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72–289 PS 2001

THE BUDGET OF THE DEPARTMENT OF

HOUSING AND URBAN DEVELOPMENT

HEARING

BEFORE THE

SUBCOMMITTEE ON

HOUSING AND COMMUNITY OPPORTUNITY

OF THE

COMMITTEE ON FINANCIAL SERVICES

U.S. HOUSE OF REPRESENTATIVES

ONE HUNDRED SEVENTH CONGRESS

FIRST SESSION

APRIL 26, 2001

Printed for the use of the Committee on Financial Services

Serial No. 107–11

(

(II)

HOUSE COMMITTEE ON FINANCIAL SERVICES

MICHAEL G. OXLEY, Ohio, Chairman

MARGE ROUKEMA, New Jersey, Vice Chair

JAMES A. LEACH, Iowa

DOUG BEREUTER, Nebraska

RICHARD H. BAKER, Louisiana

SPENCER BACHUS, Alabama

MICHAEL N. CASTLE, Delaware

PETER T. KING, New York

EDWARD R. ROYCE, California

FRANK D. LUCAS, Oklahoma

ROBERT W. NEY, Ohio

BOB BARR, Georgia

SUE W. KELLY, New York

RON PAUL, Texas

PAUL E. GILLMOR, Ohio

CHRISTOPHER COX, California

DAVE WELDON, Florida

JIM RYUN, Kansas

BOB RILEY, Alabama

STEVEN C. LATOURETTE, Ohio

DONALD A. MANZULLO, Illinois

WALTER B. JONES, North Carolina

DOUG OSE, California

JUDY BIGGERT, Illinois

MARK GREEN, Wisconsin

PATRICK J. TOOMEY, Pennsylvania

CHRISTOPHER SHAYS, Connecticut

JOHN B. SHADEGG, Arizona

VITO FOSSELLA, New York

GARY G. MILLER, California

ERIC CANTOR, Virginia

FELIX J. GRUCCI, JR., New York

MELISSA A. HART, Pennsylvania

SHELLEY MOORE CAPITO, West Virginia

MIKE FERGUSON, New Jersey

MIKE ROGERS, Michigan

PATRICK J. TIBERI, Ohio

JOHN J. LAFALCE, New York

BARNEY FRANK, Massachusetts

PAUL E. KANJORSKI, Pennsylvania

MAXINE WATERS, California

CAROLYN B. MALONEY, New York

LUIS V. GUTIERREZ, Illinois

NYDIA M. VELA ́ ZQUEZ, New York

MELVIN L. WATT, North Carolina

GARY L. ACKERMAN, New York

KEN BENTSEN, Texas

JAMES H. MALONEY, Connecticut

DARLENE HOOLEY, Oregon

JULIA CARSON, Indiana

BRAD SHERMAN, California

MAX SANDLIN, Texas

GREGORY W. MEEKS, New York

BARBARA LEE, California

FRANK MASCARA, Pennsylvania

JAY INSLEE, Washington

JANICE D. SCHAKOWSKY, Illinois

DENNIS MOORE, Kansas

CHARLES A. GONZALEZ, Texas

STEPHANIE TUBBS JONES, Ohio

MICHAEL E. CAPUANO, Massachusetts

HAROLD E. FORD JR., Tennessee

RUBE ́ N HINOJOSA, Texas

KEN LUCAS, Kentucky

RONNIE SHOWS, Mississippi

JOSEPH CROWLEY, New York

WILLIAM LACY CLAY, Missouri

STEVE ISRAEL, New York

MIKE ROSS, Arizona

BERNARD SANDERS, Vermont

Terry Haines, Chief Counsel and Staff Director

SUBCOMMITTEE ON HOUSING AND COMMUNITY OPPORTUNITY

MARGE ROUKEMA, New Jersey, Chair

MARK GREEN, Wisconsin, Vice Chairman

DOUG BEREUTER, Nebraska

SPENCER BACHUS, Alabama

PETER T. KING, New York

ROBERT W. NEY, Ohio

BOB BARR, Georgia

SUE W. KELLY, New York

BOB RILEY, Alabama

GARY G. MILLER, California

ERIC CANTOR, Virginia

FELIX J. GRUCCI, JR, New York

MIKE ROGERS, Michigan

PATRICK J. TIBERI, Ohio

BARNEY FRANK, Massachusetts

NYDIA M. VELA ́ ZQUEZ, New York

JULIA CARSON, Indiana

BARBARA LEE, California

JANICE D. SCHAKOWSKY, Illinois

STEPHANIE TUBBS JONES, Ohio

MICHAEL E. CAPUANO, Massachusetts

MAXINE WATERS, California

BERNARD SANDERS, Vermont

MELVIN L. WATT, North Carolina

WILLIAM LACY CLAY, Missouri

STEVE ISRAEL, New York

(III)

C O N T E N T S

Page

Hearing held on:

April 26, 2001 ................................................................................................... 1

Appendix:

April 26, 2001 ................................................................................................... 49

WITNESS

THURSDAY, APRIL 26, 2001

Martinez, Hon. Mel, Secretary, Department of Housing and Urban

Development ......................................................................................................... 8

APPENDIX

Prepared statements:

Roukema, Hon. Marge ...................................................................................... 50

Oxley, Hon. Michael G. .................................................................................... 52

Barr, Hon. Bob .................................................................................................. 54

Clay, Hon. Wm. Lacy ....................................................................................... 57

Lee, Hon. Barbara ............................................................................................ 59

Miller, Hon. Gary C. ......................................................................................... 61

Vela ́zquez, Hon. Nydia M. ............................................................................... 69

Martinez, Hon. Mel .......................................................................................... 72

ADDITIONAL MATERIAL SUBMITTED FOR THE RECORD

Capuano, Hon. Michael E.:

Boston Housing Authority letter, April 27, 2001 ........................................... 121

Frank, Hon. Barney:

National Association of Housing and Redevelopment Officials letter, April

23, 2001 .......................................................................................................... 125

New Bedford Housing Authority letter, March 13, 2001 .............................. 127

Watt, Hon. Melvin:

Greensboro, NC public housing tenants letters ............................................. 129

Martinez, Hon. Mel:

Department of Housing and Urban Development: Fiscal Year 2002

Budget Summary .......................................................................................... 70

Table on Ownership by Income ....................................................................... 120

Written questions submitted to Secretary Martinez from Representatives

Roukema, Frank, LaFalce, Bachus, Gonzalez, King, Lee, Gary Miller,

Schakowsky, and Vela ́zquez ......................................................................... 145

Written response to a question from Hon. Spencer Bachus ......................... 166

Written response to questions from Hon. Barney Frank .............................. 179

Written response to questions from Hon. Henry Gonzalez ........................... 190

Written response to questions from Hon. John J. LaFalce ........................... 167

Written response to questions from Hon. Barbara Lee ................................. 192

Written response to questions from Hon. Gary C. Miller ............................. 170

Written response to questions from Hon. Marge Roukema .......................... 208

Written response to questions from Hon. Janice Schakowsky ..................... 194

Written response to questions from Hon. Nydia M. Vela ́zquez .................... 199

(1)

THE BUDGET OF THE DEPARTMENT OF

HOUSING AND URBAN DEVELOPMENT

THURSDAY, APRIL 26, 2001

U.S. HOUSE OF REPRESENTATIVES, SUBCOMMITTEE ON HOUSING AND

COMMUNITY OPPORTUNITY, COMMITTEE ON FINANCIAL SERVICES, Washington, DC.

The subcommittee met, pursuant to call, at 10:05 a.m., in room

2128, Rayburn House Office Building, Hon. Marge Roukema,

[chairwoman of the subcommittee], presiding.

Present: Chairwoman Roukema; Representatives Oxley, LaFalce,

Kelly, Bereuter, Green, Barr, Grucci, Tiberi, Cantor, Rogers, Sanders, Miller, Watt, Vela ́zquez, Waters, Capuano, Jones, Schakowsky,

Lee, Frank, and Clay.

Chairwoman ROUKEMA. The hearing will come to order.

The Housing Subcommittee of the Financial Services Committee.

I would like to greet everyone here today and certainly welcome

our Secretary, Mel Martinez.

But before we do that, I just wanted to, on a personal note, I am

not smiling about this, you understand, but it is a great opportunity for one of our most devoted staff members, so we have to be

congratulatory to him, but again we are going to miss him desperately.

Aquiles Suarez will be leaving the committee staff this week.

Aquiles has served very admirably on the Subcommittee for Housing and Community Opportunity for 5 years, and his legal expertise and his congenial way of bringing people together will be very

sorely missed, and that is why I am not smiling.

But, we should all be happy and the Nation should be happy that

he has a new appointment and will be serving this Nation as a

member of the staff at the White House as Special Assistant to

President Bush on Domestic Policy Council.

[Applause.]

Chairwoman ROUKEMA. Aquiles, thank you for all you have done,

and best wishes and good luck as you serve our Nation.

[Applause.]

Chairwoman ROUKEMA. All right. Thank you all for coming. This

is the first subcommittee hearing with Secretary Martinez, and we

want to thank you for being here today and greet you warmly.

The hearing was scheduled originally for yesterday, but we asked

for an additional day, and you were very cooperative in terms of

rearranging your time. And I would also say that in that vein, we

must try to keep our opening statements as brief as possible, so

2

that we can provide Mr. Martinez with the proper time, considering

his tight schedule.

Certainly, we are looking forward to years of a warm and productive relationship with Secretary Martinez. He comes to us with a

new level of experience. And I would like to note that he has really

on-the-ground experience, as we like to say, and in-the-trenches experience, having served for a long period of time as chairman or,

as many of us know, chief executive, of Orange County, Florida,

and has been outstanding in terms of the kind of work that he has

done in community relations in that capacity.

I am very happy to have him here to be outlining to us, early

in the process, the outlines for the budget. There are some items

in that budget that, in my view, and in the view of others on the

subcommittee, warrant further discussion than this gives the actual opportunity to discuss at an early point in time, not only the

budget, but anticipate the appropriations process that we will be

going through in light of some of the housing affordability problems

that we have been focusing on, and many have been focusing on

in our Nation today.

The growth in the economy has created a well-known major dilemma for an increasing number of working class and low-income

Americans.

Of course, we are happy for the economy, but a better economy

has also meant higher rents in some areas, and so we are trying

to adjust those income levels and making housing availability fill

a wider spectrum as was originally intended.

As we discuss the budget, I know that you share my desire—or

our desire—to move forward to address the housing problems in an

effective manner.

And, Mr. Secretary, I consider myself a strong fiscal conservative

so, for my part, I do not automatically presume that each and every

Government program that currently exists deserves an increase in

funding merely by virtue of being there.

But let us remember that the American taxpayer deserves consideration in this budget debate as well, and so we have to be as

objective as possible in evaluating the priorities.

If redirecting resources from one program to another means that

resources are being used more efficiently and effectively, then we

certainly will be supportive, and of course, we will work together

with you on evaluating those programs and discussing the rationale.

With that in mind, I hope that you will, in the course of your testimony and in your answers to our questions, deal with a few specific areas.

The first is the question as to whether or not the HUD budget

signifies an increase or a decrease from prior years, and if you do

not hear it from our side, you will certainly hear it from the other

side.

You know that the expiring multi-year Section 8 contracts, which

are then renewed for annual terms, take up an increasing amount

of HUD’s budget authority.

And as a result, just to maintain the current Section 8 contracts

requires an increase in that budget authority. And so we will be

wanting to probe into that in rather specific ways.

3

Second, you have reduced modernization funding for public housing by $700 million, and the budget also, as we have looked at it,

apparently eliminates the Public Housing Drug Elimination Grant

Program, and that is of concern to a number of people.

Finally, the HUD budget provides approximately $200 million for

a down payment assistance fund. It is a set aside from the HOME

Program, and I do not quite know how that is handled, but whether or not we should consider this a reduction in the program is a

question that comes up, and are we supposed to provide localities

with maximum flexibility and how can they use these resources.

Those are questions that have been raised.

Mr. Secretary, I will be pleased to assure that I will work with

you over the coming months in developing our Nation’s housing

problems and look forward to your testimony.

I will also make this observation, and it will come up in the questioning, so I will not take too much more time on it. But having

served on a panel as recently as yesterday on the subject of charitable donations and those kinds of approaches that the President

has outlined, I think we should be asking questions regarding how

we can work with charitable organizations and non-profits to improve the quality of services through the HUD program.

And with that, I will yield to our Ranking Minority Member, Mr.

Frank.

[The prepared statement of Hon. Marge Roukema can be found

on page 50 in the appendix.]

Mr. FRANK. Thank you, Madam Chairwoman.

I want to express, at the outset, my appreciation to Secretary

Martinez. I know there were some scheduling difficulties and he accommodated us by giving us this time, and we appreciate that.

And I also want to express my agreement with many of the

points that you talked about, and I think you outlined, many, many

important questions we have.

The first is the need, in my judgment, for a renewed emphasis

on housing production. Now I was pleased to see the Secretary of

HUD made a reference in his last page to expanding the production

of affordable housing, which would be accomplished by raising the

limits on multi-family insurance, which bill I believe the Chairwoman and I are introducing.

She has taken the lead, I was glad to support her. But I would

point out that, in and of itself, while that is a very welcome thing,

it is not going to deal with the problem of affordability much in the

country, because while that insurance is very helpful, we have this

problem.

One of the great misleading phrases in our politics is ‘‘the rising

tide lifts all boats.’’ It is a good thing to have the economy grow.

It is a good thing when the free market system generates a pot of

wealth. And most people in this country will benefit from that.

But some not only do not benefit, they are left behind. If you do

not own a boat, the rising tide is not good news when you are

standing on tiptoe in the water. And that is what we have got in

many of our urban areas.

The very prosperity that has been a great boon to most of us exacerbates the problem of people who live in those areas where

4

housing costs are driven up. And we have got to do more to deal

with that.

The voucher program is a very useful program, but as I think

both Mrs. Roukema and I have mentioned in other cases, it is more

helpful in some areas than others. It is a function of your housing

situation.

And let me put this in good, free-market economic terms. As long

as we are doing a voucher program, which is a year-by-year program, where there is no ability to build up the vouchers or make

a commitment, vouchers have no effect basically on the supply of

housing. No one is building housing based on year-by-year vouchers.

What we do with vouchers then in crowded areas where there is

a shortage of housing in particular, and affordable housing especially, we are adding to demand without increasing supply. And

every good free market economist knows what happens when you

do that; you drive up prices.

