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78–799 PDF 2002

S. HRG. 107–403

HUD’S PROGRAM, BUDGET AND MANAGEMENT

PRIORITIES FOR FISCAL YEAR 2002

HEARING

BEFORE THE

SUBCOMMITTEE ON HOUSING AND TRANSPORTATION

OF THE

COMMITTEE ON

BANKING, HOUSING, AND URBAN AFFAIRS

UNITED STATES SENATE

ONE HUNDRED SEVENTH CONGRESS

FIRST SESSION

ON

THE EXAMINATION OF THE NEW ADMINISTRATION’S PROGRAM, BUDGET

AND MANAGEMENT PRIORITIES FOR FISCAL YEAR 2002, FOR THE U.S.

DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT

APRIL 25, 2001

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

(

COMMITTEE ON BANKING, HOUSING, AND URBAN AFFAIRS

PHIL GRAMM, Texas, Chairman

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

PAUL S. SARBANES, Maryland

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

WAYNE A. ABERNATHY, Staff Director

STEVEN B. HARRIS, Democratic Staff Director and Chief Counsel

LINDA L. LORD, Chief Counsel

MELODY H. FENNEL, Professional Staff Member

JONATHAN MILLER, Democratic Professional Staff Member

GEORGE E. WHITTLE, Editor

SUBCOMMITTEE ON HOUSING AND TRANSPORTATION

WAYNE ALLARD, Colorado, Chairman

JACK REED, Rhode Island, Ranking Member

RICK SANTORUM, Pennsylvania

JOHN ENSIGN, Nevada

RICHARD C. SHELBY, Alabama

MICHAEL B. ENZI, Wyoming

CHUCK HAGEL, Nebraska

THOMAS R. CARPER, Delaware

DEBBIE STABENOW, Michigan

JON S. CORZINE, New Jersey

CHRISTOPHER J. DODD, Connecticut

CHARLES E. SCHUMER, New York

JOHN CARSON, Staff Director

TEWANA WILKERSON, Deputy Legislative Assistant

(II)

(III)

CONTENTS

WEDNESDAY, APRIL 25, 2001

Page

Opening statement of Senator Allard .................................................................... 1

Opening statements, comments, or prepared statements of:

Senator Reed ..................................................................................................... 3

Prepared statement ................................................................................... 48

Senator Enzi ..................................................................................................... 4

Prepared statement ................................................................................... 49

Senator Corzine ................................................................................................ 6

Prepared statement ................................................................................... 50

Senator Carper ................................................................................................. 6

Senator Santorum ............................................................................................ 7

Senator Sarbanes .............................................................................................. 7

Prepared statement ................................................................................... 51

Senator Stabenow ............................................................................................. 22

Senator Schumer .............................................................................................. 28

WITNESSES

Mel Martinez, Secretary, U.S. Department of Housing and Urban

Development ......................................................................................................... 9

Prepared statement .......................................................................................... 52

Response to written questions of:

Senator Sarbanes ...................................................................................... 77

Senator Santorum ..................................................................................... 153

Senator Shelby ........................................................................................... 153

Senator Reed .............................................................................................. 154

Susan Gaffney, Inspector General, U.S. Department of Housing and Urban

Development ......................................................................................................... 33

Prepared statement .......................................................................................... 55

Stanley J. Czerwinski, Director, Physical Infrastructure Issues, U.S. General

Accounting Office ................................................................................................. 35

Prepared statement .......................................................................................... 59

Response to written questions of Senator Sarbanes ...................................... 156

Renee L. Glover, Executive Director, Atlanta Housing Authority ....................... 37

Prepared statement .......................................................................................... 63

Barbara Sard, Director of Housing Policy, Center on Budget and Policy

Priorities ............................................................................................................... 40

Prepared statement .......................................................................................... 68

Response to written questions of Senator Sarbanes ...................................... 159

ADDITIONAL MATERIAL SUPPLIED FOR THE RECORD

Charts submitted by Senator Reed entitled, ‘‘HUD’s Unexpended Balances

and HUD Funding—Core Programs’’ ................................................................. 169

Prepared statement of Salvadore Carpio, Jr., Executive Director, Denver

Housing Authority, dated April 25, 2001 ........................................................... 172

Prepared statement of D. Scott Minton, Executive Director, Housing Opportunities Commission (HOC), Montgomery County, MD, dated April 25, 2001 ... 178

Prepared statement of Richard Wilson, Housing Authority of Washington

County, MD .......................................................................................................... 179

Charts submitted from HUD’s Budget Justifications, entitled ‘‘Public Housing

Drug Elimination Program and Rural Housing and Economic Development

Program’’ ............................................................................................................... 182

(1)

HUD’S PROGRAM, BUDGET AND

MANAGEMENT PRIORITIES FOR

FISCAL YEAR 2002

WEDNESDAY, APRIL 25, 2001

U.S. SENATE, COMMITTEE ON BANKING, HOUSING, AND URBAN AFFAIRS, SUBCOMMITTEE ON HOUSING AND TRANSPORTATION, Washington, DC.

The Subcommittee met at 10 a.m., in room SD–538 of the Dirksen Senate Office Building, Senator Wayne Allard (Chairman of

the Subcommittee) presiding.

OPENING STATEMENT OF SENATOR WAYNE ALLARD

Senator ALLARD. Let me call the Committee to order.

This is the Housing and Transportation Subcommittee of the

Banking Committee. I want to welcome all the Members of the

Committee, as well as all of the witnesses here this morning.

Today, we are going to review HUD’s programs, budget and management priorities for fiscal year 2002.

I particularly want to welcome Secretary Martinez. Mel, I am so

thrilled to have you assume the responsibilities of HUD.

You have had a lot of local responsibilities, a lot of local experiences. I do not mean to embarrass you, but when I talk to groups,

I frequently talk about your success story. I think of your coming

to America and your accomplishments and where you are now, as

a close adviser to the President, is one of the success stories of

America and what America is all about when we talk about freedom and opportunity. And so, I really appreciate and am looking

forward to working with you.

Mr. Secretary, this is your first appearance before the Committee

since your confirmation hearing 3 months ago. I trust that by now,

you have had time to digest at least some of the tremendous challenges of your job.

I want to commend you on the thoughtful tone that you set in

your first months in office. The response from my constituency has

been very, very positive.

I also want to welcome our second panel of witnesses following

the Secretary. We will be hearing from Susan Gaffney, HUD’s Inspector General.

We will be hearing from Mr. Stan Czerwinski, Director of Housing and Community Development at GAO.

Next, we will hear from Ms. Renee Glover, Executive Director of

the Atlanta Housing Authority.

2

Our final witness will be Ms. Barbara Sard, Director of Housing

Policy, Center on Budget and Policy Priorities.

I have an opening statement and then I will ask other Senators

if they have statements and then we will hear from the Secretary.

There has been a good deal of debate over HUD’s budget proposal and whether it constitutes an increase or decrease. However,

this debate seems to me to miss the point.

The central question should be—what are the objectives of HUD,

and are adequate resources provided to achieve the desired results?

Last year, I made a point to emphasize the Government Performance and Results Act. Government agencies, in my view, should be

judged by results, not by the size of their budgets or the number

of new programs. I would repeat that.

Government agencies should be judged by results, not by the size

of their budgets or the number of new programs. The success of

HUD will be determined by how many people it helps to achieve

self-sufficiency, not by how much money it spends.

It is the responsibility of the Congress to hold Federal agencies

accountable for specific results and to budget according to the success or failure in achieving those results.

For the last several years, HUD’s budget has been increased significantly, and what is most striking to me is the amount of unobligated money in the HUD pipeline which has already been appropriated by the Congress.

At the end of last fiscal year, there were at least $12 billion of

unobligated and unspent HUD money. Congress can argue about

whether this year’s budget request is a billion-dollar increase or a

billion-dollar decrease, but the key question is how do we get HUD

to efficiently and wisely spend the money that Congress has already approved? That question should be answered before we put

more spending increases in the budget.

As I review the budget request, I am impressed with the commitment to increase homeownership, particularly among minority

families. I am also impressed with the commitment to fully fund

Section 8 contracts and vouchers and to focus on ways to ensure

that those vouchers can be fully utilized.

I am also supportive of the effort to return the CDBG program

to a true block grant. Far too many of the dollars in this program

have been siphoned off by Congress for special projects before they

ever get to the local communities.

I am pleased to see some consolidation in programs and I hope

that there will be more. I am pleased to see the commitment to tax

incentives, fair housing enforcement, and improvements in the

homeless assistance programs. Obviously, the housing authorities

are understandably concerned with proposals that impact them.

We have invited the Atlanta Housing Authority to present their

views here today, and we will review their concerns and the concerns of others who oppose parts of the budget.

I look forward to working with you, Mr. Secretary, and with the

Members of this Committee as we work to build HUD accountability for results to taxpayers and program beneficiaries.

I would like to call on my Ranking Member, Senator Reed. I understand that you have a schedule conflict this morning and may

3

have to step out after your opening comments. We will do what we

can to work with you.

I call on our Ranking Member, Senator Reed.

STATEMENT OF SENATOR JACK REED

Senator REED. Thank you, Mr. Chairman. And thank you, Secretary Martinez, for joining us this morning, and also for your enthusiastic involvement in these critical issues facing our country.

We have for the last several years witnessed unprecedented prosperity in the United States. But one of the ironies is that it made

accessible, affordable housing, both rental housing and homeownership, much more scarce.

And so, when the Chairman speaks, I think rightly, about measuring HUD not so much by the size of its budget, but in its challenge, the challenge is even greater today because if our goal is, as

it should be, to give every American the chance for safe and decent

housing, then we have not succeeded yet and we need more resources, I believe, to make that a successful outcome.

In addition, HUD has a very special role. It is not simply to put

people in housing. It is to try to build communities. And so, bricks

and mortar are important. But there are other programs in the

HUD budget that are equally important. And those programs have

to be emphasized also.

One of the aspects of the budget that the President set up is that

it represents a decrease in overall funding, I believe, in looking at

the numbers, and also in terms of some critical programs. There is

a chart up there that I would like to have submitted for the record.

Senator ALLARD. Without objection.

Senator REED. Thank you very much, Mr. Chairman.

It shows from 2001 to the proposed 2002 budget a fall-off in the

Section 8 program in new vouchers, a fall-off in tenant protection

grants, a zeroing-out of vouchers to disabled, and certainly, that is

an area that has not gone away and we have to support and fund.

And also a reduction in the Section 8 reserves. And in the formula

grant program, for the HOME program, that too has been reduced.

That is one area of concern in this budget.

A second area of concern is public housing. There has been, and

I commend you, an increase, I would say a modest increase in operating funds. But there has been a reduction in capital funding. And

this means that for many Public Housing Agencies, the ability, the

flexibility to go in, to repair, to build, has been severely eroded.

And I would also say in terms of the operating fund, that is an

increase and you cannot ignore that. But just in terms of energy

costs, which I foresee rising in the Northeast and throughout the

country over the next several years—California is prominently displayed today, but I am sensing it up my way as well—is that even

that small increase in operating money could be overwhelmed simply by the cost of buying energy for public housing units.

When you look at the Drug Elimination Grant Program—and we

have police officers here today that would be the first to say that

this program has helped them, again, not so much to put people

in housing, but to build stronger communities—it has been zeroed

out entirely.

4

We are bedeviled by this whole drug problem. We are spending

billions of dollars, which we have all supported I believe, to interdict supply in Columbia. We have planes flying throughout South

America, to help other air forces and, tragically, that help this

week cost two innocent lives.

But if we do not in our own communities deal with this problem,

then we are making, I think, a tremendous error. And I think the

Drug Elimination Grant Program is very important and should be

supported.

And then, the net funding overall, the last column in the chart,

suggests that we are not putting the kind of resources into the public housing area that we should.

There are many concerns that I have with the budget. There are

concerns that I hope we can address during the course of these

hearings, Mr. Secretary. And also, as we go forward.

I am pleased that the President has recognized homeownership

tax credits. I have a version of a homeownership tax credit which

I hope we can discuss and I hope that I can persuade you that my

approach is just as good, maybe even better, than the President’s.

That might be hard, but I will try.

But I think it is important that in addition to our traditional

commitments to Section 8 housing and to public housing, that we

do try to inspire and create more homeownership.

There is another area, too, that this year I believe we will be engaged in. That is homelessness.

I was up in Providence, RI—and I would suspect, Mr. Secretary,

in Miami, in Atlanta, in Los Angeles, and San Francisco, it is the

same problem. We have social service agencies that are not shelters, that are, unavoidably, I should say, having people sleeping on

their floors at night. I went into the Traveler’s Aid in Providence,

RI in the middle of the day and there were families sleeping in

their community room who had no place else to go. That is something we have to deal with, too, and that requires money.

Let me thank you, Mr. Secretary, though, for your interest in

lead hazard reduction. We spoke about this and I am very pleased

that you were responsive and I hope we can carry on.

We have a lot to do and I think we are all fortunate that we have

an individual in your position, Mr. Secretary, who wants to do the

right thing, and I hope we can help you. And if we get you more

money, I hope you would not be too proud not to accept it.

[Laughter.]

Because that is what I am going to be trying to do.

Thank you, Mr. Chairman. Again, I have to excuse myself momentarily. I have a more complete statement which I would like to

submit for the record.

Senator ALLARD. Without objection.

Senator REED. Thank you very much.

Senator ALLARD. The Senator from Wyoming, Senator Enzi.

STATEMENT OF SENATOR MICHAEL B. ENZI

Senator ENZI. Thank you, Mr. Chairman, for conducting this

hearing today to discuss the Department of Housing and Urban

Development’s budget, but also, its program and management priVerDate 11-MAY-2000 09:37 May 08, 2002 Jkt 000000 PO 00000 Frm 00008 Fmt 6633 Sfmt 6633 78799.TXT SBANK4 PsN: SBANK4
5

orities for fiscal year 2002. I would like to submit a more complete

formal statement for the record.

Senator ALLARD. Without objection.

Senator ENZI. I want to welcome Secretary Martinez to the Subcommittee, as well as the other witnesses.

Your comments and commitment to housing and community development has created a network of people nationwide that is exciting and knowledgeable and will continue to encourage community

leaders nationwide to find solutions to their housing and community development needs.

I do support the President’s housing and community development

public policy goals in the fiscal year 2002 budget, which shifts the

focus of HUD to providing affordable housing and promoting community and economic development. Nevertheless, rural States like

Wyoming need better assistance in establishing homeownership opportunities for their constituents.

I support the fiscal year 2002 housing initiatives to promote

homeownership opportunities such as increased tax credits and

homeownership down payment assistance. These initiatives encourage Wyomingites to create strong communities and sustain economic growth in my home State.

HUD’s fiscal year 2002 budget ensures these consumers, organizations, and manufacturers alike would enjoy reforms that call for

an increase of safe and affordable housing nationwide, especially

for more rural areas of our country like Wyoming.

These are some of the issues of concern that I would like to address at a later date, such as facilitating better access to affordable

housing for the Arapaho and Shoshone tribes on the Wind River

Indian Reservation.

In addition, I am concerned about the effects of fraud, waste and

abuse at HUD. I have had a keen interest in the measurable

progress of management reforms in all Federal agencies since I

came to Washington. I have conducted Agency visits for Occupational Safety and Health Administration, U.S. Forest Service, and

Small Business Administration, Internal Revenue Service, the Federal Deposit Insurance Corporation to discuss the implementation

of the Government Performance and Results Act, GPRA.

I would welcome the opportunity to come to HUD to begin the

GPRA discussions with you, Secretary Martinez. I believe that

GPRA’s accountability and strategic planning measures assist Federal agencies in effectively and efficiently accomplishing their missions and gives credit to the people who do the work as they serve

the American people.

I do support the budget. I thank you, Secretary Martinez, and

the other witnesses for taking time out of your busy schedules to

meet with us today, and I look forward to further discussing housing and community development issues with each of you and your

staff in the months to come. I do have another commitment and

will have to leave. I will be submitting some questions to all of the

witnesses today.

Thank you, Mr. Chairman.

Senator ALLARD. Thank you very much.

Now Senator Corzine from New Jersey.

6

STATEMENT OF SENATOR JON S. CORZINE

Senator CORZINE. Thank you, Mr. Chairman. I have a more formal statement that I would submit for the record.

Senator ALLARD. Without objection.

Senator CORZINE. I want to thank the HUD Secretary for joining

us, and all the other witnesses. I think this is a very important

hearing you are holding.

As I think most of us know, HUD was sometimes considered terminally ill, or certainly on the sick list in days gone by. And it certainly moved to a substantial improvement in its performance

through the efforts of Congress, the Clinton Administration, and I

am sure also the efforts that the Secretary will bring to bear as we

go forward.

It is an important point of focus for the kinds of innovations and

opportunities that I think deal with the problems of our cities that

was really the basis of President Kennedy’s initiative with regard

to us, and we have had great progress.

I think close to 70 percent of our population has homeownership

now and it is a terrific move for everyone, for African-American

and Latino households, I think it is terrific.

But I am, as Senator Reed voiced, concerned about a number of

the budget cuts that are within the fiscal year 2002 proposal. I

think it provides a very serious stepping back from things that I

think have been very successful.

As I might guess, I am particularly disturbed by the Public

Housing Drug Elimination Grant Program, which is eliminated

from the budget funding proposal. It was an initiative of my predecessor, Frank Lautenberg, a very bipartisan initiative from the first

Bush Administration, and we think much more effective than at

least some of the commentary that I have heard. So, I look forward

to having some give and take with regard to that program.

I am also concerned about the capital funding issues. I think

these housing issues, the community development programs that

are funded, are truly bipartisan issues that I think we all have concerns about. And I would like to join Senator Reed in trying to encourage greater resources to be flowing to these.

In New Jersey, if I have read the budget right, this will cost my State something like $32 million, adversely affect 80 housing agencies, 45,235 public housing units and 110,000 low income and elderly households.

It makes a difference. It is real. It is on the ground. People are

touched by a lot of these programs. And I feel very strongly that

it is the responsibility of those of us on the Subcommittee to understand the reasons. Thank you, Mr. Chairman.

Senator ALLARD. The Senator from Delaware.

STATEMENT OF SENATOR THOMAS R. CARPER

Senator CARPER. Just very briefly. Mr. Secretary, thank you for

joining us today.

There was a fellow who showed up in Delaware a couple of weeks

ago who said he was you and who talked a bit about the budget.

I think it was the day that the President laid out the budget that

Senator Corzine is referring to. We just look forward to hearing

from you today.

7

As you know, the programs that you now have jurisdiction over

are ones that we value. We are not interested in cutting the heart

out of them. We want to make sure that we replicate and reinforce

the ones that are good, and the ones that ought to be corrected, we

do something about them. But thank you for being here today. We

look forward to your testimony.

We have another session going on over in the Capitol dealing

with some discussion on the education bill. So I may be in and out

of here today, but I welcome your presence. Thank you.

Secretary MARTINEZ. Thank you.

Senator ALLARD. Mr. Secretary, we do have Members who are

coming and going. As they come in, we will recognize them. They

can put their statements in the record when we get ready.

I see that we have the Senator here from Pennsylvania, Senator

Santorum. So we will go ahead and call on him next to make a

comment. And then we will recognize the Senator from Maryland

who has just walked in.

STATEMENT OF SENATOR RICK SANTORUM

Senator SANTORUM. Thank you, Mr. Chairman.

I just want to welcome you, Mr. Secretary. It is great to see you

here. Thank you for your fine service to the country and I look forward to your testimony.

A couple comments have been raised by some of the Members on

the other side about some of the reductions in the budget. And obviously, we have been hearing from my housing authorities in

Pennsylvania and concerns about the drug elimination, the elimination of that funding.

I would just like to get your comments and your feedback on that

as to what the rationale was behind those programs. But we are

anxious to work with you and I know that you come here to present

your proposal, but you are willing to work. And we will see what

we can do to find the right balance between the President’s initiatives and the President’s eliminations.

You have proposed some new things. You have taken some

things off the table. That is a good, innovative start and we will

work with you to see if we can craft a good balance between what

the Congress would like and what the White House would like.

Thank you.

Secretary MARTINEZ. Thank you.

Senator ALLARD. The Senator from Maryland.

STATEMENT OF SENATOR PAUL S. SARBANES

Senator SARBANES. Mr. Chairman, I want to thank you and Senator Reed for scheduling this hearing and I want to welcome the

Secretary back before the Committee. I just want to make a few

comments about this HUD budget.

First of all, it has to be understood in a broader context of the

overall housing needs of the country. A HUD study itself has found

that almost five million very low-income American households have

worst-case needs. That means they pay over half of their income

in rent or live in severely substandard housing. A more comprehensive study shows that almost 14 million families have worst-case

needs, including 10 million working elderly or disabled families.

8

I think we need to appreciate that there is a tough housing problem out there for a lot of people. And while we tend, at least some

in the public, to think of the housing problem in terms of homelessness, and while that is a very serious aspect of it, there are a lot

of working families or elderly people or disabled families that are

in dire straits with respect to housing.

Obviously, we need to try to address this situation. And I just

feel that the budget that we are facing just does not rise to the

challenge. This is something that I have spoken to the Secretary

about before and will continue to do so. In fact, if we look at the

budget carefully, there are some very substantial cuts in it.

Public housing is down. The Drug Elimination Grant Program is

terminated. Disabled vouchers are eliminated altogether. The

HOME formula grant, which has been successful in inducing State

and local people to contribute, has been reduced.

I just want to focus for a moment on this cut in the Public Hous- ing Capital Fund, 25 percent. I think $700 million, as I recall the

figure, which pays to modernize and make needed repairs to public

housing. Now I am concerned about this because we have a stock

of housing there, so that a large initial investment has been made

some time in the past.

And the question is, if we can repair it or modernize it, we can

keep that housing stock available and can continue to meet housing

needs. If we let it slide, eventually, we have to, in effect, take it

off the books. And then we come back to the problem, well, where

are we going to find the units to replace it, often at very substantial higher cost.

As I understand it, Mr. Secretary, the Department defends this

cut by saying that there are unextended balances in the Capital

Fund. But our analysis shows that your own data show that the

Capital Funds are being spent well within the legal time frames established in the Public Housing bill in 1998. Obviously, you cannot

expend it immediately. It depends a lot on the local housing authorities to carry through on this.

We established some time frames to address this issue in the

earlier legislation. And my understanding is that these balances

that are being in effect pulled in are well within those time frames.

If I am incorrect about that, I hope you will submit some information to substantiate that.

We do not want this housing to deteriorate and fall into disrepair, people living in housing that is unfit. And obviously, this

will have a real and direct impact.

I was so concerned about this, I did a survey of some of the housing authorities in my State, just to get some feedback as to what

their situation was. I did not want to talk about it in the abstract.

That is not fair to the Department. We wanted to try to bring it

down to the particular. So let me just give you one example.

The housing authority in Washington County, MD, wrote back to

me to say that if the cut goes through, they will have to shelve

plans to install heat pumps in elderly housing. These heat pumps

would both save energy costs and provide needed air conditioning

relief to elderly housing residents who have respiratory problems.

That is just one example. But we will interchange with the Department and provide other examples as well. I was also, I have

9

to say to you, surprised and I strongly am opposed to the termination of the Public Housing Drug Elimination Grant Program.

This program provides needed funds for police and safety officers

and activities for drug prevention, including after-school and mentoring programs. There are a number of police officers here today

from Baltimore City. I want to thank them and the other officers

for coming to this hearing to, in effect, manifest their support for

this program.

Now the budget states that the Drug Elimination Grant Program

is unnecessary because it is duplicative. Yet, your own web page

says that these funds support a number of critical programs that,

‘‘empower residents to turn the tide against drugs and drug-related

crime in their own communities.’’

Now I do not know whether this is your web page or the web

page that is carried over from the previous Administration. But you

are going to be subjected to this analysis and you need to get your

web page and your budget on the same page. And from my point

of view, I would like to see the budget on the same page with the

web page and not the other way around.

[Laughter.]

Making public housing safe is indeed within the mission of HUD

and part of our obligation to housing. There are other proposed

cuts that concern me. I will just touch on them.

Termination of the rural housing and economic development program. Reduction of HOME formula grants. Cut in new Section 8

vouchers. And so forth and so on. So, Mr. Secretary, we intend to

follow the Department’s activities closely. We want you to be able

to do the job. I think you are committed to doing the job. But you

cannot do it without the resources.

I think we have to continue to engage in this struggle to find

these resources to do the job. This notion that—well, we will do a

little here and take a little from there. But, you know, some of

these programs, and the ones I focused on are the ones that really

are helping, in a sense, the neediest.

I really do not want to see this public housing deteriorate because once that happens, you get on that downward slide, it is just

a spiral that carries you on down.

