United States General Accounting Office

GAO Testimony

Before the Committees on Indian Affairs and Banking,

Housing, and Urban Affairs U.S. Senate

For Release

on Delivery

Expected at

2:30 p.m. EST

Wednesday

March 12, 1997

NATIVE AMERICAN

HOUSING

Challenges Facing HUD’s

Indian Housing Program

Statement of Judy A. England-Joseph,

Director, Housing and Community

Development Issues.

Resources, Community, and Economic

Development Division

GAO/T-RCED-97-105

Messrs. Chairmen and Members of the Committees:

We are pleased to have this opportunity to discuss the Department of

Housing and Urban Development’s (HUD) Indian housing programs. The

federal government has moved from giving no recognition at all to Indian

housing needs; to funding them through Indian housing authorities along

with public housing; to establishing in October 1997 a system of housing

block grants for the sovereign tribes to provide them with additional

opportunities for self-determination. Federal housing assistance is needed

in tribal areas. The Urban Institute recently reported that 40 percent of

Native Americans in tribal areas live in overcroweded or physically

inadequate housing compared with 6 percent of the U.S. population.1

Moreover, providing safe and decent housing at a reasonable cost in tribal

areas is difficult because of the austere and remote nature of the setting.

Today, our testimony focuses on the (1) funding history and results of

HUD’s housing programs for Native Americans, (2) factors that complicate

and make costly the development and maintenance of affordable housing

for Native Americans, and (3) HUD’s ability to detect mismanagement in

Indian housing and the potential impact of the recently enacted Native

American Housing Assistance and Self-Determination Act of 1996 on HUD’s

oversight of Indian housing. Our testimony is based on our draft report on

HUD’s Indian housing programs that we are preparing at the request of the

Subcommittee on VA, HUD, and Independent Agencies, House Committee

on Appropriations; our recent visits to several Indian housing authorities;

and our discussions with officials at selected field offices of HUD’s Office of

Native American Programs.

In summary, we found the following:

• From fiscal year 1986 through fiscal year 1995, HUD provided $4.3 billion

(constant 1995 dollars) for housing and community development in tribal

areas. Of this amount, HUD provided $3.9 billion to approximately 189

Indian housing authorities to develop and maintain affordable housing and

assist low-income renters. In this period, the authorities used the funds to

construct over 24,000 single-family homes, operate and maintain existing

housing, and encourage other development. Over the decade, HUD also has

provided direct block grants totaling over $428 million (constant 1995

dollars) to eligible tribes for community development and mortgage

assistance.

1

Assessment of American Indian Housing Needs and Programs, Urban Institute, May 1996.

Page 1 GAO/T-RCED-97-105
• Many factors complicate and make costly the development and

maintenance of affordable housing for Native Americans. These factors

include the remoteness and limited human resources of many Indian

housing authorities and the Indian communities they serve, land-use

restrictions and the inhospitality of the land, the difficulty that contractors

and Indian housing authorities have in complying with statutory

requirements to give hiring preference to Indians, and the vandalism and

neglect that make heavy demands on the scarce maintenance funds

available to Indian housing authorities.

• In December 1996, the Seattle Times reported 29 instances of possible

mismanagement or misuse of federal funds by Indian housing authorities.

For example, the Times reported that Indian housing authorities used

federal funds to build luxury homes, covered the mismanagement of one

federal grant with funds from another grant, and reprogrammed large

federal grants without HUD’s approval. HUD’s IG found that most of these

reports were accurate. Our work found that HUD does not effectively apply

its system for alerting it to poorly performing Indian housing authorities.

As a result, HUD may not be able to detect additional instances of

mismanagement or misuse of funding. Furthermore, HUD’s approach to

overseeing Indian housing may change, depending on regulations now

being developed to implement the new Indian housing legislation.

