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90–605 PDF 2003

S. HRG. 107–1015

HUD’S MANAGEMENT CHALLENGES

HEARING

BEFORE THE

SUBCOMMITTEE ON HOUSING AND TRANSPORTATION

OF THE

COMMITTEE ON

BANKING, HOUSING, AND URBAN AFFAIRS

UNITED STATES SENATE

ONE HUNDRED SEVENTH CONGRESS

SECOND SESSION

ON

THE MANAGEMENT PROBLEMS AT THE DEPARTMENT OF HOUSING AND

URBAN DEVELOPMENT AND THE IMPACT THESE PROBLEMS ARE

HAVING ON HUD’S ABILITY TO MEET ITS MISSION OF PROVIDING DECENT, SAFE, AND SANITARY HOUSING

JULY 24, 2002

Printed for the use of the Committee on Banking, Housing, and Urban Affairs

(

COMMITTEE ON BANKING, HOUSING, AND URBAN AFFAIRS

PAUL S. SARBANES, Maryland, Chairman

CHRISTOPHER J. DODD, Connecticut

TIM JOHNSON, South Dakota

JACK REED, Rhode Island

CHARLES E. SCHUMER, New York

EVAN BAYH, Indiana

ZELL MILLER, Georgia

THOMAS R. CARPER, Delaware

DEBBIE STABENOW, Michigan

JON S. CORZINE, New Jersey

DANIEL K. AKAKA, Hawaii

PHIL GRAMM, Texas

RICHARD C. SHELBY, Alabama

ROBERT F. BENNETT, Utah

WAYNE ALLARD, Colorado

MICHAEL B. ENZI, Wyoming

CHUCK HAGEL, Nebraska

RICK SANTORUM, Pennsylvania

JIM BUNNING, Kentucky

MIKE CRAPO, Idaho

JOHN ENSIGN, Nevada

STEVEN B. HARRIS, Staff Director and Chief Counsel

WAYNE A. ABERNATHY, Republican Staff Director

JENNIFER FOGEL-BUBLICK, Counsel

JONATHAN MILLER, Professional Staff Member

SHERRY E. LITTLE, Republican Legislative Assistant

MARK A. CALABRIA, Republican Economist

JOSEPH R. KOLINSKI, Chief Clerk and Computer Systems Administrator

GEORGE E. WHITTLE, Editor

SUBCOMMITTEE ON HOUSING AND TRANSPORTATION

JACK REED, Rhode Island, Chairman

WAYNE ALLARD, Colorado, Ranking Member

THOMAS R. CARPER, Delaware

DEBBIE STABENOW, Michigan

JON S. CORZINE, New Jersey

CHRISTOPHER J. DODD, Connecticut

CHARLES E. SCHUMER, New York

DANIEL K. AKAKA, Hawaii

RICK SANTORUM, Pennsylvania

JOHN ENSIGN, Nevada

RICHARD C. SHELBY, Alabama

MICHAEL B. ENZI, Wyoming

CHUCK HAGEL, Nebraska

KARA M. STEIN, Staff Director

TEWANA WILKERSON, Republican Staff Director

(II)

CONTENTS

WEDNESDAY, JULY 24, 2002

Page

Opening statement of Senator Reed ...................................................................... 1

Opening statements, comments, or prepared statements of:

Senator Allard ................................................................................................... 6

Senator Sarbanes .............................................................................................. 30

WITNESSES

Alphonso Jackson, Deputy Secretary & Chief Operating Officer, U.S. Department of Housing and Urban Development ......................................................... 3

Prepared statement .......................................................................................... 30

Stanley J. Czerwinski, Director, Physical Infrastructure, U.S. General Accounting Office ...................................................................................................... 7

Prepared statement .......................................................................................... 36

Response to written questions of Senator Reed ............................................. 51

Carolyn Federoff, President, American Federation of Government Employees,

AFL–CIO, Council of HUD Locals, 222 .............................................................. 10

Prepared statement .......................................................................................... 44

Response to written questions of Senator Reed ............................................. 55

(III)

(1)

HUD’S MANAGEMENT CHALLENGES

WEDNESDAY, JULY 24, 2002

U.S. SENATE,

COMMITTEE ON BANKING, HOUSING, AND URBAN AFFAIRS,

SUBCOMMITTEE ON HOUSING AND TRANSPORTATION,

Washington, DC.

The Subcommittee met at 2:32 p.m. in room SD–538 of the Dirksen Senate Office Building, Senator Jack Reed (Chairman of the

Subcommittee) presiding.

OPENING STATEMENT OF SENATOR JACK REED

Senator REED. The hearing will come to order.

Good afternoon. Let me welcome all of our witnesses to today’s

Housing and Transportation Subcommittee hearing on HUD’s management challenges.

The Subcommittee is very concerned about the management

problems at the Department of Housing and Urban Development

and the impact these problems are having on HUD’s ability to meet

its mission of providing decent, safe, and sanitary housing.

The Department of Housing and Urban Development’s programs

affects millions of Americans every year. HUD provides rental assistance to 5.2 million people, and mortgage insurance to 7 million

homeowners. HUD has helped revitalize over 4,000 communities,

and it managed about $545 billion in mortgages last year.

Unfortunately, two of HUD’s programs—the Single-Family Mortgage Insurance Program and the Multifamily Rental Housing Assistance Program—make up 70 percent of HUD’s business and are

currently on GAO’s ‘‘high-risk’’ list and considered ‘‘extremely vulnerable’’ to fraud, waste, and abuse.

GAO’s concerns largely focus on issues such as staffing at HUD.

HUD currently has 9,100 employees who oversee almost the same

number of contractors, in addition to doing their own job. A current

study by HUD itself shows that HUD is understaffed by at least

1,000 FTE’s.

HUD is on the cusp of losing almost half of its career workforce

by June 2003, because of potential retirements, and I think that is

an important point to note—that half of your present employees

could walk out the door next year. And these are the most experienced individuals, those who have been with the programs the

longest, and those who have the most knowledge and experience of

housing issues. This makes HUD’s current decisions about staffing

extremely critical.

2

We hope to explore today what HUD’s plans are for retaining

current staff, hiring new employees, and maintaining a core of expertise to lead the Agency into the future.

HUD also continues to have problems overseeing its thousands

of contractors, especially in the FHA Single-Family Insurance and

Multifamily Housing Programs.

In addition, since 1984, HUD has had problems with its hardware and software systems. These problems make it more difficult

for HUD’s staff to do their job and properly oversee contractors.

These systems also keep track of billions of dollars in loans and

rent subsidies. If these systems fail to meet HUD’s needs, HUD

will continue to have problems maintaining oversight over those

contractors who provide services, keeping track of billions of taxpayer dollars, and defining the number of people who are helped

by their programs.

Although I understand that new managers have the right to

make management changes as long as they comply with Federal

law, I am concerned that HUD’s reorganization may jeopardize

past improvements. HUD cannot afford to regress given its tenuous

footing and continuing management challenges.

That is why we have asked GAO to come here today to talk

about its findings. GAO has been a nonpartisan voice that continues to challenge HUD to make improvements. Senator Sarbanes,

Senator Allard, and myself commissioned GAO to draft a series of

reports on HUD, the first of which is being released at today’s

hearing.

We also will be hearing today from an officer of one of the unions

representing HUD employees.

This Committee wants HUD to succeed and to meet the many

challenges that it is facing. We want HUD to be able to effectively

and efficiently provide families with important rental assistance

and to help make the American Dream of owning a home a reality

for many first-time and minority homebuyers. And that is why we

are holding this important oversight hearing today.

I must also add that this concern has been consistent over many,

many committees. I know my Ranking Member, Senator Allard,

was equally concerned about HUD’s management and that goes

back several years, back to 1984 and before.

So let me just say that we are pleased and very delighted to have

Alphonso Jackson, Deputy Secretary of the Department of Housing

and Urban Development here today. Then we will hear from Mr.

Stanley Czerwinski, Director of Physical Infrastructure of the U.S.

General Accounting Office. Our third witness will be Ms. Carolyn

Federoff, who is President of the American Federation of Government Employees, Council of HUD Locals 222.

Each of our witnesses has been asked to discuss HUD’s management challenges, the status of the Administration’s efforts to address these challenges, and ideas for further improvement.

When Senator Allard arrives, I will take the opportunity to interrupt at an appropriate moment so he may give his opening statement, and similarly, with my other colleagues. But at this point,

Mr. Jackson, let me just further add that prior to your appointment

as Secretary you were the President of American Electric Power–

Texas, in Austin, Texas.

3

Let me say for the record that in addition to Deputy Secretary

Jackson, we also have with us John Weicher, FHA’s Commissioner;

Angela Antonelli, CFO of HUD; Vickers Meadows, Assistant Secretary for Administration; Melody Fennel, who is Assistant Secretary for Congressional Affairs; and Roy Bernardi, the Assistant

Secretary for Community and Planning Development.

We thank all of you for joining us today.

Mr. Secretary, please.

STATEMENT OF ALPHONSO JACKSON

DEPUTY SECRETARY & CHIEF OPERATING OFFICER

U.S. DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT

Mr. JACKSON. Thank you very much, Chairman Reed, and

thanks to all of the Members of the Subcommittee.

I am thankful for the opportunity to appear before you today to

discuss HUD’s staffing, acquisition management, and information

system challenges. I am happy to provide you with the update of

the substantial progress our Administration is making to address

these issues.

Under the leadership of Secretary Martinez, the first year of our

new Administration was largely devoted to getting the management team in place, assessing HUD’s management environment,

and formulating viable strategies and plans to address the major

management challenges and program risks that face the Department. In formulating our strategies and plans, we strongly considered the input on HUD’s management challenges and program

risks as described by the U.S. General Accounting Office, better

known as GAO, and HUD’s Office of Inspector General.

I believe our management team and the GAO share a common

view that improvements to HUD’s management of its human capital, acquisitions, and information systems are essential to addressing HUD’s remaining high-risk program areas—the Multifamily

Rental Housing Assistance and Single-Family Mortgage Insurance

Programs—and to maintaining adequate control over other program activities previously considered high-risk.

The inclusion of our management challenges and program risks

in the President’s Management Agenda is indicative of the importance placed on these issues. We welcome the GAO’s independent

assessment, and I am confident that they will see that we are moving in the right direction to address our management challenges,

reduce our program risk, and improve our program performance.

We also appreciate the advice, the counsel, and the constructive

dialogue of the HUD union.

Since coming to office, I have made it a priority to meet with the

HUD union representatives, with Ms. Federoff and the union there

at HUD, monthly to discuss issues that are of interest to them and

how we can better manage our HUD organization.

The first area I want to discuss is human capital management.

Human capital is HUD’s most important and valuable asset. We

have taken substantial steps to enhance and to better utilize our

existing staff capacity, and to obtain, develop, and maintain the

staff capacity necessary to support HUD’s future program delivery.

As you are well aware, decisions were made and actions taken

by HUD’s leadership to undertake separate realignment of headVerDate 11-MAY-2000 08:48 Nov 25, 2003 Jkt 000000 PO 00000 Frm 00007 Fmt 6633 Sfmt 6633 90605.TXT SBANK4 PsN: SBANK4
4

quarters and field activities to better use our existing resources

and to strengthen our program, and to deliver the services better.

The details of this realignment are in my testimony and I am asking that it be submitted for the record.

Senator REED. Without objection.

Mr. JACKSON. Thank you, and I am more than happy to answer

any questions that you have about the details of this realignment.

We have formalized our realignment structure, with the publication of delegations of authority in the Federal Register, and are providing current operating policies and procedures to support staff

training and ongoing operations.

In addition, the Department has taken on other positive actions

to improve HUD’s human capital. For example, we have developed

a Human Capital Strategic Management Plan in February 2002, to

provide an overall framework of our human capital activities, developed a departmental succession strategy to assess the impact of

potential human capital loss and results of skill imbalance, as you

just noted.

Completed in 2001 the implementation of the new Resource Estimate and Allocation Process, known as REAP, to use as a baseline

estimate and justify its staffing resources needs to allocate for the

proper resources.

Significant improvements in our training, including e-training

programs and their availabilities.

Expanded recruitment, retention efforts to take advantage of the

excellent programs, such as the Presidential Management Intern

Program, the new HUD Intern Program, the Legal Honors Program, and the Senior Executive Service Candidate Development

Program to establish a pipeline from our perspective of well-qualified employees to meet the staffing needs and the anticipated skills

shortages that will occur.

The second management challenge I would like to discuss is acquisitions management.

HUD is heavily relying on contract services in support of its current operations, as you just stated. HUD’s contracted services go

well beyond facilities management and other routine services to

many core program functions. Given the extent and significance of

HUD’s contracted services, the Department has taken positive

steps to address the acquisition challenges.

For example, the Department has reestablished a senior-level

Contract Management Review Board, we call CMRB, to review and

approve annual procurement plans for each HUD component, and

to approve all contracts over $500,000. The CMRB helps to assure

that HUD’s contract resources are used to address the Department’s priority service needs.

The Department also is increasing the use of integrated program

teams to improve the quality and the timeliness of procurement

actions. The Secretary and I recognize that small businesses are

vitally important to job growth and the economic strength of the

country. The Secretary has challenged HUD to award at least 50

percent of its contracts to small businesses. As of June 30, 41 percent of the fiscal year 2002 contract dollars have been awarded to

small businesses, and I am particularly pleased that women-owned

5

businesses accounted for 21 percent, well above the 5 percent that

Congress has established.

The third challenge that I would like to discuss is information

technology, as you so noted.

The adequate automated information systems are essential to the

effective administration of HUD’s large, diverse, and complex program universe. However, to be very candid and honest, we recognize that HUD has antiquated systems that are poorly integrated,

inefficient, and inadequate for meeting many essential program

management information needs. We have taken significant actions

to address this challenge.

HUD integrated its IT capacity planning process with HUD’s Enterprise Architecture and e–Government directives from the Office

of Management and Budget. This will better assure efficient resource use and effective business results.

HUD’s Enterprise Architecture initiative is designed to provide

Department-wide documentation of HUD’s current business and

technology systems to better manage HUD’s current information

systems and meet future information systems needs.

HUD’s Enterprise Security Program was established to provide

protection for HUD’s critical infrastructure, both physical and information systems. HUD’s Office of Inspector General recognized

both substantial control improvements in HUD’s mainframe computer system.

As you can see, our efforts to meet HUD’s human capital, acquisitions, and systems challenges have been very extensive. It will

continue, and it must be strong. Our efforts to better manage our

staffing, acquisitions, and information systems is important. We believe that we are making progress in the two remaining high-risk

program areas—our Multifamily Rental Housing Assistance and

Single-Family Mortgage Insurance Programs. We welcome the

pending independent assessment of our progress through the

GAO’s biennial Government-wide review of major management

challenges and high-risk programs.

In conclusion, Mr. Chairman, I would like to say simply that we

have established a leadership meeting every month at HUD, and

in this leadership meeting, we track the progress of each one of the

President’s Management Agendas and the GAO’s agenda as to

what we need to be doing.

The Secretary and I hold the senior leadership responsible for

making sure that this accountability is talked about every month

in our executive management meeting. Even more importantly, the

Secretary and I firmly believe that in not only recruiting new staff

at HUD, but also we have not over the past years trained, retrained, or empowered our employees to do their job in an outstanding manner.

Over the last 18 months, the Secretary and I have traveled extensively to field offices to meet our staffs. As you know, almost

two-thirds of HUD’s staff is in the field and the operations there

are critical. Some of the HUD field offices, as I have been told

when I was in one city, had never seen a HUD Secretary or a Deputy Secretary in 21 years.

6

We believe that the strength of this organization is in the field

and if we do not show up in the field, as well as show up at the

headquarters, we will have and continue to have serious trouble.

I have talked during this period of time, Mr. Chairman, to more

than 1,200 HUD staff in the past 18 months, and we have seen the

morale in the field grow stronger every day.

It is my belief that as the Deputy Secretary and the Chief Operating Officer of the Agency, that not only am I to manage our staff

here at HUD Headquarters, but also our job is to make sure that

the staff in the field realize that they are just as intricate a part

of HUD as the HUD Headquarters. And we are making every effort

to do that.

Last, the Secretary and I have made a commitment that we will

enter no city without visiting with the HUD staff, whether it is

field or regional staff; and to date, the Secretary and I have kept

that commitment.

So, I am glad to be here and I will be happy to answer any questions that you may have.

Senator REED. Thank you very much.

Prior to introducing the other panelists, let me recognize the

Ranking Member, Senator Allard.

STATEMENT OF SENATOR WAYNE ALLARD

Senator ALLARD. Mr. Chairman, thank you. I apologize for being

late. The votes that we had moved my schedule back a little.

I want to congratulate you on holding this hearing. I believe that

oversight is one of Congress’ most important functions. I think all

too often, this critical responsibility is ignored. It is nothing glamorous, but very important. Frequently, you do not get any credit for

holding these kinds of oversight hearings.

This hearing is a helpful way, I think, to perform our charge.

When you and I changed places, I think I had some 10 oversight

hearings at that particular time. And Mr. Czerwinski frequently

showed up.

I think there were some favorable results that were happening

as a result of that. I look back at 1997, when HUD described itself

as a poster child for inept government. We had reports coming out

of the GAO and the Inspector General. And since that time, the Department has undertaken a variety of initiatives designed to transform the Agency. GAO has reported that HUD has been making

creditable progress toward its goal of reform. It has reduced the

number of HUD programs deemed to be high-risk.

Although HUD has made considerable progress, Mr. Chairman,

much remains to be done. Last year, I requested that GAO conduct

a comprehensive evaluation of the Department’s progress, HUD’s

ability to sustain improvements and changes are still needed.

As always, I appreciate the work that the GAO has done for this

request. In fact, today, they are releasing a report on HUD’s

human capital issues as a part of my request. It is my hope that

their findings will be helpful to the Congress as we consider authorization and appropriation matters concerning HUD. Additionally, I believe that this body of work can be extremely helpful to

HUD. I am hopeful that they will work closely together to identify

and implement necessary improvements at the Department. In this

7

matter, HUD can become a strong Agency that meets its mission

with effectiveness and efficiency.

I would like to thank our witnesses for being here today. I am

pleased that Alphonso Jackson of HUD is here to update us on the

Department’s status. I know that you have had a very busy schedule personally, and I appreciate your taking the time to come forward with this important responsibility.

I also welcome Carolyn Federoff, the President of the American

Federation of Government Employees, Council 222. Carolyn, your

perspective as a HUD employee will be helpful as we discuss

HUD’s reforms.

Finally, I want to extend a special welcome to Stan Czerwinski

of the General Accounting Office. Stan has been an invaluable resource for me and my staff during my years as Chairman and now

as Ranking Member. I had the pleasure of receiving testimony from

Stan on a number of occasions. His insight and expertise has been

extremely helpful.

Unfortunately for this Subcommittee, I understand that Stan is

probably testifying before us for the very last time in his current

capacity. Next month, you will be Comptroller of GAO. I want to

congratulate you on that. And while I am sure that you will be incredibly successful in your new position, we are going to miss you

here at the witness table.

Stan, thank you for your hard work on behalf of this Subcommittee. And again, thank you, Mr. Chairman, for convening this

oversight hearing. I look forward to hearing today’s testimony.

Senator REED. Thank you very much, Senator Allard.

As I pointed out in my opening remarks, oversight activities are

not unique to this Chairmanship. You were very active as an oversight Chair, and we are following through with some of the issues

that collectively, we were pushing 2 and 3 years ago.

Senator ALLARD. Yes. Very good. Thank you, Mr. Chairman.

Senator REED. I want to join Senator Allard in both recognizing

Stan Czerwinski, and thanking him for his valuable testimony on

many different occasions, and wishing you well in your new position as Comptroller. And again, you will probably not be here as

you are now. Mr. Czerwinski is testifying in his capacity as the

senior GAO expert with respect to housing programs in the U.S.

Government. He will broaden that expertise as Comptroller.

So, we will get you back here in some guise, Stan.

[Laughter.]

Please, go ahead.

STATEMENT OF STANLEY J. CZERWINSKI

DIRECTOR, PHYSICAL INFRASTRUCTURE

U.S. GENERAL ACCOUNTING OFFICE

Mr. CZERWINSKI. Mr. Chairman, I happen to notice that you are

on the Appropriations Committee, in my new position, I will be

working closely with Appropriations, so we will be still talking.

Senator REED. I have become very popular recently.

Mr. CZERWINSKI. Yes, you have. Mr. Chairman and Mr. Allard,

before I begin, I would like to express my appreciation for this Subcommittee’s diligent oversight. That is a theme that you are going

to hear from me during this hearing.

8

Your work is instrumental to improving HUD. You are asking

the right questions and we are seeing results at HUD because of

that. And I think there is evidence of that today, with the Deputy

Secretary, you, and GAO agreeing as to what the top management

challenges are.

I also wanted to mention that it is really crucial that this oversight is bipartisan, as you have done, going back to the leadership

of Mr. Allard and now with you, Mr. Chairman. It is very gratifying to us to see you holding this oversight hearing. I know oversight is not glamorous, but to the GAO, it is our lifeblood.

In my testimony today, I want to update our high-risk assessment of HUD, then outline what we think still needs to be done.

You may recall in the mid-1990’s, GAO designated HUD as a

whole, high-risk, the only Agency in Government to be designated

that way.

In our last high-risk series of January 2001, we noted the credible progress that HUD had made. As a result, we no longer said

that the whole Agency was at high-risk, but instead, two major

program areas. As you noted, Mr. Chairman, these two areas comprise about 70 percent of HUD’s budget—Single-Family Mortgage

Insurance and Multifamily Rental Housing Assistance.

