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34–661 PDF 2007

PUBLIC HOUSING IN THE 21ST CENTURY: HUD’S

VIEW ON THE FUTURE OF PUBLIC HOUSING IN

THE UNITED STATES

HEARING

BEFORE THE

SUBCOMMITTEE ON FEDERALISM

AND THE CENSUS

OF THE

COMMITTEE ON

GOVERNMENT REFORM

HOUSE OF REPRESENTATIVES

ONE HUNDRED NINTH CONGRESS

SECOND SESSION

JULY 18, 2006

Serial No. 109–231

Printed for the use of the Committee on Government Reform

(

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

http://www.house.gov/reform

(II)

COMMITTEE ON GOVERNMENT REFORM

TOM DAVIS, Virginia, Chairman

CHRISTOPHER SHAYS, Connecticut

DAN BURTON, Indiana

ILEANA ROS-LEHTINEN, Florida

JOHN M. MCHUGH, New York

JOHN L. MICA, Florida

GIL GUTKNECHT, Minnesota

MARK E. SOUDER, Indiana

STEVEN C. LATOURETTE, Ohio

TODD RUSSELL PLATTS, Pennsylvania

CHRIS CANNON, Utah

JOHN J. DUNCAN, JR., Tennessee

CANDICE S. MILLER, Michigan

MICHAEL R. TURNER, Ohio

DARRELL E. ISSA, California

JON C. PORTER, Nevada

KENNY MARCHANT, Texas

LYNN A. WESTMORELAND, Georgia

PATRICK T. MCHENRY, North Carolina

CHARLES W. DENT, Pennsylvania

VIRGINIA FOXX, North Carolina

JEAN SCHMIDT, Ohio

BRIAN P. BILBRAY, California

HENRY A. WAXMAN, California

TOM LANTOS, California

MAJOR R. OWENS, New York

EDOLPHUS TOWNS, New York

PAUL E. KANJORSKI, Pennsylvania

CAROLYN B. MALONEY, New York

ELIJAH E. CUMMINGS, Maryland

DENNIS J. KUCINICH, Ohio

DANNY K. DAVIS, Illinois

WM. LACY CLAY, Missouri

DIANE E. WATSON, California

STEPHEN F. LYNCH, Massachusetts

CHRIS VAN HOLLEN, Maryland

LINDA T. SANCHEZ, California

C.A. DUTCH RUPPERSBERGER, Maryland

BRIAN HIGGINS, New York

ELEANOR HOLMES NORTON, District of

Columbia

———

BERNARD SANDERS, Vermont

(Independent)

DAVID MARIN, Staff Director

LAWRENCE HALLORAN, Deputy Staff Director

TERESA AUSTIN, Chief Clerk

PHIL BARNETT, Minority Chief of Staff/Chief Counsel

SUBCOMMITTEE ON FEDERALISM AND THE CENSUS

MICHAEL R. TURNER, Ohio, Chairman

CHARLES W. DENT, Pennsylvania

CHRISTOPHER SHAYS, Connecticut

VIRGINIA FOXX, North Carolina

BRIAN P. BILBRAY, California

WM. LACY CLAY, Missouri

PAUL E. KANJORSKI, Pennsylvania

CAROLYN B. MALONEY, New York

EX OFFICIO

TOM DAVIS, Virginia HENRY A. WAXMAN, California

JOHN CUADERES, Staff Director

JOHN HEROUX, Counsel

JULIANA FRENCH, Clerk

ADAM BORDES, Minority Professional Staff Member

(III)

C O N T E N T S

Page

Hearing held on July 18, 2006 ............................................................................... 1

Statement of:

Bernardi, Roy A., Deputy Secretary, U.S. Department of Housing and

Urban Development; and Orlando J. Cabrera, Assistant Secretary for

Public and Indian Housing, U.S. Department of Housing and Urban

Development .................................................................................................. 5

Bernardi, Roy A. ........................................................................................ 5

Cabrera, Orlando J. ................................................................................... 12

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

Bernardi, Roy A., Deputy Secretary, U.S. Department of Housing and

Urban Development, prepared statement of .............................................. 8

Cabrera, Orlando J., Assistant Secretary for Public and Indian Housing,

U.S. Department of Housing and Urban Development, prepared statement of ........................................................................................................... 16

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

Missouri, prepared statement of .................................................................. 20

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

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

(1)

PUBLIC HOUSING IN THE 21ST CENTURY:

HUD’S VIEW ON THE FUTURE OF PUBLIC

HOUSING IN THE UNITED STATES

TUESDAY, JULY 18, 2006

HOUSE OF REPRESENTATIVES,

SUBCOMMITTEE ON FEDERALISM AND THE CENSUS,

COMMITTEE ON GOVERNMENT REFORM,

Washington, DC.

The subcommittee met, pursuant to notice, at 2 p.m. in room

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

(chairman of the subcommittee) presiding.

Present: Representatives Turner, Clay, and Dent.

Staff present: John Cuaderes, staff director; Jon Heroux, counsel;

Juliana French, clerk; Adam Bordes, minority professional staff

member; and Jean Gosa, minority assistant clerk.

Mr. TURNER. Good morning. A quorum being present, this hearing of the Subcommittee on Federalism and the Census will come

to order.

Welcome to the subcommittee’s hearing entitled, ‘‘Public Housing

in the 21st Century: HUD’s View on the Future of Public Housing

in the United States.’’ This is the fifth in a series of hearings the

Federalism and the Census Subcommittee is holding on public and

low-income housing.

Congress first authorized the concept of public housing in 1937

as part of President Roosevelt’s public works legislative package.

Congress originally intended public housing to serve working families on a temporary basis. Over the years, public housing has

evolved in a program that has served poorer families who are more

likely to become long-term residents.

By the 1960’s and 1970’s, much of the Nation’s public housing

had fallen into disrepair and distress. By the 1980’s, the public and

many in Congress were demanding that the public housing system

be reformed. Congress responded and made several minor reforms

throughout the late 1980’s and early 1990’s. By 1995, however, it

was clear that these reforms had not done enough. Far too many

people still lived in public housing developments that did not provide clean, safe and quality housing.

In 1998, Congress again responded to the problem by passing the

Quality Housing and Work Responsibility Act. This landmark legislation was the largest overhaul of the public housing system since

its creation. It was a sweeping reform of the public housing system.

On many levels, it has been widely praised and has been successful.

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Still, no legislation is perfect, and the Quality Housing and Work

Responsibility Act is no different. It too has some shortcomings. Beginning February of this year, the subcommittee has held four

hearings to examine the viability and efficiency of the Nation’s assisted and public housing system. We have received testimony from

a wide variety of stakeholders. These witnesses have included

members of academia, public housing authority directors, non-profit housing developers, financiers and public housing tenants. These

hearings have been interesting and informative.

Our inquiry, however, is not complete. That is why we have invited the Department of Housing and Urban Development to testify

before us today. The purpose of this hearing is to allow the Department the opportunity to discuss its vision for the future of public

and assisted housing programs. Also within the context of this subcommittee’s last four hearings, we have asked the Department to

respond to the views and recommendations of our previous witnesses.

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

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Mr. TURNER. With that, I would like to welcome once again, returning to our committee, the Honorable Roy Bernardi, who is Deputy Secretary of the U.S. Department of Housing and Urban Development. I would also like to welcome the Honorable Orlando

Cabrera, who serves as Assistant Secretary for Public and Indian

Housing at HUD. Assistant Secretary Cabrera will be joining Deputy Secretary Bernardi to assist him in answering the subcommittee’s questions.

Thank you for agreeing to testify today. I welcome you both and

look forward to your comments. Secretary Bernardi has kindly prepared written testimony which will be included in the record of this

hearing. You will notice that there is a timer at the witness table.

The green light indicates that you should begin your prepared remarks, and the red light indicates that time has expired. The yellow light will indicate when you have 1 minute left in which to conclude your remarks.

Mr. Secretary, I will be very lenient, of course, with your time,

since you have been so gracious in appearing before this committee.

It is the policy of this committee that all witnesses be sworn in before they testify. Will you please rise and raise your right hands?

[Witnesses sworn.]

Mr. TURNER. Please let the record show that all witnesses have

responded in the affirmative.

And with that, I will recognize Secretary Bernardi.

STATEMENTS OF ROY A. BERNARDI, DEPUTY SECRETARY, U.S.

DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT;

AND ORLANDO J. CABRERA, ASSISTANT SECRETARY FOR

PUBLIC AND INDIAN HOUSING, U.S. DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT

STATEMENT OF ROY A. BERNARDI

Mr. BERNARDI. Good morning, Chairman Turner. It is a pleasure

to be here, not only myself, but on behalf of Secretary Alphonso

Jackson, for the opportunity to share our views on the current and

future direction of public housing in the United States.

The need for affordable housing and structural problems of the

public housing program call for reconsideration of how this asset is

best used to serve the most people. The management and operation

of the public housing program has evolved into a system characterized by complexity, inflexibility and centralized control. This has

resulted in a program that is not easily adapted to the specific

needs of a single community or a troubled development.

By the 1990’s, our existing system had produced 100,000 troubled and severely distressed public housing units. It has taken the

Department over a decade to address this legacy of good intentions

and failed policy through the HOPE VI program, the Capital Fund

program and other initiatives. The HOPE VI program alone has resulted in the demolition of 78,000 plus severely distressed units,

the construction or rehabilitation of 50,400 public housing tax credit and market rate units, and the successful relocation of over

63,000 families. And the work in this program is ongoing.

While the goal of the public housing program should be to ease

the burden of low income Americans by providing them with a simVerDate 11-MAY-2000 11:21 May 09, 2007 Jkt 000000 PO 00000 Frm 00009 Fmt 6633 Sfmt 6633 C:\DOCS\34661.TXT HGOVREF1 PsN: HGOVREF1
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ple and affordable housing option, the current system unfortunately makes this helping hand its own heavy burden. We need to

find a better solution for transitioning people to self-sufficiency, so

others can benefit from public housing. The current system discourages honesty and work by making eligible income the basis on

which rent is determined. In addition, the process for calculating

rent and verifying income are onerous, often inaccurate, and can

result in significantly different rents for similar households.

Our current rent system has become a trap for lowered aspirations and often is viewed as a lifetime entitlement for tenants who

might otherwise achieve greater independence. We at HUD propose

a much different future for public housing, having evaluated the

shortcomings of the current system.

I want to be very clear about the status of elderly and disabled

within any proposed reforms. Nothing we intend to do will change

the protected status of elderly and disabled residents within the

public housing program.

Necessary changes. The statutory and regulatory environment

governing public housing should be simple, flexible and progressive. Central among these policy shifts will be the transition to

asset management. This approach will focus on the sustainability

of each property and allow housing authorities to become true asset

managers in line with the private sector. Moving a portfolio of 1.2

million units to this asset management model is essential for promoting stability and private financing options.

Housing authorities should be authorized to simplify how they

charge tenant rent and set rents based on local conditions, increased expectations and efforts to promote self-sufficiency. Again,

the elderly and disabled should be protected classes within this

system and exempt from these increased expectations.

More housing authorities need opportunity to access flexibility,

responsibility and authority that Moving to Work status provides.

Housing agencies and the Moving to Work program are experimenting with term limits in concert with rent reform and employment incentives. Such bold reforms allow more families to achieve

self-sufficiency, ultimately serving more Americans.

Our vision for public and rent-assisted housing includes the opportunity for home ownership. HUD has had a successful home

ownership voucher program that has paved the way for low income

Americans to become homeowners. Home ownership counseling,

strong and committed collaborations among PHAs and assistance

from local non-profits and lenders have proven to be essential in

making this program work.

Mr. Chairman, over 8,000 low income families moved from the

Section 8 rental program and used their Section 8 assistance to become home owners during the program’s first 4 years. By the end

of fiscal year 2007, the program will provide home ownership opportunities for some 10,000 families.

Another key home ownership initiative put forward by the Secretary is legislation to revitalize the Federal Housing Administration. FHA has been invaluable to helping first time and minority

home buyers who are low and moderate income achieve home ownership. Legislation in the House and Senate, H.R. 5121 and S.

3535, would make valuable changes to again allow greater access

7

to home ownership with safe, amortizing mortgage loans for more

low income families.

In closing, public housing is valuable to low income Americans,

but needs reform to ensure deserving families get the affordable

housing they need. I know, Mr. Chairman, you have held numerous

meetings and numerous hearings on this matter. I am sure that we

will be talking about improper payments, that we have a nice track

record here at HUD for that. We will be talking about Moving to

Work, we will be talking about asset management, and I am just

very pleased to have with me Assistant Secretary for Public and Indian Housing, Orlando Cabrera. He and his staff are working very,

very hard to necessitate the changes that we feel are necessary,

and working in conjunction with your committee, hopefully working

together, so we can utilize this asset and provide more opportunities for more people, but at the same time, moving people from

public housing to Section 8 to low income to tax credit programs,

and then eventually to self-sufficiency.

Thank you, Mr. Chairman.

[The prepared statement of Mr. Bernardi follows:]

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Mr. TURNER. Thank you, Mr. Bernardi. I want to congratulate

you and Secretary Jackson on your diligence. I know from your

background as a former mayor, you have looked to not just the

issue of how to manage public housing, but how do you impact the

lives of the people who are in public housing, how do they receive

the assistance that they need.

Throughout your testimony, you highlight, and I know that Secretary Jackson also is committed to the issue of transition and selfsufficiency, that public housing be an opportunity, not merely just

an issue of warehousing or of an opportunity for providing fixed

housing for fixed populations, but an opportunity for people to receive the services and the intervention that they need, so that they

can transition to economic independence.

HUD’s commitment to ending what had been a period of economic segregation in our large warehousing projects to economic diversity is a very important issue. And I want to ask you a policy

question first. We have been joined by Mr. Clay.

I’m sorry, does Mr. Cabrera have a statement also?

Mr. CABRERA. Only if the chairman would like to hear it.

Mr. TURNER. I would absolutely love to hear it. I am sorry, from

the opening I thought perhaps you did not, Mr. Cabrera.

Mr. CABRERA. Not at all. If it is easier and you would like me

to waive, I am happy to.

Mr. TURNER. No, I would be glad to hear your opening statement

and also acknowledge we have been joined by Mr. Clay, our ranking member.

STATEMENT OF ORLANDO J. CABRERA

Mr. CABRERA. Thank you, Mr. Chairman.

Mr. Chairman and Ranking Member Clay, thank you for inviting

us to testify today about the future of public housing in the 21st

century. My name is Orlando Cabrera, and I am the Assistant Secretary for Public and Indian Housing at HUD.

After reviewing the testimony of all of the witnesses that have

appeared before you, one might conclude that public housing is in

a state of crisis. I would suggest that it is not, and it is in a state

of much needed change.

In brief, public housing is joining the world of multi-family housing in terms of financial management and oversight. The most effective means to illustrate this change, in my experience, is using

financial analysis. Yet it is the one least used when discussing public housing, which traditionally has been perceived as a social program.

First, a very brief and very general history of public housing finance might help. Public housing first came about as a way to provide decent housing for lower income workers in our cities. Nationwide, but particularly in our larger cities, most of the developments

that are used as public housing today are about 70 years old and

were the stock used to house those workers.

The Federal Government paid to construct the units and the

rents covered the operating costs, because the units were relatively

new. And because the families that were housed were mostly the

working poor, the basic arithmetic worked in most cities for about

20 years.

13

In the early years, there was no Federal operating subsidy, and

as such, there were few Federal operating requirements. By the

early to mid-1960’s, this simple financial model began to break

down mostly because those assets aged. Operating costs, including

deferred maintenance, began to rise and tenant incomes began to

decline. PHAs were still free to set rents flexibly, only it required

higher rent burdens on increasingly poorer tenants.

In 1968, Congress passed the Brook amendment, which fixed

rents at 25 percent of tenant incomes. While Brook protected the

tenant, it hastened the financial crisis for many large PHAs in

many ways. It wasn’t for another 6 years that Congress established

a comprehensive operating subsidy program and another decade or

more until it established a comprehensive program for capital improvements.

Once we began to finance public housing operations and capital

improvements through appropriation, we discouraged public housing authorities from operating in accordance with sound real estate

practices, charging adequate rents and creating capital reserves.

For some years, that persisted until it became clear that public

housing’s capital stock had aged so much and was in such dire

need of capital improvement that the issue had to be revisited.

Capital investment occurred during the late 1970’s and early

1980’s, but essentially very little change when it came to improving

public housing stock.

In 1994, Congress passed HOPE VI to address the most distressed public housing authorities. PHAs began to demolish the obsolete inventory and rebuild with affordable units as opposed to

public housing units. Then in 1996, Congress passed the Quality

Housing and Work Reform Act, creating new operating fund and

capital fund programs. The Congress directed HUD to develop

these programs through negotiated rulemaking.