And both the Drug Elimination Grant Program and the capital

expenditure to bring them up to standards I think are extremely

important. We hope we would be able to visit with you and find

some way to put some funds back in these programs.

Thank you very much, Mr. Chairman.

Senator ALLARD. Now that all the Members have made their

opening statements, we will begin testimony.

Mr. Secretary, we are all looking forward to hearing your comments this morning.

Secretary MARTINEZ. Thank you, Senator.

Senator ALLARD. Thank you for joining us, Secretary Martinez.

STATEMENT OF MEL MARTINEZ, SECRETARY

U.S. DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT

Secretary MARTINEZ. Thank you, Chairman Allard, and thank

you, Members of the Committee.

10

Senators I appreciate this opportunity to be back before you and

to discuss the fiscal year 2002 budget for the Department of Housing and Urban Development.

I must say that I continue to be both humbled and energized by

the challenges before me in this Department. The goal of expanding housing opportunities for American families is one that I

strongly share in and am completely committed to.

The President and I are both committed to restoring the confidence, however, of the Congress, of our constituents, and of the

American people in the operations of my Agency.

This budget, I think, is the first step in restoring that confidence.

It is a compassionate and responsible budget that will allow us to

serve people more effectively, empowering individuals and communities across the country.

The American taxpayer will measure our success not by how

much money we spend, but how many families have a better home

and how many immigrants may get a chance to buy their first

house or how many children grow up in the kind of neighborhood

that we all want our children to grow up in.

The Department’s proposed budget increases by 6.8 percent— almost 7 percent. It includes three new homeownership initiatives

to expand opportunities for hundreds of thousands of low-income

families. The American Dream Downpayment Fund will provide

$200 million to match downpayment assistance, helping more

than 130,000 low-income families achieve that American Dream

of homeownership.

We have also proposed a tax credit which will be operated by the

Department of the Treasury, which will support the rehabilitation

or construction of at least 100,000 new low-income homes for families in the coming year.

This Administration will seek authority to offer low income families new adjustable-rate mortgages, called Hybrid ARM’s. These

new mortgages protect new homebuyers from dramatic changes in

the market rates until they can establish an economic foothold.

Finding affordable and decent housing continues to be a problem

for many Americans. As has been mentioned, about five million

renter households have worst-case housing needs for rental housing. This number represents an 8 percent decline, but it is still an

unacceptable number.

In order to expand the production of affordable housing, President Bush proposes to raise the limits for FHA multifamily lending

by 25 percent. And this, by the way, is the first increase in this

lending in almost 10 years.

The budget renews all expiring Section 8 vouchers, at a cost of

$15.1 billion, and an increase of $2.2 billion over fiscal year 2001.

And it also funds an additional 34,000 new Section 8 vouchers at

an additional new cost of $200 million.

Market conditions can affect the utilization of vouchers. But

what we find is that the under-utilization of vouchers, which is a

problem across the country and has been a chronic problem at this

Agency, is a problem of mismanagement at the public housing authority level.

This problem last year alone left 300,000 families without assistance, for which there were vouchers funded by the Congress. This

11

is something that we must work on and the supervision that we

exercise over local housing authorities and how they do their work.

This budget also fully funds last year’s administrative CDBG request of $4.4 billion. In addition to full formula funding for CDBG,

we will provide $80 million in grants for community technology

centers in economically distressed areas.

This Administration believes that no child should be left behind

and by increasing the access to information technologies, we hope

to shrink the digital divide in many of our communities.

The budget recognizes the needs of the most vulnerable people

in our society—the elderly, the disabled, the homeless, and individuals with AIDS. All of HUD’s programs for these vulnerable populations receive sustained levels of funding or increased funding.

The budget also recognizes the damage done by lead-based paint,

especially to young people. And we have increased funding for leadbased paint hazard reduction by $10 million.

While most of the Department’s programs are funded at last

year’s historically high levels, or have received an increase, there

have been a few programs that we have chosen to reduce and these

have been well publicized and we have heard about them here

today. But in order to restore the confidence in this Department,

I believe that we must continue to focus on our core mission.

The first program that has been much talked about, and I will

try to respond to some of the comments here today, is the Drug

Elimination Grant Program. Let me say that I am, as is every

American, responsible American, should be extremely committed to

the drug fight.

When I was in local office and as a local elected official, I did

much to create a new intolerance for drugs in my community. I

began a wide-ranging drug testing program of employees at the

county level so that we could not just identify problems, but that

we could help people to move out of addiction, to seek a better life,

and to be healed from the problems of addiction.

But what I have found here upon arrival at this Department is

that this is a program which started, as was mentioned, during

Secretary Kemp’s tenure at the Department, with about $8 million

and focused on certain housing authorities that had a specific drug

problem. But in classic fashion, this program has now mushroomed

to $309 million.

And let me just say that as a newcomer to Washington, I think

it is a little daring to eliminate a program called the Drug Elimination Grant Program. By title alone, a program that is destined

to survive forever.

But the fact is that compassionate intentions have to be really

measured by compassionate results. And as you look at this program and the results of this program, they are quite mixed. So

what we have done here is, number one, eliminate the program so

that it will give us one less program to manage at HUD.

We put $150 million, or almost 50 percent of the funding, under

general grants to the housing authorities which will continue to

grow and will hopefully fund the good programs that these good officers are here to support today. There are a number of good programs that the Drug Elimination Grant Program supports that

have been successful across the country.

12

But there have also been abuses. And there have also been programs that have taken us far afield into areas that, number one,

are at best, in the esoteric healing sort of arts, but also have plain

and simply been for foreign travel and things that are far from the

intention of the good people in the Congress.

So what we have done is taken half the money and put it in a

general grant to the housing authorities for those places where

they have programs that work, so that they can continue to work.

But there is another thing that I would mention to you, and maybe

it is my perspective as a local official.

And that is that local law enforcement, local mayors and local executives and local officials cannot have a different standard for policing in the public areas of their communities than they might

have in other areas of their communities.

It is not up to HUD to be the local policeman or to fund local

police activities. I believe that these are shared responsibilities of

local officials and if we are really going to seek to have a better

day, we need to look for ways of partnering with local officials on

how we eliminate drugs in an effective and courageous way.

The ‘‘One-Strike-And-You’re Out’’ policy at HUD will continue.

We are in the midst of appeals on that. We have encouraged the

Department of Justice to continue to pursue that so that we can

rid public housing authorities of residents who are more involved

in drugs than they are in seeking to build a better community.

Another reduction in our budget is the Public Housing Capital

Fund. And I appreciate the thoughtful comments that have been

made about the need for us to maintain the stock of public housing.

Again, I draw on my local experience as a local housing official.

I can remember how vital it was to receive those modernization

funds. If we were going to fund a new roof, that if we did not cover

it pretty soon, the walls would also be rotting, it would be a much

greater maintenance headache and problem. But even correcting it

for inflation, that our housing authorities could not utilize more

than $2.3 billion in modernization funds. And that is exactly the

number that we are seeking in this new budget.

The fact is that these are unencumbered funds. There will be no

single housing authority anywhere in the United States that will

have a roof unfixed, a water heater replaced that should be replaced, or a kitchen modernized that should be modernized, or any

other weatherization, modernizations or anything else that they

have in their drawing plans.

Senator Sarbanes, as your local housing authority informed you

of what they felt would completely devastate them, the fact is that

these are funds that are accrued and unencumbered. These are not

funds that any housing authority would need to do that which they

need this coming year. It is just putting unused funds on top of unused funds.

If we were to come to a year from now, have drawn down these

unspent balances, and found that we needed additional funds for

modernization, I would be here to ask you for it. I believe it is important that we do not let our housing stock deteriorate.

But what I am told, and I have asked it eight ways from Sunday

of the people behind me here, is there going to be a single housing

authority in America that will not be able to fix a roof because of

13

what we are doing here? The answer has been, time and again, no,

we will not.

So at some point, I have asked the question in every conceivable

way, as I have seen the criticisms and as I have seen people concerned about this. The answer I have received, very concisely, very

clearly, is that these are funds that are accruing on top of funds

that are unspent, and that we will not be jeopardizing the opportunities for local housing authorities to maintain and upkeep in this

coming year by this reduction.

At some point, I do believe that it is sensible to think about

whether or not the funds are needed, and whether they can be absorbed. I am appreciative of the generosity, Senator Reed, that you

offer in terms of additional funds.

The fact is that I think some of the growth in this Department’s

budget over the last couple of years are really unsustainable in a

responsible budgeting sense, but also unabsorbable. I do not think

that we can responsibly absorb 16 percent increases in a $30 billion

budget and prudently go out and manage those funds for you.

The fact is that as I have traveled the country and I have visited

with HUD offices that, by the way, for the first time may be meeting a HUD Secretary, I am astonished at the difficulties in management, at the misallocation of personnel and resources that we

have at HUD throughout this country. So the ability of this Agency

to manage an ever-expanding agenda of programs or ever-increasing budgets in double-digit rates, I fear may not be sustainable or

really appropriate.

But let me just say that we have labored mightily, I think, to

strengthen this Department over the last many years, but we still

have a ways to go. Too much emphasis has been put on programs

rather than people, on dollars spent rather than on results accrued.

The President is openly and strongly committed to focus on programs and an efficient Government that works. My approach to the

task will focus on four governing principles.

First, our mission will be to serve people, not programs. Second,

we will have the discipline to stick to our mission. We must avoid

mission-creep at HUD. Third, we will be good stewards of our resources. Fourth, and this is important to me, we will observe the

highest ethical standards. This means more than prosecuting graft.

It also means rejecting the subtler corruption of settling for good

appearances rather than insisting on good results.

This also includes the public housing authorities that operate

under local leadership. And let me just say that I am going to ask

for a renewed commitment by our mayors and local officials to insist that we have well managed and ethically run public housing

authorities.

I have been astonished as I look at the daily clips from across

the country which show the number of troubled housing agencies

across America that are misspending and misutilizing much of the

funds that you send with good intentions to them, and that oftentimes get diverted for inappropriate purposes.

So I look forward to working with the Congress on the many

issues that face HUD. The Congress has funded two important

Commissions—the Millennial Housing Commission and the ComVerDate 11-MAY-2000 09:37 May 08, 2002 Jkt 000000 PO 00000 Frm 00017 Fmt 6633 Sfmt 6633 78799.TXT SBANK4 PsN: SBANK4
14

mission on Affordable Housing and Health Care Facility Needs for

the 21st Century.

The Department is looking forward to the recommendations of

these Commissions. We are committed to continuing a strong relationship with the Congress so that, together, we can make effective

and efficient use of the funds that you entrust upon us and on behalf of the housing needs and the community development needs

of our country. Thank you.

Senator ALLARD. Thank you very much, Mr. Secretary.

According to your testimony we have a 7 percent increase in

overall spending at HUD. The rest of the budget has a 4 percent

increase. And you say that is a commitment to affordable housing.

I agree. That seems like a rather substantial commitment to affordable housing.

You also noted that even though you have eliminated the Drug

Elimination Grant Program, per se, the dollars are still there. You

have moved them into a general grant. So that if a local housing

authority sees a need for drug intervention purposes, they can use

that in the housing authority. I assume that is correct.

Secretary MARTINEZ. Right.

Senator ALLARD. So those housing authorities that have come to

rely on that program can still use it. The point is that there might

be other communities that have needs other than just drug enforcement and those dollars are flexible enough that they can use it for

whatever need they happen to have.

Secretary MARTINEZ. Correct.

Senator ALLARD. You say that there is a total of $8 billion of

unspent dollars already in the public housing maintenance account.

Secretary MARTINEZ. Correct.

Senator ALLARD. I want to talk a little bit about the dollars at

HUD that are unobligated. Now the $8 billion that I think has

raised the concern of some of my colleagues is part of the $96 billion of unspent but obligated funds. In other words, they are obligated already to the program for maintenance and operation.

Secretary MARTINEZ. Absolutely.

Senator ALLARD. But I would point out to the Secretary and also Members of this Committee, we have $12 billion of unobligated dollars out there. In other words, they are not tied in to any program.

I would note that this information is based on a GAO report that

this Committee requested.

I am looking at the HUD total budget request for 2002, which is $30 billion. By comparison, we have $12 billion of unobligated

and unspent dollars. In other words, for lack of a better term, there

is a slush fund over here. But if you consider all of those dollars,

there is about $108 billion in the pipeline.

I do not know of any other Agency that has this kind of accounting system. There is no way that we can blame you for this. After

all, this is a problem that you are taking on.

Secretary MARTINEZ. My fear is that at some point, you will be

able to blame me and I am trying hard for that not to happen at

some point.

[Laughter.]

Senator ALLARD. This is my question. Does this concern you and

how do you deal with this large amount of unallocated dollars?

15

Secretary MARTINEZ. Well, it is a concern, Senator, and I think

that we need to move carefully to try to make sure that we stay

within structures as we receive funds from the Congress.

The fact is that you are correct in the Drug Elimination Grant

Program and what you stated. We have seen over the years, as you

examine the records, the Office of Inspector General has been critical of the uses of these funds in many of the programs and the

ways that they have been used.

Twenty-one audits of these funds showed the need for more ac- countability of these funds. We identified approximately $18 million in unexpended funds that grantees were expending after the

grant termination date. In the same report, the audits disclosed a

combined $6.2 million in unsupported and ineligible costs. That

was from the 1999 OIG report on this particular Drug Elimination

Grant Program. And that is rife with those kinds of problems.

There are many housing authorities that do not have a drug

problem, fortunately, thankfully. Many elderly, and it is not the

same situation as it might be in other cities.

And for those, these are funds that are not available to them. So

if we give them as an at-large grant, all authorities can take part

in it to the extent that they need them.

For the authorities that are managing the programs well and have a successful drug program, the $150 million will still allow

them to continue those good programs.

But it enforces a certain discipline, a pocketbook discipline, that

will make them move out of the silly things that they are doing

with this money. Some are not only unauthorized uses, but also fall

in the category of poor judgment. And so, those would be hopefully

eliminated by the stringent nature of the funding that we are giving them.

Senator ALLARD. Well, Mr. Secretary, I want to thank you for

that clarification. I just have a quick question here before I call on

the Ranking Member.

In Colorado, and across the country, local HUD offices cannot

make decisions because the decisionmaking process has been centralized out of Washington. I think this is a mistake. I would like

to know what your views are on this matter and how do you plan

to decentralize decisionmaking during your tenure?

Secretary MARTINEZ. Senator, I think it is a real serious problem.

It has become very acute and I have become very aware of it as

I have traveled.

I had a member of our staff in Kansas City tell me that when

he was Regional Manager of HUD in that area, that he felt like

he was a manager of a regional branch bank, is what he thought

it was likened to. He told me that now he has been reduced to an

ATM because he has no authority to make any decisions.

I was in West Virginia last week and the HUD office there was

telling me, people in West Virginia, they have a public housing

issue and have a question for HUD and have to go to Baltimore

to have a decision reached. The fact is that authority has been so

centralized as to make HUD an ineffective and inflexible Agency to

deal with local problems.

We want to restore local autonomy in much of what HUD does

in the decisionmaking, with also accountability, of course, and good

16

check marks and guideposts. But the fact is that we need to empower our local offices to do more of the decisionmaking there to

be a concentrated effort.

One of the management challenges that we have is, in the same

visit to West Virginia, I learned that out of the 25 or so HUD employees there, only five report to the head of the HUD office for the

State of West Virginia. Some staff report to Baltimore, other staff

report to Kansas, and others report to Philadelphia. It is difficult

to run an Agency with that kind of management fragmentation.

Some of this has been I think part of the 2020 management reforms. I am very reluctant to initiate a new management wave at

HUD. But we are going to have to do some things to put back local

controls in management and decisionmaking, so that we can be an

effective Agency.

You see, this impacts our ability to get more production of affordable housing. When you have a local developer who may want to

get into an affordable housing project, the local HUD office cannot

make a deal because they have to go back to Washington and wait

months for a reply, the fact is that those deals go away.

Local developers have told me that they do not want to do business with HUD. It is too inflexible, too difficult. And so what occurs

is that they go on and do business elsewhere and we then do not

have a continuing new stock of affordable housing being constructed and we have people taking advantage of our programs just

simply because we are too difficult to do business with.

Senator ALLARD. Thank you.

The Senator from Rhode Island, the Ranking Member.

Senator REED. Mr. Chairman, I will yield to Senator Sarbanes.

Senator SARBANES. Well, thank you.

Senator ALLARD. Sure. That will be fine.

Senator SARBANES. Thank you very much, Senator Reed.

Unfortunately, I am going to have to go to another hearing. But

I want to hang in here on this Public Housing Capital Fund for just

a minute.

Secretary MARTINEZ. Yes sir.

Senator SARBANES. Because your analysis of the situation does

not jibe with the one I have made.

In 1998, we passed major public housing reform legislation. Senator Mack of your State of Florida took the lead on that, along with

Congressman Lazio. I was pleased to join with them in that effort.

And in fact, it came out of this Committee I think unanimously, as

I recall, and very strong support in the Congress.

One of the problems that legislation addressed was the build-up

of balances with respect to these capital monies. And we set up

timetables in order to try to address that situation, both in terms

of obligating the money and expending the money.

Now you are coming back and you are now arguing an entirely

different standard than what was set out in that legislation, because these monies are within the standard, the 2 years for obligation and the 2 years for expenditure.

The first fact to start with is that there is a huge backlog of capital needs and public housing. There have been public studies that

have said as much as a $20 billion backlog in needs.

17

You are saying, well, they cannot assimilate it, so we cannot do

more. We can only do so much. We cannot do more. There is a limit

on how much the public housing authorities can assimilate. Not a

bad point. It needs to be subjected to careful analysis. The law allows 2 years for the funds to be obligated, 2 years for the funds to

be spent. Small housing authorities have no time limit.

In addition, public housing authorities can apply to HUD for a

waiver on those time limits. Many have done so in order to bank

the money for larger projects. So part of the build-up is an effort

to bank the money to address larger projects.

There are always going to be unexpended balances when you

deal with capital programs. But the PHA’s have been obligating

and spending their money on a regular schedule within the allotted

4 years, which was a major reform of the 1998 Act.

In other words, this is not some new perception. The 1998 Act

addressed the problem of what was then argued was too much of

a build-up in balances. And it set up a time frame within which

this situation was to be addressed.

That was a major reform. And it is one that Senator Mack and

Congressman Lazio pushed very hard. We were pleased to go along

with them in trying to accomplish that.

The housing authorities have to follow Federal procurement procedures—competitive bidding, development of RFP’s, documentations, other processes. They cannot bid the work unless they have

the funds. They are trying in many instances to combine Capital

Funds with tax credits or other sources of leverage. Now if you stop

the money moving into the pipeline, you are going to jeopardize

some of those efforts.

PHA’s have been increasingly innovative about using their Capital Funds. Standard & Poor representatives met with Committee

staff and said that the proposed cuts may well create fears of appropriation risk and therefore, raise the cost of such effort or undermine them altogether in terms of drawing in private money to

help in this effort of capital renewal. And of course, one of the key

provisions in the 1998 reform law was to encourage efforts to find

additional non-Federal fund sources.

If some housing authorities are not spending timely, you can recapture the money and redistribute it to high-performing PHA’s,

which have of course pressing needs. We have asked the Department actually for the names of the PHA’s where spending is not

timely. We have not gotten that information. Apparently, you may

well not have that information. But we intend to continue to press

that issue with the Department.

From our analysis of HUD’s records, everything is working within the timeframe periods established by the 1998 Act. What I want

to be clear about is there was a big problem before the 1998 Act,

which everyone conceded in the build-up of these balances.

In order to address the build-up of those balances, we established

these time periods—2 years for obligation and another 2 years for

expenditure.

It is all working within that period. The 1997 funds have been

obligated and expended. The 1998 funds have been 100 percent obligated, 71 percent expended. The 1999 funds, 67 percent obligated,

38 percent expended.

18

The 2000 funds, the immediate funds, 18 percent thus far obligated and only 5 percent spent. But they have a period here, a

timeframe within which to do this.

You are now coming along and looking at this timeframe and

saying, well, there is some money sort of floating around in there

and we are going to pull that money back in.

Now, conceivably, you are going to be here next year and I will

be here next year, and this flow is going to stop. And you are going

to grind this whole thing to a halt.

There is already concern that the effort to use these funds, the

assurance of these funds to attract private funds to do the modernization, is going to be undermined.

So I think this analysis is missing the mark and particularly

missing the framework established by the 1998 major public housing reform act, in which Senator Mack, who of course you know

very well, very close to you—in fact, I think I quoted his letter at

your nomination hearing.

Secretary MARTINEZ. You did.

Senator SARBANES. Yes I did.

Secretary MARTINEZ. You did.

Senator SARBANES. I mean, this was a major Mack reform. Now

he is not with us any more, but I am going to stand up for Senator

Mack’s reforms.

[Laughter.]

And I want to try to proceed according to the schedule he set up,

which seemed to make a lot of sense and has certainly commanded

unanimous support. You just cannot start drying up this flow of

capital monies. You are going to bring the whole thing to a grinding halt.

I mean, the public housing authorities are already in something

of a panic. And if you have some public housing authorities that

cannot do the job, recapture the money and let it go to those public

housing authorities that can do the job and who have these pressing needs.

Secretary MARTINEZ. Senator, what I would offer is two or three

things in response.

Number one——

Senator ALLARD. Before you respond.

Secretary MARTINEZ. Yes.

Senator ALLARD. I want to caution. The Senator from Maryland

has gone 3 minutes over his time allocation. And so, as Chairman,

I want to be careful. I want to give you an adequate opportunity

to respond, but I want to caution the Senator from Maryland that

we have other Members here that I think have other appointments.

I would like to get a round so that everybody has an opportunity

to ask questions. Please go ahead and respond.

Secretary MARTINEZ. I will be brief. The first thing I would say,

Senator, is that your office and you and I have had a good working

relationship in the months that we have had that opportunity and

I look forward to working with you so that we can find a fair understanding of what this is about.

Now the second thing is, HUD, in March 2000, released a report

from Abt & Associates, a very respected research firm. They conVerDate 11-MAY-2000 09:37 May 08, 2002 Jkt 000000 PO 00000 Frm 00022 Fmt 6633 Sfmt 6633 78799.TXT SBANK4 PsN: SBANK4
19

cluded that in 1998 dollars, housing authorities’ capital needs for modernization were $2.03 billion.

Bringing those to 2002 dollars, our request is still within the

number of their report. Now—— Senator SARBANES. Those are the needs for that year, not the

backlog of needs, are they not?

Secretary MARTINEZ. Correct. So if we are funding the current

year needs, there is at some point a need for us to acknowledge

how much—I mean, these are the needs for a year. This is what

they can absorb in a year.

What I am suggesting to you is that there is no desire not to

allow housing authorities to do that which they could do. But it is

not a pulling back of funds. It is not a drying up of the pipeline.

It is not adding money that is unspent on top of new money. In

other words, not putting new money on top of unspent money.

We need to be more comfortable with this whole discussion. I intend for us to come back to you and try to explain and be more responsive to your questions about the impact that it could have on

housing authorities. I do not think our intent is one to deter the

modernization or the upkeep of our stock of public housing. But one

of not wanting to accrue on top of accrual.

Senator ALLARD. Fair enough. Senator—— Senator SARBANES. Is it your position that the use of funds is

outside the parameters of the 1998 housing reform act?

Secretary MARTINEZ. No sir, it is not.

Senator SARBANES. That is all I want to know. Thank you.

Secretary MARTINEZ. No, it is not.

Senator ALLARD. The Senator from Pennsylvania.

Senator SANTORUM. But you are very clear that you believe that

all the housing authorities will have all the money they need and

they can spend at the time, period.

Secretary MARTINEZ. That is correct. This coming year, no roof

will go unfixed.

Senator SANTORUM. And just because the law says that the

money can sit around for a longer period of time does not mean

that they can spend that money.

Secretary MARTINEZ. That is correct. Nor that we should add

money to it.

Senator SANTORUM. So the law is in fact a little broader and

more encompassing than really what we need to get these agencies

to be able to spend the money on a timely basis. Is that correct?

Secretary MARTINEZ. That is correct.

Senator SANTORUM. Okay. So that is what I think. So it is not

your intention to limit housing authorities’ ability to spend money

on capital improvements.

Secretary MARTINEZ. Correct.

Senator SANTORUM. You believe that fully funds all the requirements that are out there.

Secretary MARTINEZ. Now there is a historical, life-long backlog.

Senator SANTORUM. I understand.

Secretary MARTINEZ. And we cannot do anything about that this

year. We will do what we can on a year-to-year basis. But on a

year-to-year basis, the study from Abt & Associates told us $2.3 billion is a good number.

