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THE IMPACT OF LATE HOUSING ASSISTANCE

PAYMENTS ON TENANTS AND OWNERS IN THE

PROJECT–BASED RENTAL ASSISTANCE PROGRAM

HEARING

BEFORE THE

SUBCOMMITTEE ON 

HOUSING AND COMMUNITY OPPORTUNITY

OF THE

COMMITTEE ON FINANCIAL SERVICES

U.S. HOUSE OF REPRESENTATIVES

ONE HUNDRED TENTH CONGRESS

FIRST SESSION

OCTOBER 17, 2007

Printed for the use of the Committee on Financial Services

Serial No. 110–72

(

(II)

HOUSE COMMITTEE ON FINANCIAL SERVICES 

BARNEY FRANK, Massachusetts, Chairman

PAUL E. KANJORSKI, Pennsylvania 

MAXINE WATERS, California 

CAROLYN B. MALONEY, New York 

LUIS V. GUTIERREZ, Illinois 

NYDIA M. VELA ́ ZQUEZ, New York 

MELVIN L. WATT, North Carolina 

GARY L. ACKERMAN, New York 

JULIA CARSON, Indiana 

BRAD SHERMAN, California 

GREGORY W. MEEKS, New York 

DENNIS MOORE, Kansas 

MICHAEL E. CAPUANO, Massachusetts 

RUBE ́ N HINOJOSA, Texas 

WM. LACY CLAY, Missouri 

CAROLYN MCCARTHY, New York 

JOE BACA, California 

STEPHEN F. LYNCH, Massachusetts 

BRAD MILLER, North Carolina 

DAVID SCOTT, Georgia 

AL GREEN, Texas 

EMANUEL CLEAVER, Missouri 

MELISSA L. BEAN, Illinois 

GWEN MOORE, Wisconsin, 

LINCOLN DAVIS, Tennessee 

ALBIO SIRES, New Jersey 

PAUL W. HODES, New Hampshire 

KEITH ELLISON, Minnesota 

RON KLEIN, Florida 

TIM MAHONEY, Florida 

CHARLES A. WILSON, Ohio 

ED PERLMUTTER, Colorado 

CHRISTOPHER S. MURPHY, Connecticut 

JOE DONNELLY, Indiana 

ROBERT WEXLER, Florida 

JIM MARSHALL, Georgia 

DAN BOREN, Oklahoma 

SPENCER BACHUS, Alabama 

RICHARD H. BAKER, Louisiana 

DEBORAH PRYCE, Ohio 

MICHAEL N. CASTLE, Delaware 

PETER T. KING, New York 

EDWARD R. ROYCE, California 

FRANK D. LUCAS, Oklahoma 

RON PAUL, Texas 

STEVEN C. LATOURETTE, Ohio 

DONALD A. MANZULLO, Illinois 

WALTER B. JONES, JR., North Carolina 

JUDY BIGGERT, Illinois 

CHRISTOPHER SHAYS, Connecticut 

GARY G. MILLER, California 

SHELLEY MOORE CAPITO, West Virginia 

TOM FEENEY, Florida 

JEB HENSARLING, Texas 

SCOTT GARRETT, New Jersey 

GINNY BROWN-WAITE, Florida 

J. GRESHAM BARRETT, South Carolina 

JIM GERLACH, Pennsylvania 

STEVAN PEARCE, New Mexico 

RANDY NEUGEBAUER, Texas 

TOM PRICE, Georgia 

GEOFF DAVIS, Kentucky 

PATRICK T. MCHENRY, North Carolina 

JOHN CAMPBELL, California 

ADAM PUTNAM, Florida 

MICHELE BACHMANN, Minnesota 

PETER J. ROSKAM, Illinois 

THADDEUS G. McCOTTER, Michigan 

KEVIN McCARTHY, California

JEANNE M. ROSLANOWICK, Staff Director and Chief Counsel 

(III)

SUBCOMMITTEE ON HOUSING AND COMMUNITY OPPORTUNITY

MAXINE WATERS, California, Chairwoman

NYDIA M. VELA ́ ZQUEZ, New York 

JULIA CARSON, Indiana 

STEPHEN F. LYNCH, Massachusetts 

EMANUEL CLEAVER, Missouri 

AL GREEN, Texas 

WM. LACY CLAY, Missouri 

CAROLYN B. MALONEY, New York 

GWEN MOORE, Wisconsin, 

ALBIO SIRES, New Jersey 

KEITH ELLISON, Minnesota 

CHARLES A. WILSON, Ohio 

CHRISTOPHER S. MURPHY, Connecticut 

JOE DONNELLY, Indiana 

BARNEY FRANK, Massachusetts 

SHELLEY MOORE CAPITO, West Virginia 

STEVAN PEARCE, New Mexico 

PETER T. KING, New York 

CHRISTOPHER SHAYS, Connecticut 

GARY G. MILLER, California 

SHELLEY MOORE CAPITO, West Virginia 

SCOTT GARRETT, New Jersey 

RANDY NEUGEBAUER, Texas 

GEOFF DAVIS, Kentucky 

JOHN CAMPBELL, California 

THADDEUS G. McCOTTER, Michigan 

KEVIN McCARTHY, California 

(IV)

C O N T E N T S 

Page 

Hearing held on: 

October 17, 2007 ............................................................................................... 1

Appendix: 

October 17, 2007 ............................................................................................... 53

WITNESSES 

WEDNESDAY, OCTOBER 17, 2007

Beebout, Donald L., Vice President, Showe Management Corporation .............. 42

Bodaken, Michael, President, National Housing Trust ........................................ 37

Cox, John W., Chief Financial Officer, U.S. Department of Housing and 

Urban Development ............................................................................................. 4

Lipton, Lawrence J., Chief Financial Officer, Related Companies, Inc. on 

behalf of the National Leased Housing Association .......................................... 39

Livingstone, Carolann, President, 1890 House Tenants Association, and Vice 

President, Eastern Region of the National Alliance of HUD Tenants ............. 44

Minnix, Larry, President and CEO, American Association of Homes and Services for the Aging ................................................................................................. 45

Pagano, J. Kenneth, President and Chief Executive Officer, Essex Plaza Management, on behalf of the National Affordable Housing Management Association .................................................................................................................... 41

Wood, David G., Director, Financial Markets and Community Investment, 

U.S. Government Accountability Office .............................................................. 6

APPENDIX 

Prepared statements: 

Beebout, Donald L. ........................................................................................... 54

Bodaken, Michael ............................................................................................. 62

Cox, John W. ..................................................................................................... 157

Lipton, Lawrence J. .......................................................................................... 164

Livingstone, Carolann ...................................................................................... 173

Minnix, Larry .................................................................................................... 181

Pagano, J. Kenneth .......................................................................................... 193

Wood, David G. ................................................................................................. 207

ADDITIONAL MATERIAL SUBMITTED FOR THE RECORD

Livingstone, Carolann: 

Copy of lease referred to in her testimony ..................................................... 230

(1)

THE IMPACT OF LATE HOUSING 

ASSISTANCE PAYMENTS ON TENANTS 

AND OWNERS IN THE PROJECT–BASED 

RENTAL ASSISTANCE PROGRAM 

Wednesday, October 17, 2007

U.S. HOUSE OF REPRESENTATIVES, 

SUBCOMMITTEE ON HOUSING AND

COMMUNITY OPPORTUNITY, 

COMMITTEE ON FINANCIAL SERVICES, 

Washington, D.C. 

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

2128, Rayburn House Office Building, Hon. Maxine Waters [chairwoman of the subcommittee] presiding. 

Present: Representatives Cleaver, Green, Sires, Ellison; Capito, 

Biggert, Shays, and Neugebauer. 

Chairwoman WATERS. This hearing of the Subcommittee on 

Housing and Community Opportunity will come to order. Good 

morning, ladies and gentlemen. I would like to thank Ranking 

Member Shelly Moore Capito and the members of the Subcommittee on Housing and Community Opportunity for joining me 

for today’s hearing on the impacts of late housing assistance payments, better known as HAPs. 

I would like to start by noting that without objection, all members’ opening statements will be made a part of the record. I am 

looking forward to hearing from our two panels of witnesses on the 

issue of late HAPs and the resulting consequences for tenants and 

owners in the project-based Section 8 program. 

The project-based Section 8 program provides much needed affordable housing for 1.3 million families nationwide. This program 

is critical in meeting the affordable housing needs of families in 

urban and rural areas, especially the elderly, persons with disabilities, and those who are trying to get back on their feet after being 

homeless. 

Indeed, without this program many communities would not have 

hard units targeted to these families. That is why I am dismayed 

at the news that the program is on shaky legs through no fault of 

the owners who participate in it or the families who rely on it. 

I am very concerned about recent actions taken by the Department of Housing and Urban Development in regard to not only 

making late payments to owners, but also in regard to its policy of 

short-funding contracts or signing owners to a 12-month contract 

but only providing enough funding to carry that contract out not 

2

through the end of its term, but through the end of the Federal fiscal year. 

It seems to me that we need to be in the business of preserving 

project-based Section 8 units, and along with them, the owners of 

these units. Telling an owner that they have no guarantee of funding is simply unacceptable. I believe that when the owners get 

news like that, some of them may decide to opt out of the Section 

8 program and to charge market rent. And, yes, the tenants get enhanced vouchers but the community has lost those affordable housing units. 

I am very disturbed by reports that the short-funding policy implemented by the Department is shaking the confidence of owners 

and tenants in the project-based Section 8 program. I am even 

more disturbed that the Department knows exactly what to do to 

fix this crisis, which is to request an additional $2.5 billion in funding for the project-based account, but, yet, has no plans to do so. 

It makes little sense to me that as we are fighting on this committee for affordable housing and the creation of additional projectbased Section 8 units as in H.R. 1227, the Gulf Coast Housing Recovery Act, that the Department is undermining our efforts by not 

working to maintain the units that we have. 

In this committee, we have done a lot of work on affordable housing. We have passed a national affordable housing trust fund. We 

have passed a bill to strengthen the tenant-based Section 8 program and we are in the process of improving Hope VI, the Public 

Housing Revitalization Program. We are also working to determine 

how to best end and prevent homelessness. Having recently concluded 2 days of hearings on this very critical issue, it is crystal 

clear to me that hard affordable housing units are an essential part 

of ending homelessness and that the project-based Section 8 program plays an important role in providing the affordable housing 

resources that will help us to meet that goal. 

So it is not enough for the Department to provide these units. 

The Department must also fund them in a timely manner. Right 

now, we have 1.3 million units and up to 3 million homeless families a year. I cannot imagine what that homeless number will look 

like if the number of project-based units diminishes any further. 

And it will be a national travesty if those units diminish as a result 

of the Department’s action or inaction. 

I look forward to hearing the witnesses’ views on this very important topic, and now I would like to recognize Ranking Member 

Capito for 5 minutes, for her opening statement. Thank you very 

much. 

Mrs. CAPITO. I’d like to thank the chairwoman for scheduling 

this important meeting on the impacts of late housing assistance 

payments on tenants and owners in the project-based rental assistance program. 

The Department of Housing and Urban Development created the 

Section 8 program to address the need for affordable housing for 

lower-income Americans. Since its inception, it as served over 1.4 

million households. Currently the program provides over 1.3 million housing units, with 22,427 active housing assistant payment 

contracts. 

3

The focus of this hearing, as we all know, is the impact of late 

housing assistance programs on tenants and owners in these 

project-based rental assistance programs. The GAO investigations 

in 2005 and 2007 found that between 1995 and 2004, one-fourth of 

HUD’s HAPs, which are the housing assistant payments, were late 

and on average 25,000 payments were late by 2 weeks or more 

each year. Late payments undermine the effort to retain key participants in the project-based rental assistance program and HUD 

must take steps, and we must help you take steps, to ensure that 

payments are made in a timely manner. 

Late payments, as we know, and as the chairwoman had mentioned in her opening remarks, have detrimental effects on all involved, including owners, tenants, managers, and lenders. Owners 

of few projects who often have limited resources may be forced to 

dip into reserve funds to cover operating expenses, assuming there 

are reserve funds. 

This can result in late mortgage payments, utility payments, and 

the failure to carry out necessary rehabilitation projects. According 

to the GAO, owners of larger projects as well as their managers 

often complain of HUD fatigue resulting from the ongoing problem 

of late payments. Documentation submitted by the affordable housing industry states that lenders are reluctant to refinance mortgages of projects receiving project-based rental assistance because 

of the frequency of late payments. 

Other than market factors, late payments top the list of reasons 

project owners opt-out of the project-based rental assistance program. Late housing assistance payments were responsible in part 

for the loss of approximately 50,000 housing units in the period between 2000 and 2005. 

This hearing seeks to understand the late payment problem and 

formulate solutions to resolve this threat to America’s supply of affordable housing. In explanations of the late payment problem, the 

GAO frequently cites the inefficiencies of HUD’s processing procedures, especially when contracts are renewed. This hard copy paper 

process is both time- and staff-intensive. Furthermore, HUD lacks 

systemic internal processes for staff to estimate the amounts needed to obligate to contracts each year and monitor contract funding 

levels on an ongoing basis. 

Finally, critics of HUD’s administration of the project-based rental assistance program have pointed to the shortfall of appropriations and the timing of the 12-month HAPs contracts. 

Madam Chairwoman, let me again thank you for holding this 

hearing to address the problem of late housing assistance payments. I am anxious to hear from the witnesses today specifically 

regarding how HUD plans to address these deficiencies in their 

system, and I thank the witnesses for coming. Thank you. 

Chairwoman WATERS. Thank you very much. I now recognize the 

gentleman from Texas, Mr. Green. 

Mr. GREEN. Thank you, Madam Chairwoman. I thank you and 

the ranking member, and I would like to associate myself with the 

remarks that have been made. I am very much concerned about 

this program. Some owners who are with non-FHA loans are not 

in a position to dip into a reserve because there is some notion that 

they are prohibited from doing so. That causes some consternation. 

4

I am also very much concerned about the efforts to take a shortfall approach to resolution as opposed to moving forward to seek 

the necessary funds to properly fund this program. It is an important program, especially to people in my district. I look forward to 

hearing from the witnesses, and I yield back the balance of my 

time. 

Chairwoman WATERS. Thank you very much. 

The gentlelady from Illinois, Mrs. Biggert. 

Mrs. BIGGERT. I have no opening statement. I am just glad to be 

here to hear from the witnesses. Thank you for holding this hearing. 

Chairwoman WATERS. The gentleman from New Jersey, Mr. 

Sires. 

Mr. SIRES. Thank you, Madam Chairwoman. I would also like to 

echo what Mr. Green said: This is a very important program in my 

district. And as I look at this report that I just received, looking 

at my district I see that the number of apartments covered by HAP 

contracts expiring in Fiscal Year 2008, I have the largest amount. 

I intend to ask the question of how that impacts the people in my 

district when I have the opportunity to ask questions. Thank you 

very much. 

Chairwoman WATERS. You are welcome. The gentleman from 

Texas, Mr. Neugebauer. 

Mr. NEUGEBAUER. I have nothing to say right now. 

Chairwoman WATERS. Thank you. Then we will just move right 

along, and I will introduce our first panel. 

On our first panel, we have Mr. John Cox, the Chief Financial 

Officer at the United States Department of Housing and Urban Development. We also have Mr. David Wood, the Director of the Financial Markets and Community Investment Division at the 

United States Government Accountability Office. I thank both of 

you for appearing here today, and without objection your written 

statements will be made a part of the record. 

You will now be recognized for a 5-minute summary of your testimony. 

STATEMENT OF JOHN W. COX, CHIEF FINANCIAL OFFICER, 

U.S. DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT 

Mr. COX. Thank you, Chairwoman Waters, Ranking Member 

Capito, and other subcommittee members. 

I appreciate the opportunity to appear before you today and address concerns raised over HUD’s ability to fund the annual renewals of Section 8 project-based housing assistance payment contracts 

with funding available in Fiscal Year 2007, and requested for Fiscal Year 2008. 

In my testimony today, I will reassure you that first, this Administration’s policy remains to be fully supportive of funding all have 

contract renewals as a needed source of affordable rental housing 

for nearly 1.25 million low-income families. Second, I will explain 

the program funding and payment issues we experienced in Fiscal 

Year 2007 and the Department’s solution for resolving those issues. 

And, third, I will address the funding needs in Fiscal Year 2008 to 

fully support this important housing program. 

5

As the initial 20- to 40-year HAP contracts began to expire in the 

mid- to late-1990’s, HUD sought to renew the HAP contracts to 

maintain this important source of low-income housing. However, 

budgetary constraints necessitated that the Congress and HUD 

make changes to the duration of the renewed contract terms. HUD 

reduced those terms of subsequent renewals to 1 or 5 years. HUD 

currently administers over 18,000 HAP contracts, and of these contracts, 12,900 contracts covering over 915,000 units are subject to 

annual renewal. 

As budgets became even tighter during the late 1990’s and into 

this decade, HUD was forced to often partially fund some annual 

contract renewal terms for fewer than 12 months, splitting the annual contract funding between 2 Federal fiscal year appropriations. 