In fairness to HUD, I want to note that HUD faces inherent

risks that most agencies in Government do not. For example, it has

about $1 trillion of exposure on the financial markets through FHA

and Ginnie Mae. Also, in carrying out its mission, HUD relies on

third parties, including about 10,000 lenders, 25,000 appraisers,

and about 12,000 subsidized landlords.

We have made, and to its credit, HUD has implemented, a number of recommendations to address deficiencies in lender and appraiser oversight, property disposition, tenant income, and property

inspection. Yet, problems persist.

If we were to issue the high-risk report update today, we would

still find that Single-Family Mortgage Insurance and Multifamily

Rental Housing Assistance to be of high-risk. This is, in some

sense, because the programmatic fixes are really addressing the

symptoms rather than the root causes.

As you noted, at the request of this Committee, for the past 2

years, we have been focusing on the root causes. Just to reiterate

what has already been said today, the top three root causes that

we all agree on are human capital, acquisition management, and

program and financial information systems. As the chart to your

left shows, we see those three root causes sweeping through all of

HUD’s programs.

Mr. Chairman and Mr. Allard, you released our report today on

human capital. I would like to briefly summarize what that report

says. Simply said, HUD does not have the right people, with the

right skills, in the right places, to do the right things.

As you mentioned, HUD has the additional challenge, or maybe

it is an opportunity, of having more people who are eligible to retire than any Agency in the Federal Government. This means that

it is critical for HUD to determine the mission that it wants the

Agency to have now and in the future, decide what skills it needs

to carry out that mission, assess what skills it has now and then

match what it has with what it needs.

9

I guarantee that there will be a gap. There is no question about

that. HUD then needs strategies for filling that gap. These strategies include recruiting, retaining, and training staff.

As Mr. Jackson noted, HUD has taken the first step with REAP.

REAP is a snapshot. It provides a picture of what the Agency has

today in terms of skills and needs. However, because as you mentioned, Mr. Chairman, HUD could be losing about a thousand people each year, HUD must be looking to see how it will fill those

losses. The answer to that question will determine whether HUD

as an Agency takes the shape that its leadership and the Congress

wants it to take.

As you may recall, HUD had about 50 percent more staff a decade ago than it does today. Over that decade, HUD’s responsibilities have not diminished. Instead, HUD relies much more on contractors. In fact, contractor reliance, as measured by spending, has

grown 62 percent within a 5-year period. This reliance, without

proper oversight and monitoring in place, can result in significant

problems and abuse.

At your request, and again, you are requesting all the right

things—we will be reporting on acquisitions this September. We

will be including concrete examples of contracts gone wrong.

What I would like to do today is give you an interim look at the

findings of our work. The bottom line is that contracting problems

are caused by three things at HUD.

The first is inadequate monitoring. HUD’s monitoring does not

hold the contractors accountable. The second cause of contracting

problems goes back to the issue of human capital. You will see

there is another theme, that these root causes are not independent.

One affects the other. Because they have fewer people, they rely on

more contracting. Because they rely on more contracting, it exacerbates the human capital weaknesses. What we have found is that

HUD all too often lacks the right number of employees in the right

locations, with the appropriate skills and training to oversee contractors. Finally, HUD has no single information system to accurately track contractor obligations, milestones, and performance.

This leads me to the third area and the final top management priority—financial and programmatic information systems.

As you can probably guess, you have requested that study also

and we will be reporting to you by the end of the year, but I want

to give you a simple bottom-line today. In layman’s terms—HUD’s

systems do not talk to one another. Sadly, this is not a new problem. We first reported it 20 years ago. As a result, even if HUD

has the right people with the right skills in the right places, their

oversight is going to be difficult without the information they need.

For example, if a HUD employee wanted to visit or evaluate a

lender, he or she would have to get data on the lender’s address

from one data system, the loan volume data from another system,

default and claim data from yet another system, and finally, complaint information from another system.

The two key thoughts I want to leave you with on information

systems are systems integration and user needs. HUD must make

its systems compatible. In making the systems compatible, emphasis has to be given to doing it in a way that addresses the needs

of the users to do their jobs.

10

I would like to close by saying that in my 5 years directing the

GAO’s housing work, it has been an honor to assist this Subcommittee. You have provided quality oversight and that makes a big

difference.

Our teams are over at HUD every day and we see the response

at HUD because of the kinds of questions you are asking. And

again, I think this hearing is a real example of all of us agreeing

on what the major issues are.

Also, your staffs have shown professionalism and dedication. Day

in and day out, we deal with your staffs, on both sides of the aisle.

I have not seen staffs of that quality in my 20 years in Government. It has been an honor and a privilege to work with you.

I would like to leave you with one thought. And that is, we would

ask you to keep watching and to working closely with HUD and

please continue to ask GAO to help you do it.

Senator REED. Thank you very much, Mr. Czerwinski, for your

excellent testimony. Again, we thank you for your service to the

Committee and to the GAO. And we look forward to working with

you in a different capacity.

I have been remiss because I should have initially asked everyone to stay within the 5-minute time limit and that your full statements would be made a part of the record. But, through telepathic

means, both Secretary Jackson and Mr. Stan Czerwinski did that.

Now, we are pleased to introduce Carolyn Federoff, who is the

President of the American Federation of Government Employees,

Council of HUD Locals, 222. The Council is HUD’s largest employee union, representing approximately 6,000 employees. And she

has been President since May 2001.

Welcome, Ms. Federoff.

STATEMENT OF CAROLYN FEDEROFF

PRESIDENT, AMERICAN FEDERATION OF

GOVERNMENT EMPLOYEES, AFL–CIO

COUNCIL OF HUD LOCALS, 222

Ms. FEDEROFF. Thank you very much, and thank you for inviting

us to speak for HUD’s career bargaining unit employees.

First, I want to thank both of my fellow panelists here.

The Deputy Secretary has, in fact, invited us to meet with him

monthly to discuss employee issues, and we are very appreciative

for that opportunity. And the GAO, especially with your leadership,

has made recommendations that our employees always eat up.

They like when the GAO reports come out. They want to be able

to read them. They want to see what our Agency is doing and what

we can do better.

So thank you very much.

My written testimony, which I would like to have submitted for

the record——

Senator REED. Without objection.

Ms. FEDEROFF. —is a detailed look at HUD’s human capital management issues and oversight of contractors. But my oral testimony

is much more pointed.

HUD employees have been concerned for a long time with our

designation by GAO as a high-risk agency. But even without this

designation, we would be concerned for the long-term viability of

11

HUD programs. We believe that no administration can resolve

these issues without the sustained support of Congress.

HUD’s programs are largely bricks and mortar. They are longterm investments. This is one of the distinguishing characteristics

of the challenges that face HUD.

The programs that Congress creates have a lifespan longer than

the lifespan, or rather, the careerspan, of a Federal employee. So

that a Section 202 development that is built today will continue to

have a HUD mortgage in place in 2040, well after the current employees at HUD have retired.

Furthermore, the nature of developments is such that they either

have problems at the very beginning of their lifespan or they have

problems at the very end of their lifespan. So it is very important

to have staff continuity, to have the sharing of institutional memory from one generation of HUD employees to the next generation

of HUD employees. And that is crucial to problem-solving, when

problems arise.

Now all American employers at this point are facing the impending retirement of the Baby Boom generation. So this is a problem

that is not unique to HUD. But because of the unique programs

that HUD is responsible for, that problem, in fact, can be a crisis.

Currently, HUD only fills vacancies after they occur, frequently

months or even years after a seasoned employee has left.

In our written testimony, we recommend no reduction in HUD

staffing ceiling. But the truth is, if 4,500 employees are projected

to, or are eligible to retire within the next 5 years, we need to hire

2,000 employees within the next 2 years. We have to hire this staff

now in order to permit mentoring and a transfer of knowledge. We

cannot replace journey-level staff with entry-level staff.

This is a task that no administration can accomplish without

Congressional support. As stewards of the public trust, and as

HUD employees, we do not want to hear that it cannot be done or

that we have deficit budgets.

It can be done. We know this because the money is already being

spent. It is being spent on contractors. With the knowledge, and

sometimes the express approval of Congress, HUD spends more

money on contractors than it would cost to hire HUD employees.

The Section 8 Contract Administration contracts alone, which are

part of the rental housing assistance contracts, would cover 2,500

additional HUD staff. These contracts are costing us $220 million

a year now, and when they are in full force, will cost us $280 million. Now the contracts replace the need for a maximum of 1,250

staff. And this is only one example of many examples.

We need Congress to work with HUD and stop playing smoke

and mirrors with the budget.

Our written testimony includes recommendations that would assist recruitment and retention. It would assist the use of retention

programs, such as loan forgiveness, child care subsidies, extend

permanent positions to its interns, reform an overly bureaucratic

human resources department. But these are Band-Aids. They will

make HUD a better place to work for the workers that remain. But

we need more than Band-Aids. We need whole blood. We need staff

and we need them now.

12

Congress can make a difference between the long-term success of

the programs that it authorizes or it can assist in their failure.

Thank you.

Senator REED. Thank you very much, Ms. Federoff.

Thank you all for your excellent testimony. And I think you have

laid out in very graphic terms the serious challenges.

As Mr. Czerwinski pointed out, HUD is the most vulnerable

agency to retirements in the whole entire Federal Government.

And thinking that if even a third or a half of the retirements take

place, that will have a crippling effect on the Agency, an Agency

that is responsible for over $500 billion in mortgages.

The consequences of mismanagement are not simply that people

do not get the full services that they need and deserve. But it could

be huge financial consequences for the Federal Government. So

this is a very serious challenge.

Mr. Secretary, we all agree on the critical issues—human capital,

information technology, and oversight acquisition of contractors. Do

you think that the budget that was sent up this year to Congress

reflects the seriousness of these challenges, reflects the potential

loss of thousands of employees and the fragility of the Agency at

this point?

Mr. JACKSON. Before answering, Mr. Chairman, I want to say

that I appreciate both persons’ testimony because I think that they

specifically zoomed in on the points that are very critical to us.

In answering your question, I will simply say, I think the budget

reflects that we are trying to address the needs that the GAO and

the unions have consistently told me. That is, human capital, information technology, succession plans, because they are critical.

As Carolyn will tell you, often I have said to her, I would hate

to see a third of our employees leave on our watch—that is, the

Secretary and my watch—because I think it would be absolutely

devastating.

I think if we go back to 1995, when we had a situation where

there was no thought, not methodically or otherwise, and we were

forced to cut HUD’s staff.

The young employees that Ms. Federoff is talking about that

would have been the middle employees this year, were taken away.

In the process, it left seasoned employees. We were in a hiring

freeze. It did not occur.

But what we expected out of the employees at HUD, and I think,

under the circumstances, with my traveling in the field, these employees have done an excellent job of maintaining HUD as best

that they could, with the limited resources. We expected them to

do the same amount of work with an increased budget.

I do believe that if, as we have said to OMB and to GAO, we

have a budget that, if given the priorities to hire people to do some

of the job, and to terminate some of the contractual arrangements

that we have, the third-party contractual arrangements, I truly believe that we can hire the staff that can be trained.

I think that one of the things that Ms. Federoff said that was so

important, which I did when I was running AEP, which was a $13

billion corporation, when we realized that we had somebody leaving

the organization, we brought someone in to be trained by that person. That is not the way that we have operated at HUD because

13

of the hiring freeze. We believe now in our process of trying to recruit and hire new staff members, staff members who have the expertise, to give them an opportunity to work with those persons

who have this expertise who will be leaving us within the next 3

years.

So, I would say, yes, the budget does reflect it. And the Secretary

is very concerned that we address the needs of human capital, as

has been denoted to you today, we address the needs of information

technology.

I cannot come here, as Stan can tell you, and contradict him, I

am not in the position to do that. I am in the position to listen to

him. And that is why we have periodically worked with him, without the insistence of being told by Congress.

I just believe that Government, as when I ran the corporation,

has two functions. That is, to have the profit and shareholders’ return. I believe that the profit is saving the taxpayers money. The

shareholders’ return is making sure that the taxpayers get what

they have paid for. And I believe that with the help of GAO, with

the support of Congress, as Ms. Federoff has said, and with the

union’s help, that can be accomplished, and I think the budget reflects that.

Senator REED. Well, as I understand it, Mr. Secretary, HUD has

not asked for any additional dollars for staff in fiscal year 2003.

And going to Ms. Federoff’s point, if we are going to make any serious transition in the face of these retirements, you have to get the

people on board now so that at least they have a year or two to

learn what they can from the hands.

Mr. JACKSON. I agree. Let me say this to you on that.

We are in the process, as Ms. Federoff knows, of hiring 400 new

employees. I won’t say new because some will come from internal

promotion. But we are in that process. We have also asked OMB

for another 400 next year, to get us up to the 9,100 level.

What we have decided is this, we know that we have a shortage.

But I think that REAP was the beginning. We need to look at this

systematically and thoroughly, and say, where is it that we have

serious problems of losing people, whether it is in CPD, community

development and planning, whether it is in housing, whether it is

in public and Indian housing, and begin to replace those people

systemically.

Yes, I am very concerned. I cannot say to you today we are not.

But I do also believe that in the process, it is not necessarily from

my perspective more money. I think that if given the opportunity,

as I have said on a number of occasions to OMB, to utilize our

money more efficiently—that is, to end some of the contracting that

we do—that I think we can address these needs clearly.

Senator REED. Thank you.

Mr. Czerwinski, you might not have a detailed knowledge of the

budget submission, but you certainly, I would suspect, have a feel

for the kind of money we are talking about—getting a well-trained

workforce in place and staying in place despite retirements, improvements in hardware and software and computer systems, and

active oversight of contractors. That is a lot of money, even if you

are efficient and you get more flexibility, I would suspect. Do you

have any thoughts?

14

Mr. CZERWINSKI. Yes, Mr. Chairman. Ultimately, HUD may need

more money. But the key is before they can come and ask for more

money, they need to have a credible plan and a vision for what

they are going to do with it.

Let us use human capital as an example.

As we agree, REAP, is a first step, a snapshot of what is going

on today. What HUD needs to do, though, is to project what it

wants the Agency to look like, and then target the shortages and

gaps to that vision.

They need a recruiting strategy, targeting certain schools, certain

types of professions. Then, once they have that, they have to implement it. And that is probably ultimately going to take money. They

need to have a compelling plan before, in all fairness, they can

come and ask you for that.

Senator REED. Mr. Secretary, when can we expect to have the

details of that plan from HUD that Mr. Czerwinski said?

Mr. JACKSON. Very soon. We are in the process of developing a

5-year human capital plan because that was one of the things that

the Secretary and I initially said. We did not have one, and again,

Stan knows it. We have been discussing that, not only with GAO,

but also with OMB, and with the union. And I am convinced that

we will have that very soon for you.

Senator REED. Let me ask, before I turn to the Ranking Member,

Ms. Federoff, if she has any comments on this line of discussion we

have had?

Ms. FEDEROFF. Well, two comments. One is that I think the

Agency is hampered by a severe reduction in their human resource

staff in the 1990’s. So that the Agency restructured in 1995 with

the goal of going from one human resource manager or personnel

specialist per 60 employees down to one to 100. I think that loss

of staff has made it very difficult for this Administration to quickly

respond to the need for a human capital plan. I think that focusing

staff in those areas would help the Agency be more responsive.

The other item is that we would certainly support the Deputy

Secretary in giving HUD the ability to transfer dollars that are

spent on contractors to S&E. My familiarity with the budget is that

there is not that flexibility, and it would have to be specifically authorized. And we would certainly support that authorization.

Senator REED. Thank you very much.

Senator Allard.

Senator ALLARD. Thank you, Mr. Chairman.

I would just comment on the lack of compatibility between the

various computers that we have in HUD. Of all your testimony, I

think that that is one of the things that is the most disappointing

to me. It seems to me like it is one of the easiest things to be able

to rectify.

I can understand sometimes the problems with compatibility

maybe between the IRS and maybe the CIA or something like that.

But there is an effort within the Government to try and even make

those compatible. Isn’t there a relatively quick solution to this, or

is this more complicated than just what appears on the surface?

Mr. JACKSON. I will say this to you, Senator, that when I walked

into HUD after running AEP, I was absolutely not only dismayed

15

but also shocked that there was no interaction between the information technology systems.

We immediately went to the point again with the help of GAO,

OMB, and I said we cannot continue this process.

We are in the process right now of planning. We have one area

that we are addressing which we call the information technology

system contract out on the streets, and we should be getting the

results back very soon.

Another thing, I think it is imperative and it is relatively simple.

But I do not think we can again do what we did in 1995 without

being very methodical, cutting people out of the staff at HUD.

I believe that if we could do this in a very systematic manner,

we will be able to make sure we have an information technology

system within a couple of years that interacts and talks to each

other.

I must tell you that, as you have just stated, I was absolutely

shocked when I came here, having a system from a corporation

that we talked to each other all over the country. AEP was the

largest electrical company in this country. Yet, we could talk to

each other from Texas all the way to Washington, DC. And not to

have that in the Federal Government was absolutely shocking. But

we are moving expeditiously to make sure we have that and we are

working with GAO and OMB to make sure that that is done.

Senator ALLARD. Mr. Czerwinski, I think that my colleague here

brought up some issues related to the budget. So, I was thinking

back on our testimony that we had the year before last maybe. At

one point in time, we had $10 billion in unobligated dollars in

HUD. Are those unobligated dollars still there, as far as you know?

Mr. CZERWINSKI. There are still sizable numbers, probably closer

to $5 billion.

Senator ALLARD. There is still a sizable number there.

Mr. CZERWINSKI. Yes.

Senator ALLARD. You wouldn’t still say necessarily as much as

$10 billion, but there is still a sizable number there.

Is there any reason why you have to ask for an increase in HUD

spending when you have unobligated dollars in HUD there? Can’t

they be used for current programs? Is there any reason why that

cannot happen?

Mr. JACKSON. I think that, from my understanding, the monies

designated for specific programs, once they are allocated——

Senator ALLARD. Yes, but this is unobligated. I had the impression that unobligated means that they are not necessarily designated for any specific program.

Mr. JACKSON. From my understanding last year, all unobligated

monies—not all, but most of the unobligated monies had to be returned back to Congress. Therefore, I would say to you, Senator,

that I believe that if given that authority, as I said previously in

my testimony, I am not convinced that we necessarily need more

funds. I think that Stan spoke to that. If we are given the right

to utilize the fund in a very efficient and effective manner, to hire

and train new staff, clearly, I think we can do a lot of it within the

present budget.

16

Senator ALLARD. So, you are telling me at the end of each fiscal

year, unobligated dollars get held in the Department? They do not

get transferred over to the next year?

Mr. JACKSON. I am not sure. Let me ask that.

[Pause.]

If they are not obligated, they do not stay with the Department.

I did not think so because I know we had to return unobligated

monies last year.

Senator ALLARD. Stan, do you have a comment on that?

Mr. CZERWINSKI. My understanding, Senator Allard, is that most

of the unobligated monies are what is called no-year budget authority. They sit until the Congress or HUD takes action to essentially

sweep them up. A certain amount is swept up in most years. But

there is also amounts that sit.

If the question you are asking is, could those monies be used for

other purposes, yes, they could, but it would take a reprogramming

authority given to HUD to do that.

Senator ALLARD. Does that go through the appropriations bill or

is that an authorization?

Mr. CZERWINSKI. Appropriations.

Senator ALLARD. The appropriations does that. So is the budget

request now, does that reflect recycling or reusing those unauthorized dollars that are sitting there?

Mr. JACKSON. Let me say as an answer, some of them reflect

years that, clearly, the money must be spent.

We have in Section 8 a program that is obligated for projectbased for a 30-year period of time. All the funds are not obligated

at one time, but clearly, they are going to be spent. Those funds

that are not in a situation of Section 8, I would perceive, as Stan

has said, that if they are reauthorized, yes, we can use them.

Senator ALLARD. Okay. If we have a problem of not enough dollars there, Mr. Chairman, to meet some of these needs, it might be

that we just need some simple language in there that would allow

them to handle the unobligated dollars that are sitting there, if

there is any that are sitting there. And I do not know. How do we

find out what that unobligated amount is as we move toward the

end of this budget year?

Mr. JACKSON. I would be happy to submit a detailed report to

you if you would like to know that.

Senator ALLARD. Would you do that, Mr. Jackson?

Mr. JACKSON. Yes, I would.

Senator ALLARD. I would appreciate it.

Senator REED. As I understand it, the Department has to request

a reprogramming from the Appropriations Committee, which would

have to be cleared by the Office of Management and Budget. I

would be very happy to push that along if we got it up here.

Senator ALLARD. Okay. Now the other area that I want to talk

a little bit about, and this shouldn’t surprise any of you because

any time you have testified in front of this Committee, I always ask

you about the Government Performance and Results Act. I think

it is important that we work on it—I am glad that the President

seems to be moving in that direction for all agencies. But the Results Act requires agencies to utilize outcome rather than processbased management.

17

I was extremely pleased to see that the President’s fiscal year

budget of 2003 request begins to incorporate the next step, which

is outcome-based budgeting. And this is for all of you—would you

please comment on the importance of the Results Act for an agency

in transition like HUD?

Mr. JACKSON. I think it is absolutely important and imperative.

Again, I am not one to cast aspersions, but I have so often said

that, and I have said it to you, Stan, that if I had run AEP as we

have run HUD over the years, I wouldn’t have lasted 4 months as

President of that company.

