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POVERTY, PUBLIC HOUSING AND THE CRA: HAVE

HOUSING AND COMMUNITY INVESTMENT INCENTIVES HELPED PUBLIC HOUSING FAMILIES

ACHIEVE THE AMERICAN DREAM?

HEARING

BEFORE THE

SUBCOMMITTEE ON FEDERALISM

AND THE CENSUS

OF THE

COMMITTEE ON

GOVERNMENT REFORM

HOUSE OF REPRESENTATIVES

ONE HUNDRED NINTH CONGRESS

SECOND SESSION

JUNE 20, 2006

Serial No. 109–218

Printed for the use of the Committee on Government Reform

(

Available via the World Wide Web: http://www.gpoaccess.gov/congress/index.html

http://www.house.gov/reform

(II)

COMMITTEE ON GOVERNMENT REFORM

TOM DAVIS, Virginia, Chairman

CHRISTOPHER SHAYS, Connecticut

DAN BURTON, Indiana

ILEANA ROS-LEHTINEN, Florida

JOHN M. MCHUGH, New York

JOHN L. MICA, Florida

GIL GUTKNECHT, Minnesota

MARK E. SOUDER, Indiana

STEVEN C. LATOURETTE, Ohio

TODD RUSSELL PLATTS, Pennsylvania

CHRIS CANNON, Utah

JOHN J. DUNCAN, JR., Tennessee

CANDICE S. MILLER, Michigan

MICHAEL R. TURNER, Ohio

DARRELL E. ISSA, California

JON C. PORTER, Nevada

KENNY MARCHANT, Texas

LYNN A. WESTMORELAND, Georgia

PATRICK T. MCHENRY, North Carolina

CHARLES W. DENT, Pennsylvania

VIRGINIA FOXX, North Carolina

JEAN SCHMIDT, Ohio

——— ———

HENRY A. WAXMAN, California

TOM LANTOS, California

MAJOR R. OWENS, New York

EDOLPHUS TOWNS, New York

PAUL E. KANJORSKI, Pennsylvania

CAROLYN B. MALONEY, New York

ELIJAH E. CUMMINGS, Maryland

DENNIS J. KUCINICH, Ohio

DANNY K. DAVIS, Illinois

WM. LACY CLAY, Missouri

DIANE E. WATSON, California

STEPHEN F. LYNCH, Massachusetts

CHRIS VAN HOLLEN, Maryland

LINDA T. SANCHEZ, California

C.A. DUTCH RUPPERSBERGER, Maryland

BRIAN HIGGINS, New York

ELEANOR HOLMES NORTON, District of

Columbia

———

BERNARD SANDERS, Vermont

(Independent)

DAVID MARIN, Staff Director

LAWRENCE HALLORAN, Deputy Staff Director

TERESA AUSTIN, Chief Clerk

PHIL BARNETT, Minority Chief of Staff/Chief Counsel

SUBCOMMITTEE ON FEDERALISM AND THE CENSUS

MICHAEL R. TURNER, Ohio, Chairman

CHARLES W. DENT, Pennsylvania

CHRISTOPHER SHAYS, Connecticut

VIRGINIA FOXX, North Carolina

——— ———

WM. LACY CLAY, Missouri

PAUL E. KANJORSKI, Pennsylvania

CAROLYN B. MALONEY, New York

EX OFFICIO

TOM DAVIS, Virginia HENRY A. WAXMAN, California

JOHN CUADERES, Staff Director

JON HEROUX, Counsel

JULIANA FRENCH, Clerk

ADAM BORDES, Minority Professional Staff Member

(III)

C O N T E N T S

Page

Hearing held on June 20, 2006 ............................................................................... 1

Statement of:

Gutzmann, Jon, president, Public Housing Authorities Directors’ Association, executive director, St. Paul Public Housing Agency; George Moses,

chairman of the board of directors, National Low Income Housing Coalition; James Riccio, director, Low-Wage Workers and Working Communities Policy Area; Benson F. ‘‘Buzz’’ Roberts, senior vice president,

policy and program development, Local Initiatives Support Corp.; and

Judy Kennedy, president and CEO, National Association of Affordable

Housing Lenders ........................................................................................... 8

Gutzmann, Jon .......................................................................................... 8

Kennedy, Judy ........................................................................................... 51

Moses, George ............................................................................................ 21

Riccio, James ............................................................................................. 27

Roberts, Benson F. ‘‘Buzz’’ ........................................................................ 41

Letters, statements, etc., submitted for the record by:

Clay, Hon. Wm. Lacy, a Representative in Congress from the State of

Missouri, prepared statement of .................................................................. 6

Gutzmann, Jon, president, Public Housing Authorities Directors’ Association, executive director, St. Paul Public Housing Agency, prepared

statement of ................................................................................................... 11

Kennedy, Judy, president and CEO, National Association of Affordable

Housing Lenders, prepared statement of .................................................... 54

Moses, George, chairman of the board of directors, National Low Income

Housing Coalition, prepared statement of .................................................. 23

Riccio, James, director, Low-Wage Workers and Working Communities

Policy Area, prepared statement of ............................................................. 29

Roberts, Benson F. ‘‘Buzz’’, senior vice president, policy and program

development, Local Initiatives Support Corp., prepared statement of ..... 43

Turner, Hon. Michael R., a Representative in Congress from the State

of Ohio, prepared statement of .................................................................... 3

(1)

POVERTY, PUBLIC HOUSING AND THE CRA:

HAVE HOUSING AND COMMUNITY INVESTMENT INCENTIVES HELPED PUBLIC HOUSING FAMILIES ACHIEVE THE AMERICAN

DREAM?

TUESDAY, JUNE 20, 2006

HOUSE OF REPRESENTATIVES, SUBCOMMITTEE ON FEDERALISM AND THE CENSUS, COMMITTEE ON GOVERNMENT REFORM, Washington, DC.

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

2154, Rayburn House Office Building, Hon. Michael R. Turner

(chairman of the subcommittee) presiding.

Present: Representatives Turner, Dent, Shays, Foxx, Clay, Kanjorski, and Maloney.

Staff present: John Cuaderes, staff director; Juliana French,

clerk; Jon Heroux, counsel; Adam Bordes, minority professional

staff member; and Jean Gosa, minority assistant clerk.

Mr. TURNER. Good morning.

Quorum being present, this hearing of the Subcommittee on federalism and the Census will come to order. Welcome to the subcommittee’s hearing entitled, ‘‘Poverty, Public Housing and the

CRA: Have Housing and Community Investment Incentives Helped

Public Housing Families Achieve the American Dream?’’ This is the

fourth in a series of hearings the federalism and the Census Subcommittee is holding on public and low-income housing.

The purpose of this hearing is twofold. First, we will examine the

self-sufficiency and poverty deconcentration provisions of the Quality Housing and Work Responsibility Act. Second, we will examine

the Community Reinvestment Act [CRA], and its purpose to public

and affordable housing. Our first goal today is to gain a better understanding of whether QHWRA’s self-sufficiency and poverty

deconcentration provisions have helped Public Housing Authorities

[PHAs], to improve the living situations of their tenants in a meaningful way. From what we have learned in our previous hearings,

there is evidence that, despite some of the progress, the rules governing the calculations of rents and other incentives are still too

complicated and cumbersome to use effectively. The Public Housing

Authorities have cited numerous examples of the complexity within

the current system and the burden that complexity brings to managing their portfolios. They have argued that this complexity is

counterproductive and is diverting limited resources away from

their primary mission which is their providing low-income families

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with safe, clean and affordable housing. The Public Housing Authorities have repeatedly called for changes in the law they claim

would ease this administrative burden. These changes range from

simplifying the rent calculation process to expanding the Moving to

Work program.

While these proposed changes may appear to be common sense

approaches for addressing the problem, they may also have unintended consequences.

In this hearing, we hope to gain the perspective of tenant advocates. We also want to ascertain the impressions of our witnesses

on any past or current proposals designed to address these issues.

The second purpose of today’s hearing is to review the public policy

theory behind the Federal investment and public and affordable

housing and the role of the Community Reinvestment Act and how

it has played in achieving the public policy goals.

As the subcommittee learned in its May 23, 2006 hearing on public housing in the capital markets, the Community Reinvestment

Act has provided incentives to some financial institutions to invest

in low-income housing when they may not have otherwise done so.

However, recent rule changes by the four agencies regulating financial institutions have caused some affordable housing advocates to

be concerned that these goals may be undermined. It is their concern that these rule changes may weaken the effect the CRA has

on future decisions by financial institutions to invest in affordable

housing. For this reason, we have invited two CRA experts to testify on this topic. Before we move on, I would like to yield to our

ranking member, the gentleman from Missouri, Mr. Clay for any

opening remarks he may have.

[The prepared statement of Hon. Michael R. Turner follows:]

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Mr. CLAY. Mr. Chairman, I thank you for holding today’s hearing

to examine how well programs to decrease widespread poverty in

public housing are working. I welcome our witnesses and look forward to their testimony.

There have been significant pros and cons raised concerning both

public housing rental costs and efforts to develop mixed-income

housing, the options for a resident. Although current law seeks to

protect the poorest of residents with the 30 percent cap on rent,

many lower-income working individuals are now contributing upwards to 50 percent of their annual income toward rent. This is a

major concern for me as many public housing residents that return

to work end up in low-wage jobs with little hope for advancement.

Furthermore, I have significant concerns about the elimination of

program requirements to replace a decommissioned housing unit

with a new unit on a one-to-one basis. This policy, coupled with reductions in the number of housing vouchers available, is causing

significant decreases in the availability of affordable public housing

units for many low-income working citizens.

As I’ve previously stated, if the Federal Government cannot be

considered a reliable funding partner, our capital markets will have

little incentive to remain a contributor to the development and

maintenance of public housing programs. While the Community

Reinvestment Act and other proposals are helpful, pure economics

will not permit adequate investment without a strong commitment

from both the Congress and the administration. This concludes my

remarks, Mr. Chairman, and I yield back.

[The prepared statement of Hon. Wm. Lacy Clay follows:]

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Mr. TURNER. Thank you, Mr. Clay.

