[House Hearing, 111 Congress] [From the U.S. Government Publishing Office] LEGISLATIVE OPTIONS FOR PRESERVING FEDERALLY- AND STATE-ASSISTED AFFORDABLE HOUSING AND PREVENTING DISPLACEMENT OF LOW-INCOME, ELDERLY, AND DISABLED TENANTS ======================================================================= HEARING BEFORE THE SUBCOMMITTEE ON HOUSING AND COMMUNITY OPPORTUNITY OF THE COMMITTEE ON FINANCIAL SERVICES U.S. HOUSE OF REPRESENTATIVES ONE HUNDRED ELEVENTH CONGRESS FIRST SESSION __________ July 15, 2009 __________ Printed for the use of the Committee on Financial Services Serial No. 111-59 U.S. GOVERNMENT PRINTING OFFICE 53-239 WASHINGTON : 2009 ----------------------------------------------------------------------- For sale by the Superintendent of Documents, U.S. Government Printing Office Internet: bookstore.gpo.gov Phone: toll free (866) 512-1800; DC area (202) 512-1800 Fax: (202) 512-2104 Mail: Stop IDCC, Washington, DC 20402-0001 HOUSE COMMITTEE ON FINANCIAL SERVICES BARNEY FRANK, Massachusetts, Chairman PAUL E. KANJORSKI, Pennsylvania SPENCER BACHUS, Alabama MAXINE WATERS, California MICHAEL N. CASTLE, Delaware CAROLYN B. MALONEY, New York PETER T. KING, New York LUIS V. GUTIERREZ, Illinois EDWARD R. ROYCE, California NYDIA M. VELAZQUEZ, New York FRANK D. LUCAS, Oklahoma MELVIN L. WATT, North Carolina RON PAUL, Texas GARY L. ACKERMAN, New York DONALD A. MANZULLO, Illinois BRAD SHERMAN, California WALTER B. JONES, Jr., North GREGORY W. MEEKS, New York Carolina DENNIS MOORE, Kansas JUDY BIGGERT, Illinois MICHAEL E. CAPUANO, Massachusetts GARY G. MILLER, California RUBEN HINOJOSA, Texas SHELLEY MOORE CAPITO, West WM. LACY CLAY, Missouri Virginia CAROLYN McCARTHY, New York JEB HENSARLING, Texas JOE BACA, California SCOTT GARRETT, New Jersey STEPHEN F. LYNCH, Massachusetts J. GRESHAM BARRETT, South Carolina BRAD MILLER, North Carolina JIM GERLACH, Pennsylvania DAVID SCOTT, Georgia RANDY NEUGEBAUER, Texas AL GREEN, Texas TOM PRICE, Georgia EMANUEL CLEAVER, Missouri PATRICK T. McHENRY, North Carolina MELISSA L. BEAN, Illinois JOHN CAMPBELL, California GWEN MOORE, Wisconsin ADAM PUTNAM, Florida PAUL W. HODES, New Hampshire MICHELE BACHMANN, Minnesota KEITH ELLISON, Minnesota KENNY MARCHANT, Texas RON KLEIN, Florida THADDEUS G. McCOTTER, Michigan CHARLES A. WILSON, Ohio KEVIN McCARTHY, California ED PERLMUTTER, Colorado BILL POSEY, Florida JOE DONNELLY, Indiana LYNN JENKINS, Kansas BILL FOSTER, Illinois CHRISTOPHER LEE, New York ANDRE CARSON, Indiana ERIK PAULSEN, Minnesota JACKIE SPEIER, California LEONARD LANCE, New Jersey TRAVIS CHILDERS, Mississippi WALT MINNICK, Idaho JOHN ADLER, New Jersey MARY JO KILROY, Ohio STEVE DRIEHAUS, Ohio SUZANNE KOSMAS, Florida ALAN GRAYSON, Florida JIM HIMES, Connecticut GARY PETERS, Michigan DAN MAFFEI, New York Jeanne M. Roslanowick, Staff Director and Chief Counsel Subcommittee on Housing and Community Opportunity MAXINE WATERS, California, Chairwoman NYDIA M. VELAZQUEZ, New York SHELLEY MOORE CAPITO, West STEPHEN F. LYNCH, Massachusetts Virginia EMANUEL CLEAVER, Missouri THADDEUS G. McCOTTER, Michigan AL GREEN, Texas JUDY BIGGERT, Illinois WM. LACY CLAY, Missouri GARY G. MILLER, California KEITH ELLISON, Minnesota RANDY NEUGEBAUER, Texas JOE DONNELLY, Indiana WALTER B. JONES, Jr., North MICHAEL E. CAPUANO, Massachusetts Carolina PAUL E. KANJORSKI, Pennsylvania ADAM PUTNAM, Florida LUIS V. GUTIERREZ, Illinois KENNY MARCHANT, Texas STEVE DRIEHAUS, Ohio LYNN JENKINS, Kansas MARY JO KILROY, Ohio CHRISTOPHER LEE, New York JIM HIMES, Connecticut DAN MAFFEI, New York C O N T E N T S ---------- Page Hearing held on: July 15, 2009................................................ 1 Appendix: July 15, 2009................................................ 23 WITNESSES Wednesday, July 15, 2009 Alitz, Katie, Vice President, The Council for Affordable and Rural Housing.................................................. 18 Halliday, Toby, Vice President for Public Policy, National Housing Trust, on behalf of The National Preservation Working Group.......................................................... 10 Isbitz, Allan, President, National Leased Housing Association (NLHA)......................................................... 13 Leung, Ricky, Treasurer, National Alliance of HUD Tenants........ 15 Mehreteab, Ghebre Selassie, Chief Executive Officer, The National Housing Partnership Foundation................................. 12 Metherell, Sarah, Vice President, Institute for Responsible Housing Preservation........................................... 21 Myer, Joe, Board Member, National Rural Housing Coalition........ 16 O'Donnell, Vincent F., President, Citizens' Housing and Planning Association.................................................... 19 Trevino, Tammye, Administrator, Rural Housing Service (RHS), U.S. Department of Agriculture (USDA)............................... 5 APPENDIX Prepared statements: Alitz, Katie................................................. 24 Halliday, Toby............................................... 29 Isbitz, Allan................................................ 40 Leung, Ricky................................................. 45 Mehreteab, Ghebre Selassie................................... 58 Metherell, Sarah............................................. 63 Myer, Joe.................................................... 69 O'Donnell, Vincent F......................................... 76 Trevino, Tammye.............................................. 85 Additional Material Submitted for the Record Waters, Hon. Maxine: Written statement of the American Association of Homes and Services for the Aging (AAHSA)............................. 93 Written statement of the Housing Assistance Council (HAC).... 99 Letter from the Institute of Real Estate Management, the National Affordable Housing Management Association, the National Apartment Association, the National Association of Home Builders, and the National Multi Housing Council, dated July 14, 2009........................................ 104 Written statement of the National Affordable Housing Management Association (NAHMA)............................. 107 Written statement of the National Low Income Housing Coalition.................................................. 125 LEGISLATIVE OPTIONS FOR PRESERVING FEDERALLY- AND STATE-ASSISTED AFFORDABLE HOUSING AND PREVENTING DISPLACEMENT OF LOW-INCOME, ELDERLY, AND DISABLED TENANTS ---------- Wednesday, July 15, 2009 U.S. House of Representatives, Subcommittee on Housing and Community Opportunity, Committee on Financial Services, Washington, D.C. The subcommittee met, pursuant to notice, at 2:15 p.m., in room 2128, Rayburn House Office Building, Hon. Maxine Waters [chairwoman of the subcommittee] presiding. Members present: Representatives Waters, Cleaver, Green, Clay, Ellison; Capito, and Jenkins. Also present: Representative Castle. Chairwoman Waters. This hearing of the Subcommittee on Housing and Community Opportunity will come to order. But before we start with any opening statements from our witnesses, one of our members wanted very much to be here today to introduce someone who is very important to him and his work and his community, and I would like to ask the Honorable Michael Castle to please go ahead and make your introduction. Mr. Castle. Thank you very much, Madam Chairwoman. And let me also thank you for this hearing. Although I cannot be here for the hearing, I think it is a very important subject, and I am glad that you are delving into it. I would like to thank you for the opportunity of introducing a witness in the next panel, Joe Myer, who serves as a board member of the National Rural Housing Coalition and the past president of the Coalition. Joe and I have worked together for many, many years now. In addition to his duties on behalf of the Coalition, Joe Myer serves as executive director of NCALL, the National Council on Agricultural Life and Labor, which is a nonprofit located in my home State of Delaware that specializes in affordable housing development, education, and lending. Mr. Myer worked in the nonprofit housing development for 37 years. He helped found NCALL in 1976 and went on to become NCALL's executive director in 1981. During this time, NCALL has reached 6,500 first-time home buyer mortgage closings in Delaware, has been particularly responsive with their foreclosure prevention counseling service, and has achieved an exemplary rating as a chartered NeighborWorks America organization as a top 10 affordable housing producer nationwide within the network. NCALL has also provided development assistance for 45 affordable apartment communities serving rural families, elderly, and farm workers throughout the Delmarva Peninsula. Mr. Myer is the founding president and current board member of the Delaware Housing