So, I do believe that outcome-based analysis is the most crucial

thing to know exactly where you are going. And that is why I am

pleased that we had set some processes in place to judge that. But

the President’s Management Agenda specifically sets the objectives

of what we must meet to do that.

We have, as I said to Senator Allard before you came in, put in

place a monthly executive staff meeting to know where we are. We

are sharing that information on a monthly basis, not only with

OMB, but also with GAO, and we are asking for their input. I do

think that it is absolutely imperative.

Senator ALLARD. So, Mr. Czerwinski, this is not a new question

for you.

Mr. CZERWINSKI. No. Senator Allard, I was thinking back to the

start of this hearing when we talked about oversight not being

glamorous. The only thing less glamorous than oversight——

[Laughter.]

—is GPRA, so thank you very much for embracing that.

[Laughter.]

Of course you know, GPRA is one of GAO’s mantras. The President’s current budget embraces GPRA more than any prior budget.

Having said that, going to the question you asked; is GPRA important for an agency in transition? Absolutely. You need to have

a vision of where you want to go, link the vision to specific goals

that are measurable, then evaluate against those goals and measurable targets, and act accordingly. That is really what is going to

drive the budgeting.

Yes, that is crucial.

Senator ALLARD. Ms. Federoff.

Ms. FEDEROFF. Well, one of the things that we need to keep in

mind when we look at results is not only risk that has been taken,

but also risk that has been avoided. I am a field employee and

there are times when a development comes in and you work and

you work it and then you just decide, no, this one we are not going

to do. It just shouldn’t be done. I think that that is also a result

that should be taken into consideration in any review of results.

Not just housing units built, but are they quality housing units?

And were the ones that did not get built, in fact, should not have

been built?

Senator ALLARD. You do not think that GPRA is a good idea?

Ms. FEDEROFF. No, I think it is a fine idea. I just think that we

have to think about results in terms of risk.

Senator ALLARD. Okay. Thank you, Mr. Chairman.

Senator REED. Thank you very much, Senator Allard.

18

For the record, there is a memorial service for Officer Chestnut

and Detective Gibson, who gave their lives in the defense of the

Capitol on this day in 1998. It is at 3:40 p.m. I want to ask a few

more questions, then recess, if I may, attend quickly, and return.

Let me just start our second round.

Mr. Secretary, going back to this whole issue of using what you

have rather than getting more. I understand that HUD hasn’t been

able to hire the 91 full-time equivalents that you are authorized in

this year or last year’s budgets, that you are 300 short. Is this a

conscious decision or is this suggesting the problems you face even

if you had the resources to hire people, which begs other questions.

What do we have to do to make this an attractive place to work?

Mr. JACKSON. I think that is a very excellent question, Senator.

My answer to that is that, first, we have, during the Department

realignment, that took a substantial portion of our time because,

initially, we made some very—we made some mistakes in the sense

that we did not initially consult with the union, which I think was

absolutely a mistake. In the process, we began to consult to make

sure that we get the input as to how best to redeploy and realign.

And it took a little longer than we had expected.

Second, we did not have at that time an Assistant Secretary for

Administration in place, nor a Director for Human Resources.

Going back to Ms. Federoff’s statement—nor did we have in

place the ratio that I felt was necessary to address the needs of hiring up as quickly as we wanted to. We have put that process in

place now, which will carry over to 2003. We believe that we will

reach the 9,100 without any problems.

I take full responsibility at that point for not being cognizant of

the fact that during the early part of the process, we did not confer

with the union and in the process, that we did not have an Assistant Secretary, nor a Director of Human Resources. In fact, we

hired the Assistant Secretary this spring and we just hired within

the last month a Director of Human Services. So, we are in the

process to rectify that.

Last, we are hiring up in human resources. And I must say that

I was not really aware of that until it was brought to my attention

where we were with the union.

The union, in my case, and in the case of HUD, has been very

helpful in making sure that we understand the problems that we

are confronted with. I do believe that in the year we will do that.

But we did not do it and it was not an effort on our part not to

do it.

Senator REED. Thank you, Mr. Secretary.

Ms. Federoff, before I recess for a brief interlude, do you have a

comment?

Ms. FEDEROFF. Our experience with the intern program is that

we had many, many more applicants who were interested in working for the Agency than we had positions available.

Mr. JACKSON. True.

Ms. FEDEROFF. So there is a real interest. Our concern with the

intern program is that those employees need to be extended permanent positions as soon after their 1-year traditional probationary

period as possible, so that during their second year, they do not

spend the bulk of their time looking for other employment.

19

Mr. JACKSON. We agree with that.

Senator REED. At this time, I would ask that the Subcommittee

stand in recess subject to the call of the Chair, and I will endeavor

to come back as quickly as possible.

Thank you.

[Recess.]

Senator REED. Let me call the hearing to order and thank you

all for your indulgence in letting me get over to the floor for that

moment of silence.

I have two areas of concern I want to address. I am sure, though,

there might be other questions and the record will remain open for

a number of days. So, you might receive some written requests for

further information, Mr. Secretary.

Mr. JACKSON. Thank you, Mr. Chairman.

Senator REED. Mr. Czerwinski and Ms. Federoff.

One of the critical issues that we all agree upon is the need for

accountability of the consultants and contractors that HUD has.

I was struck by some of the information about the single-family

program. GAO reports that HUD lost $1.9 billion in fiscal year

2000 on the sale of foreclosed homes that it had insured, greater

losses than it had when HUD career employees were performing

the function. Although it might be appropriate to contract out those

functions, they clearly need better oversight.

It has been 5 years since FHA implemented its new loss mitigation program. Again, what really prompts my concern is this has

been the hottest real estate market I can remember in my life. I

know that HUD insures properties not in the most affluent neighborhoods, but in some difficult neighborhoods. But the magnitude

of this loss is quite sobering because if the real estate market ever

started trending down, this $1.9 billion could accelerate.

It exemplifies the problem that we have talked about all afternoon. What steps are you taking to ensure that these contractors

are doing their job and they are not causing huge losses that we

have seen in this particular program?

Mr. Secretary.

Mr. JACKSON. If it is fine with you, Mr. Chairman, I will defer

that specifically to the FHA Commissioner, Mr. Weicher, to answer

for you, please.

Senator REED. Sure. Commissioner.

Mr. WEICHER. Thank you, Mr. Chairman.

We have typically had losses on our REO ranging from $1.6 billion to $2.5 billion from year to year. The reason we have losses,

that is why it is REO. It is not worth what we have insured, and

so we lose money on it.

Our loss per claim, our loss per dollar, has been dropping. It is

now down to under 30 cents per dollar. Four or 5 years ago, and

before that, it was running at least 39 cents a dollar and on up to

45 cents a dollar. The loss per claim has been down in the last 3

years. We are not going to break even on the REO ever. But we

are doing a better job in minimizing the losses to the fund from

year to year.

Senator REED. Thank you, Mr. Secretary.

20

Mr. Czerwinski, might you comment on this whole issue of contractor accountability in the single-family program and the other

programs, and the Secretary of the FHA’s comments?

Mr. CZERWINSKI. Yes, Mr. Chairman. The way we look at it is on a per-property basis. Roughly, you are talking about a $30,000

loss per property. FHA turns over, say, 50,000, 60,000 properties

a year. That is how you come up with approximately $1.9 billion.

The key to avoiding this loss is two-fold.

The first key is loss mitigation. If you can stop the properties

from going into that process, you obviously are not going to suffer

that loss. Mr. Weicher is exactly right. Whenever you get a property into the disposition area, you are going to lose money. The second key is once they get in, though, you want to minimize the loss.

There are a couple ways to do that. One is incentives to shorten

the timeframes. The longer the properties sit in inventory, the

uglier they get and the lower they sell for. Also you want to maintain the properties because the better they look, the more money

you will get for them. In addition, the properties that sit around,

and end up contributing to neighborhood blight.

The incentives to contractors should be to sell them quickly and

to maintain them during this process.

Mr. JACKSON. We are addressing both of those issues.

Senator REED. That is my question. And Mr. Weicher wants to

comment, too.

Mr. JACKSON. We are addressing both of those.

Senator REED. Mr. Secretary, at your discretion.

Mr. JACKSON. Please.

Senator REED. Around here, you cannot go wrong just calling for

Secretary.

Mr. WEICHER. Mr. Czerwinski is right, it is important to get the

properties out quickly, and we have been doing that. Three years

ago, we had properties in inventory for 8 months on average before

we sold them. Now it is down to under 6 months on average before

we sell them.

Three years ago, our inventory was 47,000 properties. Now our

inventory is 29,000 properties and the inventory has not gone up

during the recession. And that has never happened in the history

of the Department.

We certainly want to do as good a job as we can on our REO.

We know that the property, as we own it and it is in a neighborhood and it is not helping the people in the neighborhood to have

this. We are doing our very best to get that property out as quickly

as we can.

And if I might say, on loss mitigation, 3 years ago, we assisted

10,000 homeowners through loss mitigation. Two years ago, 30,000

homeowners. Last year, 50,000 homeowners. This year, we are on

track to help 70,000 homeowners, and it is an extremely important

tool in helping people stay in their homes and help the neighborhoods they live in.

Senator REED. Thank you. If I could just note, though, because

Secretary Weicher made the point about it. This is a very unusual

recession because the housing market has shown not only no damage, but also it seems to be bounding along.

Mr. Secretary.

21

Mr. JACKSON. Mr. Chairman, this is one of the areas that, initially, when we started meeting with Stan and GAO, we told him

that we were not going to debate or argue with him about. In fact,

I could not understand why anybody was arguing.

They were absolutely correct that the approach we had taken

and the Assistant Secretary has taken on behalf of the Secretary

and myself is a very proactive approach. And so, I will say that it

was a very excellent question. But we are really trying to minimize

as much as we can. I think that Stan was correct in conjunction

with Assistant Secretary Weicher.

Ms. FEDEROFF. With your permission, Mr. Chairman.

Senator REED. Ms. Federoff, please.

Ms. FEDEROFF. Thank you. Our single-family staff would like to

have another issue raised, which is that they see the properties as

a resource that can be used toward affordable housing in this country, and is very concerned that the contractors at this time are, in

fact, not using them as a pool of affordable housing that employees

at one time were able to do better.

So that, for example, the number of investor-owners are increasing over time with the use of contractors, as opposed to homeownership. And that is one of many issues that we have with this

set of contracts.

Senator REED. Thank you very much.

Let me move to another topic because Senator Allard is here for

his second round, also.

Mr. Secretary, I understand that the Department went through

a reorganization last year, including moving the independent Real

Estate Assessment Center, the REAC, to public housing, and the

Enforcement Center to the Office of General Counsel.

I have testimony from the GAO on REAC and the Enforcement

Center prior to this reorganization, is as follows: The creation of

the REAC and the Enforcement Center were positive developments

that yielded real results.

The GAO went on to say that the new REAC enabled HUD to

complete its first physical and financial assessment of its inventory, while the creation of the Enforcement Center resulted in the

restoration of 41,344 housing units to decent, safe, and sanitary

conditions compared to 968 units in fiscal year 1999.

The question is, these Centers seemed to be performing very

well, what was the need to put them into a different posture underneath the public housing and the General Counsel’s Office?

Mr. JACKSON. Well, Mr. Chairman, first of all, REAC. REAC does

half of the work for housing, half for PIH.

We felt that since it was doing the work, and the initial process

was probably the correct process, but I think it had to be outside

of those areas because it had not been working internally.

We felt that, at least from my perspective, it should, in essence,

address the issues of both of those areas. And I felt the best way

to do that was to put it in one, house it in one of those areas. We

chose Public and Indian Housing.

But in the process, the Assistant Secretary for Public and Indian

Housing, and the Assistant Secretary for Housing worked together

and they formulated, I think, a very outstanding plan to make sure

that REAC is working better now than it has worked in the past.

22

The second part, as you asked, is about the Enforcement Center.

The Enforcement Center was in the General Counsel’s Office in the

first place. It was taken out. It was taken out, from my understanding, and please let me say this gingerly, because the previous

Administration was not getting the response that they wanted. I

believe you do not remove organizations because you do not get the

response. You make them better or put the right people in place.

Right now, there has not been one step lost in the Enforcement

Center in carrying it out back under the General Counsel. It is still

doing the same exact response, but yet, it is reporting.

I believed when I came in, and I said this, that we had a number

of people reporting directly to the Secretary through the Deputy

Secretary. I believe that we should not have had—I forget. How

many people were reporting to me?

[Pause.]

More than 30 people were reporting to me. And if I might have

the opportunity to use this example. When I ran AEP, which was a 3,000 employee operation, a $13

billion corporation, I had two people reporting to me. They were

Executive Vice Presidents. One was Executive Vice President for

Administration. The other was Executive Vice President for Operations. They had the responsibility.

I think that, actually, from my perspective, for a more streamlined approach, that only the Assistant Secretaries, except those

that are authorized by Congress, should report directly to the Deputy Secretary and the Secretary. And so, we tried to find the best

housing mechanism to make sure that we lost none of the importance of these agencies to respond to, and that is the approach that

we took, strictly from a business approach.

Senator REED. Thank you, Mr. Secretary.

Mr. Czerwinski and Ms. Federoff might have a comment. Then

I will ask Senator Allard for his questions.

Mr. CZERWINSKI. Yes, Mr. Chairman. If I could use REAC as an

example. I believe the key is to look at what you want to accomplish with a function such as REAC. You are talking about the

number and quality of inspections. You are talking about the condition of the property—maintaining the property in good shape.

You also want to consider the analysis of what REAC could do

to help landlords maintain their properties in good shape. And finally, the landlords who have defects in their properties need to be

monitored to make sure that the corrective actions are taken.

Those are the measures of whether REAC is working or not.

We have studied REAC extensively and reported areas where

they could do better. But overall, REAC was a significant improvement over HUD’s capability in the past, when it really wasn’t able

to do much to determine the condition of these properties.

The question becomes, with REAC responding to the Deputy Secretary’s secretary or to PIH, whether you maintain that capability

or not. Frankly, in our view, it is up to the Secretary how he wants

to organize his Agency. But he better maintain the results in terms

of the issues that we have raised. And that is what we would ask

when requiring HUD to report its results along those lines.

The final point is that, in any organizational structure, you have

to look at what tensions and stresses there are for independence.

23

If REAC is going to be delivering bad news to somebody who is an

owner of the property or the owner of a program, you have to decide what that does to the program.

If they can deliver bad news and that Assistant Secretary can

handle that bad news and correct the problems, REAC reports it

is fine. But if the capability is diminished, it is not fine.

Mr. JACKSON. I agree with Stan.

Senator REED. Thank you, Mr. Secretary.

Mr. JACKSON. I think that we have taken all of that into consideration of the process.

What he has just stated to you, we took into consideration. We

feel deeply that it can still do that.

Let me say this to you, Mr. Chairman, and Senator Allard. I am

flexible. I believe that the tenor of a good administrator or a good

manager is to be flexible, to give an opportunity for programs to

work. If they do not, then understand that, a year from the day,

if it is not, or 2 years from the day, to admit that it hasn’t. And

that is one of the reasons I think it is important to have the oversight of not only your Committee and the Senate and the Congress,

but also GAO, because I am of the hue at this point, I would much

rather find a way to work with GAO and work with the union than

to find a way to disagree with them.

Because our Agency that the President has appointed the Secretary and I to run is in serious trouble, and I believe that almost

everything that has been said today by both Stan and Carolyn, it

is absolutely imperative that we all work together to cure these

problems.

I think we have worked so far to this point very well. I am not

sure who is going to replace Stan, we have had our disagreements,

but we have disagreed on issues. We have not disagreed and not

spoken to each other. And I think, to me, that is the most imperative thing that we have today.

I want to say this to both of the persons sitting here, and to you.

I want to see HUD work. I believe we have to run HUD as a business. Some people think I am absolutely crazy, but the taxpayers

deserve to have a well-run Government. And in appointing me, I

think that is my task, to run it like we run a business, and to be

accountable to you, but also be accountable to the taxpayers.

I think that without the help of GAO, without the help of OMB,

without your help, that is not going to occur because I think people

have a tendency if they are not looked at, to slide; and I would prefer not to slide.

Senator REED. Thank you, Mr. Secretary.

Ms. Federoff, do you have a comment on this line?

Ms. FEDEROFF. I am glad to hear that a cooperation plan has

been put together for REAC staff working on the Office of Housing

Programs while working for the Assistant Secretary of Public and

Indian Housing. I know that employees have been looking forward

to that plan and we are glad that that is, in fact, coming to pass.

Senator REED. Thank you very much.

Senator Allard.

Senator ALLARD. Mr. Chairman, you preempted me on that last

question, which is all right.

24

I wasn’t sure that you directly answered the question that I am

about to ask you, Stan. And that is, what are your views concerning this realignment decision? It sounded to me like it was favorable, but I am not sure we got a direct response on that?

Mr. CZERWINSKI. Senator Allard, our view is that it really is the

Secretary’s prerogative as to how he wants his Agency to be structured. But there are functions that have to be accomplished. We

would urge the Secretary to take a look at those realignments in

the past which have worked and those which haven’t and to take

that into account.

You asked about the Chief Procurement Office. That, as we

know, used to be independent. It now responds through the Assistant Secretary for Administration.

If contract oversight works, then that structure works. If there

are problems with contract oversight, we need to think about the

structure.

One thing that we also need to think about, as I mentioned, is

the stresses and tensions that exist in an organization.

The Office of Administration accounts for about a third of HUD’s

contracts. So that is an issue that the Chief Procurement Office has

to think about because they are essentially overseeing contracts

within their own office. If they can do that effectively, it is fine. But

it does complicate it.

Senator ALLARD. Did he answer my question, Mr. Chairman?

[Laughter.]

Senator REED. That is why he is being promoted. He answered

it very well.

[Laughter.]

Senator ALLARD. You are very adept there, Mr. Czerwinski.

[Laughter.]

I have another question. I have also requested that GAO review

HUD’s acquisition management practices and how the Agency

holds contractors responsible for results. And that work is nearing

completion, it is my understanding. What can you tell us today

about the results of that work and what HUD needs to do to do

better management on its acquisitions?

Mr. CZERWINSKI. That is a really important question because of

the increased emphasis that HUD has placed on acquisitions.

As I mentioned in my statement, there are three areas that HUD

needs to focus on.

First is the monitoring. And monitoring means getting out there

and seeing what is happening with the contractor. Otherwise, you

can be taken advantage of.

That ties into the second point, which is you have to have people

who know how to oversee and monitor contracts. And with HUD’s

reliance on contracting growing, we found that some of the people

who are overseeing contracts do not have the right skills and background or training to do that. So even if they could get out there,

they sometimes did not know what to look for or ask.

The final area is information systems. HUD staff had to get out

there because information systems weren’t giving them the information they needed in a timely manner to assess the contracts.

Senator Allard, this ties into the points that we made in the

hearing. We have talked about human capital. We have talked

25

about acquisitions. We have talked about information systems.

Really, those are not separate issues. They are all interwoven. And

they manifest themselves in different ways. But HUD needs a

whole plan to make the improvements. That is the basic message

we have on improving acquisitions.

Did I answer your question that time?

[Laughter.]

Senator ALLARD. You did a pretty good job, Stan.

[Laughter.]

Mr. Jackson, I wonder, would you please describe how HUD fits

into the President’s Management Agenda, and how this will help

HUD transform into an effective and efficient Agency?

Mr. JACKSON. There are five critical elements to the President’s

Management Agenda. And the first is human capital, information

technology.

When we started the process, I will tell you that—well, let me

back up a second. The process is one of green, yellow, and red. It

is just like the stop light.

Senator ALLARD. Yes.

Mr. JACKSON. So, you know when it is red, it means you are not

to move. And, in essence, we had inertia on our part when we

started this process some years ago.

We have moved in a number of the categories to green. Some of

the categories we are still at yellow. But we feel that without a

management structure as to denote exactly where we need to go to

improve the agencies, we are going to be in serious trouble.

The President’s Management Agenda gives us that process that

we can address the needs that are affecting HUD at this point in

time. Plus, I think that with the information that we have been

able to gain from GAO about the high-risk, and they are working

with us, we have been able to address these needs.

Now there are five, and I cannot tell you right away—I think

she’s probably giving me all five here.

Senator ALLARD. Staff is helpful at times, isn’t it?

Mr. JACKSON. That is right. Human capital, e-Government, competitive sourcing, budget and performance integration, and improved financial performance.

The only one that we have vehemently disagreed with, and I

think we have been given some dispensation, is competitive

sourcing. We believe that we have competitively sourced too much

out already in this Agency. And therefore, it goes back to what

Stan has said, we are not able to manage and monitor our contracts in a very efficient manner.

Second of all——

Senator ALLARD. Is it too much competitive resourcing or just not

enough management over which you have already competitively

laid out there?

Mr. JACKSON. I think, Senator, that if we are able, as Carolyn

has said, to do the analysis that we are presently doing, that will

tell us whether we can do the job better in-house than competitively sourcing out, whether it is single-family or multifamily, we

must look at that. That is something that, until this year, this

Agency has not been able to look at.

26

OMB has given us permission to look at it. And if we find that

we can do it better by having workers under the Federal umbrella,

we should do it.

I cannot tell you right now empirically that is the case. I will say

this to you, that I believe, and my testimony, when I was being

asked during the process of my hearing, I feel today the same way.