A byproduct of QHWRA was that Congress began to reconsider

the business model that public housing had used for decades. Much

of this issue centers around the adequacy of the former business

model and the possibility of new business models. It commissioned

a study known as the Harvard Cost Study. The Harvard Cost

Study examined the way that PHAs were funded. It looked at the

cost of operating other HUD housing programs in similar markets.

It recommended a new formula for determining operating subsidy,

replacing a system that traditionally disfavored the Nation’s newer

population centers, in the south and southwest, from those parts of

the country that were losing population.

Based on Harvard’s research, Congress directed HUD to undertake asset management, and HUD did. The operating fund rule

was produced after a 2-year negotiated rulemaking process and set

forth the path for change. The former business model for public

housing essentially paid public housing authorities an operating

subsidy based on a formula that assumed a set number of units

with the same cost per unit, regardless of the nature of each individual development that the public housing authority owned. No

manager of real estate would use this model, because it would be

impossible to know the true cost of actually operating the units

under management.

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The new model contemplates that public housing authorities run

their units in a way that actually recognizes the economics of running each of the developments that is under a public housing

authority’s management. First, asset management does not apply

to PHAs that have fewer than 250 units. Second, asset management requires public housing authorities to make decisions based

on the economics of managing units first. Third, asset management

requires public housing authorities to know the cost of running

their business. Fourth, asset management encourages local flexibility by minimizing HUD involvement in operations. Finally, asset

management will mean that the operating subsidy formula will

change. Seventy-percent of PHAs are gainers under the new formula, while about a quarter are decliners.

As part of phasing in asset management, the negotiated rulemaking committee recommended and HUD ultimately adopted a

concept called stop loss that applies only to those PHAs that are

declining in subsidy and elect to apply for stop loss. Stop loss

means that a PHA that declines its subsidy may elect to apply for

stop loss designation, which will mean that their pre-operating subsidy rule allocation level will remain the same because they have

achieved stop loss status. They have become efficient.

Stop loss is a very small component of asset management. Comparatively, few of the Nation’s PHAs will apply for stop loss simply

because they do not decline significantly. Moreover, the stop loss

assumes that an applicant PHA has elected to accelerate their

move toward asset management. Many witnesses who have testified noted that asset management was prescriptive. Some went further and alleged that asset management was micromanaging. My

sense is that most of the comments relate to stop loss, not asset

management.

Asset management, as previously mentioned, is a move toward

greater local control and flexibility and less centralized control at

HUD. Stop loss is a small subset of asset management. Effectively,

it guarantees that a decliner can lock in its former subsidy level

at the expense of other gainers and declining PHAs. So in order to

achieve stop loss, HUD has required that stop loss applicable PHAs

demonstrate that they are achieving efficiency on their own and

within their budgets without external subsidy.

Another aspect of asset management that is fundamental is better financial reporting. Asset management was developed after consulting with accountants in order to achieve a model that better

conforms with generally accepted accounting principles consistently

applied. Achieving a better conforming financial structure means

that PHAs will be better equipped to access financial markets, because the former model was not a model that most stakeholders in

the financial community, namely rating agencies, investment bankers, bond insurers and others, might better assess PHAs as entities.

The transition toward asset management begins in earnest in

2007 and full conversion should be in place by 2011. It is a 4-year

process. Assuming that asset management is successfully implemented, the 21st century for public housing means that PHAs will

evolve using a variety of business models, not just one. It means

that PHAs will be better positioned to access debt and capital marVerDate 11-MAY-2000 11:21 May 09, 2007 Jkt 000000 PO 00000 Frm 00018 Fmt 6633 Sfmt 6633 C:\DOCS\34661.TXT HGOVREF1 PsN: HGOVREF1
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kets in order to improve the condition of existing units, units where

it makes sense to rehab, or more likely than not, develop new affordable housing units that serve their communities. Ultimately,

the issue is change and adaption.

Thank you for your time and attention. I am ready to answer any

questions that you may have. Thank you, Mr. Chairman.

[The prepared statement of Mr. Cabrera follows:]

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Mr. TURNER. Thank you, Mr. Cabrera. We do not have a copy of

your written testimony, so if you would please provide us with a

copy of that, I would greatly appreciate it.

Mr. CABRERA. Sure.

Mr. TURNER. And I would like to recognize our ranking member,

Mr. Clay, for his comments and questions.

Mr. CLAY. Thank you very much, Mr. Chairman. I thank you for

holding today’s hearing to receive the administration’s views on

public housing issues, and I certainly welcome our witnesses’s testimony. I would love to submit my statement in its full text into the

record.

Mr. TURNER. Without objection, so ordered.

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

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Mr. CLAY. Thank you.

Let me start with Mr. Bernardi. How are you this morning?

Mr. BERNARDI. Fine, sir.

Mr. CLAY. It is good to see you.

You know, I believe we need to rid public housing of dilapidated

developments and allow for new developments to replace them. According to the St. Louis Housing Authority, however, there are

more than 700 units that need repair or are uninhabitable in their

public housing program.

Can you speak on ways in which HUD can work to improve its

capital development efforts for PHAs to ensure that housing can be

replaced or repaired in a timely manner?

Mr. BERNARDI. Yes, Ranking Member Clay. I know you are familiar with our HOPE VI program that went into place in 1994. There

were 100,000 severely distressed units throughout the country. The

HOPE VI program in its infancy took applications from PHAs

around the country. I am pleased to say that from an unlimited

amount of dollars that could be expended with a particular PHA,

changes were made. Now I believe the maximum limit is $20 million for a PHA to address that situation.

At the same time, we encountered some difficulties in the process

that many PHAs, while they had the ability to manage a housing

authority, were not developers and didn’t really know how to go

about putting into place the demolition of properties and then the

reconstruction of those properties. That is a program that we have

at HUD.

Unfortunately, a tremendous amount of money is still in the

pipeline, money that has been appropriated has not been expended.

But that program continues to exist, and that is the main program

that I believe that we have that addresses the concern of severely

distressed public housing to either rehabilitate that or to take it

down. But what is awfully nice about HOPE VI is that in its lifetime, I believe it has leveraged like $9 billion of non-public moneys.

So you can see the cooperation and the utilization of other entities

to provide quality housing.

Then the housing that evolves from that, sir, is not just affordable housing, it is mixed income housing, it is housing on a voucher

program. So it really lends to what I believe we all would like to

see, an integration, if you will, of lower income folks into the mainstream of the community when it comes to housing.

Mr. CLAY. Tell me why the money is still stuck, for lack of a better term, why is it still stuck in the pipeline and not really in the

hands of the housing authorities to do the repairs?

Mr. BERNARDI. There are some instances, and I am sure Secretary Cabrera can give you those chapter and verse, but there are

some instances like Atlanta, for example, and I believe in Chicago,

where they have done wonderful things. As I mentioned earlier,

you really need, and now we require that when an application is

submitted you have a developer online. Previously many of these,

they were public housing authorities who made the application and

then the process just bogged down as they looked to move it forward, trying to find the right development, the right partners.

Mr. CLAY. You know that the housing authorities will give us a

different angle than that.

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Mr. BERNARDI. That is true, but in some instances, sir, when

that money has been in the pipeline for 3, 4 and 5 years, there has

really been very little action, that gives us pause. We have always

thought, I feel very strongly it is a good program. But there is still

a couple of billion dollars, I believe, in the pipeline. And we need

to make sure that is expended.

And then some day, I believe it was then-Secretary Martinez,

now Senator Martinez, said, we need to improve on this and we

need to talk about perhaps maybe a HOPE VII. We are taking a

look at it. Our folks in Public and Indian Housing are studying it,

and they can give you good examples of how it is working, but in

other areas where we can improve.

Mr. CLAY. Let me ask Mr. Cabrera, then, Mr. Bernardi mentioned HOPE VI several times. The President’s budget for fiscal

year 2007 proposes once again to zero fund the HOPE VI program,

a program given high marks by many housing experts. How is Congress expected to improve the operation and performance of our

public housing programs if we are constantly fighting for adequate

funding among these programs? And how can the private sector reliably partner with PHAs seeking HOPE VI program funds when

the long term viability of the program remains in question?

Mr. CABRERA. Well, one way is to leverage the capital fund. The

capital fund is a fund that is open in the marketplace, in other

words, PHAs can use the capital fund to do demolition and disposition of their properties, and they have.