Background The United States Housing Act of 1937 established the Public Housing

Program to provide decent, safe, and sanitary housing for low-income

families. For many years, this act was interpreted to exclude Native

Americans living in or near tribal areas. In 1961, however, HUD and the

Bureau of Indian Affairs (BIA) determined that Native Americans could

legally participate in the rental assistance for low-income families

authorized by the 1937 act and issued regulations to implement this

determination. In 1988, the Indian Housing Act established a separate

Indian housing program and prompted HUD to issue regulations specific to

this program. With the recently enacted Native American Housing

Assistance and Self-Determination Act of 1996 (whose regulations are

scheduled to take effect on Oct. 1, 1997), the Congress completed the

process of separating Indian housing from public housing.

According to the May 1996 report by the Urban Institute, the housing

needs of Native Americans are growing. Their population rose sixfold over

the past four decades to over 2 million in 1990, 60 percent of whom live in

tribal areas or in the surrounding counties. And, compared to non-Indians,

Native Americans are more family-oriented—37 percent of Native

Page 2 GAO/T-RCED-97-105
American households are married couples with children versus 28 percent

of non-Indian households. Compared to non-Indians, Native Americans

have a higher unemployment rate (14 percent versus 6 percent), a smaller

number of workers in “for-profit” firms per thousand people (255 versus

362), and a higher share of households with very low incomes (33 percent

versus 24 percent). Moreover, Indian housing conditions are much worse

than housing conditions in other areas of the country: 40 percent of Native

Americans in tribal areas live in overcrowded or physically inadequate

housing compared with 6 percent of the U.S. population.

Through its Native American Programs headquarters office and its six field

offices, and with the help of approximately 189 Indian housing authorities,

HUD administers the majority of the housing programs that benefit Native

American families in or near tribal areas. Several significant differences

exist, however, between HUD’s assistance to these families and to families

(non-Indian and Indian) living in urban and other areas. First, HUD’s

support for Native Americans derives, in part, from the nation’s

recognition of special obligations to the Native American population and is

reflected in treaties, legislation, and executive orders. Second, the federal

government deals with recognized tribes directly in a

sovereign-to-sovereign relationship, rather than through the general

system of state and local government. This status allows tribes to establish

their own system of laws and courts. Third, the Bureau of Indian Affairs

often holds in trust a considerable amount of land for a tribe as a whole;

thus, this land is not subdivided into many private holdings as occurs in

the rest of the country.2

This trust arrangement has frustrated the development of private housing

markets in tribal areas and has long been seen as a special justification for

federal assistance in housing production.

HUD Provides Most

Funding for Housing

Assistance Through

Indian Housing

Authorities

Under current regulations, IHAs administer most of the low-income

housing assistance that HUD provides to Native Americans. But HUD also

provides some housing assistance directly to tribes and individuals.

Funding provided through housing authorities is used to

• develop housing for eventual ownership by individual families through the

Mutual Help Program under which families lease and then buy their homes

by making payments to the IHA of approximately 15 percent of their

2

BIA also provides a relatively small amount of funding, approximately $20 million annually, through

its Housing Improvement Program for constructing new affordable housing.

Page 3 GAO/T-RCED-97-105
adjusted income and must cover their own routine operating and

maintenance expenses;

• develop and maintain rental housing for low-income families through the

Rental Housing Program which, like the public housing program, makes

low-income rental housing available to families from an IHA at a cost of

30 percent of their adjusted income;

• modernize and rehabilitate established low-income housing through the

public housing modernization program; and

• subsidize IHAs to defray operating expenses that rental income does not

cover and provide rental vouchers for low-income families.

Funding available to tribes and individuals includes

• loan guarantees for home mortgages,

• block grants through the HOME program for tribes to develop affordable

housing in tribal areas, and

• community development block grants to enhance infrastructure and other

economic development activities.

As shown in table 1, over the past decade HUD provided a total of

$4.3 billion for these programs, which have produced or are expected to

produce a total of 24,542 housing units.