Coalition. He has received the Housing Ambassador Award from Delaware, NADO, the National Association of Housing and Community Development Officials, and also served on the Governor's Council on Housing as well as the Delaware Housing Trust Fund Study Commission. Prior to his work with NCALL, Mr. Myer worked for Freedom Village, Inc., as a Church of the Brethren volunteer and Delta Housing Development Corporation in the Mississippi Delta. He received his Bachelor's in business administration from Elizabethtown College and his master's degree in business administration from Delaware State University. Mr. Myer clearly brings a great deal of experience to the table, and the committee should look forward to his testimony today. And if I could ask him just to stand for a moment after all that fancy introduction, this is Joe Myer, ladies and gentlemen. [applause] Mr. Castle. I yield back, Madam Chairwoman. Thank you very much for the privilege. Chairwoman Waters. Thank you very much. And I would like to note that without objection, Representative Castle will be considered a member of the subcommittee for the duration of the hearing even though he cannot stay. Thank you very much. Good afternoon ladies and gentlemen. I would like to thank our ranking member, Shelley Moore Capito, and the other members of the Subcommittee on Housing and Community Opportunity for joining me for our second hearing on legislative options for preserving federally- and State-assisted affordable housing and preventing displacement of low-income, elderly, and disabled tenants. At our first hearing, we were joined by HUD Secretary Shaun Donovan who testified about the need for this legislation and its importance in preserving federally-assisted housing and protecting the residents of that housing. At this hearing, we will hear from Rural Housing Service Administrator Tammye Trevino about the preservation issues facing rural America. We will also hear from residents of assisted housing, housing developers, housing advocates, and others. From 1995 to 2003, our Nation lost 300,000 subsidized affordable apartments through conversion to market-rate housing or physical deterioration. Over the next 5 years, contracts on more than 900,000 project-based Section 8 units will expire. Moreover, the Affordable Housing Incentive Programs, like Section 236 and Section 221D, are essentially a thing of the past and 200,000 units in these programs are at risk of conversion to market rate over the next 10 years. Once these units leave the affordable housing stock, they are not replaced. In fact, according to the study by the Joint Center for Housing Studies, for every new affordable housing unit constructed, two affordable units are lost. The loss of these units negatively impacts communities and residents, many of whom represent our most vulnerable populations. According to HUD, 50 percent of people in federally-subsidized housing are elderly or disabled. In addition, about 77,000 veterans depend on this critical housing resource. The Federal Government's continued commitment to the preservation of subsidized affordable housing takes on more importance in light of the decrease in the number of non- subsidized affordable units. According to a recent HUD study, from 2005 to 2007, the number of units that are affordable to households at or below 50 percent of area median income fell by 7 percent for a loss of over 1.5 million units. During this time period, the number of units that are affordable to households with incomes of over 100 percent of area median income increased by 34 percent. Preservation not only makes sense for residents and communities, it should also make economic sense for owners and developers, because it is significantly more cost-efficient to preserve existing housing than to build new housing. It costs approximately 40 percent less to preserve an existing unit than to construct a new one. In addition, it is far more energy-efficient to preserve existing housing; renovating an existing building produces less construction waste, uses fewer new materials, and requires less energy than demolition and new construction. The bill before us today would ensure that preservation of affordable housing becomes a reality by providing all tenants of federally-assisted properties with enhanced vouchers, converting rent supplement and rental assistance program properties into project base Section 8, providing a first right of purchase to tenants of assisted properties, preserving State-financed affordable housing, and preserving rural housing and housing for the elderly. I look forward to hearing from our witnesses on this much- needed legislation. And now I would like to recognize Ranking Member Capito for her opening statement. Mrs. Capito. Thank you. I would like to thank the chairwoman and thank our witnesses for the hearing today. I would like to also welcome Rural Housing Service Administrator Trevino. She paid a visit to my office, I certainly appreciate that, and I look forward to your first appearance here at the subcommittee. One area I would like to discuss--and we talked about this earlier--is the effect of a recent change to the Section 538 Program is having on development and rehabilitation of affordable multi-family housing in rural communities. The stimulus legislation from earlier this year fundamentally changed this program in no longer allowing developers to use the interest credit subsidy in tandem with the loan guarantee. I have significant concerns as this will lead to fewer units being developed in rural areas. I also have some concerns about changes in this legislation for owners of subsidized housing units, which may cause them to leave the program after a property sale or mortgage prepayment. Private owners of multi-family housing units are essential to the supply of affordable housing and legislation should encourage their participation in the government program. HUD programs to incent owners to maintain affordable housing units have preserved over 3,500 projects with about 300,000 units. Those programs could be undermined by this legislation because it requires a 24-hour--excuse me, a 24-month notice before a sale, imposes a formula on the owner for determining the sales price, forces the owner to sell properties on less than favorable terms, and creates a new private right of action for the tenant. It is my hope that we can work together on ways to make the housing benefits provided by these programs a temporary stop for individuals. I think we can all agree that the goal of many of these programs is to provide families and individuals with a stable home so that they can focus on improving their skills to become self-sufficient. I know that extensive work has been done on this draft legislation, and I look forward to working with the chairwoman and the witnesses on many of these provisions. I yield back. Thank you. Chairwoman Waters. Mr. Cleaver is recognized for 3 minutes. Mr. Cleaver. Thank you, Madam Chairwoman. This is a serious issue that we absolutely must address, and we must address it now. I left office as mayor of Kansas City in 1999. There has not been one single unit of affordable housing constructed since that time. The problem is exacerbated by the fact that we now have legions of men and women who have lost houses due to foreclosure in the urban core. So as we are thinking about affordable housing, I think one of the things that we must focus on is preserving the affordable housing units we currently have because of the decimation of the urban core. These houses need to be in some kind of condition that might be attractive to developers or builders. I am hopeful that we can reverse this negative trend. And it is chilling when I think that we could possibly lose almost a million units of affordable housing over the next 5 years. So I think a great emphasis, and I hope we can get into this after your comments, but a great emphasis needs to be placed, I think, on trying to preserve every single affordable unit we have presently, particularly in the urban core. I look forward to talking with you. I yield back the balance of my time, Madam Chairwoman. Ms. Waters. Thank you very much. Mr. Green for 3 minutes? Mr. Green. Thank you, Madam Chairwoman. And I thank all of the witnesses for appearing. I would echo what has been said thus far. I am concerned about the possibility of losing 900,000 units. I am very much concerned that the process of construction appears not to be sufficient such that we can maintain. Construction alone will probably see us losing ground. It is important that we not lose ground, especially in areas where we are talking about those who are disabled and those who are seniors. This country is unlike many other places in the world because of the way it treats people in the