Today we have one panel of five witnesses. The first three witnesses will discuss the self-sufficiency and poverty concentration

topic. Next, as I just mentioned, the last two witnesses will discuss

the Community Reinvestment Act and its relationship to affordable

and public housing. First, we will hear from Jon Gutzmann, president of Public Housing Authorities Directors’ Association, and executive director of the St. Paul Public Housing Authority. Next, we

have George Moses, chairman of the board of the National Low Income Housing Coalition and a tenant organizer in Pittsburgh, PA.

Following Mr. Moses, we will have James A. Riccio, director of lowwage workers and communities at MDRC, a research institution focusing on social programs. On the issue of the CRA, we will first

hear from Benson ‘‘Buzz’’ Roberts, senior vice president for policy

and program development at Local Initiatives Support Corp.

[LISC]. And, finally, we have Judith Kennedy, president and CEO

of the National Association of Affordable Housing Lenders, who

will also be speaking to us on the CRA.

I welcome each of you here today, and we look forward to your

comments. Each witness has kindly prepared written testimony

which will be included in the record of this hearing. Witnesses will

notice that there is a timer light on the witness table. The green

light indicates that you should begin your prepared remarks, and

the red light indicates that your time has expired. The yellow light

will indicate when you have 1 minute left in which to conclude

your remarks. It is the policy of this committee that all witnesses

be sworn in before they testify. So if you would please rise and

raise your right hands.

[Witnesses sworn.]

Mr. TURNER. Let the record show that all the witnesses have responded in the affirmative.

And we will begin our testimony today with Mr. Gutzmann.

STATEMENTS OF JON GUTZMANN, PRESIDENT, PUBLIC HOUSING AUTHORITIES DIRECTORS’ ASSOCIATION, EXECUTIVE

DIRECTOR, ST. PAUL PUBLIC HOUSING AGENCY; GEORGE

MOSES, CHAIRMAN OF THE BOARD OF DIRECTORS, NATIONAL LOW INCOME HOUSING COALITION; JAMES RICCIO,

DIRECTOR, LOW-WAGE WORKERS AND WORKING COMMUNITIES POLICY AREA; BENSON F. ‘‘BUZZ’’ ROBERTS, SENIOR

VICE PRESIDENT, POLICY AND PROGRAM DEVELOPMENT,

LOCAL INITIATIVES SUPPORT CORP.; AND JUDY KENNEDY,

PRESIDENT AND CEO, NATIONAL ASSOCIATION OF AFFORDABLE HOUSING LENDERS

STATEMENT OF JON GUTZMANN

Mr. GUTZMANN. Thank you, Chairman Turner and subcommittee

members.

I am Jon Gutzmann and the president of the Public Housing Directors Association. I am also the executive director at St. Paul

Public Housing, a position I have had for the last 18 years. I’m testifying on behalf of PHADA, its 1,900 members and St. Paul Public

Housing, which has 20,000 low-income households, and I’m advocating on behalf of the 1.2 million households that live in public

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housing. Public housing is 1 percent of the housing supply in America. Our agency has been rated a high performer ever since it was

created. We collect 99 percent of the rent. We’ve been 99 percent

occupied for 7 consecutive years, have had no audit findings for 9

years and many more things. And I point to those out of pride but

also say they’re representative of most housing authorities in the

country.

As I mentioned, housing represents 1 percent of housing in

America, and it’s under assault. More than 60 percent of public

housing residents have incomes below 30 percent of AMI. The average income of $11,000, frankly, is about 20 percent of AMI. The

shelter is for mostly very poor, mostly elderly, mostly disabled and

a vast majority who either work or are on a pension but is under

severe distress.

And the source of distress is threefold. The shrinking Federal financial support from Congress, burdensome micromanagement

from HUD, and a real resistance to change and deregulation from

some of our advocacy colleagues. The combination of these influences place the public housing program in jeopardy. And although

appropriations are not a matter of this subcommittee’s jurisdiction,

I think it’s difficult to talk about policy reform without talking

about the dollars. Our programs have lost $1.4 billion in the last

4 years. The House recently approved the appropriation budget for

2007. And in it, $250 million is eliminated from the capital fund,

and the operating fund is only funded at 78 percent. Contrary to

the deregulation and decontrol goals of QHWRA, housing authorities face unprecedented levels of micromanagement and oversight

from HUD. HUD is ignoring its recommendations from its inspector general and how they want us to set up procurement. HUD is

moving away from GAAP accounting requirements and implementing new mandates and more.

So added to the funding problem and the HUD micromanagement, it just seems that our programs are under assault, and I predict that many housing authorities will be out of business within

a few years. PHADA has supported for over 15 years national policy alternatives that preserve the public housing asset and improve

the quality of the stock and the way we conserve residents. We believe in deregulating public housing and getting the true flexibility

that QHWRA promised. We want to support and maintain communities within public housing and encourage appropriate levels of

self-sufficiency by residents.

We do endorse the Moving to Work programs that have been advocated. The recently introduced Moving to Work Charter Program

Act, Senate 3508, would make the demonstration permanent, expand a number of participants from the current 27 to 250 agencies

of diverse size. In the experiences of the existing Moving to Work

communities like Keene, NH, Portland, OR, and others, demonstrate that housing authorities can establish rent structures that

preserve affordability while rewarding work. There are documented

positive outcomes in these housing authorities, and there are no

documented outcomes of PHAs rushing to the marketplace with

their rents, which is a fear many of our advocate friends have.

Others would say these are anecdotal. Well, the anecdote of the

Keene Housing Authority added to the anecdote of the Tulare

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County Housing Authority are real tenants and many of them who

have successfully transitioned from welfare to work while maintaining affordability.

We’ve had experiences in my housing authority with unanticipated outcomes of the existing rent structure where people quit

their jobs when the earned income disregards expire. PHADA has

promoted rent reform for the last 15 years. In 2004, we introduced

our rent reform proposal. It has two alternatives we believe would

resolve this problem. One is a tiered rent system that resembles

the Low-Income Housing Tax Credit System. It can be made affordable. And the second is a simplified income-based rent system. I’ll

stop right there, Mr. Chairman, and take your questions later.

[The prepared statement of Mr. Gutzmann follows:]

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Mr. TURNER. Thank you.

Mr. Moses.

STATEMENT OF GEORGE MOSES

Mr. MOSES. Thank you, Mr. Chair. Thank you to the subcommittee. My name is George Moses. Thank you for the opportunity to

testify before the House Government Reform Subcommittee on federalism and the Census. I am chair of the board of the National

Low Income Housing Coalition. I reside in Pittsburgh, PA, where

I am a tenant organizer, member of the Southwestern Pennsylvania Alliance of HUD Tenants and a member of the Board of Directors of the Housing Alliance of Pennsylvania. I was a projectbased Section 8 resident for 15 years until last month.

The National Low Income Housing Coalition is focused exclusively on what is in the best interest of people who receive and

those who are in need of Federal housing assistance. These are

people with low incomes. Our research has shown that there is nowhere in the United States where you can work full time at minimum wage and afford the local fair market rent for a one-bedroom

apartment. The private market does not meet the housing needs of

the lowest-income Americans.

In Pittsburgh, there’s a deficit of more than 15,000 units affordable and available to people with low incomes below 30 percent of

the area median. Unless this reality changes, the Federal Government has to help bridge the gap between housing costs and what

low wage earners and people on fixed incomes can afford.

If we define self-sufficiency as being able to take care of one’s self

and one’s family, I would argue that all residents of Federal assisted HUD housing are self-sufficient because they have found

ways to afford housing in a market where there simply are no affordable alternatives.

HUD’s Moving to Work has in its name the words ‘‘moving and

work’’ but this demonstration with public housing cannot show

itself to have accomplished its goal, reducing costs or increasing

housing choices. The jury’s still out on this demonstration model to

achieve its goals. HUD’s own reports as well as the HUD’s inspector general have issued inconclusive reports on Moving to Work.

We fear the real motive behind the proposed expansion of the Moving to Work is to give PHAs the authority to disregard their statutory requirements of meeting the needs of the lowest-income people

in an affordable way in order to cope with the continued cuts in

the PHA budgets caused by Congress’s failure to appropriate significant funds to run PHAs. This is not an acceptable reason to

take a huge risk in the well being of millions of people with modest

means.

To many neighborhoods, they might not look like good neighborhoods. My neighborhood was such a neighborhood, but there was

a lot of good neighboring. We must be extremely careful when we

interrupt this neighboring and community under the name of revitalization and deconcentration of poverty. When you tear all that

apart, you don’t know your neighbors; you don’t know where to

turn when you need a baby sitter, a friend, a quart of milk or just

someone to talk to.

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From our perspective, it’s about choice. HOPE VI demolishes

public housing under the name of deconcentration but only provides vouchers that can be used in other high-poverty neighborhoods. This is not choice. To claim to want to deconcentrate but

then offer no real choice for how extremely poor people can afford

to live in low-poverty areas is much more about displacement of the

Nation’s Federal housing safety net. And I would recommend that

folks read, Root Shock, by Dr. Mindy Fullilove, who explains this

very well.

Congress’s appropriations must ensure that housing assistance

funds serve the lowest-income households. In Pennsylvania, more

than 87 percent of the households with incomes below 30 percent

of the area median pay more than half of their incomes toward

rent. Only 10 percent of households with incomes between 31 and

50 percent of area median do so. In Ohio, more than 90 percent of

the households with incomes below 30 percent of area median pay

more than half of their incomes toward rent.

The National Low Income Housing Coalition proposes a new

housing production and preservation program, a national housing

trust fund. Such a fund exists in H.R. 1461 and would provide new

off-budget resources to produce and preserve housing for extremely

low-income people. This solution is desperately needed and is at

hand. We must know how to—so we know how to solve our Nation’s housing crisis by producing and preserving affordable housing for low-income folks. This is a tremendous network of professionals ready to take on the task. They just need the resources to

do so. Thank you very kindly.

[The prepared statement of Mr. Moses follows:]

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Mr. TURNER. Thank you.

