20-year basis, and so those projects
have a good half and more of the original 20-year contract
money still unexpended. Beginning in 1995, Congress established
the project rental assistance contract on a 5-year basis. Those
projects since then have 1, 2, 3, 4, and for the newest
projects 5 years of rental assistance. Those balances also--all
of those balances for both groups of projects spend out year by
year as the project is occupied and as Congress intended.
The Chairman. That money is obviously appropriated, it is
in the treasury, you draw on it to meet these commitments. Is
that the process that works?
Mr. Weicher. That is correct, Mr. Chairman. That is
correct.
The Chairman. The balance, 52 percent, then would be money
appropriated for the purpose of the actual construction itself,
I mean the development of the facility.
Mr. Weicher. The rental assistance contracts associated
with those projects which have not yet been completed and
occupied.
The Chairman. So it is a combination of both.
Mr. Weicher. It is a combination of both.
The Chairman. How does that break out?
Mr. Weicher. It breaks down about 80 percent capital
advance and 20 percent project rental assistance contract. I
might say that a substantial share, half of the remaining
money, a quarter of the total, $1.3 billion, are the funds that
Congress appropriated in fiscal year 2001 and 2002 and which,
by the time of the GAO study, were still within the HUD
guidelines, the HUD processing guidelines. That money is not
yet late. Those projects are not yet in the pipeline in that
sense. We expect to complete, as we have been doing, we expect
to complete more than half of those projects within the 2-year
period as we did for the year 2000 projects and as we have done
in earlier years as well and then bring most of the remainder
to closing within a third year. That is the track record, and
that is the record we have established and we are building on.
The Chairman. OK. With that, let me turn to my colleague,
Senator Talent. Jim?
Senator Talent. Yes, let me follow up the discussion that I
had and maybe ask some--the point I raised before and then
maybe ask some specific questions.
There are people sitting at this panel probably
collectively with decades and decades and decades of experience
in providing this housing to elderly people. Now, think outside
the box a little bit. Would it be possible to short-cut some of
this by establishing in communities some type of boards or
control organizations that represent the various stakeholders,
the nonprofits that had been doing this, to develop a
procedure--maybe we could do this on a pilot basis--where you
knew up front that certain funds were going to be available.
You all know basically what the guidelines are, and knowing
that those funds were going to be available, one of the things
I have found in other areas is that makes it easier to leverage
dollars. If we sort of lifted some of the regulations and some
of the oversight regarding the specifics of these projects, and
instead you knew that certain pools of funds were going to be
available, you could go ahead with more discretion on your own
and then periodically you would have audits and the HUD people
would come by and check on how you are doing. I mean, how
different would that be from what you are now doing? Is that
model, in your judgment, at all workable in this context? Are
there too many local regulations? Is there a danger that
somebody might use money unwisely? I mean, would it be possible
to sort of transcend these problems a little bit by changing
the way that we do this so you don't have to have specific
applications for every project?
Does anybody want to comment on that?
Ms. Hubanks. I would like to answer that. We are a very
small organization. NCR and VOA are wonderful programs, and
they are much larger. They have different resources than we do.
We don't have a foundation behind us. Something like that would
be wonderful for us to be able to do as a small organization.
We have got experience because we have done this before. We are
not coming into it brand new. Somebody coming into it brand new
may have some difficulties. It may work different in other
communities.
We work very closely with our city and with our Committee
on Aging in the county. So for us that would be a very workable
solution.
Senator Talent. Mr. Herlihy, you mentioned you built a
sidewalk that basically didn't connect anything up. Now, I
don't imagine this happens a lot. I have seen this process from
when I have nonprofits in my area contact me and they want help
with an application, or I go out and visit a project and there
is an awful lot of great work being done out there. I think we
all feel that.
Is there some way of expediting this in part by changing
the way in which we apportion this money so that once we
certify or once we have a set of providers who we trust that
have a proven record, we simply allow them to make these
decisions without having to have it overseen so much by the
Government? Then what the Government does is check periodically
to make sure everything is going well, and then check on the
final outcomes? Would that speed the process up? Could we do
that effectively?
Mr. Herlihy. We, in essence, do that in part right now in
that we a lot of times target a community. We go in and work
with them ahead of time prior to our application and get things
set up essentially in the local community in preparation of an
application. But still quite often in doing that you still have
to go through the zoning process.
Senator Talent. I know that zoning is a problem no matter
what you are trying to build anywhere.