The second way is doing precisely what Secretary Bernardi just

said. One of the things we have discovered is that PHAs, as a general rule, are on a learning curve when it comes to development.

They understand how to manage public housing units pretty well,

they have been doing it for a while. But development is not something that they have been doing for a very long time.

An issue with HOPE VI, and I think the real context of the conversation is this, I think Deputy Secretary Bernardi has mentioned

HOPE VI favorably in many cases, as has Secretary Jackson and

the President. I want to distinguish that, though, from an effective

use of funds. Of the $5.5 billion that has been allocated to HOPE

VI, approximately $2 billion has not been used.

Adding to that, some of those developments are 10 years old.

Usually what you would see is that in those cases where the PHAs

apply competitively for HOPE VI money, those PHAs applied on

their own, generally not venturing with a developer with the experience in construction. So therefore, they have been hampered in

their development.

On the other hand, when you look at Atlanta, and that is a great

example, Renee Glover appeared before you, she understood this.

So she partnered with a variety of developers and got things moving. That model, I think, is predominating now. I think what you

have seen in the last 2 years is PHA moving in that direction and

realizing that development is a whole different ball of wax in management.

So essentially the short answer here is it is a learning curve. It

isn’t simply an issue of appropriation. It is an issue of how you utilize the appropriation on the ground level as a PHA.

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Mr. CLAY. I agree with that, but I am still hearing two conflicting premises coming from this administration. One, the President

zeroes out in his budget HOPE VI. Then I hear you today saying

that all but $2 billion of the $5 something billion has been spent

because housing authorities have been created.

Mr. CABRERA. No, the $2 billion is approximately somewhere between 30 percent and 40 percent of the entire appropriation. That

is a significant number. I think this is what folks are wrestling

with. In other words, great, it is a nice idea, but if you can’t get

the money used, you wind up in a position where the program

comes into question.

Mr. CLAY. Now, there has not been a misunderstanding between

HUD and the PHA? Initially, the PHAs were not under the assumption that they could come up with their own development and

then told in the middle of the ball game, oh, you had better find

a private partner? Has that happened?

Mr. CABRERA. Mr. Ranking Member, you know, I have only been

here since November, so I don’t know if it has happened in the past

11 years. It might have, it might not have.

Mr. CLAY. I see.

Mr. CABRERA. But I think the real issue amongst most PHAs,

and I think most PHAs would say that yes, there is a remarkable

difference between development and management and yes, it is a

better policy than not to work within the framework of someone

who knows construction than not to work within that framework.

Mr. CLAY. I know that in St. Louis, we have been able to find

a pretty good partnership between PHAs and private developers,

McCormick Barron being one of them.

Mr. CABRERA. We have had other large, major cities with HOPE

VI developments that have struggled mightily with this issue because they did not partner. Now they have come to the issue of the

partner.

Mr. CLAY. So if other cites come forward with a partnership then

the $2 billion is still on the table?

Mr. CABRERA. Yes.

Mr. CLAY. Mr. Bernardi, did you have something to add?

Mr. BERNARDI. I wanted to address the budgetary concerns that

you raised, Ranking Member Clay. As you know, we have a finite

number of dollars with which to run all of our programs at HUD.

The fact of the matter is, since 1998, 42 percent of our budget was

consumed by tenant-based and project-based vouchers. In the 2007

budget, that percentage will go from 42 to 62 to 64 percent. I make

that distinction to let you know that we are being pulled in many

directions with a finite number of resources.

So logic tells us that if you have $2 billion that has not been expended in a particular program, albeit it a very good program and

a program that works well in most cases, at the same time, we

have other programs that we need to fund, so it is a balancing act,

as you know, from budget year to budget year.

Mr. CLAY. Are there any considerations on the table for some

type of creative, I want to say creative financing or in some ways

have public housing authorities make money? Have you seen any

examples of that?

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Mr. BERNARDI. We have public housing authorities that utilize

their capital dollars and I believe even their operational dollars to

go out into the marketplace to bond and receive resources, so that

they can repair and build.

Mr. CLAY. Like the authority in Atlanta.

Mr. CABRERA. May I add to the Deputy Secretary’s answer?

Mr. CLAY. Sure.

Mr. CABRERA. I would go a step further. We have public housing

authorities that are running units that are not within any restriction in terms of who they serve. So we have some public housing

authorities that actually make a good amount of money basically

being real estate managers. And they are using that money for development wherever they can.

Mr. CLAY. That is an interesting concept. I thank you, and I

thank the chairman. I am sure I will get another opportunity.

Mr. TURNER. Absolutely. I want to thank my ranking member,

Mr. Clay. As this committee has undertaken the issues of urban revitalization, public housing, he has been a leader both in his community and on this committee in making certain that we flesh out

the issues as to how on the Federal level we can best assist those

in our local communities in addressing our public development

issues.

Mr. Bernardi, I had signaled to you that I was going to ask you

a policy question. As you know from the hearings we have had, we

have had a broad range of topics that we have discussed. So my

questions will be very diverse in the areas that I ask you. And the

first one is a policy question. To ask you this policy question, I am

going to tell you a story first of when I served as mayor of Dayton.

In our very first hearing, when we had former Secretary Cisneros

and former Representative Lazio, I told them this story and asked

them their comments, which sparked a specific policy debate that

I want to direct toward you.

When I served as mayor of the city of Dayton, we had undertaken a fairly significant housing strategy with our view that we

needed economic diversity not only in public housing but in our

neighborhoods. And in looking at not only how we could use home

dollars and other low income tax credit vehicles for providing quality, affordable housing, but ways in which we could bring market

housing into our neighborhoods, specifically our inner ring around

our downtown, where some of our more historic neighborhoods presented an opportunity for attracting capital.

In one of those neighborhoods, there was a public housing development that was a site for significant criminal activity, complaints

from the neighborhood, complaints from those who lived within the

development. And it was also strategically located as a piece of

property that had significant economic redevelopment value.

Being aware that the public housing authority had a significant

vacancy rate overall in its property management, I approached the

public housing authority and inquired about the availability of this

property for demolition and redevelopment and was surprised to

hear from the then-director of the public housing authority that the

housing authority was in the process of applying for funds to refurbish and redevelop this facility. They were actually going to be

seeking the city’s support for that. And they were not interested in

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looking at this as a development opportunity that could be leveraged in partnership with the city in development for some of their

other housing issues and needs.

The reason I was given by the director of the public housing authority was that the individuals that were living within this facility

were not likely to move to the other vacancies that the public housing authority had because they were on the economic borderline of

self-sufficiency and that there was significant amount of affordable

housing available in the neighborhood in which this was located,

that they would probably transition to independence rather than

transition to other public housing facilities.

When I inquired, well, isn’t that the goal, I was told that the cost

to the public housing authority in the overhead charge that they

are able to apply to operate this facility was important for them to

be able to maintain their staff and functions, for them to be able

to provide their services to their other facilities. That is a facility

that is transitioning, where ultimately, through change of leadership, there was a desire on the part of the community and the

housing authority to partner with the community in ways that site

might be redeveloped.

That brought us to the public policy point on which former Secretary Cisneros and Representative Lazio disagreed. That is, there

are some who believe that once a piece of ground has been public

housing ground, that it should be forever public housing ground,

regardless of the change in demographics in the community, regardless of the ability for the land to serve both those who are in

public housing and the community itself. And that the goal of providing affordable housing in public housing and assisted housing is

not diminished by recognizing that a real estate portfolio of a public housing authority is a dynamic portfolio that can shift.

Could you please tell me what your view and perhaps the current

view of HUD is with respect to the transitioning of property where

it perhaps has become dilapidated, needs to be addressed as insufficient for satisfying the needs of those who live there, and whether

or not communities can work in partnership with their public housing authorities for transitioning of land that at one point made perfect sense to be public housing but perhaps needs to be mixed use

and mixed income or mixed housing and commercial?

Mr. BERNARDI. Mr. Chairman, the proposals that we have on the

flexible voucher program and the asset management program I

think will give me an opportunity to answer your questions. The

fact is, the 3,400 plus public housing authorities throughout the

country, they are not all the same. Dayton is not like Syracuse, it

is not like St. Louis. St. Louis is different from Atlanta.

The fact is, we need to provide more flexibility and more responsibility to the public housing authorities to manage their operations

given what is best in their particular locale. I can liken that to,

asset management is so important to us, where each entity provides exactly what it takes to operate that entity, is the money that

is being utilized there, is it being utilized to the best possible advantage, the best possible services, are the tenants being taken

care of properly?