twilight of life. We do not just allow people to live on the streets in the twilight of life. I look forward to hearing from the witnesses so as to get some intelligence in terms of how they perceive we should proceed to do what we have always done, not nearly to the extent we should have done, but that is to take care of those in the twilight of life and are disabled. I yield back. Ms. Waters. Thank you very much. Our first witness will be Ms. Tammye Trevino, Administrator, Rural Housing Service. I would like to thank you for appearing before the subcommittee today. And without objection, your written statement will be made a part of the record. You will now be recognized for a 5- minute summary of your testimony. STATEMENT OF TAMMYE TREVINO, ADMINISTRATOR, RURAL HOUSING SERVICE (RHS), U.S. DEPARTMENT OF AGRICULTURE (USDA) Ms. Trevino. Thank you, Chairwoman Waters, Ranking Member Capito, and members of the subcommittee. Thank you for the opportunity to appear before you to discuss multi-family housing preservation in rural America. I would like to thank all those involved with this legislation, both in this session of Congress and in previous years, for their hard work. I am pleased to testify before you today and I look forward to working with you and the committee to further the preservation agenda. At USDA, we advocate a strong national housing policy that both supports the American dream of homeownership and provides affordable rental opportunities. We are greatly encouraged by the committee's focus on legislation that will create national housing preservation standards for all government agencies that specialize in housing assistance, especially in rural communities. During this recess and the foreclosure crisis, RHS-assisted multi-family housing facilities have served as a critical resource for some of our most vulnerable rural residents who would otherwise lack proper housing alternatives. Unfortunately, the foreclosure rates of our RHS-assisted multi-family properties have remained variably unchanged when compared to rates of previous years. As multi-family housing facilities age and deteriorate, it is vital that we work together everyday in every way to preserve these units for the most vulnerable in our communities. The benefits of focusing on preserving the existing housing portfolio rather than on building additional units are clear: It is less expensive, roughly a third to a quarter of the cost of new construction. It can be accomplished faster with the site and acquisition issues already resolved. It presents many opportunities to upgrade energy conservation systems and it minimizes the NIMBY effect since most communities welcome an upgrade to existing rental properties in their neighborhoods. We are still studying the proposed legislation and may have questions regarding the implementation of certain aspects. However, the legislation appears to give the Agency a number of revitalization tools that would provide cost-effective preservation options for the existing multi-family rental housing portfolio. We look forward to working with the committee to ensure that these tools provide the best possible mechanisms to support the revitalization efforts. Currently, our revitalization program is authorized only as a demonstration program, not in permanent authorization legislation. This makes it difficult for the Agency to promulgate permanent program regulations and to address long-term issues, including the length of vouchers. Further, we must determine the resources needed to accomplish the goals we established, and we will develop those estimates during the budget formulation process. But, specifically, we need to examine what types and amounts of resources will be needed to work with a larger portfolio level of transactions to assure quality assurance, and to provide for consistent processing throughout the country. The proposed legislation contains voucher authority that will provide protection for tenants against rent increases or relocation as a result of prepayment or foreclosure, as does the current Rule Development Demonstration Voucher Program. The early results of a restructuring demonstration are extremely encouraging. When the initial application window closed on April 17, 2006, approximately 4,000 Section 515 property owners applied for debt restructuring. This represents 25 percent of the total portfolio. In the 3 full years of implementation as a demonstration program, USDA has obligated over 300 transactions that will improve the housing conditions of 10,000 tenants. These results indicate a tremendous interest among the ownership community in seeking a resolution to the revitalization challenge. Our goal is to reach 1,000 preservation transactions processed each year. Madam Chairwoman, I was born, raised, and have lived most of my life in rural communities. For 25 years, I worked and advocated for the development of rural communities. I understand the challenges that rural communities face. I know the struggles that many families in rural America see everyday. I feel thrilled and humbled by the opportunity that I have been given by President Obama to provide housing development on a national level. And I am committed to helping the President and this committee and our private and public partners, along with Secretary Vilsack in creating a lasting foundation in rural housing in the heart of rural America everyday in every way. Thank you for allowing me to address the committee. I am available to answer your questions now or at any time in the future. [The prepared statement of Ms. Trevino can be found on page 85 of the appendix.] Chairwoman Waters. Thank you very, very much. We are very appreciative for your presence today. I would like to begin by trying to get a little bit better understanding of the ability to assist those residents who are in units that are at risk of a conversion to market rate. USDA's 2004 report entitled, ``The Comprehensive Property Assessment Portfolio, An Analysis of Rule Rental Housing'' said that 10 percent of rural housing units are at risk of conversion to market rate. In what ways will this bill ensure that those units remain as affordable housing? Ms. Trevino. It will provide us with the funding that is necessary to do the Section 515 Program and to do preservation of a portion of that 10 percent. As I said, our goal, in order to meet the need that is spelled out in that CPA report, I believe that we should be doing about 1,000 transactions on a yearly basis. Chairwoman Waters. All right. Let me just raise one more question with you about Section 515 that you just alluded to, the Rural Loan Guarantee Program. One of the criticisms of the Section 515 Rural Loan Guarantee Program is that most of the loans have been provided to for-profit developments, not to nonprofit developers. In what ways will this bill increase the participation of nonprofit rural housing developers in this program? Ms. Trevino. I do not see that the bill distinguishes between private development and nonprofit development. That may be an issue that you may want to take up. I know that some nonprofit developers have problems with initial advance costs to try to do a deal but in terms of this legislation, I do not believe there is a factor, at least for the rule development portion. I may be wrong. Chairwoman Waters. All right, thank you very much. Mrs. Capito. Yes, thank you for your testimony. I would like to ask just a couple of questions. I am going to go right to the Section 538 question, since I raised that in my opening statement. Do you have a comment about the inability of the developers to use the interest credit subsidy in tandem with the loan guarantee, and what kind of impact do you think that this has had on these developers in the 538 program? Ms. Trevino. I have seen 538 developments with and without interest credit that work. We do not know what the implications are going to be. Certainly, the interest credit subsidy has been a very popular option in allowing these deals to go forward. So in terms of the impact and what it is going to do, I think it is a little early to find out. We know that statutorily it has been left out through the appropriations, and so we are not sure what is going to happen. I believe that it is a good tool, but obviously we are going to implement whatever is in the appropriations bill. Mrs. Capito. Well, you know that I am interested in restating that as an incentive to developers to create housing. I would like to ask what is the breakdown, you said you have seen in the 538 program, there are those who have used the interest credit subsidy and those who have not, do you have any idea how that breaks down percentage wise? Ms. Trevino. No, I don't. I could not give you those numbers. I am speaking from