I think that it was a serious mistake to cut HUD of some 8,000

workers without doing an empirical and methodical study as to

how it should be done. And I think it has hurt the Agency. I do

not believe it is the responsibility of the staff that is here now. I

think that they have done everything within their power to do the

very best job that they can do.

But we go back to an issue that was raised early in this hearing

by Stan. Even if they have done the best job, do we have enough

resources to manage internally what we have? And also, to manage

externally what we have, which is competitive sourcing?

I believe not.

Senator ALLARD. I think when you look at competitive, when you

compare the public sector versus the private sector, there is one

really distinct difference. The public sector doesn’t pay any property taxes. They do not pay local taxes. They are exempt from that.

But if you bid it out, then they pay property taxes. Property

taxes go toward supporting eduction—if it is Colorado, a big chunk

of that is education. And I do not know how you factor that in because in the way of energy saving, or by way of trying to save that,

you can just—you have your employees there, Federal employees

there who are using schools, using the facilities, but they are not

paying the property taxes to support it.

That is why we have things like PILT. But in most cases, like

the programs that you have, the PILT is not big enough to compensate and never really gets figured into the formula. In certain

areas they figure that in. I do not know how you figure that in.

Mr. JACKSON. I am not sure how you do that, either. But I might

be able to answer you this way. When I was running the utility

company, I paid a lot of taxes.

Senator ALLARD. Sure you did.

Mr. JACKSON. I mean an awful lot of taxes. I personally paid an

awful lot of taxes. I did not like paying the taxes. So, I feel that

if that is the basic reason, because they pay taxes, I think that is

important. I also think that efficiency and how we run our Government and how we can give our constituents the best service is very

important. I believe that you and I will probably agree, if we can

do it better, more efficient, at a cheaper price, we should do it. Especially in today’s era, we should do it. But if it is clear that it is

a wash, whether we do it publicly or privately, then I would say,

yes, and it can be done just as efficiently privately, to do it privately, because I do think that there are benefits.

Senator ALLARD. Thank you.

Thank you, Mr. Chairman.

Senator REED. I have one other area I would like to explore and

offer Senator Allard a chance——

Senator ALLARD. I am finished.

Senator REED. If you are finished, then I will close the hearing.

27

OMHAR was created in 1997 to bring a market approach to the

Mark-to-Market Program, the entrepreneurial skills. People who

are business-oriented rather than bureaucratically oriented, perhaps. At the request of HUD, OMHAR was put under the Office

of Housing. GAO has reported that OMHAR’s private-sector partners are seeing some significant problems due to the transition to

the Office of Housing. Specifically, these partners cite delays in

issuing guidance in the new legislative provisions, delays in completing certain restructurings, attrition in OMHAR staff, and

quoting from the GAO briefing, ‘‘indecisiveness.’’ Every decision is

contingent on approval from the Office of Housing.

Mr. Secretary, could you comment on that?

Mr. JACKSON. Again, if it is okay, I would like to defer to Mr.

Weicher to comment on that.

Mr. WEICHER. Senator Reed, we have met with Stan and his

staff on a bi-monthly basis, as you all have requested them and us

to do. We are one under the staff ceiling for OMHAR at this point.

The ceiling is 85. We have 84 on board. We brought on a director

this spring, Charles Williams, known as Hank Williams for reasons

that escape me. He doesn’t carry a guitar or anything like that.

[Laughter.]

But it is his name. We left him with the ability to make some

hiring decisions once he came on board, rather than filling every

vacancy immediately. So for a little while, we were down to 80, 79.

The deals have been going at the rate of 20 to 30 a month

through the period since OMHAR was brought within the Office of

Housing. We expect an increase because of some of the legislative

authority that you gave us at the end of the year, we expect a onetime increase to about 30 to 40 per month for the next few months.

We are continuing to do deals at a steady basis and Hank, Mr.

Williams, is very much on top of the job and getting comfortable.

Senator REED. Well, it is my understanding that OMHAR has

authorized 91 full-time workers and they have been waiting for

permission to hire up to that level, even though there is 84 on the

job now.

Mr. WEICHER. The REAP process concluded that the OMHAR’s

appropriate staffing level was 85, and as we have done elsewhere

in the Department, we operated within those staffing constraints.

Senator REED. I am told, Mr. Secretary, 91. Let’s sort this confusion out.

Mr. Czerwinski, might you comment on this since it is a GAO

briefing finding?

Mr. CZERWINSKI. Yes, Mr. Chairman. My comments are consistent with what I have said all along. The key is having oversight

of some areas that are important. And the success of OMHAR is

obviously very important.

The first step is establishing a baseline as to what everybody

agrees should be the number of deals completed by OMHAR each

month. The second should be the number of people that OMHAR

needs to make the deals happen. Once we establish what the right

number of deals is, then we can say whether the transition is working or not.

Historically, OMHAR had been running, and Secretary Weicher

can elaborate because he probably works more closely than I do

28

with this, probably at a plateau of around 30 to 40 deals per

month.

At the transition, you would probably expect to see that going

down, and it has. The question becomes, will it come back up. Will

it stay back up?

In terms of people on board, there is an allocation that HUD has.

There is also an estimate that REAP has. Those are verifiable

numbers. We just need an agreement as to what HUD will staff

that office at, and then it is up to them to do it.

Senator REED. Thank you. Actually, I have heard comments

about OMHAR and a lack of decisiveness through New England

housing people. So this is an issue, I think, not just—it might be

coincidental, but I have been hearing the same thing.

Let me conclude by thanking everyone for their very candid and

thoughtful testimony. I think this has been a very useful hearing.

Let me also say, Senator Allard asked somewhat facetiously if

you answered his question. Well, here is what I think you said visa`-vis all these reorganizations. Is that taking these quasi-independent agencies and putting them back underneath some part of

HUD raises the issue that, in fact, they have to bring bad news to

people who are responsible for the bad news and have to take corrective action. That is also difficult.

The question is whether that would inhibit REAC and the Enforcement Center from pulling their punches. Now, I think what

the Secretary said is you recognize that, explicitly recognize that.

You are watching for that and you are going to do everything you

can to prevent that from happening.

Mr. JACKSON. Yes.

Senator REED. But if it begins to happen, then I think we have

to question again the reorganization.

Mr. JACKSON. I would agree with you.

Senator REED. Is that the answer?

Mr. JACKSON. I would agree with you, Senator.

Senator REED. Thank you.

Mr. JACKSON. I would agree with you. During the realignment,

redeployment, reorganization, I had to make some decisions where

I had put one specific area under an area. Clearly, I had made a

mistake. It was my understanding that we had the authority to do

it. But it was brought to my attention that we did not. I had no

problems removing it or putting it back.

And in one area, we had the authority, but I felt just what you

just said, that it might be inhibited from doing the kind of job that

it should do, and I decided that it wasn’t the best fit.

Mr. CZERWINSKI. Mr. Chairman, I think you stated my answer

very well. What I would say is that the key to making that work

is oversight. And holding hearings just like this, where we can establish what the criteria are, what the performance levels should

be, and then seeing whether it has happened.

As I mentioned in the short statement, that is what we are here

to help you with. I would encourage you to ask our staff to go in

and keep looking and reporting back to you, and then we will have

this kind of dialogue.

Senator REED. Thank you very much.

29

Again, let me thank all of you. It is apparent, I think, from today’s hearing that we are at a critical crossroads. HUD has made

progress in management. But there are some significant challenges

ahead. The potential retirement of half the workforce, trying to get

computer systems that talk to each other, getting a budget that

supports your plans to go forward, and fundamentally, getting a

plan that clearly outlines the human capital needs, the computer

needs, and the oversight needs of the contractors.

Time is running out because the departure of retirees could be

taking place in the next few months to the next 2 years, and the

need to get on top of these programs are essential.

So, I thank you for your candid and thoughtful discussion, Mr.

Secretary, Mr. Czerwinski, and Ms. Federoff.

If Members of the Subcommittee have additional questions of the

witnesses, I will ask them to submit them no later than July 29.

And the witnesses, I would hope, could respond within 10 days to

any written questions.

Thank you again.

The hearing is adjourned.

[Whereupon, at 4:20 p.m., the hearing was adjourned.]

[Prepared statements and response to written questions follow:]

30

PREPARED STATEMENT OF SENATOR PAUL S. SARBANES

Mr. Chairman, I very much appreciate your calling this hearing. I have often said

that oversight is a crucial function of the Congress, and I think it is very important

to do a review of the agencies to make sure that they are meeting their responsibilities in an efficient and effective way.

This is particularly true in the case of HUD, which has had ongoing management

problems for many years. Having said that, I also want to note that, according to

the GAO, HUD was on a positive trajectory with regards to its management and

oversight functions. One of the things we emphasized to both Secretary Martinez

and Deputy Secretary Jackson is the need to keep that positive momentum going.

I think it is appropriate, now that the new leadership has been in place at HUD

for over a year, to assess exactly what direction things are moving.

Let me start by just making a few observations. HUD provides a broad array of

services to millions of Americans, from rental assistance, to economic development

opportunities, to capacity building for nonprofits, to mortgage insurance for homeowners. We ask HUD to do a lot, but we provide it with far too few resources. We

need to work together to make sure that HUD is making the best use of the resources it does get; once we accomplish that, it will become easier to advocate for

more funds going forward.

For that reason, it is very important to keep an open dialogue among the Department, its employees, and the Committee. Unfortunately, that has not always been

the case. For example, I was concerned that the Committee found out about HUD’s

reorganization plan late last year from outside parties. Even after finding out about

it, the Department was slow in briefing our staff on the new plans.

I am also concerned about the resistance from the Department with regards to

meeting requests for information from the General Accounting Office. The Committee’s oversight role is a serious responsibility; the GAO is our partner in this job.

HUD must be cooperative in providing information as needed. I hope that the GAO

witness, Mr. Czerwinski, will address this very important issue.

Mr. Chairman, there are two other issues I want to raise briefly. We have to make

sure that all the old Intermediary and Outreach Technical Assistance Grants (ITAG

and OTAG) owed to small nonprofits working with residents around the country are

paid. We were assured by the Secretary in February that these would be paid once

it was determined that no Anti-Deficiency Act violation occurred. In fact, there was

no violation, but, as of late last week, not all payments had been made.

In addition, the Department should get the program up and running again. The

OTAG and ITAG programs are important tools in helping assisted housing residents

get organized to participate in the restructuring or purchase of their projects. Without this technical assistance money, residents will not be able to play the role

forseen for them by the Congress.

Finally, Mr. Chairman, I want to emphasize the importance of getting the Office

of Multifamily Housing Assistance Restructuring (OMHAR) fully staffed up. This

Committee moved in an expeditious fashion to pass legislation to ensure that

OMHAR and the Mark-to-Market Program would be reauthorized, in no small part

because the GAO testified about the importance of maintaining the good staff that

has been put together. We also agreed to put the Office under the supervision of

the Assistant Secretary of Housing. However, we maintained its distinctive and

somewhat independent character and authority in order to make sure that it could

continue to do its work. I am concerned that the OMHAR is being stifled in its

efforts to use its flexibility to retain and hire staff, and to get its work done in a

timely manner.

Once again, Mr. Chairman, thank you for holding this hearing. I look forward to

working with you and the leadership at HUD in ensuring that the Department continues to improve its management, and the delivery of its services.

—————

PREPARED STATEMENT OF ALPHONSO JACKSON

DEPUTY SECRETARY & CHIEF OPERATING OFFICER

U.S. DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT

JULY 24, 2002

Chairman Reed, Ranking Minority Member Allard, and Subcommittee Members,

I thank you for the opportunity to appear before you today to discuss HUD’s staffing, acquisition management, and information systems challenges. I am happy to

31

provide you with an update of the substantial progress our Administration is making to address these challenges.

Under the leadership of Secretary Martinez, the first year of our new Administration was largely devoted to getting our management team in place, assessing HUD’s

management environment, and formulating viable strategies and plans to address

the major management challenges and program risks still facing the Department.

In formulating our strategies and plans, we strongly considered the input on HUD’s

management challenges and program risks from the U.S. General Accounting Office

(GAO) and the HUD Office of Inspector General.

I believe our management team and the GAO share a common view that improvements to HUD’s management of its human capital, acquisitions, and information

systems are essential to addressing HUD’s remaining high-risk program areas—the

Multifamily Rental Housing Assistance and Single-Family Housing Mortgage Insurance Program areas—and to maintaining adequate controls over other program activities previously considered high-risk.

The inclusion of our management challenges and program risks in the President’s

Management Agenda is indicative of the importance placed on these issues. As part

of GAO’s Biennial Performance and Accountability and High-Risk Series Review for

2003, HUD already has provided the GAO with several reports that highlight our

progress in addressing our management challenges, including our implementation

of the President’s Management Agenda. We welcome the GAO’s independent assessment, and I am confident that they will see that we are moving in the right direction to address our management challenges, reduce our program risk, and improve

our program performance.

Human Capital Management

Human capital is HUD’s most important asset. We have taken significant steps

to enhance and better utilize our existing staff capacity, and to obtain, develop, and

maintain the staff capacity necessary to adequately support HUD’s future program

delivery.

Effective human capital management is the purview of all HUD managers and

program areas. We view our human capital management challenges as consisting

of: (1) The need for strategic Human Capital Planning to link and align our staffing

with our mission, goals, and organizational objectives. (2) Staff shortages and skill

gaps as a result of downsizing initiatives during the 1990’s. (3) A maturing workforce with about half of the workforce eligible for retirement over the next 5 years.

(4) The need for increased use of technology to support organizational improvements

and accomplishment of goals and objectives.

To meet these challenges, we have taken or we have planned a number of significant actions.

Management and Staffing Realignments

The first issue I would like to address is the realignment of management and

staffing that the Department already has undertaken.

HUD’s June 1997 management reform plans were intended to realign the Department along functional lines, with the separation of outreach from program administration, and the placement of greater reliance on automated tools, processing centers

and contracted services. These planned reforms were intended to enable the Department to better utilize a reduced staffing capacity to more efficiently and effectively

deliver and oversee HUD’s major program activities.

We found that the planned organizational and operational changes were implemented with varying degrees of success. Some of the intended organizational and

process changes were never formally institutionalized with the need for delegations

of authority and the issuance of current written policies and procedures to support

staff training and ongoing operations. In addition, some of the 1997 organizational

and staffing realignments have proven to be an ineffective use of HUD’s human capital.

As a result, decisions were made and actions taken to pursue separate realignments of headquarters and field activities to better use our existing resources. At

headquarters, we reduced the reporting relationships with the Secretary by 40 percent, including the following actions:

• The Departmental Enforcement Center (DEC) was placed under the direction of

the General Counsel to consolidate our legal resources in support of a strong program enforcement effort. HUD’s program enforcement efforts were previously

under the Office of General Counsel prior to the creation of a separate DEC.

• The Real Estate Assessment Center (REAC) was placed under the direction of the

Assistant Secretary for Public and Indian Housing (PIH), in order to improve

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REAC’s working relationships with program staff and program partners and

strengthen accountability for resource use and results.

• The Office of the Chief Procurement Officer (OCPO) and Office of the Chief Information Officer (OCIO) were placed under the direction of the Assistant Secretary

for Administration/Chief Information Officer, to streamline HUD’s organizational

structure and improve service delivery to HUD’s program and administrative components. The former CIO is now HUD’s Chief Technology Officer.

• The Office of Field Policy and Management (FPM) was established as an independent office reporting to the Deputy Secretary, with responsibility for oversight

of HUD’s field management and assistance to program Assistant Secretaries in

meeting program goals at the field office level.

Our field office realignment and redeployment efforts included the following:

• Substantial numbers of staff in the outreach function were redeployed to understaffed program delivery and oversight functions, where there is a critical need.

• New regional management positions were created to give HUD’s field operations

greater operational control over the administrative budget resources they need to

pursue their operating and program goals, and to strengthen the local focus on

workload management to meet national performance goals.

• All program decisions continue to be exercised by program directors and managers

under the direction of their respective program Assistant Secretary.

We have formalized our realigned structure, with publication of delegations of

authority in the Federal Register, and are providing current operating policies and

procedures to support staff training and on-going operations. These adjustments to

HUD’s operating structure will enable us to more efficiently and effectively utilize

our available resources to strengthen our program delivery and oversight.

Human Capital Strategic Management Plan

A Human Capital Strategic Management Plan was developed in February 2002

to provide an overall framework for our human capital activities. An important part

of this plan is our Senior Executive Steering Committee, chaired by the Assistant

Secretary for Administration, which is currently developing a 5-year plan to focus

on: (1) staffing requirements; (2) organizational de-layering; (3) supervisor to employee ratios; and (4) front-line service delivery. This Committee also will make recommendations regarding the need for new or revised policy guidance to support the

Department’s new human capital strategies.

Staffing Needs and Allocation of Resources

HUD’s past management of its human capital was hampered by the lack of a system or process for estimating and justifying its staffing resource needs, and allocating the staffing resources available. In 2001, HUD completed the implementation

of a new Resource Estimation and Allocation Process (REAP), with input from all

of HUD’s managers. The REAP was developed in conjunction with the National

Academy of Public Administration.

The baseline outputs of the REAP were used to assist in making decisions on redeploying HUD’s existing staff resources to address priority program staffing needs

in the field. The deployment of resources in the prior Administration left us understaffed to perform critical program delivery and oversight functions, while too many

staff were devoted to outreach efforts. REAP was useful in helping to identify the

critical staff shortages.

We are now in the process of completing the first quarterly validation of the

REAP staffing estimates through an assessment of actual staff time reporting via

the implementation of the companion process to the REAP, the Total Estimation

and Allocation Mechanism (TEAM). REAP and TEAM information will help HUD’s

management determine our staffing level request to Congress as part of our fiscal

year 2004 budget.

Our fiscal year 2003 budget submission did not request the full staffing levels

supported by the REAP for several reasons. First, we wanted to allow time for HUD

managers to complete the initial TEAM validation process and to further analyze

REAP and TEAM data. TEAM was not in place when the fiscal year 2003 budget

was submitted to the Congress. It has since been completed and is operational. Second, although the REAP methodology supported a significant increase in staffing requirements (with a total level of 10,600 FTE’s), it was not realistic to assume that

the Department could implement that amount of an increase at the same time that

the redeployment of existing staff was also taking place. Now that our redeployment

of existing staff is completed, we have turned our attention to expediting our hiring

and orientation processes to assure that we can fully utilize the staffing ceilings

already approved by the Congress. This is the highest priority for our new Assistant

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Secretary for Administration and Director of Personnel, who were just recently

added to our management team.

Succession Planning

HUD has developed a Departmental Succession Planning Strategy, which includes

procedures for workforce analyses. As a part of the Department’s Succession Planning Strategy, we examined the top nineteen occupations in the Department in relation to continued need and potential retirements over a 5-year period. An assessment was further conducted in relation to HUD’s four core program disciplines—in

the Office of Housing, Office of Public and Indian Housing, Office of Community

Planning and Development, and Office of Fair Housing and Equal Opportunity—to

assess the impact of potential losses over the 5-year period, and resulting skills

imbalances. However, critical staffing needs exist throughout HUD’s programs and

the focus will be on the entire Department. The Presidential Management Intern

Program (PMI), the new HUD Intern Program, the Legal Honors Program, and the

SES Candidate Development Program (SES CDP) are being utilized to establish a

pipeline of well-qualified employees to meet staffing needs and anticipated skills

shortages.

Training and Development

Training and development of HUD employees is a Departmental priority. The

HUD Training Academy has been enhanced and energized to move forward with a

new vision for the Department’s training program, which is focused on investing in

the power and potential of HUD employees. Agency specific technical training and

career advancement training are readily available to all employees. Several other

initiatives are in place to build a new HUD culture, focused on the value of training

and continuous professional development. For example:

• The new ‘‘HUD Leadership and Management Curricula’’ was launched in April

2002, and features 38 courses, which provide a comprehensive training program

for supervisors, managers, and executive leaders.

• The ‘‘Operation Brain Trust Initiative’’ was launched in December 2001 to utilize

HUD’s subject matter experts as ‘‘Professors’’ to develop the supervisors, managers, and professionals of tomorrow through the experience of HUD’s leaders

today.

• The ‘‘HUD Virtual University’’ is a new ‘‘e-learning’’ initiative that provides on demand training, 24 hours a day—7 days a week—365 days a year, with access to

online technical coaches and experts for a curriculum that includes 1,600 webbased courses available at the desktop of every HUD employee.

HUD’s Program Assistant Secretaries have also been focused on the provision of

updated program handbooks, guidance and training for HUD’s monitoring staff

and program intermediaries. These are further examples of our commitment to

developing and to maintaining a competent HUD workforce and program delivery

structure.

Technology Support

The Department is acquiring an integrated human resources and training system

entitled the HUD Integrated Human Resources and Training System (HIHRTS).

HIHRTS replaces 17 existing systems and will support workforce planning, succession planning, forecasting, and identification of staff competencies.

Performance Management

HUD had already been recognized for its progress in linking and aligning its staffing with its mission, goals, and organizational objectives, and we have continued

and enhanced that process. Those linkages are made in HUD’s Budget Submissions

and Annual Performance Plans. We further use a management planning process

that links field office and headquarters operating goals and other performance goals

with the Department’s strategic goals and objectives under the Government Performance and Results Act. It is important that HUD’s managers and staff know

their contributions to HUD’s mission objectives, and are held accountable for that

performance. We assess progress against our Management Plan goals quarterly, and

annual accomplishments are factored into staff performance evaluations and

awards.

Acquisitions Management

HUD is heavily reliant on contracted services in support of its current operations.