What we presently have is we have each public housing authority without asset management, where they present to HUD and

27

have for years, here is what it costs for us to operate our certain

number of units and certain number of buildings. We need to break

that down. That is not unlike a developer, in my opinion, who has

three properties. Two are very profitable and doing very well and

one is not. But to continue to lump them together, you indicated

a particular piece of property in Dayton that the public housing authority had and I think you absolutely were trying to do the right

thing, could you work together, and if you can’t work together you

can’t get things done.

That doesn’t mean, nor would we propose that we would want to

lower the number of units that are available. But if a structure is

not performing, if a structure needs to be razed, if you can move

individuals within that same neighborhood, if you will, and provide

them with affordable housing there, but you also mentioned that

someone indicated to you, well, these folks would go out and become independent renters or homeowners, that is what we would

all like to accomplish, that is what we are here for.

The fact of the matter is that our budget keeps increasing every

year at HUD, as I mentioned earlier to Ranking Member Clay. But

we don’t serve more people, we don’t have more units. I believe I

am correct in stating that.

So what we really need to do, and our philosophy is with asset

management and with the programs that we have, reducing improper payments and also the Moving to Work status, which we

feel very comfortable with, which gives the housing authorities tremendous flexibility to provide employment opportunities, to provide

term limits and rent reforms. Right now the rental structure that

we have in place, it really lends to individuals, not stating the

number of people that are in a unit, either not reporting or underreporting income. We have an awful lot to do.

In my opinion, again speaking for myself and HUD, we need to

be as productive as we possibly can with every single unit and

every single structure that is out there. The way to do that is to

push as much as we can to the local housing authorities. Obviously

with the checks and balances in place, but you can’t have a big

brother from Washington. We provide resources every year and we

see basically the same results. I think everyone would like to see

that change.

Mr. TURNER. Thank you.

Former Secretary Cisneros, whom I have great deal of regard for

and who has certainly been a leader in the issue of economic diversity and addressing the issue of the condition of distressed public

housing projects, espoused the view plainly and straightforwardly

that once a piece of real estate has been designated as public housing land, it should forever be public housing land. I appreciate your

view, which is consistent with former Representative Lazio’s that

it is a dynamic asset portfolio that we have to reflect, and that public housing is an integral part of a community, not separate from

a community, and should be looked at in the overall development

plan.

Which raises the next aspect of the exact same development that

you actually mentioned in what you believe is important for the

community to look to, and that is the preservation of the opportunities for the public housing that is at the site. The public housing

28

authority in Dayton had placed in its long-term strategy that this

would be a facility that would transition, that would be demolished,

and the real estate would transition to a mixed use. Their longterm plan included seeking Section 8 vouchers for replacing those

units that were not one to one replaced.

Because this site was one that they had begun the process of determining that it would be demolished rather than refurbished,

they did not refill each and every unit as they became vacant,

which would be consistent with any asset management or property

management, you would want to lower your costs, the impacts on

the families, the impacts of relocation. And now they are concerned

that the policy that they were pursuing of getting the units replaced with Section 8 vouchers and other units that they have, that

they might be penalized for their process of having a long-term

strategy and plan, and that the Section 8 vouchers may not be

available to them for units that they did not fill in planning for the

ultimate decommissioning of this facility.

We have heard this concern from other PHAs that as they do the

asset management planning and they plan for a facility to be decommissioned, that reducing the population of that facility actually

penalizes them, resulting in less qualification for Section 8 vouchers and then units for their management. Are you familiar with

this concern and could you give us some thoughts on that?

Mr. BERNARDI. A little bit, and then I will defer to Assistant Secretary Cabrera. It would seem to me that we do not replace one for

one when it comes to our HOPE VI program. What we are trying

to do, as you mentioned, is to place individuals into affordable,

market-rate, low income tax credit housing. I don’t think the goal

here is to keep the amount of units that you have or to add to these

units. I think the big picture needs to be that we would like to lessen the number of units that we have over a period of time, if you

want to look 10 or 20 years into the future. We want to be able

to provide opportunities for individuals to have short-term housing,

but at the same time, have the services that they need, the counseling, the employment opportunities, so they can be self-sufficient.

I believe the overwhelming majority of Americans, that is what

they would like to do.

Now, as far as the replacement of Section 8 vouchers for the individuals who are not part of the HOPE VI reconstruction, I believe

they have those vouchers and they are portable. But I will leave

that to Assistant Secretary Cabrera.

Mr. CABRERA. It is helpful when one looks at an issue like that

to segregate things into two pots.

Mr. TURNER. Before you continue, this is not a HOPE VI site.

Mr. CABRERA. I didn’t assume it was. I assumed it was just a

straight demo dispo of some kind. So let’s assume that it is a piece

of property that is being currently used as public housing. Let us

further assume that there are tenants there. They have been now

approved for demolition. So that means that they more probably

than not receive tenant protection vouchers for those people who

were in those units. And those vouchers would be used as any

other Section 8 program.

But the reason I wanted to create these two pots is, public housing works at the exclusion of Section 8. It is a distinct program.

29

So once those tenants have now moved on into units, the PHA

would typically demolish the improvement and build something

back, using whatever subsidy it wishes to use, private activity

bonds, tax credits, if the State, in this case I am assuming it is the

State of Ohio, has a State program for soft money for gap financing, great.

But they will build those units. Those units, when they are built,

are either going to be given some public housing attribute, some or

all of them, or they are not. They are going to be affordable housing units. Affordable housing units serve a wider band of demographics, but vouchers can be used at affordable housing units.

Once they have gone and become temporary vouchers, they are inside of the baseline and they will not or should not be lost.

So I am somewhat at a loss for the concern. I think the concern

might be coming from another place, which is that there is this

sense, and it is the correct sense, that we have seen the Section

8 program grow so enormously that there are stresses building at

the fringes over how much more it can grow. The Section 8 program has grown 100 percent in 2006 dollar terms since 1990; 100

percent. I am not talking about 1990 dollars versus 2006 dollars.

I am talking about 1990 dollars in 2006 value versus 2006 value

today. That is enormous growth.

So I think one of the things you might be hearing is tension over

the reality that it can’t keep growing, because it is beginning to impact the other programs within the agency, not the least of which

is the capital fund, the operating fund. And this causes enormous

policy stress.

Mr. TURNER. That gets me to my next question, and that is, Secretary Bernardi, recognizing this stress that is occurring and that

people have seen the concern of this sort of pac-man future of Section 8 as it eats away overall at HUD’s ability to look in the future

for its budget, what are some of the things that HUD is looking toward, recognizing this growing impact on HUD?

Mr. BERNARDI. We need to make sure that our statutory and regulatory environment is conducive to what the public housing authorities need to undertake. I think the simplicity, flexibility, being

progressive, I think public housing authorities maybe should look

to consolidation. As a former mayor, I realized full well when you

didn’t have the resources that you could consolidate in such a way

that you would be able to provide the same kind of service and increased service at least the same cost, if not a lesser cost.

I think it is going to be very, very important, the asset management program that we have put in place, that the housing authorities utilize that resource. That will give them the kind of control

that they are going to need to utilize their resources so that they

can stretch them farthest way possible.

Mr. TURNER. The number of PHAs, although our hearings were

not budgetary in their focus, many budgetary issues arose. And

many of the PHAs claimed that at the end of last month, HUD informed them that the proration of the public housing operating

fund for 2006 would be significantly lower than had previously

been announced. The PHAs argued that they had been funded at

92 percent of their eligibility for the first 6 months of 2006. Under

the new rule, the annual proration would be reduced retroactive to

30

the first of the year to 85.5 percent, and that would have significant budgetary consequences for the PHAs, since they had planned

obviously a certain level spent, as they had been going through the

year at a certain level, that the magnitude of the impact then

would be felt solely in a half of the year.

Would you want to comment on their concerns?

Mr. CABRERA. Currently we are looking at the issue. The issue

is really being driven by utility costs. Utility costs exceeded what

was expected by, as I understand it from the industry and frankly

internally, approximately $300 million. That is a lot of money when

you look at the entire operating subsidy budget.

That is an issue I believe we are going to need to bridge, and certainly we are spending an awful lot of time trying to bridge it as

I speak.

Mr. TURNER. My staff has pointed out that a concern is that apparently in the budgetary document that HUD submitted to Congress for 2007 the Department estimated that utility costs would

actually decrease from 2006 to 2007 and the budget document further estimates that the total 2-year increase in utility costs from

2005 to 2007 will amount to just 2.4 percent. I don’t know if you

have anyone with you who wants to speak on that. And I won’t ask

you a specific question on the budget numbers, other than to reflect

that the staff had provided us these numbers. Do you have concerns about the current method in which HUD is looking at its future energy cost structure that impacts PHAs and their management? And what might you be doing to address that?