experience-- Mrs. Capito. Right. Ms. Trevino. --just in Texas. Mrs. Capito. Right. In your statement and in your letters you mentioned, I got the sense that you envisioned some changes of some of the provisions of the bill that might be more helpful to you in your revitalization and in our revitalization efforts. Can you say what types of changes you would make to this bill and are there provisions that would make your job harder or easier? And what specific additional tools would be helpful to you to further the goal of affordable rural housing preservation? Ms. Trevino. Currently, I would like to address one particular program and that is the Section 514 and 516 that provides for farm labor housing. We believe that portion of the portfolio in rural developments is an important component. I would be very interested in working with the committee to try to determine the types of resources that would be needed to address that need. Mrs. Capito. Other than that, you do not see any real stumbling blocks in this bill to move forward with your programs, to simplify them, to keep the public/private partnerships active and to reach the ultimate goal, which is preserving not only housing units but also the upgrade of a lot of the housing units? Ms. Trevino. I believe that we are going to have a few concerns when it comes to how we implement the voucher, but, again, we are willing to work with whatever the committee proposes and try to figure out what the best mechanisms are in terms of what is available under tools in the bill. Mrs. Capito. Okay, and can you tell me what the physical state of the existing 515 portfolio is? I am curious to know how many of those units are in need of repair? How do they break out? I know you cannot give me an exact number, but how many of those are in need of repair percentage wise so I can get a perspective on that? Ms. Trevino. I can only tell you that the CPA report stated that about 80 percent would need rehabilitation in the next 6 to 7 years. Mrs. Capito. That is a large percent. Ms. Trevino. It is. Mrs. Capito. Yes. Ms. Trevino. A huge portion. Mrs. Capito. Thank you. Ms. Trevino. Thank you. Chairwoman Waters. Mr. Cleaver? Mr. Cleaver. Thank you, Madam Chairwoman. The 515 program, can you help me understand if a tenant moves out, that unit is no longer eligible for the 515 program? Ms. Trevino. The 515 program is more project based, and so we determine ahead of time, based on the rental assistance that we give that project, how many of those are going to be set aside for the very low income. So it really does not have to do with the tenant. Mr. Cleaver. Okay. The demonstration program seems to be very successful. I think you mentioned 90 percent of the tenants choose to remain? Ms. Trevino. Yes, 90 percent of the tenants have chosen to remain. Mr. Cleaver. Do you think that is due to the way the program is now working or due to the economic situation in the country right now? Ms. Trevino. In rural America, I would--it is my opinion that we do not have the housing stock many times that you find in an urban community, so many times, there are not better alternatives for the families. I believe that is one reason that number is high. Mr. Cleaver. I am curious about what if we compared it with Section 8 or even 202, two programs, in terms of--well, maybe not 202 but certainly Section 8, to draw a comparison to see what the percentage would be of individuals who would choose to remain. This just seems enormously high, which is good in a way. Ms. Trevino. I would not know what those percentages are, but again the population in both the city, in the urban and the rural areas, is pretty much the same. So in rural communities we have the issue of the housing stock, but you also have the issue that 60 percent of this population is an elderly population. As you know, elderly people are creatures of habit; they do not want to move. They do not like change and so that may be part of what contributes to that number. Mr. Cleaver. All right, thank you. I yield back the balance of my time, Madam Chairwoman. Chairwoman Waters. Thank you very much. Mr. Green? Mr. Green. Thank you, Madam Chairwoman. And, again, I thank the witness. Ma'am, public housing has been successful to the extent that it has in my opinion because we have tried to have a collaborative effort. We have tried to inculcate the NGOs into the process. We have tried to access our intelligence from a variety of sources and sometimes the pipeline to HUD hopefully would go through the NGOs. Can you tell me, as we are now looking at the various changes that we are making, how you plan to have input from NGOs in this process? Ms. Trevino. Okay, we work very closely with our partners. In rural America, there are a lot of nonprofit providers. We are willing to listen to their ideas and try to determine the best ways to implement these programs. So I do not know how it has been done in previous Administrations, but I can tell you that we do have a goal within our Administration, within Rural Housing, to continue that very important work. Mr. Green. Thank you. This is very encouraging. Let me just go a step further, however, and indicate that much time and energy is necessary from persons who are familiar with communities to acquire the intelligence that you need. It is beneficial to have a means by which NGOs can have the assets, the resources necessary to acquire this intelligence. Funding for NGOs, in my opinion, is quite beneficial to HUD in acquiring intelligence. We have from time to time provided funding for NGOs. Chairwoman Waters had a piece of legislation that we amended, H.R. 3965, this was the Mark-to-Market Extension and Enhancement Act of 2007. And with assistance we were able to--her assistance, we were able to add $10 million in grants to tenant groups and not-for-profits. Are you predisposed to continuing this type of relationship so that we can have NGOs that are not only willing but also able to perform the function? Ms. Trevino. Yes, sir, I believe that we are. And, in fact, across the country we have rural development offices, about 400 in the field, so that is quite a longer reach than perhaps HUD in a rural area. So we are very amenable to working and trying to see what--how our local offices can integrate with what the NGOs are doing. Mr. Green. Thank you very much. Madam Chairwoman, I will yield back the balance of my time. Chairwoman Waters. There are no more questions. The Chair notes that some members may have additional questions for this witness, which they may wish to submit in writing. Without objection, the hearing record will remain open for 30 days for members to submit written questions to this witness and to place her responses in the record. This panel is now dismissed. Thank you very much for coming. Ms. Trevino. Thank you. Chairwoman Waters. I would like to welcome our second panel. And I am going to announce each of you, but prior to speaking, I would like you to give me your name, because I am sure I am not going to pronounce some of these names correctly. Our first witness will be Mr. Toby Halliday, vice president for public policy, National Housing Trust, on behalf of the National Preservation Working Group. Our second witness will be Mr. Ghebre Selassie Mehreteab, executive officer, The National Housing Partnership Foundation. Our third witness will be Mr. Allan Isbitz, president, National Leased Housing Association. Our fourth witness will be Mr. Ricky Leung, treasurer, National Alliances of HUD Tenants. And, of course, you heard the introduction of our fifth witness by Mr. Castle, Mr. Joe Myer, board member, National Rural Housing Coalition. Our sixth witness will be Ms. Katie Alitz, vice president, The Council of Affordable and Rural Housing. Then we will have Mr. Vincent O'Donnell, president, Citizens' Housing and Planning Association. And our final witness will be Ms. Sarah Metherell, vice president, Institute for Responsible Housing Preservation. Thank you again for appearing before the subcommittee today. And without objection, your written statements will be made a part of the record. You will now be recognized for a 5- minute summary of your testimony. Okay, Mr. Halliday? STATEMENT OF TOBY HALLIDAY, VICE PRESIDENT FOR PUBLIC POLICY, NATIONAL HOUSING TRUST, ON BEHALF OF THE NATIONAL PRESERVATION WORKING GROUP Mr. Halliday. Thank you very much, Chairwoman Waters, Ranking Member Capito, and members of the subcommittee. My name is Toby Halliday, and I am the vice president for public policy of the National Housing Trust. Thank you for inviting me to testify today in support of this important draft legislation. Over the past decade, the National Housing Trust has helped save and improve more than 20,000 apartments in over 40 States. The vast majority of these apartments have HUD-subsidized