Mr. Riccio.

STATEMENT OF JAMES RICCIO

Mr. RICCIO. Mr. Chairman and committee members, I’m Jim

Riccio of MBRC, a national nonprofit, nonpartisan policy research

organization. Thank you for inviting me to testify today.

Most people would agree that public housing residents who can

work should work. After all, these are some of the poorest people

in some of the poorest places in the Nation, and it’s hard to imagine they can escape poverty or their communities can reduce the

concentration of poverty, or that public housing itself can remain

viable without making work a part of the solution. Simply put,

many residents need to earn more money, and most people would

agree that something should be done to help them to do that.

But what should be done? Unfortunately, this is a field in which

credible evidence about effective strategies is hard to come by, and

policymakers usually have to guess about what would work. Today

I want to tell you about one approach that we now know is effective. It’s called Jobs Plus. It’s the most carefully evaluated jobs initiative ever tried in public housing. It was a focus of a six-city evaluation sponsored by HUD and the Rockefeller Foundation, along

with other funders. MBRC conducted the study.

The good news is that this study, which was conducted like a

clinical trial using a control group, shows that Jobs Plus substantially increased residents’ earnings in the mainstream labor market. It thereby helped residents advance toward self-sufficiency,

which is a longstanding bipartisan public policy goal now enshrined

in QHWRA. How did Jobs Plus do this? First, it attacked the problem with a three-component intervention. It offered assistance with

employment and training at a job center located conveniently within the housing development. It gave working residents a break on

their rent by introducing new rent rules, allowing them to keep

more of their earnings, and these were rent moves that were simpler, broader and much more generous than in QHWRA. And it

spread work-related information through residents’ own social

neighbor to neighbor networks within the development.

In addition, Jobs Plus was not a limited-slot program but

reached out to all working-age residents of the development. Finally, Jobs Plus was not just a housing authority program. Instead,

it was accomplished through a local partnership that involved the

Welfare Development, Workforce Development Agency and work

force representatives. Now let me tell you a little bit more about

what the sites achieved and how big a difference they made. Three

of the sites, Dayton, OH, Los Angeles, and St. Paul, fully implemented and sustained Jobs Plus over several years. From their experiences, we learned not only that it is possible to integrate a

work focus into the day-to-day operation of public housing but also

how to do this. In these three sites, we found Jobs Plus increased

residents’ average earnings above and beyond the control groups’

earnings by over $1,100 per year during the 4-year followup period.

This is a 14 percent improvement over the control group, which

was made up of similar residents living in public housing elsewhere in the city. Also, the size of the earnings effect grew larger

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over time. In the 4th year, in fact, it exceeded $1,500 per resident,

which is a 20 percent improvement, and there was no sign of the

effect going away by the end of the study. And, cumulatively, by

the end of the study, residents who had worked were substantially

better off than they would have been without Jobs Plus by about

$6,000 on average. The program also had large earning effects for

a wide range of residents including welfare recipients and those not

on welfare, men as well as women, African-American, single mothers and legal immigrants from Mexico, Central America, Southeast

Asia and many other parts of the world. By increasing residents’

earnings, Jobs Plus helped deconcentrate poverty within public

housing. This was especially true in tight housing markets where

resident move-out rates were low. Deconcentrating poverty is another important core goal, and Jobs Plus contributed to it by helping existing tenants not by replacing them with new higher-earning

residents.

Finally, it’s worth noting that Jobs Plus achieved its results at

fairly modest costs. The overall net government expenditure on

Jobs Plus per person totaled roughly between $2,000 to $3,000 over

the 4-year period, including the cost of the rent breaks. So, to sum

up, the Jobs Plus results deserve special attention because they occurred in high-poverty public housing environments; the effects

were substantial and sustained; they occurred for very different

types of people and places; they occurred in good economic times

and bad; they were achieved for modest costs; and they are based

on highly credible evidence. As a result it’s likely that many more

public housing authorities would embrace an opportunity to implement Jobs Plus if they had the funds to do so. So the evidence of

Jobs Plus’s effectiveness in hand, Congress may wish to consider

introducing Jobs Plus in additional public housing developments

across the country. It need not try to do this everywhere, but it

would serve an important public purpose to replicate Jobs Plus

even on a limited basis where the need is great and where the local

commitment is strong. Thank you.

[The prepared statement of Mr. Riccio follows:]

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Mr. TURNER. Thank you.

Mr. Roberts.

STATEMENT OF BENSON F. ‘‘BUZZ’’ ROBERTS

Mr. ROBERTS. Thank you, and good morning. I’m Buzz Roberts.

I work at LISC, the Local Initiative Support Corp. One brief word

about LISC, our job is to raise capital mostly from the private sector and to provide it to nonprofit community organizations that are

rebuilding urban neighborhoods and isolated rural areas, and we

do that all over the country through 33 local offices and a national

rural development program. Over our 26 years, we’ve raised about

$7 billion and put that on the street in low-income communities,

and that includes almost $1 billion last year alone.

Today, Judy Kennedy and I are going to cover some of the same

territory. So in order to make this as efficient as possible, I’m going

to talk a little bit about how Federal policies come together on the

ground, and Judy’s going to talk a little bit about some specific policy recommendations that flow from all that. Over the last 20

years, we have seen the emergence of a new production system for

affordable housing and a wider range of community development

activities at the local level, and this system has been flexible and

decentralized and well integrated. And it is distinctive because it

is market-driven; it is locally controlled; and it is performancebased. So there are a lot of checks and balances on the system that

make it work. And what it does very effectively is it combines a variety of public policies. In fact, a cluster of policies has really enabled this system to emerge and to be sustainable over time with

private sector investment, and private sector investment is crucial

to this whole system. Now, part of that is that there are limited

Federal resources, so in order to stretch them as far as possible,

it’s great to bring in private capital. That’s fine. But there are

other important reasons as well. Private capital brings a discipline

to the system that you just can’t get with public funds alone. And

for those of us who care about not just providing housing per se

but also rebuilding communities, access to that private capital is

fundamental to healthy communities well beyond the reach of a

particular deal or a particular loan, and a system that works encourages the private sector to do more and more in these communities. So we can really reverse the vicious cycle of disinvestment

and turn it into a virtuous cycle of reinvestment, and we’re seeing

that happen in some of the toughest communities around the country, urban and rural.

So how does it work? I’d like to sort of walk you through a little

table on page 3 of my testimony. It looks like this. It’s somewhat

simplified but not too awfully simplified because it shows you how

financing comes together. One piece is equity investment. That’s

what owners invest. In a typical affordable housing production

deal, that’s going to come from low-income housing tax credits. In

a more traditional private sector model, equity investors are going

to look for cash-flow and capital appreciation. Affordable low-income housing isn’t going to provide either of those things. So instead, the Low-Income Housing Tax Credit does that, and it is performance-based, and so there are a lot of incentives from equity inVerDate 11-MAY-2000 12:27 Apr 11, 2007 Jkt 000000 PO 00000 Frm 00045 Fmt 6633 Sfmt 6633 C:\DOCS\33392.TXT HGOVREF1 PsN: HGOVREF1
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vestors to plan and build and operate these properties very, very

tightly.

Second is a first mortgage. This is obviously a traditional source.

Banks traditionally originate these loans. And the third is gap financing. And that’s pretty much as it sounds. When you look at

how much a bank can lend and how much investors can invest,

there’s often a gap in order to make the deal really work, and

that’s where gap financing comes into play.

Now, what about this system? What about the Federal policies?

Pretty simple. Equity investment comes from housing credits, as I

said. States allocate those credits according to a very competitive

allocation plan, and oftentimes, banks make those investments.

And guess what, CRA is an important reason they do.

Additionally, Fannie Mae and Freddie Mac are also major investments based on housing credits. On first mortgages, again, CRA

makes a big difference here. It encourages banks to make those

loans. Those loans are often profitable and safe, but they’re what

we call high-touch loans. They’re not easy to do. They take time

and effort. And if you’re just trying to maximize your profit, you

might want to find a bigger easier deal to do. And the Fannie Mae,

Freddie Mac affordable housing goals encourage Fannie and

Freddie to buy those loans on the secondary market. So it’s a very

important part of the policy puzzle.

And, finally, the gap financing typically comes from home and

CDBG and a variety of other Federal sources. HOPE VI often plays

this role in the redevelopment of public housing. So you put that

together, and you’ve got yourself a deal.

[The prepared statement of Mr. Roberts follows:]

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Mr. TURNER. Thank you, Mr. Roberts.

Ms. Kennedy.

STATEMENT OF JUDY KENNEDY

Ms. KENNEDY. Well, first let me compliment the committee on

the hearing. It’s the first of its kind in either chamber that I’m

aware of. The devil’s in the details of a lot of things, but certainly

the description Buzz just gave, brings home to you there are a lot

of details and a lot of devils in community reinvestment. Our group

represents 50 of the largest banks and 50 of the blue chip nonprofit

lenders that many of you know of because they’re in your home

State.

The concept was actually established by David Rockefeller before

community reinvestment. He’s still alive. He’s 91. I haven’t given

up hope that somebody’s going to lure him to Washington for a

hearing. His premise was that if banks couldn’t get involved in

very low-income housing on their own, they could pool their money,

they could pool their risks, they could hire the right skill sets for

originating, underwriting and servicing loans affordable to very low

income, I mean under 50 percent of area median income. Our nonprofit lenders by and large as the San Francisco Fed has documented are providing affordable housing to families under 60 percent of area median income to the degree of about 90 percent. It’s

Self Help in North Carolina. It’s Ohio Capital Corp. and the National Affordable Housing Trust in Ohio. And so this is the new

face of affordable housing. It’s beautiful. It’s very different from

what you’d think of or the public thinks of in terms of programs.

I heard former Fed Chairman Paul Volcker speak and the difference it’s made in the last 30 years as taking the rough edges off

of capitalism. And in a sense, that’s true, but as much as anything,

it’s been an exciting motivation to go into emerging markets. Without which I think our cities would look very different.

All you have to do to understand CRA is drive up 14th Street.