Mr. CABRERA. We are looking at the whole spate in terms of the

budgetary concerns. So I would say that it is basically part and

parcel of my previous answer. We are looking at the whole enchilada.

Mr. TURNER. OK. Switching to a random series of topics, rent

simplification, Mr. Secretary, you mentioned that as an issue.

Many of the PHAs raised it as an issue.

The Boulder Housing Partners gave us some pretty compelling

information about what they are experiencing in rent calculation.

In fact, they went on to state that, they gave us a story, and the

documentation that went with it, in looking at rent calculation of

a elderly and disabled resident who, in order to calculate the medication deduction was prescribed things from bananas to vitamin C

and that their staff has an enormous task in looking at receipts for

various purchases in order to determine what the rent calculation

is.

I believe they were saying that 10 percent of their overall budget

is devoted to the activities of rent calculation. They speculate that

perhaps you might be looking at 3.2 million different rents in the

process of calculation, and that there really isn’t anyone served by

having either the residents have to go through this process, which

has to feel very violating at times, or the staff to go through the

process of individually calculating a rent based upon expenses and

income, rather than looking at some standard deductions and income proofs that would allow both the dignity of the resident, instead of having to come in with bags of receipts, and the staff time

of the facility to be freed up and perhaps income confirmation but

31

expenses by looking at standard deductions. Could you comment on

that?

Mr. BERNARDI. The rent reform is a major part of what we are

putting forward to change the system. It is a very onerous system

when it does come to rent. We need to be looking at flat rent,

maybe percentage of income tiered rents. We need to look at this

a little differently to allow individuals who perhaps earn additional

dollars, maybe they should have an escrow account so they can realize that savings. The rent needs to be matched to local conditions.

I don’t believe that as a housing authority you are looking to

charge rents so that you can have a better bottom line. I think you

need to take care of the individuals as opposed to the agency. We had improper payments back in 2000 that totaled about $3.2

billion. That has been cut better than half now by our review of

tenant files, our extensive outreach and training, cooperation with

States when it comes to data on HHS, using their income verification efforts along with ours. But in the final analysis, the rent

structure needs to be changed. We need to make sure that people

aren’t working the system against us. A fair rent has to be charged,

but I think it has to be transparent. I think it has to be flexible,

and it is not flexible now.

Mr. TURNER. Mr. Clay.

Mr. CLAY. Thank you, Mr. Chairman.

Mr. Bernardi, our Section 202 and 811 programs for the elderly

and disabled are vital to elderly and disabled individuals, as these

households represent about 75 percent of public housing’s population. I believe these programs represent those with the greatest

needs and must be our first priority when contemplating any future policy changes. Yet HUD’s fiscal year 2007 budget request

would have made significant cuts to funding for these programs.

Fortunately, this funding was restored in the House during the appropriations process.

What is the administration’s rationale for trying to cut these programs?

Mr. BERNARDI. Ranking Member Clay, the difficulty in the budget process, Secretary Jackson testified that difficult choices had to

be made. I mentioned earlier the amount of dollars that we are

spending on our tenant-based and project-based. It is approximately $22 billion of our 2007 budget out of a $32 billion budget.

That is 62, 63 percent. Just back in 1998 it was 42 percent.

In the 202 and 811 program, for the elderly and for the disabled,

the budget that has been proposed is not going to affect the individuals that are part of the process, or the maintenance of what we

have. Unfortunately, what it does affect is creating additional

units. We fund all the renewals and the issue is construction funding, as I was saying. There are funds that are unexpended in those

accounts.

But in the final analysis, even giving you that kind of information, it is very difficult to balance all of our programs, our home

program, our homeless program, housing opportunity for persons

with AIDS, our manufactured housing. We have significant challenges, and we would like to be able to fund them all, if we could.

Mr. CLAY. We do have significant challenges. I know that in the

coming years, we will experience a huge wave of retirees, with the

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aging and graying of the baby boomers, which tells me that we

ought to be prepared for that onslaught of new elderly. Would it

be helpful if you all were allowed to shift some of this funding?

Like you said, there are surpluses in some programs. Do you do

that now? Do you shift the funding, the dollars from one program

to the next?

Mr. BERNARDI. We try the best that we can to make sure that

all of the funding requests, that they are in programs that are

functioning to full capacity as possible. We mentioned the HOPE

VI program earlier and the amount of money that is in the pipeline.

The fact remains, you are absolutely correct, with the baby

boomers coming to their time right now in the next few years, myself included, there is an awful lot of senior citizen and elderly

housing that is going to be necessary. I would hope, though, that

would be an opportunity in many instances where you would have

the private sector, in conjunction with Government, working on

that.

Mr. CLAY. Let me ask you about another situation. In St. Louis,

there are over 700 units out of 3,700 in the project-based public

housing program unavailable because of demolition or modernization efforts. While we want to continue improving our housing

choices for our families, many communities face a chronic shortage

of vouchers or project-based units. Would you agree that modernization and development efforts for new Section 8 housing are

often too slow to meet demand?

Mr. BERNARDI. Well, the demand obviously outstrips the resources that we have. But to do the modernization, unfortunately

when you do demolition you are going to have situations where you

are not going to be able to replace unit for unit. More resources

would be nice, but with limited resources, I believe we are doing

the best we can.

Mr. CLAY. Is the modernization project approval process broken,

and other processes, are they broken as far as how HUD interacts

with public housing authorities?

Mr. BERNARDI. No, I don’t believe so. I think the relationship

that our Assistant Secretary and his staff has with public housing

authorities is a very good one. It is ongoing. There is constant communication. The situation calls for additional resources, and we put

those resources to play where we can.

Mr. CLAY. Mr. Cabrera, would you like to comment?

Mr. CABRERA. Yes, I would have to say that it probably is working better now than it has in a very long time, for a variety of reasons. Public housing authorities, like anyone competing for a resource, and I don’t mean competing for a HUD resource, I mean

competing for resource, when they put together these deals, they

have to look at a variety of pools.

The first place they look is not HUD. The first place they look

when they want to develop units is the low income housing tax

credit. And the reason is because it is not debt, it is equity. Therefore, they are not going to owe any money. Yet they will have units

that can serve their residents.

So that is a competitive process. In the case of Missouri, my good

friend and now former executive director, Erica Dover, put together

33

a wonderful program that helped PHAs, I believe, that in Missouri

there was a setaside for PHAs.

But what happens is, you can’t stop there, because the low income housing tax credit by law cannot finance a deal by itself. It

has to be brought into context with other components, other money.

That money can be State money in the form of gap financing, that

money can be local money. Here is some money that can’t or typically is not used if it is done directly. It is very rare to see that

kind of development come up with CDBG. Why? Because it is a dollar for dollar reduction in eligible basis, which means you get less

tax credits. So you are more likely to see a loan come from a State

than CDBG.

You look for other moneys, from non-profits and NGO’s. So it is

a difficult process to get those units up. But it is multi-layered, it

is a cake.

I would like, Mr. Ranking Member, I wonder if I might be indulged to go back to the 811 issue for a moment. I can’t speak to

202, 202 is housing, not me. But 811 is in part me. And what is

happening in 811 is the voucher programs actually, that budget

has increased significantly. So the issue in the debate currently, in

that group of stakeholders, is do we want more vouchers so that

folks who have disabilities can go out and look for units where they

can or where they want to, or do we want to build the units where

they will be? That is a debate that has been going on for some

time.

But certainly in the budget, the 811 voucher allocation or appropriation is higher, considerably higher than it was the prior year.

Mr. CLAY. I appreciate what both of you all have said and how

you have answered the question about the process, saying that it

is not broken. However, when we hear from PHAs, they indicate

to us that the process is broken, which tells me that there is probably a breakdown in communication between your offices and their

operations. Perhaps we could do a little better job of working with

each other in that circumstance.

Mr. CABRERA. Mr. Ranking Member, I think most people in the

stakeholder community would tell you that they have my e-mail

address. The reason is because I give it when I give speeches. And

they have my number. And they are not shy about calling, or for

that matter yelling.