mortgages or project-based rental assistance contracts. Today, I am also testifying on behalf of the National Preservation Working Group, a coalition of 25 national nonprofit organizations supporting affordable rental housing. The members of the Preservation Working Group strongly support a balanced housing policy that includes the option of quality affordable rental housing and endorses this proposed legislation to protect low-income urban, suburban, rural, and elderly households whose homes are at risk of loss or conversion. Due to the recession that now grips our economy, and the mortgage crisis that precipitated it, the need for this legislation is greater than ever. Continuing home foreclosures will shift many families from homeownership to rental in a market where there is already a shortage of affordable rental housing for the poorest households. Many of the affected families will experience sharp declines in household assets and credit scores, but the increased demand for rental housing at the lowest end of the market is actually leading to higher rents and tighter credit screening in some markets despite falling incomes and rising unemployment. At the same time, many cash-strapped States and local governments are reducing assistance to needy families. All of this leads to a heightened risk of homelessness. Addressing this challenge begins with preserving existing affordable rental housing. Federally-subsidized housing serves nearly every community in the Nation. The Trust's analysis has identified nearly 170,000 units of federally-assisted apartments with contracts that expire over the next decade located in the districts of members of this committee, as shown in Attachment A of my testimony. At the heart of this legislation are new tools to protect residents and preserve affordability when apartments are refinanced or re-capitalized or when the underlying HUD- subsidized mortgages mature. Unlike other assisted properties, there are currently no provisions to preserve the affordability of these units or to protect residents when thousands of these mortgages expire over the next several years. The current draft includes important provisions that would, at the owner's discretion, provide rental assistance for affected apartments, both for the HUD-assisted and the rural development Section 515 properties. Improving preservation tools makes the rehabilitation of these properties easier to finance, leading to the creation of needed construction jobs. There will be debate over the proposal to allow new purchasers to preserve the affordability of federally-assisted properties when current owners no longer wish to operate them as affordable rental housing. So long as existing owners are provided market values for their properties, we believe that new ownership dedicated to long-term affordability will help ensure affordable rental housing at a time when so many families are homeless or at risk of homelessness. There will also be debate over the provision to allow residents to escrow their rents when properties are in disrepair. All tenants must still pay their full rent but funds will go into an escrow account or be used for HUD-approved repairs when the Secretary determines serious violations of housing quality standards or housing program requirements. The only parties who have something to fear from this provision are owners with serious property violations, which impacts not only residents but the entire community surrounding these properties. We note that many Members of Congress recently expressed their strong view that recipients of housing assistance should be American citizens. This is already the law of the land and residents are currently required to certify their compliance with this requirement. But such new requirements will have a huge impact on many U.S. citizens who do not have birth certificates or passports in their possession, who are disproportionately senior citizens, African Americans, rural residents, or lacking a high school diploma. In California, for example, obtaining a birth certificate can take 10 to 12 weeks and cost $5 to $23 in different jurisdictions. A passport can take several additional weeks and cost up to $100. Finally, I would like to express our support for the titles for Section 202 elderly housing and for Section 515 rural housing administered by the Department of Agriculture. These proposed changes will provide important new tools to protect vital affordable rental housing for seniors and in rural States, especially in high-cost areas. Again, thank you for the opportunity to comment on this draft affordable rental housing legislation. The National Housing Trust and the Preservation Working Group are looking forward to the formal introduction and enactment of this legislation. [The prepared statement of Mr. Halliday can be found on page 29 of the appendix.] Chairwoman Waters. Thank you very much. Mr. Mehreteab. STATEMENT OF GHEBRE SELASSIE MEHRETEAB, CHIEF EXECUTIVE OFFICER, THE NATIONAL HOUSING PARTNERSHIP FOUNDATION Mr. Mehreteab. Chairwoman Waters, Ranking Member Capito, Congressman Cleaver, Congressman Green, and Congressman Ellison, I thank for you for the opportunity to testify this afternoon on one of the most crucial issues: the preservation and creation of affordable housing, especially in urban areas. My name is Ghebre Selassie Mehreteab, but I am mostly known as Gabe. I am the chief executive officer of the NHP Foundation, a nonprofit housing organization headquartered in New York City. At the outset, I want to state that the NHP Foundation is in full support of the bill. Thank you, committee members. In 1989, the National Housing Partnership was chartered by Congress as a private corporation to create and preserve affordable housing. The National Housing Partnership created the NHP Foundation as a national nonprofit organization to address America's affordable housing crisis. Our strategy was to combine the discipline of the private real estate sector with a charitable mission. Since 1994, the NHP Foundation has preserved or converted from market rate to affordable 46 properties, totaling approximately 10,000 units in 14 States. Recently, the NHP Foundation, which was created by the corporation that was chartered by Congress, has developed a 5-year strategy plan for the creation or preservation of an additional 5,000 to 10,000 affordable housing units, again mostly to be located in urban areas. As you are fully aware, the need for affordable housing in our society is a pressing one. Yet, as the committee members noted, we are losing much of our affordable housing daily. Against this trend, we must preserve the affordable housing that has already been built at great expense to the taxpayer. However, for preservation efforts to be successful, the nonprofit organization must raise financing from the public sector, obtain investment of private capital from banks and other financial institutions, and secure grants and loans from the philanthropy community. One, this bill will provide new tools, reform existing programs and create incentives for financing affordable housing. For example, specifically, the bill will assist large- scale nonprofit organizations in preserving the existing stock of affordable housing. Two, it will attract private capital from banks and other institutions. And, three, leverage the initiative of philanthropic organizations. As you know, the NHP Foundation and other nonprofit owners rely on private lenders and investors to create and preserve affordable housing. For example, over the last few years, the NHP Foundation has partnered with Bank of America's Community Development Group in obtaining debt and tax credit equity financing. However, the glue that binds the public sector with the private capital is philanthropic grants. Many nonprofits have received funding from the Ford Foundation, the McArthur Foundation, Prudential Social Investments, and other philanthropic sources for our preservation work. In conclusion, the NHP Foundation looks forward to continuing to work with the committee and its staff on those preservation issues. Thank you again for inviting me to testify today. [The prepared statement of Mr. Mehreteab can be found on page 58 of the appendix.] Chairwoman Waters. Thank you very much. Our next witness will be Mr. Allan Isbitz. STATEMENT OF ALLAN ISBITZ, PRESIDENT, NATIONAL LEASED HOUSING ASSOCIATION (NLHA) Mr. Isbitz. Chairwoman Waters, Ranking Member Capito, and members of the subcommittee, thank you for your invitation to speak today and for the opportunity to address some of the issues of importance to our affordable housing constituency. My name is Allan Isbitz. I am chief financial officer and vice president of real estate development for Jewish Community Housing for the Elderly, a