Now that does not make the voucher program a bad program because it adds equity, but the overall effect of the voucher program,

absent some attention to production, is to drive up prices overall.

And so I think the voucher program needs to be supplemented.

In some parts of the country, the voucher programs are confederate money, not confederate flags which still fly, but confederate

money, because you can be given a voucher in many communities

in this country and 3-, 4-, 5-, 6 months later you are going to turn

it back in, because you cannot find a unit to rent.

So we need to address affordable housing, and the 25 percent increase is a start, but it is not nearly enough. We need to put a subsidy on it.

Second, I was pleased that the Chair raised some of the questions about public housing. The poorest people in America live in

public housing. And it is true that in many cases, public housing

was a kind of an example to some people of how not to do things.

Let’s always remember that it was not the poorest people who

said: ‘‘We have a great idea, we need housing, why not build some

massive projects with no services and no adequate space and jam

us all in together and see how it works?

We did that, this society. And so, as a result, some of the public

housing projects did not work well. But over the past decade, we

have learned how to do public housing better and there are very

good examples of it.

There is elderly housing, public housing for the elderly, one of

the most desirable things in any community, according to the waiting lists and the consumer demand. But family housing too we

have done better.

The budget unfortunately does not meet that commitment. We do

not want to leave any child behind, but there are more children in

public housing who have historically been left behind by all elements of this society.

Now you mentioned, for instance, the operating budget in your

statement. And you are honest about it. You say you are cutting

the operating budget, you are cutting out, for instance, the Public

Housing Drug Elimination program at $309 million and you say

5

that could be made up for out of the increase in the operating

budget, which is $150 million.

And you also note correctly that utility costs are going up. Well,

the increase in utility costs and the elimination of the drug elimination program outweigh the increase in the operating budget of

public housing.

And what we are going to get, I am afraid, is less resources devoted to the poorest people in this country who live in public housing; the children, the single mothers, people with various kinds of

problems.

I was also, in that context, disappointed in particular with the

disappearance of a program—maybe it is pride of authorship on my

part—but when this subcommittee initiated, years ago, legislation

to allow public housing authorities to separate disabled people and

elderly people, because some of the people classified as disabled

were emotionally ill, mentally ill, and they were disruptive in the

elderly context, and we said, elderly housing by public housing authorities, if they want to, can separate out older people from the

disabled.

But to alleviate the negative impact on the disabled, we created

this separate incremental voucher program, Section 8, for the disabled. And that is eliminated in this budget. And it is true, you will

note, people can do that, if they want to, out of their other allocation, but they could before we set this aside.

We did not want, when a housing authority segregated out elderly and the non-elderly disabled, we did not want them then to have

to go compete with a limited number of vouchers in other cases.

And as the Chair pointed out—and I will end this in a few seconds, Madam Chair—you keep our commitment to the Section 8

contract, and I appreciate that. But taking that into account, there

is a net reduction in other Section 8 vouchers. In fact, we get

160,000 new units for the Section 8 contracts, but then we lose

63,000 in tenant protection assistance, incremental vouchers, and

the disabled.

So those categories bother me greatly and I hope we can pursue

them.

Chairwoman ROUKEMA. All right, thank you.

I am going to recognize the Chairman of the Full Committee, Mr.

Oxley, and the Ranking Member of the Full Committee, Mr. LaFalce, but then I would hope that others would refrain from opening comments so that we can have ample time and consideration

of the Secretary’s limited time to hear his testimony and have

ample time to ask questions before we begin voting at 11:30, so

let’s see how well we can handle this.

Chairman Oxley, please.

Mr. OXLEY. Thank you, Madame Chairwoman, and Mr. Secretary, welcome to your first appearance here before the Financial

Services Committee, and all of us, I am sure, look forward to working with you on a number of initiatives and ideas as it comes before HUD, as well as our committee.

All of us recognize that the cornerstone of the American dream

is homeownership, and clearly all of us will be emphasizing that

as we work our way through this agenda.

6

The fiscal year 2002 proposed budget for HUD is the first official

indicator of the direction of the new Administration’s housing policy. It is a balanced package that combines new initiatives with

sound management to allow the department to achieve its mission

and its goals more efficiently.

There are a number of good new initiatives. The creation of a

down payment assistance program for first time homebuyers; community technology centers initiative to help communities create or

expand technology; and the improved access initiative to make religious and civic organization buildings accessible to the handicapped, to name a few.

And additionally, HUD has substantial responsibility in the area

of brown fields redevelopment, an area that I have been involved

in in my previous life. I have a long history of working on brown

fields and now that our good friend, Paul Gilmore is chairman of

that subcommittee, and the committee across the hall, as well as

a Member of our Committee, we think the brown fields issue

should be front and center for our respective committees.

I know that in my own district in Mansfield, Ohio, with HUD’s

assistance, the program takes low-income families with children

paying high rents, and transitions them to homeownership.

This program, which was nominated for a HUD award, works

with local lenders to help with down payments and closing costs assistance, plus credit counseling for those who need it.

And since that program began, we have now 34 homeowners who

used to be 34 renters just in a town the size of Mansfield, which

is about 50,000.

And I applaud Chairwoman Roukema’s leadership in this very

important part of our committee’s jurisdiction, and I look forward

to a productive relationship over the next several years with the

subcommittee and with the secretary.

And I yield back the balance of my time, Madam Chairwoman.

[The prepared statement of Hon. Michael G. Oxley can be found

on page 52 in the appendix.]

Chairwoman ROUKEMA. Thank you, Mr. Chairman.

And now the Ranking Member of the Full Committee, Mr. John

LaFalce.

Mr. LAFALCE. Thank you very much, Madam Chair.

Secretary Martinez, a very, very warm welcome.

Secretary Martinez, in the last paragraph of your testimony, you

say that your agency is committed to continuing a strong relationship with Congress, so that together we can make the Department

of Housing and Urban Development an efficient and effective fighter on behalf of America’s housing and community development

needs.

And I very much want to have that type of close, strong, working

relationship too. Mr. Ventrone can tell you the relationship that I

had with your predecessor, and I would hope that we could have

an even better relationship.

I am disappointed though that you and I have not met thus far.

I think to have a good relationship, we should have a meeting pretty soon.

I note one was scheduled that you had to cancel, but let’s try to

get together soon.

7

I also note that in your statement, you say you want to focus not

so much on programs, but on people. Well, it depends what you

mean by that. If the end product is that more people are going to

be helped, more communities are going to be helped, and so forth,

if it means that we are not going to be helping developers, if we

are not going to be helping people who, you know, skim money off

of programs but are not the beneficiaries, then I could support that.

But, if we are really cutting programs that are the means of

helping people, and we are just using that slogan as an excuse to

hide the reality, then we would have some difficulties with you,

and some difficulties with the Administration.

And that is my concern. And let me share you with why I am

troubled by the Administration’s HUD budget.

I understand that on a purely technical basis, budget authority

is $1.9 billion higher than under last year’s bill, but this claim relies on the use of $3.6 billion in Section 8 budget authority increases that I think are phantom increases, that do not increase

spending by a single dollar, that do not provide rental assistance

to a single new tenant, and do not provide any additional assistance to existing Section 8 recipients.

And this phantom increase was predicted 5 years ago. It results

from the fact that there are expiring Section 8 contracts, billions

of them, and they require—the expiring contracts—new authority,

and you are counting the new authority of the existing Section 8s

as increases.

I think that is misleading at best. Now—and it is not to say that

you are the first Administration that has done this, OK? Past Administrations, both parties, have done this. It has been wrong for

them too.

But when you factor out the artificial increase, we find that funding for HUD in nominal terms—nominal terms—is actually $1.7

billion lower than last year’s, a 6 percent cut.

And when you go to real dollars in inflation adjusted terms, the

cut is $2.2 billion, 8 percent. Mr. Ventrone, would you please nod

in the affirmative to that also?

I think that this claim is borne out by the details. I think it

would reveal and $859 million cut in public housing, a $310 million

cut in the CDBG count, a $200 million cut in HOME formula

grants to States and localities, a dangerous $640 million cut in Section 8 reserves, and a reduction in funding for incremental Section

8 vouchers by $255 million, and as a result, over 45,000 fewer lowincome families would receive a voucher this year than last year.

That is a serious concern. It does not sound to me, if these figures are accurate, that we would be helping people, or helping

more people.

I could go on and on. I will not. I will submit the entirety of my

text, but I have prepared a State-by-State analysis of the major

cuts in the HUD budget, totaling over $2 billion, and copies of this

chart are available for your perusal and the public’s perusal at any

time.

I thank you very much.

Mr. FRANK. Madam Chair, before we forget, can we just get general leave to put in statements of others?

8

I have one for Ms. Vela ́zquez, and so I would ask unanimous consent that any other Member who is not here who wanted to submit

his or her statement would be allowed to do so.

Chairwoman ROUKEMA. Yes, but I would also ask unanimous

consent for that as well as in consideration of the time and the fact

that we want to have maximum time for questions from every

Member of the subcommittee that is here, that we ask unanimous

consent to have your opening statements included in the record.

Ms. JONES. Madam Chairwoman, does that mean that everyone

that is here will have a chance to make inquiry of the Secretary?

Chairwoman ROUKEMA. Well, that is what we hope to do in the

time that is available to us. That is exactly what I am aiming for.

That is my objective.

And if we start now, I believe we can reach that goal.

All right.

Mr. Secretary, thank you very much and again we greet you at

the first of what I expect to be a number of hearings on the housing questions. As you can judge, this is going to be a high priority.

I know it is a high priority for this Administration, and it is certainly a high priority for this Congress.

Without further delay, we greet you here, Secretary Martinez.

STATEMENT OF HON. MEL MARTINEZ, SECRETARY, U.S.

DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT

Mr. MARTINEZ. Well, thank you very much, Chairwoman Roukema and Ranking Member Frank. I am also pleased to greet Committee Chairman Oxley and Ranking Member LaFalce.

Let me just say that I apologize for our not having gotten together, but I assure you we will correct that and look forward not

only to a meeting, but to a very productive relationship, and to ensure that as we go forward particularly in this budget process, that

we talk through the issues so that at least if we find areas of disagreement, we are disagreeing on the apples-to-apples basis and

not on apples-to-oranges, which I fear currently may be part of the

problem we have.

In any event, I am here and very pleased to be with you today

and look forward to our ongoing relationship in the months and

years to come.

And I want you to know that I am both humble and energized

by the opportunity to serve as Secretary of the Department of

Housing and Urban Development.

I know that the President is, as I am, committed to restoring

communities and to working diligently to ensure that the confidence of this Department is restored to the Congress, to the constituencies that we serve, and to the people of our country, as we

try to operate the Department in a way that is efficient, that is

prudent, that is clear.

This budget I hope is a first step in restoring some confidence.

It is what I believe to be a compassionate and responsible budget,

and I think it tries to serve people effectively and tries to empower

individuals and communities across the country.

And one of the things I hope I can explain, as we discuss it this

morning, is the fact that when I say we seek to serve people and

not programs is that just because we have a program, it does not

9

always mean that it is serving people as we hoped that it would.

And that perhaps there are better ways in which we can deliver

the services and be there for the people that need it.

I think we will be measured by not how much money we spend,

but how many families have a better home, and how many more

people, more immigrants have a chance to buy their first home in

America. How many children grow up in the neighborhoods that we

would want our own children to grow up in.

The Department of Housing and Urban Development’s proposed

budget for this year is nearly a 6.8 increase, almost a 7 percent increase for the year 2002.

And it includes three new homeownership initiatives to expand

opportunities for hundreds of thousands of low-income and minority families. The American Dream Downpayment Fund will provide $200 million to match downpayment assistance helping more than 130,000

low-income families overcome the greatest single obstacle to homeownership, which is the downpayment.

We have also proposed a tax credit which will support rehabilitation or construction of at least 100,000 homes for low-income families over the next 5 years.

And the Administration will also seek authority to offer low-income families new adjustable rate mortgages called ‘‘hybrid ARMs,’’ and these new mortgages protect new homebuyers from dramatic

changes in market rates until they can establish a good economic

foothold.

Finding affordable and decent housing continues to be a problem

for many Americans, and I know you are aware of the numbers

which the studies have shown to be almost five million renter

households have worst case housing needs for rental housing.

This number represents an 8 percent decline over last year, but

it is still an unacceptably high number.

In order to expand the production of affordable housing, the

President proposes to raise the limits for FHA multi-family insurance by 25 percent, and we are grateful to you, Madam Chairman

and Ranking Member Frank, for your initiative in moving forward

the legislation to enact that which we think will be a great spur

to a new production of homeless construction.

And this is going to be the first time that this occurs in nearly

10 years. The budget renews all Section 8 expiring contracts at a

cost of $15.1 billion, and an increase of $2.2 billion over fiscal year

2001.

And it additionally funds 34,000 new Section 8 vouchers at an

additional cost of about $200 million.

And market conditions affect the utilizations of vouchers in different areas in different ways, but underutilization is ultimately a

management issue and each year, we find that there is tremendous

underutilization of the vouchers.

We find that that is more directed to management than it is to

market conditions in any given area. Last year alone, 300,000 families across America were left unassisted because of the

unabsorption of funded vouchers.

The budget also fully funds last year’s administrative CDBG requests of $4.4 billion. In addition to formula funding for CDBG, we

10

provide $80 million in grants for a community technology center.

This is particularly going to be focused on economically distressed

areas.

The Administration believes that again no child should be left behind, and by increasing access to information technologies, this Administration hopes to begin to bring opportunities for technology

enhancement to all the children in our society.

The budget recognizes the needs of our most vulnerable people

in our society; the elderly, the disabled, the homeless, and individuals with AIDS. All of these HUD programs for these vulnerable

populations either receive, sustain, or increase funding levels.

The budget also recognizes the damage done by lead-based paint,

especially to young people. We have increased funding for leadbased paint hazard reduction by $10 million.

And while most of the Department’s programs are funded at last

year’s historically high levels, or have received an increase, there

have been a few reductions that have been well-noted, and I know

some of you have already discussed those in your remarks.

But let me say that to restore the confidence that the Department should have to carry out its core mission, we need to be clear

in what we do and the results that we anticipate.

We eliminated the program called the ‘‘Drug Elimination Program.’’ It is a $309 million program. And we have taken $150 million of that money and shifted it into the Public Housing Operating

Fund Grants, which will allow public housing authorities to continue to utilize and operate those anti-drug efforts that have been

effective, while at the same time forcing a certain amount of discipline so that we can avoid the kinds of programs that have made

this program be something other than what I know your funding

intended for it to be.