While HUD thought this partial funding practice was acceptable 

because the contract terms referenced funding as ‘‘Subject to the 

availability of funds,’’ a closer review of the actual contract language and program funds control processes found that the intended 

incremental funding practice did not meet appropriate funds control because the wording of the contracts implied that HUD was 

fully obligating 12 months of funding at the time of contract renewal. HUD did not have sufficient funding available to both fully 

fund all Fiscal Year 2007 contract terms for a 12-month period and 

meet our $1.65 billion recision mandate for Fiscal Year 2007. 

As a result, HUD developed and executed the following strategy 

without terminating any contractual relationships or necessitating 

additional appropriations late in the fiscal year: 

First, HUD obligated a full 12 months of funding and all contract 

renewal actions that had already been executed in Fiscal Year 2007 

under the previous contract terms. 

Second, HUD revised the contract terms for the 1,728 contract 

renewals remaining to be processed in Fiscal Year 2007 and for future renewals to correctly structure an incremental funding clause. 

Lastly, HUD re-estimated the funding needs of the remaining 

long-term Section 8 contracts using OMB’s current inflation factors 

and recaptured all excess funds for use in covering HUD’s Fiscal 

Year 2007 Section 8 contract renewal funding needs and our recision mandate. 

HUD has successfully executed this strategy to provide for the 

renewal of all HAP contracts and to avoid the need for additional 

appropriations or the unintended recision of obligated funds in 

other HUD programs. 

While we executed this strategy, many fourth-quarter 2007 payments were not paid in a timely fashion. We took steps to provide 

as much relief to affected project owners as possible, such as allowing owners to borrow against project reserves or requesting mortgage forbearance or intervention with utility companies. 

However, I realized that some of our housing partners may have 

experienced hardships and I apologize on behalf of the Department. 

HUD sent the 1,728 fourth-quarter revised contract renewal packages to the owners for processing the first week in September, and 

all but 428 of those contracts were negotiated, executed, and entered into HUD’s system to facilitate payment by the end of September. As of last week, fewer than 250 contracts remain to be executed by the owners and that number declines daily. 

6

Contract renewals due in October of each year normally experience a 1-month payment delay as HUD transitions its financial 

systems from one fiscal year to the next and we will work to fix 

that problem in the future. 

In resolving the Fiscal Year 2007 HAP contract funding issues, 

HUD performed considerable analysis on its budget needs for Fiscal Year 2008. HUD believes that it can meet the Fiscal Year 2008 

HAP contract renewal funding needs within the budget level in the 

President’s 2008 budget. 

HUD would require a Fiscal Year 2000 funding level of $5.6 billion to incrementally fund all Fiscal Year 2008 contract renewals 

through November of 2008, avoiding further new fiscal year late 

payment problems for housing owners. 

HUD is committed to improving its systemic means to more accurately forecast the program’s budgetary needs. We are in the process of concluding a contract-by-contract data cleanup in our program data system. Implementation of the necessary systems 

changes is subject to the availability of sufficient information technology systems funding for HUD’s working capital fund. 

We will continue to work with our business partners and the 

Congress to improve the administration of this critically needed 

housing program. That concludes my prepared testimony, Madam 

Chairwoman, and I stand ready to address your questions. 

[The prepared statement of Mr. Cox can be found on page 157 

of the appendix.] 

Chairwoman WATERS. Thank you very much. 

Mr. Wood. 

STATEMENT OF DAVID G. WOOD, DIRECTOR, FINANCIAL MARKETS AND COMMUNITY INVESTMENT, U.S. GOVERNMENT ACCOUNTABILITY OFFICE 

Mr. WOOD. Thank you, Chairwoman Waters. My statement is 

based primarily on a report that we issued in November 2005. That 

report was requested by the Financial Services Committee in response to concerns expressed by project owners about late monthly 

housing payments from HUD. 

In that report, we examined three topics: First, the extent to 

which HUD made timely payments over a 10-year period, Fiscal 

Years 1995 through 2004; second, the factors that affected the 

timeliness of those payments; and third, how late payments affected project owners and their willingness to remain in HUD’s programs. 

HUD’s subsidy payments are not subject to a statutory or regulatory standard for time limits. However, HUD’s goal is generally 

to provide payments by the first business day of each month. Using 

that standard, we found that about 75 percent of the 3.2 million 

monthly payments that HUD made during the period we examined 

were timely. 

However, as noted in the opening statement, about 8 percent 

averaging some 25,000 payments a year, were 2 weeks or more 

late, and of those, 10,000 were 8 weeks or more late. Further, 

about one-third of all contracts experienced at least one payment 

that was 2 weeks or more late. 

7

Because we have not examined this issue since preparing the 

2005 report, I do not have data to indicate the timeliness of payments since Fiscal Year 2004. 

We found that there were primary factors that affected the timeliness of payments. The first was the process of renewing owners’ 

contracts, which even HUD officials agreed could be cumbersome 

and paper-intensive. 

Delays associated with contract renewals was the most common 

reason for payments being 2 weeks or more late among the payments made from 2002 to 2004. 

Accordingly, we recommended that HUD streamline and automate the contract renewal process. HUD concurred with this recommendation and is currently planning a Web-based paperless 

process, but it does not expect to complete this until 2010. 

A second factor affecting timeliness was uncertainty of the dollar 

amounts assigned to individual contracts. This uncertainty occurred because HUD sometimes underestimated how much money 

each contract would need at the beginning of the contract term, 

and the Agency lacked a consistent process for monitoring the rate 

of expenditure and allocating additional funds if needed. 

We recommended that HUD develop a means of better estimating the amounts allocated to contracts and of better monitoring 

the rates of expenditure to ensure prompt allocation of any needed 

additional funds. 

HUD agreed with this recommendation and has taken some 

steps, including updating its database of contracts. However, we 

consider this recommendation, like the others from this report, as 

open, meaning that HUD has not yet completed corrective actions. 

A third principal factor potentially affecting payment timeliness 

was inaccurate or incomplete monthly vouchers submitted by 

project owners to contract administrators. However, because HUD’s 

data systems do not capture the dates on which owners submit 

vouchers to the administrators, we could not quantify or measure 

the impact of that factor. 

The final topic in our report concerned the effects of late payments on owners. Property owners we contacted described a range 

of negative financial effects such as late fees on mortgages as well 

as service interruptions at their properties. 

We found that late payments alone were unlikely to cause owners to opt out of HUD’s programs. However, in a more recent report 

examining HUD’s efforts to keep owners in its subsidy programs, 

we found that owners’ growing frustration over a variety of administrative issues, including late payments, might cause them to consider leaving the programs. 

Generally, owners indicated that the negative effects could be 

more severe, the more dependent they were on HUD’s subsidies. 

Owners also noted that HUD did not notify them when payments 

would be late, preventing them from taking steps to mitigate the 

effects. 

We recommended that HUD notify owners if monthly payments 

would be late and to provide an estimated payment date. HUD 

agreed with this recommendation, but has not yet developed a 

means for systematically providing such notifications. 

8

That concludes my prepared statement and I will be glad to respond to any questions you have. 

[The prepared statement of Mr. Wood can be found on page 207 

of the appendix.] 

Chairwoman WATERS. Thank you very much. I will recognize myself for the first 5 minutes, and I will start with Mr. Cox. 

Mr. Cox, I was distracted here for a moment, but I want you to 

go back and tell me how you are going to fix and correct the 

shortfunding and make timely payments to the owners to avoid 

putting them in situations where they are paying late fees on mortgages. It is not enough to apologize. Nor is it enough to say, ‘‘Go 

negotiate with the utility companies and ask them to wait for their 

money.’’ 

The onus is on you to do what you are supposed to do and that 

is to just pay, on time, the owners for the services they are providing to our citizens. Now, go back and tell me how you are going 

to fix this. 

Mr. COX. Madam Chairwoman, we have developed a contract system now, contract language that has been put out for all the owners in Q4. That contract language will now ensure them that we 

will make timely payments in the future. And this way we are providing funding through the end of the fiscal year as you reference 

in your opening remarks. Then, when we get additional funding in 

the following fiscal year for that full 12 months, we are renewing 

a full 12 months, we will provide that funding at that time. 

In addition to that, as Mr. Wood mentioned, we are taking steps 

to improve our database and ultimately the timely processing of 

the contract renewals. It is still a very manual process, so one of 

the things we have to do in the future is to improve our process 

of the renewals with the owners and the project-based owners who 

assist us with that process. 

Chairwoman WATERS. So what you are telling me is that you will 

have a problem for the last 2 or 3 months of this year, but that 

it should be corrected in 2008? 

Mr. COX. Yes, ma’am, that is correct. 

Chairwoman WATERS. So tell me, describe what that problem 

will be, and how much hardship will that reap on the owners? 

Mr. COX. It obviously depends on the individual owner, but clearly the items that you mentioned, possible utility payment issues 

and possible mortgage payment issues. When we determined that 

we had this problem back in July, we immediately notified the field 

to notify the owners that they could use reserves to the extent they 

had reserves. So we tried to give them as much a heads-up as possible, but we certainly realized that there were issues of late payment fees. 

Chairwoman WATERS. So your problems exist from September 

through December? 

Mr. COX. No, ma’am. They existed from July through September 

for the Q4 of the last fiscal year, 2007. 

Chairwoman WATERS. So some owners can expect that their payments will be late up through December? 

Mr. COX. No, ma’am, that’s not correct. There were late payments made in the fourth quarter of the fiscal year of the government, so from July to September, there were late payments made. 

9

Of those 1,728 contracts that were up for renewal in that quarter, 

all but 450 were caught up by the end of the fiscal year. Another 

200 have now been processed through the system and there are 

250— 

Chairwoman WATERS. So you are caught up at this point. 

Mr. COX. Except for 250 for the Q4. 

Chairwoman WATERS. And those 250 will be— 

Mr. COX. We’re waiting for those owners to return those contracts and whenever they do, they will immediately be processed. 

Chairwoman WATERS. So we do not anticipate that we are going 

to have this problem next year at all? 

Mr. COX. I do not anticipate it. I can’t promise you we will never 

have a late payment again, that’s beyond— 

Chairwoman WATERS. Yes, but what has been described to me 

sounds as if it can be corrected certainly and that it has to do with 

the technology and the systems that you use for renewables. Is that 

correct? 

Mr. COX. That certainly would help go a long way. Again, we 

have a very manual process today. The more we can automate that 

process, the better it will be for owners and their tenants. 

Chairwoman WATERS. How should we punish you if you do not 

correct this problem? What should we do? Should we put into law 

a certain date, the first of the month, by which you should have 

this money? And if you don’t, should we then penalize you in some 

way and take away some discretionary money? Or penalize salaries? What would you suggest we do? 

Mr. COX. I would certainly encourage you to hold us accountable, 

and a good way to do that is to provide us the adequate working 

capital fund to automate these processes which will help us go a 

long way to making that happen. 

Chairwoman WATERS. Have you requested this money in the 

budget? 

Mr. COX. We have, yes. 

Chairwoman WATERS. All right. Thank you very much. I will go 

to Ms. Capito for 5 minutes. 

Mrs. CAPITO. Thank you. Mr. Cox, let me ask you a couple of 

questions, kind of process questions. The payments are done quarterly. Is that correct? 

Mr. COX. They are actually done monthly. 

Mrs. CAPITO. They are done monthly. 

Mr. COX. As our contract renewals. We have a series of thousands of contracts that we execute; they are actually renewed 

monthly. 

Mrs. CAPITO. So from month-to-month, can you predict how many 

you are going to have every month? I mean you should be able to 

predict that pretty—does it fluctuate a lot? 

Mr. COX. It does fluctuate a lot. I will give you an example. The 

October renewals are about 300. The January renewals, if my 

memory serves, are about 4,000. So it does fluctuate a lot, the 

workload fluctuates. 

Mrs. CAPITO. How do you, when different owners are the ones 

who are the victim of a late payment, how does that get decided? 

Who gets paid on time and who gets paid late? And what kind of 

10

system, you know, is it arbitrary or is it that the same people are 

paid late repeatedly? How does that shake out? 

Mr. COX. No. The payments are made in our system when the 

contract document is actually returned and entered into the system, so it is simply paid as those owners request those funds, or 

actually the project-based administrators request those funds by 

owner. 

Mrs. CAPITO. So if you are late getting your paperwork in, you 

could possibly be one of those people who gets a late payment. 

Mr. COX. That is correct. 

Mrs. CAPITO. Are you telling me that when you renew the contracts, it actually has to be mailed into HUD? 

Mr. COX. That is what I am telling you, yes, ma’am. 

Mrs. CAPITO. So you do not do this electronically at all? 

Mr. COX. Currently, no. 

Mrs. CAPITO. Whoa. That has to be a serious problem when you 

consider all of the things that you can do electronically. I certainly 

hope that could alleviate—I’m certain that I’m not telling you 

something you don’t already know—a lot of issues in timeliness 

and certainly accuracy. 

Mr. COX. Anytime you have a manual process, it lends itself to 

mistakes. It lends itself to delays. So to the extent we can improve 

these processes, that will greatly benefit the owners and the tenants. 

Mrs. CAPITO. How long have you been—you, yourself, been with 

HUD in this particular arena? 

Mr. COX. Since May of last year. 

Mrs. CAPITO. Since May of last year. Because Mr. Wood’s report 

covered 1994 to 2004. Correct? 

Mr. WOOD. 1995 to 2004. 

Mrs. CAPITO. Okay. And obviously the report that he generated 

showed that there were huge problems, and then for you to come 

into the situation when somebody has obviously seen the report at 

HUD, not made the corrections and, and we are back in the same 

boat this year, were any corrections, to your knowledge, done? 

Were any modifications made after that report was generated? 

Mr. COX. Well, as Mr. Wood indicated, we did engage a contractor to help us create a new database for all these contracts. 

One of the challenges is just the sheer volume of managing the 

numbers of 20-, 30-, and 40-year-old contracts combined with a 

great number of annual contracts. So one of the key initiatives we 

took after the GAO report was to engage that and that process will 

actually be complete next month. Again, as a first step in improving the overall business process. 

Mrs. CAPITO. Could you give me an example, and I know there 

are some in the book here, and I really should look at that, but let’s 

just say for a project, a regular-size project, what would that 

monthly payment be? 

Mr. COX. Congresswoman, I don’t know the answer to that. It 

could vary dramatically depending on the size of the unit and the 

size of the total complex. 

Mrs. CAPITO. Right. I understand that. 

11

Mr. COX. Not all complexes are 100 percent subsidized, so it really could vary dramatically. I don’t—I’ll be glad to provide you with 

a written answer. 

Mrs. CAPITO. I will check in my book for that. 

I do not have any further questions at this time, thank you. 

Chairwoman WATERS. Thank you very much. 

Mr. Green, for 5 minutes. 

Mr. GREEN. Thank you, Madam Chairwoman. 

Mr. Cox, please allow me to apologize to you in advance for asking that you give ‘‘yes’’ or ‘‘no’’ answers. I apologize because often 

when persons finish talking, I am not sure whether they have said 

yes or no. And because I have never encountered you before, I cannot attribute this to you, but I do want to move quickly, so I need 

yes or no answers. 

Sir, is it true that you have been given a legal opinion that is 

the primary cause of this current funding problem? Is this true? 

Mr. COX. That is true. 

Mr. GREEN. Is it also true that this legal opinion has not been 

accorded this committee? 

Mr. COX. That is correct. 

Mr. GREEN. Is it also true that this legal opinion, while recognized by you, is not in writing? 

Mr. COX. That is correct. 

Mr. GREEN. How, sir, do you propose to follow the opinion closely 

that has not been codified? It is generally speaking customary in 

the legal profession to give opinion letters, something that is codified, so that those who propose to follow the opinion will have 

something that they can peruse and scrutinize closely. 

How is it that this opinion has not been codified? 

Mr. COX. It is my experience in the private sector that, you 

know, if a lawyer gives me advice, I will begin to act on that advice. We will get a final opinion, but the same people who have 

given me that legal advice are also the same people who are working on the contract amendments and our key focus was on getting 

those amendments out the door, making sure that those late payments were caught up. And so that is the reason why the memo 

has not been completed. 

Mr. GREEN. Not to belabor the point, but generally speaking, 

when we are dealing with the amount of dollars that we are talking about now, generally speaking, lawyers provide written opinions to their clients. 

It is a bit unusual, in my opinion, to have an opinion that impacts the amount of dollars and lives that this one impacts, be a 

verbal opinion. Miscommunications, misunderstandings occur when 

we try to communicate verbally. But if we codify, we always have 

the original initial reference to go back to. 

You are in a position now where you must rely on what your 

opinion of the lawyer’s opinion happens to be. I don’t think that is 

an appropriate way for an entity the size of HUD to do business. 

I cannot imagine this being your customary practice of giving opinions and receiving opinions that are not codified. 

When will this opinion be codified so that we may review the 

opinion? 

12

Mr. COX. I don’t have an answer for you, Congressman. We will 

be reviewing both financial records as well as the legal opinion, so 

it will take some time. I don’t have an answer for you today. 