HUD’s contracted services go well beyond facilities maintenance and other routine

services to many core program functions. Given the extent and the significance of

HUD’s contracted services, HUD’s acquisition management challenges consist of: (1)

34

Assuring that our contract funding goes toward meeting our priority needs in a

cost-effective manner. (2) Committing sufficient business area expertise to develop

adequate statements of work to govern contractor performance. (3) Maintaining a

sufficient procurement capacity to timely process quality procurement actions. (4)

Providing adequate oversight of contractor compliance and performance.

Our actions to address these acquisition management challenges include the following:

• Contract Management Review Board—The Department has reestablished a seniorlevel Contract Management Review Board (CMRB) to review and approve annual

procurement plans for each HUD component, and to approve all contract actions

over $500,000. The CMRB helps to assure that HUD’s contract resources are used

to address the Department’s priority service needs. The CMRB also ensures the

acquisition strategy is based on competition, is performance-based to the greatest

extent practicable, and treats small businesses fairly and gives them a chance to

compete.

• Integrated Program Teams—The Department is increasing the use of Integrated

Program Teams (IPT’s) to improve the quality and timeliness of procurement actions. IPT’s are groups of management, technical, and contracting experts assembled to accomplish a mission-critical procurement objective. HUD uses IPT’s to

plan the acquisition strategy, establish the contracting milestones, develop the

statement of work, manage the contracting process through contract award, and

monitor the contractor’s performance.

• Performance-Based Contracts—One of the President’s management objectives is to

increase the use of performance-based service contracts to 20 percent of service

contract awards in fiscal year 2002. HUD is fostering a partnership between its

contracting and program personnel to increase the use of performance-based service contracts, and is providing classroom and ‘‘just-in-time’’ training on the development of performance-based statements of work. In addition, the Department

has established an IPT—consisting of information technology (IT), program, and

contracting staff—to convert existing IT systems development and maintenance

contracts to performance-based. These efforts are beginning to show results: As

of June 30, 2002, 16 percent of new service contracts were performance-based.

• Small Business Utilization—The Secretary and I recognize that small businesses

are vitally important to job growth and the economic strength of the country. The

Secretary has challenged HUD to award 50 percent of its contract dollars to small

businesses. To achieve this demanding goal, the Department sponsors small business fairs and other outreach programs to publicize HUD’s contracting and subcontracting opportunities. Through these and other efforts, the Department is well

on its way to achieving this goal. As of June 30, 41 percent of fiscal year 2002

contract dollars have been awarded to small businesses, and I am particularly

pleased that women-owned small businesses have accounted for 21 percent of the

Department’s total fiscal year 2002 awards—far surpassing the 5 percent goal established by Congress.

• Other Acquisition Improvement Efforts—HUD has hired a new Chief Procurement

Officer to lead our acquisition improvement efforts. We have also approved a 50

percent increase in staff resources devoted to contract award and administration

and increased training and development of the acquisition workforce as required

by the Clinger-Cohen Act.

These changes are collectively expected to improve both customer service and contractor performance and to reduce the Department’s overall cost of operation.

Information Systems Management

Adequate automated information systems are essential to the effective administration of HUD’s large, diverse, and complex program universe. However, we recognize that HUD has antiquated systems that are poorly integrated, inefficient, and

inadequate for meeting many essential program management information needs.

Most of HUD’s systems support is provided through contracted services.

HUD’s major information systems challenges are to: (1) Properly prioritize Information Technology (IT) capital investments to meet HUD’s most critical business

needs. (2) Adequately plan systems development to assure effective systems integration and operation. (3) Provide sufficient business area support for the systems

development efforts. (4) Improve contractor performance and HUD’s systems project

management. (5) Maintain a secure systems environment.

Our efforts to address these challenges include the following:

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IT Capital Investment Planning

We have continued to refine and institutionalize HUD’s IT Investment Management (ITIM) Process. Efforts were taken to seamlessly integrate HUD’s ITIM, or IT

capital planning process, with HUD’s Enterprise Architecture (EA) and e-Government directives from the Office of Management and Budget, to better assure efficient resource use and effective business results. The IT capital planning process

was enhanced to incorporate an EA assessment of proposed projects during the selection of IT projects for upcoming fiscal years. The scoring of initiatives is linked

to HUD’s e-Government Strategic Plan, the President’s Management Agenda, material weakness and high-risk issues, and other Departmental priorities.

HUD is also pursuing a performance-based, outcome-oriented infrastructure contract called HUD IT Services (HITS) that is expected to provide improved services

and innovative solutions. Award is currently scheduled for November 2002. The

selected HITS vendor will partner with HUD to specify, design, acquire, maintain,

and support the IT infrastructure, ensuring that enterprise architecture considerations, standards, and policies are followed.

Enterprise Architecture

HUD’s Enterprise Architecture (EA) initiative is designed to provide Departmentwide documentation of HUD’s current business and technology systems architecture

baseline, as a basis for both better managing HUD’s current information systems

and better meeting future information systems needs. HUD has recently completed

a refreshment of the baseline EA in the Enterprise Architecture Management System. The EA team is completing work on the significant Single-Family Housing

segment of the target architecture for future systems development in this high-risk

program area.

Project Management

We have taken actions to improve IT systems project management and correct

past problems of projects not being completed on time, cost overruns, and unlimited

project scope. Through the IT capital planning process, HUD conducts quarterly control reviews of every IT project, requiring projects with significant cost or schedule

variances to develop recovery plans to get back on track. HUD also provided IT Investment and Project Management training to over 100 IT project managers and

plans to offer this training as an online course later this year. HUD instituted

project management reviews at the highest levels to focus executive attention on

projects needing direction. As previously discussed, IPT’s or Integrated Procurement

Teams were created to manage and implement the transition of IT support contracts

to performance-based contracts.

Systems Security

We established HUD’s Enterprise Security Program to provide protection for

HUD’s critical infrastructure, both physical and information systems. This entails

developing and implementing effective security procedures, security awareness and

training, disaster recovery/contingency planning, and monitoring compliance and

effectiveness of security procedures, policies and standards. Significant accomplishments have been made. The HUD Office of Inspector General’s audit of HUD’s fiscal

year 2001 Consolidated Financial Statements recognized both substantial control

improvements in HUD’s mainframe-computing environment, and considerable

strides to improve software configuration management for both mainframe and

LAN-based client/server applications. OCIO is responding to the Government Information Security Reform Act through security self assessments, developing and reporting on an overall HUD security plan, and providing a strategic Five-Year Plan

for Security.

As you can see, our efforts to meet HUD’s human capital, acquisitions, and systems challenges have been extensive. Our efforts to better manage our staffing,

acquisitions, and information systems have a direct relationship to the excellent

progress we are making in addressing HUD’s two remaining high-risk program

areas—our Multifamily Rental Housing Assistance and Single-Family Housing

Mortgage Insurance Program areas. We welcome the pending independent assessment of our progress through the GAO’s biennial Government-wide review of major

management challenges and high-risk programs.

That concludes my testimony. I look forward to working with you to address the

continuing management challenges facing HUD, and I thank you for your on-going

support of the Department.

36

1 U.S. General Accounting Office, Major Management Challenges and Program Risks: Department of Housing and Urban Development, GAO–01–248 (Washington, DC: January 2001). 2 U.S. General Accounting Office, HUD Human Capital Management: Comprehensive Strategic

Workforce Planning Needed, GAO–02–839 (Washington, DC: July 24, 2002).

PREPARED STATEMENT OF STANLEY J. CZERWINSKI

DIRECTOR, PHYSICAL INFRASTRUCTURE

U.S. GENERAL ACCOUNTING OFFICE

JULY 24, 2002

Mr. Chairman and Members of the Subcommittee: We are pleased to be here

today to discuss the high-risk program areas and management challenges facing the

Department of Housing and Urban Development (HUD). HUD’s programs affect the

lives of millions of Americans. HUD makes housing more affordable for about 4.8

million low-income households by insuring loans for owners of multifamily rental

housing and providing rental assistance. It helps to revitalize America’s communities by assisting over 4,000 localities through its community development programs. It encourages homeownership by providing mortgage insurance for about 7

million homeowners who otherwise might not have been able to qualify for their

loans—managing about $500 billion in insured mortgages and $604 billion in guarantees of mortgage-backed securities. To accomplish its missions, HUD relies on the

performance and the integrity of thousands of mortgage lenders, contractors, property owners, public housing agencies, communities, and others to administer its

programs. Effective oversight and strong management are critical to ensure that

HUD’s reliance on these third parties results in the effective and efficient stewardship of Federal funds and the accomplishment of the Department’s mission and program goals.

For many years, HUD has been the subject of criticism for management and oversight weaknesses that have made its programs vulnerable to fraud, waste, abuse,

and mismanagement. In 1997, HUD undertook the 2020 Management Reform Plan,

a complex and wide-ranging effort designed to, among other things, refocus HUD’s

mission, strengthen accountability, and eliminate fraud, waste, abuse, and mismanagement from its programs. In January 2001, we recognized the credible progress

that HUD had made in improving its management and operations, and we reduced

the number of HUD program areas deemed to be high-risk to two of its major program areas—Single-Family Mortgage Insurance and Multifamily Rental Housing

Assistance.1 These program areas comprise about two-thirds of HUD’s budget. The

current Administration has placed improving HUD’s management among its highest

priorities and has set a goal to remove the high-risk designation from all HUD programs by 2005. This is therefore an appropriate time to review HUD’s progress

toward addressing these high-risk program areas and the challenges it faces in sustaining the progress that has been made as HUD moves toward its goal to become

a high performing Agency that provides quality service to its customers.

My testimony today discusses the major management challenges we see facing

HUD, as well as the progress HUD has made over the past few years addressing

its challenges, and the steps it is continuing to take to address them. First, my testimony discusses the challenges HUD faces improving accountability and control over

its high-risk program areas. Second, it addresses the challenges that HUD faces

that cut across all its program areas—especially its efforts to improve accountability

and control over its high-risk program areas—in the areas of: (1) managing human

capital, (2) managing acquisitions, and (3) improving programmatic and financial

management information systems. My testimony today draws on a body of work, including recent reports we have issued on various HUD programs, our work on

HUD’s Human Capital Management that is being released today at this hearing,2

our assessment of HUD’s strategic and performance plans, and a series of assignments we have ongoing at the request of this Subcommittee. It also draws on work

we have done on management reform initiatives and performance-based organizations across both the Federal and private sectors. In summary:

• HUD’s Single-Family Mortgage Insurance and its Multifamily Rental Housing Assistance Program areas are at high-risk of waste, fraud, abuse, and mismanagement. In January 2001, we reported that, while HUD had made credible progress

addressing its management deficiencies, significant weaknesses in these two program areas remained—areas comprising about two-thirds of the Department’s

budget. To correct weaknesses in its Single-Family Mortgage Insurance Programs,

we reported that HUD needed to improve, among other things, its oversight of

lenders and appraisers. To ensure the integrity of its Multifamily Rental Housing

Assistance Programs, HUD needed to take actions, including ensuring that proVerDate 11-MAY-2000 08:48 Nov 25, 2003 Jkt 000000 PO 00000 Frm 00040 Fmt 6621 Sfmt 6621 90605.TXT SBANK4 PsN: SBANK4
37

viders of rental housing maintain housing that is in decent, safe, and sanitary

condition. The President’s Management Agenda contains initiatives to address

these and other weaknesses; and HUD has developed plans, including goals and

timetables, for taking action on them. In addition to our ongoing reviews of HUD’s

programs, we plan to review these plans and monitor HUD’s progress in the

months ahead. We will report on the results of our review in January 2003, when

we will assess HUD’s progress as part of our Performance and Accountability and

High-Risk Series update.

• Human Capital Management—and the need for a strategic approach to managing

HUD’s staff—is the most pressing crosscutting management challenge facing

HUD. HUD downsized its staff from about 13,500 to 9,000 over the last decade,

and its human capital challenges are exacerbated by demographics that suggest

that by August 2003, about half of its professional workforce will be eligible to

retire. HUD has begun the initial stages of workforce planning; it has completed

its resource estimation and allocation process, which estimates the staff needed

to handle the current workload in each office, and a detailed analysis of HUD’s

potential staff losses due to retirement. However, the Department does not have

a comprehensive workforce plan. Elements that we have reported are necessary

for comprehensive workforce planning—but are missing from HUD’s workforce

planning—include, among other things, an analysis of what work its staff should

be doing; the knowledge, skills, and abilities needed by the staff to do this work;

the appropriate staff deployment across the organization, and the strategies for

identifying and filling gaps. Without more comprehensive workforce planning,

HUD is not as prepared as it could be to recruit and to hire staff needed to pursue

its mission.

• Effective acquisition management is of increasing importance because, as HUD

downsized its staff, it relied more and more on outside contractors to accomplish

its mission. Over a 4-year period HUD’s spending on outside contracting increased

about 62 percent, and HUD officials have estimated that the total number of contractor staff assisting in delivering HUD services may nearly equal its own. HUD

has made progress in the past few years improving its acquisition management

practices; but it faces the challenge of ensuring that, where it relies on contractors

to perform its mission, it will hold these contractors accountable for results. Successfully meeting that challenge affects the successful delivery of HUD’s programs, the effective deployment of its staff, and its ability to ensure the integrity

of its Single-Family and Multifamily Rental Housing Assistance Programs. Holding the contractors accountable for results requires processes and practices in

place to effectively monitor contractors’ performance, an acquisition workforce

with the right workload, training, and tools to carry out its mission, and programmatic and financial management information systems that support HUD’s

efforts to ensure accountability in its acquisitions.

• Responsive programmatic and financial management information systems are

critical to HUD’s ability to meet its mission, deliver key services, and establish

sufficient management control over its programs and operations. Concerns about

the weaknesses in HUD’s programmatic and financial management information

systems are not new—we first reported some of HUD’s current problems in

1984—and our recent work shows that these weaknesses continue to adversely

impact the Department’s ability to monitor and effectively ensure the integrity of

its Single-Family Mortgage Insurance and Multifamily Rental Assistance Programs. For example, to oversee lenders in HUD’s Single-Family Mortgage Insurance Program, staff at the Department’s Homeownership Centers must collect and

manually compile information from multiple systems to target high-risk lenders—

increasing the likelihood that problems will go unnoticed. In addition, concerns

about the ability of HUD’s financial management systems to effectively support

the timely preparation and audit of the Department’s annual financial statements

are long-standing; and as of today, HUD is still in the early stages of developing

a plan for resolving them. Accordingly, developing a plan to substantially improve

programmatic and financial management information systems to meet the Department’s needs and comply with Federal financial system requirements is crucial to

HUD’s efforts to successfully address its high-risk program areas.

HUD’s High-Risk Areas: The Single-Family Mortgage Insurance and

Multifamily Rental Housing Assistance Programs

HUD’s Single-Family Mortgage Insurance and its Multifamily Rental Housing Assistance Program areas, comprising nearly two-thirds of the Department’s budget,

38

3GAO–01–248.

4 U.S. General Accounting Office, HUD Multifamily Housing: Improved Follow-up Needed to

Ensure That Physical Problems Are Corrected, GAO–01–668 (Washington, DC: June 21, 2001). 5 U.S. General Accounting Office, HUD Management: Progress Made on Management Reforms,

but Challenges Remain, GAO–02–45 (Washington, DC: October 31, 2001).

are at high-risk of waste, fraud, abuse, and mismanagement.3 In January 2001, we

reported that, various factors, including a strong economy, had resulted in the accumulation of capital reserves of about $16.6 billion on HUD’s Federal Housing Administration (FHA)-insured home loans. However, we also reported that the FHA

lost about $1.9 billion during fiscal year 2000 on the sale of foreclosed homes that

it had insured. In addition, we found other problems with HUD’s management of

its single-family program. For example, HUD was experiencing significant problems

with the performance of contractors responsible for maintaining and selling the single-family properties HUD acquires through foreclosure. We found most of these

contractors had trouble securing and maintaining properties in proper condition—

and HUD eventually terminated the contractor responsible for about 40 percent of

the properties. If HUD’s acquired properties are not properly secured and maintained, they can contribute to a neighborhood’s decay, particularly as they age.

Overall, we identified several opportunities wherein HUD could strengthen FHA’s

Single-Family Mortgage Insurance Program, including strengthening the integrity of

the single-family loan origination process, promoting better monitoring of lenders,

appraisers, and contractors, and implementing effective human capital policies to

ensure that sufficient staff with the right skills are available to carry out the FHA’s

mission.

For HUD’s Multifamily Rental Housing Assistance Programs, we noted that HUD

continued to face challenges in ensuring that only eligible families occupy housing

units; that those families are paying the correct rents; and that providers of rental

housing maintain housing that is in decent, safe, and sanitary condition. More recently, we have reported that HUD’s field offices frequently did not follow the Department’s procedures for ensuring that owners of HUD-assisted multifamily properties are correcting physical deficiencies identified in inspections by HUD’s Real

Estate Assessment Center (REAC). Our analysis focused on approximately 500 properties that REAC determined were in substandard condition and that HUD’s field

offices subsequently classified as repaired. On the basis of our site visits to a sample

of these properties, we estimated that for about half of the properties covered by

our analysis, at least 25 percent of the deficiencies that REAC classified as ‘‘major’’

or ‘‘severe’’ had not been corrected. This problem occurred because HUD staff were

classifying the properties as repaired, without obtaining required repair plans and

certifications of repairs from the owners and because some owners and managers

reported completing repairs that had not been made.4

Overall, our January 2001 report concluded that, to address this high-risk area,

HUD must continue its efforts to develop adequate information systems that ensure

that: (1) correct rental housing subsidies are paid and (2) complete actions on our

recommendations aimed at improving the quality of contractors’ physical inspections

of the condition of public and multifamily housing.

HUD has been addressing its high-risk challenges and the recommendations of

our earlier reports. HUD’s 2020 Management Reform Plan has resulted in major

changes throughout the Department as it worked to resolve its management challenges. In reviewing the progress of the plan in October 2001, we noted that some

of HUD’s initiatives were achieved relatively quickly and are producing results.5 For

example, the consolidation of some of its oversight and processing functions into

several new centers—as part of HUD’s efforts to consolidate and streamline its operations—had perhaps been the most successful. The new REAC enabled HUD to complete the first physical and financial assessments of its assisted housing inventory,

while HUD reported that the creation of its Departmental Enforcement Center resulted in the restoration of 41,344 housing units to decent, safe, and sanitary conditions in fiscal year 2000, compared with 968 in fiscal year 1999. Other efforts to

improve the efficiency of HUD’s operations and improving accountability, met with

more limited success, and were hampered by inefficient distribution of staff and

of workload, a lack of resources for program monitoring, problems with contractor

performance and its oversight of contractors, and weaknesses in programmatic and

financial management information systems.

The current Administration took office in January 2001, saying it was dedicated

to maintaining HUD’s progress, and placing improved management among the Department’s highest priorities. Eighteen months ago, Secretary Martinez came before

this Committee and said:

39

6 HUD’s 2020 Management Reform Plan created several new centers to consolidate, among

other things, HUD’s single-family mortgage insurance activities, Section 8 program financial

management support, and the processing, reviewing, and awarding of categorical and formula

grants for the Office of Public and Indian Housing. These centers were discussed in greater

detail in our October 2001 report.

‘‘My first priority will be for HUD to continue to put its own house in

order, so we have the institutional fortitude to provide the housing and

community renewal opportunities needed by so many families and so many

neighborhoods. The Department of Housing and Urban Development must

be healthy itself, if we are to deal with the challenges before us. And while

former HUD Secretaries Kemp, Cisneros, and Cuomo have built a foundation for strength, there are a great many areas of institutional weakness

that must be addressed. GAO and the HUD Office of Inspector General

have identified similar program and management areas needing the most

improvement, including: The Federal Housing Administration’s single-family mortgage insurance risk; the impact and continuing evolution of HUD’s

2020 management reform effort; and the failure to integrate financial and

information systems.’’

According to HUD’s most recent performance plan, the Department is using our

reports and those of its Inspector General as a ‘‘roadmap’’ for making management

improvements. In August 2001, the Administration unveiled the President’s Management Agenda, including a set of HUD-specific initiatives to strengthen management of HUD’s programs by, among other things, improving FHA’s management of

risks throughout the mortgage insurance process, improving the performance of

public housing agencies and providers of multifamily housing, and reducing overpaid rent subsidies. The plan contained specific goals and timetables to, for example,

eliminate most if not all fraud in the appraisal process, increase the percentage

of HUD-assisted public housing units meeting physical standards, and reduce overpayment of rent subsidies by at least one-half. The plan also establishes a goal of

removing our high-risk designation from all HUD programs by 2005.

To further its efforts to improve its management, HUD also recently undertook

a series of organizational realignments. According to HUD, these efforts are designed to streamline its organization, establish clear lines of responsibility and reporting, and more effectively administer its programs. One of the more prominent

realignments involved moving HUD’s REAC, responsible for physical and financial

inspections of public housing and assisted multifamily properties. The REAC, which

formerly reported to the Deputy Secretary, now reports to the Assistant Secretary

for Public and Indian Housing. In addition, the Department’s Enforcement Center,

which formerly reported to the Deputy Secretary, now reports to HUD’s General

Counsel. Similarly, the Chief Procurement Officer, which formerly reported to the

Deputy Secretary, now reports to the Assistant Secretary for Administration. In

addition, Regional Directors in the field have been given additional discretion to

redeploy staff to address workload imbalances. According to HUD officials, to more

effectively administer HUD’s programs, other centers and offices are being studied

for elimination or consolidation.