You get a sense of a neighborhood that over 20 years has been totally revived by infusion of private capital. So every study that’s

looked at this has confirmed that it’s an enormous success. Total

data’s hard to come by, but focus on some of these numbers: $16

billion invested in low-income housing over about a 10-year period

by just national banks. Take a look at the Federal Reserve’s report

from 2000, that banks have put about $1 trillion into low-income

lending over a 6-year period. Take a Treasury study in 2001 that

said increased home purchase loans to low-income, under 50 percent of area median income, up 94 percent in 5 years. The numbers

are extraordinary even though they’re not totaled. Clearly, this

works. Clearly, banks know that it works and are excited about the

business. I’ve got to bring home though that there are some things

that we need to increase the flow of private capital to low-income

neighborhoods.

Buzz spoke about Fannie and Freddie buying the loans. Unfortunately, the loans that they buy are not the same loans that banks

are required to originate. Fannie’s affordable housing goals are

very different from banks, and it’s allowed them frankly to double

count, triple count the House would fix this. Mr. Oxley and Ney’s

bill would reform the GSE bills so they would finally have to proVerDate 11-MAY-2000 12:27 Apr 11, 2007 Jkt 000000 PO 00000 Frm 00055 Fmt 6633 Sfmt 6633 C:\DOCS\33392.TXT HGOVREF1 PsN: HGOVREF1
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vide a secondary market for loans affordable to low-income families.

On the Senate side, Senator Santorum, Sarbanes and Reid are

in agreement so I hope this would happen soon. We do have some

CRA rule problems. I think we had a problem a couple years ago

when some of our bank regulators didn’t understand the enormous

impact of CRA on home building. Take, for example, that the LowIncome Housing Tax Credit is involved in 40 percent of all rental

housing starts in our country and 98 percent of all new rental affordable to low income. Once the bank regulators understood the

impact of gutting the Community Reinvestment Act, three of them

stopped, reconsidered and did the right thing, and I give great

credit to the OCC, the FDIC and the Federal Reserve for coming

out with a rule for what they call intermediate small banks, banks

between $250 million and $1 billion. It’s an improvement over current regulations. Unfortunately, the Office of Thrift Supervision

without real public consultation or notice totally gutted Community

Reinvestment Act regulations, and that has not been fixed despite

the fact that there’s a new OTS director for almost the past year.

So we need to bring all of the rules into alignment, and we need

to do the right thing. And it would also be sensible to allow big

banks credit for community development lending. Ironically, this

lending on affordable multifamilies doesn’t get any CRA credit now

for banks over $1 billion. It maybe gets a little icing on the cake,

but it’s not a layer on the cake. That should be fixed.

Finally, what we’ve learned the hard way is it’s hard to do anything for public housing with the micromanagement that, frankly,

the pulling out the rug from underneath the Section 8 and the

block grant funding and public housing funding now. You know,

when banks are investing for CRA, they’re investing your savings

and mine. They have to be prudent about maybe taking a little less

return on the loan, but they do need to have a return to the principle. And until 2 years ago, if a borrower came in and said, I’m

going to take all the Section 8 vouchers that are presented to me

in Columbus, anybody that comes with a voucher, I will be tickled

to rent to, that would get a little increase in the mortgage amount

because you knew you could count on Section 8 funding. In other

words, he could create a couple more affordable housing units. By

virtue of what the administration’s done, Section 8 is now a liability in underwriting. In other words, my lenders are asking for reserves if a borrower says he wants to do Section 8.

And then, finally, what Katrina has taught us is, you can’t rob

Peter to pay Paul. It doesn’t make sense to take money away from

Missouri or Ohio for those States. They need their own dedicated

resources. Because their rents were so low pre-Katrina, we think

they need Section 8 vouchers on top of the generous tax credits

being provided. And finally, I’m not going to go into the details

with this. Just know that we’ve been following the Basel Accord,

the international risk-based capital rules. Right now, American

regulators are supporting us in saying banks’ investments in communities shouldn’t be subject to the kinds of capital requirements

on investing in Bill Gates’ latest venture. And I hope that will all

come together. We’ll be following it closely. Thank you for giving

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us this opportunity to talk about this lovely new face of affordable

housing.

[The prepared statement of Ms. Kennedy follows:]

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Mr. TURNER. First off, I want to thank all of you again for incredible testimony, incredible insight into this issue and topic. But as

you are aware, our subcommittee has been taking a look at public

housing and affordable housing and the mechanisms for funding

that are out there, its impact on neighborhoods and communities

and the impacts on residents. The discussion that we’re having on

the ability to assist residents in transition, providing services to

residents who are in public housing, recognizing that communities

that have public housing are hosts to those housing, it’s part of the

fabric of the neighborhood and the community. And how do we

make certain that the neighborhoods and the community and the

public housing authorities are meshed? And then the issue of the

capital markets, and how do we find private capital to support affordable housing?

And, Buzz, you gave an incredible discussion of the tax credit process, and your chart is incredibly helpful. You took a $150,000

unit and indicated $90,000 of the money would be coming from tax

credits, $35,000 from a first mortgage, $25,000 from a gap financing, which could be in the form of additional public subsidies that

come from either CDBG or home dollars that a community contributes.

In their discussions, both Ms. Kennedy and Mr. Roberts, you acknowledge also that some of these Low-Income Housing Tax Credit

developments would seek residents with Section 8 vouchers and

provide housing for them. When you look at the ability to provide

private capital to these projects, the amount of subsidy does get to

be significant. I mean, even though there’s a line of tax credits

being a credit, it really is in the form of a grant. And those are

Federal moneys that are going directly to the project through private hands. They’re exchanging a credit that they’re going to receive off of their income taxes in exchange for the dollars that

they’re handing to the development.

So of the three categories that you identified, only one is fairly

clear or clean of any other additional subsidy. Then once you take

the tenant, and if they have a Section 8 voucher, you have additional subsidy that’s being laid on top of that. Perhaps you could

speak for a moment as to why this is still a good deal even though

the tax credit line item, the gap financing, which could be CDBG

dollars or home dollars, and the Section 8 voucher placed on top

of it are all looking to some type of Federal program or source?

Mr. ROBERTS. Right. Well, it costs a lot of money, and it takes

a lot of subsidy in order to serve very low-income tenants on a sustainable basis. And you know, it’s just a matter of math. If you

have a tenant who is earning $20,000 and they can afford to pay

30 percent of that for rent, that’s about $500. First, off the top are

things like utilities and maintenance and repairs and management,

and that just doesn’t leave a lot of cash-flow available to carry a

private mortgage.

So if there were plenty of supply of affordable rental housing,

this would not be a worthwhile thing to do. But I would also say

there are four or five specific kinds of cases where there is simply

no substitute for production. One is where you have deteriorating

stock that is dragging down an entire neighborhood, and unless you

fix that stock, you are going to lose a lot more not just affordable

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housing opportunity for poor people but also moderate-income

housing for moderate-income people and middle-income people in

that same neighborhood. We lose entire neighborhoods because of

this kind of deterioration, and a few billion dollars of prevention is

worth manyfold that in cure.

Second is there is some housing that serves populations that

have special needs, whether they’re homeless or elderly or disabled

or struggling to become independent off welfare or whatever the

case is. In those special needs housing situations, you have to

produce because there is an integral service and housing system

that enables folks to live stable and independent lives. And it’s

much cheaper to do that than to have mentally ill people unstable,

committing crimes landing in acute care in hospitals, landing in

jail; much cheaper than paying through the Medicare/Medicaid system for nursing homes because there’s no decent independent living facility for the elderly and the like. And third is, there are some

places where we have just outright supply shortages, and you have

to produce in order to overcome those.

Ms. KENNEDY. Can I just add to that?

Mr. TURNER. Ms. Kennedy, if you would pause for a second. I

think almost all of you are aware, I’m a big fan of Low-Income

Housing Tax Credit. So having served as mayor of my community

two terms, 8 years, one of the things that we had undertaken and

were utilizing the Low-Income Housing Tax Credit for redevelopment, the senior housing is an area where we were most effective,

even taking two abandoned structures where we combined it with

historic tax credit to cause redevelopment. One of the developments—actually two of the developments ultimately my grandmother moved into. She moved into one and then relocated into another one when we opened the next one. And she was not receiving

a Section 8 voucher, although she qualified for the income requirements. And so I’m aware also that you get a mix of the initial subsidy that occurs, and then some units where the initial subsidy occurs, but then also the Section 8 voucher provides additional subsidy. So the unit as a whole has a different cash-flow than just a

public housing facility itself.

But my question—and Ms. Kennedy, we won’t miss your comments. I will give you an opportunity also at the end to add anything that you want to add as we go along. I will give you all an

opportunity to add to the record.

But the attraction of capital to these projects is really how

they’re tauted. The question would be to Mr. Roberts, Ms. Kennedy

and Mr. Gutzmann—aware of any studies—and also, Mr. Riccio, if

the other two of you are aware, or Mr. Moses, you can also chime

in—of any study of comparison of the Low-Income Housing Tax

Credit as a vehicle for providing affordable and low-income housing

versus straight public housing, and its cost, overall subsidy cost to

the taxpayer? I’m unaware of an actual comparison of how we can

cut a check for public housing authorities to create a unit. We can

put together a development vehicle for Low-Income Housing Tax

Credit program which creates a unit. In the end, the cost to the

taxpayer—I wonder if you are aware of how that comparison

flushes out.

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Mr. ROBERTS. I’m not sure I have seen a study about it, but I

would say that our experience with housing credits has been I

think unique in the history of Federal housing policy. And that’s

because it’s a pay-for-performance credit. And if you only pay for

success, you set up a system that really creates success. So in the

housing credit world, we see foreclosure rates, which is how we

measure failure, at 0.02 percent annually, 0.02 percent annually.

That is a much lower foreclosure rate on low-income rental housing

without the benefit of Federal guarantees or guaranteed rent flows

than we see on any other form of commercial real estate, including

luxury high rises, office and retail.