Mr. GREEN. It is difficult to ascertain whether or not a legal 

opinion is in fact correct without the opinion itself to review. If we 

just receive a summary of an opinion, it is very difficult to peruse 

it closely. 

Do you agree that this committee has some responsibility to concern itself with the opinion that has been issued? 

Mr. COX. Certainly. 

Mr. GREEN. How can we effectively carry out our responsibility 

without the opinion? 

Mr. COX. I am happy to have someone come and brief you from 

our counsel’s office on that, you know, before the official opinion is 

prepared. I am happy to do that. 

Mr. GREEN. Well, why would you act on an opinion that is not 

codified with language that we can peruse? 

Mr. COX. The attorneys working with program attorneys working 

with our General Counsel were very clear on their opinion with me. 

Based on that judgment, the Department acted accordingly. 

Mr. GREEN. Madam Chairwoman, I am greatly concerned that 

we do not have a written opinion, and I am not sure what the proper course of conduct is, but I am sure that this committee is in 

need of that codification. I know that my time is up, so I will yield 

back to the chairwoman. 

Chairwoman WATERS. Thank you very much. 

The gentlewoman from Illinois, Mrs. Biggert, for 5 minutes. 

Mrs. BIGGERT. Thank you, Madam Chairwoman. 

I would like to go back to the assurances, Mr. Cox, that HUD 

will follow through on the promises and is committed to streamlining and accurately projecting funding levels. But how are you 

going to do that? 

It seems like the Federal Government is behind a lot of times in 

technology, but it seems like HUD is way behind. And with the 

working capital fund, are you going to be able to increase the technology that is needed so you do not have to do this manual labor? 

Mr. COX. Congresswoman, if we get the request that we put in 

for Fiscal Year 2008, we will be able to take some steps to begin 

to fix that problem, yes. 

Mrs. BIGGERT. But that is taking the steps to begin. It seems like 

having this sophisticated system, data system, is going to take a 

while to do. 

Mr. COX. I do not disagree with you. Recall that we have already 

begun that process to develop the system. The next step to that 

will be able to put the analytics onto that system so that we can 

more accurately project what the long-term needs of these contracts 

are. 

Mrs. BIGGERT. Did you request in previous years for the capital 

fund to be able to do this? 

Mr. COX. We did. And unfortunately that request was not met 

fully. 

Mrs. BIGGERT. Were there reasons given? 

Mr. COX. I do not know those specifics, no. 

13

Mrs. BIGGERT. How long has the system that you have been 

working with been in existence? 

Mr. COX. The system actually will go live in November, next 

month. 

Mrs. BIGGERT. So you are already working on the system? 

Mr. COX. Yes. 

Mrs. BIGGERT. You have the technology? 

Mr. COX. We are working on the initial steps of the technology, 

which is a contract-by-contract data analysis. 

Mrs. BIGGERT. All right. So what is the system right now that 

is in existence? 

Mr. COX. A very manual system right now. 

Mrs. BIGGERT. Okay. I am confused. You say it is going to be 

ready to go in November, but you do not have the funding yet. 

Mr. COX. No. I apologize. The next step of the fund would be to 

take the database which is the actual contract-by-contract analysis 

and then take that and automate that database to allow us to 

project forward, going forward. 

Mrs. BIGGERT. Okay. And so when do you think that would be 

up and running? 

Mr. COX. I do not have an estimate for you today. 

Mrs. BIGGERT. Well, is it two years? One year? Three years? Four 

years? 

Mr. COX. I apologize. I will get back to you. I will have someone 

in the program office get that. 

Mrs. BIGGERT. Thank you. 

And then, Mr. Wood, just out of curiosity, you know, we have 

your GAO report and maybe you said this, but it only goes through 

2004. 

Mr. WOOD. Right. 

Mrs. BIGGERT. Is that because nobody asked for an update? 

Mr. WOOD. No one has asked for an update. And that was the 

most recent year at the time that we did the work. 

Mrs. BIGGERT. Since there probably has been no increase in the 

data system, it probably would be about the same result now? 

Mr. WOOD. As far as we know, other than developing the new 

database of contracts, the system that is used to renew them is still 

the same, essentially the same as it was at the time we did our 

work 

Mrs. BIGGERT. Do any of the owners complain about having to 

use such a manual system? Mr. Cox or Mr. Wood? 

Mr. COX. I think the GAO report indicates that they do is what 

I—if I had to deal with the manual system. 

Mrs. BIGGERT. Okay. What system does HUD have in place to 

notify owners if their monthly payment will be late? Or you just 

do not tell them? 

Mr. COX. No. We have three ways we can do that today. We have 

the HUD Web site. We have calls and in-person meetings with the 

industry groups, and finally, we have what is internally called the 

HUD TRACS system which owners can access. 

We do not have, as Mr. Wood indicated, a system, for example, 

that we could automatically e-mail the owners. That is again one 

of the next steps we are hoping to improve. 

Mrs. BIGGERT. All right. I yield back. Thank you. 

14

Chairwoman WATERS. Thank you very much. 

By the way, Mr. Cox, do you have legal counsel with you today? 

Mr. COX. Yes. 

Chairwoman WATERS. Would you bring them to the table? 

Mr. COX. Sure. 

Chairwoman WATERS. And now I will go to Mr. Sires for 5 minutes. 

Mr. SIRES. Thank you, Madam Chairwoman. 

I hate to harp on this thing, this manual effort, but it is amazing 

to me, and I guess I am new in Congress, that we can get millions 

of Social Security checks out timely, fairly timely, and we cannot 

get these checks out on time. To me it is mind-boggling. 

Did you hear that statement, Mr. Cox? 

Mr. COX. I am sorry. I apologize. 

Mr. SIRES. Well, that is probably the problem. 

I said it is amazing to me that we can get Social Security checks 

out, millions of them on fairly good time, and we cannot get these 

checks out on time. 

I understand that it takes 4 months for the owner in advance to 

submit all the paperwork before they get any checks. 

Mr. COX. The process does begin several months for a renewal, 

the one-time annual renewal. That is correct. 

Mr. SIRES. Plus it takes another month and some of these go beyond a month beyond that and 8 weeks beyond that, so we could 

possibly be looking at 6 months before they get a check. 

Mr. COX. That is possible, yes. 

Mr. SIRES. That is amazing. What do you expect these owners to 

do? Why does it take 4 months? 

Mr. COX. Because it is such a manual process, Congressman, the 

getting it to—we, we negotiate these contracts through third party 

intermediaries at the State level, so we have to get the information 

to that agency. That agency then works with the owner, returns 

that information to the State agency, and then back to the Department. But, clearly we can make improvements. There is no question. 

Mr. SIRES. Has anybody made a recommendation to streamline 

this process? Have you seen a report how we can streamline this 

process so it does not take 4 months? 

Mr. COX. I have not personally seen a recommendation, but I 

know that we are working on technology improvements within the 

Department to be able to do that. 

Mr. SIRES. And when do you anticipate this technology? Obviously, this Department is not the most technology-advanced department in the Federal Government. So when do you anticipate this 

technology to come online? 

Mr. COX. If we get full funding of the President’s request in Fiscal Year 2008, we will be able to make significant strides in starting that process. 

Mr. SIRES. You made a statement that 75 percent of payments 

were on time? 

Mr. COX. I believe it was Mr. Wood who made that statement. 

That is from the GAO report. 

Mr. WOOD. That is correct. During the period that we examined 

between 1995 and 2004. 

15

Mr. SIRES. And there is another statement someplace in the report that says that some of these payments were lower than they 

should have been. Did I get that right? I could not hear very well, 

when Mr. Cox was speaking. 

Mr. WOOD. In the GAO report, we did not address the amounts 

as to whether the amounts were accurate. We were strictly looking 

at timeliness. 

Mr. SIRES. How about Mr. Cox? Did you make the statement that 

there was an error or some of the monies that were sent were not 

the exact amount, that in many cases it was lower than it should 

have been? 

Mr. COX. No, sir, I did not make that statement. 

Mr. WOOD. Congressman, I may have confused you. I did make 

the statement that HUD often underestimated the total amount 

that they would need. At the time they renewed a contract, they 

would often underestimate the amount that they would need in 

total to make the monthly payments during the coming year. 

Mr. SIRES. Okay. Maybe that is what I misunderstood. 

As far as the incomplete vouchers by the owners, how often does 

that happen? Because I would think that an owner struggling to 

get this payment would want to make sure that these vouchers are 

accurate when they go in, especially when it takes 4 months to 

process. 

How long does it take if there is an inaccuracy in the voucher? 

You have to send it back. Does the process start all over again? 

How does this work? 

Mr. COX. No. The third party State agency will deal with that 

and they will do the first check to make sure that those vouchers 

are accurate. And my understanding from the GAO report, when 

they looked at that on a contract basis is that the State administrators were able to correct that fairly quickly. It depends on the nature, you know, what the issue. Obviously, the time could vary to 

get it back. 

Mr. SIRES. Mr. Cox, if nobody asks for the report, you will not 

do another report. Is that how this works? This report that stopped 

at 2004. 

Mr. COX. The Department does not ask for GAO reports. Congress asks for GAO reports. 

Mr. SIRES. Okay. But if we do not ask for another one? 

Mr. COX. We are still going to try to make improvements in the 

program clearly regardless of whether we have another report. We 

need to do that. 

Mr. SIRES. Thank you, Madam Chairwoman. 

Chairwoman WATERS. Thank you very much. 

The gentleman from Texas, Mr. Neugebauer. 

Mr. NEUGEBAUER. Thank you. In your testimony, Mr. Cox, I 

think you had talked about the fact that some of these contracts 

in the GAO report I think reflects that some owners are electing 

not to renew their contracts and are going to more private-based, 

a market-based housing. And so this issue of the late payments 

and the delays of renewing these contracts, do you have any numbers or a way to project that the reason a lot of these folks are 

going to market-based housing, getting away from the HUD program, is because of the problems and the delays and the ambiguity 

16

that kind of frustrates these folks and they say, ‘‘I’m tired of doing 

that.’’ Because probably in some ways it puts somewhat of a financial burden on those folks if you go 30, 60, or 90 days without payments, and you have a mortgage or other obligations for utilities, 

taxes, that kind of stuff. 

Do you have a feel of feedback of we are losing people to participate in these programs? 

Mr. COX. Is that question for me? 

Mr. NEUGEBAUER. Yes. 

Mr. COX. The information that is documented in the GAO report 

indicates that the primary reason that owners leave is for economic 

reasons. They have a better economic alternative to convert the 

property to market rate, etc. But clearly late payments is indicated 

in the report as well, as a frustrating factor, and I would appreciate that. 

Mr. NEUGEBAUER. When you have a person or company that is 

not—on a project that is not going to receive their payment, are 

you communicating with them? Do they know that their payment 

is going to be late? If they are sitting there going to the mailbox 

and the check is not coming, are they surprised to find out the 

check is not coming? Or are we communicating with them? 

Mr. COX. We have many ways to communicate with them. As I 

mentioned earlier, we have, via our Web site, via the public industry groups. And particularly for small owners which are most likely 

to be most impacted, we will often have a field office personnel call 

them directly and have them be a point of contact so that when the 

payment is ready to be made, they know how to do that, they know 

who to contact, and that payment can be expedited. That is particularly true for the small owners. 

Mr. NEUGEBAUER. So is there a number that if I am a small 

project owner and I can—do I call my field office? Or do I call the 

payment office? Who am I communicating with? 

Mr. COX. Primarily the field offices around the country. 

Mr. NEUGEBAUER. Now, you mentioned that some of the delay in 

renewing these contracts is because you are waiting for paperwork 

to come through. Some of these programs are administered through 

the State. Is that correct? 

Mr. COX. Yes, Congressman, a State agency. 

Mr. NEUGEBAUER. And so there is a chain there of, I have sent 

the paperwork to the State, and the State then has to forward that 

to HUD nationally? Or does that go then to the—is the field office 

involved in that at all? How does that work? 

Mr. COX. The field office can be involved in that. But, again, they 

are involved in terms of shepherding that contract, again, from 

HUD to the State agency, and ultimately to the owner. 

Mr. NEUGEBAUER. So under this new electronic version of, I 

guess, renewing these contracts online, is that where you are headed? 

Mr. COX. That’s correct. 

Mr. NEUGEBAUER. And so if the State is in the paper loop now, 

are we going to take the States out of the paper loop? How is that 

process going to work? 

Mr. COX. I think that process has yet to be defined, but the goal 

would be to reduce the paperwork and to do that electronically 

17

with the owners both from the contract renewal standpoint as well 

as the passing of paper now via mail, obviously that could happen 

electronically as well, similar to what happens in FHA today, for 

example. 

Mr. NEUGEBAUER. So in November, when I go online to renew my 

contract, I might be submitting the application electronically. I am 

really not signing up electronically. It is not going into the system. 

I am a little unclear as to how that works. 

Mr. COX. To be clear, what is going to be completed in November 

is the contract-by-contract data analysis. The new process will not 

be completed in November. 

Mr. NEUGEBAUER. So I will not be able to sign up in November 

online? 

Mr. COX. Not electronically, no, sir. 

Mr. NEUGEBAUER. So we will still be passing paper in November 

from the project to the State and the State to HUD and HUD is 

going to feed all this information into the computer. Somebody is 

going to enter it into the computer? 

Mr. COX. That is correct. 

Mr. NEUGEBAUER. That is the way people did business 20 years 

ago. It amazes me and I am not just picking on HUD but I look 

at Federal agency after Federal agency after Federal agency and 

we are spending $3 trillion of the taxpayers’ money and the Federal Government is in most agencies behind the curve on technology. 

It is, I think, frustrating to all the members of this committee 

that, you know, we hear this from other agencies, too. For example, 

today in our military, our soldiers have to make 10 copies of their 

medical records so that when they go into the VA system, they can 

start submitting those to 10 different people that they go to, and 

those records do not transfer. 

I think that one of the things that needs to happen is the Secretary needs to come back and not just talk about technology for 

this but as I think the gentleman from New York said, you know, 

we get Social Security checks out. We direct deposit those. Do you 

all do direct deposit? 

Mr. COX. We do for some of the HUD programs, not all. 

Mr. NEUGEBAUER. Well, praise the Lord that you are using some 

technology. 

I think the question was brought up as to what we can do to hold 

you accountable. I think what we ought to do is look at the appropriation for the agency and say, ‘‘Look, unless you can demonstrate 

to us that you are moving in some way to rectify this, we need to 

earmark some money to get the agency moving in that direction.’’ 

One of the things I have been working on with Chairman Frank, 

particularly with FHA, is that we are trying to put a certain 

amount of money aside for FHA for them to be involved in some 

new technology because you are trying to compete in the mortgage 

industry and the mortgage industry already has this technology. 

I think that is one of the frustrating things to me. And I will finish, Madam Chairwoman, but I think a lot of agencies are trying 

to reinvent the wheel in database technology. I mean that is how 

the whole process begins with spreadsheets and databases is where 

the software innovation, you know, started. 

18

And basically about 99 percent of the software we use today is 

really, underneath it, is just a database. And so I am a little concerned that we do not have something—surely, electronically you 

have a database at HUD for this program. Right? I mean you can 

pull up a screen. 

All right. Madam Chairwoman, I yield back the time I do not 

have. 

Chairwoman WATERS. Thank you very much. 

The gentleman from Minnesota, Mr. Ellison. 

Mr. ELLISON. Thank you, Madam Chairwoman, for this hearing. 

Mr. Cox, could you explain once—the gentleman from Texas, as 

he pointed out, once you do identify the project owners and the 

vendors that they are not going to get their checks on time, what 

do you tell them that they should do to mitigate the circumstance? 

Mr. COX. We work with them in a variety of ways to provide— 

Mr. ELLISON. I can barely hear you. I am sorry. 

Mr. COX. Sorry. We work with them in a variety of ways to provide assistance. If they are in an FHA mortgage we obviously provide FHA mortgage forbearance. We work at the field level to write 

utility companies, write mortgage holders to ensure, you know, 

help them— 

Mr. ELLISON. So you help them communicate? 

Mr. COX. We absolutely do. 

Mr. ELLISON. But you do not give them the money. 

Mr. COX. We do not, not until we— 

Mr. ELLISON. Okay. So let me ask you this, do these secondary 

folks who you help them talk to, do they always buy it? Do they 

always say, ‘‘Okay. Since HUD said the money is coming, we won’t 

cut off services. We will continue to provide pesticide services, and 

other kind of services that need payment?’’ Do they always buy it? 

Mr. COX. I cannot say in every case they buy it. 

Mr. ELLISON. Do they never buy it. 

Mr. COX. But in the majority of cases they do. 

Mr. ELLISON. Do you have any figures on that? 

Mr. COX. I do not. 

Mr. ELLISON. So your sense is that they buy it, but you don’t 

really know. Isn’t that true? 

Mr. COX. I will be glad to get the Program Office— 

Mr. ELLISON. But you don’t know? 

Mr. COX. I do not know, no. 

Mr. ELLISON. Thank you. And, of course, the people who, the individuals who benefit ultimately from this program are people who 

are low-income people. Right? 