20

Senator SANTORUM. I just have a question about something that

is a great interest of mine and I know you have an interest in it,

too. We are having a summit here on Capitol Hill today of faithbased leaders from across the country. I think there is almost a

thousand up here on Capitol Hill today to talk about the President’s initiative.

I wanted to know if you had any initiatives that you are pursuing within this budget to begin to implement the President’s vision on a Department basis.

As you know, we have the faith-based office in the White House.

But what is going on out in the Department? You are one of the

Departments that is the most affected by this policy initiative, and

I would like to know what you are doing on that subject.

Secretary MARTINEZ. Well, thank you for bringing that up. We

are very enthusiastically embracing the President’s initiative in

this area. I think it bears great promise for the opportunity of, as

the President has said, releasing the armies of compassion, of

bringing more people from communities that really make communities work into assisting Government in the work that we are trying to do in helping build better communities.

We have a $5 billion—million—billion/million. I am getting to be

a Washingtonian here.

[Laughter.]

A $5 million commitment in this new budget to be devoted to the

Office of Faith-Based Initiatives. HUD had an office already, and

a budget, so we have increased that budget to account for what we

need to be doing, given the President’s new initiative.

In fact, we are going to be setting up the web site for all of this.

We are going to be a clearinghouse for information. The person who

is going to be running that office just reported on the job on Monday. We are very excited about what we can do.

As I have traveled around the country, you have to be impressed

by the number of faith-based organizations and the things that

they are doing in their communities to make them work.

I know in your State of Pennsylvania, in Philadelphia, Reverend

Luske in Philadelphia is doing phenomenal things that I saw from

a charter school to housing initiatives to beyond that. So there is

a number of folks around the country that are doing things that

are much better than what Government could ever do if we did it

alone. I have great hopes for the program and look forward to its

implementation.

Senator SANTORUM. I have a few other questions that some of my

housing authorities have asked, I will submit those for the record.

If you could provide a written response, I would appreciate it.

Secretary MARTINEZ. Certainly, I would be happy to do that.

Senator SANTORUM. Thank you, Mr. Secretary.

Senator ALLARD. I thank the Senator from Pennsylvania. You

were well within your time limit.

The Senator from New Jersey.

Senator CORZINE. Mr. Secretary, I continue to be a little troubled

about the Drug Elimination Grant Program, as I think I expressed

questions about that and your feelings about it in your confirmation hearing.

21

I think there is a difference in how you are speaking about it

today than what you did at the time of the hearing. I think your

words were that you thought it contributed effectively to progress

in eliminating drugs in public housing.

I also then checked some of the objective factors of whether the

rate of crime is falling in a number of the public housing authorities. And I think one of the later witnesses will cite specific examples across the board.

In Asbury Park, NJ, drug-related crime has been reduced 22 percent through the 1990’s. They would attribute a lot of that to the

public housing Drug Elimination Grant Program. I think there is

a whole series of these that are cited, as I said, by a number of

other groups.

Has there been an effective objective measurement of how this

program is working, rather than anecdotal impressions of whether

it has sometimes failed in certain areas, which I think you have

pointed out earlier in your testimony?

Have we matched funds with performance with regard to reduction of crime or drug problems in the various programs? And is not

that something that should be done first before we move to eliminate a program that in many people’s eyes has been effective?

Secretary MARTINEZ. Senator, I am aware of your question during my confirmation process. And let me say that, at that time, I

was, as I think you probably are, enamored with the title of the

program. And being one who believes strongly in building strong

communities requires drug-free communities, I am certainly committed to the fact that public housing authorities, that people who

live in public housing should live in drug-free environments.

And I know the blight that they can bring and I know what public housing agencies have dealt with over the years in terms of the

drug problems in their communities. Let me just say first of all

that the President’s budget is a budget for all of America, in which there is a very strong commitment to fighting drugs, almost $19

billion to the drug fight.

In the Department of Justice, in the Drug Czar’s Office, there are

many programs that deal, and will deal directly, with the drug

issue. The fact is whether HUD has the capacity within its mandate to also be a drug-fighting Agency and step into the law enforcement arena.

There have been successes in many instances and this has been

a program which I think in many ways has benefited public housing offices. One hundred and fifty million dollars of this money will

continue to be there for those good and worthwhile programs.

But after I came to HUD, I began to see anecdotal evidence because there is no study of successes. As is often the case, those can

be difficult to obtain and success can be measured in different ways

by different people. But I have just been appalled by some of the

uses that were made of this money.

I am particularly troubled, frankly, by the whole Gun Buy-Back

Program and all of that, which I think many law enforcement folks

would question the validity of it or the beneficial effect of it.

I was also——

Senator CORZINE. Of the $300 odd million that was spent on the

program last year, how much went to the Gun Buy-Back Program?

22

Secretary MARTINEZ. Senator, I do not know the exact number,

but it was a small amount because it was so ineffective and so

poorly managed. Fifteen million dollars went to that.

Let me say, that is a program that the GAO found was probably

outside the legal authority of the Congress for this program to

have. What I would say to you is that there should not be a diminished commitment to fighting drugs in public housing agencies.

What there must be is a concerted partnership with local law en- forcement, with $150 million that will still be there for the good

and worthwhile programs. I also believe that we have gone far

afield here from the core mission of what HUD should be doing.

Senator CORZINE. Again, my concern is anecdotes versus study

and objective evidence. That is one point. The other point I would

make is that this $150 million that we are talking about, if I understand this correctly, either comes from operating funds or Capital Funds. And we are talking about reducing them if a particular

housing authority wants to use those for these purposes that have

previously been a part of the Drug Elimination Grant Program.

Secretary MARTINEZ. No sir. They would be in a position to use

the funds. One hundred fifty million dollars would be precisely devoted for at-large grants that at their own local discretion, they can

use for drug programs if they so choose.

They should not use the money for some of the things that they

have used it for in the past. And hopefully, we would have the

management ability to monitor those. But they can use them for

the drug programs if they choose to use them.

Senator CORZINE. It would not be coming out of the operating

funds?

Secretary MARTINEZ. It will be new money to their operating

fund grants. So there will be new money in there that they can devote to the drug problem if they choose to do so. It is a matter of

prioritizing at the local level, letting them make that decision.

Senator ALLARD. Senator Stabenow, you missed the opening

statements. You are welcome to make an opening statement and

then ask some questions. Or if, you want to just make it a part of

the record so that you have more time for your questions, we can

do it that way.

STATEMENT OF SENATOR DEBBIE STABENOW

Senator STABENOW. Thank you. I would like to do that.

Senator ALLARD. Without objection.

Senator STABENOW. Thank you, Mr. Chairman.

Mr. Secretary, it is a pleasure to see you again. And we appreciate your being here.

Secretary MARTINEZ. Thank you.

Senator STABENOW. In looking at the overall proposed budget

and the impact on the citizens that I represent in the State of

Michigan, I just want to share with you what you are proposing

and what I am told after analysis would happen in Michigan, and

the concern that I have.

The number of elderly households that would be affected by the

cuts that you are talking about are 14,398. So we have our senior

citizen households, those oftentimes most vulnerable, who are impacted by what you are presenting. The number of low-income peoVerDate 11-MAY-2000 09:37 May 08, 2002 Jkt 000000 PO 00000 Frm 00026 Fmt 6633 Sfmt 6633 78799.TXT SBANK4 PsN: SBANK4
23

ple that would be affected by the cuts—44,320 people. The amount

of reductions to the State of Michigan—$17,772,330.

I want to indicate that for the record because that certainly is

of concern to me, as I have visited with communities around Michigan and certainly, you have a standing invitation to come in and

see the good things that are being done.

Secretary MARTINEZ. Thank you.

Senator STABENOW. It sounds like you have been hearing a lot

about problems. I would love to share with you success stories that

are occurring in Michigan.

And the fact that over and over again, what I am hearing about

is a general deep concern about affordable housing. And HUD plays

a very significant role in that. I am concerned about the direction

that I am seeing in these numbers.

Specifically, when we talk about, first of all, the Capital Fund,

I would welcome your comments, but I also want to just put forth

the counter-argument when we are talking about obligating funds

and the time delay between an authorization, we designate funds

to be spent, and then when they are actually spent.

This certainly is not new in Government. In the Department of

Transportation, we allocate funds for a project and they are not expended immediately. It can take several years. That is why we

have a 5 year authorization for the Transportation Department.

The Department of Defense does not spend all of the dollars

given in a particular project the year that it is given.

The Department of Energy—I could go on. And so, we all know

that in the area of capital improvements, Capital Funds, that by

the very nature, are spent over a series of years.

So I guess the question that I would have, first, would be, it is

my understanding that according to a recent study by Arthur Andersen & Company, they have indicated that almost all of the

funds have been expended in a timely manner, not necessarily in

the same year, but in a timely manner.

And as Senator Sarbanes talked about with the reforms, the

housing reforms, that they are being done within the 4 years that

has been allocated as a reasonable timeframe for the projects.

Are you saying, in fact, that that is not correct, that the Arthur

Andersen study was not correct? That in fact these are not being

obligated and spent within the timeframes allocated under law?

Secretary MARTINEZ. Senator, let me respond to several issues

that you raised.

First and foremost, let me say that as I have traveled the country and in the time that I have been HUD Secretary, I have been

enormously impressed by the good things that are being done

around the country, by the incredible commitment of people in local

communities to help one another, to help those in need. And those

are the kinds of efforts that we want to make sure that we encourage at HUD and that we build upon. So it is not about the halfempty glass, but it really is about the half-full glass.

So I am enormously encouraged and optimistic about what we

can do at HUD to bring affordable housing, to bring opportunities

to people.

Unfortunately, the Drug Elimination Grant Program does get us

talking in the negative. The fact is that the fight against drugs is

24

something to which we all should be committed, to which I am terribly committed.

The question is that we also have a larger responsibility to ensure that we are properly directing our funds not in compassionate

intentions, but with compassionate results. You see, I think that

we often maybe mistake a good idea and a good intention with

what really is helping people to achieve an outcome that is desired

by all. Your analyst and ours should get together because we do

not have the same fund of information.

We did not create any cuts in elderly housing programs. So if

anyone from Michigan is telling you that elderly housing will be

cut under this budget, they are wrong. Period. End of paragraph.

We have a $6 million increase to our elderly housing programs

in this budget for this year. Insofar as the funds for the Capital

Fund, these are not obligated funds in the pipeline that have not

been spent. These are unobligated, unallocated, and unspent funds.

These are funds that we are not pulling back because they were

not spent. We are just not adding more than what Abt & Associates has told us can be needed in any given year to modernize and

maintain the public housing stock. We are putting all the money

in it that is necessary to keep going forward where we are. We are

not adding to an unspent fund for unallocated expenses more

money than is needed for this coming year.

Senator STABENOW. I would suggest that there is a real difference of opinion on how that is viewed. And that, just as in transportation practice, if you do not keep dollars in the pipeline so that

you can continue to move forward, at some point, things stop.

And that has to be the result if you are pulling back on dollars

and given the incredible need as it relates to housing. If there are

dollars being pulled back in that Capital Fund, then you are unable

to plan and make decisions about the future. And so, I think there

is a real difference.

I understand that there are certainly legitimate concerns that

need to be addressed about efficiency. I also know that given the

pressure in this budget for dollars to be spent in other areas, that

there is a real pressure to cut in housing as well as many, many

other areas, and redirect money and do accounting changes that

take money out.

I really believe that what is happening here, is that there are

efforts to pull dollars out overall of the system when we look at

this. And that is of concern to me. Am I getting the high sign,

Mr. Chairman?

Senator ALLARD. You are a couple of minutes over.

Senator STABENOW. Okay.

Senator ALLARD. We need to move on.

Senator STABENOW. I will conclude and just indicate that I also

have a number of very specific examples under the Drug Elimination Grant Program where crime has gone down in communities

that I represent very specifically, and hope that you take another

serious look at that because people’s lives are being affected. Children are safer. Families are safer as a result of that program.

Thank you, Mr. Chairman.

25

Senator ALLARD. And I would ask that my chart be pulled back

up, if you would, please. In the meantime, I just want to say that

we are going to go into our second round.

Go ahead. I am sorry.

Senator REED. Quite all right. Thank you, Mr. Chairman.

Mr. Secretary, let me try to cover some ground that we have

been plowing back and forth with respect to the Capital Funds.

As I understand the Abt report, it says that on an annual basis, public housing authorities accrue $2.3 billion in capital needs. Is

that——

Secretary MARTINEZ. Correct.

Senator REED. But it also, I believe, says that on an historical

basis, there is a $20 billion backlog basis in place.

Secretary MARTINEZ. That is correct.

Senator REED. You are leaving the impression that this report

specifically says that there is the ability to absorb additional Capital Funds which is limited to $2.3 billion. Is that what the Abt report says?

Secretary MARTINEZ. No sir. I am not talking about the ability

to absorb. I am talking about the professed need on a year-to-year

basis. Given the number of housing units and given what the allocations have been, that the Abt report suggests that that is the

number——

Senator REED. But I think you are leaving the impression, Mr.

Secretary, that there is a limited capacity of public housing authorities to use these funds on an annual basis, and it is about $2.3

billion. Let me suggest, and we will ask Ms. Glover from Atlanta

for some first-person experience, but, in a way, the way I conceptualize this, on an annual basis, there is about $2.3 billion of newly

deteriorated roofs. But there is also $20 billion of roofs that deteriorated. And if you are a public housing resident, you do not particularly care whether the roof went bad this year and it is part of the

$2.3 billion or went bad 5 years ago because it is still a deteriorated roof.

I think the point, the impression that you are leaving is that

there is just no way that these housing agencies can spend more

than $2.3 billion a year when in fact, we know there is much more

work to be done, and in fact, in the past, they have been able to

go above this total.

Secretary MARTINEZ. I suppose the only way to totally fund the

problem is by funding $20 billion this year in this fund to take care

of all of the problems.

Senator REED. No, Mr. Secretary. What I suggest you do is not

say that we cannot spend more than $2.3 billion. There is a number between $2.3 and $20 billion that can be absorbed by public

housing authorities, that is needed by public housing authorities,

that will improve the lives of tenants in public housing. And so the

point, I think, the impression you are leaving is that we are doing

all we can, when in fact, we could do much more.

If you would support, if this Administration would support a $20

billion, one-time appropriation—— Secretary MARTINEZ. Senator, I think that, as I said earlier, the

increases that HUD has received over the last couple of years, I do

not believe are sustainable over time in any responsible way, either

26

in the sense of responsible budgeting or in the sense of responsible

absorption. You see the chart of unallocated funds.

So I think you make a good point. I understand. There are public

housing agencies with needs. And I think we are getting at the

problem. We are doing a sensible figure in our budget that will

allow us to repair and to do the maintenance things that I think

are needed on a year-to-year basis.

Senator REED. Let me turn to another topic. And that is the operating funds.

You have eliminated the Drug Elimination Grant Program and

that is something that is both a political and policy debate about

effective ways of preventing and eliminating drugs. But as I understand the new concept, essentially you are increasing PHA operating subsidies by $150 million. Local agencies can use this for

drug elimination grants if they choose. Is that correct?

Secretary MARTINEZ. Yes sir.

Senator REED. But they also might have to use it for other

things, one of which is utility costs.

Secretary MARTINEZ. Obviously, they have the local prerogative

to use it as they see fit. So it gives them local autonomy in the utilization of the funds.

Senator REED. I understand that. The reality that most housing

agencies—and it has been estimated, I believe, and I think it might

be anecdotal, but the utility costs are going to go up somewhere

around $350 million this year for public housing authorities.

And you have taken away a program, a drug elimination program, which was significant. You are putting up $150 million extra

that is going to cover increased utility costs, other unexpected

costs, and then, within that, they are expected to replicate the drug

elimination grants. I think the reality, frankly, is, as much as they

want to do it, it is a local option that is not really an option.

Secretary MARTINEZ. Senator, well, the utility cost issue is one

where we still must allocate funds on the basis of the Department

of Energy projections. And so, we are looking to the Department of

Energy for that guidance. The budget accounts for what the Department of Energy has indicated to us was appropriate.

Now we do recognize that there have been some incredible increases in utility costs. And we responded this year within the allocated funds to HUD with a $105 million emergency allocation for

utility costs.

We took care of the most dire problems with $50 or so million

in housing authorities in the western States and the States that

have been most affected by utility cost increases. And then the additional $50 million went to all housing authorities that had experienced utility cost increases.

Senator REED. Mr. Secretary, just to follow up, because this issue

is a really important issue every place, not just the west. Last year,

you somehow through your accounts, came up with $105 million.

How much extra funding have you put in specifically because of increased utility costs in this budget, this year?

Secretary MARTINEZ. It is formula-driven, given the formulas

by which utility costs are factored into the cost of running public

housing.

27

Senator REED. If it is a formula, you have the numbers. You ran

the numbers through your budget. How much extra are you going

to have to commit?

Secretary MARTINEZ. I do not have the specific number. I would

be happy to get it to you.

Senator REED. Thank you, Mr. Secretary.

Senator ALLARD. For the Members of the Committee, I would like

to go through a second round of questioning. In order to have time

for the second panel, I am going to limit each Member to 3 minutes. Then we will proceed to the second panel.

It amazes me, Mr. Secretary, that we have Members of this Committee and we have Members of the Senate who frequently talk

about how supportive they are of local control.

Then in your budget, you reflect local control. You say you do not

cut drug enforcement, but you transfer it to general funding. You

give control to the local authorities to decide how to best meet the

needs of their community. I am flabbergasted that whenever you

make an effort to provide local control, you get criticized for it.

I want to address briefly this matter of the Arthur Andersen

study. Many accounting reports that have come to this Committee

have been qualified opinions. These qualified opinions, have helped

make HUD an at-risk Agency.

The Inspector General, the GAO, the oversight agencies, have all

said that it is an agency at risk. Nearly every time you ask an accountant to come in and they try to apply their accounting principles, they cannot do it because they cannot account for the dollars. Part of the reason that they cannot account for the dollars is

there is $12 billion out there that is not obligated. They are just

floating around out there.

I want to compliment you on your efforts to try to make an accountable Agency, one that is going to focus on results and one that

the taxpayers of this country can feel that their taxpayer dollars

are being spent wisely.

In your testimony, you mentioned unauthorized funds, which

brought up a question I had on the Community Builders. They

comprise nearly 10 percent of the previous administration’s workforce. There was a lot of concern—in fact, we had a hearing on the

Community Builders. What have you decided to do with the Community Builders Program?

Secretary MARTINEZ. Senator, we are going to be changing that

program completely. We are not going to go forward with it. We are

going to be looking at how we reallocate the resources of that program in a more broad-based area.

The fact is that we have a cadre of people that are designed as

the liaisons to local government, with unspecified obligations, as I

have talked to some of them. They have no real job role. They are

just there as a goodwill ambassador to the communities. The fact

is that we need to have a better handle on how that work is done.

We still need the manpower. What we need to do is allocate it in

a different way.

We are going to allow those people to have a more function-oriented role, or programmatic role, while at the same time asking

really all of the leadership at HUD and the local offices to be comVerDate 11-MAY-2000 09:37 May 08, 2002 Jkt 000000 PO 00000 Frm 00031 Fmt 6633 Sfmt 6633 78799.TXT SBANK4 PsN: SBANK4
28

munity partners, to be out there in the community and doing the

role of a community builder.

You have been through that territory, I do not need to replow the

reasoning. The fact is that it has been a huge morale issue in the

Agency and one of the reasons for changing the titles and the way

that operates is not only the misallocation of resources, but also the

fact that it has had a very negative effect on the morale of the career people. And we need their cooperation and support.

As you know, about 9,200 people work at HUD. Very few of those

are people that I will be bringing with me. We need to make sure

that the sense of mission of what we are trying to do at HUD is

going to be something that is shared by our workforce and that

they are enthused and motivated in their challenge. And so, I think

the changing of that program will bring that about.

Senator ALLARD. The Senator from Rhode Island.

Senator REED. Mr. Chairman, Senator Schumer has just arrived.

I would yield to him. I ask that he be given the full 5 minutes?

Senator ALLARD. Yes. I thought out of fairness, I would go ahead

and give him the full 5 minutes. I would ask that you stay within

the timeframe, if you would, please. We are trying to move forward

to another panel, and we are running out of time.

STATEMENT OF SENATOR CHARLES E. SCHUMER

Senator SCHUMER. I thank you, Mr. Chairman, and appreciate

your fairness.

I thank the Secretary for being here and for his enthusiasm and

hard work in his few early months of the job.

I guess, like most of the people, at least on my side here, I am

really troubled by the cuts you have proposed. We estimate that

this will cost New York $160 million. That is a 25 percent reduction in New York’s Capital Fund dollars.

We have had a strong tradition of public housing in New York.

In New York City, something like 600,000 people live in public

housing, more than in most cities in the country. And just like with

your own home, when you cut back on capital expenditures, you

are going to pay a price.

One example is that Brooklyn’s Williamsburg Houses received

$1.3 million to replace a 40-year-old heating system. In the long

run, the investment saves HUD money in that a newer system is

less likely to need repairs. It also adds to the benefit of lower electricity bills. Why would anyone want to cut that?

And then it is very troubling to put the two funds together. It

is telling people, make a choice. Make your housing project safe in

terms of the drug-free initiative and the safe-housing initiative,

Drug Elimination Grant Program, or $150 million for these kinds

of things. Why are people being put in that kind of position?

I do not know. These are hard-working people. Most of them in

New York City are the working poor. They work as hard as you or

me. They do not make much money. With the high cost of housing

in New York City, they have nowhere else to go if they lose their

home. And what we are saying is that somebody getting a tax cut

that makes $2 million, will now get $45,000 rather than $42,000,

takes a greater priority than this. It is just wacky to me.

29

I believe in tax cuts. But when tax cuts become the overwhelming rationale, so that they take up the whole surplus, so that

you are put in a position, of saying you either get rid of drug elimination or get rid of the Capital Fund, it is sad.

I would just like to ask the Secretary, does he recommend to

places like the Williamsburg Houses and all these others, that they

stop making investments? We are not asking to build new public

housing. We are asking to keep what we have, which is a vital 50

year investment.

The cuts that we have made will prevent us from upgrading

them. What do you think?

Secretary MARTINEZ. Senator, at the risk of having you think less

of me, let me just tell you that I am very enthusiastic about the

cuts we have made because they are where they needed to be

made, particularly in the Drug Elimination Grant Program because

I think it is a program flawed with problems.

One hundred and fifty million dollars is being put in the general

Capital Grants so that they can be utilized for those places that

have a good drug program and they can use it for that.

In addition to that, it is going to give local authorities the local

option of what to do. It is not a Hobson’s Choice, but it is a local

option. They can decide in those places where there is not a drug

problem—and trust me, there are some places in America where

that is not the issue. The fact is that they can use it for other

needs.

Senator SCHUMER. I do not have a problem with that. What

about the places that have a drug problem?

Secretary MARTINEZ. Okay.

Senator SCHUMER. That is a Hobson’s Choice.

Secretary MARTINEZ. The money is still there so that they can

continue those programs because, in addition to that, we are not

cutting the maintenance necessary—we have been in this discussion now for sometime. And I am repeating myself, but for your

benefit, we are not cutting the monies that are needed to carry out

the maintenance programs that are upcoming in the coming year.

We are cutting out of a backlog of unspent, unallocated funds

which, frankly, we are simply not asking to put money on top of

dollars that are already not allocated.

And let me just say, that a tax cut for Americans when there is

a surplus, after we have paid off our priorities, after we have increased education by 16 percent, after we have helped our military

to modernize their payments to our people so that they can not be

on welfare as they are in the military, and done all of our priorities. We then pay off the debt to the most that can be paid.

Senator SCHUMER. And we are not talking about Medicare.

Secretary MARTINEZ. We still have money left over for a healthy

tax cut that will help all Americans.

Senator SCHUMER. Let me ask you this. That is an easy thing to

say, we have enough for everybody. I would ask you this. If the

choice were—let us assume for the sake of argument, upgrading

the existing public housing with expenditures that everyone agrees

is necessary, 50-year-old boilers, outdated wiring, et cetera, or a tax

cut, if it were a choice, which would you pick? If you had to make

that choice? Because we may read the budget differently than you.

30

Secretary MARTINEZ. Senator, if there were people in public

housing today that did not have adequate public housing, that they

were suffering because of the conditions that they were living in,

and the choices were simply down to that, providing for them, or

get a tax cut, the fact is that that might not be appropriate.

The fact of the matter is that with the current projections, it depends on what you believe and who you believe. But I do not believe that the debate today between $1.2 trillion and $1.6 trillion

is really going to mean that there is someone in public housing in

New York that is going to go unassisted because of that tax cut,

at whichever level you agree upon. I presume that—at least I am

led to believe that there are some in your party that support a $1.2

trillion cut. And I am going far afield from housing. But the fact

is that——

Senator SCHUMER. It is all interrelated, Mr. Secretary.