So at the end of the day, I think what happens is, it is 3,400

PHAs. When you look at the pool of 3,400 PHAs, and those undertaking modernization, most of them would say, no, this is going

pretty smoothly. If you were to talk to Chicago, they would say, oh,

it is going quite smoothly, because we have moved faster on deals

than has ever been the case before. If you look at other cap fund

deals throughout the country, they would tell you the same thing.

So my sense of life is it is moving much faster. Is it perfect? No,

but I don’t think that it can ever be.

And the other truth of the matter is, sometimes we run into

PHAs that are not equipped to deal with the process of getting a

loan. The reason they are not equipped is they do not have the experience of having done it. So they don’t have, for example, a lawyer. This happens a lot. They don’t have a financial advisor. So

34

they will come in on their own looking for a loan, and that can actually exacerbate the problem.

Mr. CLAY. I thank you for that response. In my final question,

GAO has done work on the amount of improper payments made

under HUD housing programs. One, can you describe for us the extent to which fraud or mismanagement has drained the resources

of HUD’s housing programs; and two, are there significant managerial challenges that pose a barrier to adequate oversight of agency

expenditures?

Mr. BERNARDI. As I mentioned earlier, Mr. Ranking Member, back in 2000, the improper payments totaled $3.2 billion. Through

the hard work of our folks at PIH and in conjunction with HHS

and income verification with the States, we have been able to reduce that by better than, I think almost 60 percent. We have a rating system, and OMB has given us, I think we are the only agency

in the Federal Government in improper payments that has a green

light, if you will. We are making good progress. Of course, we want

to eliminate it all. We are working toward doing that.

But at the same time, I would like to couple my response with,

we really need some rent reform. The system is in place right now,

it just tends to have people try to beat the system as opposed to

having a system in place that is fair. If people make additional dollars, that does not necessarily mean it does now, that has to go toward rent. I think people need to see a light at the end of the tunnel, if you will, where they can utilize those resources, have an escrow account and then move from public housing Section 8 low income housing tax credits on to self-sufficiency.

Mr. CLAY. Thank you for your response, both of you. I appreciate

it, Mr. Chairman.

Mr. TURNER. Thank you, Mr. Clay.

Two other questions of items that have come up in testimony

that we have had from other PHAs. In the Moving to Work program, the current rule for Moving to Work work requirements is,

I believe, 8 hours per month. There are some PHAs who indicated,

who are in the Moving to Work program, their desire to increase

that, both with community support and through agency support.

And they cited difficulty in the administrative process and working

with HUD in order to increase those requirements.

In your both adamant policy commitment and also your eloquent

statements of transition, this is a direction that certainly would assist those who are transitioning to independence. Could you please

comment on the PHAs’ efforts to increase those requirements and

provide that assistance to residents?

Mr. BERNARDI. I will start it off, and then give it to Assistant

Secretary Cabrera. I think we have about 30 Moving to Work programs—27—27 programs. It has proven in our judgment that if it

works real well that they experiment with term limits, with rent

reform and employment incentive. We need to do more of that. I

know that our PIH department works very closely with the housing

authorities to maximize that Moving to Work program. I know that

others would like to have that same opportunity.

Mr. CABRERA. If it were an issue, it is an issue of a baseline. If

a PHA wants to exceed the baseline, I don’t believe that PIH would

ever say no.

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The issue in Moving to Work has more to do with flexibilities for

PHAs to function in a looser regulatory framework than not. So my

experience, I was reading the testimony and I was struck by Mr.

Moses’ testimony when he said the jury is still out. I think if you

ask PHAs, the jury is not out. The jury has come back and said,

please, please, please, give us Moving to Work. The reason is because in the cases of the high performers, it gives them the ability

to deal with those things most critical to them: operating flexibility

and attending to their units.

This is the thing that sometimes gets lost in the conversation.

Moving to Work has been equally important in those PHAs that

have traditionally been troubled. The reason that they have become

helpful is because usually when they have been troubled they have

been in receivership and you can use the flexibility of Moving to

Work to restructure them so that they are healthy when you move

them back to normalcy.

So I think on the whole Moving to Work has been a rather resounding success in most cases.

Mr. TURNER. From many PHAs, we hear concerns of the impact

of drug dependency being classified as a disability. As PHAs attempt to have senior housing that includes a disability component,

many times the clash between those who have been classified as

having a drug disability, a drug dependency and therefore a disability, in a facility that is predominantly focused on senior housing

as being disruptive and an issue of safety for the residents that are

there.

We have heard this from many PHAs. I wondered if HUD had

taken up this issue, what your thoughts might be and if you are

undertaking a policy review of what might be able to be done there.

Mr. CABRERA. We are not currently undertaking a policy review.

Part of this issue comes back to what I noted during my opening

statement. Looking at PHAs through a financial prism is quite different than looking at PHAs through a social prism. The thing is,

public housing is just one component of a very large issue. That includes issues of drug dependency. HUD is not, and I don’t believe

anybody would say it is, well equipped to address drug dependency

amongst its tenants or anyone else. It might be equipped as one

of the places the media by which a drug dependency program could

be undertaken.

Mr. TURNER. The question doesn’t relate to how to intervene to

provide assistance to someone who has drug disability. The question is, the drug disability as a classification carries with it a disability designation which then permits someone to be eligible for

housing that is both senior housing and disabled housing. And that

drug dependency as a disability causes a disruption and thereby

has been a threat to those senior residents who are typically not

seeking housing that might have that interruption or influence in

their community.

Mr. CABRERA. Mr. Chairman, I am sorry. I misunderstood the

question. It is a very short answer. We are not currently looking

at that issue.

Mr. TURNER. It is one that we have been looking at with PHAs,

and that we may be looking at whether or not there is a legislative

fix to provide PHAs the flexibility to be able to say that drug deVerDate 11-MAY-2000 11:21 May 09, 2007 Jkt 000000 PO 00000 Frm 00039 Fmt 6633 Sfmt 6633 C:\DOCS\34661.TXT HGOVREF1 PsN: HGOVREF1
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pendency is a disability in areas where they are attempting to provide senior housing perhaps it is not compatible. I raise the issue

expecting that you probably did not have a policy aspect on the

table, but that you might also want to concurrently look at the

issue.

Mr. BERNARDI. We would be happy to convene some of our people

and have a discussion on that with your folks.

Mr. TURNER. Great. Thank you.

I would like to recognize our Vice Chair, Mr. Dent from Pennsylvania.

Mr. DENT. Thank you, Mr. Chairman. I appreciate your holding

this hearing. I also thank you, gentlemen, for being here today. I

know that you have also discussed a little bit about the HOPE VI

program, and I didn’t hear those comments. But I just wanted to

point out again, I appreciate the Department’s help with the HOPE

VI project that is currently underway in my district. It appears to

be attracting considerable private sector investment.

As you know, the administration has recommended not to fund

HOPE VI in its recent budget proposals. The main question is to

Mr. Cabrera. What is your experience with HOPE VI and if so,

what is it about the program that you seem to think might attract

that much private investment?

Mr. CABRERA. My experience with HOPE VI when I was the

head of Florida Housing was that it tended to consume a lot of resources that were not HUD resources with the resources that Florida Housing was allocating, and not necessarily producing units in

a timely way. One reason for that is something, Congressman, we

were discussing just a bit ago. So I am going to rehash something,

and I am afraid I am going to bore Ranking Member Clay and the

chairman.

HOPE VI’s issue is one of initial choice when a PHA applies for

HOPE VI. If a PHA, which is not a development entity traditionally, and to the extent they have become one, have become one recently, last 5 years or so, undertakes a HOPE VI deal on its own,

typically it runs into a problem with reality. And reality is running

a construction program is very different than managing units.

So what we have seen over time is HOPE VI deals that have

been put together as joint ventures with precisely what you said,

which is with the private sector, and I include non-profits, incidentally, in the private sector. They tend to move better. They tend to

perform better. The problem with HOPE VI over time has been

that one, where originally, and Deputy Secretary Bernardi mentioned it earlier, you had a situation where you didn’t even have

to show readiness to proceed. And in the case of redevelopment,

readiness to proceed is everything. If you are not ready to proceed,

it is your sure path to bad things.

So what becomes important is the ability for the PHA community

to become more comfortable in partnering with the private sector.

One of the problems there has less to do with Congress or Federal

policy and more to do with State policy. Many States, most States,

all States have statutes that essentially charter PHAs. Many of

those statutes have not been visited in 40 years. So PHAs are

sometimes working under a rubric where they believe they can only

go so far in terms of risk-taking. So they believe they have to do

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it themselves. Other times, it is just choice. They want to do it

themselves. More often than not, the successes have been when

they worked with the private sector.