Mr. COX. Correct. 

Mr. ELLISON. They are citizens of our country. Right? 

Mr. COX. Absolutely. 

Mr. ELLISON. Senior citizens, people who have worked their 

whole lives sometimes and made this country great. Right? 

Mr. COX. Absolutely. 

Mr. ELLISON. And yet they are facing loss of services because you 

guys cannot get the payments. Right? 

Mr. COX. Potentially. 

Mr. ELLISON. Yes. And, you know what? I assume—I am not 

going to sit here and tell you guys how to run a program because 

19

I figure you could run the program much better than me because 

you do it. 

I figure it is not happening because somebody does not want it 

to. And so my question is this: Is this poorly run program really 

a reflection of the Administration’s basic contempt for public housing programs? 

I mean when smart people do dumb things, something else is 

going on. Right? You guys know how to run a program. It is not 

happening because you do not want it to happen. And so in 5 years, 

after the program has failed, you can say, ‘‘Oh, well, we do not 

have anybody who wants to take Section 8 anymore.’’ Because they 

have all gotten out of the program because you guys have screwed 

up the program. You created failure. Is that not true? Just admit 

that is what you are doing. 

Mr. COX. Congressman, I can assure you the Administration is 

very committed to this program which serves— 

Mr. ELLISON. And your commitment is reflected in the excellent 

running of the program. Is that right? Your commitment is reflected in how you demonstrate your value of the program through 

your competent administration of the program. Is that right? 

Mr. COX. Clearly there needs to be— 

Mr. ELLISON. Let me tell you. Anything the Administration 

wants to do, it gets done. 

Let me ask you this: Have you ever heard somebody say, we 

should shrink government to the size where it can be drowned in 

the bathtub? Have you ever heard that phraseology before? 

Mr. COX. I have not, no. 

Mr. ELLISON. You have not heard that? 

Mr. COX. No. 

Mr. ELLISON. Well, trust me. A well-known political commentator 

said that. And I guess my question is, what do you expect the fate 

of this program is going to be in 5 years after vendors bail from 

the program because you guys do not run it well? Will you then say 

that the program needs to be ended because people do not want to 

participate? 

Mr. COX. We are very committed to the program and I would expect us to continue to be committed in 5 years. 

Mr. ELLISON. Well, I don’t doubt that you may be, but I am talking about the people whom you answer to above your pay grade. 

Now let me ask you this. The letter that the gentleman, the 

other gentleman from Texas, Congressman Green, asked you are 

you going to share this opinion letter with Congress when you finally get around to getting it memorialized in writing? 

Mr. COX. Yes. 

Mr. ELLISON. When is that going to happen? Give us a date. 

Mr. COX. I do not have a date for you today. 

Mr. ELLISON. Give us—will it be by the end of this month? 

Mr. COX. No. 

Mr. ELLISON. Will it be by the end of November? 

Mr. COX. It will probably be by the end of the calendar year. 

Mr. ELLISON. Okay. So by December 31st, we are going to see a 

letter? 

Mr. COX. That would be my expectation. 

Mr. ELLISON. Okay. Can we have your promise? 

20

Mr. COX. I will do the best I can. 

Mr. ELLISON. Can we have your assurance? Yes or no? Can we 

have your assurance right now— 

Mr. COX. I will do the best I can. 

Mr. ELLISON. —as you have sat down and have testified before 

Congress, will you give us your firm assurance that before December 31st, 2007, we will have that opinion letter? Can you do that? 

Mr. COX. I will do everything I can. I am not going to write it— 

Mr. ELLISON. That sounds like you are waffling. 

Mr. COX. I am not going to write it. I will do everything I can 

to— 

Mr. ELLISON. It does not sound like you want to tell us. Okay. 

So we will all just note your—are you a little embarrassed by this 

whole thing? I mean I am just asking. 

Mr. COX. Certainly we are apologetic for the late payments, no 

question about it. 

Mr. ELLISON. But isn’t it kind of embarrassing? 

Mr. COX. We certainly wouldn’t want it to happen. 

Mr. ELLISON. Neither would I. Let me ask you this. Now I have 

practiced law for 16 years, and that is not much compared to some 

people, but it is a lot compared to other people. And if I said to my 

client, ‘‘Here’s my advice to you.’’ And they said, ‘‘Okay. Give me 

a letter so I can make sure I know what you are saying to me.’’ 

And I took 3 months to get it to them, I would not be their lawyer 

very long. Do you understand what I am saying? 

Mr. COX. Yes. 

Mr. ELLISON. Do you claim any kind of privilege that would prevent you from sharing this letter from Congress? 

Mr. COX. No. 

Mr. ELLISON. So we cannot anticipate you asserting privilege 

with regard to this letter. 

Mr. COX. Not to my knowledge, no. 

Mr. ELLISON. Okay. And as I said, you know, this—can you tell 

me what exactly is the advice that you were given because you told 

all of us that you had a very clear understanding of what the advice was, could you share it with us now for the record so that we 

can have something to rely on, even if it is not a written letter? 

Mr. COX. Sure. I actually referred to it directly in my testimony, 

Congressman. 

Mr. ELLISON. Okay. 

Mr. COX. We were executing annual contracts but we had funding to fund to the end of the fiscal year. So the implication clearly 

is the contract was written and we provided to you in my testimony 

both the contract language before and now the contract language 

afterwards. It just simply did not meet the funds control issue that 

we had in the Department. So it is not more complicated than that. 

Mr. ELLISON. Now let me ask you this: Is the appropriation that 

you all have requested adequate to fix the problem that you are experiencing? 

Mr. COX. The appropriation that we requested in Fiscal Year 

2008 is adequate to fund the program with the new contract language, that is correct. 

Mr. ELLISON. Is it adequate to make up for this backlog and 

shortfall that we are facing at this time? 

21

Mr. COX. It is not. 

Mr. ELLISON. Okay. So what would the appropriation be not only 

to meet the upcoming needs but also to fix the backlog needs? 

Mr. COX. I would have to get you that number. I do not have it. 

Clearly it would be larger than what we have requested, but I do 

not have that figure off the top of my head. 

Mr. ELLISON. You do not know that? 

Mr. COX. No, I do not. 

Mr. ELLISON. Can you get that by the end of the day? You can 

provide it to the chairwoman. 

Mr. COX. I will be glad to get it as quick as I can. 

Mr. ELLISON. Okay. Can you get it by the end of next week? We 

need the numbers, so I am just trying to pin you down. When can 

we get that number? 

Mr. COX. I will provide it to you as quickly as I can. 

Mr. ELLISON. That might be next millennium. Give me a date. 

Mr. COX. I will give it to you by the end of next week. 

Mr. ELLISON. Okay, thank you, sir. 

Is that the gavel? 

Chairwoman WATERS. Yes. 

Mr. ELLISON. Thank you. I will yield back the time I do not have. 

Chairwoman WATERS. Thank you very much. 

Mr. Cleaver, for 5 minutes. 

Mr. CLEAVER. Thank you, Madam Chairwoman. 

Mr. Sires and I were mayors. In Kansas City, I had 32 lawyers. 

And on at least two occasions I can remember asking the principal 

attorney, city attorney, to let me know whether or not we could do 

something and how we stood on a particular lawsuit against the 

Police Department. 

And they made an appointment, came to the office and during 

the appointment, during the time we talked they said, ‘‘Mr. Mayor, 

here is the opinion verbally. We are not going to write it because 

we do not want it a part of discovery. And so here is what we think 

but we are not going to write an opinion.’’ 

To follow up on the line of questioning previous to me, was there 

an opinion, a verbal opinion that was not put in writing because 

perhaps it was vetted by others in the department or other departments and then you decided or the law department decided, let’s 

not put this in writing? That’s a question. 

Mr. COX. No, sir. No. 

Mr. CLEAVER. Ma’am, hi. Thank you for being here. 

Chairwoman WATERS. Would you please identify yourself and 

your title prior to responding to Mr. Cleaver. 

Ms. FORRESTER. My name is Althea Forrester. I am the Assistant 

General Counsel for the Assisted Housing Division in the General 

Counsel’s Office. 

Mr. CLEAVER. Ms. Forrester? 

Ms. FORRESTER. Yes. 

Mr. CLEAVER. Was there a verbal opinion given? 

Ms. FORRESTER. Yes. There was a question asked and we responded with our opinion as to the interpretation of the contracts. 

Mr. CLEAVER. And was the verbal opinion, was it a decision that 

we should not put this in writing at this time? 

22

Ms. FORRESTER. No. We were not even asked to put it in writing. 

I do not think there was a question because it was a position that 

others had already gleaned should be taken in the Department. 

And so there was not a request for a formal opinion. But we would 

put it in writing if we were asked. 

Mr. CLEAVER. In 2006, the legal counsel ruled that it was illegal 

to have a contract with the owners through 12 months. Right? 

Ms. FORRESTER. No, I am not aware that anything was drafted 

or discussed in 2006. Our office or at least I was not aware of the 

position that we were in in terms of the contract and the funding, 

the discrepancy between the contract and the funding until 2007. 

Mr. CLEAVER. Okay. Maybe my information is wrong. But the information I have suggests that in 2006, the legal counsel ruled that 

it was illegal to sign owners to a 12-month contract term. 

Ms. FORRESTER. No, I am not aware of anything like that. 

Mr. CLEAVER. Okay. After the meeting I would like to speak 

more to that just because it is contradictory to the information I 

have. 

I want to go back to the ‘‘HUD-ran-out-of-funds by July issue.’’ 

Mr. Cox, Mr. Ward, are you familiar with the 108 Loan Program? 

Mr. COX. I am generally familiar with it, yes. 

Mr. CLEAVER. Do you know if it has ever run out of money? 

Mr. COX. I do not, sir. 

Mr. CLEAVER. The 108 loan program is generally used by city 

governments to do economic development projects where you are 

actually borrowing against a CDBG and I was the president of the 

National Mayors Organization. I traveled all over the country. I 

have never heard of the 108 Loan Program running out of money. 

Now, I am connecting that to this because the 108 Loan Program 

generally deals with hotels. We have done 108 Loan Programs to 

rebuild historic districts. All kinds of economic development 

projects. 

Sometimes they were connected to the enterprise zone or the 

Economic Development Initiative, EDR Program, and they never 

run out of money. So it goes to what my colleague said earlier that 

when we have programs dealing with the poorest people, we run 

out of money. But when we deal with the economic development 

programs where we are dealing with major developers, we never 

run out of money. 

Tell me I am wrong. Tell me about a program that deals with 

major developers that has run out of money. And I am not saying 

that, you know, I actually would like for you to tell me just one 

program that ran out of money. Anyone? 

Mr. COX. I am not aware of any. 

Mr. CLEAVER. Yes. That is the point, don’t you see? When we 

deal with poor people, we run out of money. I mean there is something immoral about that. There is something unseemly about that 

and that is just my trouble with this program. 

I actually don’t have any more questions because that troubles 

me so greatly. And I think the question about embarrassment and 

shame, it is not just you. Everybody, all of us ought to be embarrassed that this is how we treat poor people. 

Chairwoman WATERS. Thank you very much. 

Mr. Shays? 

23

Mr. SHAYS. Thank you. 

As I listen to this, I get more and more uncomfortable. Mr. 

Ellison’s questions, in my mind, were almost too gentle because 

what I am seeing is this: We all know we have a problem and we 

all know we have a backlog. And that means to get the backlog 

taken care of you may need some more people to process this but 

you need more money. 

What I am hearing you say, Mr. Cox, what I am hearing you say 

is basically you have enough money to renew the contract to the 

new contract, but you do not have enough to deal with the old contract. I mean the backlog. Is that correct? 

Mr. COX. No. Congressman, what we determined in 2007 is we 

did have a problem. We worked to figure— 

Mr. SHAYS. No, no. I am asking this. You do not have enough 

money, you did not ask for enough money to deal with the backlog. 

Is that correct? 

Mr. COX. We asked for enough money to incrementally fund the 

contracts in Fiscal Year 2008. 

Mr. SHAYS. I want you to answer my question in a way that I 

can understand it. And I am asking a simple question. My understanding is you did not ask for enough money to deal with the 

backlog. 

Mr. COX. The fiscal year President’s request for 2008 would not 

fully fund every single renewal in Fiscal Year 2008. 

Mr. SHAYS. So you did not ask for or the President did not give 

you enough money to fund the backlog. Is that correct? 

Mr. COX. I believe I just answered that question, yes. 

Mr. SHAYS. No, you did not. You want to answer it in a way that 

obfuscates the answer. I happen to be a Republican with a Republican Administration. I think I am more offended by your answer 

than my Democratic colleagues, who I think are being very kind to 

you. 

It is a very up-front thing. It is your problem if you do not ask 

for enough money. It is our problem if you ask for enough money 

and we do not give it to you. 

So I am just trying to understand the first part of the problem. 

And it is my understanding that the White House did not submit 

a budget that would deal with the backlog. Is that correct? It is an 

easy answer. Yes, they did, or no, they didn’t. 

Mr. COX. Again, Congressman, the funding requested in 2008 

would not fully fund all 12 months’ renewals for all contracts. 

Mr. SHAYS. So the answer is yes. 

Mr. COX. Correct. 

Mr. SHAYS. Thank you. So you all did not ask—the Administration did not submit a budget that would allow for us to deal with 

the backlog. Given that, how do you solve the problem? What is 

your solution if you do not have enough money to deal with the 

problem? It is pretty straightforward. 

Mr. COX. We have a solution. That solution is to pay for the portion of the contracts, the annual renewals in the fiscal year, which 

will be Fiscal Year 2008. We have the funds available if the budget 

is passed— 

Mr. SHAYS. No, no, no. You told me you don’t have the funds to 

deal with the backlog. Don’t go—I am not going to get off this subVerDate 0ct 09 2002 11:30 Jan 31, 2008 Jkt 039910 PO 00000 Frm 00027 Fmt 6633 Sfmt 6633 K:\DOCS\39910T~1.TXT HFIN PsN: TERRIE
24

ject. I am just going to stay on this subject and I would ask the 

gentlelady who is chairing this committee to let him know that you 

will give me enough time to have him answer the question. 

Chairwoman WATERS. We will stay here all day until he answers 

that question. 

You had better answer that question. 

Mr. SHAYS. The answer is—it is not funny. It is not funny. It is 

embarrassing. And the reason it is embarrassing to me is we, Republicans, tend not to want to own property. We want the market 

system to work. We have a market program. Contrary to Mr. 

Ellison, I think this actually is the kind of program I want. We 

have a market system so some people can live in a project, in housing that others can live in that aren’t—who can pay the market 

rate. 

What I want to know is, you do not have enough money to deal 

with the backlog. You have already said, yes, you do not have 

enough money. So if you do not have enough money to deal with 

the backlog, then do we invent money? Do we just say, ‘‘Take your 

loss.’’ Or do we just carry that backlog and always be late next 

year? You will be here late next year then, will you not? 

If we have not paid back the money we owed, doesn’t it just go 

into the next year, and won’t we be behind next year? It’s a simple 

question. 

Mr. COX. It is a simple question. And we have provided funding 

in Fiscal Year 2007 for a great number of contract renewals 

through the full 12 months. We provided that into that, you know, 

into Fiscal Year 2008. Fiscal year 2008’s $5.6 billion which is the 

President’s request, gets us through November of 2008. 

Mr. SHAYS. You will still have a backlog. Is that not correct? 

Mr. COX. I apologize. I don’t know what the concept of backlog 

is. 

Mr. SHAYS. Well, it is a simple concept. You owe people money. 

You are not current so you always are going to be behind. 

Mr. COX. But we are current and we will be current with the 

$5.6 billion that we have. 

Mr. SHAYS. Well, then how can you give me a statement that you 

do not have enough money to pay the backlog? 

Mr. COX. That is why I say I don’t understand the concept of 

backlog. We will fund incrementally the portion of the fiscal— 

Mr. SHAYS. Let’s just start here. I ask patience of my committee 

members. Do we owe any landlords money for money they have already—do we owe any landlords money? 

Mr. COX. We have about 400 contracts from last year that are 

waiting to be returned. When those are returned, we have the 

funds to fund those. 

Mr. SHAYS. Well, you know, I am not going to get anywhere with 

you. So you can go back and you can say, ‘‘Congratulations.’’ But 

you have made a fool of yourself. And you have done it in a way 

that embarrasses me, it embarrasses this committee, and it embarrasses you. 

We are not in a game here. We are just trying to understand a 

problem. I admit you had me a little confused because you gave different answers for the same question. 

25

The bottom line, what I understand to be true is this: We don’t 

have enough money to pay the landlords, so we delay the contracts. 

These landlords are owed money, you are going to take future 

money and pay past debt and we will be behind next year. 

And maybe your theory is you won’t be here next year because 

there will be another Administration or whatever. But, you know 

what? Next year you will be here, and I hope you are the one who 

comes here and has to respond to the same questions and you can 

make a fool of yourself a second time. 

Chairwoman WATERS. Thank you very much, Mr. Shays. 

Normally, this would be the end of our questioning for you and 

I am sure if you have been here before, that is how it has happened. But I have the gavel now and I have the opportunity to 

make a few changes. 