Mr. Herlihy. I guess I would be a little leery of that. I
would hate to see any significant amount of funds being
expended ahead of time without the absolute commitment in set-
up that it is going to be a facility, would be one of my great
concerns.
Senator Talent. OK. Ms. Keller, you mentioned in your
statement that funding from the latter sources, that is,
private foundations, et cetera, are often quite difficult to
obtain and many private foundation grants are incompatible with
Section 202 program requirements. What did you mean by that,
``incompatible''?
Ms. Keller. Well, we have on occasion received funding from
the Weinberg Foundation, but HUD has indicated to us that we
can't use it, that it is not compatible with the 202 program,
so we have had to turn it back. Like Tom was saying, when we
are having to do sidewalk/street improvements, HUD doesn't
permit you to use HUD funds for anything outside the perimeters
of the site. So we will have to go to the city to try to get
grants, foundation funds, for anything outside the perimeters,
and it is not unusual for sidewalks, walking paths, widen the
roads, put in street lights. Generally what will happen with us
is maybe there are $400,000 or $500,000 in outside funding we
get. The city will give it to us, and then we turn right back
around and hand it back to them for the improvements that we
have to do in that city.
Senator Talent. That probably all takes time, too, doesn't
it?
Ms. Keller. A lot of time, and it is a competition. You
submit applications, usually a lot of excerpts from what you
have, your plans, your specs, to the city. You are competing
with everybody else in that city for those same funds.
Senator Talent. My sense usually----
The Chairman. let's----
Senator Talent. Go ahead.
The Chairman. You know, let's pursue this together because
there is a common thread here that obviously what I have found
interesting is that the right hand is 202 and the other hand is
CDBG monies, and it is all HUD money. That tranche of time when
you have found out that the project is inadequately funded, to
go out and find other sources of money to package it all
together to get a final product is apparently quite substantial
in 95 percent of the cases. Is that what you said, Tom?
Mr. Herlihy. No, I didn't throw that number out.
The Chairman. OK, but one of you used the figure----
Ms. Keller. I said 90.
The Chairman. You used the figure of 95 percent of the
cases require additional monies to complete a project, and some
of that money is HUD money.
John, maybe you could speak to that or we all could
collectively. I find it fascinating that we cannot do one-stop
shopping if, in fact, we have a qualified project that meets
all of the requirements of HUD, why HUD can't fund it
completely. Or is there an intent or a purpose to find
leverage? I can understand the value of leveraging private
dollars or finding dollars outside of the Federal trough. But
when it is going to different locations at the trough and it
takes 5 or 6 months or more and that 18-month period becomes a
reality, that doesn't make a lot of sense.
Mr. Weicher. Mr. Chairman, let me say with respect to CDBG
money that that money is given by the Department, by the
Federal Government, to municipalities and States to be spent as
they see fit on the purposes of community development. Once we
provide them with the funds, it is their choice as to whether
those funds should be just to support----
The Chairman. Yes, I know that. I mean----
Mr. Weicher [continuing.] A Section 202 project or
something else. In that sense, I don't think it is really going
to HUD twice. It is going to HUD for the 202 money, and it is
going to the local government for local government sources,
some of which come from the Federal Government.
With respect to the question of how we--of the level of
funding for an individual project, our choice essentially, Mr.
Chairman, is: Do we provide full funding for a smaller number
of projects or do we provide partial funding and try to use it
as leverage, as you said a moment ago, try to use it as
leverage for a larger number of projects?
There is no perfect way to answer that question. The way we
have chosen to answer it is to try to stretch the resources
which we have, $780 million a year in the 202 program, stretch
those resources to provide help in more places than we could if
we went on a 100-percent basis, but not to stretch it so far
that we simply can't get projects built. That is always a
judgment. It is always a balancing call, and I am sure that in
some cases the balance we strike is not the balance we would
strike once we have been through the process.
The Chairman. Yes, Tom.
Mr. Herlihy. I would just like to add to that that does
make a certain amount of sense also the way that it is done.
For example, a project that I recently developed in Denver, in
the city of Aurora, they had unusually high, what I will call
impact or development fees, local fees. Their local fees were
approaching $300,000 for a 202 that I was developing. We went
to the city of Aurora for CDBG funds basically to pay for their
impact fees.
Many of the other development costs, cost of construction
and so on, were fairly close online, but it was those local
impact fees that really pushed it over the budget.