The President’s budget, in its full context—and you have to remember that the Administration’s budget, as it relates to drug use

or any other effort, is a budget at large—almost $19 billion is going

into the drug fighting effort.

All of these efforts, all of these dollars, have no particular exception to people that live in public housing. Poor people are just as

entitled to police protection by their local police as anyone else that

lives in the community.

And what we have seen in this program is a shifting of responsibility. We have seen that some public housing agencies, in an attempt to do the good things, have hired additional police.

The fact is, that is a shifting of responsibility. The idea is that

they might be operating drug treatment programs or they might be

operating outreach to children in ways that might keep people from

getting into the drugs in the first place.

The fact is that housing agencies are not very good at the provision of law enforcement services. In fact, at times, they are extremely challenged to do that very simple thing that they are the

only ones who can do, which is to be the landlords of public stock.

Another reduction in our budget occurs in the Public Housing

Capital Fund. But I want to make it very clear to you that the reductions in this Capital Fund will still allow every—the funding requests that we are making is 2.3, and that funding request is alVerDate 11-MAY-2000 10:55 Feb 07, 2002 Jkt 000000 PO 00000 Frm 00014 Fmt 6633 Sfmt 6633 72289.TXT HBANK1 PsN: HBANK1
11

most the same as what was made by the Administration a year

ago.

With this amount of money, we know that all the projects that

are in the pipeline that are asked for, that are needed at this time,

will be taken care of. What it does not do is add money on top of

those funds that are already there, but have not been either spoken

for or allowed to be utilized in any way, shape or form.

So we are not adding money on top of money that has not been

used. But we are not, in the cut of the Capital Fund, going to create any cuts in those repairs and those maintenance projects that

public housing agencies currently need to bring about. The PHAs have a backlog of about $20 billion in repairs by the

last studies of 2 or 3 years ago. These backlogs are not dealt with

in this particular budget. But the fact is that the needed repairs,

those things that are on the books, will all be taken care of, and

there will be no housing authority which will not be able to do the

maintenance work that they must do or the modernization work

that they must do. The PHAs currently have over $5.1 billion in backlog funding.

This budget encourages them to spend those funds to address their

priority needs, and the Department will also make every effort to

distribute the funds in a timely manner.

But let me just say that we have labored mightily to strengthen

management in the Department. This has been done in the past,

but we still have a long way to go. We have a bright and dedicated

work force at HUD, but for all this work, HUD still remains an

agency with serious management challenges.

Too much emphasis has been placed on programs rather than on

people, and on dollars spent rather than results accrued.

The President is openly and strongly committed to focused programs in an efficient Government that works, and my approach to

the task will focus on our four governing principles.

First of all, our mission will be to serve people and not programs.

Second, we will have the discipline to stick to our mission. I

think we at HUD must avoid mission creep.

Third, we will be good stewards of the resources that we are entrusted.

And I think fourthly, we must observe the highest of ethical

standards. This means more than prosecuting graft. It means rejecting the subtler corruption of settling for good appearances rather than insisting on good results.

So this also includes that public housing agencies that receive

our funding that there must be a renewed commitment by our

mayors and other local officials to the well-managed and ethically

run housing authorities which, as I have come into this Department, I am sad to say is not always the case, but often we see too

often the fact that public housing agencies are either mismanaged

or tremendous amounts of corruption have occurred and as that

happens, it does avoid the opportunity to deliver our services to the

people in need.

So we should not just have compassionate intentions, but we

should also expect compassionate results and outcomes.

I look forward to working with the Congress on the many issues

facing the Department of Housing and Urban Development.

12

You have funded two important commissions, the Millennial

Housing Commission and the Commission on Affordable Housing

and Health Care Facility Needs in the 21st Century. The Department is looking forward to the recommendations of both of these

commissions.

This agency is committed to continuing a strong relationship

with this subcommittee so that together we can make the Department an efficient and effective fighter on behalf of America’s housing needs.

So thank you for having me, and I look forward to your questions.

[The prepared statement of Hon. Mel Martinez can be found on

page 72 in the appendix.]

Chairwoman ROUKEMA. Thank you, Mr. Secretary.

Certainly you have laid out a good foundation for a wide spectrum of inquiries and questions and information, additional information, for this Committee.

I am not quite sure what you outlined with respect to my question regarding whether or not the Section 8 contracts in truth did

represent an increase, and we will not spend a lot of time on that,

but I hope you will give documentation on that.

Mr. MARTINEZ. We will certainly do that. Let me just give you

just a flat assurance today that it is in fact an increase.

Chairwoman ROUKEMA. It does.

Mr. MARTINEZ. There are no reductions in our Section 8 programs.

Chairwoman ROUKEMA. Would you please provide the data on

that?

Mr. MARTINEZ. We will do that.

Chairwoman ROUKEMA. I would appreciate it.

Mr. MARTINEZ. We will certainly do that. We would gladly do

that.

Chairwoman ROUKEMA. Now I know other Members are going to

have a lot of questions on a whole broad range of specific issues.

But since I was perhaps the only one—no, I am sorry, Mark Green

attended yesterday with me—conferences on the subject of faithbased groups and their application, their provisions for public service in all areas, and Mr. Green and I specifically were with a group

that was interested in the housing questions.

So I am going to ask you a couple of questions with respect to

their concerns, these faith-based groups, and how they would like

to become involved. And I would like to direct the questions to you

now.

They are particularly concerned about the Empowerment Zones,

and I think you have made reference to that, in the community renewal areas, and specifically the mismanagement—and I think you

alluded to this—in housing with respect to these housing authorities where we have substandard homes and closed and vacant

houses in neighborhoods that are really pulling down the quality

of the neighborhoods. I do not know what you are planning to do

on that and how that is related to your identification of mismanagement of the public housing authorities.

Mr. MARTINEZ. Well, the mismanagement issue——

13

Chairwoman ROUKEMA. And by the way, can some of these faithbased groups be partners in a public-private partnership with you

in that regard?

Mr. MARTINEZ. Well I think you open a whole host of very interesting questions. And let me say first of all that as it relates to the

whole issue of faith-based partnerships, I am very, very keen on

this. This is something that really hits at who I am and where I

have been.

I was a product of a faith-based program. I was in foster homes

for 4 years, and Catholic Charities took care of me, in partnership

with the Federal Government. So it is an example of something

that might have worked reasonably well for me, anyway.

The fact is that we can do a lot to help revitalize our communities in partnership with faith-based organizations. And I believe

that what your question is is about the utilization of FHA-foreclosed homes——

Chairwoman ROUKEMA. Yes.

Mr. MARTINEZ. ——which particularly become a blight on communities if they remain for periods of time unused.

We now have a 2-week window when these homes go on the market that faith-based and community not-for-profits can apply to utilize these homes or to put these homes back into utilization and be

the ones to offer them to the marketplace.

Chairwoman ROUKEMA. Excuse me. What do you mean by a 2-

week window?

Mr. MARTINEZ. Well, these homes go into the market as resales

so that we can put a homeowner back into the homes and not have

them be a boarded-up blight on the neighborhood.

At the outset of that, there is a 2-week period of time when community organizations can come in and apply to get the house and

have an opportunity to forge a partnership with HUD and bring

people back into the house.

Chairwoman ROUKEMA. Why such a limited period of time? That

question was raised with me.

Mr. MARTINEZ. That is a very good question. And, you know, as

we get into this whole issue, frankly on Monday, the person that

is going to run our faith-based office arrived on the job. So we are

delighted that the person is there, and we look forward to getting

this program off and going.

But it is those kinds of issues. Why 2 weeks? Why not have a

larger period of time? Are we doing enough proactively to bring

them to the table? And are we maybe even packaging a whole

street or an area where we can transform a community?

There are many good examples of things like this working. I

harken back to Philadelphia where Kenny Gamble and Reverend

Lusk are doing this to revitalize areas of that community. And

these are both community and faith-based groups. So already

things are happening.

What we are doing is first and foremost, we are doing an inventory of what is in the current regulatory climate that artificially

hinders or does not assist in creating partnerships with faith-based

groups. One of them may be the fact that it is only a 2-week window. Maybe it should be 6 weeks.

14

Now there is an interest in moving these homes into ownership

in a rapid fashion, but there may be a way that we can work with

faith-based groups. The point is, there is much that can be done.

I was encouraged by what took place here yesterday by the people that seemed so energized with the possibilities of what the

President’s initiative can bring forward.

We at HUD are very committed to the program. We have a $5

million item in our budget for our Faith-Based Initiatives Office

and to all the programs that we will begin to put under there.

The fact is that we hope that it will be something that will invite

new partners in the revitalization of communities. And I often say

that, you know, there are some who believe that Government has

all the answers or those who believe Government has no answers,

and there is really a third way, which I think the President was

articulating, which is a way in which we can bring the best that

Government can bring to bear while partnering with those in the

communities that know them so well to bring about the best results.

Chairwoman ROUKEMA. Very good. Thank you. And I did note,

and it was news to me, that there is a HUD program, an audit for

inter-faith opportunities that is scheduled for completion by July

29th. So we will be looking forward to that.

Mr. MARTINEZ. Thank you.

Chairwoman ROUKEMA. That was new information for me. Thank

you.

Mr. Frank.

Mr. FRANK. Mr. Secretary, a couple of questions about what I

think are really decreases in funds available rather than increases,

and let’s get specific.

What is the estimate that HUD has for what public housing authorities are going to need for the rising cost of utilities?

Mr. MARTINEZ. The estimates that we have, Congressman Frank,

in fact show a decrease, which is inconsistent with——

Mr. FRANK. To pay for utilities?

Mr. MARTINEZ. Yes, sir. What we do at HUD——

Mr. FRANK. Well then can I ask why——

Mr. MARTINEZ. Let me finish, if I may.

What we have done at HUD, which is what we are mandated to

do, is that we follow Department of Energy indicators as we prepare our budget on what utility costs are going to be for the coming

year.

The recent rise in utility costs were not part of the Energy Department’s forecast that we were provided as we were preparing

the budgets. So there is clearly disconnect, because I think you and

I both know that utility prices are going up.

Mr. FRANK. Yes. So——

Mr. MARTINEZ. So let me say also——

Mr. FRANK. Let me—when I asked you what HUD’s estimate is,

this is a serious problem. Because I have to say when the budget

comes to the New Bedford, when they get the utility bill at the

New Bedford Public Housing Authority, I do not think they can

say, ‘‘I am sorry, but the Energy Department told HUD this was

not going to happen, and here is a note from my teacher.’’

15

Here is the problem. You say on page 3, accurately here, ‘‘the

$150 million increase in the operating budget can be used by local

housing authorities to fund their needs, including the rising costs

of utilities.’’ So you agree there are going to be rising costs?

Mr. MARTINEZ. Well—— Mr. FRANK. The problem is that you also say that money can be

used to pay for the Public Housing Drug Elimination Program,

which is $309 million. If you assume half of the Public Housing

Drug Elimination Program, that takes up all of that money, and

there is nothing left for utilities. In other words, you are using a

$150 million increase to pay for the Public Housing Drug Elimination Program, minus $309 million, and whatever we get in increase in utilities, which is why I do not think it is a real increase.

Mr. MARTINEZ. Congressman, you are correct in that it is not a real increase, because we had $309 million and we are only funding

an additional $150 million.

The utility cost—I mean, I know it does not make a whole lot of

sense. But, you know, I am new to the ways of Washington, and

I have to tell you, it is perplexing to me why the Department of

Energy would tell us and why we would be mandated to follow

their guidelines in preparing our budget.

The fact is that we are constrained from—— Mr. FRANK. All right, I appreciate that, Mr. Secretary, and I

think they did a good job raising you in that foster care, so this

is not about you personally. I give them a lot of credit.

I would note, by the way, that the ability of Catholic Charities

to work with the people on foster care and get Federal help preexisted. We do not need this new program to have that happen. So

you are proof that we do not need a new program.

So it is not you personally. But what you are acknowledging is

that the HUD budget for public housing, unrealistically through

means beyond your control, assumes a decrease in an area where

we know there is going to be an increase.

Mr. MARTINEZ. Well let me say——

Mr. FRANK. But by the time you get through with the $150 million taking care of some of that, and then you get into the Public

Housing Drug Elimination Program, that is going to be a real decrease for everything else in the Public Housing Program.

Mr. MARTINEZ. We have this year, with current funds, funded $105 additional million of dollars without additional appropriation

to deal with the utility costs for the current year.

Mr. FRANK. I understand that, Mr. Secretary. All I am

saying——

Mr. MARTINEZ. What I am saying to you is if we did it this year,

we will try to do it again next year, as the need arises and as——

Mr. FRANK. So in other words, you are telling me that you think

we may very well need a supplemental budget for public housing?

Mr. MARTINEZ. No, no, no. I did not ask for——

Mr. FRANK. Out of other funds. But here is the point. You say

you found more. I mean, where is it going to come from?

You are acknowledging that, because of the Energy Department,

not yourself, you have in effect underfunded utility costs for public

housing, which means that the $150 million you cite is an increase

and will in fact not be an increase if they were to do even half of

16

the Public Housing Drug Elimination Program, and then you would

have nothing left for utilities.

Mr. MARTINEZ. No. I am not going to concede to you that the estimates from the Department of Energy are completely wrong. They

may or may not be wrong. We will see. They are projections.

Mr. FRANK. Excuse me, but you are the one who brought them

up.

Mr. MARTINEZ. No. What I am saying is that we used what they

gave us.

Mr. FRANK. Do you think they are right or wrong?

Mr. MARTINEZ. At this point, Congressman, I am not sure. And

the fact is——

Mr. FRANK. What are——

Mr. MARTINEZ. ——that what we did, when the problem arose a

few months ago in California particularly and in the West Coast,

we responded to it.

We have directed $105 million to help housing authorities in

problems with utilities.

Mr. FRANK. I want to move on to one other subject. But I think

the predictions are that we are going to need some more money.

Chairwoman ROUKEMA. Your time has expired.

Mr. FRANK. You gave yourself some additional time.

The second one has to do with the Section 8s. The additional

number of units you mention in your budget submission is 97,000

total housing certificate fund, 2002 versus 2001, 97,000.

The problem is that 160,000 more units have to be given, according to your budget submission, for the Section 8 contract renewal.

That is, to just continue our commitment on the existing ones, the

contract renewal, takes 160,000 units.

In fact, that makes a decrease of 63,000, which is in your budget

submission:

Tenant protection assistance: minus 10,000;

Incremental vouchers: minus 45,000;

Non-elderly disabled: minus 8,000.