I think you have not been forthcoming with us. And our members 

are a little bit frustrated because you have not been clear. We 

think that you are $2.5 billion short in your funding requests that 

should be $8 billion. 

In addition to that, you have not really answered Mr. Shays’ 

question. In addition to that, you have not satisfied Mr. Green 

about whether or not you made a formal request for a written opinion and also Mr. Cleaver has additional questions for you. 

So we are going to do another round. We are going to go to each 

member for at least one question so that we can get at some real 

truth here. And, as a matter of fact, we can go beyond that if we 

have to. And we are going to ask you to just sit there until we find 

out what it is you’re telling us. 

With that, we are going to start all over again. Ms. Capito? 

Ms. CAPITO. Thank you, Madam Chairwoman. I will pass on my 

second question and move to the other members. 

Chairwoman WATERS. Thank you. 

We’re going to go to Mr. Green. 

Mr. GREEN. Thank you, Madam Chairwoman. And I do beg indulgence because I am gravely and greatly concerned. 

Mr. Cox, what HUD is doing may not be criminal, but I assure 

you it’s sinful because HUD should not be in the business of creating homelessness. And that is what HUD is doing. HUD is creating homelessness. 

In the year 2002, we lost 87,143 units, which also means that we 

had to extend the enhanced vouchers to pay for some of these units 

which means we paid the regular subsidy plus the market value. 

And that is the most expensive type of voucher that we have. We 

should not be doing this and we should not be losing these units. 

I might add that Texas and California lost the most units: Texas, 

12,088; and California, 12,326. I have in my district 900 units that 

are up this year. So I am concerned and I would like to, if I may, 

address the lady—and I need to know her name. 

Ma’am, would you give me your name, please? 

Ms. FORRESTER. Althea Forrester. 

Mr. GREEN. Ms. Forrester, you indicated that you would give an 

opinion in writing, if requested. 

Ms. FORRESTER. Yes. 

Mr. GREEN. Is this to say that you have not been requested to 

give an opinion in writing? 

26

Ms. FORRESTER. No, we have not been requested to put our opinion in writing. 

Mr. GREEN. Ms. Forrester, I greatly appreciate your honesty because I assure you that the problem with this may be the opinion. 

The opinion may be the problem. It is the genesis of all of this. 

Mr. Cox, is it true that you received what you said was an opinion in 2006? 

Mr. COX. No, sir. That opinion came in 2007. 

Mr. GREEN. And from whom did you receive the opinion, sir? 

Mr. COX. I received that from our Office of Appropriations Counsel. 

Mr. GREEN. All right. Is that the lady seated next to you? 

Mr. COX. No. Althea works in the General Counsel’s Office. 

Mr. GREEN. So is the lady seated next to you prepared to give 

a legal opinion at this time? 

Mr. COX. I can’t speak for her. 

Mr. GREEN. Permit me to ask you. I’ll ask you if you’re prepared 

in the following way, Ms. Forrester. Have you personally looked at 

the law as it relates to these contracts? Have you reviewed the law 

itself? 

Ms. FORRESTER. Our office has looked at— 

Mr. GREEN. Excuse me, ma’am. Not whether the office has and 

I do not mean to be rude, but this is quite sensitive. Have you reviewed—if you are going to give me an opinion, I need to know 

what you’ve done. 

Ms. FORRESTER. Yes. I have looked at the contracts. 

Mr. GREEN. Have you reviewed the law? 

Ms. FORRESTER. I have looked at the contracts and the law as it 

relates to appropriations and we have made an opinion. I have— 

Mr. GREEN. Before you continue, because my time is short, you 

have looked at the law and the contracts. Next question: Do you 

agree that these contracts are in writing? Yes or no. 

Ms. FORRESTER. Do I agree—excuse me? 

Mr. GREEN. The contracts, the 12-month contracts, are they in 

writing? 

Ms. FORRESTER. Are they in writing? 

Mr. GREEN. Yes. 

Ms. FORRESTER. Yes, they are in writing. 

Mr. GREEN. They would be because to comply with the statute 

of frauds they would be in writing, contracts for 12 months or 

longer. 

Ms. FORRESTER. They are in writing. 

Mr. GREEN. All right. So they are in compliance with the statute 

of frauds. 

Do you agree that there was a meeting of minds as it relates to 

these contracts? 

Ms. FORRESTER. I don’t understand the underlying question. 

Mr. GREEN. Well, the underlying question is a question of whether or not you have an offer, an acceptance, and a meeting of the 

minds. There was an offer, there was an acceptance, and because 

it is codified, one would assume that there was a meeting of the 

minds as it relates to the contracts. True? 

Ms. FORRESTER. I would be speaking for others if I said yes or 

no to that. 

27

Mr. GREEN. Okay. You do have the written contract. 

Ms. FORRESTER. I have copies of the contracts. 

Mr. GREEN. So you would now indicate that these contracts can 

be negated on a verbal opinion simply because someone in the office found reason to conclude that they were unacceptable? 

Ms. FORRESTER. No one has ever said that the contracts can be 

negated. 

Mr. GREEN. Well, if the contracts are not being negated, why are 

we not funding as we previously funded? 

Ms. FORRESTER. I think you are confusing the method of funding 

with the whether or not the contract is viable. 

The contracts were created at a time when HUD would receive 

in appropriations sufficient funds to put aside for each contract 

that was executed the value of the contract. So if the contract over 

12 months was $1 million, there was $1 million. 

However, over time HUD was not receiving sufficient funding to 

be able to put aside $1 million at the time. And rather than not 

enter into a contract they were funding, the contracts always to 12 

months, but incrementally. 

The contracts however now clearly reflect the funding method as 

opposed to the fact that the contracts have been negated. 

Mr. GREEN. But what you concluded was that you could not use 

what we are calling pursuant to my memo short-funding of the contracts. 

Ms. FORRESTER. We concluded that if you were going to fund the 

contracts incrementally, then the contracts needed to reflect that. 

Mr. GREEN. May I have just one more minute, Madam Chairwoman? 

So you are not short-funding the contracts and, as a result of 

this, we find this present dilemma that we are dealing with. 

Ms. FORRESTER. Right. The contracts ultimately are not shortfunding. There is a difference between actually not paying a month, 

as opposed to paying 12 months with 1 month or 2 months late. 

The contracts are paid 12 months. There is 12 months of funding 

received by the owners. However, we said that the contracts must 

reflect the method of funding as well as— 

Mr. GREEN. One final question. If you can give a legal opinion, 

would it take you until December 31st to give this legal opinion? 

A written opinion? 

Ms. FORRESTER. Would it take my office— 

Mr. GREEN. Yes. Would it take until December 31st to provide 

a written opinion about what you have already perused, about 

what you already understand. 

Ms. FORRESTER. I would say that we would hope it would not 

take us until December 31st. 

Chairwoman WATERS. Mr. Green, the committee is going to request that we get that written opinion. And I would like you, as 

an attorney, to suggest a reasonable amount of time that we will 

request this opinion. 

Mr. GREEN. Madam Chairwoman, I think most lawyers would 

agree that an opinion that has already been studied and announced 

can be rendered within 30 days quite easily. 

28

Chairwoman WATERS. It is so ordered, then. We will follow up 

with a written request that the opinion be given to this committee 

within 30 days. 

Thank you very much, Mr. Green. 

Mr. GREEN. Thank you. 

Chairwoman WATERS. Mrs. Biggert. 

Mrs. BIGGERT. Mr. Cox, how is it decided which contracts will receive a late payment? Is it because in November, you run out of 

money, so all of those contracts are due then? 

Mr. COX. It could be for a variety of reasons, Congresswoman. It 

could be because as we mentioned earlier the payments, the contract wasn’t returned in time. It could be—we have challenges I 

mentioned in my testimony with the beginning of the fiscal year 

getting that just because we do not get the money until October 1st 

so it is very hard to get the money that day and then turn it right 

around. So it could be for a variety of reasons. 

Mrs. BIGGERT. What is the average time that the payment finally 

arrives to the owner if there is a late payment? 

Mr. COX. I don’t have an average for you. I think the GAO reported, you know, somewhere between 2 weeks was an average. 

Then there was a small group that was 4 weeks and a smaller 

group that was 8 weeks. 

Mrs. BIGGERT. Mr. Wood, is that still probably correct? 

Mr. WOOD. That’s an accurate characterization of the time that 

we examined. But, as I said earlier, we don’t really have any data 

to show since 2004 how that might have changed. 

Mrs. BIGGERT. Is there any interest or anything paid to the owners if the payment is late? 

Mr. COX. Not to my knowledge. 

Mrs. BIGGERT. It’s just the payment? 

Mr. COX. That’s correct. 

Mrs. BIGGERT. I yield back. 

Chairwoman WATERS. Thank you very much. 

Mr. Cleaver? Sorry. If we do it in the order we did before, it 

would be Mr. Ellison and then Mr. Cleaver in the order that you 

came in. 

Mr. ELLISON. Mr. Cox, could you offer your views as to what liability HUD could face if someone were to fall ill because the payments were not made on time and then some vital service wasn’t 

able to be secured? 

For example, what if payments were not rendered on time and, 

for example, a pesticide company decided that they weren’t going 

to be able to spray, and then somebody’s child got roaches stuck up 

in their ears or something like that, what kind of exposure do you 

think HUD might have? What sort of moral responsibility? What 

sort of legal responsibility would you be concerned about? 

Mr. COX. We would certainly want to do what’s in the best interest of the tenants, but legal liability, I apologize, I’m not an attorney, so I don’t know the answer to that. 

Mr. ELLISON. Would you offer your views on this subject? What 

responsibility, either moral or legal, does HUD have if their failure 

to discharge their duties per the contract resulted in an injury to 

a tenant? 

29

Ms. FORRESTER. I can’t speculate on that. I mean there would be 

so many factors involved. 

Mr. ELLISON. Right. So you just don’t want to—you don’t believe 

you have any exposure or do you believe you do? 

Ms. FORRESTER. No. I can’t say either way. I would have to look 

at the contracts. We’d have to look at the— 

Mr. ELLISON. Well, you looked at the contracts. You just got 

through talking about how you knew all about the contracts and 

how the contracts were valid regardless as to whether they were 

being complied with. You were pretty articulate a moment ago. 

Would you— 

Ms. FORRESTER. As you understand as an attorney— 

Mr. ELLISON. Excuse me, ma’am. I need you to— 

Ms. FORRESTER. —that when— 

Mr. ELLISON. I’m not going to have you overtalk me. Okay? 

Ms. FORRESTER. I won’t. 

Mr. ELLISON. And so I need you to offer your views on what sort 

of exposure HUD faces. I mean we are Congress. It is our job to 

be concerned about these things. I want to know what your views 

are. What sort of exposure, legal and moral, is HUD facing for failure to properly discharge its responsibilities per these payments? 

Ms. FORRESTER. I think it would be irresponsible to speculate on 

what kind of exposure we would face without— 

Mr. ELLISON. Ma’am, it is irresponsible for you not to run a good 

program. That is what is irresponsible. And I want to know what 

you think about this, unless you just refuse to answer. Do you 

refuse to answer me? 

Ms. FORRESTER. No. 

Mr. ELLISON. Okay. Well, let me hear the answer. 

Ms. FORRESTER. You have asked me whether or not we would be 

facing any liability and as any lawyer understands whether or not 

we face liability is something that has to be analyzed based on 

State, local, and Federal law, contractual law, and I am not going 

to speculate on whether or not we would be subject to any particular liability, but as an agency we would, of course, face the possibility of suit. 

Mr. ELLISON. Ma’am, if you are advising the agency, you mean 

to tell me you do not have any views that you would share to protect your agency from liability, by way of advice? 

You are not prepared to sit up here and say, ‘‘We could end up 

in a lot of trouble if we don’t deal with this because we have certain duties and responsibilities under these contracts.’’ 

You are not here to—you are just going to demur on that one. 

You’re not going to articulate what kind of trouble that the agency 

could be in? 

Ms. FORRESTER. No, I’m not going to speculate on that. 

Mr. ELLISON. Yes. Well, I am pretty disappointed with that answer, too. And I was hoping that you would be a little bit more 

forthcoming than others seated at the table, but I guess that is the 

way it goes. 

Chairwoman WATERS. Mr. Ellison, if I may? One of the things 

that was mentioned here this morning was that we have nothing 

in law that indicates they should have the payments to the owners 

on the first of the month or any particular time. That is an area 

30

you may want to take a look at. And if they are out of compliance 

with something we put in law a date by which they should have 

the payment, then we should talk about what then happens, 

whether or not the persons responsible are subject to dismissal or 

something. 

Let’s take a look at that because that is where you create liability when we have dates certain by which they should do something 

in particular maybe. So if you will take a look at that for a possible 

bill. 

Mr. ELLISON. We are on it, Madam Chairwoman. 

Chairwoman WATERS. Thank you very much. 

Okay. We are back to you, Mr. Shays. 

Mr. SHAYS. Thank you. 

I would like to ask counsel, first, a question. Has anyone in the 

Department asked you if there was a liability problem? Is this the 

first time you have been asked this question? 

Ms. FORRESTER. Yes, it is. 

Mr. SHAYS. Why do you think that is so? 

Ms. FORRESTER. I think because it is understood, at least in the 

discussions that we’ve had, that the Department is not trying to 

not pay and that it is a balancing act between what we have received in funding and our obligations not only to the program but 

to the tenants. And so while we are aware of it, it would be not 

useful to sit around speculating on individual liability. 

Mr. SHAYS. Let me ask you this, though. What I don’t understand is when you say it wouldn’t be useful, I would think it would 

be prudent to know up-front if you have a liability problem. That 

is why we have legal representation in our departments so they anticipate this. I am just curious why it was not anticipated. 

Ms. FORRESTER. I didn’t say— 

Mr. SHAYS. Mr. Wood— 

Ms. FORRESTER. Let me just say that I didn’t say that. Our office 

is not the litigation office. So to the extent and I guess I should correct that, to the extent that issue may have come up, that would 

not be to our office. 

Mr. SHAYS. Well, that would have been more helpful if you had 

answered it that way. I feel like we are playing a game where we 

have to kind of ask the right question and I am really not an 

enemy here. I am just trying to—I came here trying to think what 

could we do to help out. And I just feel we do not get straight answers. 

What I would like to ask you, Mr. Cox, is, is this the first time 

you were ever asked what our, you know, past liabilities are and 

how much that is? Is this the first time that anyone has asked you 

that? 

Mr. COX. It is for me, yes. 

Mr. SHAYS. Are you new at this job? 

Mr. COX. No. I’ve been on board since May of 2000— 

Mr. SHAYS. I would just think that we would want to know and 

if you had this job that you would want to know, ‘‘My God, how 

much backlog of IOUs do we have?’’ 

Because what I am struck with is the fact that we are playing 

a game. And the game is that we are going to go incrementally because we do not have enough money in our budget to pay the obliVerDate 0ct 09 2002 11:30 Jan 31, 2008 Jkt 039910 PO 00000 Frm 00034 Fmt 6633 Sfmt 6633 K:\DOCS\39910T~1.TXT HFIN PsN: TERRIE
31

gations. And so you are using creative financing and I think that 

is to your credit in once sense. You’re trying to deal with it. 

But here I would think you would put it on our shoulders and 

say, ‘‘This is what we need to deal with. If we don’t get this money, 

they we have to do these kinds of incremental games.’’ 

Mr. Wood, help me out. What I would like to understand is, is 

there—does the Department have past obligations—do they have a 

financial problem in not having enough money? Am I inventing 

this? Are we all inventing this? 

Mr. WOOD. What we found when we examined that period of 

1995 to 2004 was that the single biggest problem contributing to 

late payments was the fact that there was not a renewed contract 

in place. That is distinct in a sense from the funding issue. 

Mr. SHAYS. Okay. Let’s agree to that. And is there any incentive 

for the Department not to have an agreement on contracts because 

they don’t have enough money to pay? 

Mr. WOOD. I would think that the Department would want to 

fully fund the contracts. 

Mr. SHAYS. What is that? 

Mr. WOOD. I would think that the department would want to 

fully fund the contracts. 

Mr. SHAYS. And do they have enough money to fully fund the 

contracts? 

Mr. WOOD. In the past, my understanding is that HUD has obligated/allocated 12 months’ worth of rent. 

Mr. SHAYS. That’s not what I asked. Obligating is not do you 

have enough money to pay it. 

Mr. WOOD. Well, they would only obligate money if they had 

been appropriated that money. 

Mr. SHAYS. So we don’t have a problem then, do we? 

Mr. WOOD. What it—this whole issue of the lack of funding, 

frankly, didn’t arise during the period that we examined. It has 

come up since so I really don’t know frankly a whole lot more about 

it than you do. 

But what it seems to me is that HUD is allocating something 

less than 12 months of rent to the contracts— 

Mr. SHAYS. Because they don’t have enough money. 

Mr. WOOD. Because they don’t feel like they have enough. 

Mr. SHAYS. That’s right. That’s right. 

Chairwoman WATERS. Thank you very much, Mr. Shays. 