The Chairman. Well, I guess the question that I would ask
of you, John, and then maybe those of you who are out there in
the field have had this experience, of the eligible
applications--``eligible'' meaning, obviously, they have
demonstrated the need, they have come a long way--how many are
denied because they cannot put the final or complete funding
package together? Are there a number of denials out there where
there is clearly the need, everybody qualifies, except they
can't come up with all of these other monies and, arguably,
therefore, HUD had inadequately funded and, therefore, denied?
Do you know that?
Mr. Weicher. Mr. Chairman, I don't know that because we
don't--that is not an aspect of the application which we report
on.
I do know that the competition is fierce, and the scores,
the winning scores in individual multi-family hub areas, the 51
areas around the country through which we provide funds, the
field office we have scores, in many places winning scores in
the 90's and scores that do not quite qualify only a point or
two lower. We see very many well-qualified applications, and we
try to select the best of them from those applications.
It is also quite typically true that applications which
fall short in this year, just barely fall short in this year,
are, in fact, successful applicants the next year with the
same, essentially the same application.
The Chairman. I ate into your time.
Senator Talent. No, that is OK, unless you are watching the
clock very carefully, Mr. Chairman.
Ms. Keller, why couldn't you use those foundation funds
that didn't meet HUD program requirements, do you know in what
respect it didn't?
Ms. Keller. At this point in time they were sent to the
local HUD attorneys, and we have had this happen in three
offices, that the repayment schedules or the terms of the
grants weren't compatible with the laws regarding the 202
financing program. There was something in that language that
did not coincide with the language of the HUD deed, mortgage,
HEP requirements, contracts. Specifically, I cannot tell you.
Senator Talent. Those of you who are doing this in your
communities, are there a lot of instances in this process where
you can't use certain funds or you have to use money for
something or there is a delay while you are waiting for an
approval where you are looking at it and you are saying, you
know, I have been doing this for an awful long time, I would
not be going through this exercise if I had the discretion to
do this the way I wanted, this isn't adding any value, this
isn't helping us provide better housing. Is this a constant
experience that you have in this process?
Ms. Keller. For me it is not. I can't speak for everyone
else. But, you know, when you go to a grand opening and some
elderly person comes up and puts their arm around you and tells
you they didn't have heat until they moved in or they were
living in their car, then it is worth what----
Senator Talent. It makes it all worthwhile. What I am
getting at is that we are moving--there is a trend in the
country which I think is very good to vest more discretion in
the people who are actually providing the service to the
seniors. To the extent that we can do that, it allows you all
to do what you think makes sense in terms of the vocation and
the mission that you have which works better for the seniors.
If I can get the process to move in that direction, it reduces
delays, allows money to be used more efficiently, allows you
more flexibility in drawing dollars from other areas. That is
what I am suggesting here, but I don't hear you all saying that
you feel like we need any kind of a systemic change in that
sense. [No response.]
No.
Ms. Hubanks, would you tell us some of the specific things
you have done with the Fort Worth office? I mean, evidently you
are having great success dealing with them. What are some of
the things they are doing to shorten the time?
Ms. Hubanks. Well, one of the things that we have done is
we have worked with the architectural specialist in advance so
that by the time we get ready to submit our documentation, we
have pretty well been through it together so that it is much
easier for him to look at and approve. We have kind of done
that step by step as we have gone through the process to make
it so that we are kind of all working together.
If I turn it in as is and they have not seen it, it takes a
great deal longer for them to process. So we have tried to work
together.
Senator Talent. To just try and do as much as you can to
get it approved before the actual process starts.
Ms. Hubanks. Right, so that when we turn it in, they know
exactly what is coming, we know exactly what they are looking
for, and we have been able to work out the little bugs in the
system.
Senator Talent. I wonder, John, if HUD, when you get
reports that an office like this is really working in an
unusually good fashion to expedite this process, whether there
is some process you have within the agency to bring other
people in for training or demonstrations or replicate that kind
of model in other places. Is there something internally you all
do to try and take a successful model and replicate it?
Mr. Weicher. Well, as we said, and as all of the
participants have said, we began to train staff in how to
implement 202s, how to process 202s, last summer, in 2002, for
the first time in 10 years. We have additional training
scheduled this year on the technical implementation issues.
Certainly part of that training is learning--some people who
have done well telling other people, and, of course, part of it
also is that when you have somebody from every part of the
country together there, they do a lot of talking on the side,
after hours, between sessions, over dinner. We think that is
important, and we intend to continue it.