Page 4 GAO/T-RCED-97-105
Table 1: Results of Major Housing and

Community Development Programs for

Native Americans, Fiscal Years

1986-95, Constant 1995 Dollars in

Millions

Program Funding for FY 1986-1995 Significant results

Mutual Help Program $1,613 Completed 15,721 units

Rental Housing Program 831 Completed 8,821 units

Modernization of low-income

housing

926 Rehabilitated housing units

to meet HUD’s standards

and upgraded IHAs’

management, financial, and

accounting control systems

IHA operating subsidy 548 Subsidized IHAs’ expenses

for managing the 82,000

assisted units and provided

funding for various

management activities

Section 184 loan guarantee 3 Provided guarantees for

477 loans in 1995, the

program’s first year

HOME affordable housing

block grant

54 Provided 59 grants to

construct, rehabilitate, and

acquire houses

Community Development

Block Grant (CDBG)

371 Supported housing

programs and

homeownership assistance;

the construction of

community facilities, such

as roads, water, and sewer

facilities and community

buildings; and economic

development activities

Total $4,347 Completed 24,542 units

Providing Housing

Assistance for Native

Americans Is

Challenging and

Costly

HUD and IHAs encounter unique challenges and costly conditions in

administering and providing housing programs for Native Americans.

Because of the over 550 separate Indian nations, cultures, and traditions,

not all of these conditions are equally prevalent throughout tribal areas,

nor do they have a common impact on developing and maintaining

housing. Among the challenges and conditions highlighted in our

discussions with officials of HUD and several IHAs, as well as in the

May 1996 study by the Urban Institute, are

• the remoteness and limited human resources of many IHAs and the Native

American communities they serve;

• the lack of suitable land and the severity of the climate;

• the difficulty contractors and IHAs have in complying with statutory

requirements to give hiring preference to Native Americans; and

Page 5 GAO/T-RCED-97-105
• the pressure that vandalism, tenants’ neglect, and unpaid rent put on

scarce maintenance funds.

Remote Reservations Limit

Infrastructure and

Availability of Human

Resources

The extent and pattern of the lands held by Native Americans are very

different today from what they were at the beginning of the 19th century.

During that century, the land area over which Indians had sovereignty and

which was available for creating reservations was often reduced to small

pieces in isolated areas. The remoteness of some of these tribal areas has

created significant problems for housing development. In contrast to

metropolitan areas, where basic infrastructure systems (including sewers,

landfills, electricity, water supply and treatment, and paved roads) are

already in place, remote tribal areas may require a large capital investment

to create these systems to support new housing.

The remoteness of many of the tribal areas also increases the cost of

transporting the supplies, raises labor costs, and reduces the availability of

supplies and of an “institutional infrastructure” of developers and

governmental and private entities. For example, transporting a drilling rig

over many miles and hours into the desert to a tribal area in California is

far more costly than if the well had been needed in a less remote area. In

addition, as the Urban Institute found in its study of Native American

housing needs, private housing developers, contractors, and suppliers;

governmental planners and building inspectors; private financial

institutions; and nonprofit groups are all less available in remote tribal

areas.

The limited human resources of many IHAs also contributes to the high

cost of developing and maintaining housing. HUD’s Deputy Assistant

Secretary for Native American Programs told us that housing authorities

that recruit their staff from a small tribal population often have difficulty

finding qualified managers to administer multimillion-dollar housing

grants. This problem is made worse when coupled with the statutory

requirement to give Indians first consideration for such jobs. Because

many Indian applicants have incomplete formal educations, they often

need more time to become familiar with HUD’s assisted housing program

and regulations than applicants from the larger pool enjoyed by a public

housing authority in an urban area, according to the Deputy Assistant

Secretary.