Ms. KENNEDY. I guess you hit the nail on the head with the story

of your grandmother. When Mr. Oxley and Mr. Ney wanted to understand what pulling the rug out from Section 8 meant in their

districts, Ohio Capital Corp. took them to a lovely tax credit building, introduced them to a lovely little old lady who had also lived

in the building affordable to under 60 percent of area median income with a little help from her son. She didn’t have a voucher.

Until he went to Iraq, and he was re-upped. And all of a sudden,

she needed a voucher to be able to stay in that apartment. So I

guess I would say, think about this continuum of need. What CRA

did brilliantly—let’s use Chicago as an example where there’s still

a very strong housing stock that just needs some rehab. How can

affordable to under 60 percent of area median income—there

doesn’t involve tax credits, but in Chicago for elderly and disabled,

there is a need for tax credits, and in Chicago, there is a need for

tax credits plus Section 8 plus home because of the cost of construction. And in Chicago, there is a need for public housing. So all of

these resources put together address different places along the continuum of need.

Mr. GUTZMANN. Mr. Chairman, I would just echo that continuum

concept. If you look at, again, the entire supply, if you add in the

tax credit and the Section 8 and the public housing, we’re still talking about 4 to 5 percent of the housing supply in America. That’s

all we’re serving with all of these products, and there is a continuum, and they serve very different audiences. Tax credits can

never reach the income levels that public housing serves. The tax

credit deals generally are targeted to people at 50 to 60 percent of

area median income. Public housing across the country from the

backward-up model of who applies, that’s who you’ll serve; it serves

20 percent of AMI nationally. So it’s, again, it’s a slice of our inventory, 45 percent nationally, and it’s really a gut check of America

on how we want to serve. There’s no secret to get those kind of

deep subsidies. It costs money.

And last point I’d make, in St. Paul, it costs me $650 a month

to run a public housing unit. The backward model of rent based on

income, my average rents are $200. I can only serve people at 20

percent of AMI if I get $450 a month from HUD. And if we want

that product deeply affordable, then we have to pay. There’s no

other way to really make it work. We’re kind of saying that now

we don’t want the product, is really the state of our world. The appropriations have basically already written off 20 percent of the

housing supply of America. And we’re going the wrong direction

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with our funding, and there’s just no secret. It costs money to serve

low-income folks.

Mr. TURNER. Mr. Moses and Mr. Riccio, I want to change topics

for a moment because, in the two different testimonies, there was

a great comparison of the issue of what I consider the transition

process for low-income housing. Obviously, our seniors or those who

have a disability who are in our public housing or some other condition that is making it difficult for them seeking employment or

making a transition, impediment if you will, are those individuals

we want to make certain we provide that safety net in the continuation of housing opportunities in public housing? All the other

studies that have been done have indicated that the most important thing that we could do in public housing besides providing

clean affordable safe housing is the intervention process of assistance for those individuals that have the ability to transition to

independence; that being the goal of those who are in public housing, is the same goal as the providers, same goal as the taxpayer

and the families that are impacted. That is a difficult process in

that the circumstances of each individual who’s in public housing,

their needs, the assistance that they need and intervention for

transition will vary widely.

In looking at the public policy issues of how do we make certain

that people are in an environment that encourages transition and

independence, one of the ills that we saw was economic segregation. When you look at the model of a small town, those individuals

who are in an economically diverse small town, their children, their

families tend to do better in the opportunities for transition than

individuals who are in high-concentration poverty neighborhoods.

And you know, when I was the mayor of Dayton, I lived in one of

the lowest-income census tracks in the city. And I can tell you that,

as the neighborhood was transitioning, one of the things that was

important for the interaction in the community was an understanding of what’s even necessary as children looked to their dreams as

to what they might become in the future, as to what’s necessary

for them to do now, what’s necessary for them to do later, if someone wanted to say, I want to be a lawyer, it was important that

there was a lawyer in the community that can say, what does it

mean, if you’re going to have that goal and pursue it, what is that

path? So economic segregation we know is an ill that we want to

remedy. I’m not very fond of the word deconcentration because it

sounds like your goal is dispersal of the individuals instead of improving the lives of the individuals, and in our public policy review,

economic segregation has proven to be a cycle of poverty.

Mr. Moses, you gave a great description of the concept of community that I think is one that certainly I saw in my neighborhood,

and I think is very important.

Mr. Riccio, you gave a great—your testimony was a great public

policy outline of the types of topics and issues that we’re addressing. So I’d like if we could for a moment have a discussion, and

we’ll start with Mr. Moses and then Mr. Riccio.

I’m also very fond of saying, those of you who have been to my

hearings before, you know that another word that I hate is

gentrification because I’ve never met a gentry in my life. So when

we look at communities that are in transition that are going to diVerDate 11-MAY-2000 12:27 Apr 11, 2007 Jkt 000000 PO 00000 Frm 00076 Fmt 6633 Sfmt 6633 C:\DOCS\33392.TXT HGOVREF1 PsN: HGOVREF1
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verse economics, it does appear that there is an improvement in opportunity for everyone who is in the community. And Mr. Moses,

I’d like you to expound, if you would, on your statements because

your statements could be taken to be cautionary of making certain,

as you’re making this transition, that you be sensitive to the issue

of—that you have a community that you are dealing with, relationships and individuals, much as we should have been when we put

the interstate highways through cities and didn’t take into consideration the fabric of the communities that we divided. Or it could

be an alternate view of the issues of the public policy of making

certain that we have economically diverse communities.

And Mr. Riccio, if you would, in following up on that, if you could

talk to how our having diverse economic communities might relate

to the issue of transition economically.

Start with Mr. Moses.

Mr. MOSES. Thank you. I appreciate what you said, sir, and I

look at what I used to do when I came to Washington, when I first

came here, and I met Cushing Dolbeare some years ago, and she

has been my mentor in this whole process. There was a place I believe that was called the Chili Bowl. It was a great place where you

could go get food, great, great restaurant. And I remember the guy

telling me the story that as he was growing up, and his dad was

there; he knew everybody in the two-block radius. Now he knows

no one. This is the story that’s happening all across America. In

Pittsburgh, it’s the same thing. When you break up that fabric—

I remember once taking some foundation folks in Pittsburgh on a

tour of the public housing communities in Pittsburgh because all

they had was this negative stereotype of who lives in public housing. And one morning, we got up, and we took a bus, and we rode

through the communities, and they saw people getting up in the

morning, going to work with their children, and fathers and mothers going, doing jobs. And then we took them into some folks’

homes in public housing. And they were amazed to see the folks

live the way they did, and the lady says, well, this is my home,

why should it not be that way? Your home would be the same for

you. This is my home. And she was really amazed at that. Why,

I could not understand. But she was really amazed at that. And

then we came through what we call was the HOPE VI thing. I

lived through the urban renewal when the lower hill was removed,

and my family was displaced, and we had to go other places. It

happened all over again when we did this with the HOPE VI thing.

People who had got removed in the 1960’s were now being displaced in the 1990’s, and the alternative was, people again were

losing that connection of family, of friends. When I lived in these

communities—in Bedford Dwellings. It was called Bedford Dwellings. It was a 1,700-unit complex that was straight-lined. But in

there, there were different communities. There was Francis Street.

There was Summers Drive. Whiteside Road. And when I get back,

I’m going to a Whiteside Road reunion where we all get together

again, but when they came in and said, we’re going to make it better, and we’re going to tear it down and rebuild, a lot of folks got

scared because they remember what happened in the 1960’s, and

being not included in the planning process of what was taking

place, families and neighbors got split apart as if you dropped a

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bomb back onto the community. And people who—I remember as

a young man coming up, and there was a young lady. She’s referenced in this book, Root Shock, which chronicles—Pittsburgh, the

study was done there—that we could go to her if we had a problem;

if you needed some, a little bit of money to pay your rent, if you

needed a baby sitter, she would settle disputes. She was the matriarch of the complex.

But when they came in and they said ‘‘boom,’’ everybody went.

They pushed us places that we had no existence of, no knowledge

about. And that fabric of quality, of neighboring, was lost.

Who do I turn to when I need a babysitter? Who do I turn to

when I have a problem? And as some of this, as we are led to believe in this Moving-to-Work experience, in Pittsburgh, at least,

they said they were supposed to create all of these tiers, and it was

not done.

All of this case management, all of these things that were supposed to keep us together, it did not happen. And as a result, in

some instances, 450 families, they don’t even know what happened

to them. Still do not know what happened to them.

And so when we look at this, we must be very sensitive to what

we do when we come into a community, and, for the sake of revitalization, we tear that inner fabric that makes a neighborhood, that

makes a community. And we must be very sensitive to that.

Mr. TURNER. Mr. Moses, that was a very compassionate and

great description of that issue.

Mr. Riccio.

Mr. RICCIO. I would like to make two comments about mixed income. One is creating mixed income populations within public

housing. One way to do it is to try to get higher-income people to

move in. That doesn’t necessarily do anything, at least in the immediate term, for the people who are already living there.

Another way is to try to help the people who are living there

move up. And that is the effect that Jobs-Plus had, particularly in

communities where there was not very high turnover in public

housing. So you can raise average earnings, increase the mix of income, or intervene, as Jobs-Plus did within the Public Housing Development itself. That is one strategy.

Another strategy is to move people out of public housing to

lower-poverty communities. There is another very rigorous study of

the strategy to do that, the Moving to Opportunity Study, which

used a random assignment methodology. So it was a very credible

study, and it found that although there were some positive outcomes on safety and other issues, there were no effects on self-sufficiency outcomes. There was no increase in employment and earnings.

So I think the idea of just moving people to a different environment, to a lower-poverty environment, and expecting that is going

to change their economic experiences in the short term, doesn’t

seem to be supported by the evidence we have so far.

It may be that if you move people to lower-poverty communities

but you connect them to an employment-focused intervention that

tries to help them adapt to work and take advantage of new opportunities that might confront them in that community, you might

see some change in economic outcomes.

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Mr. TURNER. We turn now to Mr. Clay. And I appreciate his patience as we have had this discussion.