Senator Talent. Thank you, Mr. Chairman.
The Chairman. Well, thank you.
You have just answered a follow-up question I was going to
have, John. Are you institutionalizing this on an annual basis
or every two years or whatever?
Mr. Weicher. Well, we hope to do it annually. It really
will depend on the availability of training funds. But we are
trying to do it this year and we hope to continue.
The Chairman. Well, I think private America has found that
an extremely valuable thing to do, especially in large
companies, for the right hand and the left hand to sit down
together and compare. Oftentimes, you are right, it is the
conversation at the evening meal where one says, you know, in
Texas we are doing it this way, and somebody in Pennsylvania
says, well, I will be darned, that makes sense, we hadn't
thought of that. That does help in these ways, and much of
that, of course, can be done inside existing regulations.
David, you mentioned that you are continuing to track the
progress HUD is making in light of the audit, the
recommendations of that audit, and Dr. Weicher spoke to several
of those. Will GAO consider doing a follow-up analysis of work
in progress a year out from the study? I think that would be
extremely valuable for this committee to revisit the dollars
and cents, the applications, the timeliness. Obviously, Dr.
Weicher is having successes of the kind that are respectable
and appropriate, and that pipeline appears to be getting
drained out. I think it would be extremely important for all to
do such.
Mr. Wood. Yes. In terms of the specific work we do, we
obviously respond to requests from committee chairmen. We do
have a process for routinely following up on recommendations
from any of our reports. We also, of course, every two years do
the performance and accountability series where we try to
summarize for each department management problems that we see
across the department, and a couple are very relevant to this
202 program at HUD. For example, we designated human capital
management as a department-wide issue which gets into the
adequacy of staff training and skills and so forth. But, yes,
we would be happy to consider that.
I just wanted to add also, on this issue of differences
among offices, we do have data--it is in an appendix to our
report--where we looked at the performance of each of HUD's 45
field offices that deal with 202 projects and there are data in
there. So that would be a good starting point for HUD to find
out why some did so well and others did not.
The Chairman. Thank you. That would be extremely valuable.
Dr. Weicher, what is HUD doing to document--I guess I am
trying to understand. I thought I did understand, maybe not as
clearly as I should have. You talk about scoring projects. Do
you look at or is there an effort to determine--you didn't
choose to use the word ``leverage.'' I used it. Is there a way
to look at how monies are put together beyond what HUD is
willing to participate that in? In other words, is there an
examination of additional costs incurred by the nonprofits?
Mr. Weicher. Well, there is an assessment of whether the
project can be covered by the funds that are available, and it
is always a factor to look at the ability of the sponsor, the
track record of the sponsor in successfully completing 202
projects, either entirely within the funding for the project as
allocated by us or by bringing in additional outside sources.
I certainly recognize that it is sometimes a complication
to have to bring additional funding sources to the table, and
as I said, ``We try to strike a balance to make the funds go
effectively as far as we can.''
The Chairman. How much additional cost in time--and I used
to sell, broker real estate, so I understand that when you have
got a piece of property out there that is valuable but you
can't get the money for 12 months for it, sometimes owners just
say the heck with you, we have got another buyer down the road.
In hot economies, that oftentimes happens, and, therefore, it
is money lost and, therefore, property becomes more valuable.
But has there ever been an assessment of the additional costs
incurred by the time it is required of the nonprofits to go out
and secure the additional monies to make a project, to
complete, and, therefore, a certifiable project?
Mr. Weicher. Not to my knowledge. Certainly not in the two
years in which I have been Assistant Secretary for Housing.
This is an issue that we would expect to discuss with the
stakeholders when we get together with them later.
The Chairman. Something else concerns me, and maybe Tom and
Cynthia wouldn't like to hear this. But when I see an
application of that size and an application instruction book of
that size, I react to it by saying, now, if I have got a
skilled professional staff and I am in the business, and I have
been there a while and I am good at it, I can make this happen.
But if I am not good at it, if I am new to the business, if I
am small, if I am struggling, and the needs are still out
there, I probably am not going to make it. I can't wade
through--I am quite Tom's and Cynthia's organizations have
systems and talent that produces these things on their
computers and grinds them out and probably has a software
package that does it for them in large part once they have fed
the information in. They are sophisticated, big organizations.
Are we creating an application process that clearly leans
toward them? Therefore, are we eliminating others that should
be eligible and capable of acquiring these as nonprofits for
their communities and the seniors? Has there been any
evaluation of that?