The executive director at the Gila River Housing Authority in Sacaton,

Arizona, echoed these views when he described his inability to hire skilled

Page 6 GAO/T-RCED-97-105
and dependable tribal members. He pointed out that many skilled

members have personal problems associated with drugs and alcohol,

causing the housing authority to search outside the tribal area for much of

its labor force. He also said that because members of the available

semiskilled work force need a significant amount of training before they

are employable, he cannot afford to hire them. Moreover, some of the

tribe’s laborers are drawn to cities away from the reservation, he said,

because of the greater employment opportunities and higher wages there.

This lack of skilled human resources is costly. HUD officials told us that as

a general rule in the construction industry, labor costs should not exceed

50 percent of the total cost, but in tribal areas labor costs can run as high

as 65 percent because contractors generally have to bring in skilled

workers and pay for lodging and commuting costs.

Land-Use Restrictions and

the Inhospitality of the

Land Complicate the

Development and

Maintenance of

Low-Income Housing

In many tribal areas, observers see what appears to be a vast expanse of

unused land. However, a lack of available land is, in fact, a constraint that

many IHAs face as they develop low-income housing. Factors that limit the

availability of land for housing include the trusts in which BIA holds the

land that, until this year, limited leases to 25 years in many instances.

Special environmental and other restrictions also exist. For example, in

planning for development, IHAs and tribes avoid archaeological and

traditional burial sites because cultural and religious beliefs preclude

using these sites for housing. In many cases, sufficient tribal land exists for

housing, but environmental restrictions prohibit the use of much of it for

housing. The Urban Institute’s survey of IHAs revealed that, overall,

wetlands restrictions, water quality considerations, and contaminated soils

add to the cost of housing in tribal areas.

In the Western desert, once low-income housing is developed, the severity

of the climate can complicate maintenance. The effects of high salt and

mineral content in the water and soil were evident at the Gila River

Housing Authority, causing damage to water heaters and copper and cast

iron pipes. The executive director told us that the average life of a hot

water heater costing $300 is about 6 months. To remedy the corrosion to

plumbing, the IHA has begun placing plumbing in ceilings and converting to

plastic piping. Also, the water’s high mineral content damages the water

circulation systems of large fans called “swamp coolers,” used for summer

cooling. The executive director told us that because of calcium buildup,

the IHA must replace the coolers annually. He also explained that because

Page 7 GAO/T-RCED-97-105
of the soil’s high salt content, housing foundations and sewer systems also

deteriorate more rapidly than in more benign environments.

Complying With Indian

Hiring Preference and

Davis-Bacon Act

Requirements Increases

Burden for IHAs

Certain statutes, including the Indian Self-Determination and Education

Assistance Act and the Davis-Bacon Act,3

 are intended to protect and

provide opportunities for specific groups. However, IHA officials and HUD

officials whom we contacted believe that these statutes can make

developing housing in tribal areas more costly because they have the

effect of raising the cost of labor over local wage rates or restricting the

supply of labor.

The Indian Self-Determination and Education Assistance Act of 1975

requires IHAs to award contracts and subcontracts to Indian organizations

and Indian-owned economic enterprises. IHA executive directors find that

implementing the act’s requirement is difficult and believe that the

regulations add to contractors’ time and costs to bid on work for IHAs. The

officials said that factors that undermine the requirement include a lack of

qualified Indian contractors in the area, the creation of fraudulent joint

ventures that are not owned or managed by Indians, and the occasional

need to use qualified firms outside the region that do not understand local

conditions.

Under the Davis-Bacon Act, firms that contract with IHAs for housing

development must pay wages that are no less than those prevailing in the

local area. However, HUD officials told us that this requirement generally

increases IHAs’ costs of developing housing in tribal areas. The costs

increase because the applicable Davis-Bacon wage rate is often based on

wage surveys done by HUD of large unionized contractors based in larger

metropolitan areas, and the rate is therefore about $10.00 per hour higher

than the rate prevailing in the local tribal area. Officials of the Chemehuevi

IHA in Havasu Lake, California, told us that because of high Davis-Bacon

wage rates, their cost to develop a single-family home ranges between

$85,000 and $98,000. Using the prevailing rate of approximately $6.50 to

$8.00 per hour, they estimate the development cost to be between $65,000

and $80,000.