nonprofit that owns and operates over 1,000 apartments for low-income seniors in the Boston area. I am here today as president of the National Leased Housing Association. NLHA is pleased to present our concerns related to the preservation of federally-assisted affordable housing. NLHA represents a broad cross-section of people and organizations that provide or administer Section 8 and tax credit housing for over 3 million families and elderly. We appreciate and applaud the efforts of the committee to produce this important bill. I would like to spend a few minutes sharing with you to illustrate my experience with a preservation transaction where HUD guidance was confusing and inconsistent and unnecessarily impeded our ability to achieve important preservation objectives. This is about a refinancing transaction we undertook 3 years ago that involved preservation and improvement of a 33-year-old project with a Section 236 mortgage that provides 254 apartments for low-income seniors. We had three objectives in this transaction: first, to make the necessary capital improvements to the building; second, to build a new community center so we can meet the need for essential support services for our senior residents that would allow them to continue to live there in spite of increasing frailty as they grow older; and third, to use some of the sales proceeds to help finance a new 150-unit Section 202 mixed- income development for seniors on land in Framingham, Massachusetts, that we owned and had zoned for that purpose. To achieve these objectives, we successfully sought and received tax-exempt bond financing that generated over $10 million in tax credit equity and supplemented the proceeds of a new HUD-insured loan used to cover building improvements. We believed the $10 million of private investor equity could be used under existing HUD guidelines to support the construction of the Resident Services Community Center and the financing of the new construction project. As an added bonus, the availability of private investor equity allowed us to set rents below market and save HUD almost $5 million in Section 8 subsidies over the term of the HUD- insured mortgage. We believed this to be a real win/win situation for us and for HUD, and the HUD field office showed strong support for the project. However, HUD central had to approve the prepayment of the mortgage, and they refused to do so claiming that the proceeds--the sale proceeds we were realizing were too high. HUD then required us to sign an agreement as a condition of proceeding with the refinancing that restricted almost $3 million of these proceeds to fund future rent increases instead of using the Section 8 subsidy contract that existed for this purpose. HUD's position was incomprehensible because private tax credit equity, not HUD rental subsidy, supported the sale proceeds we wanted to use for the Resident Services Community Center and for a new affordable housing development. There is no basis in law or in regulation for HUD's actions. Its actions were inconsistent and amounted to treating nonprofit owners differently than for-profit owners in similar prepayment circumstances when HUD's written guidance on this subject states just the opposite. In the face of adverse market conditions today, we have requested HUD to reconsider its position on the use of sale proceeds for our new construction project. The project is currently shovel ready and will produce $25 million worth of construction activity, plus 259 construction jobs for the Massachusetts economy, but has been delayed for about a year now. This situation demonstrates that producing tax-credit financed housing involves market risk for nonprofit and for- profit developers alike. So it is particularly important that both nonprofits and for-profits be given access to the same financial tools, such as sale proceeds, that they need to negotiate with their partners in the marketplace. HUD's action in the recent years regarding sale proceeds remain an issue for nonprofits so it is important that Congress clarify this matter. The current draft includes language that attempts to address the problem, but it is not retroactive and therefore does not provide a remedy for nonprofits that have already been denied access to their rightful sale proceeds, which are necessary to meet their current needs. We prefer the language that was included in Section 401 of H.R. 2930 that passed the House last year and request that it be substituted for Section 503 of the current draft. I thank you again for this opportunity to let you know of our need for improvements in Federal preservation programs. I might add that we believe that Secretary Donovan and his new team share many of these concerns, and we look forward to working with the new HUD administration in this regard. Thank you. [The prepared statement of Mr. Isbitz can be found on page 40 of the appendix.] Mr. Cleaver. [presiding] Mr. Leung, you are next. Did I mispronounce your name? STATEMENT OF RICKY LEUNG, TREASURER, NATIONAL ALLIANCE OF HUD TENANTS Mr. Leung. Thank you, Chairwoman Waters. Thank you, Mr. Cleaver. My name is Ricky Leung. I am the treasurer for the National Alliance of HUD Tenants, a national tenant union, the one and only in the Nation, for privately-owned HUD-assisted multi-family housing. Since the Title 6 Preservation Program ended in 1996, our Nation has lost at least 360,000 units of affordable low-income housing. We commend you and Chairman Frank for including the first right of purchase in the draft preservation bill to stop this loss. We also thank my own representative, Nydia Velazquez, for filing H.R. 44, now Title 4 in the bill, to address the related loss of 120,000 units of HUD's housing stock and for her leadership in addressing the new crisis of private equity. For 30 years, I have lived in Cherry Street Apartments in a Section 8 unit with my parents, a secure home for our family. We would not survive long in the overheated Manhattan market. The 488 families at Cherry Street are a diverse mix of working and middle class, a microcosm of the City and the Nation. In 2003, our project-based Section 8 contract was set to expire in the super hot real estate market in Manhattan. Our tenant association persuaded the owner to renew, but he did so for only 5 years. After I testified a little over a year ago in front of the full committee, our building was bought by a predatory investor for $177 million, more than $360,000 per unit. And our Section 8 contract was renewed for 5 more years. Just 3 years from now, the new owner will again decide what to do. Passage of first right of purchase would at least give our tenant association and the City a fighting chance to save our homes. By itself, a first right purchase would not add to Federal costs. It would simply allow a city or nonprofit to purchase an at-risk property using existing programs like markup-to-market. There is ample precedent besides Title 6, for 20 years, Congress has provided a Federal right of purchase for rural housing and several States have adopted similar laws. The need for this measure is urgent in New York City. We are losing affordable housing to speculators at an alarming rate. Since the 1990's, more than 32,000 low-cost apartments have already been lost, and the rate has spiked dramatically. A national first right of purchase will help save 22,000 more apartments like Cherry Street that are at immediate risk. In the wake of 9/11, the loss of 54,000 affordable apartments in New York City is a tragedy which we can neither bear nor ignore. Nationwide, tenants are also challenged by the end of regulation in 260,000 apartments reaching an end of the 40-year HUD-subsidized mortgages. The number of expiring mortgages properties will skyrocket by more than 600 percent between now and 2012 according to the GAO. Whatever the source of risk, the first right of purchase is needed to ensure that owners use voluntary incentives in the draft bill to save our homes. Congress dismantled Title 6 in 1996 due to concerns about excessive costs. Under Title 6, residents and HUD negotiated major repairs, permanent affordability, and transfers to nonprofit and tenant organizations. Today, the enhanced vouchers are mark-up-to-market options available to owners are just as costly as the Title 6, but with none of these benefits. A first right of purchase will save money in the long run by removing subsidized housing from the speculated market, lessen owner windfalls, and guarantee benefits from the investment from any Federal funds. Three weeks ago, Secretary Donovan mentioned the State court decision that struck down a right of purchase law adopted by the City of New York. I was involved in the effort to pass this law to help save my home. The court struck down the City law