You forgot to fill it in, but it is in the next column.

In other words, the total increase is 97,000, but 160,000 of those

units go to the Section 8 contract renewal, which means that, for

example, with regard to the disabled, there are no units set aside

for them, and they are going to have to compete with other units

in a decreased pool once you take out the Section 8 contract renewals.

Mr. MARTINEZ. Congressman, although we did not include any

additional units for the disabled, we will find a way to fund them

for them. We are receptive to their needs and want to work with

them on that.

But let me say that additional Section 8 vouchers is not the key

crucial problem in the Housing and Urban Development Department. We have a huge unabsorption rate. There are millions of

vouchers—not millions I should say—but we estimate about

300,000 families, about $2 billion of unused vouchers last year

alone.

Mr. FRANK. Mr. Secretary, on that I agree with you.

Chairwoman ROUKEMA. We must conclude this.

17

Mr. FRANK. Well I just want as much time as the Chairwoman

had.

I just want to say, Mr. Secretary, that I agree with, and that is

why the absence of a housing production program for affordable

housing is a very significant issue.

Mr. MARTINEZ. Because, you see, that is a simplistic answer to

the problem. The problem really is rooted in the mismanagement

of the largest housing authorities who do not do a good job.

Mr. FRANK. Oh, I think you are being very unfair to them. The

economics are the problem here.

Mr. MARTINEZ. No. We find that even in the most economically

difficult areas, like in New York, not a low-rent market, their public housing authority in New York utilizes all of their vouchers. So

they are a good example of how good management in a difficult

market can make them work.

Mr. FRANK. That is very unfair to housing authorities that are

trying very hard with unrealistic rent levels in Boston and San

Francisco and elsewhere.

Chairwoman ROUKEMA. We will have to go on now. And I would

like to ask all of the Members of the subcommittee to be very mindful of the time limits, and I am going to be very strict with respect

to the time.

And now we have Chairman Oxley. Chairman Oxley, are you

ready for your questions?

Mr. OXLEY. Yes, Madam Chairwoman.

Chairwoman ROUKEMA. All right. Thank you.

Mr. OXLEY. Thank you, Madam Chairwoman.

Mr. Secretary, one of the areas of the proposed budget on HUD

deals with the elimination of the Public Housing Drug Elimination

Program, which as you know provides local grants to housing agencies to help reduce drug activity in the public arena.

I was a long-time Member of the now-defunct Committee on

Drug Prevention chaired by Charlie Rangel, and we had numerous

hearings in regard to the anti-drug programs. And I understood

that $19 billion is now being spent at the Federal level overall in

drug enforcement and drug interdiction and the like.

Obviously the question occurs: Why, in a period where we continue to have difficulties with drug abuse, in many cases new drugs

are being found and used illicitly, that obviously HUD comes into

potential criticism for elimination of that particular program and

what was the thinking behind that, and what were the policy

goals?

Mr. MARTINEZ. Mr. Oxley, when I first heard of this program, it

was something I thought I would be very supportive of. I have a

long history in my career in local government of fighting drugs and

working with people not just in the enforcement end, but in the

treatment end and trying to find—working with youth and things

of that nature to try to eradicate communities from the blight of

drugs.

What I found upon review is that this is a program that in one

place miscasts the agency in the role of law enforcement and misplaced its responsibility.

I find an agency where we have management challenges in grant

administration. What this new program has done—you know, an

18

agency also that has gone from 50 to about 350 programs in the

last 10 years or so. As the number of programs has proliferated,

our ability to properly manage them has decreased.

And as we have done that, we now find that in this Drug Elimination Program there are grants going out to things that are really

far afield from the intent of Congress and far afield I would say

from the fight on drugs. Things like foreign travel. Things like computers; renovating of kitchens for kitchens that never existed.

But it is not about only thinking that, because it has been poorly

administered or maybe misguided in some places that not some

good things have occurred, and probably some good things in some

places have taken place. But what I believe is important is that we

focus HUD on its core mission so that we can do that which only

HUD can do and do it very well.

And then we have the Department of Justice, the Drug Czar,

local law enforcement, and all of the tentacles of our Federal Government as it relates to the drug fight that are really better

equipped to bring about the types of improvements in the lives of

people as it relates to drug use that really we see are more effective.

The fact is that I personally do not think that it is appropriate

to believe that—and, you know, I hear this comment often made, ‘‘Well, the police do not even go into the housing projects.’’ You

know, they just do not even go there. Well, why do they not go

there? And why should they go there? And should not we expect

that even the poorest in our communities be given the same level

of law enforcement protection that people in the nice neighborhoods

would have?

So what I would say is that we need to focus on stronger partnerships with local law enforcement, working with community groups,

of faith-based organizations to ensure that we do not have addiction and that we have programs to help people out of addiction.

In addition to that, I have directed our Legal Department, our

General Counsel’s Office in cooperation with the Department of

Justice to pursue aggressively our one strike you are out policy

where we move people out of public housing if they are involved in

drug use or drug abuse in their units.

The fact is that there is a myriad of things that we can do. But

just another program and $309 million is not necessarily the smart

way to go about it.

There are clearly good things that have been done with this

money. There are clearly a lot of misuses of this money. And bottom line, one less program to administer.

If the Congress is inclined—and I know many of you, Congressman Frank may be very much inclined to want to restore the funding—I would plead with you to restore it as part of the grants to

local housing authorities and not as a separate program. Give us

one less program to administer. Because if it falls as general

grants, some of the silly things that have been done with this program would not be done. It would be a much easier program to police and to administer from our standpoint.

Mr. OXLEY. Well, in fact if I could just close with that. It is interesting. The HUD IG report, which I have looked at, provides a

number of examples of how the funds were misused. A creative

19

wellness initiative, where funds were spent ‘‘to provide cosmic cycle

updates on the spiritual awakening and transformation of the global world body,’’ whatever that is.

Mr. MARTINEZ. We stopped that grant, by the way.

Mr. OXLEY. And another $860,000 to the National Institute for

Medical Options to provide programs of God, God as typing.

I rest my case and I yield back.

Chairwoman ROUKEMA. Thank you. I thank the Chairman.

Again, we have to be very mindful of our time limits, but I do appreciate the question and Secretary Martinez’s ample answer.

Yes. Now we have Congresswoman Barbara Lee.

Ms. LEE. Thank you, Madam Chairwoman.

Good morning, Mr. Secretary.

Mr. MARTINEZ. Good morning.

Ms. LEE. Good to meet you.

Mr. MARTINEZ. Thank you.

Ms. LEE. As you may know, my congressional district includes

Oakland and Berkeley, California. The Bay Area is experiencing a

very serious affordable housing crisis. The economic surge, particularly in the high tech industry, has made the situation even worse

so that at every income level, people are experiencing this in a very

painful way, and there is a critical housing shortage.

Last year, the Congressional Black Caucus conducted a housing

summit, and I would like to forward to you some of those recommendations. Unfortunately, Northern California is really only

the epicenter of this crisis, and the Nation is beginning to feel the

same kinds of circumstances that we are.

One of the recommendations that came out, of course, of the

summit was the creation of new housing. And you were quoted

somewhere as saying that you really did not want to consider the

addition of new housing production at this time.

And I am wondering if you said that for a reason or what your

reason was, whether you believe that we did not need more affordable housing production, or you were unsure about the best way to

produce more housing.

Mr. MARTINEZ. The answer to that is, Congresswoman, I am very

much aware of the critical need for additional housing, and the

numbers obviously are clear. We have worst-case housing scenarios

where people across the United States, and more acutely than anywhere probably in your district, and neighboring to your district.

My answer was based on two facts. Number one, the Millennial

Commission on Housing is currently meeting, and I would like to

know what ideas they are going to bring to the table. That will be

happening in the next budget cycle, and I would prefer to defer

until their study comes back and brings some new ideas to the

table of how we might best approach the problem of production.

In the meantime, we are doing some things. We are not just content with the level of housing currently available. The FHA multifamily insurance increased by 25 percent for the first time in almost 10 years, by the way, we think is going to generate additional

housing construction.

But another thing—and this is much too subtle, and it is not a

new program, but the fact is that it just might work. We at HUD

20

need to be better generators of production even within the current

programs that we have.

As we look to the HOME program or the HOPE 6 programs,

these are homes that we currently have available that might increase production. And the fact is that oftentimes we find the private sector development industry unwilling to partner with HUD

or move ahead in affordable projects because of the difficulties in

dealing with our agency and the intractability of it.

Ms. LEE. But Mr. Secretary, let me just ask you then about the

$3 billion from FHA and Ginnie Mae in terms of their net profit.

What is the problem with reinvesting that $3 billion into new housing production?

Mr. MARTINEZ. Well, I would differ with you. The FHA does not

create a profit as such. These are premium payments, and so it is

a question of how much is an appropriate premium that should be

paid into the fund.

But there clearly are, you know——

Ms. LEE. OK. It is my understanding it is a surplus, not a net

profit.

Mr. MARTINEZ. Correct. And it is a question about how much the

surplus really is. But in any event, I think that there need to be

new ideas on the table of how we generate the kinds of production

program that will be effective.

Good things have been done in the past on housing from the Federal level. But I personally would prefer to give us a year’s time

where we can bring in some new ideas into HUD, some management reform, some things that hopefully will make us work a little

smarter, a little better before we are given a new program to administer.

So my hope was that in combination with the things that we are

currently doing to improve the circumstances and weighing for the

Millennium Commission report and giving this new Administration

a year under our belt that we would be in a much better position

to look at a production program.

Ms. LEE. So, Mr. Secretary, what happens with this surplus or

profit or additional money that is sitting out there?

Mr. MARTINEZ. Well, the surplus for FHA is an insurance fund.

And it is simply there in the event that we should have a horrible

downturn in the economy and there should be a huge number of

foreclosures and the FHA insurance would be tapped. And so this

is a reserve fund for that.

At some point, a humongous reserve is unnecessary, but I am not

sure that it is money that is just readily available today. The GAO

is still doing studies on the amount of that surplus.

We currently have a 2 percent limit—I am sorry, a 2 percent premium. It might be better to have a reserve of 3 percent. That might

be a safer, more prudent way to go. That would reduce our surplus

somewhat.

It is not found money. It is part of what makes FHA work in the

event that the economy——

Ms. LEE. Then you say we do not have any resources for housing

production, affordable housing production at this point?

Mr. MARTINEZ. That is my impression.

21

Chairwoman ROUKEMA. Congresswoman, we recently—when was

the hearing? Back on March 20th we had a hearing on this subject

and CBO—it is a good question that you are asking, and we will

go back and review what CBO said. But CBO has stated it is not

a surplus.

Mr. FRANK. If the gentlewoman would yield.

Chairwoman ROUKEMA. Yes, Congressman Frank.

Mr. FRANK. But it was also clear from the three agencies that

were there that it is a significant amount of money extremely unlikely to be called upon. They said that it was a very sound fund,

and the possibility that—there is just not any likely degree of

downturn that would wipe it out. So there is money available.

Mr. MARTINEZ. I would agree that it was a sound fund.

Chairwoman ROUKEMA. It is something that we can as a group

review again, and we would like your advice on that, particularly

based on what the CBO analysis is as well.

Mr. MARTINEZ. And I think it would be very prudent for us to

have a thoughtful discussion.

Chairwoman ROUKEMA. Good question.

Mr. MARTINEZ. Because it is a very, very—you know, it could be

a dangerous thing to do.

Chairwoman ROUKEMA. Which is why we had the hearing.

Mr. MARTINEZ. And I would like to have the Federal Housing

Commissioner confirmed and on board so that I could have the benefit of that person’s advice as well as we go forward into that field.

Ms. ROUKEMA. Very good.

Ms. LEE. Madam Chairwoman.

Ms. ROUKEMA. Yes.

Ms. LEE. I am just saying, I thank you for responding. And I just

think that wherever we can develop new affordable housing where

production can be created, we should do that. And we should not

allow these resources to just sit.

Ms. ROUKEMA. Well, it is, if not controversial, there are wide differences of opinion. But it is appropriate for us to review that

again.

All right. Thank you.

Now we have the Vice Chairman of the subcommittee, Mr. Mark

Green.

Mr. GREEN. Thank you, Madam Chairwoman.

And Mr. Secretary, let me join with others in welcoming you

here. I very much look forward to working with you. I think there

are going to be a lot of things that we can work on very closely together.

I was also delighted to hear of your personal support for the

faith-based initiative in housing. My own opinion is that the housing sector is probably the sector that most lends itself to working

with the faith-based community.

In the State of Wisconsin, our Housing Finance Authority has

been working closely with the charitable sector for 14-, 15 years to

great success. And so I am thrilled about it, and I think it presents

wonderful opportunities for all of us.

Given the brief time, I will ask you two specific questions. The

first one deals with FHA loan limits. You recently announced your

22

support for increasing multi-family FHA loan limits. I applaud you.

I think that is the right approach to take and perhaps overdue.

Would you also support a mechanism that would allow for adjustments in those loan limits as inflation changes?

Mr. MARTINEZ. Well, I think that would be prudent. I think that

one of the problems we had is by not moving those loan limits for

9 years that we have had in a situation, as Congresswoman Lee

was pointing out in her community where not only the land costs

have gone up astronomically, but construction costs have also gone

up significantly.

So I think they should be market-adjusted and I think they

should be area-adjusted as well. I think they should be sensitive

to the different market needs in different parts of the country.

Let me just say on a personal note, in moving from Orlando,

Florida to the Washington area, one knows that market prices are

different as it relates to housing across the country. Trust me.

Mr. GREEN. You are learning the hard way. I think that is good

news. I look forward to working with you on that.

And then the second area of interest that I have personally is in

the development of some kind of housing impact analysis, new

rules and regulations, and even legislative proposals, what would

you think of a proposal that would require agencies to consider the

impact on housing affordability when they are writing new regulations?

Mr. MARTINEZ. Oh, I think that would be very good idea. I think

that we can always see regulations as a good thing, but at the

same time they can have very unintended consequences, including

increasing the price of housing. So I would think that would be a

great idea.

Mr. GREEN. Another area where we could work closely together.

Mr. MARTINEZ. Absolutely.

Mr. GREEN. Thank you, Mr. Secretary.

Mr. MARTINEZ. Thank you very much. I appreciate that.

Mr. GREEN. Thank you. Thank you, Madam Chairwoman.

Ms. ROUKEMA. I thank the Vice Chairman.

Now we have Congressman Michael Capuano.

Mr. CAPUANO. Thank you, Madam Chairwoman.