[Laughter.]

But I thank you. We could go on. The Chairman has been generous in his time. I was late.

Secretary MARTINEZ. Thank you.

Senator SCHUMER. I appreciate your answer.

Senator ALLARD. We will go ahead and move on to our 3 minute

time limit and call on the Senator from Rhode Island.

Do you want to allocate over to the Senator from New Jersey?

Senator REED. Why don’t you go ahead?

Senator CORZINE. I will be quick. As you might guess, I am not

totally convinced of the initiative with regard to the Drug Elimination Grant Program.

My calculation says we had $309 million allocated there last

year. And even if the operating fund had $150 million set aside for

these kinds of purposes, it could be used for other things, as Senator Reed did suggest.

I personally would love to have an objective study on the effectiveness of this, not just the adequacy of reports. Understanding

whether this program worked or did not work. And there is no

question that one can justify most anything on anecdotal information, including citing reduction of statistics within certain areas.

Secretary MARTINEZ. That is right.

Senator CORZINE. But I do believe that a priority of local folks,

law enforcement and others, to provide the focus in an area where

it is a clear and present danger with regard to drug practices, and

it certainly is in New Jersey because I have been touring a lot of

the public housing projects to get a sense of this issue as I have

prepared myself for, not just this meeting, but for housing issues

in general. And there is a serious drug problem in our public housing projects in a number of places in New Jersey. This program by

the people that are running those programs at the local level is

something that they believe is very important.

Now we can call that anecdotal. What I would like to do, would

like to suggest, is that we have objective information about this before we throw the baby out with the wash.

Secretary MARTINEZ. I believe that crime data that allows for—

I mean, it is going to be very difficult to collect the kind of data

that you would need to have a meaningful study.

31

But I would say to you that this program, as with many things,

works in some places, does not work in others, has worked beautifully in some instances and been well applied and well administered. In other places, it has been horribly misused. There has been

a misallocation of funds. There has been unauthorized use of the

funds for things that are far afield from what it was intended.

But I do not think that that should be the basis for us to make

a determination. It works well in some places. It does not work

well in others.

I think we have a broader philosophical issue about whether the

Department of Housing and Urban Development really ought to be

in the law enforcement business. Or whether we should focus on

the delivery of our housing programs and then allow law enforcement, the Department of Justice, the drug czar’s office in partnership with local law enforcement, to work at the issue of local law

enforcement.

Some of the things that are done with this program in many

places is that they have an additional three or four policemen. But

if there are three or four policemen additionally that are needed in

that municipality, as coming from local office, I would have felt a

responsibility to provide for people in public housing, just like I

would for the fancy neighborhoods of Orlando.

The fact is that local law enforcement has an obligation, and if

four more policemen are needed in a public housing Agency, I think

we should be talking to the mayor about why we do not have them

and why it takes a Federal program from Washington, with new

and separate funding, to allocate for that, when in addition to that,

they receive drug money from any myriad of Federal programs.

In my local experience, I am here to tell you that there is a number of pots that you can go to to get drug money, to fight drugs.

The HIDA areas that are designated as high-drug intensity areas,

they provide funding. The whole gamut of the COPS program, they

provide additional law enforcement resources.

What I am saying is, it is a miscast for this Agency, in addition

to doing the things that we have as a core obligation to do, that

only we can do, to also be put into the law enforcement area, where

we now have one more program to manage and where we are seeing monies being spent on things that I think, Senator, you would

not approve of.

Senator CORZINE. Thank you.

Senator ALLARD. The Senator from Rhode Island.

Senator REED. Just quickly, I want to follow up on Senator

Corzine’s questions about the drug program.

But does that logic extend to your eviction programs? I mean,

you evict people who use drugs. So, clearly, you feel responsibility

in that sense.

Secretary MARTINEZ. That is a landlord responsibility, Senator.

Senator REED. I agree with you.

Secretary MARTINEZ. So I would hope that we have your support

in that.

Senator REED. I agree with you. But that is something that you

might decide to say, well, that is law enforcement. That is a landlord-tenant relationship and it is not HUD’s province, et cetera. I

support that initiative, actually.

32

Secretary MARTINEZ. And I do, too. I support it strongly. And I

support, frankly, us doing things that will help us make our communities more drug-free. People that live in poverty should not

be—they are the most vulnerable. We need to help them the most

to see that we can get this drug issue out of their lives.

Senator REED. But you just said a moment ago that that is not

HUD’s role at all.

Secretary MARTINEZ. No. HUD’s role—I am saying in terms of

administering yet one more program that is focused on law enforcement activities, as is intended, by the way. It is focused on a whole

lot of things.

Senator REED. It seems to me, Mr. Secretary, that the logic for

your cancellation of this program is that it is abused, poorly managed at the local level, represents the misuse of Federal dollars.

But your solution is to essentially give $150 million extra to local

communities to continue to do that, to say that if they want to run

a gun buy-back program, which I think is absolutely a waste——

Secretary MARTINEZ. No.

Senator REED. Well, Mr. Secretary, that is what you have been

saying all morning. You said they have the choice now.

Secretary MARTINEZ. I think the gun buy-back program is something that was outside the legal authority provided by Congress.

And so, any time you have an expenditure in that vein, I do not

think it is going to ever be something that we should be tolerating.

Senator REED. But that is the logic that you have used to eliminate this program. Rather than simply saying that the program

was misused by certain local authorities and they should not be allowed to do that, but we continue the overall program. You seem

to say that the program does not work.

Secretary MARTINEZ. It is a broader premise than that, Senator.

It is about the focus of our Agency and where it should be.

And I understand—I think one positive thing is that we all seem

to have a shared concern for making our public housing entities

drug-free. And I think in that very positive note, we should all

work together to see how we can make that be a reality.

Senator REED. No one here will argue with you, Mr. Secretary,

on that point.

Senator ALLARD. I want to thank you. And I want to thank you,

Mr. Secretary.

As Chairman, I look forward to working with you. I think, truly,

you are trying to focus on those programs that HUD was originally

designed to work on and that is to provide affordable housing, to

help the poor and to help the disadvantaged.

I believe that you are trying to enhance local control. And I think

that there is still an option there. You have not cut the dollars for

drug programs. If a community has that need, they can meet it.

I am proud of the fact that you have a 7 percent budget increase

at HUD, with the rest of the budget increasing 4 percent. There is

a strong commitment from this Administration and from you to

make this an accountable program that is result-oriented. I think

that is key, a result-oriented program. I want to thank you for coming before the Committee. We need to move to the second panel.

Secretary MARTINEZ. If you would just indulge me for a moment.

Senator ALLARD. Yes.

33

Secretary MARTINEZ. And let me just say that, unfortunately, I

think too much of our conversation today was focused on a small

portion of what we are doing in this budget. There is a lot of exciting, good, positive things that are going on with this budget.

As you say, Government at large will grow at 4 percent. We are

(HUD) at 6.7 percent increase. But we are also very focused on the

whole issue of homeownership, bringing more homeownership to

more Americans, particularly in our minority communities.

We have some exciting opportunities going on there. I believe,

Senator, that as we better manage this Agency, as we become more

accountable to what you want us to do, that we will be more effective in delivering these services to those in need.

So I am encouraged and excited and I appreciate your indulgence

in allowing me to not only come and explain our budget, but also

to have these last couple of minutes because I think there is good

news and there is a lot of positive news.

And while there are some areas in which we feel that fiscal responsibility and proper management dictates that we do some

things, I think, overall, this is an increase. It is a positive budget

that will help many, many new American families taste the dream

of homeownership or for those to whom that dream is not yet attainable, to be in safe and decent housing.

Thank you.

Senator ALLARD. Thank you, Mr. Secretary.

If the next panel would please come forward: Ms. Gaffney, Mr.

Czerwinski, Ms. Glover, and Ms. Sard.

While the panel is coming forward, I would like to enter into the

record written testimony from the Denver Housing Authority. The

Denver Housing Authority is one of the most successful large housing authorities in the Nation and I value their input.

I would like to get started with the panel. Ms. Gaffney, you have

been here before the Committee, and we always look forward to

your testimony. We look forward to what you have to say today.

Mr. Czerwinski—welcome back—you will be next, and I thought

we would then move to Ms. Glover and Ms. Sard. Please limit your

testimony to 5 minutes apiece, if you would. We have to watch our

time here. The Committee probably will not have an opportunity

to ask as many questions as we would like, but we will rotate

around for our questioning period.

I would like to get the Committee adjourned by 12:25 p.m., if we

possibly can. Would you agree to that?

Senator REED. Surely.

Senator ALLARD. I would like to do that. There are only two of

us now, so there is hope.

[Laughter.]

We will go ahead and start with you, Ms. Gaffney.

STATEMENT OF SUSAN GAFFNEY, INSPECTOR GENERAL

U.S. DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT

Ms. GAFFNEY. Mr. Chairman, Senator Reed, thank you for inviting me here today. You asked me to talk about challenges at HUD

from the IG’s perspective. I have laid out three and I would like

to summarize them for you.

34

First, we believe there is an absolutely critical need to tighten

HUD’s mission and to streamline its programs so that for once you

give HUD an opportunity to function effectively.

This is not a new idea. You will remember that Henry Cisneros,

back in—I think it was 1994—proposed a major streamlining restructuring of HUD programs.

You will also remember that that proposal got nowhere. It was

overtaken by the Congress’ delight with the idea of downsizing the

HUD staff and leaving the programs pretty much intact.

There has been some progress in the intervening years. We have

NAHASDA, which eliminated a lot of individual Indian housing

programs.

We have the Quality Housing and Work Responsibility Act,

which certainly represented a step forward in terms of consolidation within the public housing program.

But I do not think we have gone nearly far enough. And HUD’s

ability to administer programs is now seriously out of joint with

the programs that HUD has to administer.

You need to consider not just eliminating programs. Not just consolidating programs. Consider devolution of responsibilities to other

governmental entities. You need to consider things like, for instance, FHA and Ginnie Mae, who are nominally government corporations and whether there is not some opportunity for them to

operate in fact like government corporations. That is kind of the

fundamental need the OIG sees.

The second need is organizational; Secretary Martinez alluded to

it. He is going to have to look at and probably make some changes

in HUD’s organizational structure. I do not think there is a right

or wrong answer to how you organize anything.

The truth is, though, that right now, HUD is organized on a

pretty extreme model of central authority and control. It is likely

that, from what I have heard Mr. Martinez say, he will want to

change that.

And I would say to you, that is going to be difficult and you

should understand how difficult that is going to be in the context

of what HUD has already been through in terms of reorganization.

The third major area of our concern is management issues. And

I think you have seen in my testimony that we are very heartened

that HUD has pointed out and said that they are going to address

three major management problems.

We agree that those are three major management problems.

Some progress has been made in each of them. But they are intractable problems. And it is going to take a whole lot of effort to get

near solving them. Those three management problems that are

highlighted in HUD’s budget are, first, the mismatch between

HUD’s responsibilities and HUD’s staffing.

I must be boring you because I have said the same thing for

8 years. But you know, I think there are people who think that,

oh, well, if you do not have enough staff, you can just go out and

hire contractors.

Contracting out is not an easy answer. And we are now to the

point where we have contractors in HUD who are carrying out inherently governmental functions. And I doubt very much that that

35

is limited to HUD. I think it is probably happening Governmentwide. Someone needs to face up to that issue.

The second management issue in the budget is trying to do something about ensuring that rent subsidies that we pay are correct.

And I am heartened that HUD is now taking a broad approach,

wanting to work with public housing authorities to make sure rent

calculations are correct, rather than limiting our efforts just to income matching with Social Security and IRS data. I think a more

collaborative approach is a better approach.

Finally, the budget talks about the problems with FHA—internal

controls and systems.

And I have said this to you before. Fraud in the FHA single-family program is rampant, is expanding, is a disgrace, is victimizing

the same people we are supposed to be helping with that program,

and something has to be done about it. And I do not think it is that

difficult. We just have to recognize it and mobilize ourselves.

My final comment is, if we do nothing else at HUD, there are two

things that have to be done. First, we have to get staff in line with

their responsibilities. We have to make sure we have the capability

to administer the programs.

Second, we have to get the information systems in shape. They

are 20, 30, 40 years old. I think you should ask HUD whether they

have devoted enough money in their budget to do that.

At the end of the last Administration, they regrouped. I think

they have an Information Technology organization now that could

move forward. But it is a very serious deficiency that undermines

everything HUD does.

Thank you.

Senator ALLARD. Mr. Czerwinski.

STATEMENT OF STANLEY J. CZERWINSKI

DIRECTOR, PHYSICAL INFRASTRUCTURE ISSUES

U.S. GENERAL ACCOUNTING OFFICE

Mr. CZERWINSKI. Thank you, Mr. Chairman.

Mr. Chairman, Mr. Reed, each of you individually requested

GAO to look at HUD’s budget. We got HUD’s budget about 2 weeks

ago. We have some preliminary observations to share with you

today. There has been a lot of debate over whether HUD’s budget

is an increase or a decrease, and if so, how much?

And to be frank, plausible explanations can be made for each

case. In addition, program recipients have been interested in how

their programs are going to be affected.

My written statement discusses these issues. It also talks about

HUD’s management of the budget process. In the interest of time,

I would like to focus today on the management issues, because I

believe they have significant impact on resources, as that chart

shows, Mr. Chairman, and how to use them.

As you pointed out, Mr. Chairman, unexpended balances is the

key. Unexpended balances are funds not yet spent, either by HUD

or the recipient. And these unused funds can be recaptured. That

is, swept up by HUD and then reprogrammed, either to other programs or other recipients in the same program.

The information that HUD needs to do this is key. And then taking action on the information is the other important step.

36

As the chart to your right shows, results have already been significant. Three to four billion dollars in each of the last few years

has been recaptured. But if you notice, the projection for this coming year is little or no recaptures. And this is even though, as we

have talked about, there are still significant unexpended balances,

with a rich vein of balances from past budgets and, frankly, there

is gold in this budget, too. I want to point to one particular promising area, and that is Section 8.

The Section 8 program has an unexpended balance that carries

over from year-to-year. This year’s budget projects an obligated balance in Section 8 that will be $4.2 billion for a carry-over that is

actually a legacy from the advanced appropriation that was established a few years ago.

This $4.2 billion is for contracts that are coming due during the

first quarter of fiscal year 2003. HUD needs some money to fund

these contracts in the first 3 months of fiscal year 2003, but two

questions we think you should ask are: do we want to fund 15

months of contracts with this year’s appropriation? And if we do,

how much do we need to pay?

When you look at the chart showing HUD’s total recaptures,

what you see is primarily funds HUD has been sweeping up from

Section 8 in the past. So then the question you may want to ask

is: how much of those recaptures should go to fund the 15 month

transition year?

The answer then determines how much extra money you will

have in HUD’s budget. And frankly, those recapture numbers can

dwarf anything that we have talked about in overall proposed increases and decreases for this coming year.

HUD itself has made significant progress in looking at unexpended balances. They have identified targets of opportunity: the

Section 8 program that I have just mentioned, both project-based

and tenant-based. As Mr. Martinez mentioned, the unused vouchers are something that you want to be looking at.

We have also talked a lot about the housing Capital Fund. Significant unexpended balances also exist there.

In addition, there are two other programs that HUD has pointed

to, and we think they are absolutely right to point to—Section 202

and Community Development Block Grants.

But the problem is that HUD does not know exactly how much

is available in each of these program’s unexpended balances and

where it exactly is. Yet, that is what good management requires.

As I mentioned, Congress at times has come to HUD for excess

balances. But it has not been done in a systematic way.

It is nice to have such a bank. But in a bank, you want to know

how much is there and where it is. And we do not think HUD’s

mission is to be our bank.

The last few years, at our urging and that of Congress, HUD has

begun to get a handle on its unexpended balances. But there have

been starts and stops along the way.

This Administration has signaled its intent that unexpended balances are important to them. This budget matches that intent, but

it also sends a mixed signal. For example, we have talked a lot

about the Public Housing Capital Fund. As Secretary Martinez

37

pointed out, the idea is to use unexpended balances to cushion cuts

in that fund. There is a problem to this.

The cuts are uniform across the board. However, unexpended

balances occur in some projects, some PHA’s, and not others. Typically, when you find an unexpended balance, it is the first indicator

of a management problem at that local level.

To remedy this, what HUD should consider doing is taking unexpended balances from those projects and PHA’s that have them, yet

may not be able to use them, and then distribute that excess to

those who need them.

Excess balances also signal where HUD should be looking to help

with management problems. Unfortunately, HUD lacks the detailed information to identify the PHA’s, the projects, the plans,

and the problems.

This is central to a request that we have just received from you,

Mr. Chairman. We have a team looking at public housing management and, as you know, we plan to be reporting back to you later

this year with our suggestions on how to help HUD improve PHA’s

management.

So, in conclusion, HUD is moving in the right direction. It knows

the programs and the targets of opportunity for unexpended balances. It also, though, needs to go further and take advantage of

those targets of opportunity.

I think this hearing is really important because it signals to

HUD that the Congress is watching. In the past, oversight, typically has been looking at programs or dollars, but not both. This

time you are looking at both programs and dollars. I think that is

a very key step forward in the progress of managing this Agency,

because I think that we will find that there are dollars in HUD’s

unexpended balances and these dollars can be used to serve the

programs and the people who need them.

That concludes my statement. I would be glad to answer any

questions you may have.

Senator ALLARD. Ms. Glover.

STATEMENT OF RENEE L. GLOVER

EXECUTIVE DIRECTOR, ATLANTA HOUSING AUTHORITY

AND PRESIDENT OF THE COUNCIL OF

LARGE PUBLIC HOUSING AUTHORITIES

Ms. GLOVER. Thank you.

Chairman Allard, Ranking Member Reed, and the other distinguished Members of the Committee, I want to thank you for this

opportunity to provide from the practitioner’s point of view the

Department of Housing and Urban Development budget for fiscal

year 2002.

I have provided detailed written testimony which I am not going

to read to you today because I know, first of all, you can read and

it is a lot of detail and probably requires some study.

First, I wanted to extend on behalf of the Council of Large Public

Housing Authorities and the other housing authorities around the

country our hand of partnership to Secretary Mel Martinez and the

other HUD officials, to Susan Gaffney and the Office of Inspector

38

General, and to the office of the General Accounting Office and to

you, so that we can provide excellent housing. I think that for too

long, we have been at odds with each other and I think if we can

work together, we can get more done together.

Second, I want to extend the fact that we believe, and certainly

in Atlanta, that the public housing program can be an excellent

program without the stigma and the kind of debate that goes on

probably in every locality.

I have a document with me today that features a number of our

communities, and a number of our mixed-income communities

where we have leveraged our public housing dollars on a leveraged

basis of about 5:1.

And we are having a major impact in local communities and

doing community building. But most importantly, with substantially improving the quality of life for the families.

We believe in the President’s focus, and our own governor has

focused very much on education. But place does matter and environments do matter. And excellent housing is a key part of any

education strategy.

I want to also point out that in terms of what we have been

doing in Atlanta, under the old PHMAP (HUD’s assessment) system, the housing authority earned at the end of June 30, 1999, a

perfect score of 100. And under the new, highly contested PHAS’s

system, we have earned a 90.5 percent score.

And we also are free of all outstanding audit findings of any sort,

including the Inspector General, GAO, et cetera.

So I wanted to at least let you know that we are working very

hard and achieving great results. And I think this is really true of

so many of the agencies that are out there. But, unfortunately,

most housing authorities get painted with the negative brush of a

few offenders. And I think that is really reflected in the proposed

HUD budget. So I want to share with you very quickly the perspective from a professional provider of affordable housing.

First of all, the public housing program serves about 3.2 million

very low-income families, including a million elderly and disabled

families, including veterans, and about 1.2 million children.

Most of these individuals earn well below 30 percent of area median income. The reason I point that out is that the families who

are served by this program are not served by any other program

that is out there, not the low-income housing tax credit program,

not the private activity bonds, because, typically, the families earn

somewhere between 50 and 80 percent of area median income.

The incomes of families we serve in the program, either through

Section 8 or the public housing program, is well below the 30 percent of area median income.

In fact, the average income of public housing assisted families in

Atlanta is equal to $8,600, about 13 percent of metro area median

income, which for a family of four, is about $66,000.

As a result of the great prosperity that exists in the country, and

certainly Atlanta has enjoyed it as well, we are experiencing a very

high level of occupancy in the conventional residential multifamily

rental market. It is somewhere between 95 and 97 percent, which

leaves about 3 percent vacancies to provide housing opportunities

for families.

39

In addition, the housing authority is at 99 percent occupancy,

which leaves about 1 percent vacancy, which also shows the need.

And we have already talked about the 5.4 million or so families

who are paying in excess of 50 percent of their income for housing.

In simple terms, we believe that the commitment that has been

made by the U.S. Government to the families and to housing authorities is that the families in the public housing and Section 8

programs will be able to pay 30 percent of their adjusted income—

which means in some cases, families are paying as little as $50 a

month for rent.

The differential, that is the difference between the cost to operate

and maintain and make capital improvements, will be made up by

the funding from HUD, either through the operating subsidy or the

Capital Fund.

The level of rent charged by the housing authorities is set by

Congress and by HUD’s regulations. Housing authorities cannot

levy taxes. We cannot raise rents. We cannot do financing against

net operating income because there is none. We cannot establish or

maintain capital reserves under HUD’s regulations.

So this discussion is critically important because the fact of the

matter is that if Congress does not appropriate adequate funding,

we do not have the necessary resources to do what we need to do

to provide excellent housing to working poor families, the elderly

and disabled.

In addition, from our perspective, there is about a $1 billion cut

proposed in the fiscal year 2002 budget. There is $700 million of

Capital Fund cuts proposed and the total elimination of the Drug

Elimination Grant Program of $310 million. In addition, housing

authorities across the country——

Senator ALLARD. Excuse me. Can you summarize your statement

here so that we can move on.

Ms. GLOVER. Okay. Let me just do this very quickly.

Senator ALLARD. Okay.

Ms. GLOVER. There has been discussion about the $150 million

of drug elimination money that is being made available for operating subsidy purposes.

The fact of the matter is that there is about $300 to $400 million

of excess utility costs. There is not an adjustment at the end of the

year to account for or absorb these excess costs.

So notwithstanding that the $150 million has been proposed as

a choice available for housing authorities to do something to combat drugs in their communities, the reality is that those dollars will

more likely than not be used to cover the shortfall in utilities.

There is no adjustment at the end of the year, so if you guess

wrong against utility rates, that is a direct hit to the operating subsidy—monies needed to operate and maintain the properties.

In addition, in terms of the obligation and expenditure of the

Capital Funds, we believe, in Atlanta, all of our dollars are being

obligated and expended within the permitted timetable.

The proposed cuts to the Capital Fund will result in a $5 to $6

million cut to our Capital Fund, which will in fact put us in a position where we would have to make a choice about which roofs get

fixed and which do not. That is just the reality of it.

40

There is no reallocation by HUD of the unobligated or unexpended dollars to agencies who can get their monies obligated and

expended timely. The only thing I think there is agreement about

is that no system should be so complex that there is this wide a

difference in terms of understanding how much unobligated money

is out there.

In terms of the Drug Elimination Grant Program, I think it is

a classic case of if it ain’t broke, don’t fix it.

What I mean is that if there are abuses of the program, then I

think those particular abuses should be addressed. The Drug

Elimination Grant Program is not law enforcement. It is enhancement of law enforcement and good property management because,

by doing the kind of additional security, working with the law enforcement agencies, it allows local housing authorities to do the

evictions under the one strike and you are out. It allows us to get

the criminal trespassers and the loiterers off of our properties, to

do lighting, fencing, gating, and et cetera.

There are a number of police officers here today from Boston,

Philadelphia, Washington, DC, to support the program because it

does work. And I think the cities are working with the housing authorities. But it is a matter of again not being able to pass increased costs for security improvements on because we cannot raise

rents. And I see that I am getting the high sign.

Senator ALLARD. We are going to put your full statement in the

record. If you could just briefly summarize, please.

Ms. GLOVER. What I would like to summarize and say is the program can be excellent. The monies are needed. I think if there are

abuses or issues, that the solution to those abuses should not be

eliminating the monies, but directing the focus and concern of

HUD’s technical assistance to those areas. If there are excess unobligated monies, reallocate them to agencies that can obligate and

spend the monies timely.

And I hope that the Senators and Congress and the U.S. Government will continue to support the public housing assisted and Section 8 programs. They are critically needed. They can be excellent.

But it takes resources to run those programs.

Thank you.