Mr. CLAY. Mr. Chairman, let me ask Mr. Gutzmann, have rental

policies under QHWRA, such as the flat rent option, as opposed to

families paying 30 percent of their income, had a positive or negative effect on your members’ efforts to stimulate economic self-sufficiency, and are the results the same between large and small or

urban and rural PHAs?

Mr. GUTZMANN. Thank you. Sir, they have had some positive effect, I would say. But QHWRA ultimately limits any rent structure

to 30 percent of median income. You can play around with flat

rents, ceiling rents a little bit, but ultimately QHWRA did not repeal Brook, and Public Housing can ultimately not charge more

than 30 percent of adjusted gross under any scheme.

So you can have flat rent models, ceiling rent models, but it is

not a true market model, and perhaps—nor should it be. It still

should be affordable. I do not think there has been any difference

in application across large or small.

The fact of the matter is, it is still a very incredibly complicated

rent-setting system. If you think about it, there is basically one

rent for every person who lives in public housing. They all have

their own rent. And that is 1.2 million households with their own

rent.

It is very complicated. It is very affordable, but it is very complicated. There are always charts we have published on all of the

steps you have to do to disregard income. Congress just passed a

new one with the appropriation bill that disregards military income.

So housing authorities have to figure that out. HUD is over us

on every little mistake; they say we are inefficient if we have one

mistake. But let’s just think about it. There is probably 1.2 million

rents for 1.2 million households. It is very complicated.

Mr. CLAY. Sounds complicated. In your testimony you mentioned

the Jobs-Plus program. Please offer us some examples of success

stories from St. Paul’s Jobs-Plus programs and how they can aid

poverty deconcentration efforts.

Mr. GUTZMANN. Thank you, sir. We are proud to be one of the

demonstrationsites in St. Paul. We had the program for 7 years.

The headline was that the control site, when it began, only 16 percent of the people were working; and when it was over, 51 percent

were working. And their incomes doubled during that period of

time.

Mr. Riccio was a close partner. MDRC evaluated it. The trick,

though—and I talked to Jim about this—it costs the Federal Government $1.4 million for our success. Those 350 families really became successful because we fixed their rent problem.

We did not increase their rent when they got their job. And that cost us lost rent, and HUD paid. And it cost us $1.4 million. HUD

paid. So my comment is, it is a very successful model. People went

to work, doubled their income, but it was kind of costly.

Mr. CLAY. I don’t see that as too costly.

Mr. GUTZMANN. I personally do not see it as too costly.

Mr. CLAY. We spend money on other objects around. Thank you

for your answer.

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Mr. Moses, in your testimony you talked about the Chili Bowl.

It was really Ben’s Chili Bowl, still here, located at 13th and U

Streets Northwest. While you are here, you may want to visit. Let

me ask you about QHWRA——

Mr. MOSES. Are you buying?

Mr. CLAY. It is very good. I have been going since a teenager.

QHWRA does not require PHAs to replace units that are dilapidated on a one-for-one match with units built in their place.

What impact does this have on those at the lower economic rung

of public housing?

Mr. MOSES. Thank you, sir. I would say it has a great effect. I

think that has been one of the most impacted policies that has

been—because from Pittsburgh, they demolished millions—thousands of units. And when you do not replace those units, you lose

the affordability, you lose units of affordability for folks.

As I have said in my testimony, that Pittsburgh, by the University of Pittsburgh’s report, that we are lacking 15,000 units of affordable accessible housing. And so when you have a PHA demolished, let us say 1,200 units of affordable public housing units, and

only rebuild, let’s say, 480 units, and of those 480 only so many are

public housing units, so many are tax credit units, so many go for

market rate, the loss becomes great. So it does affect folks, it does

affect where folks live and how they—and where they live and who

they live with.

Mr. CLAY. Thank you for that response.

Let me ask you one other question. Does a 1 or 2-year exemption

for those beginning to work again provide enough time for them to

regain financial stability before facing rental rate increases? The 1

or 2 years, is that enough time?

Mr. MOSES. Good question. And personally I do not know, sir. I

would, in the jobs market that is out there, in—and as we have

stated where the minimum wage, which most of our workers earn,

and they cannot afford nowhere; if they go up the pay scale, it

might be, but they would have to get at a scale where we are talking about $15 an hour to maintain a 1-bedroom unit. So 2 years,

I am looking at, and I would say it would be close, but it would

be very close to doing that.

Mr. CLAY. Thank you for your response. I am going to move

down the line.

Mr. Riccio, are PHAs better suited to participate in Jobs-Plus if

they are moving toward communities, or if they participate in other

types of public housing demonstrations?

Did you hear the question.

Mr. RICCIO. Jobs-Plus, in fact, was—the Jobs-Plus sites were, in

fact, Moving-to-Work sites. So they did have additional flexibility

to change the rent rules and to do other things in support of the

program. So certainly the ability to change the rent rules was fundamental to Jobs-Plus. And Moving-to-Work, providing that opportunity. That is not to say that you couldn’t operate Jobs-Plus outside of the context of Moving-to-Work if there were other ways,

other legislation that would provide for modifying rent rules.

Mr. CLAY. Mr. Roberts, can you offer us some stats on the number of low-income areas affected since the Office of Thrift Supervision eliminated financial service requirements for thrifts?

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Mr. ROBERTS. Well, thrifts operate in low-income communities

and elsewhere all around the country. So I would say that, in general, most places would be affected by that relaxation of the thrift

requirements.

Mr. CLAY. OK. Let me shift to another issue that you brought up.

In your opinion, are revenue-based tax credit programs considered

a more desirable redevelopment funding mechanism for lenders

than discretionary programs such as HOPE VI?

Mr. ROBERTS. Well, you know, as the point was made earlier, you

need different tools in your tool boxes for different tasks. I am reluctant to say that screwdrivers are better than hammers, in general. They are better for driving screws than hammers are, for

sure, but hammers are better for driving nails.

There are certain ways in which HOPE VI is absolutely fundamentally important. If you have a very large Public Housing Development project that you need to redevelop, you probably cannot

get enough housing credits and home and CBDG money to do it,

because that money has to be distributed fairly widely, and you

need a big hunk of money from HOPE VI, typically $25 million or

so, in order to get that done.

Second is that even in HOPE VI deals, HOPE VI does connect

with housing credits and private mortgage finance. Usually the mix

is a little different. And, of course, you need to have the public

housing operating subsidies or something equivalent to that in

order to make sure that whatever portion you want to preserve as

affordable to extremely low-income people, can do that.

You know, capital subsidies are different from operating or rent

subsidies. If a family cannot afford to pay in rent enough money

to cover the basic operating expenses of the building, you can give

the building away for free and it is not going to be sustainable and

affordable at the same time.

So you really do need to have the mix. The key is to have a local

system in place, a partnership network that understands the different roles that they as players contribute to the system, and the

different tools in the Federal tool box that can be best applied in

the right way.

Ms. KENNEDY. I would add one thing quickly, and that is, in my

experience, the key to private capital coming in is stable, predictable funding. In tax credits you have relative stability. You have

a commitment to the investor to maintain all of the factors necessary to ensure those tax credits. And as Buzz pointed out, you

have the discipline, then, of the private sector overseeing that.

Five years ago, section 8 was considered stable, predictable funding. And banks leaned on Fannie and Freddie for worrying about

appropriations risk and not buying those loans because they involved Section 8.

We were talking about financing public housing, property by

property. Well, the funding is no longer stable, it is no longer predictable, it is no longer an asset.

Mr. CLAY. Thank you for that. Mr. Chairman, my final question

to Ms. Kennedy.

What role or responsibilities do your member institutions play in

the rebuilding of the gulf coast and other areas destroyed by natural disasters?

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Ms. KENNEDY. Well, I think there are exciting opportunities. This

is a case where all four financial regulators—from day one, because

you are a member of the Financial Services Committee—were flexible and understanding about the waivers the banks needed to continue to support recovery and then rebuilding. And we are very

pleased with that.

Recently, NAAHL members captured—by NAAHL members I

mean both our nonprofit lenders and our banks, about $660 million

of new markets tax credits, which will be an enormous incentive

to economic recovery in the gulf. We know that there are lots of

low-income housing tax credits.

And so I think this package of tax credits, if and when it is supplemented by some of these spending subsidies to get down to the

very low income.

In Alabama tenants were paying $40 a month for rent. Now, lowincome housing tax credits are not going to allow people to come

back at $40 a month. So I think banks and nonprofits are going

to be hugely involved, and it is just a matter of, again, stable, predictable funding to supplement tax credits.

Mr. CLAY. Has your association or your institutions taken a position on the adequacy of the insurance programs and their coverages in the gulf coast region?

Ms. KENNEDY. The adequacy of which?

Mr. CLAY. Of the insurance coverage, of the insurance programs.

Is there adequate protection?

Ms. KENNEDY. Well, I cannot speak for my members on that, because we haven’t discussed it. I think there are a lot of uncertainties. And I certainly hear the banks talking about that. And I think

for the nonprofits, again, they attract private capital based on some

predictable streams of income. And if there are uncertainties about

getting insurance, the banks always say they haven’t been so interested in the insurance companies having to lend in low-income

neighborhoods, they are concerned about insurance companies insuring the properties on which the banks have made mortgages.

Mr. CLAY. I thank all of the witnesses for their responses. Thank

you, Mr. Chairman.

Mr. TURNER. Thank you, Mr. Clay. Appreciate your assistance

and certainly your leadership in your community on the issue of

public housing.

A couple more questions, Mr. Roberts, and Ms. Kennedy. In a

previous hearing, one of the things that came up about CRA and

the low-income housing tax credit, which is why we wanted to pursue this issue, was the question of why aren’t we able to attract

capital beyond banks and low-income housing tax credit developments?

And, second, if the CRA requirements were not there, would

banks continue to invest in those opportunities? The answers that

we received were that capital outside banks are not going to be attracted to these investments because their returns are so low that

without an alternative incentive to invest, monetary return is not

present sufficient for that to attract the capital.