As I discussed earlier, clearly the creation of the REAC and the Enforcement Center, to name two, were positive developments that yielded real results.6 And it is

worth noting that at the time HUD established these centers, it did so because it

believed that the Office of Public and Indian Housing and the Office of Housing—

the offices within HUD that were originally responsible for these activities—were

not effectively carrying out these functions. The Secretary, as the leader of his organization, has the prerogative to align the organization as he sees fit, consistent with

his vision and management style. But it is important that the progress made to date

not be jeopardized. For example, regardless of how REAC is aligned, HUD must continue to make progress improving the physical condition of public and assisted multifamily housing properties. Ultimately the success or failure of any organizational

decision will be viewed in that light.

We are now beginning to address these realignment issues as we assess the

progress HUD and other Federal Agencies have made as part our Performance and

Accountability and High-Risk Series. In making our determination of high-risk at

HUD and other Federal agencies, we will consider the corrective measures that

agencies have planned or have underway to resolve their management challenges,

as well as the status and effectiveness of these actions. Some of the key factors we

will consider in making our high-risk determination at HUD include the extent to

which HUD has demonstrated commitment to resolving its management deficiencies, strengthened controls to address its management deficiencies, proposed

appropriate corrective action plans for its remaining management challenges, impleVerDate 11-MAY-2000 08:48 Nov 25, 2003 Jkt 000000 PO 00000 Frm 00043 Fmt 6621 Sfmt 6621 90605.TXT SBANK4 PsN: SBANK4
40

7GAO–02–45.

mented effective solutions that will be substantially completed in the near term, and

implemented solutions that get to the root cause of its management deficiencies.

We will review the current status of HUD’s Single-Family Mortgage Insurance

and its Multifamily Rental Housing Assistance Program areas and the actions taken

to address weaknesses. At that time, the Agency must have demonstrated concrete

results, with a clear path toward addressing any remaining problems. To conduct

our assessment of high-risk, we will review, among other things, HUD’s strategic

plans, annual performance plans and reports, accountability reports, and audited financial statements. This information will be supplemented by relevant GAO reports,

Inspector General reports, and other independent analysis. Finally, the ultimate determination will be based on the independent and objective judgment of GAO analysts.

HUD Faces Crosscutting Management Challenges

As HUD works to improve accountability and control over its high-risk program

areas, it will find that it faces several issues that cut across its efforts to improve

its programs. I would like to turn now to these management challenges and discuss

with you, HUD’s progress and challenges in the areas of: (1) human capital management, (2) acquisition management, and (3) programmatic and financial management

information systems. Successfully addressing these challenges will help determine

whether HUD can sustain the progress of its management reform efforts, address

its high-risk program areas, and make progress toward its goal of becoming a highperforming organization.

Human Capital Is The Most Pressing Management Challenge Facing HUD

Human capital permeates virtually every effort to improve HUD’s programs, including its ability to oversee the performance of housing authorities and property

owners, acquire needed systems, and successfully execute and monitor contracts. Insufficient staffing and inefficient distribution of workload affects HUD’s ability to

operate efficiently and ensure the accountability of its programs. It increases HUD’s

need to hire contractors to perform activities and affects its ability to oversee contractors and hold them accountable for performance. HUD has the opportunity to

develop a strategic human capital management approach to ensure that the Department has the right staff in the right numbers with the right skills in the right

places and that HUD can continue to meet its mission and goals in the future as

large numbers of experienced employees retire. As we have previously reported,7 a

comprehensive workforce plan should be linked to the accomplishment of an

Agency’s mission and include the following elements:

• The kind of work its staff should be doing now and in the future.

• The knowledge, skills, and abilities needed by staff to do this work.

• The capabilities and developmental needs of the current staff.

• The appropriate staff deployment across the organization.

• Any gaps that exist in knowledge, skills, and abilities.

• An approach for filling the gaps in the knowledge, skills, and abilities of staff

through recruiting and hiring.

While HUD has begun to do workforce planning by identifying the resources required to do its current work, the Department does not have a comprehensive workforce plan. HUD’s most significant workforce planning activity to date has been its

Resource Estimation Allocation Process (REAP). The purpose of REAP was to systematically estimate the number of employees HUD needs to do its work based on

its current workload and operations and HUD used the results to estimate staffing

level ceilings for the Department’s fiscal year 2003 proposed budget. HUD’s workforce planning effort is currently focused on responding to major human capital deficiencies that the Office of Management and Budget identified in a 2001 evaluation

conducted as part of the President’s Management Agenda. This effort is focused on

specific initiatives, such as reducing the number of HUD managers and supervisors,

and does not consider many of the elements that we have endorsed as necessary

for comprehensive workforce planning.

In the absence of a comprehensive workforce plan, HUD faces myriad human capital challenges ensuring that it has the right mix of staff with the requisite knowledge, skills, and abilities appropriately deployed across its organization. In July

2001, we reported that HUD’s Homeownership Centers, responsible for carrying out

FHA’s Single-Family Mortgage Insurance Program, faced staffing and workload imbalances and lacked an adequately standardized training curriculum. It also faced

skill mix difficulties—for example, managers at the Centers said that it was a chalVerDate 11-MAY-2000 08:48 Nov 25, 2003 Jkt 000000 PO 00000 Frm 00044 Fmt 6621 Sfmt 6621 90605.TXT SBANK4 PsN: SBANK4
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8 U.S. General Accounting Office, Single-Family Housing: Stronger Measures Needed to Encourage Better Performance by Management and Marketing Contractors, GAO/RCED–00–117

(Washington, DC: May 12, 2000). 9 U.S. General Accounting Office, Single-Family Housing: Stronger Oversight of FHA Lenders

Could Reduce HUD’s Insurance Risk, GAO/RCED–00–112 (Washington, DC: April 28, 2000);

U.S. General Accounting Office, Single-Family Housing: Weaknesses in HUD’s Oversight of the

FHA Appraisal Process, GAO/RCED–99–72 (Washington, DC: April 16, 1999).

lenge for their staff to shift from performing insurance endorsements and property

disposition activities to monitoring contractors that now do this work for HUD. In

our survey of HUD managers for our January 2001 report, over 70 percent stated

that staff training needed to be increased in the areas of information systems, technical skills, and other areas.

Without a comprehensive workforce plan, the Department will not be as prepared

as it could be to recruit and hire staff needed to pursue its mission. During the

1990’s, HUD underwent considerable downsizing, reducing its staff from around

13,500 to about 9,000 by March 1998. The need to recruit and hire is exacerbated

by the upcoming wave of potential retirements that HUD faces. More than 80 percent of HUD’s workforce is in the core professional grades—GS 9 through 15; and,

by August 2003, half of this workforce will be eligible to retire. HUD has done little

outside hiring in the last decade and some vacant positions have gone unfilled while

others have been filled through lateral transfers, promotions, or the upward mobility of administrative staff into professional positions. HUD is delegating more hiring

authority to its regional directors and has established an internship program that

may help address some staffing shortages. However, the internship program is in

the early stage of its development and does not address the needs for hiring at the

mid-level ranks of Government that could be disproportionately affected by the impending wave of potential retirements.

Acquisition Management Challenges Remain

A second crosscutting challenge area for HUD is its management of acquisitions.

As you know, Mr. Chairman, by design HUD relies on the performance and integrity of thousands of intermediaries such as mortgage lenders and public housing

agencies to fulfill its mission. But as HUD has downsized its own staff over the past

few years, its reliance on private contractors has increased substantially. This reliance, as measured by contracting obligations, grew by more than 62 percent from

fiscal year 1997 to fiscal year 2000; and HUD officials have estimated that the total

number of contractor staff assisting in delivering HUD services may nearly equal

its own. As a result, effective management of acquisitions is crucial to HUD’s success in meeting its mission and addressing its high-risk Single-Family Mortgage

Insurance and Multifamily Rental Housing Assistance Program areas. Ineffective

oversight of contractors adversely effects HUD’s ability to carry out its mission and

to deliver key services and exposes HUD’s programs to the additional risk of fraud,

waste, abuse, and mismanagement. HUD faces the challenge of ensuring that,

where it relies on contractors to perform its mission, it will hold these contractors

accountable for results. Holding the contractors accountable for results requires

processes and practices in place to effectively monitor contractors’ performance, an

acquisition workforce with the right workload, training, and tools to carry out its

mission, and programmatic and financial management information systems that

support HUD’s efforts to ensure accountability in its acquisitions.

HUD has undertaken a number of actions over the past few years to: (1) improve

the processes and practices in place to effectively monitor contractors’ performance,

(2) improve the training and professional development of it acquisition workforce,

and (3) improve its contracting information systems. While progress has been made,

our recent and ongoing work suggests that HUD is still experiencing difficulties in

each of these areas and thus faces continued challenges in its ability to hold contractors accountable for results. For example:

• To improve monitoring, HUD provided guidance to its employees to incorporate

more systematic methods into its monitoring efforts, including the use of riskbased assessments to focus HUD’s staff efforts. In fiscal year 2000—around $600

million of the almost $1.3 billion in contracts were for contracts supporting HUD’s

single-family and multifamily housing programs. On the single-family side, we

have reported numerous problems over the past few years in HUD’s oversight of

its contractors handling the marketing and management of HUD’s single-family

properties,8 as well as those performing oversight of lenders and appraisers.9

More recently we have been examining property management contracts in HUD’s

multifamily housing program. From our ongoing work, it appears that few of

the staff overseeing HUD’s multifamily housing program property management

42

10The Government Technical Representative acts as the Contracting Officer’s representative

concerning the technical and performance aspects of a contract. He or she is responsible for

ensuring that the contractor is using the most efficient and cost-effective methods and is also

the principal judge of contractor performance, including the quality and timeliness of work and

products.

contracts use monitoring plans or employ risk-based strategies to determine the

necessary level and frequency of monitoring. We have observed that oversight and

monitoring of contractors are largely remote—consisting mainly of e-mails, telephone calls, and reviews of contractors’ progress reports—and site visits to properties by HUD staff do not occur routinely. Our ongoing work indicates that,

absent a systematic approach to monitoring and with a limited amount of on-site

monitoring occurring, HUD’s ability to effectively monitor contractors’ performance and identify and correct problems may be limited.

• To improve the training and professional development of its acquisition workforce,

among other things, HUD created full-time Government Technical Representatives (GTR) 10 to help oversee contracts, provided this staff with new training, and

required that their training and qualifications be formally certified. However,

HUD’s progress in strategically managing its acquisition workforce has been slow.

For example, we recently learned that HUD’s managers were not aware of 143

staff members who were performing the GTR function and had not received the

appropriate training. Our work suggests that HUD’s training records are poorly

maintained, making it difficult for its managers to know which staff have received

training and thus where to focus scarce resources. HUD has not yet used the results of its REAP study to remedy disparities that it has identified in the contracting workload within the Office of the Chief Procurement Officer, and a plan

to identify critical skills and career paths for its acquisition workforce has been

in draft for over 2 years. Like HUD’s overall human capital challenges, HUD’s

ability to hold its contractors accountable for performance depends, in no small

part, on its success in building an acquisition workforce with the right workload,

training, and tools to carry out HUD’s mission.

• To improve its contracting information systems HUD implemented a single system—HUD’s Procurement System—to track contract obligations, milestones, and

contractor performance. However, our ongoing work suggests that this System

does not adequately support HUD’s managers or acquisition workforce because

the data it contains are not complete, accurate, or consistent. As a result, Mr.

Chairman, staff overseeing contractors in HUD’s multifamily program reported relying primarily on spreadsheets and other informal systems they have created and

maintained in order to monitor contract milestones and task orders. These informal systems are not subject to HUD’s internal controls, audits, information security protocols, or other standards and thus expose HUD’s contract activity to

internal control weaknesses and the potential for waste, fraud, abuse, and mismanagement. In addition, HUD’s managers do not have reliable information on

the number of active contracts it is managing or the amount of funds that have

been obligated for them, and cannot readily determine how much money HUD has

spent overall on its contracting activities. Finally, performance data that would

assist in evaluating contractor performance is not systematically tracked in

HUD’s Procurement System, although the System allows such activity. HUD’s

ability to manage and monitor its acquisition activities is limited by weaknesses

in its programmatic and financial management information systems, which are

needed to ensure accountability in its acquisitions.

At this Subcommittee’s request, Mr. Chairman, we are continuing our work on

HUD’s acquisition management and will be reporting to you on the results of this

work in September 2002. We are examining potential improper payments at HUD,

including in its multifamily housing acquisition activities, and will be issuing our

report on this subject later this year.

Programmatic and Financial Management Information Systems Challenges

Are of Long-Standing and Continuing Concern

Finally, Mr. Chairman, the effectiveness of HUD’s programmatic and financial

management information systems continue to raise concerns. Responsive programmatic and financial management information systems are critical to HUD’s ability

to meet its mission, deliver key services, and establish sufficient management control over its programs and operations. As our work has shown, ineffective programmatic and financial management information systems adversely impact HUD’s

programs and operations and its staff’s ability to effectively monitor its programs,

recipients, and contractors. They also limit HUD’s ability to collect accurate inforVerDate 11-MAY-2000 08:48 Nov 25, 2003 Jkt 000000 PO 00000 Frm 00046 Fmt 6621 Sfmt 6621 90605.TXT SBANK4 PsN: SBANK4
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11 U.S. General Accounting Office, Single-Family Housing: Current Information Systems Do

Not Fully Support the Business Processes at HUD’s Homeownership Centers, GAO–02–44 (Washington, DC: October 24, 2001). 12Office of Inspector General, Audit of U.S. Department of Housing and Urban Development

(HUD) Financial Statements for Fiscal Years 2001 and 2000, 2002–FO–0003 (Washington DC:

February 27, 2002).

mation to report on program results and effectively manage its operations. Concerns

about the ability of HUD’s financial management systems to effectively support the

timely preparation and audit of the Department’s annual financial statements are

long-standing, and as of today, HUD is still in the early stages of developing a plan

for resolving them. Accordingly, developing a plan to acquire and implement programmatic and financial management information systems that meet the Department’s needs and comply with Federal financial system requirements is crucial to

HUD’s efforts to successfully address its high-risk program areas.

Mr. Chairman, concerns about the effectiveness of HUD’s programmatic and financial management information systems are not new. We have reported that HUD

lacks the programmatic and financial management information systems necessary

to ensure accountability over its programs since 1984. This February, for the eleventh year in a row, HUD’s Inspector General cited the lack of an integrated financial management system in compliance with Federal financial system requirements

as a material weakness in its audit of the Department’s financial statements. HUD

is aware that its programmatic and financial management information systems pose

serious challenges and has taken steps to address them. For example, HUD has undertaken extensive efforts to modernize both HUD’s and FHA’s programmatic and

financial management information systems, improve financial reporting, institute a

more rigorous planning and review process over its information technology capital

investments, and bring FHA’s systems into compliance with Federal financial systems requirements. HUD is preparing to obtain contractor assistance to help analyze its current status and develop plans for improving the Department’s financial

management systems and providing the needed support to its programs.

Our recent work and that of the Department’s Inspector General has shown however, that despite efforts to improve its programmatic and financial management information systems, serious challenges still exist. HUD’s systems do not today fully

support its programs—including its Single-Family Mortgage Insurance and Multifamily Rental Assistance Programs—nor effectively support the timely preparation

and audit of the Department’s annual financial statements. For example:

• To oversee lenders in HUD’s Single-Family Mortgage Insurance Program, staff at

the Department’s Homeownership Centers must collect and manually compile information from multiple systems and sources in order to target high-risk lenders

for review and to identify and investigate potential fraud cases. As we reported

in October 2001, this creates a greater risk of error and increases the likelihood

that problems will go unnoticed.11

• To review and approve applications for mortgage insurance on multifamily properties, HUD uses, in some cases, an expedited process where lenders, rather than

HUD, underwrite the loans. However, our ongoing work on HUD’s Multifamily

Accelerated Processing Program suggests that HUD’s system for tracking the status of multifamily loan applications does not allow it to reliably track and record

several key processing steps in the accelerated approval process. As a consequence, HUD’s field staff develop and maintain spreadsheets and other informal

systems to monitor the status of HUD’s actions.

• HUD’s efforts to ensure that only eligible families occupy housing units and that

those families pay the correct rents—a key component of its strategy to address

its high-risk program areas—were, according to HUD’s Inspector General, impeded by limitations in its information systems. In particular, the Inspector General reported that the lack of complete, current, consistent information on tenants

and rents limited HUD’s ability to effectively conduct computerized income matching—a strategy that has been used to identify and deter tenants who underreport

their incomes and to address some of the causes of the estimated $2 billion in

overpayments and errors on rent subsidy calculations. For this and other reasons,

the Inspector General raised concerns about the effectiveness of HUD’s income

matching program.12

• HUD continues—due in large part to deficiencies in its financial management systems—to rely on extensive ad hoc analyses and special projects to develop account

balances and necessary disclosures for the Department’s annual financial statements, according to HUD’s Inspector General. These extensive efforts indicate

that HUD’s financial management systems cannot currently provide the day-toVerDate 11-MAY-2000 08:48 Nov 25, 2003 Jkt 000000 PO 00000 Frm 00047 Fmt 6621 Sfmt 6621 90605.TXT SBANK4 PsN: SBANK4
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13 U.S. General Accounting Office, HUD Information Systems: Immature Software Acquisition

Capability Increases Project Risks, GAO–01–962 (Washington, DC: September 14, 2001).

day information needed by its managers to effectively manage and monitor the

Department’s programs.

• HUD needs high-quality software for the systems it uses to support its financial

management needs, as well as its Single-Family Mortgage, Multifamily Rental

Housing Assistance, and other program needs. In September 2001, we reported

that HUD’s success or failure in acquiring software depends largely on specific individuals, rather than on well-defined and disciplined software acquisition management practices. Until this is strengthened, HUD is exposed to a higher risk

that software intensive acquisition projects will not consistently meet mission requirements, perform as intended, or be delivered on schedule and within budget.13

Mr. Chairman, we are continuing to review HUD’s progress in improving its financial management systems and plan to report to you on these issues by December

2002.

In conclusion, Mr. Chairman, HUD’s management reform efforts over the past few

years resulted in major changes throughout the Department as it worked to resolve

its management challenges. HUD has been moving forward over the past few years

and has made credible progress, and the current Administration has reaffirmed an

emphasis on and commitment to improving management at the Department. However, despite this progress and renewed commitment, HUD still faces considerable

challenges in ensuring that its continuing management reform efforts will amount

to the sustainable improvements in performance needed to resolve weaknesses in

its high-risk program areas. Successfully addressing the crosscutting challenges in

the areas of human capital, acquisition management, and programmatic and financial management information systems can help determine whether HUD can sustain

the progress it has made, meet its challenges, and make progress toward its goal

of becoming a high-performing organization.

This concludes my prepared statement. I will be happy to respond to any questions you or the other Members of the Subcommittee may have.

—————

PREPARED STATEMENT OF CAROLYN FEDEROFF

PRESIDENT, AMERICAN FEDERATION OF GOVERNMENT EMPLOYEES

AFL–CIO, COUNCIL OF HUD LOCALS, 222

JULY 24, 2002

Chairman Reed and Subcommittee Members, my name is Carolyn Federoff, and

I am President of the American Federation of Government Employees, Council of

HUD Locals. We represent approximately 6,500 bargaining unit employees throughout the Department of Housing and Urban Development. Thank you for providing

us with an opportunity to present the views of HUD’s employees on those areas that

GAO continues to identify as ‘‘high-risk,’’ including HUD’s staffing crisis and its

oversight of HUD’s contractors.

In addition to gathering input directly from HUD’s employees, we have also reviewed GAO’s reports on HUD’s designation as ‘‘high-risk’’ and the Governmentwide human capital management crises. Our testimony is presented in two parts,

the first focusing on human capital management, and the second on HUD’s oversight of its contractors in the single-family and rental housing assistance programs.

Nonetheless, it should be noted that we believe that GAO’s focus on improvements

needed in the single-family and rental housing assistance programs is integrally related to and exacerbated by HUD’s Human Capital Management.

Summary

Because of the impending retirement of the Baby Boom generation, every American employer faces the potential for a human capital crisis. HUD, however, faces

a crisis imposed by both demographics and politics. Both Agency management and

Congressional critics have, in their turn, starved the Agency for needed staff. HUD

programs are designed to be implemented and to operate over long periods of time—

in FHA programs, an average of 30 to 40 years. These time periods exceed the normal career span of most workers. Setting these programs in motion necessitates a

commitment to ensure quality staff will be available over the life of the program.

Additionally, it is unacceptable to merely plan to contract the work out; contractors

45

*Held in Committee files or available at the GAO website.

still need quality oversight by employees who are familiar with the program from

inception to close.

HUD will need to recruit. But it will also have to work hard to retain the employees on board. The results of a recent Office of Personnel Management survey reveal

a HUD workforce whose morale is generally below that of their private sector counterparts. Only 47 percent of responding employees are satisfied with the organization, compared to 63 percent in the private sector. Issues fueling dissatisfaction include lack of involvement with decisions affecting work, lack of information received

from management and lack of training received for the job. (See attached copies of

HUD intranet.)*

We offer the following recommendations to help HUD meet its staffing challenges

and its obligation to preserve the public trust:

• The Agency has averaged 300 FTE below ceiling for the last several years. Rather

than taking the staff away, Congress must insist that ceiling be met.

• The Agency contracts out because of a lack of staff and without regard to cost.

Congress should insist that the Agency only contract out when it is cost-effective

and will provide equal or better service. Congress must also provide budget authority to hire more staff when it is cost-effective, and should reject arbitrary contracting out quotas.