Senator ALLARD. Thank you, Ms. Glover.

Ms. Sard.

STATEMENT OF BARBARA SARD

DIRECTOR OF HOUSING POLICY

CENTER ON BUDGET AND POLICY PRIORITIES

Ms. SARD. Thank you, Senators Allard and Reed, for having this

hearing today. I will try to be brief, having the slight honor of

being the last speaker.

Despite the strong economy during much of the 1990’s, as of

1999, there still were 4.9 million households that are renters, that

have very low incomes, and that pay more than half their income

for housing or live in severely substandard housing. Indeed, one

sixth of all households in the United States are renters that have

moderate or severe housing problems—one sixth.

Relatively few of these families will benefit from the Administration’s home ownership initiatives, as praiseworthy as those may be.

41

Many people do not want to own a home, at least at this particular stage in their lives. Maybe later, not today. And for many

others, they may want to, but it is not financially feasible. Their

need is rental housing.

We have heard a lot about how rising tides will lift all boats and

that if everyone just goes to work, their housing problems will be

solved. Unfortunately, that is not true. Many of the households

with the greatest need for assisted housing are elderly or disabled.

And most of the others are in fact working. Eighty percent of the

nonelderly, nondisabled households with worst-case needs were

working in 1999.

Some of the studies of welfare reform throw some light on why

earnings are not sufficient to render housing affordable. Typically,

those studies show that families earn about $3,500 per quarter.

Even if they worked full-time year-round, which is unlikely, that

would mean $14,000 a year.

For the average two-bedroom apartment in the United States, if

your income is $14,000 a year, you must pay more than 50 percent

of your income for rent. In fact, a family needs $25,000 per year

to be able to afford average rental housing in this country. And in

the areas where you gentlemen are from, they need more.

So to make housing affordable, more families simply need housing vouchers. For more than three-fourths of the families with

worst-case needs, their only problem is housing affordability. They

could use a voucher where they are, and their housing problem

would be solved.

A growing number of studies of welfare reform show that having

affordable housing enhances the effectiveness of welfare reform efforts, helps families go to work, helps them earn more, and responds to what the Senator said at the beginning about measuring

HUD’s programs in terms of how they increase self-sufficiency.

But in addition to vouchers, we also need new major investments

to produce more housing, new construction as well as rehabilitation. Vacancy rates are too low in many areas for what is considered a healthy housing market.

In Denver, there were two recent studies showing that in the

city, the vacancy rate was only 4.7 percent, leading to an increase

of more than 8 percent in the last year alone in rents. And outside

of metropolitan Denver, the vacancy rate had fallen to 3.2 percent.

With such tight markets, rents are bound to rise—basic law of supply and demand.

In addition, the market tightness has reduced the number of

units available to families with vouchers, and it has been a particular problem in suburbs where jobs are growing. So, again, these

housing problems tie together with self-sufficiency.

Turning to the HUD budget, the Administration’s only proposal

that is directed at improving the situation of very low-income renters is the proposed increase of 33,700 vouchers.

Now, we support that. We think that that is an important, positive step. But it simply does not go far enough in terms of the

unmet needs. It is less than 40 percent of the 87,000 voucher increase that we saw last year. My written testimony explains that

in more detail.

42

The proposed increase of $2.2 billion to renew expiring Section

8 contracts is something of a mirage. It looks good until one looks

at it closely. And then it disappears. No additional families are aided by that $2.2 billion increase. Indeed, it looks to us like the budget under-estimates the dollars

needed for full renewal because it is counting on taking $640 million away from housing agencies that have been part of their reserves in order to meet the renewal needs.

Now the reserves is a complicated issue. But the short story is

that agencies are funded based on their former year’s costs. If their

costs go up, they need to draw on reserves.

I am told that in Denver, the Agency has had to already use all

2 months of its reserve and cut its program as a result. And so,

this renewal budget, while it says it is full renewal, we are very

concerned that is only on paper and the budget will in fact create

a reduction in the number of families with housing vouchers.

In this era of budget surpluses, we can and should help provide more families with decent, affordable housing that they simply

cannot obtain on the private market. A greater share of households with worst-case housing needs is working than ever before,

but their earnings are not sufficient to enable them to obtain

decent housing.

Lack of affordable housing may lessen the success of welfare reform by making it more difficult for families to obtain and retain

employment.

If we really want to leave no child behind, as the President has

urged, we should increase our investment in low-income housing

substantially, through production and rehabilitation of rental housing and additional housing vouchers.

Thank you.

Senator ALLARD. Thank you very much for your testimony.

If it is all right with the Ranking Member, I thought we would

give each of us 5 minutes and then wrap it up.

Senator REED. Sure.

Senator ALLARD. Mr. Czerwinski, what is the history of HUD’s

budget increases from 1998 to the present?

Mr. CZERWINSKI. There has been a steady increase in the budget

over that time.

Senator ALLARD. A steady increase in the amount of increases,

or every year we have had increases?

Mr. CZERWINSKI. Over all that time, there has been an increase.

I think there was 1 year that there was a dip. But overall, it has

been increasing.

Senator ALLARD. Do you have an average in mind?

Mr. CZERWINSKI. I think we are talking about in the single digits

per year.

Senator ALLARD. Six, seven percent, something like that?

Mr. CZERWINSKI. That is a fair number.

Senator ALLARD. And is the proposed HUD budget an increase

or a decrease?

Mr. CZERWINSKI. It depends on how you look at it. You can get

increases or decreases, depending on the assumptions. And I would

want to go back to the point that I made in my statement. We are

arguing over maybe—it may sound odd—a relatively small number,

43

like a billion or two here or there. The point is that, we have much

more than a billion or two sitting out there in the unexpended balances. And that is what I would urge you to look at.

Senator ALLARD. Now in actual dollars, without adjustments

from year-to-year, is there an increase in spending?

Mr. CZERWINSKI. There is an increase in requested budget authority. I do not know that you want to go down this road, though.

Senator ALLARD. Okay.

Mr. CZERWINSKI. Because we will start getting into all of these

appropriation and budgeting terms. There has been an increase in

requested discretionary budget authority. Then you have to look at

the assumptions behind the request. A point that I tried to make

in my statement is that it really is in the eye of the beholder.

Senator ALLARD. Okay. That explains some of the arguments

that we are having.

Senator REED. That is right.

[Laughter.]

Mr. CZERWINSKI. And I do not want to be in the middle.

[Laughter.]

Senator ALLARD. Would you please explain to the Committee how

much unexpended money there is at HUD and why?

Mr. CZERWINSKI. Sure. I do not mind getting in the middle of

that one.

Senator ALLARD. Okay.

Mr. CZERWINSKI. There is approximately $100 billion of unexpended funds at HUD. And the reason for this is that HUD gets

a very large share of its money in no-year appropriations, which

means it can carry over from 1 year to the next.

These monies are usually tied to a lot of long-term obligations— let’s take the Section 8 program for an example—the contracts can

be up to 30, 40 years. Those obligations are then tied to assumptions that we make about what is going to happen in the future.

HUD has made assumptions about what rents are going to cost.

As they should, they have been cautious, and assume things would

maybe cost little more than they sometimes turn out. And that is

prudent. What needs to be done, though, is HUD should periodically revisit these assumptions, comparing them with actual costs,

and sweeping out the difference. That has not been done routinely.

Senator ALLARD. That is what we were having you do here with

your report.

Mr. CZERWINSKI. Absolutely.

Senator ALLARD. You reported $12 billion in unobligated funds.

Mr. CZERWINSKI. That is unobligated at HUD. That is the small

wedge on the chart to your right. That is not to say that all of that

is recapturable.

You have to look at those on a case-by-case basis. That requires

the information systems we have talked about. In addition, the bigger piece of the pie, the $96 billion, that is obligated by HUD. But

then you have to look at, whether the recipients have obligated

that money or not. If it is unobligated, then you have to think

about why, how long, what purposes, what plans? And again, that

becomes a case-by-case basis.

HUD has done a very good job of identifying the programs to

look at. Section 8, both project- and tenant-based. Housing Capital

44

Fund, CDBG, and Section 202. Those are the greatest targets of opportunity. What HUD has not done as well, though, is give you the

detailed information that you need to make decisions about what

you want to recapture, what you want to reprogram, how much you

have, and where.

Senator ALLARD. What should the Agency do about the unobligated dollars?

Mr. CZERWINSKI. The Agency needs to essentially integrate their

budgeting, their planning, and their program management processes, so that they have information about the unexpended balances: the reasons why those balances are there, the causes at the

programmatic levels so that they can help recipients who are not

spending their funds. A lot of times, unspent money is an indicator

of a local capacity problem.

They then have to take that information and money and put

them back in the planning process, and reprioritize.

Senator ALLARD. What can the Congress do about it?

Mr. CZERWINSKI. Well, the Congress can do what you did last fall

when you held your hearing on HUD’s management. Also, exactly

what you are doing today: zeroing in on a key piece of HUD’s management. And what you have talked about doing with us in the future: HUD’s priorities and how they are going to try to achieve

them. The oversight that you are exercising is probably the most

important thing.

The second thing that the Congress can do is once it gets the information it needs, you have to make some hard decisions as to

what you want to do with that money.

Senator ALLARD. The Senator from Rhode Island.

Senator REED. Thank you very much, Mr. Chairman.

Mr. Czerwinski, let me follow up. When you calculated the unobligated funds, your assumptions were no increase—I am asking.

This is not a conclusion. Did you assume no increase in the number

of people being served in the Section 8 program, a constant total?

Mr. CZERWINSKI. Actually, when we calculated that chart, we

only looked back and we saw how much already was there. That

is what is sitting there right now. That number is as of the end

of fiscal year 2000. So we did not have to make any assumptions

at all.

Senator REED. But why is it unobligated, then? Let me ask a

very simple and maybe naive question.

Mr. CZERWINSKI. The reason why it is unobligated, ties into the

multiyear and no-year appropriations HUD receives and the nature

of the programs that HUD runs.

Senator REED. So as you look forward, and as HUD looks forward, they have this pile of money.

Mr. CZERWINSKI. Yes.

Senator REED. But as they look forward, are they preparing, or

are you preparing for an increase in the number of people served,

or expecting that the population will stay constant and the costs

will go up on a certain slope?

Mr. CZERWINSKI. The question you ask is a very good one. It is

actually at the heart of what HUD needs to do as it goes to the

next step that we have been talking about.

45

They need to look at what the true needs are, which assumes a

projection of what is going to happen. Then they have to say, given

those needs, what is prudent, what is cautious, what do I need to

set aside? That will then use up some of the expended balances.

Once they have done that, they then need to say, and here’s the

rest that I have left over.

Senator REED. But your conclusion is that they do not have the

management tools yet to make those fine judgments. Is that fair?

Mr. CZERWINSKI. Yes.

Senator REED. But there is at least a theoretical possibility that

all of those unobligated funds can and will be used to fund Section 8 vouchers in a reasonable, prudent and efficient way.

Mr. CZERWINSKI. In the terms of Section 8 vouchers, the way

that would play out——

Senator REED. Or project-based Section 8.

Mr. CZERWINSKI. Either one is a good example. The way that

would play out is—let’s take the vouchers. That is probably a simpler example. The way that would play out is that you would see

an increased number of vouchers that you could fund.

Senator REED. Going back to Ms. Sard and I think Ms. Glover,

what it also says is that the demand seems to be out there. I mean,

there are lots of people.

Mr. CZERWINSKI. Absolutely. And I am really glad you made that

connection. Actually, when Ms. Sard was talking, I was thinking

about that very point.

There are tremendous unmet needs. We have all agreed to that.

And that is the shame of it: we have some resources that our process has allowed to be essentially set aside. And it is time to bring

them out and make our decisions.

We may decide to take that money, as has often been done in the

past, and use it for a different purpose. Or it may be that the decision is made to apply it to housing. That goes back to the heart

of the question that you are asking.

Senator REED. It does, and that is a decision that we have to

make. But actually, I do not think, and I do not want to put words

in your mouth, that you want to leave the impression that there

is this pile of money sitting at HUD that never can be used, that

never will be used, that serves no purpose other than just cluttering up their offices. I mean, frankly——

Mr. CZERWINSKI. HUD is not getting rich on this.

Senator REED. Down the line, we could make or they could make

the policy decision that they have identified excesses in certain

cases and they could apply those excesses to increased vouchers, increased projects, to meet their core mission, which is to house

America.

Mr. CZERWINSKI. Yes, exactly. And if you go back to the chart

that we showed, that HUD already has been doing that to a certain

extent. Our point is that is a great first step. But it has to become

part of their routine process, and they need to continue and do it

even more.

Senator REED. Fine. And I think your analysis, as always, has

been very helpful.

46

Ms. Glover, thank you for your testimony. As always, it is been

very well presented. And I want to thank the police officers for

joining us today. I feel very secure.

[Laughter.]

You indicated that the effect of this cut on your capital expenditures is that you will actually lose money this year. Is that correct?

Did I hear you correctly?

Ms. GLOVER. For fiscal year 2002, we will lose about $5 to $6

million, period.

Senator REED. Now the other issue that I went back and forth

on with the Secretary is, if, through some magical recalculation of

the budget, we are able to offer you more money, could you use

that effectively for capital expenditures?

Ms. GLOVER. Absolutely.

Senator REED. What is your backlog down there?

Ms. GLOVER. We have about a $250 million backlog.

Senator REED. And that is roofs and windows and all sorts——

Ms. GLOVER. All of the things. We conducted a so-called ‘‘physical

needs assessment’’ of the entire stock.

Now we have been wearing away at it. When I started in 1994,

we had about a half-billion dollar backlog. We are working through

that backlog now.

Senator ALLARD. Have you submitted that request to HUD?

Ms. GLOVER. What, for the $250 million?

Senator ALLARD. What you are talking about, the backlog. Is that

a request that you have made to HUD?

Ms. GLOVER. Well, HUD is aware of the overall physical needs

assessment. And in fact, I think all of the agencies have rolled that

information in, which ties into that overall $22 billion accrued

backlog, if you will.

Senator REED. Let me, Ms. Gaffney, address a question to you.

I think I heard the Secretary basically conclude his justification

for the elimination of the Drug Elimination Grant Program is that

HUD should not be involved in law enforcement activities. Would

you say that Operation Safe Home is a law enforcement activity?

Ms. GAFFNEY. The part of Operation Safe Home that deals with

drug trafficking and violent crime is absolutely law enforcement.

Senator REED. So the Secretary seems to be saying, on the one

hand, when it comes to drug elimination grants, which I tend to

be sympathetic to Ms. Glover’s characterization as really a complement to law enforcement, should be eliminated because they are

not part of the HUD mission.

But when it comes to the Operation Safe Home Program, for

which I understand there is $10 million specially set-aside from the

operation budget for, that law enforcement mission should be pursued. If I am right, we are either wrong on one count or wrong on

the other count.

Ms. GAFFNEY. They actually are two different functions.

Could I clarify one thing, though, about drug elimination grants?

And if I am wrong about this, Renee will be able to tell me.

The last time I looked at the allocation of funds under the Drug

Elimination Grant Program, almost 50 percent of the funds were

not at all related to law enforcement. They were related to drug

47

treatment, prevention—and that is just a point of clarification I

would like to make in this discussion.

Senator REED. Well, I appreciate that, Ms. Gaffney, because it

tends to undercut the Secretary’s characterization of it as a law enforcement program.

Ms. GAFFNEY. Well, I am not trying to argue one way or another.

I am just trying to state the facts.

Senator REED. Thank you.

Ms. GAFFNEY. And with respect to the difference between Safe

Home and the law enforcement purposes of drug elimination, as

Renee said, typically, the drug elimination grant funds are being

used for supplemental community policing, for additional security

with local law enforcement.

Operation Safe Home is geared to working with Federal and local

law enforcement on discrete criminal investigations.

Senator REED. Well, you can see my confusion here.

Ms. GAFFNEY. Yes.

Senator REED. Thank you, Ms. Gaffney.

Senator ALLARD. Very good. I want to thank the panel. I want

to thank the Ranking Member for his cooperation.

Before we adjourn, I would like to note that the record will remain open for 10 days, should other Members wish to submit statements or questions for the witnesses.

I would appreciate it if the witnesses would respond within 10

days of receiving questions.

With that, again, thank you for your testimony. We very much

appreciate it. It was a good hearing. We stand adjourned.

[Whereupon, at 12:30 p.m., the hearing was adjourned.]

[Prepared statements, response to written questions, and additional material supplied for the record follow:]

48

PREPARED STATEMENT OF SENATOR JACK REED

Senator Reed, Mr. Chairman, I rise today to discuss an issue of critical importance to our Nation; the housing crisis in America. Despite the economic prosperity

that our country has experienced, many Americans are still struggling with the lack

of safe and affordable housing. The economic surge that our country has undergone

has had the unintended effect of tightening up housing markets and driving up

rents, and unfortunately, wages have not been keeping up. As a result, the number

of affordable apartments has dramatically declined in many communities.

In my home State of Rhode Island, a recent National Low Income Housing Coalition report estimated that the average rent for a two-bedroom apartment in Rhode

Island was at least $638 a month. Forty-six percent of Rhode Islanders are unable

to afford this rent without spending over 30 percent of their income on housing. In

terms of homeownership, the average sales price of a home went up by $24,000 between 1999 and 2000. In the same period, the number of houses on the market decreased by over 50 percent, and only 25 percent of these homes were affordable to

low-income families.

However, this housing affordability crisis affects citizens all over the Nation, not

just in New England. The latest HUD worst case housing needs study indicates that

there are over 4.9 million very low-income Americans who pay more than 50 percent

of their income for rent. In addition, a more expansive study done by the National

Housing Conference, the mortgage bankers, and others shows that 14 percent or

13.7 million American families have worst case housing needs. Ten million of these

people are elderly or work full or part-time.

Unfortunately, the President’s budget proposal ignores this reality. Although the

Administration claims that the HUD budget is being increased by 7 percent, upon

closer examination, this does not appear to be true. Once you remove the approximately $4 billion increase in budget authority for renewal of Section 8 rental contracts, the President’s budget actually cuts housing programs by $1.7 billion or

6 percent. If you factor in inflation, the budget cuts housing programs by $2.2 billion, which is an 8 percent real spending decrease compared to last year.

These general conclusions appear to be confirmed by the specifics. First, there is

an $859 million net cut for public housing—which is not even listed as a core HUD

program in the budget. Next, the $310 million cut in the Public Housing Drug

Elimination Program (PHDEP), a flexible, community-based program that has been

helping local housing agencies develop comprehensive anticrime and antidrug strategies. Finally, there has been a cut in Section 8 reserves by $640 million—from

2 months to 1 month), and a cut in Section 8 housing vouchers of $358 million

(49,000 incremental, 8,000 disabled, and 10,000 tenant protection vouchers.

At a time of record budget surpluses, we should be increasing funding for affordable housing programs and community development, not cutting them. In addition,

we should be creating a housing production program that helps build new affordable

housing. As more and more communities are realizing, vouchers only work if there

are apartments to use them on.

Many of us also believe that the expansion of homeownership opportunities represents one of the best possible opportunities for disadvantaged groups to build

family wealth and economic security. As a result, I plan to reintroduce the homeownership tax credit bill I introduced last Congress. I believe that the tax code is

one of the most effective tools we have to stimulate an increase in homeownership.

My bill would provide a tax credit to lenders extending low- or zero-interest second

mortgages to lower income families—helping to make homeownership a reality for

about 500,000 new families over 10 years. I am glad that the President has also

shown interest in a type of homeownership tax credit. However, President Bush’s

proposal appears to go only to certain low-income communities for building or rehabilitating homes, while my bill is targeted at helping low-income families live wherever they would like to live. That being said, these approaches could prove in many

ways to be complementary in expanding homeownership for low-income families.

We also need to solve our homelessness problem. This winter in Rhode Island,

nearly three thousand people had to sleep on the floor of a homeless facility because

there were not enough beds. Congress passed the McKinney-Vento Homeless Assistance Act to deal with the ‘‘crisis’’ of homelessness. Instead, we have come to realize

that McKinney funding is being used to provide a safety net not only for those who

are homeless, but also for those not being adequately served by mainstream housing

and social programs. Within the next few weeks, I plan to introduce legislation that

will reauthorize the McKinney-Vento Act, increase funding for HUD’s homelessness

programs, set aside a substantial amount of money for the creation of permanent

housing for the disabled homeless, and realign the incentives behind our HUD’s

49

homelessness programs. We should be trying to prevent and end homelessness, not

institutionalizing it.

I also would like to commend the Administration for increasing funding for HUD’s Office of Lead Hazard Control by $10 million. Nonetheless, much more needs to be

done. I, and a number of my colleagues, believe that this number should be much

higher. No family in this country should be forced to live in housing that can cause

permanent brain damage to their children.

Finally, we also need to deal with some of the economic issues that are making

it difficult for people to obtain safe and affordable housing. Most workers earning

the minimum wage do not earn enough working 40 hours a week, 52 weeks a year,

to pay for adequate housing. Unless they are lucky enough to be in some type of

subsidized housing program, most minimum wage workers must pay almost all of

their $10,700 a year income toward their rent. Job training, day care, and health

care are also part of the solution to the housing affordability crisis.

However, policies in all of these areas are going to be dramatically impacted by

the President’s tax cut proposal. Thus, I hope that today’s testimony will help everyone here reflect on how a better balance might be achieved between tax relief and

providing appropriate funding for the provision of decent, safe and affordable housing for some of our country’s most vulnerable citizens.

—————

PREPARED STATEMENT OF SENATOR MICHAEL B. ENZI

Thank you, Mr. Chairman, for conducting this hearing today to discuss the U.S.

Department of Housing and Urban Development’s Program, Budget, and Management Priorities for Fiscal Year 2002. I want to welcome Secretary Martinez to the

Subcommittee as well as the other witnesses. Secretary Martinez’s commitment to

housing and community development has created a network of people nationwide

that is excited and knowledgeable about these public policy issues. I am heartened

that this excitement and knowledge will continue to encourage community leaders

nationwide to find solutions to their housing and community development needs.

Homeownership is often portrayed as an integral part of the ‘‘American Dream.’’

Raising the homeownership rate is the goal and desire of most community leaders

and social activists in this country. As an economic indicator, the housing market

component impacts many sectors of the economy. Homeownership can improve the

economy by making citizens self-sufficient and more stable. Homeownership rates

have increased nationally over the past couple of years. Industry sources predict the

market to continue to grow, though slowed somewhat by decreased demand. Increases in housing sales coupled with the high rate of homeownership point to a

healthy outlook for the U.S. housing industry.

I believe the HUD fiscal year 2002 budget is a perfect example of President

Bush’s goals in proposing a compassionate yet responsible budget for the U.S. Department of Housing and Urban Development. On one hand, the budget provides

approximately $2 billion in additional funding to promote homeownership among

low-income and minority families, to expand the number of families served by

HUD’s rental subsidy programs, and to cover increased costs of HUD’s existing

housing programs. At the same time, the budget emphasizes responsibility by slowing the overall growth in HUD’s spending, minimizing the number of new initiatives

that undermine HUD’s capacity to administer its core programs and taking steps

to improve the efficiency of HUD’s existing programs. I support the President’s

housing and community development public policy goals in the fiscal year 2002

budget which shift the focus of HUD to providing affordable housing and promoting

community and economic development.

In my home State of Wyoming, approximately 70 percent of the population own

homes, ranking Wyoming 22nd among the 50 States. Nevertheless, rural States

need better assistance in establishing homeownership opportunities for their constituents. I support the President’s initiative to promote homeownership opportunities by proposing a $1.7 billion tax credit that will support the rehabilitation or new

construction of an estimated 100,000 homes of purchase by low-income households

over a 5 year period and the $200 million to provide homeownership down payment

assistance to 130,000 low-income, first-time homebuyers. These programmatic increases will assist Wyomingites in creating strong communities and sustaining

economic growth in my home State. In addition, I support the elimination of $25

million for Rural Housing and Economic Development because I agree that the U.S.

Department of Agriculture should be designated as the primary Agency to administer rural housing needs. This Agency consolidation will allow USDA to better administer housing dollars to rural areas like Wyoming.

50

Some States have begun housing and community development policy reforms on

their own admission. Because Wyoming does not have one single State housing

Agency, Wyomingites have mobilized their initiatives in order to ensure greater

homeownership in my State. For example, HUD, the Wyoming Community Development Association, Habitat for Humanity, Housing Partners Incorporated, Fannie

Mae, and the Bureau of Indian Affairs have come together to create an Indian

Housing Coordinating Committee in order to facilitate better access to affordable

housing for the Arapaho and Shoshone tribes on the Wind River Indian Reservation. With this strong partnership at the local level, Wyomingites will be able to

better access both private and Government dollars to ensure an increase of affordable housing and community and economic development in our State. I believe

that HUD’s fiscal year 2002 budget ensures these consumers, organizations, and

manufacturers alike would enjoy reforms that call for an increase of safe and

affordable housing nationwide, especially for the more rural areas of our country

like Wyoming.