There is no allocation of small business in this instance,
is there?
Mr. Weicher. No. These are all nonprofits to begin with. It
is not a small business----
The Chairman. Well, nonprofits is not a definition of size.
Mr. Weicher. I know that, but it is not a small business
issue. I can tell you this, Mr. Chairman: I look at the list of
winning applications and I look at the list of those which do
not win each year. We have a range of successful applicants,
including the local affiliates of the organizations that are
here at the table, and also including purely local
organizations. This is an important program to faith-based
organizations. About half of our projects, successful
applicants, are, in fact, religious organizations.
The Chairman. That is my understanding, yes.
Mr. Weicher. Some of them are individual congregations. We
fund applications from this particular church or this
particular synagogue or this particular temple as well as
applications from Volunteers of America in Ohio and so on. We
certainly expect that as you are more used to the program, you
will find it easier to work with, but we do have this broad
range of successful applicants.
The Chairman. OK. Cynthia, you provided us with a list in
your testimony of valuable suggestions. If you could change one
thing in the current 202 program, what would it be?
Ms. Keller. Eliminate the requirement to seek outside
funding.
The Chairman. OK. Tom, what would be the one thing you
would eliminate or your organization would?
Mr. Herlihy. I would like to see the application process
simplified and, consequently, the review and award time could
be reduced, I believe.
The Chairman. Have you ever done an analysis of those items
that you would want to take out of it that could bring that and
condense that down, let's say, from 18 months to 12 months?
Because my guess is you go to 18 and well beyond.
Mr. Herlihy. I could do that fairly easily, yes. I have got
a number of items here marked out where that could be done.
Senator Talent. Mr. Chairman, would you yield for just a
second?
The Chairman. I would be happy to.
Senator Talent. An addendum to that, Mr. Chairman. What
about a program where, if you have done this successfully a
number of times, you get some kind of a status? Like the SBA
has a preferred lender program. They can do low-documentation
type applications. So at least if you have a record of success
and HUD knows they can trust you, then you can file less of an
application, something like that. Is there any reason we
couldn't do that?
Mr. Herlihy. That is what I am alluding to or that is what
I am suggesting, basically.
Senator Talent. Yes, for somebody who has a record, and
then the new nonprofits, Mr. Chairman, could maybe partner with
those who are already in and learn that way. You could mentor
them.
Mr. Herlihy. Which is also what we do when we cosponsor an
application with a local organization Senator Talent. One more
thing to Ms. Keller?
The Chairman. Please.
Senator Talent. You talk about eliminating that
requirement, which--in my observation is where nonprofits can
use Federal money to leverage other dollars, they do it. They
don't have to be told to do it. If we did eliminate the
requirement, it doesn't mean you wouldn't be out trying to get
additional funds, does it, Ms. Keller?
Ms. Keller. Correct. Basically what happens during the time
we are trying to get those funds, though, it is the processing
time itself. Labor costs are going up. Materials are going up.
We are forced to build a facility with bare minimum materials,
which, in the long run cost HUD more money in the way of
subsidy to cover maintenance costs, because we are having to
buy inexpensive materials that have to be replaced maybe in 5
years rather than 9 or 10 if we had bought quality materials in
the first place.
Senator Talent. What you are saying is if we had a system
that was flexible enough to leave it up to the nonprofit and
maybe provide some incentives to leverage more dollars, you
could use it for some way that you wanted to, then you would do
it where you could. But if you needed to make a judgment that
in order to hold down the cost of the project, you had to go
ahead entirely with the Federal dollars, you would. That is the
kind of flexibility you are aiming for, right?
Ms. Keller. It is, and sometimes we will go ahead and
submit the application to HUD saying we have grants pending,
but if they don't--if we are not approved, could you go ahead
and ask for the amendment money? But in most instances, HUD is
going to wait and see if we got the outside funding first. Or
sometimes they will ask us, try this fund, this fund, this
funding source before you come back to us, which delays the
process.
We did just partner with Hopewell Baptist Church in
Missouri, and we are funded. It is going to construction soon,
and partnered with a local housing authority in St. Louis. So
we have done a lot----
Senator Talent. I am just aiming for a system, Mr.
Chairman, where we really trust the people who are doing this
because they have the heart to do it. Nobody is doing this
here. They are nonprofits, and if we adjust the system more in
that direction, you end up reducing delays. Money goes further.
You are able to make a good program even better.
Thank you, Mr. Chairman.