solely due to State and Federal preemption concerns, not constitutional questions addressed in our written testimony. In fact, the courts acknowledged the serious rental housing crisis, and they urge action by other levels of government. We urge the committee to honor the plea of the New York tenants, echoed by the State courts, to adopt a right of purchase at the Federal level. Obviously, preemption is not an issue if Congress acts. The National Alliance of HUD Tenants also supports the tenant empowerment provision in the bill. These no-cost measures will allow tenants to join as HUD partners to improve and save our homes. To conclude my testimony today, just like concluding my testimony last year, I would like to pay tribute to the three main languages spoken in my community. I would like to say to everyone in this room in English: Thank you very, very much. And in Spanish, especially to my Congresswoman, Nydia Velazquez, Muchas Gracias. And in my native language, Chinese: Xie, xie doh je. [The prepared statement of Mr. Leung can be found on page 45 of the appendix.] Mr. Cleaver. Thank you. Mr. Myer? STATEMENT OF JOE MYER, BOARD MEMBER, NATIONAL RURAL HOUSING COALITION Mr. Myer. Good afternoon, Chairwoman Waters, and Ranking Member Capito. My name is Joe Myer. I am the executive director of NCALL. We are based in Dover, Delaware. We serve the mid- Atlantic region. I received a very nice introduction by Congressman Mike Castle, and I want to thank him for that introduction. As a two term governor, and now Delaware's sole Congressman, Mike Castle has been an important friend of affordable housing. I am also a current board member of the National Rural Housing Coalition. NRHC is a national membership organization that advocates for Federal policies which improve housing and community facilities in rural America. NRHC has stood for the principle that all rural residents have a right to a decent place to live. We have testified before this committee previously, and appreciate the opportunity to testify today on rural housing issues and H.R. 2876, the Rural Housing Preservation Act of 2009. We commend the bipartisan effort of Congressmen Geoff Davis and Lincoln Davis. It is vital to preserve our current stock of affordable rental housing because of lack of decent apartments in rural America. A disproportionate share of the Nation's substandard housing is located in rural areas. According to the 2000 census, of 106 million housing units available in the United States, 18.7 million units, or about 18 percent, are located in non-metro counties. Thirty-five percent of rural renters are cost-burdened, paying more than 30 percent of their income for housing costs. Almost one million rural rental households suffer from multiple housing problems, 60 percent of whom pay more than 70 percent of their income for housing. More than 900,000 renters live in moderately or severely inadequate housing, and 1.9 million people are rent overburdened. Section 515 of the Housing Act of 1949 is the principal source of financing for rental housing in rural areas. Under Section 515, nonprofit and for-profit entities can receive one percent loans for acquisition, rehabilitation or construction of rental housing and related facilities. Most Section 515 loans have gone to for-profit developers who combine the subsidized loan with tax subsidies to finance housing. About 75 percent of these properties are further subsidized by the RHS Section 521 rental assistance program, and the Department of Housing and Urban Development Section 8 program, both of which provide rent subsidies to ensure that residents pay no more than 30 percent of their income towards rent and utilities. Section 515 is generally well-managed. The portfolio is financially sound. It has a loan delinquency rate of just 1.6 percent and only 8 properties in inventory at the current time. Projects are small, sized to the communities that they serve, an average of 28 units. So over 400,000 low-income families and elderly households live in rental housing financed under Section 515. For many rural areas, Section 515 provides the only decent affordable rental apartments in the community. Although rents are extremely low, averaging a little more than $325 per unit per month, the average resident annual income for the properties is also low, about $9,200. Twenty percent of the tenants were nonetheless rent overburdened and 7 percent paid more than half of their income towards rent. This is due to noticeably lower incomes in rural areas. Over the last several years, the Federal Government has virtually stopped financing for new affordable rental units in rural America. In 1992, the loan level for Section 515 was $500 million. By 1998, that number was less than $200 million. And for Fiscal Year 2009, the level of Section 515 was $69 million. Over the last 40 years, Congress has debated the best, most appropriate way to preserve the rights of owners and tenants living in Section 515 developments. This issue is important because virtually all households living in these apartments are low income, many are elderly, and many have disabilities. These are people with few other housing options. The evolution of the 515 program and prepayment process shows how the rural housing services lack of funding for incentives and rent subsidy vouchers has hurt both owners and tenants. We see that the comprehensive property assessment and portfolio analysis indicates that there is a long-term need to ensure adequate operations and long-term rehabilitation of $2.6 billion over 20 years. In response to the USDA report, Congress provided funds for a demonstration aimed at preserving rural rental developments. From 2006 to 2009, $100 million was provided in multi-family restructurings. RHS provided restructurings financing to 105 projects. The financing mostly in the form of deferred loans preserved 4,500 units. This is an important demonstration and really points to what needs to happen in the future. The current restructuring program relies heavily on funding from other sources, but given the difficult economic climate, raising capital from other sources will prove more difficult. [The prepared statement of Mr. Myer can be found on page 69 of the appendix.] Mr. Cleaver. Mr. Myer, I hate to cut you off, and I am going to have to apologize to all of you. As you probably heard, the bell just sounded, which means we have votes. We have about 40 minutes of votes. It could be longer if there are some parliamentary procedures that we have to deal with. But what I would like to do is, if the three of you who have not had made presentations would do so, and if you can, I know they are already abbreviated, but give us the Reader's Digest version. And then we will dismiss the panel because the most important part is your testimony anyway. And we will send out a memo to all the committee members that if there are questions, we will send those questions to you. So if we can, let's move with Ms. Alitz. Ms. Alitz. ``Alitz.'' Mr. Cleaver. Ms. Alitz, I'm sorry. STATEMENT OF KATIE ALITZ, VICE PRESIDENT, THE COUNCIL FOR AFFORDABLE AND RURAL HOUSING Ms. Alitz. Mr. Cleaver, members of the subcommittee, my name is Katie Alitz, and I am the vice president of the Council for Affordable and Rural Housing. On behalf of myself and CARH, I would like to thank you for the opportunity today to address issues related to rural affordable housing, and in particular the rural housing legislation under discussion. We also very much appreciate this committee's interest and focus on rural housing issues. CARH is an association that includes for-profit, nonprofit, and public agencies that build, own, invest and manage in rural and affordable housing. CAR members house hundreds of thousands of low-income elderly and disabled residents across rural America. CARH strongly supports preservation of affordable rural housing, and we think it is critical that the preservation efforts include Rural Development's budget being restored. Over the previous 12 years, Rural Development's budget has been decimated, especially the Section 515 multi-family loan program. This has made preservation of rural housing very difficult. Owners have preserved Section 515 properties over the last decade largely by finding other sources of funding, primary low-income housing tax credits and also recently Section 538 guaranteed loans. However, this has never sufficiently closed the gap. Because of their small size, rural properties have always had difficulty competing for tax credits and finding equity providers. Given the recent upheavals in the low-income housing tax credit markets, these problems will be further exacerbated. In addition, the 538 interest credit subsidy was reduced in the 2009 budget from $20 million to $8 million and eliminated