I am concerned about the effects of fraud, waste and abuse at HUD. I have had

a keen interest in the measurable progress of management reforms in all Federal

agencies since I came to Washington in 1997. I have conducted Agency visits at the

Occupational Safety and Health Administration, the U.S. Forest Service, Small

Business Administration, Internal Revenue Service, and Federal Deposit Insurance

Corporation to discuss each Agency’s implementation of the Government Performance and Results Act (GPRA). I would welcome the opportunity to come to HUD to

begin these GPRA discussions with you, Secretary Martinez. I believe GPRA’s accountability and strategic planning measures assist Federal agencies in effectively

and efficiently accomplishing their missions—to serve the American people.

In closing, I support HUD’s fiscal year 2002 budget. Thank you, Secretary Martinez, and the other witnesses for taking time out of your busy schedules to meet

with us today. I definitely look forward to further discussing housing and community development issues with each of you and your staff in the months to come.

—————

PREPARED STATEMENT OF SENATOR JON CORZINE

Chairman Allard, I want to thank both you and Senator Reed for holding this

hearing this morning and I also want to welcome and thank the witnesses who are

here today to testify before the Committee, most notably HUD Secretary Martinez.

Welcome.

As many know, the Department of Housing and Urban Development was an

Agency once considered to be terminally ill. It had been a poster child for mismanagement, abuse and scandal, and it struggled mightily to meet its important

mission of providing decent, safe, affordable housing to all Americans and the economic development and revitalization of American communities. But today, HUD

has begun to improve. HUD has sought to transform itself to more closely resemble

the Agency that President Kennedy, who upon establishing HUD in the 1960’s envisioned would provide a focal point for thought and innovation and imagination

about the problems of our cities.

With the help of Congress and the Clinton Administration, HUD has sought to

restore its credibility by remaining singularly focused on improving services for

the poor, low-income and working-class families, the disabled and senior citizens.

It has transformed itself by launching new-market initiatives; integrating lowerincome communities into the free market and creating renewal initiatives that spur

private sector investment in both urban and rural communities. HUD has also

helped America reach its highest homeownership rate ever—67.7 percent—and in

the process helped African-American and Latino households attain record levels of

homeownership.

There is a great deal of work to do, administrative oversight, management issues

and incidences of fraud—most notably in the FHA 203(k) program and in the Officer

and Teacher Next Door Program have made recent news. But I personally believe

that, overall, HUD has begun to turn the corner. But I fear now that we may be

reverting back to the type of policy and budget making decisions which led HUD

to its ineffectiveness back in the 1980’s. A period when the Agency, and its resources, where used as spare parts to fund other priorities of those administrations.

The fiscal year 2002 HUD budget—while conservative—is totally lacking in compassion and will do harm to 2.8 million low-income American families. While I have

problems with several elements contained in this budget, including the cut to what

I believe is an underfunded Capital Fund, what I find most disconcerting is the plan

to eliminate the Public Housing Drug Elimination Program (PHDEP).

51

This program has provided much-needed resources to bolster safety in public

housing through crime prevention, law enforcement, security, intervention programs, resident patrols, treatment and other related activities. Last week, I visited

a housing authority in Atlantic City and heard, and more importantly witnessed,

why we must not allow this program to be eliminated. The Drug Elimination Program has worked—and it has helped change the quality of life for the residents of

our Nation’s public housing.

To that end, I plan on introducing a resolution to Congress that will seek to keep

the Drug Elimination Program fully funded. This program has historically been supported in a bipartisan manner and I feel strongly that we as a Congress must affirm

our commitment to reducing crime and drug use and ensure that public housing

residents and their children are not left behind.

Mr. Secretary, the cuts to the Capital Fund and elimination of the Drug Elimination Program will cost my State of New Jersey $32 million dollars. And they will

adversely affect 80 housing agencies, 45,235 public housing units and 110,000 lowincome and elderly households that rely upon them. These cuts are flat-out wrong.

I urge you to revisit these flawed elements of your budget plan and continue the

work of restoring the credibility of this agency.

I thank you, Mr. Chairman.

—————

PREPARED STATEMENT OF SENATOR PAUL S. SARBANES

I want to start by saying how much I appreciate the effort made by Senator Reed

to have this hearing scheduled as soon as possible, and I want to thank Senator

Allard for his cooperation in this effort. I also welcome back Secretary Martinez and

thank him for appearing.

The HUD budget has to be understood in the broader context of the overall housing needs in this country. A HUD study found that almost 5 million very low-income

American households have worst-case needs. This means 5 million families pay over

half of their income in rent or live in severely substandard housing. A more comprehensive study shows that almost 14 million families, or 14 percent of all American households, actually have worst-case needs. This number includes 10 million

working, elderly, or disabled families.

In this era of great prosperity, when we in Congress are debating how to use a

projected surplus of trillions of dollars, it is a national disgrace that this many families, including working families, are unable to afford decent and safe housing.

This is not an academic concern. These families live in constant fear of homelessness. They are often forced to move from one apartment to another, or to move in

with a relative. These temporary arrangements undermine the ability of their children to get a good education, or their own efforts to get job training and take advantage of new opportunities. Affordable housing in a safe neighborhood is the first step

we must take to help people achieve economic and social self-sufficiency.

Looking at the HUD budget through the eyes of these 14 million households

makes it clear that the Administration’s proposal is sorely inadequate. The proposal

for fiscal year 2002 cuts almost all the core HUD programs. As we can see in the

charts, public housing is down; the Drug Elimination Program is terminated; new

housing vouchers are down; disabled vouchers are eliminated altogether; the HOME

formula grant is cut. I want to spend a moment to discuss the 25 percent cut to

the Public Housing Capital Fund. The Capital Fund pays to modernize and make

needed repairs to public housing.

HUD defends this cut by saying there are unexpended balances in the Capital

Fund. HUD’s own data show that Capital Funds are being spent well within the

legal time frames established in the bipartisan public housing bill in 1998.

The Government has an obligation to ensure that Federally assisted housing is

not left to deteriorate and fall into disrepair. This cut guarantees that some public

housing residents will live in housing that is unfit. The impact of this cut will be

real and direct and felt by residents of public housing.

For example, the housing authority in Washington County, MD has written me

to say that, if the cut goes through, he will have to shelve plans to install heat

pumps for elderly housing residents. Heat pumps would both save energy costs, and

provide needed air conditioning relief to elderly housing residents who have respiratory problems.

I am also surprised by and strongly opposed to the proposed termination of the

Public Housing Drug Elimination Program. This program provides needed funds for

police and safety officers and activities for drug prevention such as after-school and

mentoring programs. We have a number of police officers from Baltimore City here

52

today, and I want to thank them and the other officers for coming to today’s hearing

to show their support for this program.

The budget states that the Drug Elimination Program is unnecessary because it

is duplicative. However, HUD’s own web page says that these funds support a number of critical programs that empower residents to turn the tide against drugs and

drug-related crime in their own communities. This cut would mean that housing authority police officers would be laid off, after-school centers shut down, and safety

improvements left unmade. Making public housing safe is indeed within the mission

of HUD, and part of our obligation in providing housing to families in need. There

are other proposed cuts that concern me, cuts such as the termination of the Rural

Housing and Economic Development Program, the reduction of HOME formula

grants by $200 million and the cut in new Section 8 vouchers and in reserves, which

could lead to the reduction in the number of families receiving assistance.

I believe that we need to do more, and that we can do more. At a time when many

people have prospered in the growing economy, too many have been left out of the

boom. We have an obligation to make sure that they are not left out of the Federal

budget as well.

—————

PREPARED STATEMENT OF MEL MARTINEZ

SECRETARY, U.S. DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT

APRIL 25, 2001

Chairman Allard, Ranking Member Reed, and distinguished Members of the Committee, thank you for this opportunity to discuss the Department of Housing and

Urban Development’s budget for fiscal year 2002.

I am both humbled and energized by the challenges that face us, in this Department and this Nation, as we work to improve housing and expand opportunities for

families seeking to move ahead. President Bush and I are committed to restoring

the confidence of the Congress the Department’s constituents, and the American

people in the operation of this Agency.

This budget is the first step toward restoring that confidence. It is a compassionate and responsible budget that will allow us to serve people more effectively,

empowering individuals and communities across this great land. We cannot face this

challenge alone. We look forward to the support of this Congress and particularly

this Subcommittee to accomplish this.

The American taxpayer will measure our success not by how much money we

spend, but by how many families have a better home, by how many immigrants get

the chance to buy their first house, and by how many children grow up in the kind

of neighborhood we all want to live in.

Our existing programs must operate efficiently and effectively before we create

additional programs. Over the past 2 decades, the Department has grown to include

more than 300 programs. Simply adding new Government programs does not necessarily improve the lives of the citizens who need the most help.

The Administration’s overall growth for Federal spending of 4 percent is a responsible and appropriate level. Nevertheless, the President also recognizes that we have

an obligation to increase homeownership opportunities and serve those that cannot

afford decent housing. The Department of Housing and Urban Development’s proposed budget requests an increases of nearly 7 percent in budget authority for fiscal

year 2002.

Buying a home is the biggest investment most families ever make. By building

equity in a home families can pass on wealth from one generation to the next, can

provide for a child’s higher education, or can access venture capital for small businesses—all the while strengthening their communities. All Americans should have

these opportunities, no matter the color of their skin.

Nearly 70 percent of all families have come to realize the American Dream and

own their own home. Yet, despite this record number of homeownership, there are

still communities that lag behind: less than half of African-American and HispanicAmerican families own their homes.

We can do better. We need to tear down barriers to homeownership for families

that are financially able to sustain homeownership. President Bush’s budget includes three new homeownership initiatives to expand opportunities for hundreds

of thousands of low-income and minority families.

The ‘‘American Dream Downpayment Fund’’ provides $200 million to match down

payment assistance, helping more than 130,000 low-income families overcome the

single greatest obstacle to homeownership. President Bush also proposes a tax credit

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to support the rehabilitation or construction of at least 100,000 homes for low-income families over the next 5 years. The Administration will seek authority to offer

low-income families new adjustable-rate mortgages that protect new homebuyers

from dramatic changes in market rates until they can establish an economic foothold. The American Homeownership and Economic Opportunity Act of 2000 provided low-income families the ability to use rental vouchers for down payment on

a home. President Bush proposes to make this provision permanent and not subject

to appropriations, enabling the Department to help more low-income families become homeowners. This builds on the existing authority to use vouchers for mortgage payments.

Finding affordable and decent housing continues to be a problem for many Americans. Almost five million very low-income renter households have ‘‘worst case needs’’

for rental housing. While this number represents an 8 percent decline from 1997

to 1999, it is still unacceptable.

In order to expand the production of affordable housing, President Bush proposes

to raise the limits for FHA multifamily insurance by 25 percent. This is the first

increase in nearly 10 years and will help spur the development of affordable housing

in moderate to high cost urban areas.

We are strengthening our traditional obligations to public housing by increasing

the public housing operating budget by $150 million. This money can be used by

local housing authorities to fund those programs that best meet urgent needs, including the rising costs of utilities.

President Bush and I are continuing our strong commitment to helping families

with the costs of rental housing through Section 8 housing vouchers. This budget

renews all expiring Section 8 contracts at a cost of $15.1 billion—an increase of $2.2

billion over fiscal year 2001 and funds an additional 34,000 Section 8 housing

vouchers at an additional cost of nearly $200 million.

The budget proposal does not request as many new housing vouchers as in previous years for two reasons. First, we cannot continue to increase the Department’s

budget each year by 12 to 16 percent. At the previous year’s rate of increase, our

budget would surpass $100 billion by 2010. Second, there has been a serious problem with the utilization of existing Section 8 vouchers by State and local agencies

and some vouchers do not get used as quickly as they should. I will work with

Congress to improve the utilization of Section 8 vouchers by State and local

housing agencies.

Vouchers are much more than just a piece of paper; for many families they are

the first step in the process of greater economic opportunity and homeownership.

There are two issues regarding the voucher utilization problem: making vouchers

easier to use and improving the management capacity of local housing agencies.

First, we should take additional steps to ensure that more families are able to use

their housing vouchers. Vouchers work well in most markets, there is growing evidence that families are having difficulties using vouchers in certain markets. We

should resolve that.

Although market conditions affect the utilization of vouchers in different areas,

under-utilization is ultimately a management issue. Good managers can overcome

difficult market conditions and ensure that all of their vouchers are used. I plan to

work with housing authorities to help them become better managers so that they

can serve more families. We can do this through a combination of management techniques: fully employing the Section 8 Management Assessment Program (SEMAP)

that gives substantial weight to utilization rates, giving priority in fund allocation

to housing authorities with high utilization rates, and implementing HUD’s new authority to make some vouchers project-based.

While we focus on our goal of improving housing opportunities, this budget does

not neglect the Department’s traditional role of supporting community and economic

development. Much of this support is carried out by the Community Development

Block Grant (CDBG) Program and this Administration continues strong support of

this important program. CDBG will receive almost $4.4 billion in funding for formula grants to meet the specific needs of local governments. CDBG funds locally

developed programs that revitalize communities and help spur economic growth.

I would like to point out that, while we have kept funding for CDBG formula

grants at historically high levels, the new Census data will inevitably result in

changes in the funding level for each community. Some communities will get more

money and some will get less. I emphasize this to explain why, even though the

funding level for CDBG formula grants is kept constant for fiscal year 2002, some

communities will experience a reduction in funds. Others, of course, will experience

an increase. Any estimates that we generate at this time rely on the old Census

data and are subject to change.

54

In addition to the $4.4 billion in formula funding for CDBG, we will provide $80

million in grants to help create or expand community technology centers in economically distressed communities and provide technical assistance to those centers.

Through these centers, low- and moderate-income individuals will have access to

computers and technology that will improve their educational opportunities and job

skills. We cannot sustain homeownership without greater economic self-sufficiency.

President Bush and I are committed to beginning to close the digital divide so that

low- and moderate-income Americans are not left further behind. Every American

deserves the opportunity to succeed in the 21st century workforce.

The President’s proposed budget strongly recognizes the needs of the most vulnerable people in our society—the elderly, persons with disabilities, the homeless and

individuals with AIDS. All of HUD’s programs that provide assistance to these vulnerable populations will receive funding at or above current levels. The budget increases funding for elderly housing programs by $6 million to $783

million. The largest Department program targeted to the elderly is the Supportive

Housing for Elderly Program, which provides capital advances to finance the construction and rehabilitation of supportive housing for low-income senior citizens, including converting some properties to assisted-living facilities for frail elders. This

program also provides the elderly with rent subsidies to help make living in these

homes affordable.

To assist those with disabilities, we also fully fund the Supportive Housing for Persons with Disabilities Program, as well as providing an additional $20 million

to fund the ‘‘Improving Access Initiative.’’ This proposal will assist those nonprofit

groups and community organizations across the country that are exempt from the

Americans with Disabilities Act, but who still want their facilities to be accessible

to persons with disabilities.

In addition, we are funding at current levels—$1.123 billion—homeless assistance

programs. These not only aid those with the most pressing need for shelter, but provide services, temporary housing and permanent housing to reduce homelessness.

For those who lack adequate shelter, our goal should be to end chronic homelessness

by getting people the help they need. At HUD that means increasing the availability of permanent housing. This Agency is committed to continuing its homeless

programs, but in the future we see ourselves spending more of our resources on

permanent housing, and less on social services. We will work with HHS to reduce

the barriers that prevent the homeless from accessing much-needed social services

for which they are eligible.

Housing Opportunities for Persons With AIDS—also known as the ‘‘HOPWA’’ program—will see its budget increased by an additional $20 million, for a total of $277

million. These grants, provided to State and local governments, help low-income individuals stricken with AIDS find housing assistance, as well as support services.

This budget also recognizes the damage done by lead-based paint, especially to

young children. The Administration increased funding for lead-based paint hazard

reduction by $10 million. I want to do everything I can to ensure that our children

are protected from such dangers so that they can grow up in safe and healthy

homes. Since the late 1970’s, incidents of lead poisoning have declined from 3 million to 890,000. Yet despite this progress, lead poisoning remains one of the most

common diseases our children face. The solution lies in preventing lead-based paint

hazards in housing.

The Department of Housing and Urban Development has been leading the effort

to eliminate lead-based paint hazards in our Nation’s housing stock. Our lead-based

paint grant program, which began under the first Bush Administration, now funds

lead hazard control operations in over 200 jurisdictions across the Nation. Since

HUD cannot solve this problem alone, this additional money will go into a special

grant program that will leverage more resources from the private sector to meet the

needs of our children.

The President also increased the amount of funds available for fair housing enforcement. If this Agency is to fulfill its mission of increasing homeownership and

affordable housing opportunities for all citizens, we must pledge ourselves to the

principles embodied in our fair housing laws.

While most of the Department’s programs are funded at last year’s historically

high levels or have received a slight increase, there have been a few well-publicized

reductions. Let me take a few minutes to address these specific reductions.

One such program is the Public Housing Drug Elimination Program. Though no

one can argue with the good intentions behind this program, unfortunately it suffered from a large number of abuses. Not only did the Inspector General find that

it was nearly impossible to measure the program’s effectiveness, but she has also

criticized the program for funding activities such as unauthorized travel, bank

loans, and Christmas parties. Some funds were used by the Department to impleVerDate 11-MAY-2000 09:37 May 08, 2002 Jkt 000000 PO 00000 Frm 00058 Fmt 6633 Sfmt 6621 78799.TXT SBANK4 PsN: SBANK4
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ment a gun buy-back program, which the Comptroller General concluded was not

a legal use of funds. Drug Elimination funds were also spent to provide public housing residents with ‘‘creative wellness’’ programs. These scientifically questionable

programs are a significant diversion from this Agency’s mission and undermine public support for HUD’s programs.

We need to restore confidence that the Department of Housing and Urban Development can carry out its core mission. We are not a law enforcement Agency or an

Agency with expertise in dealing with drug abuse. To the extent that there are law

enforcement issues surrounding our public housing projects, we will work with the

Justice Department and State and local police departments. To the extent that there

are drug problems in public housing, we will work with those Federal, State, and

local agencies that are in a much better position to address these problems.

Although we have eliminated this $309 million program, we have taken, as I mentioned earlier, $150 million of those funds and placed them in the Public Housing

Operating Fund. This extra $150 million can be used for a wide variety of purposes,

including the continued funding of successful antidrug efforts. But rather than mandating that housing authorities use this money for drug elimination programs, we

trust these authorities to make those tough decisions about what programs best

meet their needs.

As an example, if a certain housing authority found that fences, lighting, and

greater police patrols funded by the Drug Elimination Program helped reduce crime

and drug use, then it will have the opportunity to continue funding these worthwhile programs from the additional $150 million in the Operating Fund. Good antidrug programs in our public housing projects will continue to find funding, while

we filter out the waste and abuse that tarnished a program that began with such

noble intentions.

Another reduction in our budget occurs in the Public Housing Capital Fund. Our

fiscal year 2002 budget provides nearly $2.3 billion for the fund, which is a reduction of $700 million from the previous fiscal year. This money is sufficient to cover

100 percent of the modernization needs of housing authorities that are expected to

accrue next year.

The purpose of this reduction is to draw down Capital Funds that have already

been appropriated, but not yet expended by public housing authorities. Currently,

there is $5 billion in unspent Capital Funds from fiscal year 2000 and previous fiscal years. These figures do not include the $3 billion that was appropriated for fiscal

year 2001. Once the Department distributes fiscal year 2001 Capital Funds, and approves plans for the use of those funds, housing authorities will have a total of $8

billion in unspent Capital Funds available to meet their modernization needs.

These billions of dollars of unspent Capital Funds ensure that no roof at any public housing project has to go unrepaired, and no severe modernization need has to

be neglected. Public housing authorities currently have the funds that are necessary

to begin addressing the backlog of modernization needs. Our fiscal year 2002 budget

encourages them to spend those funds to address their priority needs.

We are not just looking to housing authorities for solutions to the problem of

unspent funds. We are also examining the Department’s practices to determine

whether funds are distributed and spent in a timely manner. Among other steps

that we plan to take is a change in the timing of our initial allocation of funds to

housing authorities, ensuring that they get funds sooner than in prior years.

I look forward to working with the Congress on the many issues facing the Department of Housing and Urban Development. Congress is now conducting two important commissions—the Millennial Housing Commission and the Commission on

Affordable Housing and Health Care Facility Needs in the 21st Century. The Department is ready to offer any assistance it can to aid the work of these two commissions. I look forward to working together to assure that the Department of Housing

and Urban Development can efficiently and effective meet America’s housing and

community development needs.

—————

PREPARED STATEMENT OF SUSAN GAFFNEY

INSPECTOR GENERAL, U.S. DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT

APRIL 25, 2001

Chairman Allard, Ranking Member Reed, and Subcommittee Members, I appreciate the opportunity to appear before you today to discuss challenges confronting

HUD in the areas of mission and programs, organizational structure, and management operations.

56

HUD’s Mission and Programs

HUD is the principal Federal Agency responsible for programs concerned with

housing needs, fair housing, and improving and developing the Nation’s commu- nities. It has a fiduciary responsibility over a multibillion dollar housing business

and a social mission to assist in serving the housing needs of millions of low- and

moderate-income families. HUD’s mission is multifaceted and complex. For a relatively small Agency of about 9,500 staff, it has a lot of work to do. The National

Academy of Public Administration’s report on HUD in 1994 summed it up well. ‘‘Because of the mismatch of goals and resources and its many communities of users,

HUD faces a tandem performance deficit—the gap between what HUD is supposed

to do and has the ability to accomplish—and expectations glut—unrealistic perceptions of what HUD can accomplish—the result is a prescription for problems.’’ Four years ago I testified before the Congress about the importance of coming to

a definition of HUD’s mission that bears some reasonable relationship to HUD’s ca- pability to meet that mission. The revised mission statement must then be used as

a springboard for a major streamlining of HUD programs and activities. We must

also come to an understanding that HUD staff cannot be all things to all people.

We owe HUD employees a clear definition of their roles with respect to policy development, providing technical assistance, motivating the community, overseeing program implementation, and taking enforcement action for inadequate performance.

In 1994, the Office of Inspector General (OIG) counted 240 separate HUD programs and activities. With new programs and activities added since 1994, that number is approaching 300. More often than not, when new HUD programs or activities

have been announced, staff resources have not been discussed or considered. But it

takes staff and resources to assure that programs are designed properly and that

programs include proper checks and balances. Without the proper internal controls

and oversight, new programs can, of course, be abused. We have observed this recently with the Officer Next Door Program. Should HUD be discounting thousands

of dollars worth of real estate assets to police officers without any follow-up mechanism to assure these recipients are meeting their end of the bargain?

HUD’s proposed 2002 budget acknowledges this issue in a statement that ‘‘the

budget emphasizes . . . minimizing the number of new initiatives that undermine

HUD’s capacity to administer its core programs. . . .’’ Obviously, the OIG believes

that the Administration needs to go much further in tightening HUD’s mission

statement and streamlining its programs. We also recognize that such an effort

would be enormously time-consuming and difficult, requiring the support of HUD’s customers as well as the Congress. We recommend the effort, nonetheless, as we believe it is a fundamental requirement for HUD’s shedding its ‘‘high risk’’ reputation

and better serving its intended beneficiaries.

HUD’s Organizational Structure

In the last 4 years, HUD has changed significantly. The former Secretary’s 2020

Management Reform Plan envisioned correcting longstanding HUD problems in

areas such as resource allocation, financial management, procurement and information systems, and bringing the skill levels of HUD staff up to par.

These planned reforms involved massive reorganizations that shook up nearly

every Departmental component. When the changes started taking place late in

1997, we asked the former Secretary to slow down the process, but our calls went

unanswered. The push was on for rapid change. Indeed, that was the advice the

Secretary received from various reinvention experts. Unfortunately, at HUD, this

meant that organizational and process changes were made before a sound management infrastructure was in place. The organizational/process changes were to be

made while establishing the management infrastructure, without the benefit of program consolidation or empowerment and within the context of staff reductions. This

was an extraordinarily complicated plan. It has resulted in many staff resources

being moved to new highly centralized organizational units in the Department and

such as the Real Estate Assessment Center, the Enforcement Center, the Troubled

Agency Recovery Centers, and the Grants Management Center, as well as to the

new Community Builder function.