The Chairman. The thing that concerns me is what Cynthia
just said. When you put out a bid to construct something and 12
months later you break ground and your costs of construction
have gone up 10 percent but you are locked into a fixed amount
and you have got to start scaling down quality, you are scaling
down long-term viability of that unit, usually, or ultimately
that happens.
Lee Ann, let me ask you the question that I have asked both
Tom and Cynthia. In your experiences, what would be the one
thing you would like to have changed?
Ms. Hubanks. We are a very small organization, and we were
funded in 1993, 1995, and 1996, and in each case I did those
applications myself. I had packets that looked very comparable
to this.
For us, the biggest problem that we have got is the up-
front expense. We are very small. We don't have a foundation
behind us. So we are always out looking for additional funds.
We have used the community development block grant on multiple
occasions to purchase land because we can't get the process
that takes so long, we can't get people to wait on us for 6
months on a contingency while we wait to find out if we are
funded, and then another, you know, 12 months before we close.
So once we are funded, we use the community development--
the project rental assistance contract and the fact that we
were funded for building the building as the collateral then to
go get the funding to pay for the land and then we turn it in
to HUD and run the process. So we add an extra step in there
that we may not normally have to do or some of the larger
organizations might not have to do.
So for an organization the size of mine, having some pre-
development costs for fixed costs, for hard costs, would be
tremendously helpful. But separating the 202 from the project
rental assistance would be devastating for an organization like
mine.
The Chairman. OK. Well, I thank you all. I think we have
covered the area quite well. John, I must tell you that the
work that is underway is good to hear about, pleasing to hear
about. The workshops, the training are critical. Working with
the nonprofits, questioning them, quizzing them about what they
would see different I think is also important. We expect
accountability. It is your responsibility.
At the same time, we don't expect a bureaucracy that isn't
viable and flexible and demonstrates the reality of the
marketplace. If we are running up costs in construction
abnormally and, therefore, depleting the value of the
appropriation for the purpose of getting housing out, that is
something that I think concerns us all. I am not suggesting we
are doing that, but if we extend time out there in an active
real estate market and in an active market, then we may be in
part doing some of that.
There is no question about need, and that is what this
committee is concerned about. Most communities across this
country find a need for this kind of housing and a good number
of our seniors in that kind of situation where this kind of
housing can dramatically improve their lives. So we are
concerned about it. We will wish you the best and revisit you
in a year.
Mr. Weicher. Thank you, Mr. Chairman.
The Chairman. We will look forward to having you back to
review and, David, we will look at where we might track with
you so that we see work in progress that is sustainable and
institutionalized. I think that is what is increasingly
important, that we not find ourselves in the situation you
found yourself in, and that is, years and years out there of
applications stacked up and progress uncertain. We are glad you
have tackled that, and we are glad the President and the
Secretary laid that charge down. It was critically important
that we do so.
So, again, let me thank you all, and, John, let me
especially thank you for taking the time to stay, to listen,
and to respond to questions, and we appreciate all of your
testimony.
The committee will stand adjourned.
[Whereupon, at 11:23 a.m., the committee was adjourned.]
A P P E N D I X
----------
Prepared Statement of Senator John Breaux
I would first like to thank Chairman Craig for holding this
vital hearing on housing for the elderly. I would also like to
take this opportunity to thank all of the witnesses who have
come before us to testify today. Your testimony will be of
great value as the Committee works to address some of the
critical challenges that exist in providing housing to our
nation's seniors.
The need for affordable housing for the elderly is great.
It has been estimated that nearly 3.3 million elderly
households have what is defined as ``very low incomes.'' To
address this need, the Department of Housing and Urban
Development's Section 202 Supportive Housing for the Elderly
Program was developed. This program serves as a resource for
developing housing for low income elderly households and is the
only federal program devoted exclusively to providing this type
of housing. Due to the population it serves and its very
important mission, it is imperative that HUD's Section 202
program run efficiently and effectively.
Today we will hear from witnesses who will discuss some of
the problems associated with applying for and receiving funding
to develop Section 202 housing projects. We will also hear from
the General Accounting Office, which today released a report
today Chairman Craig and I requested. Unfortunately, it appears
that the Section 202 housing program is currently neither
efficient nor effective. I hope that this hearing is the first
step towards fixing these problems. Those seniors who have the
greatest needs, should not be left waiting for an affordable
place to live.
Thank you once again Mr. Chairman for holding this
important hearing. I look forward to hearing from our
witnesses.
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