Mr. Secretary, thank you for coming today. And I want to start

out before I go the other way congratulating you on some of the

programs that you propose.

I like the HOME stuff, home ownership stuff. I like the HOPWA

stuff. I like the AAM changes. I like the lead paint stuff. I like the

FHA limits.

Mr. MARTINEZ. Thank you, sir. I appreciate it.

Mr. CAPUANO. That is about it. The rest of this——

Mr. MARTINEZ. Well, there would not be a discussion if we did

not have some disagreement I suppose.

Mr. CAPUANO. Well, we’ve got lots more. I was stunned earlier

when I saw the initial budget proposal, the three-page document

that we got in the Budget Committee, all of three pages. It was

great, very informative, very thorough. And I am even more

stunned today. I did not think that was going to happen, but I am.

23

You told us a little bit about yourself, and I have read a little

bit about you, and I appreciate how far you have come in your situation.

My mother still lives in elderly public housing. She does today.

My brother lives in a three-family home with three generations on

each and every floor. I live in a two-family home. So that is who

I am.

And I do not even know where to begin. The drug elimination

stuff, I do not disagree, if you want to roll it into a different grant,

that is administrative stuff. If you think there is stuff in there that

has been done wrongly, you should chase every one of them, and

you should come to us and say we do not like this, this, and this

about what has happened with the drug elimination grant. And my

guess is most of us would probably agree with you and chase those

guys who did things wrong, maybe add some requirements. But to simply cut out $300 million of money that goes for the

most part—let’s be serious—to hire public housing police is insane,

especially when you want to look at the budget as a whole. They

cut out millions of dollars for the COPS program. You had better

talk to the people at the Justice Department if you want to talk

in general.

I do not know about your neighborhood. In my neighborhood and

everyplace I have ever known, many local cops will not go into public housing property, or if they do, it is their last priority. That is

why we need public housing police officers.

That is just the beginning of it. We get into other things like the public housing capital improvements, a $700 million cut. It is not

just poor people that some people do not care about. I understand

that. I understand there are philosophical disagreements. But we

are also talking about money that—you did a good job on HOPWA.

Guess what? Some of that money goes to rehab, the HOPWA programs that have been built in the past. Some of that money goes

to rehab some of the senior housing that we talk about. Some of

that money goes to rehab some of the disabled housing we talk

about.

And yet there is nothing here that somehow tells me we are

going to get it. What I am hearing today is that somehow, OK,

well, they did not spend the money. I know that you have done capital projects in the past. You do not do them in a year, and in a

public agency, you do not say, well, I might maybe get the money.

So, therefore, right now I am going to bid out. I am going to plan

and then bid out a project that I do not have idea if we are going

to have the money for 2 years from now, or 3 years from now, and

then get it done.

It takes years. And if you are a smart, good public manager, you

do not put a single pen to paper until you know that money is

there. That is why that money is not spent. And to cut the program

this year. I understand you will not see public housing capital cuts

this year, but you will in 2 years and 3 years and 4 years and 5

years, when there are no programs or no plans that have been in

the pipeline during that period of time.

So we talk about that. I want to talk about the unused vouchers.

Mr. Frank and I come from a similar area. We abut each other.

Guess what? I do not disagree with you that some of those are adVerDate 11-MAY-2000 10:55 Feb 07, 2002 Jkt 000000 PO 00000 Frm 00027 Fmt 6633 Sfmt 6633 72289.TXT HBANK1 PsN: HBANK1
24

ministrative problems. I think you should fix them. I think you

should come to us and say we have administrative problems. They

are not getting them out. Great. I will fight with you, alongside

with you, to get every one of those vouchers out. And anybody who

is not doing their job, together we will go get them.

But there are a lot more problems than just that. At least in my

district. Guess what, landlords do not want anything to do with

Section 8 housing anymore, because they do not like the annual renewals. They are not sure they are going to be able to have it next

year. Are they are going to have to get new tenants next year, or

within a few months? Number one.

Number two, the rent levels in my district are astronomical, and

we did take some steps last year to address that, but not near

enough. Landlords, why should they rent to people, why should

they take a Section 8 certificate when they are not sure the program is going to be there next year, when they can get more money

on the outside, and now this year you come and you reduce your

reserves?

They are not even sure you are going to have the money next

month, never mind next year. If I were a landlord and I was dealing with a lot of Section 8 people, I would not be anxiously involved

either unless I had some big heart and I did not care about the bottom line.

And the last thing I want to talk about is the budget.

Chairwoman ROUKEMA. Excuse me, Mr. Capuano. You have

some 30 seconds left.

Mr. CAPUANO. Yes. And I intend to use them, Madam Chairwoman.

Chairwoman ROUKEMA. Do you want to use that time for

yourself—— Mr. CAPUANO. Oh, yes I do.

Chairwoman ROUKEMA. ——or do you want Mr. Martinez to be

responsive?

Mr. CAPUANO. Well, I might ask him a question in a minute. We

will get there. It is a long question, but we will get there.

Ms. ROUKEMA. Well, I am sorry, but your time will have long run

out.

Mr. CAPUANO. Well, but it has not yet, Madam Chairwoman. I

just took 10 more seconds answering your question. And, you know,

we will do whatever you want, but I thought that I was allowed

to use my time as I chose.

Ms. ROUKEMA. You have 33 more seconds.

Mr. CAPUANO. Thank you, Madam Chairwoman. I appreciate

that.

Mr. Martinez, you talk about budgeting. I guess the conclusion—

I will just jump to the conclusion. We will jump the rest of the

issues, because as I said, there are too many of them.

You talk about administration and management issues. I do not

have any problem with addressing all of your concerns in administration. If you have them, bring them to our attention. We will

work together to try to straighten them out. And guess what?

When you cut these kinds of monies—$700 million for capital, $300 million for drug elimination, $40 million for disabilities, not talking

about utilities, and you add $150 million, that does not work.

25

And guess who gets hurt? The very same people that your rhetoric says you want to help. People get hurt, not programs. If you

want to get at bad administration, come to us, ask for the help. We

will be happy to do it. And I guess for a question, I guess you

should respond to that.

Mr. MARTINEZ. Well, I am not sure what your question was, but

I will try to respond to all of it. And I admire your passion. I think

that it is great.

Ms. ROUKEMA. If you can take less than 5 minutes.

Mr. MARTINEZ. I will be very brief in my response. I will try my

best. I will try to come back to you with more specific responses.

I think that if I thought, as I know you do, that somehow what

I have done with this budget is going to cause your mother’s house

to be somehow unmaintained in the coming year or at any point

in the future, that I would be equally passionate. The fact is, I am certain that the cut of $700 million in the capital fund in this year’s budget will have no impact on future maintenance for the foreseeable future. And if more money were to be

needed at some point down the road, I would be the first one to

be here asking you for it.

The fact of the matter is that we have a study from Apton Asso- ciates that tells us that $2.3 billion request, that is enough to meet

all of the current year needs for housing authorities across the

country. That is not to mention the over $5 billion unspent, unaccrued,

not in the pipeline funds that are still in the fund for public housing maintenance into the future. It would take them, at $2.3 billion

a year, almost 3 years to absorb what is already there plus what

is coming from the year 2001 before they would get to the need

that you anticipate that is now going to be somehow a dire emergency.

The fact is that we just need to have a better explanation to you

of what we are doing, because it is not going to have the dire consequences that I think you anticipate.

Ms. ROUKEMA. All right. Thank you.

Congresswoman Kelly.

Mrs. KELLY. Thank you, Madam Chairwoman.

Mr. Secretary, I understand that there may be as many as 719

FHA-insured 203K rehab loans in the New York City area that are

currently in default.

Apparently the properties were sold to a number of non-profit organizations involved in fraud activity, and most of the rehab work

was just really never completed.

Furthermore, 3 days before the change in Administration, the

former HUD secretary entered into a Memorandum of Understanding in response to the issue. I am concerned about that. So

I want to know what the department is doing to address the immediate problem in New York.

Mr. MARTINEZ. Congresswoman Kelly, this is a serious problem.

And it is a shame that through this fraudulent activity, which just

is out-and-out horrible fraud, it has had a devastating impact on

the affected families and the neighborhoods surrounding them.

And we are going to try to, number one, do better in the policing

of these types of incidents where fraud is so rampant. But the enVerDate 11-MAY-2000 10:55 Feb 07, 2002 Jkt 000000 PO 00000 Frm 00029 Fmt 6633 Sfmt 6633 72289.TXT HBANK1 PsN: HBANK1
26

tire issue is under comprehensive review by the Department. I am

trying to decide whether we want to live by that Memorandum of

Understanding and the component parts of it. It was a last-minute

action by the prior Administration.

We are looking to detail a senior project leader to New York to

the HUD field office to work full time on this issue with the local

staff, the local staff being the most familiar with the situation, and

we are going to try to keep a very close eye on where we should

go with this problem and finding a resolution for it.

There is no question but that this kind of fraud has created tremendous hardship on a number of people, and it is a huge and expensive problem. It was anticipated at a very significant number

for us to try to work out of this problem. It probably is going to

be even larger yet. And unfortunately, it was fraud that went on

for several years before it was found out. And, of course, now the

problem is to account for the seriousness of the problem and the

payoff, which is going to be very substantial.

Mrs. KELLY. I wonder if you would be good enough to try to describe a little bit more about what your department is going to do

to move forward to try to prevent further fraud in that area.

Mr. MARTINEZ. Well, more careful policing of these grants. I

mean, I am being told that our staff at HUD—and this is the professional staff at HUD—has been dealing with this in a very serious way and trying to find what went wrong here and how could

that not ever happen again.

My greatest fear is that it would happen on my watch, frankly.

And with a department as vast as this, there is no question that

these things do happen from time to time.

But I am not sure if the Memorandum of Understanding will do

what is right for the affected families and also in terms of public

policy.

So it is a very complicated question, and I am afraid at this point

I am still not ready to make decisions on how we are going to approach it.

Mrs. KELLY. If every one of these properties was foreclosed and

conveyed back to the department, do you have any estimation of

how much the potential losses to HUD would be?

Mr. MARTINEZ. It is over $140 million is our estimate of it. And

that may ultimately be the answer to the problem. But $140 million.

Mrs. KELLY. Over $140 million?

Mr. MARTINEZ. Over $140 million.

Mrs. KELLY. Just in New York alone?

Mr. MARTINEZ. Just that one problem.

Mrs. KELLY. I personally have been approached by many, many

people, because we need more affordable housing for not only seniors, but for the young people of the Nation. And this kind of fraud

is extremely damaging to our whole housing structure.

I would hope that your department would get on top of this and

do something as quickly as possible to rectify the situation, and I

am pleading for especially New York, but for everyone else in the

Nation, because this has been a fairly widespread problem, as I understand it. I am not sure we even know the depth of it.

27

Mr. MARTINEZ. No, we do not. And it is $140 million of funds

that could go to so many good things, as Congresswoman Lee was

speaking earlier, the FHA fund. This is where that money will ultimately be coming from.

So it is for these kinds of things that we need to have that reserve.

The bottom line is that this Department—you know, when I am

talking about management, that sounds so unsexy. You know, to

talk about managing the Department well, how is that helping people? Well that does not sound good, because a new program does,

and cutting drug elimination.

I mean, look. I am a drug fighter. I mean, I know what a blight

it can be on communities. But we have got to do it effectively. It

is not good enough to throw money at a problem and mandate another thing for HUD to manage without the fact that we really

need to look at the outcomes. Sometimes the outcomes are very

ugly at HUD. We need to do better. I agree.

Mrs. KELLY. Thank you very much.

Ms. ROUKEMA. Secretary Martinez, I would like to join Mrs.

Kelly in that statement. But I wonder if you would follow up with

some written documentation for us and give us some information

as to who will be in charge of this kind of a reform within the Department.

Mr. MARTINEZ. I will do that.

Chairwoman ROUKEMA. Thank you.

Congressman Watt.

Mr. WATT. Thank you, Madam Chairwoman.

Thank you, Mr. Martinez, for being here. I guess I should give

a presumption to anybody named Mel, and I will give you that presumption.

I want to talk about the impact of Section 8 vouchers. And I am

a little concerned that you have the attitude that the only problem

with Section 8 vouchers and the non-use of Section 8 vouchers is

mismanagement or lack of management of housing authorities.

And I want to assure you I am aware that there are housing authorities that mismanage, so I am not defending mismanagement.

But I do want to give you a different perspective on this, and I

give you the perspective, because I think we have decided as a matter of national public housing policy that Section 8 vouchers are the

greatest thing since sliced bread. And in some communities they

are.

Typically, they are communities such as some of the communities

in my Congressional District, where population growth is not there,

where basically people are moving out and demand is being reduced. People who own housing use Section 8 vouchers as a good

deal.

But in communities—and I have some of those communities in

my Congressional District. In fact, the week before last, I methodically went through the district talking about the impact of Section

8 vouchers and got differing impacts. I got communities that the

population is declining or not growing. There is oversupply of housing as a result, and all of those owners are out there actively seeking to use Section 8 vouchers.

28

Then I represent the City of Charlotte, which is a high growth

area like Ms. Lee’s area out around Oakland. And the population

is booming. You cannot build housing quick enough to respond to

the demand that is out there.

And to take a Section 8 voucher to a community like that where

there is no excess supply is just to insult the owner of that property, because they can get a lot more in the private market than

they can get than the Section 8 voucher is valued for.

So the impact in Charlotte is just the opposite of what it is in

Winston-Salem or Greensboro or Davidson County in my Congressional District. And basically, the impact in Charlotte is this. Section 8 vouchers can only be used in vulnerable transition minority

communities.

You go into any white community in Charlotte, there is nobody

taking Section 8 vouchers. So Section 8 vouchers are having the effect of further segregating an already segregated community.

People are coming out of public housing under the HOPE 6 renovations. They are downsizing. They are coming out of public housing. They are taking Section 8 vouchers and they are going into basically vulnerable minority communities that are struggling to

maintain the character of a community.

And those people are not racist, but they are not classist, but

they are saying, look. You are dumping people out of public housing on us in disproportionate numbers, people who have no history

of even owning a lawnmower. They are not going to maintain the

grass in this community. The landlord’s not going to maintain it,

because he does not give a damn. He is an absentee landlord.

So you have got to understand, Mr. Martinez—and I do not have

a question—but this is not only about mismanagement of the Section 8 voucher program. This is a serious problem that can only be

addressed in some areas by supplementing the Section 8 vouchers

to make it possible for this adverse effect not to occur.