The second is that there was a real fear that the CRA—and there

is certainly in your testimony, Ms. Kennedy, you allude to it—that

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absent the CRA benefit to financial institutions, that they might

cease to fund these important investment vehicles.

Can you talk to both a moment about that issue, the need to

keep the banks at the table; and the second, what do you think it

would take so that these tax credits might be an attractive investment even beyond the compulsory incentive that we have for

banks? We’ll start with Ms. Kennedy.

Ms. KENNEDY. Sure. Well, I learned from the threat to tax credits that we survived a couple or 3 years ago that roughly banks

hold about a third, Fannie and Freddie hold about a third, and

other companies do hold about a third. And what their motivations

are, in addition to tax relief, I don’t know. Buzz may be able to

speak to that.

You know, I think going back to the Volker comment about taking the rough edges off of capitalism, we certainly know from the

Fannie, Freddie, Enron era, the pressure on management of companies to deliver stable earnings per share hit those numbers, and

the fiduciary responsibility to get the highest return to shareholders.

All of that is mitigated by CRA. You know, in essence, the law

said you are getting a Federal charter, you are getting insurance

on all of your deposits, you get access to the payment system, you

get Federal Home Loan Bank and Federal cost of funds. In return

for that, you should have to meet the credit needs of your entire

community.

And meeting the credit needs of the entire community has been

a regulatory directive. The challenge for the banks and the nonprofits has been that the GSEs did not have that same regulatory

directive. So they are sitting on billions of dollars of multifamily,

affordable loans, single-family loans to people under 80 percent of

varying median income. And when they try to sell them, they have

to go one by one, like a Fuller Brush man, you know, to insurance

companies and others who may be interested. Pension funds.

So I think the complicated issue is, you know, what role does this

Federal regulatory incentive play in meeting the credit needs of

very low-income and immigrants, and I think experience shows it

plays a huge role. And not until private capital is flowing into

every historically underserved community and is available to every

historically underserved person at comparable rates, will we not

need these incentives.

Mr. ROBERTS. I would say there are a few reasons why banks

and other financial institutions dominate the investment market

for housing credits.

Mr. TURNER. Before you go on, I just want to tell you, Mrs. Kennedy, we were just discussing among ourselves about how thrilled

we were by your answers and your insight.

Ms. KENNEDY. Well, thank you.

Mr. TURNER. I think that you could cut out your testimony in

this hearing on your answers and frame them, and you would have

great succinct policy statements.

Ms. KENNEDY. I wish my daughter were here to hear this.

Mr. TURNER. Mr. Clay was mentioning that it would be helpful

for the Financial Services Committee. But we do really appreciate

it. It has been wonderful listening to you.

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Mr. Roberts.

Mr. ROBERTS. Well, Judy is a tough act to follow. With trepidation, I proceed.

Mr. TURNER. Not to put you under any pressure, by the way.

Mr. ROBERTS. There are a few reasons why financial services

companies dominate the investment market for housing credits.

One of them is they understand the basic business of what it

means to invest in affordable multifamily housing. And, you know,

does General Motors specialize in that? No, they focus on building

cars. So this is—it is close to home, whether it is a bank or a GSE

or it is an insurance company that does this kind of thing all of

the time, it is within their range and comfort zone.

The second is, for a bank, investing in housing credits generates

other business. It can generate a construction loan on the same

deal, it can generate other lending opportunities in the same neighborhood in which the housing credit deal plays a catalytic revitalization role.

And the third is, they get CRA credit for making the investment.

And that does affect the price of housing credits. And if you lighten

up on the interest of investors, specifically banks, in the credit,

there will be other investors who come in, but at a different rate

of return, and they will require a higher rate of return for that

market to clear.

And when that happens, guess what? Go back to the table and

the financing gap widens. And then Congress is very hard-pressed

to appropriate additional funds to fill those financing gaps, and the

bottom line is less housing and the housing that gets produced is

less affordable to a wide range of families.

Mr. TURNER. Mr. Gutzmann, you were talking about the issue of

the regulatory burden income calculation, the issues that you face

in having to meet the Federal requirements for oversight.

It is obviously a difficult balance. The statistics that you gave us

for your performance are wonderful, and certainly would be great

to see in every housing authority.

But obviously there has to be a balance in that. On 60 Minutes

we can probably all recall seeing exposes on poorly run housing authorities and the impacts on the families and on the neighborhoods.

How do you balance that?

Mr. GUTZMANN. Well, Mr. Chairman, I just, again, want to thank

you for holding these hearings. I can tell that you are a mayor—

a former mayor—in your questions, and I can tell that you care

about public housing and low-income people by all of your comments. And it really sings to me.

You balance it with tough love. HUD has all of the authority

right now to get rid of poor performing housing authorities. Receivership is probably the best tool. When they are that broken, they

need to be out of the local politics. As you know, in local politics

you need to have executive directors who are not the brother-in-law

of somebody, but actually legitimate housing professionals. You

need to have strict oversight and accountability. And receivership

has been a good model.

This housing authority in the District of Columbia came out of

trouble by being placed in receivership. So I think you have to deal

with the bad actors, and get them to perform on a performanceVerDate 11-MAY-2000 12:27 Apr 11, 2007 Jkt 000000 PO 00000 Frm 00084 Fmt 6633 Sfmt 6633 C:\DOCS\33392.TXT HGOVREF1 PsN: HGOVREF1
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based model that exists. They are an embarrassment to the industry. And we who struggle hard to perform our mission feel that

they weigh us down.

Having said that, we know they are a small number of the 3,200

housing authorities, but yet, sadly, usually they occupy big cities

and they get the headlines.

Mr. TURNER. In a previous hearing we had Betsy Martens, director of the Boulder Housing Partners. And she talked extensively

about the cumbersomeness of the rent calculations for tenants, especially with regard to income set-asides and exclusions.

She suggested that the Congress pass a standard deduction for

medical and other expenses. She gave a pretty eloquent description

of having to account for receipts for a resident with a potassium

deficiency, had to eat a significant amount of bananas, and she actually subsequently gave us a copy of the receipts that had to be

counted in order to be able to determine the medical expenses that

she was incurring.

She had suggested that there be almost, as in our income taxes,

a standardized deduction. What is your view of that?

Mr. GUTZMANN. I think any model to simplify the rent calculation formula makes sense. That one is a good one. The FADA approach also includes just a different income-based model. Right

now it is 30 percent of adjusted gross. This is the foldout, these are

real steps to calculate rent. I am going to give this to you, too.

These are all the steps we have to do to calculate rent. First you

disregard income with exclusions, deductions for medical; then you

calculate income, then you calculate rent.

And Congress keeps passing laws that are worthy, that say let’s

not charge people rent on military income. That just passed the

House Appropriations Committee.

Simplify it, but keep it affordable is our mantra. And I think you

can do it with income-based——

Mr. TURNER. Just a second. We have seen that chart before. You

may or may not be able to do this for us, but I am assuming that

this is a calculation that your staff are going through. Might it be

possible, as a supplement to this hearing, that you would provide

us an estimate of the cost administratively to get through that?

Mr. GUTZMANN. I can tell you right now. But I will provide a supplement. I have 10 percent of my staff who do nothing but calculate

rent. I have 220 staff; 10 percent of them do nothing but calculate

rent, redetermine rent when income changes, recertify rent if people are still eligible to live in public housing.

I say probably nationwide, 10 percent of the housing authority’s

staff are in some way, shape, and form involved in income and rent

calculations. We will get more information for you and try to quantify that.

The danger is, we keep getting our staff reduced and these burdens remain. The worst world for us is bad money and liberal

rules. And this is a wonderfully affordable way of calculating rent,

but it is very burdensome. And, as I mentioned, it is the case management approach. 1.2 million households, 1.2 million different

rents.

It could be simple, it could be affordable; 25 percent of gross income, for instance, just that. That is one of the FADA models, just

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say 25 percent of gross income, with maybe a few deductions for

medical, so you really do not hurt your grandmother and my grandfather who lived in public housing, and the elderly who tell us, I

have already worked my whole life, I have paid taxes, I do deserve

a place to live affordably for my remaining years.

So 25 percent of gross income actually has about the same burden to households as 30 percent of adjusted gross, with all of those

things to do to calculate the true rent. And that is a FADA proposal, in our rent reform package. It would mean great simplification.

There are ways to keep it affordable and simple, and that is

what I would hope this committee also takes into account. We are

having a hard time selling that because these are our friends, in

the low-income housing advocacy world. They think if we get that

freedom, we will rush to the marketplace, and that is not what we

are going do. And so it is a hard sell within our own advocacy community to be given freedom from all of this rent burden.

Mr. TURNER. Mr. Moses, I will turn to you next.

Mr. MOSES. He is my friend, and I admire and respect him very

much.

But H.R. 5443, has no standard Medicare deductions and many

other good simplifications. And we believe that the tiered rent just

gives you too many peaks and valleys that people—to fall in for

residents, and it would be just more cumbersome to try to enact.

And H.R. 5443 rejects the tiered rent approach and keeps the

standard deduction at 30 percent of income. So, you know, we support some things, but on this we say, this is what needs to be done.

Mr. TURNER. Mr. Riccio, by the one comment that you made,

about the Dayton experience, which was a plus, I do not believe

that they are moving toward community. There may be some additional issues that you might want to look at as to how they, with

the Jobs-Plus program, operated outside of Moving-to-Work.

But in your written testimony, you make a comment that goes

to actually some of my perceptions and experience in public housing in Dayton. And in going through how the various communities

were successful with Jobs-Plus, you indicated where private rental

housing was much more affordable; example, Dayton Jobs-Plus

residents were quicker to move out than they were in other cities.

Dayton is a very affordable community. In fact, our companies

that transfer people into Dayton say that the people coming into

your community feel like they have won the housing Lotto, and

people in Washington, DC, would be envious of what you can afford

in Dayton with respect to housing and prices.

An experience that I had with our Public Housing Authority

when I served as mayor, there was a neighborhood in which we

had undertaken a mixed-income development. It was a distressed

neighborhood. It also had a historic district overlay. It historically

had varying levels of housing stocks. So it would lend itself very

nicely to redevelopment as a mixed-income community.