• The Agency largely eliminated its Human Resources capacity in the field in 1995.

Lack of access to Human Resources professionals adversely impacts field managers and supervisors. This staff should be restored.

• HUD’s Human Resources staff is overly bureaucratic, failing to explore innovative

ways to recruit and retain staff. The Agency needs to empower Human Resources

staff to find solutions, not roadblocks.

• HUD has little or no data about its staff—it cannot provide retention data for past

intern programs, nor even provide a quarterly list of employees being hired into

or leaving the bargaining unit. It needs to restore its ability to retrieve hard staffing data on a monthly basis.

• The Agency is currently relying of interns to meet hiring needs. These interns are

on 2-year appointments. Although the Agency has verbally expressed an intent to

extend permanent positions to these employees, most will feel compelled to look

for other jobs in the last year of their appointment, because of student loan debt.

To retain these employees, the Agency should extend permanent positions to the

interns after 1-year (the standard probationary time period for new employees).

• To help recruit and retain staff, the Agency should negotiate with the union for

quality programs such as loan forgiveness and child care subsidy, and effectively

implement programs already negotiated such as telecommuting.

We are pleased to testify that Secretary Martinez, through Deputy Secretary

Jackson, has worked with us on several of these issues. He has expressed a commitment to reject costly contracting out, provided a management directive supporting

implementation of telecommuting, and directed his staff to investigate loan forgiveness. We hope to be able to testify next year that, with open Congressional support,

the Administration has made progress toward achieving the recommendations set

forth above.

Human Capital Management:

GAO’s Four Human Capital Cornerstones and HUD

In its report ‘‘A Model of Strategic Human Capital Management,’’ GAO sets forth

four Human Capital Cornerstones (GAO–02–373SP).* GAO intends these Cornerstones to provide guidance in assessing an Agency’s Human Capital strategy. For

each Cornerstone, there are two Critical Success Factors. The GAO report sets forth

examples of behavior it identifies as Level 1, 2, or 3 in connection with each Critical

Success Factor. Level 1 is the worst, while Level 3 is the optimum according to

GAO. We address each of the four Cornerstones at they apply to HUD separately:

Leadership: The Agency has a Human Capital Crisis Because Throughout the 1990’s

HUD Devalued Human Capital and Human Capital Resource Managers

HUD goes through organization charts the way a person with a cold goes through

Kleenex. On some level, this constant shifting devalues human capital. But between

the years of 1994 and 1998, the Agency actively undertook reforms that exacerbated

the human capital crisis and precipitated the virtual elimination of human capital

resource management at HUD. We offer two examples from many:

46

*Held in Committee files.

In 1995, the Agency reorganized the Office of Administration, severely slashing

HUD’s Human Resource Departments in the field by consolidating ten personnel departments into three. The goal was to reduce the ratio of HR staff to HUD staff

from 1:60 to 1:100. Access to personnel specialists became more difficult for managers, supervisors, and employees. Personnel records have been poorly maintained.

Also in 1995, the magic 7,500 number was the focus of much attention. As confirmed by GAO and HUD IG reports, this number might as well have been drawn

from a hat; the Agency had no basis for believing this was the optimum number

of staff. The contracting out problems we face today are a direct result of this baseless FTE goal.

Comparison to the GAO Critical Success Factors Table (GAO–02–373SP at p. 10)

demonstrates that with regard to its staff, the Agency was at Level 1—the Agency

viewed the employees as ‘‘costs to be cut rather than as assets to be valued.’’ The

Agency was below Level 1 with regard to the role of the Human Capital Function—

human capital management was so severely reduced that it could not even be described as a support function.

It is our opinion that the past devaluation of the Human Capital Function is critically interfering with the current Administration’s ability to evaluate and address

the Human Capital crisis at HUD. Among other things, it interferes with recruitment and retention. For example, the Agency has consistently been 300 FTE below

ceiling for several years. Despite what we generally agree are good efforts to recruit

and hire staff, Agency projections indicate that we will continue to be below ceiling

at the end of this fiscal year. Additionally, we have proposed, and the Administration has expressed interest in, several retention strategies such as a loan forgiveness program. Lack of adequate Human Resource staff has delayed rapid review

and implementation of this and other retention programs.

Agency managers, supervisors, and employees need a commitment from the Congress and the Administration to rebuild the Human Capital Management Function

at HUD. We need Human Resource employees to evaluate staffing needs, actively

recruit, create retention strategies, and to otherwise assist employees, their supervisors and managers in the accomplishment of HUD’s mission.

Strategic Human Capital Planning: No Data To Drive Human Capital Decisions

Agency management has little or no data with which to make Human Capital decisions; they no longer receive staffing lists, information on accessions and separations, nor retention rates for special hires; and estimates of needed staff are suspect.

It was not always so. Attached are excerpts from the last ‘‘Monthly Staffing List’’

of which I am aware. It is dated September 1990 and covers Region I.* It is an example of the kind of data that used to be routinely available and provided to field

managers and union representatives. It includes a summary of staff on board, hires,

separations, and projections for the coming month. It discloses the total number of

employees authorized versus those actually appointed in each office and each program area. It provides information on total number of permanent, temporary, parttime, and summer help. The sample page is a detail from the Office of Counsel,

showing total number of staff, vacancies, temporary appointments (EXC APPT NTE

08–11–91), and duty stations other than Boston (D/S: Manchester). The total report

includes similar pages for each program area in Region I.

Sometime shortly after 1990, the Agency stopped providing the Monthly Staffing

List. With the loss of this single report, managers in Region I no longer had the

information necessary to firmly determine if staff turnover continued to be 17 percent, or one in six, as it had been the previous year. They would no longer clearly

know that their ceiling had increased 20 positions since last year, or that they were

46 employees, or 10 percent, under ceiling. Having this data helped managers focus

on potential problem areas in Human Resource management, such as retention

issues and recruitment needs. But this data no longer exists, or is no longer shared.

We suspect that it simply no longer exists. During the past 6 months, we have

asked HUD’s Labor Relations staff to please provide quarterly reports on accessions

and separations from the bargaining unit. We just want to know who has joined

HUD and who has left during a quarter. Labor Relations has been unable to meet

our request, because the information systems do not support this simple retrieval

of information.

The fundamental lack of data hampers this Administration’s ability to address the

Human Capital crisis. We continue to make decisions in the dark.

For example, the union has raised concerns with the dependence on intern programs to meet hiring needs. Based upon anecdotal evidence, we are concerned that

47

1The union is also without hard data. Nonetheless, based upon our interviews with interns,

we believe critical to the retention of interns is their knowledge that they will be offered permanent positions well in advance of the expiration of their 2-year term. At the end of their first

year (the standard probationary period for civil service employees), the Agency should decide

and inform interns which of them will be offered permanent positions. Faced with thousands

of dollars of student loan debt, after their first year, interns will be forced to actively seek other

employment. We can only stem the tide by timely extending permanent positions. 2 ‘‘Credit hours’’ are hours ‘‘in excess of an employee’s basic work requirement and which the

employee elected to work so as to vary the length of a workweek or workday.’’ See 5 U.S.C. Section 6121(4). Most employees at HUD work under a flexible work schedule established under

5 U.S.C. Section 6121.

interns may have lower retention rates than other employees hired under traditional civil service authorities. To explore this, we have asked the Office of Human

Resources to provide data comparing the retention rates of the last major intern

program that occurred in 1989 and 1990, to the retention rates for other employees

hired through traditional means during the same time period. The Agency has been

unable to provide this data. The Agency is putting all of its hiring eggs in one basket without sufficient knowledge of the strengths or weaknesses of that basket.1

At Congressional direction, the Agency is working toward better estimation of

staffing needs. But employees, supervisors, and managers remain unconvinced that

accurate estimations will be produced by either REAP or TEAM—Resource Estimation and Allocation Process and Total Estimation Allocation Mechanism. REAP

was intended to provide a benchmark for staffing needs, while TEAM is intended

to periodically update the benchmark. However, despite hours of review, many of

us cannot understand what REAP has actually measured—does it measure what

staff should be doing, or what staff are actually doing? The process for both REAP

and TEAM asked staff to record what they are actually doing. It seems obvious that

we would have enough staff to do that which staff are doing. But the question remains, do we have enough staff to do that which we are supposed to do by law, rule

or regulation? Do we have enough staff to protect the public’s interest and deliver

the mission of the Agency? We remain unconvinced that REAP or that TEAM

achieve this.

To this Administration’s credit, the Deputy Secretary has specifically advised

managers to provide staffing projections based upon REAP or any other supportable

evidence. To our knowledge, REAP is being used as a floor, not a ceiling. But we

urge Congress to also consider REAP as a floor.

Comparison to the GAO Critical Success Factors Table for this cornerstone (GAO–

02–373SP at p. 11) indicates that the Agency is at or below Level 1—Agency managers and supervisors lack fundamental information that can help them determine

human capital needs and strategies for effective recruitment and retention, much

less how human capital approaches link to organizational performance objectives.

Agency managers, supervisors, and employees need a commitment from Congress

and the Administration to rebuild sources of data concerning human capital resources at HUD. Additionally, we need wide spread sharing of data, so that managers, supervisors, and union representatives can hone in on problems before they

become crises.

Acquiring, Developing, and Retaining Talent:

Bureaucracy Persists in HUD’s Approach to Human Resource Management

As employees of HUD, we can commiserate with HUD’s clients about HUD’s proclivity for bureaucracy; we are its daily victims, driving down employee morale. Although the 1994 HUD program reorganizations included strategies to focus HUD

employees on results not processes, on finding solutions not red tape, Human Resources has not consistently adopted this same strategy. Managers, supervisors, and

employees too often hear, ‘‘it can’t be done that way.’’ The ‘‘can’t do’’ philosophy is

at striking odds to the ‘‘can do’’ philosophy HUD employees endeavor to apply to

HUD’s programmatic work.

A small example: Some Human Resource offices have advised supervisors that

they may not authorize the accumulation of credit hours for travel.2 They cite restrictions on the use of overtime for travel, equating credit hours to overtime despite

the fact that credit hours are specifically excluded from the definition of overtime.

[See 5 U.S.C. Section 6121(6).] Being able to authorize employees to accumulate

credit hours helps supervisors better accomplish the Agency’s mission while preserving resources; if a field review takes 6 hours, and travel will take 4, a supervisor

can authorize the employee to accomplish the work in one 10-hour day, rather than

ordering the employee to take 2 days and authorizing the use of scarce travel dollars

48

*Held in Committee files.

for hotel and per diem. These simple solutions, however, are withheld from Agency

supervisors and employees.

Comparison to the GAO Critical Success Factors Table for this cornerstone (GAO–

02–373SP at p. 12) indicates that the Agency is at or below Level 1—the Agency

has yet to explore the range of tools and flexibilities available under current laws

and regulations.

Agency managers, supervisors, and employees need a commitment from this Administration that it will bring to Human Resources the same ‘‘can do’’ spirit other

areas of HUD are encouraged to display. Working together, we can craft solutions

that meet HUD’s mission and employees’ needs.

Results-Oriented Organizational Cultures: The Human Capital Crisis Makes

It Less Likely Employees Will Focus On Results Rather Than Processes

The GAO has identified ‘‘empowerment and inclusiveness’’ as key components of

a results-oriented organization. The Agency took steps to empower and include supervisors and employees in the 1994 reorganization. Program employees were specifically authorized to remove impediments to the accomplishment of organizational

goals when the employee could determine that an alternative process would meet

both client and Agency needs.

Comparison to the GAO Critical Success Factors Table for this factor (GAO–02–

373SP at p. 13) indicates that in the mid-1990’s, the Agency hovered between Levels

2 and 3—the Agency was lessening its reliance on standardized approaches and was

encouraging employees, supervisors, and managers to work together toward innovation and problem-solving.

Before a person can run, however, he must first be able to walk. Similarly, before

employees can innovate and explore alternative processes, they must first be adept

at the current process, understanding the whys and wherefores. When they understand why a rule is in place, they can better craft a solution that meets the Agency’s

and client’s needs simultaneously.

HUD’s Human Capital crisis threatens this capability. Daily, we are losing the

employees that know the whys and wherefores. Our programs typically include 40-

year commitments between HUD and the client. Even if programs are eliminated,

they are only eliminated as to future clients. Our relationship to current clients continues for that program. We need staff expertise for a period of time greater than

the normal career of any one employee. Succession planning must be the norm, not

the exception for an Agency such as HUD.

Additionally, the nature of HUD’s programs tends to result in an ebb and flow

of problems; if there is a problem, it is likely to manifest itself either at the beginning or at the end of its 40-year term. For example, the problems associated with

a new development will either happen shortly after it begins renting up (for example, problems with projected market-share, etc.) or will happen toward the end of

its involvement (for example, tenants need alternative affordable housing options,

development has physical problems associated with its age, etc.).

Succession planning at HUD is hard! Making sure that we always have the quality and quantity of staff to be results-oriented is hard! It takes commitment from

both Congress and the Administration.

HUD clients deserve nothing less.

HUD’s Continuing ‘‘High-Risk’’ Designation in the Single-Family

And Multifamily Rental Housing Assistance Programs Relate

Directly to HUD’s Human Capital Crisis

In its January 2001 report entitled ‘‘Major Management Challenges and Program

Risks’’ (GAO–01–248) (hereinafter January 2001 Report),* GAO identifies the need

for improvement to reduce HUD’s Single-Family Mortgage Insurance risk and to

effectively and efficiently use HUD’s Multifamily Rental Housing Assistance Programs. We believe that HUD’s Human Capital crisis has directly contributed to

these program problems. The lack of human capital has prompted HUD to contract

out work without regard to cost, effectiveness, or efficiency. Continued loss of staff

capacity has lead to poor contractor oversight. We will consider examples of this in

each of these programs.

Contracting Out Single-Family Mortgage Insurance Work:

Employee Warnings Go Unheeded

The GAO report briefly describes the downsizing history of Single-Family Housing; in 1994, the Agency began to consolidate its single-family function, culminating

in the 2020 Management Reform Plan establishment of four Homeownership CenVerDate 11-MAY-2000 08:48 Nov 25, 2003 Jkt 000000 PO 00000 Frm 00052 Fmt 6621 Sfmt 6621 90605.TXT SBANK4 PsN: SBANK4
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ters. This consolidation reduced the total staff dedicated to single-family programs

by about 50 percent. Some of this reduction was achieved through increased efficiencies or program changes. A significant portion was accomplished through contracting out. (January 2001 Report at p. 15.)

The Office of Single Family always had a high level of contracting out, and most

of this contracting out was appropriate. For example, when a bank foreclosed on a

property and returned the title to HUD for the mortgage insurance proceeds, HUD

became the property owner. As such, we became responsible for being a good neighbor, keeping the yard and house maintained while new owners were found. HUD

employees agree that this was a positive use of contractor dollars. But even then,

GAO and the HUD IG reported that HUD lacked staffing resources and travel funds

to monitor its contractors. (See, for example, GAO/RECD–98–65.) Unfortunately,

HUD was not always a good neighbor.

How did HUD respond? Instead of increasing contractor oversight, HUD contracted out more functions. Previously, HUD would market the properties, seeking

always to use this resource to further multiple objectives such as promoting safe

neighborhoods and the affordable housing for working Americans (for example, the

Officer Next Door Program), while working to maximize return on the sale of the

properties.

In 1999, HUD contracted out this marketing function. The result? In January

2001, GAO reported a projected cost of $997 million over 5 years (at p. 14). Six

months later, GAO reported that fiscal year 2000 year cost alone was $390 million,

for a projected 5-year cost of $1.9 billion or twice as much as the original 5-year

projection. (See GAO–01–590 at p. 3.) In exchange for the high expenditures, HUD

has seen a mere net increase of 1⁄2 percent in the recovery of sales (January 2001

Report at p. 18). We have also seen an increase in the number of for-profit investor

owners. Prior to 1999, we understand that HUD sales to owner-occupants averaged

65 percent. Since 1999, it has generally decreased and is now as low as 34 percent

in Cincinnati. This is not a result of poor contractor oversight. This is the result

of contracting out. The contractor does not have the same incentive to pursue policy

objectives as HUD employees have. Monetary incentives cannot replace commitment

to the mission.

Despite contracting out and downsizing, HUD employees have been vigilant in

protecting, or seeking to protect, the mission of the Agency. HUD employees advised

the HUD IG of the ‘‘flipping’’ scandal reported by GAO in its report at page 20.

HUD employees continue to report issues to the HUD IG about duplicate payments

to contractors, vandalism of HUD properties, and interference with their ability to

report fraud, waste, and abuse directly to the IG. Employees recognize that a

change of administration results in delays in responding to the issues identified by

employees. But it has now been 18 months, and employees want to know when their

voices will be heard. Single-family employees are experiencing serious morale problems because of the loss of program integrity and job satisfaction.

Contracting Out Multifamily Rental Housing Assistance Oversight:

No Benefit for Tenants or Taxpayers, Only State and Private Bureaucracies

The January 2001 GAO report states that ‘‘to ease staffing shortages caused by

staff reductions,’’ HUD contracted for third-parties to administer project-based Section 8 housing assistance payments contracts (at p. 36). GAO indicates that the estimated cost was $200 million annually. This contract was awarded solely because of

staffing shortages and without regard to cost. In fact, before even one contract was

signed, HUD’s IG reported that the Agency’s cost projections were faulty and the

contracts ‘‘could adversely affect the integrity of the Section 8 program.’’ (See HUD

IG 99–PH–163–0002, at p. 17.)

HUD has awarded 41 of 52 available contracts. With incentives, these contracts

cost $220 million annually—$20 million more than originally estimated. If the remaining contracts are awarded, the cost will increase by $61 million, or 40 percent

more than originally estimated.

But whether the cost is $200 million or $281 million, it is far in excess of the cost

of hiring staff to meet the staffing shortages fueling these contract awards. According to inflated staffing figures rejected by HUD’s Inspector General, HUD would

need 1,400 staff to do this work (IG Report at p. 16). HUD’s Office of Budget reports

an average cost per HUD employee in 2002 is $88,000. This would put the maximum cost at $123 million, or less than half the cost of these contracts.

Finally, the real tragedy of these contracts is borne by Section 8 tenants and families waiting for Section 8 subsidies. The cost of these contracts comes from the Section 8 budget. This $158 million would fund an additional 31,200 Incremental

Vouchers in the fiscal year 2003 budget. And in exchange for a loss of Section 8

50

funds, current Section 8 tenants are left to work with multiple bureaucracies, including HUD, the contractor, and in some instances, a subcontractor.

The January 2001 GAO report focuses on the challenge HUD faces in closing the

gap between the number of households eligible to receive housing assistance and the

availability of assistance (at p. 27). Congress needs to step to the plate and provide

HUD with the means to close the gap; Congress needs to provide HUD with the

funding to hire the staff necessary to forego the Section 8 Contract Administration

contracts.

There will be mounting pressure for Congress to allow this wasteful spending to

continue. Contractors in their States are making ludicrous amounts of money under

these contracts. For example, MassHousing (formerly the Massachusetts Housing

Finance Authority) makes $13 million annually to replace the work done by 20 staff

in HUD’s Boston Office. Rather than bowing to the pressure of contractors, Congress

should consider the 2,220 families in Massachusetts that could be receiving rental

assistance in 2003, and the 31,200 nationwide.

Conclusion

Frequently with Congress’ support, HUD has maintained a history of ineffective

human capital management. Consequently, the crisis that faces all American employers with the impending retirement of the Baby Boom generation is exacerbated

at HUD. And because HUD’s programs are implemented and operated over a 30-

to 50-year period, HUD needs time for departing staff to mentor new staff. We cannot replace journey-level experienced staff with entry-level staff. It takes years to

learn the programs sufficiently that employees can take educated risks to meet

client needs while meeting HUD’s program objectives. This level of expertise cannot

be replaced by contractors. Even if it could be replaced by contractors, it defies explanation to replace it at costs far in excess of hiring staff.

Finally, to compete against the rest of the marketplace hungering for workers to

replace Baby Boomers, HUD must think and act innovatively and flexibly by offering programs such as loan forgiveness, child care subsidies, and telecommuting;

HUD must empower its employees by providing them with information, training,

and involvement in the decisionmaking process. HUD must show that it is a responsive employers. And Congress must support HUD in these endeavors.

51

RESPONSE TO WRITTEN QUESTIONS OF SENATOR REED

FROM STANLEY J. CZERWINSKI

Multifamily Housing

Q.1. There have been some recent changes to the Public Housing

Assessment System (PHAS). Can you explain why HUD has chosen

to adjust the standards for public housing so that they are lower

than those for assisted housing?

A.1. In 1997, as part of its 2020 Management Reform Plan, HUD

instituted a new approach for evaluating public housing authorities’ overall performance and for helping them improve their performance. HUD began collecting data for all four PHAS indicators

in 1998, and for fiscal year 1999, it computed, for each housing

authority, as core for each indicator, as well as a total PHAS score.

HUD used these scores to test the system but not to classify housing authorities’ performance. HUD planned to implement PHAS

fully; however, the Congress directed HUD to conduct further testing and to obtain an independent evaluation of PHAS.

HUD is currently revising PHAS, attempting to make it more responsive to the concerns of residents and the public housing industry, before implementing it fully. The current system is considered

an interim system, effective for public housing authorities with fiscal years ending between September 30, 2001 and September 30,

2002. As a result of these discussions with stakeholders regarding

their concerns and possible solutions, and after further consideration by the Department, HUD made two interim scoring changes.