And that is all the point I want to get across to you. I do not

have a question. I just want you—but if you are going to characterize this as just a mismanagement problem, I think you are doing

public housing agencies throughout this country a severe disservice.

Mr. MARTINEZ. No. Let me clarify that. Because I do not believe

it is just a mismanagement problem. But when we look at the absorption of Section 8 vouchers, and when we see those that do not

absorb their Section 8 vouchers and utilize them, what I am told—

and I am new to the Department—what I am told by the staff is

that, year after year, some of the same, extremely large housing

authorities around the country are the ones that seem to have—

that are also a management headache in a number of ways, are

also the ones that return back unused vouchers.

Mr. WATT. But there is an explanation for that that is different

than the one you are giving, and that is that those are the communities that in some areas are tremendous growth areas, and the impact that I just described to you——

Mr. MARTINEZ. I will give you the statistical evidence rather than

the anecdotal evidence. That is not to say that that is the whole

problem.

29

I think you have identified correctly the gamut of problems. And

I think that what you are suggesting in terms of potential answers

is also correct. We need to look at it holistically. And, you know,

Section 8 vouchers, while it is a national program and we fund it

out in formulas throughout the country, it may not be for every

community.

Ms. ROUKEMA. Excuse me.

Mr. MARTINEZ. We have programs that sometimes work very well

some places and not as well in others.

Ms. ROUKEMA. Excuse me. We are over 2 minutes overtime here.

But if there is further discussion of this or if you want to submit

Secretary Martinez something for the record, and certainly you and

Mr. Watt can continue this on a personal level.

Let me see now. Congressman Gary Miller.

Mr. MILLER. Thank you, Madam Chairwoman.

Secretary Martinez, it is really good to have you where you are

at, and I am looking forward to the obstacles and goals ahead of

you to be accomplished.

Mr. MARTINEZ. Thank you.

Mr. MILLER. It is amazing. I agree with many things that my colleagues on the other side said. Mr. Frank, I could not agree with

you more about the lack of energy policy by the Clinton Administration and how that is negatively impacting affordable housing in

this Nation. I think you are right on that point.

You mentioned housing production. And I think we do need to

emphasize housing production. The problem is that many people

want to resolve this issue of affordability and supply through Government subsidies. And I do not believe that is the proper answer.

Also, I think Mr. Frank was right on when he said vouchers have

no effect on providing housing. Vouchers only add to the demand

rather than supply.

Another comment was made by one opening colleague suggesting

that developers skimming off the top on HUD is a huge problem.

And perhaps in Government programs that is true. However, I believe that is not true in the private sector. I think that I am the

only Member of this subcommittee who ever entered into a contract

with HUD. I did a lot of HUD work in the 1970s.

And I recall that my partner was called into the HUD director’s

office in Los Angeles and told that if we wanted to do more HUD

work, he wanted one-third of our profits in advance prior to us receiving the contract. And that is the last HUD program we ever got

contracted for.

So a lot of things need to be done with HUD. And I think the

greatest obstacle to providing affordable housing that we face today

is Government. The average sales price of a home today, 35 percent

of that sales price is the cost of Government. For example, for a

$100,000 home, $35,000 of the total cost of that home is directly

associated with Government.

And Mrs. Lee, I recognize the problem in the San Francisco Bay

Area. I was a developer there in 1985, and the average cost of a

home we sold was $200,000, and $75,000 of that sales price was

directly associated with Government. And we did some work in the

Bayview Area. Do you know where that is at? It’s in the redevelopment area. The cost of a home attributed to Government was even

30

higher than that when you were associated with the redevelopment

agency. There is a huge problem, and the problem we face today

is Government.

Mr. Secretary, I have a couple of questions for you, and I think

they are very important. What would you think about a Federal

law that requires all agencies to consider the impact on housing affordability at all levels when writing regulations? Furthermore,

should property rights be better defined in law, and should we look

at the impact on the fairness of applications of Endangered Species

Act as it applies to affordable housing?

Mr. MARTINEZ. Well, let me say, then, in the early 1980s, I was

asked by the Mayor of Orlando to head an affordable-housing task

force—how do we make more housing affordable in our community?

What we did is we found a detailed list—a laundry list of things

that—actions by Government that add to the cost of housing.

We came up with some recommendations and ways in which we

could peel off some of those regulations and peel off some of the

mandates and requirements which would then lower the price of a

home.

We thought those were very, very positive and good ideas then.

I would still believe that those would be very good ideas today.

So, from my own local experience, I assure you that those would

have a very important effect——

Mr. GREEN. Those do need to be——

Mr. MARTINEZ. ——lowering the cost of housing.

Mr. MILLER. I think you have a huge task before you, and I believe you are sufficiently prepared to accomplish that task.

I would like to go over a few statistics on HUD’s history and

where I think we have gone wrong and what we have to correct in

the future.

FHA mortgage insurance paid out almost 77 claims worth $6 billion in 1998.

Those costs were passed on directly to consumers in higher premiums.

In 1997, single-family homes stayed in the Federal inventory for

an average of 5.4 months.

In 1998, it went to 6.6 months, and the last time I checked it was

still increasing.

In 1996, there were 25,000 single-family homes inventoried by

HUD.

In 1998, it increased to 40,000. In 1999, it was 50,000.

The HUD single-family inventory was valued at $1.9 billion in

1996.

In 1998, it increased to $3.3 billion. Fifteen percent—and this is

really what bothers me—15 percent of HUD’s property is held in

inventory for more than 12 months.

The private sector only has about 2 to 3 percent that is in inventory for more than 12 months.

In 1996, the average loss on a piece of property from HUD was

$28,000.

In 1998, it increased to $31,000. In June of 1999, it was $32,470,

and, if you multiply that by 50,000 properties in inventory by the

average loss of $32,470, that is $1.6 billion.

31

This is just not a theoretical problem for my district, and I dealt

specifically with the city of Pomona, who has over 200 boarded-up

homes.

The biggest problem I have had with HUD in the last 3 years

is their effort to put non-profits out of business.

The problem non-profits face is the vague and ambiguous requirements placed upon them by HUD.

I am not chastising you. I am trying to encourage you to resolve

these.

I went to the HUD office in Santa Ana 2 months ago with several

non-profits, and they thought I was just a member of the non-profit

groups, until, about an hour into the meeting, I told them who I

was.

Out of 300 non-profits in California, they were proposing to put

over 200 of them out of business.

One of them was a non-profit controlled by the city of Pomona— which the Board of Directors was the President of Pomona First

Federal Savings and Loan—the Mayor of the city, the City Council

members, the Planning Director, Economic Development Director,

and business leaders who went there for no other purpose rather

than to clean up the HUD inventory in Pomona.

HUD was going to put them out of business, and I think this is

something you need to address.

If we are going to provide affordable housing in these States, we

need to look at streamlining Government and getting Government

out of the way, in many cases, and let the private sector do their

job.

Mr. MARTINEZ. Congressman, you know, you have outlined a little bit of my agenda.

It gives me kind of a spinning feeling as I sit here listening to

all that you would like for me to fix, and I will try to do it in the

next few months if I can.

The fact of the matter is that HUD did not get in this mess overnight. It is not going to get out overnight, either.

But, as I look to the question of how do we get more production—

and should we have a new production program right now and let’s

tap into the FHA fund and fund it and move ahead, and we have

another program.

Then, see, you can walk away, and you can go home and say we

did something good. We just put another billion dollars into a new

production program.

Then, there will be a hearing a year from now, 2 years from now.

Someone in my place will be trying to figure how to answer your

questions about what went wrong with the program.

We will be talking like we are today with the 203 issue in new

York.

The fact is that I believe this agency needs some time to catch

its breath.

There are $30 billion we are throwing at the problem this year

as we did last year.

By the way, the increases that this Department received in the

last couple of years, I believe, are unsustainable as a prudent matter of Federal budgeting, but also as an absorption matter, 16-, 19-

percent increases.

32

So, when you talk about these modest reversals in some of the

programs, like the Capital Fund, those need to be contrasted

versus what we received last year, which was a very substantial increase.

We are taking this budget back to a sustainable level, 6.8, I

think, as it relates to 4 percent in the rest of Government.

We are doing pretty well, but I believe, if we are going to be able

to address these issues, that, if we do, it is not out of a lack of caring that we do not want a new program.

It is out of a need to manage what we have got well, so that we

can see the results of what we are trying to do that we are not

doing very well, and then judge the results of what we have done,

not by the new program that we got, not by how much money we

threw at the problem, but what results we got.

Mr. MILLER. Absolutely.

Chairwoman ROUKEMA. I am sorry. We are almost 3 minutes

over time. But, certainly you can continue this conversation with

Secretary Martinez. He is going to be forwarding to us a considerable amount of documentation, and this will be included. Thank

you.

Now we have Congresswoman Stephanie Jones.

Ms. JONES. Thank you, Madam Chairwoman.

Secretary Martinez, it is nice to see you again.

Mr. MARTINEZ. Thank you.

Ms. JONES. I enjoyed seeing you at the WOW Program for the

Congressional Black Caucus Foundation.

But, I am troubled, and I am a former prosecutor, so I am going

to cross-examine you a little bit.

I would like short answers to my questions, please. Now, I want

to talk about the Drug Elimination Program.

In Cuyahoga County, Ohio, which is my congressional district,

the Drug Elimination Program has been significant in reducing

crime and activity in public housing.

In fact, I think, when it was created in the Reagan Administration, the purpose was because there was concentrated living in

public housing.

You agree with that, right? Concentrated. Densely populated.

Mr. MARTINEZ. It was begun as an $8 million program to a few

targeted housing—— Ms. JONES. But, no, answer my question. It is densely populated

living, is that correct?

Mr. MARTINEZ. I cannot answer——

Ms. JONES. Public housing.

Mr. MARTINEZ. Well——

Ms. JONES. Yes or no?

Mr. MARTINEZ. I am telling you that public——

Ms. JONES. Yes or no?

Mr. MARTINEZ. In some places, public housing has densely

populated——

Ms. JONES. High crime rate, yes or no?

Mr. MARTINEZ. In some places, yes. In some places, no.

Ms. JONES. Drug elimination only went to communities where it

was a high crime rate, densely populated, to reduce programs, yes

or no?

33

Mr. MARTINEZ. In public housing areas where the population is

elderly, they have no drug problems, and they do not have the—— Ms. JONES. You have not been to Cleveland. You have not been

to New York. In public housing where there’s elderly, people come

in and prey on the elderly and sell drugs, Mr. Martinez.

What country have you been in in the last 10 years?

My next question—— Mr. MARTINEZ. May I answer your last—— Ms. JONES. No, no, no, you cannot.

Mr. MARTINEZ. I do not get to answer?

Ms. JONES. I am going to keep going. No.

Mr. MARTINEZ. I do not get to answer?

Ms. JONES. No.

Mr. MARTINEZ. OK, that is fine.

Ms. JONES. The purpose of the Drug Elimination police officers,

Mr. Martinez, was such that the police officers could get to know

the residents. Do you agree with that statement?

Mr. MARTINEZ. Do you want me to answer all questions or just

the ones you choose for me to answer?

Ms. JONES. I am running the questioning. You are answering,

and you answer my questions and do not get smart with me, because I am not getting smart with you, sir.

Mrs. KELLY. Madam Chairwoman, point of order.

Ms. JONES. You are here to answer my questions, and—— Chairwoman ROUKEMA. I am sorry. I am sorry. I have never,

ever in my 20 years on this committee heard this kind of response

to members of the panel. I am sorry.

Ms. JONES. I have never heard this kind of response to Members

of Congress.

Chairwoman ROUKEMA. Excuse me?

Ms. JONES. I asked him a question. He is trying to make

jokes—— Chairwoman ROUKEMA. I think you—— Ms. JONES. ——out of my questions, and I do not appreciate it.

Chairwoman ROUKEMA. I beg your pardon. I did not hear any

jokes.

Ms. JONES. Look at his face.

Chairwoman ROUKEMA. If you want an answer, let him answer.

Ms. JONES. I am telling him when I want an answer, Madam

Chairwoman.

Chairwoman ROUKEMA. All right.

Ms. JONES. You cannot run my questioning. Out of all respect to

you, I am asking the questions, and I am getting the questions I

want answered. Now, when you want to do your questions, then

you do yours, but you cannot run mine.

Now, my question is the purpose of police officers on the beat

was so that the neighborhood people could get to know the law-enforcement folks, is that a fair statement?

Mr. MARTINEZ. Yes, ma’am.

Ms. JONES. And so for you to terminate the Drug Elimination

Program across the country without having really looked in-depth

to the impact that it has had in communities, where there was a

high crime rate and improvement, is irresponsible.

For you to terminate these programs in the Administration——

34

I wanted you to take back to the Administration our frustration

about the Drug Elimination Program in light of the elimination of

the COPS Program as well. Could you do that for us, please, Mr.

Martinez?

Mr. MARTINEZ. I will do so.

Ms. JONES. OK. Now let me ask you about the reduction to a 2-

month reserve for HUD programs.

What was the rationale for the reduction of 2-month reserves?

Mr. MARTINEZ. The rationale was that 2-month reserve was not

necessary, that 1-month reserve was adequate in light of the

fact——

Ms. JONES. Adequate for what purpose?

Mr. MARTINEZ. Adequate to never have a problem in being able

to administer the program and payments being made timely.

This program has gone from a fiscal year to a calendar year.

We will not be running into the year-end budgetary problems,

which it was intended to avoid.

So, in fact, that reserve—and I think this is widely acknowledged

to be correct—is not a necessary reserve to be maintained at a 2-

month level, but that, at 1-month level, it would be very adequate

to meet the needs of the people in public housing that would be depending on the payments, so that they would never have a problem

of them being timely made.

Ms. JONES. So your financial advisor at HUD said adequate to

meet the standard for determining whether you have a 2-month reserve or a 1-month reserve was to be adequate to meet the needs

of——

Mr. MARTINEZ. No, because—— Ms. JONES. ——residents. That is the financial standard.

Mr. MARTINEZ. No, it is not just a financial standard. I think

the——

Ms. JONES. What is the financial standard for reserves then?

Mr. MARTINEZ. This reserve was there because it was feared

that, when the budgeting was coming at a fiscal year, that there

would be a discussion at the end of the fiscal year and that the

budget would not be completed, and that at that point the public

housing agencies would not get their funds on time.

In fact, what has occurred, when this has happened, is that the

Congress has gone ahead and funded the payments for public housing Section 8 anyway.

The problem has never arisen. In addition to that, it has now

gone to a calendar year.