It had a public housing facility that we would normally think of

as projects-type public housing, that was the source of both crime

and criminal activity, and was a high level of complaints for those

who lived in the facility and those who lived around it. It was land

that presented an opportunity for redevelopment.

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So we approached the Public Housing Authority about this particular housing development, and noted their vacancy rate that

they had in other units, and indicating that this would present an

opportunity for mixed-use income, that we would like to seek for

this site to be redeveloped. And the then-housing director said to

me, I cannot do that. The people who are living in this facility are

economically on the cusp of independence, and if I take this facility

out of my inventory they will not move to my other units. They

themselves can be economically independent and will move unto

the neighborhood where all around them there was affordable

housing that they could afford.

I, of course, said to him, gee, I thought that was the point. But

he related to me, though, that the impact on the Public Housing

Authority itself, on the overhead charge that they receive, would

result in his impact on his budget for his administrative staff. The

conclusion to the story is that site is now transitioning and is

scheduled for redevelopment.

Many communities, though, given this paragraph, you really

broke out the different experiences of communities. And I wondered

if you would contrast for us what a community is facing that has

affordable housing all around it, and easily accessible, and those

that do not; because those individuals in that Dayton community

would not readily have the ability if they were in a different market. And if you would just expound on that, I would appreciate it.

Mr. RICCIO. It relates to the issue of how do you judge success

of an employment-focused or self-sufficiency-focused intervention in

public housing? One way to think of it is in the way that public

housing officials would be most inclined to think of it, is looking at

the proportion of people employed, proportion of their tenants employed year to year, and the average earnings in the development

year to year. Are those earnings going up, or are they staying flat?

Well, it is actually a little more complicated, because you may

have a successful intervention that is giving people a leg up, really

giving them a boost, and they move away. And that is more likely

to happen if there is a soft housing market as in Dayton. So people

can, in effect, take their earnings game with them outside. So it

may look like year to year, well, we are not increasing employment,

we are not increasing earnings, but in fact—and you cannot see it

as an official—you may be having a very big effect on people’s self

sufficiency. It is a kind of a launching pad strategy.

The beauty of the Dayton situation is that someone comes in,

gets help, moves out; another poor person comes in, can get some

help, moves out and so on. Year to year, you may not see a big increase in average earnings, but you may in fact be almost like a

factory if you are really effective, helping a lot of poor make the

jump.

Now in another situation, St. Paul is a good contrast, there is

much less affordable housing. So by helping the existing residents,

you are increasing their earnings, and their earnings increase the

overall average year to year, because those residents who gain in

earnings are a little slow to move out. So, kind of lifting the average earnings and employment rates for the development as a

whole.

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Many people even in St. Paul do move out. We do have some stories of people buying homes from the savings that they accumulated with the rent reforms and so on.

But the main point is that, you know, that an intervention like

this can function and have different kinds of effects on the development as a whole, in different communities, and both can be positive.

Mr. TURNER. Well, I want to thank all of you, not only for the

time that you have taken in the preparation today, but in all of the

work that you do that changes communities, impacts people’s lives.

Each of you have reached out to try to accomplish more than just

the tasks that are on your desk, and I greatly appreciate that. The

expertise that you have lent to us is certainly great. The impact

that you have on our learning curve by coming and describing to

us both the bedrocks of some of the policy and the realities of how

you are executing public housing really makes a difference in formulating policy here.

As promised, I want to give you an opportunity, there have been

a number of topics that we have discussed, a number of questions

that you may have anticipated that we have not asked. And so I

would ask that if you have any items that you would like to add

to the record, I am going to give you the opportunity now to give

us some of that discussion.

But also you can submit items later after the hearing is over if

you would like them to be considered for the record, included in the

record.

I would start with Mr. Gutzmann, if you have any closing comments for us.

Mr. GUTZMANN. Again, Mr. Chairman, thank you so much for

holding this hearing. It is really good to know that Members of

Congress care and that they get this. I will submit additional written testimony, as I described, about the percentage of staff who do

rent calculations.

I do think that the Moving-to-Work demonstration offers a good

opportunity, and our advocate friends who are nervous about it actually cannot point to any bad things, and they only say, well,

there is anecdotal success.

But these are coming in one community at a time. And the local

communities that have had this freedom have preserved affordability and removed disincentives to employment. They say there

is no data. Let’s start collecting the data. Let’s start showing that

these demonstrations are productive, that we are advocates too. We

are preserving affordability, we are helping people move up and out

of poverty.

And, again, for the small slice of our housing stock, let’s preserve

it. And that has to happen with continued congressional appropriations. Thank you, Mr. Turner.

Mr. TURNER. Thank you. Mr. Moses.

Mr. MOSES. Thank you, Mr. Chairman, for having me here for

these hearings. I think it was incredible for me to be in this surrounding, and around all of those great people.

I too will submit some other written comments later to the committee, but I would just like to say that I believe that as my colVerDate 11-MAY-2000 12:27 Apr 11, 2007 Jkt 000000 PO 00000 Frm 00088 Fmt 6633 Sfmt 6633 C:\DOCS\33392.TXT HGOVREF1 PsN: HGOVREF1
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league has said, Mr. Gutzmann, let’s get that information to see

what Moving-to-Work has really done.

I have talked to many folks in many jurisdictions, and it is just

not working. So I would like to see the statistics on what has really

been accomplished and what is just really working before we increase any other housing authorities to go into this program.

Thank you very kindly, sir.

Mr. RICCIO. Yes. I would like to make comments on two issues

briefly. One is on the cost of the rent incentives and other aspects

of Jobs-Plus. It is true that in St. Paul, as I mentioned to Mr.

Gutzmann just before the hearing, they had a very extensive rent

structure, particularly in the first year.

But they switched to a cheaper rent structure in subsequent

years. We had cheaper rent incentives structures in subsequent

years as well in other sites. So there are more expensive and less

expensive ways to do rent reform. The more common way in the

demonstration was to institute a set of flat rents in public housing

with an income-based rent as a safety net for people who could not

afford the flat rent.

And taking into consideration the cost of that flat rent structure,

and the other services in Jobs-Plus, we estimated that the program, on average, cost $2,000 to $3,000 per person over a 4-year

period, which when you compare to other Welfare-to-Work or employment interventions is really quite modest.

The other point I would like to make is that the issue of self-sufficiency in public housing is not just a public housing issue. It is

a welfare system issue. It is an employment system, work force development system issue. Their clientele live in public housing, they

have a responsibility to do something to help those people. JobsPlus tried to address the problem, understanding that those other

systems had resources and had expertise that the public housing

system did not have around employment, and built, I think, effective partnerships to deal with an employment issue within public

housing.

So there are resources and there is expertise outside of public

housing that has to be brought into the solution in addressing work

questions within public housing.

Mr. TURNER. Mr. Roberts.

Mr. ROBERTS. A couple of points, quite quickly. One is this whole

question of raising rents as incomes rise is terribly unfair. It imposes a 30 percent income tax surcharge on the poorest people in

our country. And that is without payroll taxes or Medicare, Medicaid taxes, or income taxes, and earned income tax credits and the

like. If you want public to work, do not give them the highest tax

rates in the country.

Second is, resident leadership and involvement is very important

in all of this. We are all fearful of what is going to happen when

more powerful institutions decide our fates. And we are all much

more willing to be part of a solution if we are on board from the

beginning.

Our work works almost entirely through local nonprofit community organizations. And that has really made a big difference in

setting the course for revitalization. And what residents want are

mixed-income communities. They do not want forced displacement.

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They don’t want the breakdown in the social networks that keep

neighborhoods together. But they want a place that works for everybody.

And finally we are increasingly working with PHAs to get them

involved in the whole system of private finance. And there are a

lot of great PHA partners who are already at the table in this

world.

Mr. TURNER. Ms. Kennedy.

Ms. KENNEDY. Well, I want to reiterate my gratitude to you and

Mr. Clay, not just for the nice words, which I will try to tell my

teenager, but for doing this hard work. We are a dog-bites-man

story. Nobody is interested. And, frankly, this good news needs to

get out, because I think it affects all of the policy decisions that are

being made both at the macrolevel and the appropriations level.

I have said more than I want to think about over the last 3

years, thank God for Ohio. You Members get it. You know that

whole continuum of need. And you have a fabulous housing delivery system, one of the top three in the country in my mind.

But there are Members, because of your leadership limits, moving up to stay in financial services, who only know one piece of the

continuum of need. They need to get the mortgage limit of Fannie

and Freddie increased.

So we are going to need all of you and your understanding and

knowledge of this to help deliver this good-news story of affordable

housing. Let me leave you with one picture. Rosa Park’s home is

in Montgomery, AL, the first elderly, disabled, affordable housing

in Montgomery, a result of 7 years of a nonprofit taking bank investments and working with tax credits.

But I also leave you with the idea that in Massachusetts, someone Barney Frank has known a long time, our chairman, introduced low-income housing tax credits and can no longer do that

business, because private capital has moved in, and they pay subsidized prices in Massachusetts with what they are making in, say,

Iowa.

And so he has moved on to the new markets tax credit. And the

Louisiana bankers, even as we speak, are trying to invent one of

these nonprofits that has so benefited Alabama and Massachusetts.

But the more you can help us get this good news out, the better

off we will all be.

Mr. TURNER. Well, thank you. I certainly appreciate your reverence for Ohio.

Before we adjourn, I would like to thank all of you again for preparing today, and for what you do in this area. It is very important

in impacting the lives of people, and in making certain that we

have effective policies, and policies that we understand their impacts.

In the event that there may be additional questions from Members that we did not have time for today, or other Members who

were unable to attend, I would like the record to remain open for

2 weeks for submitted questions and answers, if you would be so

kind to answer them, if you you do have questions submitted to

you; but also to remain open if there is anything in the next 2

weeks that you would like to add to your testimony, we would certainly be appreciative of receiving it.

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With that, we thank you all. We stand adjourned.

[Whereupon, at 11:50 a.m., the subcommittee was adjourned.]

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