First, under the Physical Condition Indicator all five areas—site,

building exterior, building systems, common areas, and dwelling

units—will be inspected, and the information will be captured in

the system. But for assessment purposes, the Physical Condition

score will be derived only from the deficiencies observed in the

building systems and dwelling units. These two indicators were selected because they have the greatest impact on residents’ living

conditions. Second, HUD made some minor changes to the Financial Condition Indicator. During the interim period HUD expects to

give extensive consideration to potential improvements to PHAS,

which should result in further changes.

Q.2. You have looked at the Public Housing Assessment System

and concluded that it is generally a good system. In GAO’s view,

should HUD implement this system?

A.2. We believe that having a system for objectively assessing the

physical and financial condition of public and assisted properties is

an essential step for HUD to adequately address its high-risk program areas. The interim PHAS assessment system should provide

a broader and more reliable basis for evaluating housing authorities’ performance than did the prior Public Housing Management

Assessment Program (PHMAP). As a result, full implementation

should increase the potential for PHAS to identify the authorities’

problems. In addition, we believe that HUD should continue to

evaluate PHAS and make improvements to arrive at a final public

housing assessment system that all parties agree will identify and

provide for the correction of long-standing problems at public housing authorities.

52

Q.3.a. The Department’s workforce study shows that the OMHAR

needs 91 full-time workers to do its work, yet it only has 80 employees currently. There seemed to be some confusion at the hearing about OMHAR’s staffing levels and HUD’s REAP study results.

What was the number of staff recommended by the REAP study for

the OMHAR?

A.3.a. The Resource Allocation Estimation Process study, issued in

July 2001, assessed the staffing needs for all departments in HUD.

The study recommended that OMHAR have a staffing level of 91

full-time equivalent personnel to carry out its operations.

Q.3.b. How many positions are currently filled?

A.3.b. For fiscal year 2002, HUD authorized OMHAR a staffing

level of 85 full-time equivalent personnel. As of July 2002, OMHAR

had 82 full-time staff.

Q.3.c. What is the appropriate number of deals that should be restructured per year?

A.3.c. The number of deals that will be restructured in coming

years will be based largely on the number of expiring Section 8

contracts with above market rents. OMHAR estimates that the

number of Section 8 contracts expiring with above-market rents

will be 570 in fiscal year 2003, 211 in fiscal year 2004, and 85 in

fiscal year 2005. However, the number of completed restructurings

in a year may not equal the number of expiring above market Section 8 contracts in a given year because of the length of time it

takes to process the restructurings, owners that opt-out of the program, or other factors.

From July 2001 through June 2002, OMHAR completed 413

restructurings, or an average of 34 completed restructurings per

month. OMHAR did experience a decline, however, in completed

restructurings during the past year because, according to HUD,

some restructurings were delayed until guidance was issued on

new Mark-to-Market legislation. HUD estimates that the number

of completed restructurings will increase now that guidance on the

new legislation has been issued and the delayed restructurings can

be processed.

Human Capital

Q.4. Was there a contract proposal for HUD to go beyond the

REAP study to identify the number of people actually needed for

future mission needs? What happened to that proposal?

A.4. HUD awarded a contract to develop a strategic workforce plan

that proposed to analyze future workforce requirements, the skills

and competencies of the HUD workforce, and the skill gaps and

changes in skills needed in the workforce. In May 2001, the HUD

Secretary issued a memorandum terminating the contract for this

strategic workforce planning and integrating the planning activities with the ongoing REAP studies. A HUD official told us that

the contract was terminated due to budget constraints and that the

work would be done in-house as resources became available. As we

recommended in our July 2002 report on HUD’s Human Capital

Challenges (GAO–02–839), we believe that it is essential that HUD

move forward in assessing future workforce requirements, the

53

1Standards for Internal Control in the Federal Government (GAO/AIMD–00–21.3.1), was prepared to fulfill our statutory requirement under the Federal Managers’ Financial Integrity Act

of issue standards that provide the overall framework for establishing and maintaining internal

control and for identifying and addressing major performance and management challenges and

areas at greatest risk of fraud, waste, abuse, and mismanagement.

skills and the competencies of its workforce, and the skill gaps and

changes in skills needed in the workforce.

Financial Management

Q.5. We understand that GAO is currently undertaking a review

of improper payments at HUD. Can you briefly discuss the implications of improper payments and the general types of circumstances

that result in such payments?

A.5. Improper payments include errors, such as duplicate payments and calculation errors; payments for unsupported or inadequately supported claims; payments for services not rendered or

to ineligible beneficiaries; and payments resulting from fraud and

abuse. Such payments are often the result of poor or inadequate internal control.

As you know, internal controls serve as the first line of defense

in safeguarding assets and in preventing and detecting fraud,

abuse, and errors. Heads of agencies are required to establish a

system of internal control consistent with our Standards for Internal Control in the Federal Government.1 During our analysis of

various Federal entities’ payment processes, we identified common

internal control weaknesses that sharply increase the Government’s vulnerability to improper payments, including weaknesses

in the review and the approval processes, lack of procurement

training, and ineffective monitoring of operations, such as contractor performance.

As stated in our Standards for Internal Control in the Federal

Government, transactions and other significant events should be

authorized and executed only by persons acting within the scope of

their authority. However, although the review of transactions by

persons in authority is the principal means of assuring that transactions are valid, we found that certain review and approval processes were inadequate in all agencies reviewed.

Effective management of an organization’s workforce—its human

capital—is also essential to achieving results and is an important

part of internal control. Training is key to ensuring that the workforce has the skills necessary to achieve organizational goals. However, we found that a lack of or inadequate training contributed to

the weak control environment at several agencies.

Monitoring to assess the quality of performance in the course of

normal operations is another essential component of an organization’s internal control structure. Program and operational managers, including contact managers, should monitor the effectiveness

of control activities as part of their regular duties. We found ineffective monitoring systems at several of the agencies we reviewed.

Given the billions of dollars in payments made by the Federal

Government each year to recipients nationwide and abroad, deficiencies in controls raise the risk that erroneous or fraudulent payments could make their way through agencies’ processes without

being prevented or detected.

54

Acquisition Management

Q.6. What mechanisms does HUD have in place to allow it to

evaluate contractor performance?

A.6. HUD has two basic mechanisms to evaluate contractor performance; the first is the ongoing oversight of the contract and the

second occurs when the contract is closed-out.

First, HUD staff serving as Government Technical Representatives (GTR’s) and Government Technical Monitors (GTM’s) play a

crucial role in evaluating the performance of contractors on an ongoing basis throughout the life of a contract. The GTR is often the

Department’s primary point of contact with a contractor and is the

principal judge of contractor performance, including the quality and

timeliness of work and products. GTM’s assist, on a part-time

basis, the GTR’s on the day-to-day technical oversight of the contractors’ performance.

The second mechanism that HUD has in place to evaluate contractor performance occurs when the work under the contract is

completed and it is administratively closed. When a contract is

closed-out, HUD’s GTR’s complete a ‘‘Contractor Performance’’ form

that scores the contractor on categories such as quality of performance, cost control, and timeliness. The scores for these categories

are then averaged to obtain a performance score. HUD retains a

copy of the form in the official contract file. Additionally, HUD’s

centralized contracting system was modified to track contractor

performance; beginning January 2000, the Deputy Secretary required that HUD would begin entering contractor performance data

in the system for all new contracts over $1 million.

Our past and ongoing work on HUD’s contracting practices suggests HUD’s mechanisms for evaluating contractor performance

may not be sufficient to ensure that contractors are held accountable for results. For example, few of the staff overseeing HUD’s

multifamily housing program property management contracts use

monitoring plans or employ risk-based strategies to determine the

necessary level and frequency of monitoring and that the amount

of on-site monitoring is limited. Absent a systematic approach to

monitoring and with a limited amount of on-site monitoring occurring, HUD’s ability to effectively monitor contractors’ performance

and identify and correct problems is impaired. In addition, although HUD’s centralized contracting system has the capability to

track contractor performance, by and large it is not being effectively utilized for this purpose.

Q.7. It sounds like GAO is planning to highlight acquisitions management as a new management challenge. Why do you believe this

is so significant?

A.7. Acquisition management is a significant issue at HUD because as the Department has downsized its own staff over the past

few years, its reliance on contractors has increased substantially.

This reliance, as measured by contracting obligations, grew by

more than 62 percent from fiscal year 1997 to fiscal year 2000; and

HUD’s officials have estimated that the total number of contractor

staff assisting in delivering HUD’s services may nearly equal its

own. As a result, effective management of acquisitions is crucial to

HUD’s success in meeting its mission and addressing its high-risk

55

Single-Family Mortgage Insurance and Multifamily Rental Housing

Assistance Programs areas. Ineffective oversight of contractors adversely effects HUD’s ability to carry out its mission and to deliver

key services and exposes HUD’s programs to the additional risk of

fraud, waste, abuse, and mismanagement.

Reorganization

Q.8. Do you have any concerns that putting the oversight function

under the control of the program function may compromise the

independence of REAC?

A.8. REAC is responsible for centralizing an standardizing the way

HUD evaluates the condition of the housing portfolio. One of

REAC’s key responsibilities is to monitor and assess the physical

condition of properties and Public Housing Authorities in which

HUD has a financial interest. To do this, HUD established a specific standard for conducting physical inspections: The Uniform

Physical Condition Standards (UPCS). Independent HUD contractors perform the physical inspections. According to PIH and REAC

officials, neither the inspections protocol nor the use of contractors

will be changed under the realignment.

As I stated in my testimony, the creation of REAC was clearly

a positive development that has yielded real results. And, it is

worth noting that at the time HUD established these centers, it did

so because it believed that the Office of Public and Indian Housing

and the Office of Housing—the offices within HUD that were originally responsible for these activities—were not effectively carrying

out these functions. The Secretary, as the leader of his organization, has the prerogative to align the organization as he sees fit,

consistent with his vision and management style. But it is important that the progress made to date not be jeopardized. For example, regardless of how REAC is aligned, HUD much continue to

make progress improving the physical condition of the public and

assisted multifamily housing properties. Ultimately the success or

the failure of any organization decision will be viewed in that light.

Q.9. How many assets overseen by REAC are FHA assets? How

many are public housing?

A.9. REAC assesses the physical condition of about 30,000 multifamily housing properties that are subsidized and/or insured by

HUD. REAC also assesses the financial condition for over 20,000

of these properties. In addition, REAC is responsible for assessing

the performance of about 3,300 public housing authorities (PHA’s).

As part of the PHA’s assessment, REAC conducts an independent

physical inspection of each authority’s properties. In total, there

are about 14,000 public housing properties.

RESPONSE TO WRITTEN QUESTIONS OF SENATOR REED

FROM CAROLYN FEDEROFF

Human Capital

Q.1. Could you discuss the union’s position on the REAP study?

A.1. We believe the methodology of REAP results in an underestimation of Agency staffing needs.

56

The REAP study does not accurately reflect the work that should

be done in accordance with HUD’s Handbooks, regulations, and

policies. The methodology used by the REAP consultants leads us

to believe that they studied what people actually do, not what they

should be doing. Therefore, if a Handbook states that a field review

will be done every 3 years, but due to staffing constraints the office

only conducts reviews every 5 years, the REAP study would report

staff needs based upon the practice of conducting field reviews

every 5 years.

The value of the REAP study remains in establishing at least

this as a benchmark—a uniform standard of staffing for every office. This benchmark can help identify the inequity in staffing between offices. However, it is our opinion that REAP does not fully

address the issue of staffing needs.

Q.2. Does it provide adequate information for the hiring of new

staff?

A.2. REAP provides useful information for hiring new staff, but it

is not complete information.

As set forth above, REAP can provide useful information to determine staffing inequities between offices. The Agency can use

REAP to determine which offices are understaffed relative to each

other. However, because REAP only captures what people actually

do and not what they should be doing, REAP does not fully capture

staffing needs. We believe REAP underestimates staff needs.

Q.3. What has the current Administration’s response been to filling the 300 FTE positions still open?

A.3. In the past month, the Agency has announced a ‘‘hiring 9/30’’

initiative. It is our understanding that this is an effort to fill remaining vacancies. The union is aware that the Agency is canceling

flextime options and is introducing mandatory overtime for its

Human Resources staff through September in order to complete the

initiative.

Earlier this year, the Agency embarked on an aggressive hiring

program for interns. As stated in my earlier testimony, the union

is concerned that these employees have been brought into temporary positions, as opposed to permanent positions. Regardless of

whether an employee is brought in as temporary or permanent

staff, all employees serve a probationary period. However, employees brought in as permanent focus only on their performance during the first year. Employees brought in as temporary, including

interns, are forced to also focus on securing employment after their

term ends. This creates an incentive to leave Government service.

Our goal should be to foster career incentives. In an Agency

where programs are designed to last decades, our hiring and retention strategies should similarly be designed to last decades.

Q.4a. Your testimony talks about HUD’s inability to provide union

officials with simple data about the HUD staff, such as retention

data for past intern programs or a listing of the employees being

hired into or leaving bargaining units. Why is this data important?

A.4a. There are different reasons for seeking this data. First, and

most basic, our union has a statutory obligation to represent barVerDate 11-MAY-2000 08:48 Nov 25, 2003 Jkt 000000 PO 00000 Frm 00060 Fmt 6602 Sfmt 6602 90605.TXT SBANK4 PsN: SBANK4
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gaining unit employees; we need to know who is in and out of the

bargaining unit to meet this responsibility.

Second, deductive reasoning is a generally accepted means of decisionmaking. Just as the oversight committee holds hearings to

collect facts before making decisions, the Agency should collect

human resource facts before making decisions. My statements

above concerning the potential problems of an internship program

are based upon an understanding of human nature. They are not,

however, supported by any independent data. The Agency has participated in internship programs before; we believe that it would be

better to assess the results of previous intern hiring programs to

determine: (1) if the Agency should rely so heavily on the program

this time, and (2) how the program can be structured to be more

successful.

But the Agency lacks the basic data to engage in deductive reasoning on Human Resources issues. Other areas where data would

be useful include: Determining which locations or program areas

have high turnover, and assessing the causes and cures; reviewing

supervisory to staff ratios; comparing staff resources between offices; and more.

Q.4b. Why is this type of data not available?

A.4b. We cannot say for certainty that it is not available, or that

it is not used. All we can say with certainty is that information

that was generally available to field management and union representatives 10 years ago is no longer made available. When we request the kinds of information we routinely received 10 years ago,

we do not receive it. For example, on April 3, 2002, we requested

quarterly reports showing all additions to and deletions from the

bargaining unit. More than 5 months later, we have yet to receive

the information. Field management no longer has access to regional

staffing reports.

Q.4c. What would HUD need to do to obtain this data?

A.4c. We suspect that as HUD has contracted out its Human Resources data systems, it has failed to include in the work specifications requirements for report and data generation. HUD should review these contracts and rewrite the work specifications to include

this basic data generation (for example, changes to the bargaining

unit and staffing reports), and to include the ability to search the

system for more sophisticated data information on an as needed

basis (for example, success of past intern programs).

Acquisition Management/Contracting

Q.5. How does contracting out HUD’s functions affect employee

morale?

A.5. Terribly. Poor performance and/or the high cost by contractors

affect employee morale on three levels:

• As employees: It says to employees that even bad contractors are

better than Federal employees. It identifies us as the enemy of

good Government.

• As housing professionals: Poor performing contractors betray our

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itary housing, strong neighborhoods and communities, and equal

access to housing.

• As taxpayers: High-cost contractors waste our tax dollars. We

pay taxes, too, and knowing the profound waste of taxpayers’ dollars is galling.

Over time, employees respond in one of two ways: They either

leave because they care too much, or they stay and, to survive, decide they must care less. HUD creates minimalists—employees who

do the minimum to survive.

We do not want to be minimalists. We want to be valued, and

we want our programs to be vital and valuable. Bad contracting adversely affects employee morale.

Q.6. What are the downsides to contracting functions out? What

are the benefits?

A.6. The answer to this question could involve a dissertation—the

downsides range from the obvious to the subtle. But in an effort

to keep it simple, we will set forth a few of the downsides, with

suggestions of where contracting is beneficial:

• The adverse impact on employee morale is described above.

• Contracting out entire functions leaves the Agency susceptible to

crises in the event of contractor failure. Crisis was narrowly

averted when a Single-Family M&M contractor failed early in

the program only because the Agency still had knowledgeable

staff available to pick up the pieces. With each passing year,

there are fewer and fewer trained employees to step in where

Single-Family M&M contractors fail. We recommend that no

more than 60 percent of a function be contracted out, so that the

Agency maintains a pool of trained employees.

• HUD programs are designed to last decades, but contracts are for

3 to 5 years. Turnover in contractors is as detrimental to HUD

programs as a high turnover of HUD staff. Institutional knowledge is valuable when working with long-term programs. Contractors should be reserved for instances when the Agency has a

short-term quantifiable project. For example, it is reasonable to

use contractors to build a database—to review HUD files, extracting information for keying into a database system.

• Contractors experience a learning curve, just as HUD employees

do. It takes approximately 3 to 5 years for a new HUD employee

to move to the journey-level of their position. It is reasonable to

assume that it would take contractor staff a similar amount of

time. In the Section 8 Contract Administration contracts, HUD

staff have been providing training and guidance to contractor

employees—but rather than paying HUD for the training, HUD

pays the contractors as though the contractors were fully performing their duties! Employees report that in some instances,

work has been returned by the contractor for completion by

HUD, and HUD paid the contractor as though the work had been

performed. Contracts must be written so that any guidance, even

that provided as part of the oversight process, come at a cost.

(This may seem harsh, but if a HUD employee performing a

monitoring review of a contractor finds that the contractor needs

guidance on the proper method of doing something, then it

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stands to reason that the contractor has failed to do it properly.

Therefore, the contractor should forfeit some remuneration for either failing to do the work correctly in the first place or for receiving instruction from a HUD employee on how to do it right

the next time. This is doubly true if the work was returned to

HUD for completion by HUD.)

• HUD should not contract out functions involving the oversight of

clients to whom HUD has delegated independent or significant

autonomous authority. For example, in Multifamily Housing, the

Agency increasingly relies on the MAP process. In this process,

the mortgagee conducts the appraisal, mortgage credit, and other

technical reviews. Currently, HUD’s technical staff review and

approve this work in determining the maximum insurable mortgage. The Agency has listed the HUD technical staff as staff

whose work can be contracted out. Contracting out this work

would result in no actual HUD oversight of the technical data

underlying the determination of maximum insurable mortgage.

(We would be very happy to discuss at greater length the MAP

process and the potential parallels to the former ‘‘Co-Insurance’’

program.) A similar situation is possible in the single-family

direct endorsement process, where HUD is contracting out the

quality assurance review of mortgagees approved for direct endorsement of FHA single-family insurance. In essence, this results in a contractor overseeing a contractor.

• Contracting can result in a release of business sensitive data to

industry competitors. For example, for several years the Agency

used ‘‘delegated processing’’ for the review of documents related

to mortgage insurance processing. The usual contractors were

almost always HUD clients—so that on some deals they were

seeking mortgage insurance and in other deals they were reviewing the mortgage insurance deals of their competitors. If any of

them submitted a request for information under the Freedom of

Information Act for the details of their competitors’ proposed

deals, we would deny the request under the business sensitivity

exception; however, as HUD contractors, they had full access to

their competitors’ information. The Agency should not engage in

contracting that includes this potential.

• By law, the contractors cannot make policy judgments, because

policy judgments are inherently governmental. Yet in some instances, being responsive to client needs requires judgment about

policy objectives. This is one of employees’ chief complaints about

the administration of the Single-Family M&M contracts. Singlefamily homes in HUD’s portfolio are a potential affordable housing asset that could be used to further the mission of the Agency.

But this involves policy judgments that contractors cannot engage in. It is noteworthy that the percentage of owner-occupied

sales of HUD homes has decreased dramatically since the M&M

contracts.

• It is reasonable to contract out the care and the maintenance of

single and multifamily homes coming into HUD’s portfolio. HUD

does not employ groundskeepers, plumbers, and other persons

capable of providing this service.

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Q.7. What is the best way to determine which jobs should be contracted out and which should be performed in-house?

A.7. The best way to determine which jobs should be contracted

out and which should be performed in-house are:

• The contract must be cost-effective. The cost-effectiveness must

include the cost of monitoring contractors, as well as providing

training and guidance to contractors by HUD staff.

• Core functions—functions directly related to the delivery of HUD

programs—should not be contracted out more than 60 percent, to

ensure sufficient trained HUD staff remain in the event of contractor failure.

• Jobs involving the oversight or monitoring of the implementation

of HUD programs, expenditure of HUD funds, or processing and

approval of FHA mortgage insurance should not be contracted

out. These are instances where HUD is already relying on an

intermediary between HUD and the delivery of service to the intended beneficiary of the HUD program. It is not reasonable to

insert yet another intermediary in the form of a contractor.

• Contracts that result in the release of business sensitive data

should be avoided, in order to preserve competition in the mortgage insurance industry.

We strongly believe, however, that if HUD conducted real costbenefit analyses, most of the work currently contracted would be

brought back in-house. HUD’s contracting out is not cost-effective.

Q.8. Your testimony described the problem of improper payments

to contractors. Please elaborate on this issue.

A.8. These problems have arisen in the Single-Family Home Ownership Centers. The best source for information on these and other

problems in the HOC is AFGE Local 2032, President Irene Facha.

You can reach Ms. Facha in Philadelphia at 215/656–0637 x0139.