So, therefore, the year-end budgetary problem does not arise, because you have an additional 3 months until the beginning of the

calendar year before the problem would ever come to pass anyway.

Ms. JONES. And that is what your financial person said——

Mr. MARTINEZ. No, ma’am.

Ms. JONES. ——is the standard for reserves? That is the question

I am asking you.

What is the standard for maintaining the reserve in accounts

such as Section 8?

Mr. MARTINEZ. It was a prudent timeframe that would allow us

to always be able to meet the payments without ever coming to a

problem where we would not have those payments available.

35

Ms. JONES. Mr. Martinez, I mean no disrespect to you at all.

We only have 5 minutes. I had specific questions I wanted answered. In your past questioning, you did not answer the specific

questions of others. I was trying to direct your examination, and

I mean no disrespect. If you think I did, please forgive me, but I

represent the 11th Congressional District of Ohio. I needed questions answered for my constituents and my colleagues. Thank you

very much.

Chairwoman ROUKEMA. Congresswoman. All right.

Mr. MARTINEZ. I hope I have answered them. If I have not adequately answered—— If you would submit them in writing in any way you would like,

I will try to do my best to answer them politely.

Ms. JONES. I would like to meet with you, sir. Thank you.

Mr. MARTINEZ. If you felt that I was, in my facial expressions,

meaning some disrespect to you, I sincerely—— Ms. JONES. I did.

Mr. MARTINEZ. ——apologize. I did not intend for that—— Ms. JONES. Thank you.

Mr. MARTINEZ. ——to be the impression.

Ms. JONES. And I accept the apology.

Chairwoman ROUKEMA. Thank you, Secretary.

Now we have Congressman Grucci, please.

Mr. GRUCCI. Mr. Secretary, welcome.

Mr. MARTINEZ. Thank you, sir.

Mr. GRUCCI. Thank you for taking time out of your schedule to

be with us and talk about these very important issues.

I am not a prosecutor, so I am not going to prosecute you here

today.

Mr. MARTINEZ. Thank you very much.

Mr. GRUCCI. I do have a couple of concerns about affordable

housing that you and your agency may be able to address as you

go through the restructuring of your Department.

But, first, I would just like to take a moment to say that the lawenforcement agents in my communities, where we have HUD housing and we have downtrodden communities, they do respond.

They respond adequately. They respond properly, and they respond effectively in eradicating the crime and bringing the perpetrator to justice.

Probably that may be one of the reasons why we do not have a

voucher system that does not get fully utilized, because the communities are being addressed in both the need for affordable housing

and the ability to keep those affordable-housing areas safe for the

inhabitants.

What I would like to bring to your attention, sir, in the form of

a statement—and embedded in that statement are a couple of questions—is that affordable housing on Long Island——

Let me just start by saying the housing stock on Long Island in

New York is at a premium.

We have a very tight housing market. It is a very desirable area.

We do have areas and pockets of poverty and pockets that need

help, and it becomes increasingly more difficult to find affordable

housing when: a, you live on an island, and b, the island is a desirable place to live.

36

So, there have been some requests by agencies, like the Long Island Housing Partnership and the Association of Long Island Housing Agencies, for some additional help in the area of trying to encourage affordable housing to take place, either through existing

housing stock, by landlords, and so forth.

One of the things that came to my attention was that this subcommittee successfully, in 1996, I believe it was, was able to bring

the income limit caps for the HUD HOME Program to 80 percent

of the median income.

It was, I guess, done as a compilation of about 43 different regions, including the one that I live in, Suffolk County.

That has changed, from my understanding, and making it more

difficult now for affordable housing to be started or to be able to

continue.

I hope that you take a look at that and see if there are ways that

we might be able to make adjustments in areas where we do have

very high costs of living and the pricing of homes are very high.

Mr. MARTINEZ. I think that is a very good point, and I think it

is an issue that arises in certain areas of the country that are very

peculiarly afflicted like that.

I think we need to try to find a way that our policies and our

programs can better address those areas.

I think, frankly, one of the things that I see that is developing,

like in San Francisco, is where the private sector is also getting involved in partnerships.

We want to look to those and see how we can utilize the resources of the private sector—or the resourcefulness of them, so

that we can better provide additional stock of housing that is affordable.

Mr. GRUCCI. I thank you for that. There are two other points

that I would like to make before my time expires.

While everyone is very concerned, and rightly so, about the issue

of lead and the removing of lead in the facilities, it does cost and

cause a burden to be placed on the landlords, further exacerbating

the situation of the—not wanting to bring Section 8 housing online,

because, as my colleagues have pointed out earlier, in the private

sector, you can get significantly more money for those rentals.

Mr. GRUCCI. My request would be is that, if there is in that funding that you have talked about, the ability for local housing agencies to be able to be given one-time grants to be able to effectually

remove the lead-based paints in the homes, so that it does not become an additional burden on those who would be willing to provide the affordable housing, and lastly to encourage more of the affordable housing to be done in places like former strip malls or previously developed areas, and change them into affordable housing

development areas.

Could there be some sort of incentives given to the private landlords, things like security deposits or brokers’ fees, to help encourage them to not only build the units, but to rent them?

These are thoughts that I would like to leave with you as you

go through the process of redesigning, redeveloping, and trying to

advance your agency.

I do believe that you are the conscience of America in HUD.

37

You certainly address the compassionate side of the compassionate conservative, and I applaud you for your efforts and your

continuing effort here.

Mr. MARTINEZ. Thank you. I think your ideas are good, and we

should be looking for creative private solutions to a lot of these

problems.

A lot of the governmental ones have been tried, and they do not

always work very well, so I appreciate your input. Thank you.

Mr. GRUCCI. You are welcome. I yield back the remainder of my

time.

Chairwoman ROUKEMA. Thank you. I appreciate that.

Congressman Clay.

Mr. CLAY. Thank you, Madam Chairwoman.

Welcome, Mr. Secretary.

Mr. MARTINEZ. Thank you.

Mr. CLAY. Just to let you know a little about the area that I represent, I represent St. Louis, Missouri and part of St. Louis County, an older industrial community with some severe affordablehousing needs.

Today, I just wanted to hear some of your views on transitioning

public housing tenants to home ownership. That is the first question.

Mr. MARTINEZ. I think that there—You know, one of the things

that I remember from being a public housing official is that—local

official, it was so sad to see multi-generations living in what really

should have been, perhaps, a temporary help to move on to something else.

Well, I think whatever we can do to move people into home ownership, for those who can—understandably there may be some who

never can—but to work with them to facilitate their learning the

skills that it takes to gather the equity necessary to put a down

payment on a home, and things like that.

I think it was a very exciting and potentially transforming source

of opportunity.

I think that, when we create more homeowners, we are really

creating even better citizens.

I think that this is the opportunity to really live out the American dream that we would hope we can bring to many more American families.

I think that the faith-based initiatives provides those, and I do

not want to take too much of your time; I will be quick.

A good opportunity to involve faith-based organizations in homeownership training—I know it is being done in some places—expanding that, I think, it would be a great opportunity to do that

as well.

Mr. CLAY. And you are willing to devote some of the Department’s resources to that effort?

Mr. MARTINEZ. Absolutely.

Mr. CLAY. OK, let me ask you another question. The Council on

Large Public Housing Authorities has written that the Administration’s budget would devastate public housing and that the Administration proposes public housing residents, our Nation’s poorest,

bear the brunt of the largest cuts in the HUD budget.

38

Do you agree with their assessment, that public housing bears

the brunt of your proposed cuts?

Mr. MARTINEZ. Unfortunately, I think that they are perceiving it

as that way.

But, I think, first and foremost, the conclusion they reach, I

think is 100-percent wrong. It does not provide a catastrophic

budget to public housing agencies.

I think they have misconstrued the reductions in the Capital

Fund for some type of reduction in what they are going to be getting in the streamline of funding that they are anticipating for

their modernization programs.

Mr. CLAY. A final question. You have justified draconian cuts in

the public housing Capital Funds used to repair aging units on the

grounds that there is a backlog of unspent funds.

Yet, the 1998 Public Housing Bill set strict ‘‘Use It or Lose It’’ rules.

If your only concern was unspent funds, why didn’t you simply

propose tightening up the time limits on those rules instead of

slashing the funding?

Mr. MARTINEZ. Let me say that what you refer to, draconian

cuts, are within a very, very small number, the same identical

funds that Secretary Cuomo asked of you last year when he presented his budget.

So, I think that we are within a whisker of the same level of request, so I do not think that it would be draconian in any measure.

But, also, let me say that I believe that the public housing authorities will have—— What I am asking here is not that we are going to pull back

unspent funds. These are unencumbered. They are not being used

for any one purpose or not assigned to any one project.

There is an accumulation, Congressman, believe me, that will

take more than 3 years before they could get to those funds.

So, the bottom line is that no repairs are going to go undone. No

needs are going to go unmet by this reduction at this time.

Mr. CLAY. Well, are you trying to accelerate the use of those

funds?

Mr. MARTINEZ. We are accelerating how we get them to them so

that this can become a more quick absorption. Absolutely.

We are working on that. We have found a lot of things that need

to be done better at HUD, and I am working hard at it.

Let me just say, also, for all of your knowledge, that I am doing

this at this point still alone.

There is not a single other member of this Administration’s team

at HUD that is confirmed yet, so we are doing the best we can, but

there is a lot to be done.

Mr. CLAY. Thank you for that response.

Mr. MARTINEZ. Yes, sir.

Mr. CLAY. Thank you, Madam Chairwoman.

Chairwoman ROUKEMA. I thank you, Mr. Clay. Those are very interesting and informative questions, and we will have to continue

working on that. Now we have—I mean, in the total budget

picture—— Mr. MARTINEZ. Yes.

Chairwoman ROUKEMA. Yes.

39

Congressman Barr.

Mr. BARR. Thank you, Madam Chairwoman.

Mr. Secretary, it is a pleasure having you here.

I know I speak for other Members of the subcommittee in welcoming you, and looking forward to working with you over the coming year-and-a-half or a little over a year-and-a-half that we have

remaining in the 107th Congress.

I would also like to extend to you an invitation to visit Georgia.

If we can get you down to Georgia—and I know you will be visiting down there—to get you outside of Atlanta, at least—— Mr. MARTINEZ. Yes.

Mr. BARR. ——for part of your time. We have some outstanding

public housing authorities, not just in my 7th District, but other

districts as well.

I do meet with those public housing authorities on a fairly regular basis, and I hear from them, both the good, the bad, and the

ugly, dealing with HUD.

One of the things that I do hear is appreciation for the CDBG

grant monies.

I know those are being requested to be fully funded at the same

level with no cuts. We appreciate that very much.

With regard to the Drug Elimination Program, I have heard from

housing authorities on that and look forward to working with you.

I know that you share our concern that we want to keep drugs

out of public housing projects.

We want to have at least as low a crime rate as we do in other

areas, and I certainly presume that the President and you will be

working to explore ways to do that.

Mr. MARTINEZ. Yes.

Mr. BARR. I am heartened that, even though you are removing

the funds from the existing program—and I have read a lot of the

material with the abuses in that program, such as using funds for

gun buy-back programs, which was not authorized by Congress,

and I presume certainly not supported by this Administration.

I was glad to see, though, the additional $150 million that you

are proposing to move into the Operating Fund, and that, as you

have indicated here today, public housing authorities will be able

to use whatever portion they receive of that money for the Drug

Elimination-type Programs if they choose.

Mr. MARTINEZ. Correct.

Mr. BARR. Is that——

Mr. MARTINEZ. And that is absolutely correct, and it is my intention.

My intent is that that would be available to them to use for those

programs that work, and there are programs that work out there.

They should still be funded through that $150 million that we

put into the budget.

Mr. BARR. Thank you. Just a little bit ago, I stepped out to meet

with Mr. Chuck Snyder, President and CEO of National Cooperative Banks.

I know that they have been in touch with you and certainly hope

that you will be working with them to explore ways through cooperative efforts to, not only continue rent-subsidy programs, but, as

much as possible, move into the area of home ownership, which is

40

much better than just rent and, in many respects, such as working

through cooperative banks, can be done basically at the same

price—or the same monthly amount of money as rentals.

Mr. MARTINEZ. Correct.

Mr. BARR. With regard to support for first-time home buyers, do

you share my concern that it is not simply a matter of making

funds available, but also setting up programs to work very carefully, very comprehensively, and over the long term with first-time

home buyers in these programs to ensure that they truly do understand the responsibilities of home ownership and all that goes with

it.

With regard to the programs that the President is proposing to

fund for first-time home buyers, will there be both funds and attention paid to working with those people to ensure that they do understand their obligations, in a very broad sense, with regard to

home ownership, and will facilities be made available to work with

them?

Mr. MARTINEZ. Congressman, you are correct. A very important

component of home ownership is—becoming a knowledgeable

homeowner is—becoming a person who understands the financial

responsibilities as well as maintenance and other issues.

We will be working with community groups, and particularly the

faith-based organizations and communities, to help us carry out the

homeowner education programs.

They are an important part of what HUD will do in the future.

Mr. BARR. Good.

One final issue that I would very much appreciate your looking

into and getting back to me, that is with regard to the $50 minimum rent issue that was part of the reform legislation.

In many areas not only is the $50 minimum rent not being

charged, but the participants are getting money back from the public housing authority, because the utility subsidy is more than $50.

I would appreciate—I presume you have not had a chance——

Mr. MARTINEZ. I don’t have.

Mr. BARR. ——to explore that in great detail. I would appreciate

the views of the Administration as to whether or not we need to

revisit that to ensure that a $50 minimum rent really is a $50 minimum rent.

We might need to explore a legislative fix to that area, but would

you look into that——

Mr. MARTINEZ. We will look into it, certainly, yes, sir.

Mr. BARR. ——and get back to me?

Mr. MARTINEZ. We will get back to you.

Mr. BARR. I appreciate that, thank you.

Chairwoman ROUKEMA. Thank you, Mr. Barr. That was an excellent point. I think we are all getting an education here today.

Mr. MARTINEZ. Yes, yes.

Chairwoman ROUKEMA. We are teaching each other, or learning

from each other, hopefully.

Now, Congresswoman Waters.

Ms. WATERS. Mr. Martinez, I welcome you here today.

Mr. MARTINEZ. Thank you.

41

Ms. WATERS. But I feel a little bit sorry for you, because they

sent you up here with some fuzzy numbers and a budget that does

not add up for you to defend.