Mr. Cleaver? 

Mr. CLEAVER. Madam Chairwoman, I want to associate my comments and my feelings with Judge Green, that he expressed earlier. 

I would like to move back to where we were earlier. When I 

asked about in 2006, whether the legal counsel ruled that it was 

illegal, I think the answer was, ‘‘No, that didn’t happen.’’ 

Ms. FORRESTER. Yes. I was not aware of anything happening in 

2006. 

Mr. CLEAVER. Good. Oh, good. That’s exactly what I want. Did 

I have the date wrong? 

Ms. FORRESTER. You may have. That may be it. 

32

Mr. CLEAVER. I’m sorry. I didn’t ask the question properly. Was 

my statement correct and the date wrong or some little word 

wrong? That it was ruled illegal and I just used the wrong date? 

Ms. FORRESTER. Well, to be honest, I thought even if the date 

was correct, I thought the statement was incorrect. 

Mr. CLEAVER. That the legal counsel has never ruled that it was 

illegal to sign owners to a 12-month contract. 

Ms. FORRESTER. Yes. I’m not aware that we have ever said that. 

I’m not aware that anybody in OGC has said that, but I know our 

office has not said that. 

Mr. CLEAVER. Okay. I just wanted to make sure that it is clear 

because I think somebody has said that, but I will deal with that 

later out of the committee. 

Mr. Cox, when did you know that there was going to be a problem? 

Mr. COX. In August, I believe, of this year, 2007. 

Mr. CLEAVER. Two months ago. 

Mr. COX. Correct. 

Mr. CLEAVER. So are you satisfied with the staff work? Your staff 

work? 

Mr. COX. I am, yes. 

Mr. CLEAVER. The only reason I ask is because the HUD staff 

said that there was a problem back in February. I’m sorry. Are you 

going to fire somebody for not telling you until August? 

Mr. COX. It could have been in the program area and not in my 

area, in the CFO shop, but that was when I was made aware of 

it. 

Mr. CLEAVER. Okay. Assume that I’m correct, because I am, and 

the staff knew in February, is there any reason for the delay in informing you 4 months later? 

Mr. COX. Not to my knowledge. 

Mr. CLEAVER. Six months later. When were appropriators contacted? 

Mr. COX. Roughly that same time period, August. 

Mr. CLEAVER. In August? 

Mr. COX. Right. 

Mr. CLEAVER. Okay. 

Mr. COX. At least that I am aware of. 

Mr. CLEAVER. We knew there was a problem on February the 

8th. I will be specific. We knew there was a problem on February 

the 8th, and appropriators were contacted in August. 

Mr. COX. Well, there may have been other programmatic contacts 

with Appropriations. I’m just aware of the meetings that I was in. 

Mr. CLEAVER. Well, do you think that they have mistreated you 

by sending you here and you’re not equipped to answer, for me, the 

most critical question. We knew there was a program problem in 

February, at the beginning of the year, and we didn’t even try to 

contact appropriators to deal with the program until August. 

Mr. Wood, can you help me? 

Ms. Forrester? 

Somebody in the press? 

The gentleman over there asleep? 

[Laughter] 

33

Somebody help. I’m just a Methodist preacher. I just want somebody to tell me how could you know—who can I ask? 

Mr. COX. I will be happy to respond to a specific question. 

Mr. CLEAVER. Mr. Cox, I just asked you one. 

Mr. COX. But I don’t know the answer. 

Mr. CLEAVER. I just asked you a specific question. 

Mr. COX. I don’t know the answer but I’ll be happy to—if someone in the Department knows in the program area, I’ll be happy 

to get that back to you. 

Mr. CLEAVER. Okay. My final question is—well, maybe the chairwoman made a mistake. Were you informed about what the committee hearing was going to be about? 

Mr. COX. Absolutely. 

Mr. CLEAVER. Okay. That’s where my confusion comes in. The 

most critical issue, when did you know that there was a problem? 

And then when did you try to address the problem, and why did 

you wait 6 months to even begin to talk about the problem? Or 

help me. Tell me that I’m going—I just want to feel better. 

Mr. COX. What I can tell you is I knew about the problem in August. We started working on a solution with the problem with the 

General Counsel’s Office. 

Mr. CLEAVER. Are you angry at the people who didn’t tell you? 

Mr. COX. I certainly would have appreciated a little earlier warning. 

Mr. CLEAVER. Can you call me and let me know what you’re 

going to do, what you have done when you get back to see those 

people? 

No, I am serious. Because people hate their own government and 

these people are—these are not rich people who are being impacted. And I just want to know why we—why there was not some 

sense of urgency. 

Do you think there should have been a sense of urgency? 

Mr. COX. Yes. 

Mr. CLEAVER. Are you as angry as—I am just frustrated. I think 

I have a good question and nobody answers. I yield back. 

Chairwoman WATERS. Thank you very much. 

I share the committee’s frustration. I do not think, Mr. Cox, that 

you have straightforwardly said to the committee that you have a 

policy of under-requesting the appropriations that you need. And in 

order to manage your program, you simply make the owners wait 

for their payment because you did not request enough money. 

As I understand it, in order to fund this program, you need $8 

billion in Fiscal Year 2008. Is that correct? 

Mr. COX. No, ma’am, that is not correct. 

Chairwoman WATERS. How much do you need? 

Mr. COX. As I explained earlier, the amount of money—there is 

no backlog. 

Chairwoman WATERS. Just answer me. Answer me. How much 

money do you need to fund all of the apartment owners, renew all 

of the contracts, and pay them for 12 months without them having 

to wait for their money for 2008? 

Mr. COX. We will be able to pay every payment in 2008 for all 

the renewals in 2008 with the $5.6 billion that we will get in 2008. 

34

Chairwoman WATERS. I think you are nuancing. With the renewals, Mr. Shays kept asking you if there were back payments. 

Mr. COX. There are no back payments. 

Chairwoman WATERS. So you are not $2.5 billion short for 2008? 

Mr. COX. That is correct. 

Chairwoman WATERS. How do you get your estimate for 2008? 

Mr. COX. We build it on a project-by-project basis, on a contractby-contract basis. 

Chairwoman WATERS. And you are comfortable, you are comfortable that based on whatever formulas you use that you have requested the correct amount of money to fund the contracts for 12 

months without the delays that we are so concerned about now? 

Mr. COX. I am comfortable—to be very clear, I am comfortable 

that we can fund those contracts on time in the months in Fiscal 

Year 2008. We will fund the increment of the remaining period depending on when those contracts renew in Fiscal Year 2009 as we 

get that appropriations. 

Chairwoman WATERS. So, members of the committee for 2007, 

you are still late, but you expect to be caught up by the end of the 

year. 

Mr. COX. This month. 

Chairwoman WATERS. This month. 

Mr. COX. This month. 

Chairwoman WATERS. And those contracts following October, for 

November and December, will be paid on time? 

Mr. COX. Correct. 

Chairwoman WATERS. And for 2008 you said you have some—you 

are waiting on people to return information to you for the renewables. Is that correct? 

Mr. COX. That’s for the remaining renewals in Q4 of last year, 

Fiscal Year 2007. 

Chairwoman WATERS. For 2007. So I guess what you’re saying—

you are qualifying this. And you are saying if you do not get that 

information back on time, then you will not be able to pay on time. 

But that is the only reason that they would not be paid on time. 

Is that correct? 

Mr. COX. That is correct. 

Chairwoman WATERS. All right. I’m going to— 

Mr. COX. We have those funds available—just to be very clear— 

Chairwoman WATERS. I am going to be in touch with everyone 

in my district because I am not going to have them be used as an 

excuse that they did not get their information back on time to be 

paid on time. 

Now, you are in this committee, and you are on the record, and 

you have just told this committee that according to your formulas 

you are comfortable that you have requested the correct amount of 

money for 2008 and it is something less than $8 billion. How much 

is that amount that you have requested? I should know that, but 

I don’t have it. 

Mr. COX. The President’s request was $5.5 billion. 

Chairwoman WATERS. $5.5 billion. And $5.5 billion will pay all 

of the owners in 2008 12-months’ payment on time. 

Mr. COX. All of the payments that are due in Fiscal Year 2008. 

I want to be clear about that. Fiscal year 2008. 

35

Chairwoman WATERS. All that are due in 2008. Why does that 

sound different than what I am saying? 

I am asking if all of the owners will be paid on time 12 months 

in 2008. And you are saying something different. What is different 

between what you are saying and what I am asking you? 

Mr. COX. I will try to be clear if I am not. Any renewal that happens in 2008 won’t require 12 full months of payments in 2008 because it depends on when those contracts renew. So if you renew 

in January of 2008, you will get 9 payments, 9 months worth of 

payments in Fiscal Year 2008. If you renew in June, you will get 

5 months worth of payments or 4 months worth of payments. 

So what I am telling you is that the payments that are due in 

Fiscal Year 2008 we have the funding available in the President’s 

request— 

Chairwoman WATERS. So if I renew in January, I am going to 

provide the units through December. 

Mr. COX. Correct. 

Chairwoman WATERS. And I want 12 months worth of payments. 

Mr. COX. Correct. 

Chairwoman WATERS. Why am I getting 9 months worth of payments. 

Mr. COX. You will get 9 months worth of payments in the Fiscal 

Year 2008 appropriation and you will get 3 months worth of payments from the fiscal year— 

Chairwoman WATERS. Well, if the fiscal year ends in what? September? 

Mr. COX. Yes, ma’am. 

Chairwoman WATERS. Then my money from September to December is not in the 2008 request. Is that right? 

Mr. COX. That is correct. 

Chairwoman WATERS. Why did it take you so long to say that? 

Mr. COX. I apologize. I thought it was clear. 

Chairwoman WATERS. No, it is not clear. So if my money is not 

there for the 3 months, I have to wait until 2009 to get my money? 

Mr. COX. Correct. But you get payments on a monthly basis. 

Chairwoman WATERS. But, but— 

Mr. COX. After the funds are available. 

Chairwoman WATERS. But if in fact your technology is insufficient, and you are slow anyway, and you can’t get the money out 

and my renewable is in January and you are 4 months behind, 

then when am I going to get my 12 months worth of money? 

Mr. COX. But we are not 4 months behind. 

Chairwoman WATERS. Okay. How many months behind are you? 

Mr. COX. We, for the fiscal year issue we had in 2007, as I mentioned, there were 1,700 contracts. Those contracts were issued in 

September, we have 450 of those left. Actually, now, about— 

Chairwoman WATERS. So for 2007 on average, how late were you 

with your rental payments, with your payments for our landlords? 

Our owners? 

Mr. COX. I don’t know that. I will be glad to ask the Program 

Office and get back to you quickly. 

Chairwoman WATERS. Yes, but the problem is this: You’re telling 

us to rely on the fact that you’re going to do better, that you are 

going to be up to speed on your technology, but you haven’t—you 

36

said you have started already renewing or rehabilitating or putting 

in your new technology. 

You were late and that is what has our apartment owners so 

upset. These are small business people. These are tiny, oftentimes 

small business people. You were late sometimes up to 4 months. 

And you are telling us to trust you that your funding on the fiscal 

year, not on the whole year, there is going to be some delay with 

the latter 3 months that go over into 2009. Plus whatever mistakes 

you have with your technology that is not working. So we still have 

a problem. 

Mr. COX. Well, I would tell the owners there is no plan to be late 

in Fiscal Year 2009. The plan is to be on time in Fiscal Year 2009. 

Chairwoman WATERS. Members? We are going to have to take 

some very direct action that will help to ensure that this late payment problem does not continue. I don’t know how to fix it without 

the additional dollars that are not requested beyond the fiscal year 

at this time. Because of PAYGO, if we request the money now, we 

have to find some money to offset it which we should not have to 

do because our appropriators would have given you the money if 

you had asked for it for the entire 12 months. They would do that, 

as I understand it. 

We are going to have to find a way to make sure that we do not 

continue to allow HUD to use late payments as a way of underfunding requesting for HUD to make themselves look better and 

make themselves look as if they do not need the money, they are 

not spending the money. So I kind of get what is going on and we 

will try and figure it out. 

I do not know whether to thank you for being here or not. But 

since you have come and you have spent time, you have made us 

jump through a lot of hoops here today trying to figure out what 

to do about these landlords who are providing poor people a place 

to live. 

And as was said, we have lost units because there are some people who are going to walk away. I hear all the time, ‘‘I don’t want 

to mess with government. It is too messy. It is too bureaucratic. I 

don’t want to do it.’’ Not only from, you know, the apartment owners but all throughout government. This is what business people 

say all of the time. This is supposed to be a business administration that understands business and supportive of business, so we 

do not like this. We do not like this at all. We are going to find 

a way. 

When I was in State government, I would strip your salary out 

of the budget. They do things a little bit different here, but I will 

find a way to get to it. Thank you very much. 

We are going to go and take three votes. 

Thank you very much. I would like to dismiss this panel and we 

have 30 days by which to raise questions and get the answers back 

in the record. 

We are going to call in the second panel and then we are going 

to ask your patience while we go and take three votes and then we 

will be back. 

All right. So if the second panel will get ready, we will introduce 

you when we return. Thank you very much. 

[Recess] 

37

Chairwoman WATERS. The Subcommittee on Housing and Community Opportunity will come to order. I would like to thank our 

second panel for your patience, and I am pleased to welcome you 

all here. 

Our panel consists of: Mr. Michael Bodaken, president of the National Housing Trust; Mr. Lawrence J. Lipton, chief financial officer, Related Management, testifying on behalf of the National 

Leased Housing Association; Mr. J. Kenneth Pagano, president and 

chief executive officer, Essex Plaza Management, testifying on behalf of the National Affordable Housing Management Association; 

Mr. Donald L. Beebout, vice president, Showe Management Corporation; Ms. Carolann Livingstone, president, 1890 House Tenants 

Association, and vice president, Eastern Region of the National Alliance of HUD Tenants; and Larry Minnix, president and chief executive officer, the American Association of Homes and Services for 

the Aging. 

Without objection, your written statements will be made a part 

of the record, and you will now be recognized for a 5-minute summary of your testimony. We will start with Mr. Bodaken. 

STATEMENT OF MICHAEL BODAKEN, PRESIDENT, NATIONAL 

HOUSING TRUST 

Mr. BODAKEN. Chairwoman Waters, Ranking Member Capito, 

and selected members of the subcommittee, thank you so much for 

inviting me to testify today. And thank you for holding this very 

important hearing. 

My name is Michael Bodaken and I am head of the National 

Housing Trust. We are a national nonprofit dedicated to preserving 

and improving subsidized housing with an emphasis on projectbased Section 8 housing. 

Project-based Section 8 allows us to fulfill our mission in two 

ways. First, as was articulated by a number of people this morning, 

project-based Section 8 serves extremely-low-income households, 40 

percent of whom are seniors. 

Second, project-based Section 8 provides a reliable stream of income for outside investment into the Section 8 properties. Over the 

last 10 years, the National Housing Trust estimates over 

$700,000,000 of private investment has been made into Section 8 

properties through low income housing tax credits, bonds, etc., on 

the strength of the annual renewal of the Section 8 contracts that 

we have been talking about today. 

Project-based Section 8 is not a bi-coastal phenomenon. On page 

2 of my testimony I note that over 15,000 project-based apartments 

are located in the Members’ districts on this committee alone. And 

it is important for us to recognize that it is all over the Nation, and 

if we have a problem with a program, it is a national problem. 

How did we get here today? We got here fundamentally because 

HUD and OMB failed to ask for appropriate appropriations for this 

fiscal year. They ran out of funds for Fiscal Year 2007; $1.2 billion, 

according to the Trust, was underestimated. 

No one asked Mr. Cox the question, but he did concede that they 

ran out of money. We believe it was approximately $1.2 billion. 

When you compound that amount by the underestimate of what 

they are asking for Fiscal Year 2008, well over $2 billion is now 

38

needed to put the program back on an annual renewal basis otherwise they will continue to shortfund the contracts as we discussed. 

This phenomenon has not been ignored by Congress. Senator Kit 

Bond, the ranking member of the Senate Subcommittee on Appropriations for HUD had the following to say. 

‘‘Finally I raised one issue that we have not been able to address, 

HUD and OMB’s failure to provide adequate funding for Projectbased Section 8. To my colleagues, to OMB and to HUD, I say let’s 

get serious.’’ 

The result of not being serious is that owners, people who are 

here today, are receiving contracts that say 12 months and they 

are receiving letters, and I am going to quote from the letters that 

we have received and they are in my testimony. 

‘‘This letter constitutes notice that HUD is determined pursuant 

to the foregoing provision that sufficient appropriations are not 

available to fund your contract.’’ Again, these letters are in my testimony.’’ 

In South Carolina we were told by the Section 8 contract administrator, in bold print, ‘‘I cannot tell you when the property will be 

paid.’’ This was in September of 2007. 

For the first time ever, HUD is short-funding contracts and being 

explicit with owners that it does not have the funding. And it is 

creating a crisis in the program the likes of which we need to address now. It is not merely a paperwork problem. It is not merely 

a ‘‘technology’’ problem. It is as the chairwoman has explicitly stated, their failure to ask for sufficient funds to run the program. 