Mr. DENT. So I guess part of your concern with the HOPE VI is

the timeliness of expenditure of the funds, if I understood you correctly, among other things?

Mr. CABRERA. Yes.

Mr. DENT. Detroit had a situation, they had three HOPE VI

grants, I believe, and I don’t know how quickly those moved, but

that was something like 8 years ago.

Mr. CABRERA. They are great examples, Congressman. Thank

you. In one case, it is 10 years ago and in the other two cases, it

is 8 and 6. Only recently after HUD has taken Detroit Housing

Commission into receivership, with the cooperation of the Mayor,

have those units been able to move, or those developments been

able to move.

Mr. DENT. Is there an effective measure that HUD might be able

to implement to regulate the timeframe in which a grant must be

utilized?

Mr. CABRERA. It is certainly, I think the fair answer to that is

probably yes. I think one effort that was made by my predecessor,

Assistant Secretary Liu, was to attack the issue of readiness to proceed. Because essentially it means everyone’s skin is in the game.

When you approach development, the issue is precisely what you

identified, which is time. When you have private sector involvement in that, their issue is, get it built as quickly as possible, because if you take longer than it should, it is going to cost you a

boatload of money. So you don’t necessarily need to do that by regulation in terms of giving them a deadline. You need to do it by

regulation in terms of making sure all the pins are set prior to

shooting your bowling ball down the alley. So that is really where

Assistant Secretary Liu focused correctly, and it has been very effective in the last 3 years.

Mr. DENT. Mr. Chairman, I yield back.

Mr. TURNER. Thank you, Mr. Vice Chairman. I have one more

easy question for you, Mr. Secretary, then I will open it for you and

Mr. Cabrera to make any closing statements that you want. And

that is, you had mentioned affordable housing tax credits. We

talked to many PHAs who have undertaken tax credit projects as

part of their overall portfolio. My understanding is that in the affordable housing tax credit process that HUD does not have a significant role in the administration of that program and yet it is obviously part of the Federal plan for housing. Do you believe that

there could be greater coordination between the affordable housing

tax credit program and HUD’s public housing programs?

Mr. BERNARDI. We obviously like to be involved as much as we

possibly can. But at the same time, the affordable housing tax credit program goes to the States and the States distribute it. As far

as getting involved in the distribution process, that is a format that

the States use. I think they take a look at what is needed and

which housing authorities are going to utilize it in the best possible

way.

Other than that, I can’t see us involving ourselves any further.

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Mr. CABRERA. I would like to take my hat off as Assistant Secretary for a little bit and put my hat on as former executive director of Florida Housing. HUD has a very important role to play with

respect to the low income housing tax credit in four ways. The Secretary basically designates difficult development areas. The Secretary can name which qualified census tracks are in play for what

is called the 40 percent bump. And HUD puts together the rent

caps for low income housing tax credit developments.

The beauty of the low income housing tax credit is it is largely

autonomous. Because people focus on the developer. The developer

is not where the game is with low income housing tax credit. The

investor is.

If your deal goes sideways because you did something wrong, the

folks who have to deal with the IRS aren’t the folks at the development. It is the folks who put the money into the deal. And the recapture provisions are so harsh that there is assurance that there

is performance.

From our perspective, certainly, and I think my staff would tell

you, I have made it my mission to make sure that folks are better

educated on how it works, so that at the very least, from PIH’s perspective, we do no harm. That is the issue. We get out of the way.

Learning to get out of the way is very important.

So I think my focus has been, look, we need to know this specifically with public housing, our area of public housing investment.

Because it gets used so often, it gets used when we deal with

HOPE VI, it gets used in other modernization. So it is a good thing.

But at the end of the day, I think the biggest role we can play is

understanding the limited nature of our role.

Mr. TURNER. I appreciate both your answers to that. I am a big

fan of the affordable housing low income tax credit. It has been a

great vehicle in my community, specifically in the area of senior

housing. I appreciate your perspective on that.

With that, I want to ask, we have had a series of questions, and

you might have some thoughts that you want to add to the record

before we close, or any statements that you might want to make

and things that we have not asked that you have expected or prepared for.

Mr. BERNARDI. Chairman Turner, I want to thank you, and I

want to thank you for holding not only this hearing but the previous hearings that you have held in a very important part of the

American process. We need to make sure, and we at HUD are committed to making sure that low income Americans have the opportunity for decency and quality housing. Where we will be 20 years

from now, hopefully this hearing and other hearings that you put

forth will be able to provide greater assistance to the people that

are in need. We know there are waiting lists, and we need to make

sure that every person that has access to affordable housing has

the opportunity some day to be out there on their own, independent, either renting or purchasing a home.

We are committed to the mission, and that mission is to utilize

the resources in the best possible way. We need changes, and I

think we have brought forth those changes today, with the asset

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ing a look again at our HOPE VI program. And Assistant Secretary

Cabrera mentioned the low income housing tax credits.

It is an area that is forever evolving, but at the same time, it

is staying the same. We can’t do that. Everything changes. We

need to change our approach. We need to work even more closely

with the interest groups and the executive directors throughout

this country to make sure that the housing that we provide is not

permanent housing, that it is a way station, if you will, to self-sufficiency for more Americans. And I want to thank you.

Mr. CABRERA. First of all, Mr. Chairman, thank you very much.

I would like to thank Ranking Member Clay and Congressman

Dent as well.

I guess from my perspective, in terms of looking, I would like to

focus on the future and what we worry about, what we deal with

most. That is, we are currently dealing with a public housing delivery system that is 70 years old, with in many cases, 70 year old

improvements. Our issue is dealing with these things, dealing with

these improvements as either performing real estate or under-performing real estate. That is going to create a forum where people

can have broader conversations than have been had traditionally,

conversations about what do we want to do with precisely what you

mentioned in Dayton.

Just coming back to Secretary Cisneros, should a piece of dirt

have an encumbrance on it that is essentially in perpetuity. And

my answer would be, well, it depends. It depends on what you

want to do, it depends upon where that is situated. You have to

make economic decisions. Most of what we are talking about here

has to do with economic decisionmaking. Public housing authorities

have traditionally not had to mostly focus on thinking about economics. They have thought about a lot of things, but they haven’t

really thought about economics and structure. They are moving to

a point where they have to access markets. And markets only understand things in the way that markets understand things.

So we can’t have PHAs that are incomprehensible to, for example, rating agencies or bond insurers. Because otherwise, they

won’t have access to money. With 70 year old improvements, they

need that access.

The second thing is, we really and truly need to deal with issues

like rent reform, like income. Because those are two issues that

were in H.R. 1999 that are critical to change. The reason that they

are critical is because they evince local control over these issues.

Much of what you have heard us discussing is an impulse to

move as much as possible toward a local control on the theory that

the local PHA, No. 1, can be trusted because they are tied to their

communities, they are accountable to their communities, but No. 2,

they know better what their real estate market is than we do. We

are working in some cases with respect to rent on 2 year old, not

some cases, in most cases, 2 year old information when it comes

to rent setting. And that is a very big change from where we were

before.

So coming back to it, I think we are focusing on issues of change,

of financial management and of a commitment to local control.

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I would like to thank your staff, who was kind enough to sit with

us for about an hour on the phone and have a good chat. With that,

I will close. Thank you very much.

Mr. TURNER. Thank you, Mr. Cabrera. I appreciate your dedication and the expertise you bring to HUD. Mr. Secretary, I greatly

appreciate both your bringing your service as a mayor to HUD and

also your thoughtfulness to the people who HUD serves and looking holistically at HUD’s programs as a part of an overall impact

on a community.

Please pass on our appreciation to Secretary Jackson for his leadership of HUD and his commitment. As you and I discussed, he

toured Dayton and we were very appreciative of his thoughts as he

looked to our development challenges. We certainly would invite

and welcome you there so we could show you some of the things

that we have both accomplished and see as challenges in the future

that go to some of the topics we have discussed today.

I thank you for your preparation. I know that all of you have a

pretty strong to-do list. So whenever you take time away to come

here and speak on these topics, you not only spend time preparing,

but also spend time with us. It gives us greater insight into what

we need to do for our job. So I appreciate your willingness to share

your knowledge and your time.

I would also like to thank my colleagues for their participation

in this hearing. In the event that there are additional questions

that we did not have time for today, the record shall remain open

for 2 weeks for submitted questions and answers. We thank you

all. We are adjourned.

[Whereupon, at 11:35 a.m., the subcommittee was adjourned.]

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