I do not even know if you are responsible for putting any of this

stuff together, but you need to take the message back that we understand that the Administration proposed a funding-year budget

2002 for the Department of Housing and Urban Development of approximately $30.4 billion, claiming $1.9 billion, or 7 percent increase, over the $28.5 billion provided in funding year 2001.

However, the Administration budget actually cuts HUD funding

by $1.715 billion.

This is a 6 percent cut. In real inflation-adjusted terms, the cut

is $2.15 billion.

That, sir, is an 8 percent cut. The Administration’s claim that

HUD’s budget goes up by $1.9 billion relies on counting as high

spending a $3.63 billion increase in Section 8 budget authority that

does not increase spending or outlays by a single dollar.

This phantom increase should be deducted from an accurate

budget.

These phantom Section 8 budget authority increases do not increase outlays by a single dollar.

They do not serve a single new tenant or increase assistance for

a single tenant and were previously funded by the 1997 bipartisan

budget agreement.

Factoring out this phantom increase, the Administration budget

is a $1.715 billion net cut.

I will not go into further details except to ask you to examine

that so that, when you are asked to defend it, you will not be put

in a position of trying to defend something that you are not able

to defend.

Specifically, I want to talk about cuts. The principal budget cuts

are in four areas, as was mentioned and been talked about, public

housing, Section 8 reserves, CDBG special purpose grants, and the

HOME Program.

The budget finds increment funds, incremental Section 8 vouchers for 44,300 fewer families than last year and zeros out new

vouchers for the disabled.

The budget flat-funds a number of programs, funding year 2001

levels, including elderly housing, disabled housing, homelessness,

CDBG formula grant, and Native American housing.

Very controversial, $700 million reduction in modernization funding, that is, the Public Housing Capital Fund for public housing authorities.

HUD justifies the reduction because these housing authorities

currently, they say, have a $6 billion backlog.

Let me tell you why this bothers us so much. I think it was mentioned by our Ranking Member here that, you know, this solution

to the housing needs of low-income people was not designed by lowincome housing people.

So, we stack these people on top of each other in these public

housing units.

We say, when we get disgusted about the crime and the problems, that it is their fault.

42

Well, if we do not fix up these places, how are they supposed to

have any pride in where they are living?

We have got public housing units in America that have not been

modernized.

As a matter of fact—Mr. Clay is gone—but I can tell you, even

looking at St. Louis, when the Pruitt Eigo just got so run down and

so bad, they had to blow that thing up.

There are a lot of others in America that need to be just destroyed. They are so bad.

So, we have real problems with that, and the other thing that we

have a lot of problems with, Mr. Secretary, is this: We are working

very, very hard to do something about the elimination of drugs and

crack cocaine in our communities.

When we have a so-called conservative Administration that

comes along and not only reduces the amount in police programs,

such as the COPS Program, but then you pull out the money in

areas like public housing projects to deal with the problem of

drugs, you have no credibility.

This Administration does not have any credibility in eliminating

funds to deal with the problems of drugs in public housing.

That bothers us a lot. I am not going to even talk about the housing crisis in America or in California and the amount of cuts that

we have to endure with this budget.

But, I want you to know, because my L.A. Housing Authority

people said please, please, please let them know that we are very

much concerned about the $700 million reduction in public housing

Capital Fund and the proposed elimination of the $310 million in

public housing Drug Elimination Program.

It is one thing to talk about how you are going to help all these

new homeowners.

First of all, I want you to know that many of the people that you

are talking about who are working for minimum wages, who have

not been the beneficiaries of this so-called well-performing economy

prior to the downsizing that we see, are not even going to be able

to afford, even with so-called assistance for down payment, to talk

about getting into homes.

We have got to do something about getting poor people and working people into homes and giving them some support and job training, and all of that, to get them in the position of being homeowners.

But, I do, having said all that——

Chairwoman ROUKEMA. Excuse me. Excuse me.

Congresswoman Waters, you are a minute over time, so I will let

you summarize and give the Secretary an opportunity to respond.

Ms. WATERS. OK. I did not expect any answers to all of that.

But, I am curious, with this so-called home ownership, American

dream-type stuff you are talking about, what is this Hybrid ARMs

Program?

You are not bankers. You are talking about you are going to seek

authority and offer low-income families new adjustable rate mortgages.

How do you plan to do that? You know, I would be just happy

if you were to enforce CRA so that the banks and the lending instiVerDate 11-MAY-2000 10:55 Feb 07, 2002 Jkt 000000 PO 00000 Frm 00046 Fmt 6633 Sfmt 6633 72289.TXT HBANK1 PsN: HBANK1
43

tutions that are in business to do this would do the right thing, but

just tell me how you are going to do that?

Mr. MARTINEZ. We cannot enforce CRA. That comes under Treasury—or the Fed, I guess.

But, the Hybrid ARMs is a new financing—I mean, is a financing

mechanism that is available to the market in general.

We are trying to bring that available to low-income families as

well.

It will help them by stabilizing their mortgage rate for a period

of time until they can get economically sound or get the foothold

in their new home and keep the new home as to avoid foreclosures

and to make mortgage financing more available to poor people,

frankly.

Ms. WATERS. I am sorry, where is this program? How do you do

it?

Mr. MARTINEZ. It is an FHA program.

Ms. WATERS. It is an FHA program?

Mr. MARTINEZ. Right, it is under FHA insured home mortgages.

Chairwoman ROUKEMA. Excuse me. This, evidently, is something

that we would want to have you respond in writing and give us

some amplification on it.

Mr. MARTINEZ. Sure.

Chairwoman ROUKEMA. Yes, Mr. Frank.

Mr. FRANK. Can I just say I think—I guess a lot of Members will

have written questions, which we will be submitting.

Chairwoman ROUKEMA. Yes.

Mr. FRANK. I must tell you at first I thought the Hybrid Arms

was a new housing project of mixed income. It was ‘‘Welcome to the

Hybrid Arms.’’ Mr. MARTINEZ. It is really a pitcher for the Red Sox, actually.

Chairwoman ROUKEMA. All right, thank you.

Finally, last, but certainly not least, Mr. Bereuter.

Mr. BEREUTER. Thank you, Mrs. Chairman.

Mr. Secretary, welcome.

Mr. MARTINEZ. Thank you.

Mr. BEREUTER. Congratulations on your appointment. I think

anybody that takes on the Secretaryship of HUD is courageous. I

place you in that category.

Mr. MARTINEZ. I particularly feel that way today, sir.

[Laughter.]

Mr. BEREUTER. Two things I want to mention I hope you will

look at: the status of the Executive Branch appointments to the Indian Land Title Status Commission, which will make the Loan

Guarantee Program for our Indian reservations work across the

whole country; second, to ask you to consider a Technical Corrections Bill to present to us sometime this year on public housing.

I have a couple of things to call to your attention. I will start

first by saying I am a former employee of HUD, one year right

after the Army, I worked in the San Francisco office for the 10-

State region.

I want the agency to do its job. Under the guise of administrative

efficiency, the program structure was changed in HUD during the

last Administration to a linear structure with program staff, such

as the CDBG grant staff—and I will give you this in writing—pubVerDate 11-MAY-2000 10:55 Feb 07, 2002 Jkt 000000 PO 00000 Frm 00047 Fmt 6633 Sfmt 6633 72289.TXT HBANK1 PsN: HBANK1
44

lic housing staff, the multi-family housing management staff, the

single-family housing staff, the fair housing and equal opportunity

staff, the legal staff, in a field office answering to a person at headquarters and working independently of other field staff offices.

In some cases, these program staff now answer to different offices scattered throughout the country.

When a mayor or local government official wishes to resolve a

problem that involves more than one program, there is no single

office in the field that they can hear their appeal or concern.

So, I think this movement to elevate these decisions from field

offices to the central region is a very bad decision.

It further confuses the issue to people. To further confuse the

issue, people, now known as community-builders, were added to the

structure for purposes of working with mayors and community

leaders.

Among many that work with HUD, this is viewed as a huge and

very expensive public-relations ploy.

At the Nebraska field office, approximately 50 staff had five community-builders with no secretarial delegations of authority and/or

program responsibility.

Very questionably, these community-builders were brought into

HUD at grades of GS–13 through GS–15.

I now understand the community-builders that were hired from

within the agency are going to get promoted retroactively to GS– 15.

I think this is one example of significant grade-creep that has occurred in the agency without corresponding work responsibilities.

One other example of this egregious abuse of public funds is a

26-person field office, Salt Lake City, where ten of the staff are

community-builders, four at the GS–15 level, four at GS–13 level,

one at GS–12, and one at GS–9.

Fifteen of the staff are single-family housing staff, but they report to an office in Denver.

Mr. Secretary, in a slightly different vein, I want to comment

about HUD’s relations with small housing authorities.

For example, my State has over 100. Most of them have less than

60 units, mostly for elderly housing.

I think the Department must find a way to reduce the enormous

administrative burden these part-time executive directors face.

They have been forced to buy expensive consulting services and

computer programs to run their, in some cases, 20-unit public

housing entities.

By the way, they are extremely well-run and well-maintained.

I believe we have to give the Department some flexibility. I believe we have done that to some extent.

But, the Secretary, in the past, has not exercised that flexibility.

If HUD cannot find a way to reduce their oversight, then I think

we should take a fairly dramatic step and forgive the debt and turn

them over to the community or state.

Mr. MARTINEZ. You touched on three excellent management

problems at HUD.

The State of West Virginia, I was there a week or so ago as I

was speaking to the people of West Virginia—that work at the

HUD office in West Virginia.

45

If you have a public housing issue in West Virginia, you have to

go to Baltimore to get it resolved.

The people of West Virginia had no one at the HUD office there

that can deal with the public housing issue. That is a real problem.

I think our drug elimination grant issue that—the housing authorities you are speaking of—these small housing authorities— they could not tap into the Drug Elimination Program effectively.

So, now, under the general grant application that we will have

available, they might have a better opportunity to come into that

money for whatever uses they might need, given their local situation.

So, I think you have just touched on three very serious management issues—the community-builders program roundly criticized,

tremendous morale problem that it created for HUD, 10 percent of

the personnel resources devoted to that program.

By June, I hope to have some fixes in place that I intend to implement.

That is not to mention, by the way, the other personnel allocation issues that we have at HUD—tremendously high top-end in

some of our field offices with few or none in the clerical areas to

do simple things like opening the mail.

So, there are a number of challenges, and I appreciate your remarks in terms of those three.

Mr. BEREUTER. Thank you, Mr. Secretary. I can see you are on

top of some of these issues already.

I look forward to seeing a Technical Correction Bill from you, or

Madam Chairwoman, that we ought to advance one sometime this

year for the public housing authorities, particularly those small

ones that I think need some flexibility and some relief. Thank you.

Ms. WATERS. Madame Chairwoman.

Chairwoman ROUKEMA. Yes.

Ms. WATERS. I would like unanimous consent to introduce a

young lady who is with me.

Today is ‘‘Take Your Child To Work Day.’’ Boys and girls, her

name is Anabelle Wright from Benjamin Tasker Middle School, she

is in the seventh grade. She wants to be a lawyer. She has been

sitting here with us during most of this hearing.

Chairwoman ROUKEMA. Oh, well, thank you. We are very happy

to see this young woman. I hope it has been an inspiration.

[Laughter.]

Chairwoman ROUKEMA. Yes? I hope we have not discouraged

you. Actually this was an excellent hearing for you to attend and

hear.

We have a wonderful new Secretary of HUD, and, as you can see,

we have a lot of questions on a bipartisan basis and on a partisan

basis, and this is how democracy works under our system.

Mr. FRANK. And the test on all this will be tomorrow at 10:00

o’clock.

Chairwoman ROUKEMA. I am sorry, I did not hear you. Oh, the

test will be tomorrow.

No, we are not going to—we will let you have an oration, OK,

let you talk back. OK.

Ms. WATERS. Thank you very much.

Mr. WATT. Madam Chairwoman.

46

Chairwoman ROUKEMA. Yes, Mr. Watt.

Mr. WATT. I ask unanimous consent to submit for the record copies of a number of letters from tenants in public housing communities from my Congressional District in support of the Drug Elimination Program, some of which are addressed to—— [The letters referred to can be found on page 129 in the

appendix.]

Chairwoman ROUKEMA. Yes, I certainly would approve of that,

and, before I end, of course, we will do the usual 30-day program

for including written questions.

Ms. WATERS. Excuse me, Madam Chairwoman. I would like

unanimous consent also to submit my statement for the record.

Chairwoman ROUKEMA. Well, yes. When you were not here, I

had asked unanimous—— That unanimous consent had already been granted. I would just

like to summarize this by stating for the Secretary that we are

most grateful for your generous time commitment here and for the

way that you handled the questions and the insights that you have

given us, and for the open-minded approach to the questions that

have been raised.

I certainly appreciate that. I would also point out that we will

have follow-up hearings.

I think you made reference to a June date when you will

have—— Mr. MARTINEZ. Yes.

Chairwoman ROUKEMA. ——more information on a number of

the questions that were raised here, including Mr. Bereuter’s.

So, we will, without question, have follow-up hearings on the

technical corrections or other pieces of legislation that we will be

looking at.

I think that Mr. Bereuter put it very well with one word, your

courageous commitment to this office.

I really would like to underscore that and say ditto, it is a courageous commitment.

But, I think you must also recognize that the attendance at this

hearing is graphic evidence of the intense high-profile bipartisan

interest that this Congress has on the subject of housing, whether

it is the delivery of service or the housing availability for all members of our society and, of course, the reforms that have been outlined here.

There are questions of reforms in the Department, and, as you

get your staff in place, and your assistants and deputies in place,

I am sure we will be hearing back from you on reforms, but also

we do want housing affordability to be available to all members of

our society in a fiscally responsible way.

Mr. MARTINEZ. Yes. Thank you.

Mr. FRANK. Madam Chairwoman.

Chairwoman ROUKEMA. Yes, Mr. Frank.

Mr. FRANK. I want to say to the Secretary again I acknowledged

at the outset I know that he accommodated us in his schedule.

I do want to assure him, on behalf of all the Members, that we

all realize that any differences that exist—and there are obviously

some—are policy differences, not personal. We appreciate his goodwill on this.

47

Mr. MARTINEZ. Thank you.

Chairwoman ROUKEMA. Thank you, Mr. Frank.

I would say, for all Members, that, as is our procedure, without

objection, the hearing record will remain open for 30 days for Members to submit written questions and to have the responses placed

in the record.

With that, this hearing is adjourned.

[Whereupon, at 12:22 p.m., the hearing was adjourned.]

(49)

A P P E N D I X

April 26, 2001

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