3

The Davis-Bacon Act provides that workers in certain trades involved in federal construction

contracts be paid wages determined by the Secretary of Labor to be prevailing in the area of

construction.

Page 8 GAO/T-RCED-97-105
Neglect and Vandalism

Draw on Maintenance

Budgets That Are

Shrinking Because of

Unpaid Rent

If housing units are abused through neglect or vandalism and not regularly

maintained, costly major repairs can be needed. These avoidable repairs

put pressure on maintenance budgets that are shrinking because a high

percentage of rents are unpaid in tribal areas. Moreover, maintaining

assisted housing for Native Americans is an increasingly difficult challenge

because of its age—44 percent of the units were built in the 1960s and

1970s.

For housing units in HUD’s Rental Housing Program for Native Americans,

the Urban Institute reported that 65 percent of the IHA officials responding

to its telephone survey identified tenants’ abuse and the vandalism of

vacant homes as the factors contributing most to maintenance costs. For

units under the Mutual Help Program (which are owned or leased by the

residents), the Urban Institute reported that, according to IHA officials,

residents’ neglect to perform needed maintenance accounted for

30 percent of the poor physical conditions associated with this segment of

the housing stock.

Our discussions with IHA officials reinforce these findings. The executive

director at the Gila River Housing Authority told us that vandalism by

juveniles was a major problem for him and that because the tribal area

borders Phoenix, Arizona, it is more susceptible to gang activity and

violence. Chemehuevi IHA officials pointed out that once a family that has

neglected to perform expected maintenance moves out and the tribe turns

the housing back to the IHA, the IHA often incurs a large and unexpected

rehabilitation cost before it can lease the unit to another family.

The high level of unpaid rent among assisted Native American families has

exacerbated the problem of accomplishing needed maintenance. Routine

and preventive maintenance is an operating expense that an IHA pays for

out of rental income and an operating subsidy that HUD provides to help

defray expenses. However, according to HUD, appropriations for these

subsidies have not been sufficient to cover all operating expenses not

covered by rental income. Therefore, shortfalls in rental income generally

mean fewer funds to spend on maintenance. In recent years, these

shortfalls have been at high levels for both the Rental Housing and the

Mutual Help programs. For example, the Urban Institute reported that at

the end of 1993, 36 percent of all tenants in the rental program were

delinquent in their rent payments. In contrast, the average delinquency

rate in public housing is only 12 percent.

Page 9 GAO/T-RCED-97-105
To counter shortfalls in rental income, some IHAs enforce strong eviction

policies. Others, however, are either unwilling or unable to do so. The IHAs

attributed the ineffectiveness of their policies to such factors as tribal

court systems that do not support evictions, the conflict of such policies

with tribal culture, and their own lack of forceful management. Regardless

of the reason, these shortfalls coupled with insufficient operating

subsidies likely will lead to deferred maintenance and higher costs for

major repairs in the future.

HUD Does Not Apply

Its Risk Assessment

Program Effectively,

and New Legislation

May Require Changes

in Oversight

In December 1996, the Seattle Times reported a series of articles

describing the possible mismanagement and misuse of federal funds by

Indian housing authorities. The articles covered 29 instances of

questionable performance and in many cases suggested that more

effective oversight by HUD could have precluded or mitigated the

mismanagement at the housing authority. HUD’s IG found that most of the

Times reports were accurate, including reports of Indian housing

authorities using federal funds to build luxury homes for families with

incomes that exceeded the program’s eligibility criterion and

reprogramming significant federal funds from one purpose to another

without HUD’s approval. Although HUD has a system to identify poorly

performing Indian housing authorities, our work showed that this system

did not detect, for the most part, mismanagement by the authorities as

reported in the Times. This lack of detection was because HUD’s system

focuses primarily on authorities assessed as having a high risk of

mismanagement. Furthermore, HUD had not assessed those authorities

named in the Times as “high risk.” Not having an effective oversight tool

could be problematic for HUD, depending on the regulations that are

negotiated to implement new Indian housing legislation taking effect in

October 1997.