in the 2010 budget. This subsidy is critical to the preservation of 515 housing and also for keeping housing affordable for low-income residents. Without the subsidy, this program will target more middle-income residents. We also support Ms. Capito's legislation to restore this interest credit subsidy, and we thank you for your support. In addition to funding, providing Rural Development with certain tools is critical to their preservation efforts. The preservation legislation that we are seeing today was introduced also in the 109th and 110th Congress. CARH has supported this legislation but has concerns about three provisions that we believe may impede preservation. First, the legislation calls for a 30-year capital needs assessment. We think that is too long; the industry standard is an average of 15 years. Second, while we have no issue with limiting resident rents to 30 percent of their income, we are concerned about imposing this limit without including further rental subsidies. We think that will take a lot of eligible properties off the table. And finally, we are concerned about the restrictions on owners who participated in the prepayment settlement. There seems to be some barriers to their entry into this program. Thank you. [The prepared statement of Ms. Alitz can be found on page 24 of the appendix.] Mr. Cleaver. Mr. O'Donnell? STATEMENT OF VINCENT F. O'DONNELL, PRESIDENT, CITIZENS' HOUSING AND PLANNING ASSOCIATION Mr. O'Donnell. Good afternoon. I will try to do the standing on one foot version of my written testimony. I want to thank Chairwoman Waters and Ranking Member Capito and Representative Cleaver and all the members of the subcommittee for the opportunity to testify. My name is Vincent O'Donnell. I am testifying in favor of this urgent and important legislation. I am speaking on behalf of the Citizens' Housing and Planning Association in Massachusetts, which was created in 1967 as an umbrella organization that represents advocates for affordable housing for low- and moderate-income people in the Commonwealth. It really is a broad umbrella of producers and consumers and folks interested in housing policy and has been extremely successful. In fact, CHAPA's involvement in preservation goes back to 1978 when we worked to implement new guidance that was created for HUD to deal with distressed properties. I think the most important thing I want to say today is that the whole concept of the preservation of affordable housing really goes back to the residents themselves. The preservation issues have always been raised by the tenants who live there. Back in 1978, residents in a gentrifying neighborhood of Boston living in distressed housing went to then-Senator Edward Brooke and got some Federal relief that enabled them ultimately to purchase that property as a cooperative. And it is still today a successful, 100 percent Section 8 cooperative. The issues have always been brought forth by the folks who live there. Secondly, it is a changing landscape. Back then, the issue was HUD foreclosure of distressed housing. Later, the issue became the prepayment of subsidized mortgages. After that, it was the expiration of Section 8 contracts. We now have new emerging issues in what is called the Year 40 problem where, after the complete expiration of all obligations, there are no current effective ways to make sure that the tenants are protected and the housing is preserved. So I think it is important to look at this extremely complex and comprehensive bill as something which fundamentally is addressing those basic goals. And if you look at it that way, it is, I think, a terrific piece of work that has responded to years of development of ideas by the preservation community trying to make this housing safe and affordable for the future for the tenants who live there and to contribute positively to the neighborhoods where the housing is located. Although it deals with many, many things, I just want to highlight several things which are very important. First, I think it does address the new problems which have arisen at the end of 40 years, the extension of authority for tools like enhanced vouchers, and conversion of earlier forms of rental assistance to Section 8 so that it can more flexibly support the redevelopment of the property. Second, the right of purchase is an extremely important aspect of this legislation. It is also extremely complex. And it exemplifies the partnership that affordable private housing is based on in this country. We have private owners, private financing serving low-income residents. This has to work for everybody. And an important tool like this is a very complex one. In my written testimony, I have some thoughts about how to make that work the best for all stakeholders. Third, there are certain State-funded properties that were recognized in LIHPRHA, the earlier preservation legislation dealing with prepayment as requiring Federal assistance, and this bill addresses their needs. Fourth, elderly housing is a very important element and the preservation of that stock is addressed in a comprehensive way in this bill, and I want to speak in favor of that as well. And I think I better stop there; the rest of my comments are in the written testimony. [The prepared statement of Mr. O'Donnell can be found on page 76 of the appendix.] Mr. Cleaver. Thank you. Ms. Metherell? STATEMENT OF SARAH METHERELL, VICE PRESIDENT, INSTITUTE FOR RESPONSIBLE HOUSING PRESERVATION Ms. Metherell. Good afternoon. First of all, thank you very much for inviting me here to testify today. My name is Sarah Metherell, and I am with Steadfast Residential located in Newport Beach, California. We have acquired, rehabilitated, and preserved and now own about 15,000 units of federally-assisted low-income housing. These units are mostly in California but also in a total of 18 other States. I am here today, however, representing in my capacity as vice president of the Institute for Responsible Housing Preservation, the IRHP. Since 1989, the IRHP has represented owners and managers of federally-assisted multi-family properties on preservation issues, including advocating for legislative and regulatory changes for preservation policies and providing educational seminars on preserving affordable housing. I would add that the IRHP is primarily a group of for- profit developers, however we do have a few nonprofit members and some State agency members. I am going to make this very quick. IRHP is generally in favor of the bill. There are a few things I would like to point out based on personal experience that I have had in acquiring affordable multifamily properties over the last couple of years. One is that the Section 236 decoupling program is a wonderful program and has been very successful in preserving HUD properties. I think if you look at the Section 236 program, you see a higher rate of preservation over other HUD programs because it is easier to preserve those properties. The primary reason is the ability to undertake a budget-based rent increase, which includes new debt service, something that is not now available for other types of HUD properties. Also, there is an increased annual distribution for all preservation owners; it applies to both for-profits and nonprofits and it costs nothing to HUD. However, these benefits are only available on Section 236 decoupling transactions and not on other types of HUD transactions, and I am not quite sure why but the new bill does change that. And we approve of that. Finally, very briefly, I have a lot more in writing here, but we also support the rollover of certain HUD debt. And I think oftentimes when properties are being transferred to new owners, it should have certain HUD debt, including flex sub- loans and mark to market soft debt cannot be paid off in full-- Mr. Cleaver. We have 2 minutes. Ms. Metherell. All right. Mr. Cleaver. No, no, we have 2 minutes. Ms. Metherell. You have 2 minutes? Mr. Cleaver. To get to the Capitol to vote. Voting will close in less than 2 minutes now. I apologize, as I did earlier. [The prepared statement of Ms. Metherall can be found on page 63 of the appendix.] Mr. Cleaver. The Chair notes that some members may have additional questions for this panel, which they may wish to submit in writing. 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. And before we adjourn, the written statements of the following organizations will be made a part of the hearing: The National Low-Income Housing Coalition; the American Association of Homes and Services for the Aging; the National Affordable Housing Manager's Association; the Housing Assistance Council; and a statement from the National Apartment Association and others. If there are no other questions, we are adjourned. 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