How has our organization suffered? We are now currently behind 

some $785,000 as a result of HUD’s neglect. That $785,000 is exhibited in one project, Hazel Hill, which was just given the award 

for the best affordable housing preservation project in the Nation 

by Housing Finance Magazine. We could not fund the program 

with Section 8 and so we took the money out of our proceeds and 

put it back into the project. 

This is a serious problem for not just us but for the nation. Our 

confidence has been badly shaken. And we are not alone. Many 

owners of Section 8 contracts that have market rent levels below 

the market when not given sufficient incentive by the Federal Government to stay in the program, owners will not stay with the program. They will sign a 3 or 5 month contract now. That is certainly 

correct. But over time, owners will leave the program if they have 

options. And according to our statistics, over 500,000 apartments 

have that option. 

The time to correct this problem is now. Owners are shaken, residents are shaken, and investors are very concerned about HUD’s 

commitment to this program. We urge you to write the appropriators to urge them to fund—we ask that you ask the appropriators 

to do as they have in the past, to fund it appropriately so we can 

get back on firm footing. Thank you very much. 

[The prepared statement of Mr. Bodaken can be found on page 

62 of the appendix.] 

Chairwoman WATERS. Thank you. 

Mr. Lipton. 

39

STATEMENT OF LAWRENCE J. LIPTON, CHIEF FINANCIAL OFFICER, RELATED COMPANIES, INC. ON BEHALF OF THE NATIONAL LEASED HOUSING ASSOCIATION 

Mr. LIPTON. Madam Chairwoman and members of the subcommittee, my name is Larry Lipton, and I am the chief financial 

officer of Related Management. I am appearing before you today on 

behalf of the National Leased Housing Association, which for over 

35 years has represented owners, managers, lenders, investors, 

public officials, and others involved with Section 8 and other affordable housing programs. 

Related Management is also an active member of the National 

Multi-Housing Council and the National Apartment Association, 

and both organizations have joined with NLHA in submitting this 

testimony. 

My company, Related Management, has its headquarters in New 

York City and owns and manages about 26,000 units of multifamily 

housing in 12 States spread from New York to California. Our Section 8 project-based inventory totals 11,287 units in 64 projects. 

The Section 8 project-based programs have provided effective and 

enduring shelter since their inception for many millions of low-income families. In our opinion, the Section 8 subsidy mechanism is 

the most effective housing subsidy ever devised by Congress. It is 

an elastic subsidy that can reach the very poorest families and 

keep their rent burden proportionately the same as the rent burden 

on families with more income. 

However, for Section 8 to be an effective program, HUD must 

comply with its contractual promise to housing providers to make 

timely monthly assistance payments. These assistance payments 

cover the difference between the tenant portion of the rent generally set at 30 percent of the tenant’s adjusted income and the 

HUD-approved rents for the project. 

The tenant rent contribution generally pays for only a small portion of the costs of running the project including debt service payments. Without assistance from HUD, a project cannot continue to 

operate and serve its tenants. 

While HUD has been late sporadically in making payments over 

the past several years, this year late payments have been widespread over most parts of the country with nonpayment often persisting for several months. 

In the case of our company, for example, we billed HUD in June of this year $9.8 million in assistance payments for July. Almost 

one-third of our bill, or $3.1 million, was not paid by July 31st and 

about 20 percent, or $2 million, remains unpaid as of September 

30th. 

One of our projects in San Diego received no funds for the 3- month period of July through September, for a total of $525,000. 

No doubt many smaller ownership entities than ours have been hit 

harder than us, but any late payment at any time is indefensible. 

Owners do what they can to cope during these periods of nonpayment such as drawing funds from a replacement reserve and 

other reserves when possible, borrowing funds, delaying payments 

to vendors, and making personal contributions. 

We are not sure why these payment problems occurred. We have 

no assurances that they will not occur. To protect themselves from 

40

future late payments, some owners may consider taking several actions including not making need project repairs, selection of the 

highest income tenants legally possible, and perhaps most significantly as has been mentioned, planning to opt-out of the Section 

8 program. 

The late payment problem not only affects the operations of the 

project but also makes the preservation of these aging projects 

through sales often to nonprofit purchasers that commit to long affordability periods and rehabilitation usually with proceeds from a 

low income housing tax credit. 

Furthermore, the damage is being compounded by concerns that 

Congress will not provide sufficient appropriations for the Section 

8 project-based program in Fiscal Year 2008. HUD is responding to 

this potential shortfall by entering into renewal contracts that no 

longer purport to make a commitment for 1 year of funding but 

rather obligate HUD for only a period of a few months with a 

promise to extend the short period for an indeterminate further period when and if sufficient appropriations become available. 

The perception this kind of contract creates is devastating. Until 

recently, several years of predictability and stability in the Section 

8 renewal process have led purchasers, lenders, and investors in 

Section 8 properties to rely on long term Section 8 renewal contracts even though subject to annual appropriations as sufficient 

backing for their investment. They assume the appropriation risk 

in these contracts because they thought the risk was minimal. 

They are not so sure anymore. 

Unless the industry has countenance that the government is 

committed to adequate and timely funding, the Section 8 inventory 

is likely to shrink in size nor will it get the new investment needed 

to preserve these projects as affordable housing and keep them affordable far into the future. 

What is it that this committee can do to rectify the damage done 

to the Section 8 inventory? First, it can exercise close oversight 

over the process HUD uses to make Section 8 assistance payments 

as well as how budgetary needs are calculated. 

Second, a package of amendments submitted to the committee by 

the NLHA to remove statutory and administrative impediments to 

preserving affordable housing will help facilitate Section 8 renewals and sales, rehabilitation, and long-term affordability. 

Third, the committee should urge that sufficient appropriations 

be provided for Fiscal Year 2008 to avert the use of a succession 

of short-term funding obligations by HUD. 

I would like to thank you for the opportunity to testify on this 

important subject and I will be pleased to answer any questions 

you might have. 

[The prepared statement of Mr. Lipton can be found on page 164 

of the appendix.] 

Chairwoman WATERS. Thank you very much. 

Mr. Pagano. 

41

STATEMENT OF J. KENNETH PAGANO, PRESIDENT AND CHIEF 

EXECUTIVE OFFICER, ESSEX PLAZA MANAGEMENT, ON BEHALF OF THE NATIONAL AFFORDABLE HOUSING MANAGEMENT ASSOCIATION 

Mr. PAGANO. Thank you, Chairwoman Waters, for holding this 

hearing and for the leadership you have taken on this important 

issue. 

My name is Ken Pagano and I am honored to be here today to 

speak on behalf of the National Affordable Housing Management 

Association. I am also president and chief executive officer of Essex 

Plaza Management Company of Newark, New Jersey, and president of NAHMA’s regional chapter in New Jersey, Affordable Housing Management Association. 

The summer of 2007 has bought a HAP payment crisis which is 

unprecedented in scale and duration. The problem was not limited 

to contract renewals. There were live unexpired contracts that were 

not paid for. Properties went on from 1 to 3 months without receiving HAP payments. Some were owed hundreds of thousands of dollars. 

Like many of our industry colleagues, NAHMA believes these 

problems were caused by insufficient Fiscal Year 2007 appropriations for project-based Section 8 contracts and from the failure of 

HUD and OMB to submit an adequate funding request to Congress. 

The result has produced a crisis of confidence in the program for 

owners, investors, and vendors. The cost of operating project-based 

Section 8 properties has increased as a result of the late HAPs. Despite many years of timely payments, vendors are now asking for 

up-front deposits and I have lost discounts because I was not able 

to pay them on time. Banks as well as vendors are charging late 

fees. My properties have paid between 12 and 18 percent in late 

fees for water, sewer, and tax payments in New Jersey because 

HUD did not pay us on time. 

Maintenance and services to tenants have also been cut back in 

my properties due to the funding delays. For example, we have had 

to cut the hours of the Neighborhood Network Community Learning Centers on the properties. We have also had to defer scheduled 

work outlined in the mark-to-market process because the money 

was needed to make debt service payments. We have also had to 

defer general maintenance and cut back on other supportive services. 

As another example, a NAHMA member in Louisiana was not 

able to move Katrina evacuees into vacant apartments this summer because without the HAP payments from HUD, the property 

did not have the necessary funds to prepare the units for occupancy. 

For all of these reasons, opting out is looking better to owners. 

HAP payments have been chronically late for years and the funding may not even be dependable in Fiscal Year 2008. 

The Senate’s HUD appropriation bill will cut funding for contract 

renewals as the Administration requested and we fear even the 

modest increase provided by the House over the President’s request 

will not be enough. 

42

Despite the chaos this summer, the Administration has not revised its budget request. Likewise, HUD is asking owners to sign 

Section 8 contracts that obligate funding for less time than the 

term of the contract. 

For example, the language in a 12-month contract may state, ‘‘HUD is providing $350,000 which is sufficient to fund HAPs for 

perhaps 4 months of the renewal contract term.’’ The contracts say 

more funding will be added to the contract when appropriations are 

available. But the question in everybody’s mind is what happens if 

the appropriations do not become available? 

The short term or incremental stop-and-go financing has become 

a funding debate. Late HAPs are an expected and seemingly accepted part of operating project-based Section 8 housing. That is 

just wrong. HAP contracts are legal contracts. It is incumbent on 

the Federal Government to have the necessary funding in place to 

pay owners on time and in full, just as it is the owner’s responsibility to provide safe, decent, and sanitary housing for the tenants. 

All things considered, it is not hard to understand why owners 

and limited partners are asking me, ‘‘Why am I still in this program,’’ when they are being approached by investors who would 

like to convert the properties to condominiums and market-rate 

units. It is hard to convince owners on the benefits of continuing 

in the project-based program when operating costs are increasing, 

returns are diminishing, and a property risks default on the mortgage if the HAP is late. 

If owners leave this program and if nervous investors walk away 

from preservation deals because they have lost faith in the dependency of the Section 8 funding, the low-income families who need 

this housing most will lose it. And the tragedy of this situation will 

be that it is entirely avoidable. 

Clearly it is time to change ‘‘business as usual.’’ NAHMA respectfully offers four recommendations to fix the HAP problems: First, 

we strongly urge Congress to stabilize funding by providing the 

necessary appropriations to pay the full 12-month increments of 

HAP contracts in Fiscal Year 2008; second, the Administration, 

HUD, and OMB must address regulatory issues that cause or contribute to late payments; third, we are asking Congress to amend 

the enhanced voucher statute to make these tenant protections 

available when the HAP payment stop for any reason; and finally, 

NAHMA strongly urges Congress to create a disincentive for late 

payments by passing legislation that requires HUD to pay owners 

interest on late HAP payment after the payment is 10 days late. 

This concludes my statement. I thank you, Chairwoman Waters, 

for the opportunity to testify today, and I would be happy to answer any questions. 

[The prepared statement of Mr. Pagano can be found on page 193 

of the appendix.] 

Chairwoman Waters. Thank you very much. 

Mr. Donald Beebout. 

STATEMENT OF DONALD L. BEEBOUT, VICE PRESIDENT, 

SHOWE MANAGEMENT CORPORATION 

Mr. BEEBOUT. Madam Chairwoman and members of the subcommittee, my name is Donald Beebout, and I am vice president 

43

of Showe Management Company, based in Columbus, Ohio. I thank 

you for this opportunity to talk about the late HAP payments. 

I have over 34 years experience in affordable housing, 7 with 

HUD and 27 years with the Showe Management Company. Our 

company, Showe Management Corporation, owns and manages 

5,000 units in Ohio, Texas, New Mexico, and Hawaii. Our Section 

8 project-based inventory is 2,500 units in 30 properties. 

Our company is very concerned that the late HAP payments 

have become a chronic problem at HUD, not just an occasional 

delay at one or two properties at contract renewal. In the past several years, the number of delays and the length of delays have increased. In the most recent delay that occurred in July and August 

of this year, we did not receive the July and August HAP payments 

on 18 of 30 Section 8 properties until mid to late August. These 

late payments totaled $1,260,000. Delays in these HAP payments 

required our company to borrow funds from other corporate entities 

in order to pay the mortgage payments and the property vendors. 

We were originally informed that we would receive the July and 

August payments during the first 5 days of August. We actually received these payments in late August. In the past, our company 

has been reluctant to withdraw funds from reserves for replacement accounts because we would incur withdrawal penalties on 

certificates of deposits, in some cases loss of principal on Treasury 

Bills and notes due to sales prior to maturity. However, because of 

the lengthy delays and the amounts involved, we had to withdraw 

funds and incur these penalties. 

In addition to the time and expense for repair and reserve replacement requests, we also incurred additional costs in reinvesting 

these funds after the HAP payments were finally received. According to HUD these delays were due to shortfalls in funding. In fact, 

some of our contracts that are currently being renewed are being 

renewed for less than one year. That only compounds the problems 

since it takes HUD 6 to 8 weeks to process contract renewals and 

amendments. 

It is our understanding that the shortfall problem will be worse 

in Fiscal Year 2008 since HUD is estimating a $2 billion shortfall 

based on proposed levels. 

I am requesting that HUD fully fund the $8 billion needed to 

adequately fund the project-based Section 8. HUD should consider 

appropriating funds for the entire contract term since this will reduce time and paperwork and the properties will be able to retain 

the owner’s participation and allow for more favorable financing. 

Most original HAP contracts were funded for the entire period. 

In addition, HUD should adequately fund contracts and HUD 

needs to use modern technology to reduce the time in processing 

contract renewals and payments. The Department should also be 

required to pay owners penalties plus interest for late payments. 

If I am late paying my Federal taxes, I am charged a penalty plus 

interest. There must be some penalty assessed or I do not think the 

problem will get fixed. 

After hearing what I heard today, it does not appear that the 

problem is going to get fixed anytime soon and certainly one of our 

options would be to opt-out on some of our properties, but certainly 

that isn’t what we want to do but after the frustrations of this 

44

summer, I think that some of our owners are asking us why are 

we still in this program. Thank you again for the opportunity to 

testify about the late payments and I would be glad to answer any 

questions. 

[The prepared statement of Mr. Beebout can be found on page 54 

of the appendix.] 

Chairwoman WATERS. Thank you very much. 

Ms. Carolann Livingstone. 

STATEMENT OF CAROLANN LIVINGSTONE, PRESIDENT, 1890 

HOUSE TENANTS ASSOCIATION, AND VICE PRESIDENT, 

EASTERN REGION OF THE NATIONAL ALLIANCE OF HUD 

TENANTS 

Ms. LIVINGSTONE. Thank you, Madam Chairwoman. On behalf of 

1.5 million families, and elderly and disabled tenants in projectbased Section 8 housing, NAHT thanks the subcommittee for responding so quickly to our request last month for this hearing on 

the Section 8 funding crisis. 

For me and my 9-year-old son, Section 8 housing is literally a 

matter of life and death. Like many thousands of the Section 8 

families that I represent across America, I was once homeless. I 

lived on the street for 11⁄2 years. Section 8 housing provided the 

vital step up for me so I could stabilize my life, provide a decent 

home for my son, find a job at the local church, and go back to college to move up and out of poverty. 

If HUD cuts off Section 8 and we tenants are forced to pay the 

difference in our rents, it could mean an overnight increase of 3 to 

4 times what we are paying now. The National Alliance of HUD 

Tenants has already received reports of owners doing exactly that 

in New York, Pennsylvania, and Ohio. 

To give one example, a disabled tenant in Philadelphia faces an 

overnight increase from $198 to $1,015 in his monthly rent if HUD 

cuts off funds anytime after December. And I would like to add to 

my written testimony a copy of his lease that he was forced to sign. 

Today more than 90 percent of the project-based Section 8 units 

are subject to annual appropriation by Congress. If Congress and 

HUD do not provide an extra $2.5 billion toward the $8 billion 

needed in 2008, then 30 percent of these households, that is 

470,000 of us, could lose our homes overnight. 

The NAHT Board met with HUD officials on September 14, 2007, 

and I was in that meeting. We met to find out what was happening 

to our homes. Their explanation of the funding shortfall was upsetting to say the least. They said that no one at HUD had any idea 

how much money was actually needed to fully fund all the Section 

8 contracts for a year. 

HUD now admits the gap is $2.5 billion, but neither HUD nor 

OMB will make an official request and President Bush has vowed 

to veto even the inadequate HUD appropriation bills. 

Madam Chairwoman, the inability of the Administration to anticipate or request the needed funds is deeply disturbing. These 

people are playing with our lives and our quality of life. Obviously, 

a $2.5 billion shortfall in 2008 will result in mass displacement and 

homelessness as owners are forced to opt out of the program. 

45

We tenants need to know what will happen if funds are suddenly 

cut off in the middle of a Section 8 year contract. Will we receive 

a one-year notice from HUD and/or the owners before the rents go 

up? Will we receive enhanced vouchers to cover rent increases? 

How will these vouchers be funded? Will HUD allow owners to terminate leases if Section 8 funds are not available and we cannot 

afford to pay the rent? 

We ask the subcommittee to get written answers to these questions from HUD as soon as possible. 