HUD Relies on Risk

Assessment Program to

Identify Poorly Performing

IHAs

HUD field office staff rely on their Risk Assessment and Determination of

Resources (RADAR) system to identify “high risk” IHAs. These are the IHAs

whose management demonstrates weaknesses that could lead to the

misuse of federal funding. The RADAR system uses performance and

environmental factors to assess an IHA’s management risks and HUD field

staff rely on it to determine where they will allocate their scarce

monitoring resources, contract for intensive on-site technical assistance,

and focus their training for HUD’s Partners in Progress (PIP) program—a

technical assistance program for IHAs with long-standing operating

difficulties. HUD staff score Indian authorities on the basis of their funding

Page 10 GAO/T-RCED-97-105
levels, management control and operating procedures, and compliance

with regulations. These scores form the basis for HUD staff to assess the

IHA’s risk of mismanaging federal funds.

One of the most important factors that RADAR uses to identify poorly

performing IHAs is on-site monitoring that provides information about an

IHA’s performance and verifies the accuracy of the data submitted by the

IHA. At two of the HUD field offices we visited, however, restrictions on the

on-site monitoring of IHAs have resulted in a lack of assurance about the

conditions that existed at the IHAs. These field offices account for nearly

half of all IHAs. In addition, the staff at the offices we visited believed that

their knowledge of IHAs’ operations was insufficient and that they do not

know enough to accurately assess the IHAs with the RADAR system. Because

of this overall lack of assessment in accordance with the RADAR system,

and because HUD had not assessed most of the IHAs cited in the Seattle

Times articles as high risk, HUD staff were not able to detect inappropriate

activities if they occurred.

Impact of New Indian

Housing Legislation on

HUD’s Oversight Is Unclear

In 1996, the Congress enacted legislation that will change significantly the

way that Indian housing is funded and overseen. Under the Native

American Housing and Self-Determination Act of 1996, HUD will begin in

October 1997 to provide directly to Indian tribes, or their designated

recipients, block grants to carry out affordable housing activities. To

qualify for the grants, tribes must submit to HUD annual plans and 5-year

plans that provide statements of the tribes’ needs and resources available

to address those needs. In addition, tribes must submit annual

performance reports that describe the accomplishments of the prior year

and describe how the tribe would change its program as a result of its

experiences. HUD, in turn, is required to conduct a limited review of each

Indian housing plan to ensure that the plan complies with the various

criteria outlined in the act and review the performance reports to

determine whether they are accurate.

Among the act’s requirements are that tribes include in their housing plans

descriptions of the housing needs of low-income families and of how the

geographic distribution of assistance is consistent with the needs for

various types of housing assistance. In addition, the plans are to include

detailed descriptions of the affordable housing resources available in the

tribes’ jurisdictions and of how various government and private entities

will coordinate these resources. For example, the plan is to describe how

the tribe will coordinate its resources with those of tribal and state welfare

Page 11 GAO/T-RCED-97-105
agencies to ensure that the residents of such housing will have access to

assistance in obtaining employment and achieving self-sufficiency. These

plans and the year-end performance report are significant undertakings

and are meant to ensure that federal funds are used effectively to meet the

needs of low-income families.

HUD is now engaged in a negotiated rulemaking with Indian tribes and their

representatives to develop a structure under which both the tribes and HUD

can comply with the new Indian housing law. Until these regulations are

approved and implemented, it is unclear how HUD’s oversight of Native

American programs will change and whether HUD can effectively provide

such oversight with its current systems and resources.

Messrs. Chairmen, this concludes our testimony. We would be pleased to

answer questions that you or Members of the Committees may have at this

time.

(385666) Page 12 GAO/T-RCED-97-105
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