Not surprisingly, given the scope of HUD 2020, OIG audits have noted several serious problems with the changes that have taken place. For example, we have observed that certain newly established centers were not operating as intended—

planned workload expectations had been seriously overstated. In other cases, we

have found that staffing of new organizational units was inadequate or not trained

to perform the work. We have, in addition, questioned whether the Community

Builder function is the best use of HUD’s limited staff resources.

Over the next months, as a priority matter, Secretary Martinez will need to decide

if HUD 2020 organizational changes meet his management needs. Existing performVerDate 11-MAY-2000 09:37 May 08, 2002 Jkt 000000 PO 00000 Frm 00060 Fmt 6633 Sfmt 6621 78799.TXT SBANK4 PsN: SBANK4
57

ance data will assist his decisionmaking, but he will also need to consider the types

of relationships he seeks within HUD and between HUD and its customers, and

how HUD’s current organization affects those relationships.

HUD’s Management Operations

HUD’s proposed 2002 budget states that resolving the following management

challenges will be a top Secretarial priority:

• Rationalizing the distribution of staff resources in light of program needs;

• Continuing to improve oversight of the local housing agencies and property owners that administer HUD’s housing programs;

• Improving income and rent determinations to reduce subsidy overpayments;

• Insuring recipients’ full and timely utilization of HUD funds; and

• Improving FHA internal systems and controls to reduce fraud in FHA programs.

HUD’s acknowledgement of these problems and the Secretary’s commitment to fix

them is good news from the OIG’s perspective, as these are—apart from the issue

of recipients’ full and timely utilization of HUD funds—the same management deficiencies that the OIG has been reporting, in our annual audits of HUD’s financial

statements, as weaknesses in HUD’s internal controls. The not so good news is that

these problems have existed for many years, and they have proved to be intractable.

Permit me to illustrate the intractability by discussing OIG work in each of the

areas of material weakness.

Rationalizing the Distribution of Staff Resources in Light of Program Needs

As noted in HUD’s proposed budget, the new Resource Estimation and Allocation

System will help the Department to assess where staffing should be increased or

decreased to effectively administer its programs. HUD is also working to develop a

long-term staffing strategy to meet the rapid increase in retirements expected over

the next several years.

Last year, we completed an assessment of the Department’s progress in developing and implementing the Resource Estimation and Allocation System. In October

1999, former Secretary Cuomo conveyed to the Congress that HUD needed a resource management system and that he planned to implement such a system within

18 months. We found that HUD, with the National Academy of Public Administration (NAPA), developed a methodology for resource estimation and allocation.

Further, NAPA briefed each Assistant Secretary on the resource estimation and

allocation methodology and the impact it would have on their programs. Also,

HUD selected a contractor to do the measurement studies at various program offices

throughout the Department to determine resource estimate requirements. Despite

these plans, our audit found the implementation of the Resource Estimation and Allocation System did not progress with any urgency and only a portion of the contract

scope was funded. We are very supportive of Secretary Martinez’s commitment to

completing this important activity.

Continuing to Improve Oversight of the Local Housing Agencies and

Property Owners That Administer HUD’s Housing Programs

Although the Department recognizes that the physical inspections protocol used

to assess public housing and multifamily assisted housing needs further refinement

to ensure consistent and fair results, it plans to continue to assess the physical condition of HUD-assisted housing to ensure that it is decent and safe.

Last year, we conducted an audit of the Office of Housing’s use of physical inspection assessments generated by HUD’s Real Estate Assessment Center (REAC) on

multifamily properties insured by the Federal Housing Administration and/or receiving project-based subsidy under the Section 8 program. The purpose of our review was to evaluate actions taken to address and track corrections to the physical

deficiencies disclosed through the REAC property inspections. We found that although the Office of Housing utilizes the REAC property inspections within their

servicing responsibilities, the report addresses the need for the Office of Housing to

reinforce its assurances and improve its processes to strengthen the Department’s

oversight of its portfolio of insured and subsidized multifamily properties. Specifically, we determined that the Office of Housing does not have the proper assurances

that corrective action is completed by the owner to the extent of all the physical

deficiencies reported by the property’s REAC inspection. This includes assurances

that exigent health and safety violations are corrected within the required time

frame and that complete property surveys identifying the magnitude of the physical

deficiencies are performed. Further, we determined that the Office of Housing could

improve the current notification process to field office staff of completed property inspection reports and exigent health and safety violations released by REAC.

58

Improving Income and Rent Determinations to Reduce Subsidy Overpayments

Subsidy overpayments are a problem that has plagued the Department for more

than 20 years. Since HUD serves such a small portion of those in need of housing

assistance, every dollar needs to be spent properly. HUD provides housing assistance funds under various grant and subsidy programs to multifamily project owners—both nonprofits and for profit—and Housing Authorities (HA’s). These intermediaries, in-turn, provide housing assistance to benefit primarily low-income

households. HUD spent about $19 billion in fiscal year 2000 to provide rent and operating subsidies that benefited over four million households. Weaknesses exist in

HUD’s control structure such that HUD cannot be assured that these funds are expended in accordance with the laws and regulations authorizing the grant and subsidy programs. HUD overpays hundreds of millions of dollars in low-income rent

subsidies due to the incomplete reporting of tenant income, the improper calculation

of tenant rent contributions, and the failure to fully collect all outstanding rent. We

have reported this as a material weakness in our annual financial audit since we

began this reporting process in 1991.

A recently completed contracted study of rent determinations under HUD’s major

housing assistance programs estimates that substantial errors are made by project

owners and HA’s. The study projected that annually, about $1.9 billion in subsidies

was overpaid on behalf of households paying too little rent and about $0.7 billion

in subsidies was underpaid on behalf of households paying too much rent based on

HUD requirements. In response to this high incidence of error, HUD’s proposed

budget commits to implementing a number of measures to resolve this problem, including the development of tools to assist housing agencies and assisted housing

owners in the determination of income and calculation of rent and the introduction

of a quality control program to monitor the performance of these intermediaries.

HUD also plans to review the current laws and regulations regarding income and

rent determinations to ascertain whether their simplification would facilitate program complicate. This constitutes a broader scope approach than previous income

matching efforts, and we believe that the broader scope approach makes sense.

Improving FHA Internal Systems and Controls to Reduce Fraud in FHA Programs

HUD’s proposed budget recognizes the need to strengthen the integrity of FHA

internal systems and controls to reduce fraud in FHA programs. Promised actions

include improving the loan origination process and providing better monitoring of

lenders and appraisers.

In the last few years, the OIG audit and investigative staffs have been actively

involved in examining many aspects of the FHA single-family operations. We have

identified rampant origination frauds, property flipping scams, and scandals in the

sale of HUD owned properties. Needless to say, all these problems have an impact

on the soundness of FHA’s Mutual Mortgage Insurance Fund. There are many factors beyond HUD’s control—such as interest rates and unemployment rates—that

affect the soundness of the MMI Fund. But assuring that programs are run efficiently and effectively and that programs are sufficiently managed to minimize the

opportunities for fraud and abuse is within HUD’s control. The Secretary’s commitments to making improvements in this area are important to the financial health

of the FHA program.

We have performed numerous audits of FHA’s operations in the last 2 years including a comprehensive audit of loan origination activity and a nationwide review

of Properity Disposition Operations. FHA’s single-family program personnel are in

the process of taking corrective actions on most of our audit recommendations. We

appreciate the Secretary’s commitment to continuing these actions.

Recognizing that HUD’s single-family staff have been through downsizing, reorganization, and heightened workload expectations, we need to step back and figure out

how we can make the internal control requirements that are on HUD’s books actually work to prevent fraud and abuse. Internal controls will not work without sufficiently trained staff to assure that checks and balances are in place. If the Congress

and the Secretary of HUD send a clear message that that is what they really want,

then I am confident that the single-family staff will be able to figure out how to

do it.

Mr. Chairman, that concludes my testimony, I appreciate the opportunity you

have afforded me to appear here today.

59

PREPARED STATEMENT OF STANLEY J. CZERWINSKI

DIRECTOR, PHYSICAL INFRASTRUCTURE ISSUES

U.S. GENERAL ACCOUNTING OFFICE

APRIL 25, 2001

Mr. Chairman and Members of the Subcommittee: We are here today to testify

on the U.S. Department of Housing and Urban Development’s (HUD) fiscal year

2002 budget request. Because HUD’s fiscal year 2002 budget request was released

only about 2 weeks ago, we can offer only a general discussion of its policy implications and program trade-offs. Accordingly, our objective today is to raise some issues

for your consideration as you evaluate HUD’s fiscal year 2002 request and to identify opportunities for improving HUD’s management of its financial, program, and

budget processes.

First, with an eye toward examining the level of resources devoted to HUD’s program activities, we will provide a preliminary analysis of HUD’s fiscal year 2002

budget request. Second, we will explore the role that unexpended balances play in

HUD’s fiscal year 2002 budget request and overall management of its programs. Unexpended balances are appropriations that HUD received in earlier fiscal years but

has not yet spent. These balances may therefore be available for recapture. In recapturing funds, HUD deobligates excess funding that was previously obligated but

that HUD has determined will not be needed. In some cases, HUD can use a portion

of the recaptures to fund program activities, reducing its need for new appropriations. In other cases, the Congress can rescind—that is, take away—some of these

recaptures. Our examination will focus, in particular, on whether HUD has taken

the steps necessary to manage unexpended balances effectively. To do so, HUD

needs to identify what portion of these balances is available for recapture and then

account for that available portion when formulating its current budget request.

In summary, most attention in the press and elsewhere has focused on HUD’s request for discretionary funding authority. That request is for $30.4 billion, which

HUD has characterized as a 7 percent increase over last year’s discretionary budget

authority. There are additional factors that must be considered in evaluating this

budget request, including HUD’s ability to expend requested funding. The budget

is also being debated at the program level, where some programs would grow, some

would shrink, and some would be eliminated.

In recent years, HUD has had significant unexpended balances. These balances

have made it more difficult for the Congress to assess the Department’s need for

new appropriations. Without accurate and timely information about the nature,

amount, and availability of HUD’s unexpended balances, decisionmakers cannot

fully and fairly evaluate the Department’s funding needs. HUD has initiated several

short-term efforts to identify, quantify, and recapture some unexpended balances

and has, in fact, recaptured about $3 billion each year between fiscal year 1998 and

fiscal year 2000. In addition, in each of the past 2 years, the Congress has rescinded

almost $2 billion of balances, using the funds for other purposes. In spite of these

efforts, HUD has not yet integrated the processes needed to routinely and accurately

account for unexpended balances into its ongoing financial, program, and budget

management. As a result, HUD does not have the information it needs to (1) determine with assurance how much of the unexpended balances should be recaptured

and (2) clearly factor these funds into its budget request. Our analysis of its current

requests for the Public Housing Capital Fund illustrates these points.

Comparison of HUD’s Budget Requests for Fiscal Years 2001 and 2002

For fiscal year 2002, HUD is requesting $30.4 billion in discretionary budget authority, which HUD has characterized as a $2 billion, or 7 percent, increase over

its fiscal year 2001 discretionary funding. Currently, there is a lot of debate about

the size of HUD’s budget request in comparison to previous years. But the more important issue is whether HUD has sufficient justification for the amount requested.

One key issue that needs examination is the amount of additional funding HUD

needs in its Housing Certificate Fund in light of the $4.2 billion advance appropriation provided in fiscal year 2001 that will be available in fiscal year 2002. According

to HUD officials, this advance was to cover rental assistance contracts expiring in

the first quarter of fiscal year 2002. However, HUD’s fiscal year 2002 budget also

includes new budget authority to cover expiring contracts. HUD’s budget request

shows that it expects to end fiscal year 2002 with a $4.2 billion unobligated balance

in the Housing Certificate Fund. HUD officials indicated that the $4.2 billion in

unobligated funds was needed in the first quarter of fiscal year 2003 to cover the

renewal of contracts that are funded on a calendar-year basis and expire between

October 1 and December 31, 2002. Hence, this $4.2 billion would support no proVerDate 11-MAY-2000 09:37 May 08, 2002 Jkt 000000 PO 00000 Frm 00063 Fmt 6633 Sfmt 6621 78799.TXT SBANK4 PsN: SBANK4
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1These subsidies are linked either to the unit—project-based—or to the resident—tenantbased—under the project-based program, HUD contracts with property owners to provide housing assistance for low-income families. Under the tenant-based program, families receive rental

assistance housing vouchers or certificates.

gram activity in fiscal year 2002. The officials further explained that in the future,

budgetary resources would only need to cover 1 year, rather than the 15 months

covered by the fiscal year 2002 budget. While HUD may need to carry over some

unobligated funds from one fiscal year to the next, HUD has not provided rationale

supporting $4.2 billion as the amount of unobligated balances it needs to carry over

to renew contracts expiring in the first quarter of fiscal year 2003.

In addition to consideration of the overall size of HUD’s budget request, the level

of funding for individual programs should also be considered. The budget proposes

changes in a number of HUD’s programs. We would now like to discuss some of

these changes.

Housing Certificate Fund: $2 Billion Increase

HUD’s budget request proposes increasing the Housing Certificate Fund from

about $14 billion to about $16 billion. This fund helps low-income families afford

the high cost of rental housing by subsidizing their rents.1 Starting in the 1970’s

and 1980’s, HUD entered into long-term contracts to provide Section 8 project-based

rental assistance. According to HUD, each year, more long-term contracts expire. As

a result, HUD says it needs about $2 billion more this year for contract renewals.

Renewing these contracts requires more budget authority, but it does not increase

the number of households receiving assistance this coming year. In addition, HUD

is proposing to expand the tenant-based program to serve approximately 34,000

more households at an additional cost of about $200 million.

As discussed earlier, according to HUD, the funding level requested for this program would leave it with an unobligated balance of $4.2 billion at the end of fiscal

year 2002.

Public Housing Operating Fund: $150 Million Increase

The fiscal year 2002 budget proposes increasing the Public Housing Operating

Fund by $150 million over last year’s budget. The operating fund subsidizes the dayto-day operating expenses of public housing agencies. HUD’s fiscal year 2002 budget

increases this fund to $3.4 billion to accommodate public housing needs such as

maintenance, crime-prevention activities, and utility costs. This $150 million program increase must be considered in the light of the elimination of the $309 million

Public Housing Drug Elimination Grant Program, which we will discuss later.

American Dream Downpayment Fund: $200 Million Set-Aside

HUD’s fiscal year 2002 budget introduces the $200 million American Dream

Downpayment Fund. This fund, within the HOME Investment Partnership Program

(HOME), would match the down payment assistance provided by third parties to approximately 130,000 low-income and minority families seeking to buy their first

homes. HOME is a flexible block grant that provides support for local affordable

housing efforts. HOME funds are allocated by formula to States, counties, and large

cities. The total funding for HOME would remain the same as last year at approximately $1.8 billion. However, HUD officials stated that the American Dream Downpayment Fund requires that States, counties, and large cities use $200 million of

their formula block grant funding for this down payment program.

Public Housing Capital Fund: $700 Million Decrease

The largest decrease in HUD’s fiscal year 2002 budget proposal is the $700 million reduction in the Public Housing Capital Fund. This fund provides formula

grants to public housing agencies for such activities as rehabilitation and modernization. The budget provides $2.3 billion for this fund. Based on a contracted

study, HUD believes this amount will be sufficient to meet all new capital needs.

Furthermore, HUD states that public housing agencies have large amounts of

unspent Capital Funds from previous years that they can use to address any backlog of capital needs. HUD states that the purpose of the reduction in this program

is for the public housing agencies to draw down Capital Funds that have been obligated but not expended. However, HUD plans to implement the $700 million cut

across-the-board, which may have the unintended consequence of penalizing those

public housing agencies that have few or no unexpended balances because they

spent their funds in a timely manner.

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Community Development Block Grant Program: $311 Million Decrease

HUD’s fiscal year 2002 budget proposes eliminating selected set-asides in the

Community Development Block Grant (CDBG) Program. The CDBG program provides State and local communities with a flexible source of funds for economic development and community revitalization. Most of the funding—about $4.4 billion— is distributed by formula and would remain at the fiscal year 2001 level. HUD’s budget would cut approximately half of the CDBG set-asides. The principal targets

for elimination are the Economic Development Initiative set-aside, which supports

local job-creation projects, and the Neighborhood Initiative Demonstration, a Congressional set-aside that funds local neighborhood improvement strategies. HUD’s budget suggests that the types of projects funded by these set-asides would still be

eligible for funding under the formula portion of the CDBG program.

Public Housing Drug Elimination Grant Program: $309 Million Decrease

HUD’s fiscal year 2002 budget proposes the elimination of the Public Housing

Drug Elimination Grant Program, which provides formula grants to local public

housing agencies to help reduce drug activity in public housing. HUD cites three

reasons for eliminating the program: (1) It duplicates activities eligible under the

Public Housing Operating and Capital Funds; (2) other Federal programs and funds,

are available for these activities; and (3) HUD’s Inspector General has identified

certain inappropriate uses of such funds. HUD’s budget suggests that public housing

agencies could utilize operating or capital funds for these antidrug activities, as previously mentioned, HUD has also proposed that the Capital Fund be reduced by

$700 million. In addition, the operating fund would be reduced by $10 million,

which is scheduled for transfer to HUD’s Inspector General to continue Operation

Safe Home. To date, Operation Safe Home has been funded by the Public Housing

Drug Elimination Grant Program that HUD is proposing to eliminate.

For years, unexpended balances have clouded HUD’s budget needs because HUD

has not adequately determined what portion of them is available for recapture.

While these balances have been very large, HUD has not had the information they

needed to quantify the amount available for recapture from them. With such information, HUD could then take the steps necessary to recapture the extra funds. We

have worked with HUD and the Congress to identify funds available for recapture.

As shown in figure 1, from fiscal year 1998 through fiscal year 2000, HUD recaptured over $3 billion a year in unexpended balances. However, HUD officials told

us they did not estimate any recaptures for fiscal year 2002.

In response to our previous recommendations, HUD has also established shortterm task forces to quantify and recapture unexpended fund balances. For example,

in March 1998, we recommended that HUD review unexpended balances and ensure

that excess balances were recaptured from its project-based Section 8 program, in

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2Section 8 Project-Based Rental Assistance: HUD’s Processes for Evaluating and Using Unexpended Balances Are Ineffective (GAO/RCED–98–202, July 22, 1998) and Housing and Urban

Development: Comments on HUD’s Fiscal Year 1999 Budget Request (GAO/T–RCED–98–123,

March 12, 1998). 3 HUD’s Fiscal Year 2000 Budget Request: Additional Analysis and Justification Needed for

Some Programs (GAO/RCED–99–251, September 3, 1999) and Housing and Urban Development:

Comments on HUD’s Fiscal Year 2000 Budget Request (GAO/T–RCED–99–104, March 3, 1999). 4 HUD contracted to study the Section 202 Supportive Housing for the Elderly Program,

CDBG, Public Housing Capital Fund, and Section 8 Project-Based and Tenant-Based programs

under the Housing Certificate Fund.

which HUD contracts with owners to provide housing for low-income families.2 In

response, in September of that year, HUD initiated a review of unexpended balances

in all of its programs to determine whether these balances could be recaptured. According to HUD officials, this review identified and recaptured unexpended balances, but the effort was suspended.

In September 1999, as part of our review of HUD’s fiscal year 2000 request, we

again recommended that HUD identify programs with a history of unexpended balances and work to determine their obligation status and availability for recapture.3

In response, HUD established an unexpended balance task force to study these balances in all its programs. As part of this effort, HUD contracted for studies of five

programs 4 with large unexpended balances to determine the reasons that funds

were underutilized in these programs and to identify possible solutions. However,

the studies focused primarily on the reasons for slow expenditure of funds and did

not provide HUD with enough information to determine whether the unexpended

balances were available and could be used to reduce future program needs. For example, in the study of the Public Housing Capital Fund, the contractor evaluating

the program reported that there were not enough data to evaluate the use of all

unexpended capital program funds.

Such information could help HUD better determine the extent to which unexpended balances could be used to offset the funding reductions it is proposing for

this program. For fiscal year 2002, HUD is requesting $2.3 billion to fund the Public

Housing Capital Fund Program, $700 million less than last year. HUD said its request is based on the assumption that unexpended balances in this program can

cushion the cut. However, HUD has been unable to determine the amount of

recapturable funds in the program.

The Capital Fund consolidates the funding for a number of HUD’s public housing

programs, including the Public Housing Development Program, the Comprehensive

Grant Program, and the Major Reconstruction of Obsolete Projects Program, as well

as the Public Housing Debt Service Account. HUD, however, does not have an information system that integrates the obligation data from all these different parts of

the Capital Fund. HUD also lacks aggregate information on the status of individual

capital fund activities undertaken by public housing agencies. Without such information as the amount of funds housing agencies have under contract, when projects

will be completed, and what project plans have fallen through, HUD will not be able

to routinely quantify unexpended balances that might be available for recapture.

HUD officials agreed that such detailed information was needed, but they pointed

out that public housing agencies are not required to submit such details on the status of their capital projects.

Conclusions

In conclusion, the ability of the Congress to assess HUD’s overall funding needs

for fiscal year 2002 is complicated by its incomplete analysis of unexpended balances

in its programs. The most significant example is the $4.2 billion unobligated balance

stemming from HUD’s treatment of the advance appropriation for the Housing Certificate Fund. HUD has started to move in the right direction by beginning to study

unexpended balances and attempting to factor them into its budget request. However, it has not yet adequately determined what portion of these balances can be

used to offset the need for new appropriations. As requested by both the Subcommittee Chairman and Ranking Member, we will continue to work with the Subcommittee and HUD to further clarify these issues for Congressional oversight and

to encourage HUD to develop systems, integrate and analyze needed information,

and appropriately factor unexpended balances into its budget requests. However,

until HUD routinely and fully determines what portion of its unexpended balances

is available and clearly presents this information in its budget requests, the Department’s need for new appropriations will remain unclear, and the Congress will continue to have difficulty evaluating HUD’s funding requests.

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Recommendations for Executive Action

In order for HUD to fully account for unexpended balances in its funding requests, we recommend that the Secretary (1) develop systems that routinely provide

timely, reliable information on the status of unexpended funds for the purpose of

quantifying the amount available for recapture or rescission; (2) routinely incorporate this information into the management and operation of programs; and (3)

consistently use this information in formulating its budget request, clearly demonstrating how it is taking these balances into account when setting forth its budget

needs. For example, for the Public Housing Capital Fund, HUD should (1) develop

information systems to aggregate data on the obligation status of individual housing

agencies’ capital fund projects, (2) use that information to reallocate funds among

public housing agencies as needed, and (3) adjust its budget request for the Public

Housing Capital Fund accordingly. Mr. Chairman, that concludes our prepared

statement. We would be happy to answer any questions that you or Members of the

Subcommittee may have.

—————

PREPARED STATEMENT OF RENEE L. GLOVER

EXECUTIVE DIRECTOR, ATLANTA HOUSING AUTHORITY AND

PRESIDENT OF THE COUNCIL OF LARGE PUBLIC HOUSING AUTHORITIES

APRIL 25, 2001

I am Renee Glover, Executive Director of the Housing Authority of the City of Atlanta, GA and President of the Council of Large Public Housing Authorities

(CLPHA). CLPHA’s members manage over 40 percent of the Nation’s public housing

and about 20 percent of the Section 8 tenant-based assistance. Also with me today

are members of the police forces that serve CLPHA housing authorities in Boston,

Philadelphia, Baltimore and Washington, DC. They are here representing the thousands of officers in communities across the country who oppose the Administration’s plan to end the Public Housing Drug Elimination Program (‘‘PHDEP’’).

The Proposed HUD Budget Does Not Adequately Address the Growing

Affordable Housing Crisis and Signals A Lack of Commitment to

Preserving in the Nation’s $90 Billion Public Housing Stock

The public housing program provides decent, affordable housing to over 3.2 million very low-income Americans, including almost one million elderly and disabled,

including veterans, and about 1.2 million children. But for the public housing

program, many of these residents would not be decently housed, as neither the private real estate market nor any other Government program provides housing units

for this extremely vulnerable population. Many of our residents are members of minority groups, immigrants, elderly and disabled families who are often at the greatest risk of being homeless. In this time when recent HUD studies find that more

than 5.4 million American households spend over 50 percent of their monthly income for housing and newspapers report an economic slow-down, we can only expect

the need for public housing to grow in the coming years.

In metropolitan Atlanta, we have already been feeling the effects of the affordable

housing crisis on our poorest residents for several years. The Atlanta area has an

average area median income of about $66,000 for a family of four, while the average

income for a family in public housing of the same size is $8,600. With the private

rental market in Atlanta reporting 97 percent occupancy, many working families are

being priced out of the market. Moreover, the Atlanta Housing Authority occupancy

rate is 99 percent. There are almost 7,000 families in Atlanta waiting for public

housing and we expect that approximately 25,000 will sign-up for our waiting list

for Section 8 assistance when it opens up this summer. There are currently over

5,000 households on this list. These numbers do not include countless other families,

who are not yet seeking Government housing assistance, but are struggling to make

their housing payments each month. This situation is far from unique to Atlanta.