NAHT tenants and affiliated local organizations across the country are already reporting adverse effects of the late payments. In 

my own building, all repairs have stopped, maintenance has been 

on part time, and the management only comes in twice a week 

now. 

Delayed or short-funded Section 8 payments can only lead to 

even worse conditions, lower REAC scores, and potential HUD enforcement or even termination down the road. 

The Nation has already lost at least 350,000 units of affordable 

housing since 1996 due to owner opt-outs and prepayments. Owners in high-market areas are facing funding uncertainty or terminations by HUD will almost certainly opt-out of the program. 

HUD’s proposal to shortfund Section 8 contracts is not the answer but perhaps the worst impact is the gnawing fear that I feel 

and my fellow tenants feel of becoming homeless, possibly for the 

second time. 

In my State of Rhode Island, the one large homeless shelter has 

been demolished. As I look out my living room window, I can see 

people at night sleeping on the sidewalk in downtown Providence. 

Last night, there was a woman out there with a child. What will 

happen if HUD cuts off funds and more are sent to the streets? 

That could easily be me again. 

I am asking for all of us that Congress and HUD please solve 

this crisis now. Thank you, Madam Chairwoman. 

[The prepared statement of Ms. Livingstone can be found on page 

173 of the appendix.] 

Chairwoman WATERS. Thank you very much and a copy of the 

lease that you have requested to be placed in the record shall be 

placed in the record without objection. 

Ms. LIVINGSTONE. Thank you. 

Chairwoman WATERS. Thank you very much. 

Mr. Minnix. 

STATEMENT OF LARRY MINNIX, PRESIDENT AND CEO, AMERICAN ASSOCIATION OF HOMES AND SERVICES FOR THE 

AGING 

Mr. MINNIX. Yes, ma’am. Thank you very much for the opportunity. I represent not-for-profit aging service providers of all 

kinds, 5,800 nationally. The largest single subgroup is low-income 

affordable housing. Most of those are sponsored by religious organizations and labor with other groups like the Masons and so forth. 

We have been doing this for a long time and we are as good of 

stewards of those funds over time as you would find. 

46

The facts you have heard here—this is all real. It is all the truth. 

We spent the morning listening to obfuscation and we are spending 

the last half hour listening to the truth. 

You have my testimony; it has a bunch of facts that I will not 

reiterate. Let me respond at two or three levels. One is that this 

conversation that you all are having today is going on in these facilities that are not funded with secretaries and offices, administrators, residency company and vendors who come in and demand 

cash payments, people trying to reassure residents and their families that they are not going out of business. So this is a very real 

conversation that takes place there. 

I wish every one of you could send a staff person to spend a day 

in one of these facilities and watch what happens when you are 

trying to defend yourself to people to whom you are accountable for 

your financial obligations and see what occurs. 

I have Bethany in San Francisco that was stopped in the middle 

of asbestos abatement because they ran out of money. Now, you 

can imagine what that does to an environment. Some in Mr. Shays’ 

district, he has 50 or 60 of these facilities, Catholic organizations, 

that got to the point that they had to lay off staff and cut their 

health insurance until they could go out and gin up contributions 

in the community. So there are all those kind of stories that go on 

and on. 

What we hear internally is that HUD blames you for not providing the money. Sometimes they blame the State agencies. You 

ought to hear that ring-around-the-rosy sometime when you are in 

an office trying to get paid and listening to somebody from the 

State blame Washington, and somebody in Washington blame the 

State. You could make a sitcom out of it if it were not so tragic, 

so there is ring-around-the-rosy. 

Everybody blames OMB. People at HUD say, ‘‘We have been told 

by OMB not to ask for money because you are not going to get it.’’ 

The truth is that we are perhaps $2.5 billion short. Not to catch 

up in my world and your world, that’s called kiting. We would not 

be permitted to get away with that. 

There are in my view the issue of the ideological, that is the big 

dead elephant in the room Mr. Ellison brought up. There are people who view these programs as welfare handouts as opposed to investment in people. This has been one of the most successful programs in the 40-year history of the Great Society. There are 10 

people on the waiting list for every one of the things that is occupied. What business would not want 10 times the customers waiting to get in? 

Studies are beginning to show that it keeps people out of nursing 

homes and keeps them out of emergency rooms. These are great 

programs. 

Four things are needed. One is integrity to meet the obligations 

of the United States of America to these projects. Number two, a 

competence at the Department of Housing and Urban Development 

and related agencies to manage this thing. This is a very manageable problem. These are predictable businesses. The revenue is predictable. There are computer programs that will tell you out 10 

years when you need to replace everything from roofs and air conVerDate 0ct 09 2002 11:30 Jan 31, 2008 Jkt 039910 PO 00000 Frm 00050 Fmt 6633 Sfmt 6633 K:\DOCS\39910T~1.TXT HFIN PsN: TERRIE
47

ditioning to the welcome mat in the front. It is a very predictable 

stable business, and it can be managed well. The third thing that is needed is $2.5 billion to catch up. And 

then after that you can predict what these projects will cost and 

what it is gong to take to do it. And any investment in a community if you think of it as investment instead of one more ideological 

welfare scalp on somebody’s belt, if you think of it as an investment, it is a great program. 

And why, if this program were a child in an emergency room in 

a hospital, the diagnosis would be failure to thrive. And we all 

know what failure to thrive is caused by, inattention by people who 

are supposed to be caring about these issues. 

This is a solvable problem, and I commend you for drawing attention to it. We cannot let incompetence and obfuscation wreak 

havoc—incompetence is expensive. It is more expensive than competence and we cannot let the Administration get away with this 

where people keep fingerpointing. People are getting hurt out 

there. Thank you. 

[The prepared statement of Mr. Minnix can be found on page 181 

of the appendix.] 

Chairwoman WATERS. Thank you very much. It is time for questions and to tell you the truth, I do not have any. I am clear. I am 

very clear based on the testimony of the first panel, based on your 

testimony, it is very clear to me what we need to do. 

And let me just say that you heard the members of the panel on 

both sides of the aisle ask very probing questions and really displayed their dissatisfaction with the combination of incompetent 

and a lack of asking for the right amount of money in order to pay 

our apartment owners and managers on time. 

And so when we left here on break, I had an opportunity to 

speak with the chairman of the Financial Services Committee, 

Chairman Frank, and he told me he already had some ideas about 

what we need to do and how we need to do it. 

While we know that we need to come up with the additional 

money because it was not requested in the budget, now to fix it 

under PAYGO we would have to find the comparable amount of 

money someplace else in order to fund it. Without doing that, there 

are some other ways. Maybe we can approach this through supplemental or emergency, etc., and I am sure that we will be willing 

to look at all of that. 

And, of course, we need to follow up on the competence issue and 

the technology to make sure that they certainly have the ability to 

do the renewables and other kinds of things that are necessary in 

order to be timely in the payments. But I am convinced just having 

been involved in this hearing this morning that we are all committed to correcting this problem. 

We do not like it. We do not think it is fair. We do not want to 

lose more units. We need to expand the number of units that are 

available to families that are looking for safe and secure places to 

live. 

So allow me to just use my time to thank you for being here, and 

to thank you for being involved in the program. We would like to 

encourage you to stick with us. We are going to make it right. 

Thank you very much. 

48

I will turn it over to Ms. Capito. 

Mrs. CAPITO. Thank you and I would like to join in the sentiments of the chairwoman in terms of having an eye-opening experience here this morning to listen and to hear the sort of verbal 

dancing around the issue that we have heard. 

I want to ask two questions. First of all, Mr. Lipton, you said 

that you have 64 properties. Is that correct? 

Mr. LIPTON. Sixty-four projects. 

Ms. CAPITO. Sixty-four projects of which— 

Mr. LIPTON. Sixty-four projects and about 11,300 units of housing. 

Ms. CAPITO. And you mentioned that maybe half of those—I cannot remember the exact number, 20 of them had late payments 

through the summer? 

Mr. LIPTON. Fiscally about a third of the payments were late, 

yes. We billed in the month of June almost $10 million and over 

$3 million of that was late. 

Ms. CAPITO. As you look through your different projects, is there 

any way for you to predict which projects are going to get late payments and which are not? 

Mr. LIPTON. There is not. We were just among ourselves, the 

panel, discussing that during the break that we had and we are 

completely at a loss to understand how it is that I can have 

projects, for example, in one county that received funding and in 

the next county, they do not. 

Ms. CAPITO. Is there ever an instance where you might get partially paid? 

Mr. LIPTON. There have been instances on renewal contracts 

where HUD knew that funding was going to be short and we have 

received partial payments. But, again, I think the renewal issue is 

separate from the issue of not having sufficient funds to cover the 

obligations of the existing contracts. 

Ms. CAPITO. Okay. The other question I have is the shortfall amount. We have heard somebody mention, I think, $2 billion, and 

somebody else mentioned $2.5 billion. And then Mr. Cox this morning said zero. That was my understanding of what he said. He said 

that HUD would have the money to meet the obligations. I mean 

that is a pretty wide variance. 

Just so I understand this, and I asked the chairwoman to clarify 

for me and she did, but I want to make sure I understand the difference in what we are talking about here is he is talking about 

say if you renew in January and you are paid through September, 

that is considered a 9 months and so that would not be included—

the extra 3 months there would not be included in the 2008. So if 

you extend 12 months, that is where you get to the $2.5 billion. Is 

that correct? 

Mr. BODAKEN. I was the one who said $2.5 billion. Yes. The answer is it is an under-obligation of this year which they—it is $1.2 

billion under-obligation of this year and it is $1.3 billion doing the 

January-July. So, for example, if you were going to renew in July 

of next year, they would give you 3 months. You sign a contract. 

It would appear that with $5.6 billion, you would be able to fund 

the contracts through that fiscal year, but you would have yearlong contracts which you could not fund after that fiscal year 

49

ended. So this problem will just be kicked down the road by them. 

So it is a combination of them underestimating for this fiscal year 

and that which makes the $2.5 billion. 

Ms. CAPITO. Mr. Pagano. 

Mr. PAGANO. The other thing that they left out and we have all 

experienced, existing contracts that have nothing to do with renewals that are running out mid-term. We had contracts that were not 

going to renew until Fiscal Year 2008 that stopped payments in 

July and August of 2007. 

Now that is another issue and I stopped Mr. Cox on the way out 

and said, ‘‘We had contracts in two States that were not expired, 

they were not being renewed and you stopped payments in July.’’ 

He said, ‘‘That should not have happened.’’ 

Ms. CAPITO. That is in the Section 8 housing? 

Mr. PAGANO. Yes. 

Mr. BODAKEN. We had that as well. 

Ms. CAPITO. Well, it is hard to fathom really. I want to thank 

you, Ms. Livingstone, for your advocacy for the tenants and for 

your bringing your real-life story to us. 

I know it brings great meaning, I think, to all of us to know that 

even though you are not our constituent, you really are our constituent because we have many just like you who are using the Section 8 housing and enhancing your life for you and your child. So 

I appreciate you for bringing that. Thank you. 

Ms. LIVINGSTONE. Thank you. And it also makes me concerned 

about HUD’s cavalier attitude toward the fact that it is people that 

we are really talking about here. Every one is using the word, 

‘‘units’’ and ‘‘tenants’’ and the dollar signs, but it is really people 

we are talking about. It is people’s lives. And 79-year-old women 

cannot be put out in the street if they do not have anywhere to go. 

This is not, you know, it is just people’s lives and I really appreciate the opportunity to be able to say that. Thank you. 

Chairwoman WATERS. Thank you very much. 

Mr. Green. 

Mr. GREEN. Thank you, Madam Chairwoman. 

I would like to associate myself with the comments of the chairwoman and the ranking member. 

I would like to add to what you have said, Ms. Livingstone, that 

it is about politics as well. People and politics. Here is what is 

going on. HUD understands that they should fund the contracts for 

12 months as they have been written. Their lawyer has said so. 

They have refused to get a written opinion because they will 

have to follow that written opinion. So they are still trying to partially fund these contracts. 

They want to partially fund the contracts because they do not 

want to ask us to provide money that might require PAYGO to kick 

in. Meaning HUD does not want to be the Department from the 

Administration that comes forward and says, ‘‘We need more 

money to fund the programs, the contracts that we have obligated 

ourselves to because if we do this,’’ if they do this then we would 

say, ‘‘Okay, HUD, we will do it but we are going to let everybody 

up here know, which would include both sides, that PAYGO is 

going to have to kick in.’’ And I am using the term, kick in, meaning we would have to honor the PAYGO rule. And if we honor the 

50

PAYGO rule, then that means that HUD would be charged with—

we might ask, but HUD would be charged with having asked us 

to do something that this Administration does not want to do and 

that is provide the additional tax dollars necessary to fund a needed program. So that is the politics. 

They are trying as best as they can to dance around this, not 

honor—their own lawyer has said you have to honor these contracts for 12 months and they are trying to avoid honoring these 

contracts for 12 months. About politics and about the lives of people, I regret that we find ourselves in this position right now. 

I sincerely believe that this chairwoman is going to do what she 

can to correct this problem. I believe it in my heart. I have seen 

her in action and this ranking member is sensitive to it and I think 

the rest of us will fall in line and we are going to do what we can 

to be of assistance to make sure that we get it done. 

One quick question: It is my understanding that HUD is to spend about $10 million annually from the project-based Section 8 

program to ensure that tenants are informed and involved in the 

decisions that affect them. My question is, are you getting ample 

notice of what is happening? Timely notice of what is happening? 

Or are you finding out by some sort of grapevine, if you will, as 

to what is going on? Are you getting the notices? Because this program has not been funded as it should be, as I understand it. 

So let me ask, Ms. Livingstone, let’s start with you. Are you getting the notices? 

Ms. LIVINGSTONE. No. That was part of my oral speech that I left 

out so that I could honor my time limit. Section 514 of MAHRAA 

authorizes HUD to spend up to $10 million annually for this purpose, but HUD has failed to spend any of the funds since 2002. 

The Section 514 Stakeholders convened by HUD have rec- ommended $1 million for the National VISTA Program as the 

quickest way to get the resources to the tenants to get them organized. 

Unfortunately, Commissioner Montgomery has rejected this request. We were going to ask that the subcommittee adopt legislation recommended by the stakeholders at the soonest opportunity 

and ask Commissioner Montgomery to work with NAHT so we tenants can better cope with the crisis. 

In Rhode Island, I have a tenant project run—Rhode Island HUD 

Tenant Project which is funded by HUD money right now in organizing, but they are constrained to only be able to work with atrisk properties. 

What the definition of at-risk is kind of nebulous, so consequently they are working with one high-rise at this point in time 

when there are 8 or 10 that do need the help of paid organizers 

to learn how to organize. 

Mr. GREEN. Thank you. 

My final comment is to Mr. Minnix: I think you are imminently 

correct. It is solvable, but HUD is refusing to acknowledge that it 

even exists, that the problem exists so as to say there is no problem to solve. But we know that it exists. 

Mr. MINNIX. That is exactly right. I am glad to hear you know 

that it exists. This is a problem that has been under the surface 

for a number of years. 

51

When I was back in the project manager world where I came 

from, I remember a HUD person telling us when we just wanted 

to get a new roof that we had to be near bankruptcy before they 

would release the funds. 

I had a prominent HUD official in recent years say the solution 

to all this housing stuff is for people to go to work. And we said 

with some other faith-based leaders, ‘‘What jobs do you expect 80-

85-year-olds to begin to seek?’’ 

‘‘Oh, well, we are not exactly talking about them.’’ 

That is what makes us think this is some kind of under-the-surface ideological conflict that has to see the light of day. 

Mr. GREEN. Well, Mr. Minnix, we spend $229 million a day on 

the war. If we can spend $229 million a day on the war, we can 

take care of our people who have demonstrated a need for this 

housing and I think it is time for us to get about the business of 

getting it done. 

Mr. MINNIX. Mr, Green, if I may follow up? If you begin to look 

at not just elderly, but disabled populations, somebody had better 

be giving some thought to a national housing plan to help deal with 

some of the people who are going to be coming back from this war 

because everybody, unless you are homeless, needs someplace to 

live every night and is that not a national moral responsibility? I 

believe it is. 

Mr. GREEN. Thank you. I have to yield back now because I am 

out of time. Thank you. 

Chairwoman WATERS. Thank you very much. 

Again, I would like to thank our entire panel for being here 

today. And I would like to thank all of the members who have 

stayed with us today as we tried to really understand what is going 

on over at HUD. 

The Chair notes that some members may have additional questions for this panel which they may wish to submit in writing. 

Without objection, the hearing record will remain open for 30 days 

for members to submit written questions to these witnesses and to 

place their responses in the record. Let the record reflect that the 

Chair has requested that Mr. Cox and HUD present us with a written copy of the legal opinion regarding the partial funding of housing assistance payments within 30 days. 

Are there any more submissions for the record? 

If there are no more submissions for the record, this hearing is 

adjourned. I thank you all very much. 

[Whereupon, at 1:20 p.m., the hearing was adjourned.] 

(53)

A P P E N D I X

October 17, 2007

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