My colleagues who run other housing authorities in other communities, large and

small, urban and suburban, are seeing the size of their waiting list grow while funding levels shrink.

The Nation’s 3,200 local public housing authorities have a contract with the Federal Government to provide funds sufficient to make up the difference between the

amount public housing residents pay in rent of about 30 percent of their income and

the actual cost of maintaining and operating public housing units. Public housing

has no other means to raise funds needed to maintain its units—we can not raise

rents, levy taxes, establish replacement reserves, or borrow against net operating

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income. Public housing residents rely solely on you, Congress, to appropriate the

funds necessary each year to ensure they have a decent roof over their heads.

Enacting HUD’s proposed budget for fiscal year would signal the Federal Government’s repudiation of its contractual obligation to support the taxpayers’ $90 billion

investment in the Nation’s public housing stock. More serious is the sentence it imposes on our residents to less secure, less healthy, more deteriorating housing the

blight to our neighbors. The justifications for the proposed under-funding of public

housing are based on mistaken assumptions and would be devastating to the residents we serve. We can only believe that due to the abbreviated transition period,

the Secretary was unable to get sound advice about the impact of these reductions.

We hope this Committee will help us work with the Administration and the Appropriations Committee to secure funds sufficient to provide safe housing for our vulnerable residents.

Public Housing Residents Would Be Devastated by the Proposed Shortfall

for the Public Housing Program of Over $2 Billion

HUD’s budget request would mean an overall shortfall in funding for public housing of over $2 billion. This funding gap is in two parts: First, HUD’s budget represents a cut to public housing programs of over $1.7 billion from last years level,

including a $700 million reduction to the Public Housing Capital Fund, a $309 million loss due to the termination of the PHDEP program and a $640 million cut to

housing authority Section 8 reserve accounts. Second, even with the addition of $150

million for the Public Housing Operating Fund over fiscal year 2001, the HUD proposal still fails to provide another $400–$500 million needed to meet the Federal

Government’s obligations under its agreement with local housing authorities, largely

due to dramatic increases in utility rates. It also does not include the $362 million

in utility cost shortfalls from the past 2 years for which no new funds have been

provided. To our knowledge, no other program in HUD’s $30 billion budget is slated

for such dramatic reductions. This is even more troubling given that the public

housing authorities provide housing for the greatest percentage of very low-income

families, elderly, and minority citizens served by HUD.

There Are Not Large Amounts of Public Housing Capital Funds Available

From Prior Fiscal Years to Address the Backlog of Public Housing

Modernization Needs Estimated By HUD to Exceed $22 Million

Perhaps the single most devastating proposal in the HUD budget is the planned

cut of $700 million from the Public Housing Capital Account. This is the fund that

provides funds for major modernization of public housing properties to ensure they

are decent, safe places for residents to live. While HUD states that the cut is justified because there are $6 billion in unspent capital funds from prior fiscal years,

these funds are not ‘‘available’’ as HUD purports—they are already obligated or otherwise committed to meet on-going capital needs. The fact is that, based on the information we have from HUD’s own records as of February 2001, illustrated in the

chart below, there are not substantial sums of capital fund monies which are not

being spent in accordance with Congressionally mandated deadlines.

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1 Conference Report 106–379, Fiscal Year 2000 VA, HUD, & Independent Agencies, page 90, cited the backlog as more than $20 billion.

Section 9 of the U.S. Housing Act of 1937, as amended by the Public Housing Reform Act of 1998, states that housing authorities have 2 years from the date of receipt of Capital Fund monies to ‘‘obligate’’ or place under contract, and additional

year, as provided by statute and with HUD approval, and 4 years from the date

funds are received to spend those monies. HUD has consistently not made funds

available to housing authorities for 9 months to a year after they are appropriated,

thereby contributing significantly to any delays in expending these funds. In addition, the Public Housing Reform Act required HUD, in September 1999, to recapture

any unobligated Capital Funds appropriated in 1997 and years prior. HUD, to our

knowledge, did so. With one possible small exception which was the result of a court

settlement, it is our understanding that all money in years 1997 and before has

been spent. As you can see from the chart, of the $6 billion in unspent funds cited in the HUD budget, $3 billion was the appropriation for fiscal year 2000 that was not made

available to housing authorities to spend until August 2000. As we understand that

the $6 billion figure was based on unexpended balances as of September 30, 2000,

one could hardly expect any of the fiscal year 2000 funds to be through the public

contracting process and spent by that date. As the additional $3 billion appears to

all be within the time frame for expenditure as provided by law, there is no valid

justification for the assertion that Capital Funds are going unused.

Even absent the statutory obligation and expenditure deadlines, virtually all substantial capital projects require a multiyear planning phase and spend out of funds.

This is the same for public housing as it is for any other Federally funded construction or capital improvement project of the same magnitude and scale. The need to

plan, in consultation with public housing residents and other stake holders, was reiterated in one of the Public Housing Reform Act’s key provisions requiring housing

authorities to develop annual and 5 year capital plans. The idea that funds are not

needed this year because they were appropriated last year and have not yet been

fully depleted defies all notions of responsible asset management. Moreover, HUD’s representation that the $6 billion is not currently being used and could be available

to housing authorities to address backlog needs is misleading. While $6 billion in

unspent funds have not left the U.S. Treasury, much of that money is already obligated or earmarked for on-going, planned capital projects. HUD’s assertion could

only be true if housing authorities could use the same dollars twice—once for the

purposes for which they are already obligated and again, for backlog needs. Clearly,

this is not possible.

The proposed reduction in capital would have severe consequences for the public

housing stock and for the residents. A 1999 HUD study reestablished the need for

almost $22 billion to modernize public housing.1 The Administration’s proposed

funding level covers only the estimated cost of ‘‘accrual’’ needs—the amount of

money needed to keep pace with general wear and tear on the properties for 1 year.

However, it falls to recognize that the cost of addressing the $22 billion backlog,

which grows exponentially each year they are not met. For example, a hole in a roof

that cost $100 to fix today if not repaired, could cost $250 the next year, and if not

addressed for another year, could cause additional property damage, resulting in a

$1,000 repair bill. If the Administration’s proposal is enacted, the cost of addressing the backlog will continue to increase over the current $22 billion estimate. This policy not to address the backlog not only postpones needed repairs to units, but it results in dramatically increased repair cost until, eventually, these units will become

so distressed that they need to be demolished. Even at fiscal year 2001’s $3 billion,

it will take 28 years to bring our public housing stock up to basic standards. Allowing buildings that house low-income families to slowly deteriorate is irresponsible

in a time of serious crisis in affordable housing.

Another unwanted result of the proposed drastic Capital Fund reduction is that

it will hamper current efforts of housing authorities to leverage their capital allocations to obtain private funds through bank loans and bond issuances—a major innovation that this Committee helped to enact as part of the Public Housing Reform

Act. This type of leveraging enables a housing authority to accelerate the capital improvement work at its properties. At least one such multimillion dollar bank loan

has been closed with repayment pinned on a housing authority’s future allocation

of capital funds. In addition, several major bond issues are now being negotiated by

housing authorities with Wall Street and the established bond rating agencies including Standard & Poor’s, Moody’s and Fitch. These borrowings are possible because the financiers and the bond rating agencies have seen, up to now, the stability

of capital appropriations, upon which they rely for repayment. Now, the rating agenVerDate 11-MAY-2000 09:37 May 08, 2002 Jkt 000000 PO 00000 Frm 00069 Fmt 6633 Sfmt 6621 78799.TXT SBANK4 PsN: SBANK4
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cies have become rattled by the HUD proposal. An article, dated March 8, 2001, in

the Bond Buyer, pointed to the problem: ‘‘President Bush’s proposal last week to cut

funding for the public housing capital program by 23.3 percent from fiscal 2001 levels could complicate . . . housing bond deals expected to be backed solely by Federal

housing grants, sources say.’’ What a tragic loss of opportunities to step up the renovation of the $22 billion backlog of modernization needs and to broaden private

partnerships in public housing.

Last, our experience in Atlanta has shown us that maintaining properties properly is a ‘‘pay-me-now or pay-me-later’’ proposition. Unmaintained and deteriorating

projects are costly to operate, a blight on neighborhoods, and thwart efforts to

broaden the income mix in our communities. This proposed cut will seriously undermine the promise of the Public Housing Reform Act of 1998.

PHDEP Provides Housing Authorities Resources That Are Not Available

From Any Other Source to Implement Effective Crime Prevention

Strategies Based on Local Circumstances

As these officers who are with me today, and thousands like them across the

country could tell you, public housing residents now feel safer in their homes,

thanks to PHDEP. Contrary to assertions made by HUD, PHDEP is not simply another source from which basic police and other services are funded. Rather, it is a

locally driven program that provides assistance above baseline services and enables

each community to have broad discretion in implementing strategies that reduce

crime. Residents and police officials hail the program. Without PHDEP-funded activities, as the HUD budget proposes, all of the work that has gone into making

public housing communities safer and better will be lost.

As part of its justification for seeking the repeal of PHDEP, HUD notes that

PHDEP eligible activities can be carried out under operating funds. Yes, they are

eligible under the law, but they are not included in the funding formula in the Performance Funding System (PFS). Moreover, PHDEP funds can and are used by

many housing authorities for security fencing and other capital improvement designed to make public housing communities safe. PHDEP was adopted by Congress

in recognition that public housing did not otherwise have sufficient capital or operating funds carry out such activities.

Indeed, the elimination of PHDEP may not be altogether to the Secretary’s liking.

During his confirmation hearing before this Committee, Secretary Martinez, in response to a question about his views on the matter said: ‘‘HUD’s Public Housing

Drug Elimination Program (PHDEP) supports a wide variety of efforts by Public

and Indian housing authorities to reduce or eliminate drug-related crime in public

housing developments. Based on this core purpose, I certainly support the program.’’

In addition to enhanced law enforcement and security programs that have supported successful evictions for which HUD advocates in its budget, PHDEP is used

for a variety of crime prevention and educational programs for youth. The Boys and

Girls Clubs of America have been major recipients of funds along with other local

nonprofit and faith-based service providers. These programs will no longer be available to thousands of low-income children if HUD’s budget proposal is implemented.

In Atlanta, PHDEP funded strategies have resulted in an overall reduction in serious crimes of about 9 percent in 2 years. The most dramatic reductions have been

in some of the most violent crimes, including a drop in aggravated assaults of about

18 percent and a reduction in rapes of about 45 percent. Our strategies have been

to supplement baseline services provided by the Atlanta Police Department, including employing off-duty officers and security firms to provide foot and mobile patrols

and designing and staffing security check points at various sites to cut down on

trespassing and loitering. We have just implemented a check-point service at all of

our elderly sites which has already given our elderly residents piece of mind which

they have not had in the past.

One of our most successful PHDEP funded programs has been our investigative

unit, composed of off-duty officers who target high crime areas in and around our

communities. It is this group that has conducted all of the investigations which have

lead to enforcement of our ‘‘One Strike, You’re Out’’ eviction policy for drug offenses.

Without this targeted assistance from PHDEP, we would not have the evidence

needed to evict residents who do not follow the rules. Without PHDEP, the majority

of law abiding public housing residents will again be subject to being victimized by

a few bad actors.

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HUD Budget Proposal for the Public Housing Operating Fund

Is Not An Increase, As Stated, and Does Not Provide Sufficient Funds

For HUD to Meet Its Contractual Obligations To Housing Authorities

In its budget materials, HUD states that Public Housing Operating Funds are in- creased by $150 million. In real terms, the alleged increase actually results in a significant shortfall in the public housing operating account.

The actual need, as defined by the current Performance Funding System, for the Public Housing Operating Fund for fiscal year 2002 is approximately $3.8 billion.

In some places, HUD states that the additional $150 million is to offset the loss of

PHDEP funds of $309 million, in other places, it states that these monies are to

fund increased utility costs, estimated to be approximately $300 million, and no

where does it account for additional overall increases in operating cost due to inflation, determined by OMB to be about $54 million. HUD proposes only to fund about

$3.38 billion, leaving a shortfall of between $400 and $500 million. This is in addition to operating subsidy shortfalls that housing authorities have incurred over the

last 9 years totaling over $1.2 billion.

Escalating Energy Costs Have Diverted Housing Authority Funds from

Maintenance and Other Management Items and Should Be Restored

Soaring energy prices, coupled with severe winters, have resulted in dramatic increases in energy prices. In both fiscal years 2000 and 2001, utility cost increases

greatly outpaced HUD’s estimates resulting in a Public Housing Operating Fund shortfall today of approximately $362 million for which housing authorities and public housing residents have no source of payment. The $105 million identified in a

recent HUD Notice (PIH Notice 2001–9) that the Department says it will use to

cover utility cost increases in public housing are not additional monies. These funds

already have been appropriated by Congress to meet operating needs in a given fiscal year, however, it appears HUD intends to distribute them differently. We are

not aware of any legal authority that allows HUD to withhold these funds and redistribute them as the Notice describes.

This amount consists of $50 million in undistributed funds from fiscal year 2001 and $55 million in funds Congress appropriated over the Administration’s request

in fiscal year 2001. Since HUD has not yet notified PHA’s as to whether they will

receive full funding in fiscal year 2001, or partial funding as has been the case in

recent years, it is not accurate to characterize this amount as a ‘‘supplement’’ to assist with utility cost increases. The $55 million in undistributed balances from fiscal

year 2000—a year in which PHA’s were funded at only 98.5 percent of full eligibility

under the established funding formula is also not extra money. HUD’s proposal is

really recycled funds held back from a previous funding year in which PHA’s were not fully funded—fiscal year 2000—and sets aside existing—and quite possibly insufficient—fiscal year 2001 appropriations to cover cost increases for certain PHA’s. While nationally utility rates have increased on average by about 20 percent, in

Atlanta, we experienced natural gas rate increases of about 100 percent during the

winter months.

HUD’s Proposed $640 Million Reduction In Housing Authority Section 8

Reserves Will Make Using Section 8 Vouchers Even More Difficult for

Low-Income Families

HUD’s proposal to cut $640 million from the local housing authority’s Section 8

reserves will make it even more difficult than it already is for families to use their

Section 8 vouchers. As HUD and Congress are aware, low-income families across the

country are reporting difficulty in using Section 8 vouchers due reduced availability

of decent housing at the price provided by the voucher. Housing authorities have

been using the 2 month reserve accounts mandated by HUD to make additional

resources available, so that families can have more housing choices. HUD, the public housing authorities, residents, and other interested parties gathered for a

Negotiated Rulemaking last year, as authorized in the Public Housing Reform Act

of 1998, determined that housing authorities needed at least 2 months of reserves

to make the Section 8 program effective. HUD’s proposed reduction in the reserve

accounts will mean fewer low-income families will be able to use the Section 8 program to obtain decent housing.

Summary

Members of the Committee, the country is awash in surpluses. At the same time

we are facing a national affordable housing crisis; working families, elderly and the

disabled are being priced out of the real estate market. The President is proposing

multibillion dollar tax cuts and a limited 4 percent increase in domestic programs,

though not for public housing. Surely, no one could have intended that, in this peVerDate 11-MAY-2000 09:37 May 08, 2002 Jkt 000000 PO 00000 Frm 00071 Fmt 6633 Sfmt 6621 78799.TXT SBANK4 PsN: SBANK4
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1The data for this testimony have been culled from analyses of the 1999 American Housing

Survey by HUD staff and by Cushing Dolbeare on behalf of the National Low Income Housing

Coalition. See U.S. Department of Housing and Urban Development, A Report on Worst Case

Housing Needs in 1999: New Opportunity Amid Continuing Challenges, January 2001; U.S. Department of Housing and Urban Development, Office of Policy Development and Research, U.S.

Housing Market Conditions, November 2000; and Cushing N. Dolbeare, ‘‘Low Income Housing

Profile,’’ 2001 Advocate’s Guide to Housing and Community Development Policy, National Low

Income Housing Coalition, March 2001. 2The analysis of the 1997 AHS data by the Joint Center for Housing Studies of Harvard University contains more detail on working families than HUD’s latest report. Among unsubsidized

very low-income renters with earnings equal to or exceeding the equivalent of full-time employment at the Federal minimum wage—$10,300 per year—71 percent paid more than 30 percent

of their income for housing costs. Most of these cost-burdened families paid more than half their

income for rent and utilities despite their earnings. Joint Center for Housing Studies of Harvard

University, The State of the Nation’s Housing 2000.

riod of prosperity, benefits for low-income persons would be squeezed so much to

further those goals. We do not propose new activity. Unlike other HUD budget

items, public housing funds are designed to protect a $90 billion existing asset for

the country. We seek your help in providing our 3.2 million residents decent and

safe housing, and, improving the lives for our elderly, disabled, youth, and working

families.

—————

PREPARED STATEMENT OF BARBARA SARD

DIRECTOR OF HOUSING POLICY

CENTER ON BUDGET AND POLICY PRIORITIES

APRIL 25, 2001

I appreciate the invitation to testify today. I am Barbara Sard, Director of Housing Policy for the Center on Budget and Policy Priorities. The Center is a nonprofit

policy institute here in Washington that specializes both in fiscal policy and in programs and policies affecting low- and moderate-income families.

My testimony today focuses on the Administration’s budget for the Department

of Housing and Urban Development in the context of the persistence of affordable

housing shortages and unmet housing needs for low-income families and individuals. The testimony also discusses the critical link between affordable housing and

welfare reform, and examines the Administration’s proposals concerning the Section 8 voucher program.

Affordable Housing Shortage and Unmet Housing Needs 1

The strong economy during much of the 1990’s helped lead to significant increases

in homeownership and an 8 percent drop from 1997 to 1999 in ‘‘worst case’’ housing

needs among very low-income renters—HUD defines ‘‘worst case’’ housing needs as

unsubsidized renter households with incomes at or below 50 percent of area median

income that pay more than half of household income for rent and utilities or live

in severely substandard rental housing. But the strong economy had its downside

as well, contributing to the continuing decrease in the number of affordable housing

units on the private market. Between 1997 and 1999, the total number of units affordable to renters with very low-incomes—those with incomes below 50 percent of

the area median—fell by 1.14 million, a 7 percent decline in just 2 years. The supply

of rental housing is of major importance because one of every three households rents

its housing.

Despite increased involvement in the labor market, millions of poor and near-poor

families remain unable to afford decent housing. The most recent data from the

American Housing Survey show that in 1999, approximately 4.9 million very lowincome renter households that did not receive housing assistance paid more than

half of their income for rent and utilities or lived in severely substandard housing.

This means that 10.9 million people, including 3.6 million children, 1.4 million elderly, and 1.3 million disabled adults, have severe housing needs that the Nation’s economic progress has not remedied. Nonetheless, work effort among households

with worst case housing needs has increased. In 1999, 80 percent of households with

worst case housing needs that had an adult who was not elderly or disabled relied

on earnings as their primary source of income, compared with 74 percent of such

households in 1997.2

For more than three-fourths of the households with worst case housing needs, a

severe housing cost burden is their only housing problem. Some 17 percent pay

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3Moderate housing problems include paying more than 30 percent of income for rent and utilities, overcrowding, and physical deficiencies that are not considered severe. Dolbeare’s detailed

analysis of the housing problems of renters in 1999 shows that 43 percent of all renters, regardless of income, had high housing cost burdens, with 22 percent having severe housing cost burdens—paying over 50 percent of income for rent and utilities—and another 21 percent having

moderate housing cost burdens—paying 30–50 percent of income for rent and utilities—twelve

percent of renters lived in housing with severe or moderate physical quality problems, and

5 percent of renter households were overcrowded. Most of these households living in physically

inadequate or overcrowded housing had more than one housing problem. 4Kristi Arellano, ‘‘Rents Gain Eight Percent in Tight Market,’’ Denver Post, January 25, 2001;

Tom McGhee, ‘‘Apartment vacancy rates dip, rents up outside metro area,’’ Denver Post, April

10, 2001.

ing. HUD’s analysis of worst case needs is restricted to households with incomes at

or below 50 percent of area median who do not have housing assistance. HUD found

that in 1999, 14.3 percent of renters had worst case needs. If one looks instead at

the housing problems of all renters, without limiting the analysis to those with very

low-incomes and without housing assistance, fully half of all renter households had

either moderate or severe housing problems in 1999.3

Many communities have experienced an accelerated loss of affordable rental units

in recent years due to escalating rents, conversion of rental housing to other uses,

or abandonment. The number of units affordable to renters with extremely low-incomes dropped by 750,000, or 13 percent, between 1997 and 1999. The number of

units affordable to households with incomes between 31 and 50 percent of the area

median income also declined. Some 400,000 such units either ceased to be used as

rental housing or increased in price sufficiently as to become unaffordable for such

households. In every region of the United States, rental housing affordable to extremely low-income renters—those with incomes at or below 30 percent of the area

median income—was in shorter supply than housing affordable to other income

groups. The West and the Northeast suffered particularly from having insufficient

units available for rent.

These changes in the housing market also have reduced the number of housing

units potentially available to families with Section 8 vouchers. Between 1997 and

1999, the number of units with rents below the HUD-determined Fair Market Rent

(FMR) dropped significantly. Vacancy rates for units renting at or below the applicable FMR fell in every region except the Midwest. Everywhere the units in shortest

supply were those with three or more bedrooms and rents below FMR, making the

search for housing particularly difficult for voucher holders with three or more children. Not surprisingly, in every region, suburbs had the lowest vacancies in units

renting below the FMR. These are the areas that are most likely to have the greatest job growth.

In addition, there is recent anecdotal evidence from many areas that vacancy

rates have declined far below the 5 percent level that is generally considered the

minimum for a healthy rental market. For example, recent studies in Colorado have

shown that the rental vacancy rate in the Denver metropolitan area in the last

quarter of 2000 was 4.7 percent. In the period from September 2000 to February

2001, the rental vacancy rate outside of the Denver metro area fell from 4.1 percent—already very low—to 3.2 percent. Not surprisingly, rents have escalated in these tight housing markets. The average rent in the Denver area was $792.67 at

the end of 2000, an increase of 8.1 percent in 1 year. Statewide, rents rose 4.9 percent, to an average of $753.4 It is clear that finding available low-rent housing has

become a difficult proposition in urban and suburban communities alike.

Extremely low-income renter households have by far the greatest incidence of

acute housing problems. Fully 87 percent of these renters—some 6.8 million households—had severe or moderate housing problems in 1999. More specifically, 65

percent of extremely low-income renters had severe cost burdens, 14 percent had

moderate cost burdens, 15 percent lived in physically defective housing, and 6 percent lived in overcrowded conditions. Some had multiple problems.These data include a substantial number of households receiving housing assistance. The vast

majority of the households living in physically defective or overcrowded housing also

were paying more than 30 percent of their income to rent such inadequate housing.

What should we learn from these data? That even if a rising tide were to continue

and were to lift all boats, so to speak—and there is increasing evidence that neither

assumption can be relied on—the boats of far too many of our citizens would still

be leaking. That is, even if their incomes did rise, without additional resources, millions of extremely low-income families will remain unable to obtain decent quality

housing that they can afford. In many areas and for many families, new housing

needs to be constructed or run-down housing fixed up to solve the problems of poor

housing quality, overcrowding, and low vacancy rates that are driving up prices. For

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5See studies gathered in Barbara Sard and Jeff Lubell, The Increasing Use of TANF and State

Matching Funds to Provide Housing Assistance to Families Moving from Welfare to Work, Center

on Budget and Policy Priorities, February 2000, p. 18, notes 46–49, available on the Internet

at http://www.cbpp.org/2–17–00hous.pdf, and in U.S. Department of Health and Human Services, Office of Assistant Secretary for Planning and Evaluation, ‘‘Leavers’’ and Diversion Studies:

Summary of Research on Welfare Outcomes Funded by ASPE, available on the Internet at http:/

/aspe.os.dhhs.gov/hsp/leavers99/ombsum.htm. Studies of welfare leavers’ household incomes generally look at income on a monthly or quarterly basis, rather than annually. 6 National Low Income Housing Coalition, Out of Reach 2000: The Growing Gap Between

Housing Costs and Income of Poor People in the United States, September 2000, available on

the Internet at www.nlihc.org. 7 Claudia Coulton et al., Issues of Housing Affordability and Hardship Among Cuyahoga County Families Leaving Welfare Quarter 4, 1998–Quarter 3, 1999, Center on Urban Poverty and Social Change, Special Topics in Welfare Reform Report No. 1, 2001.

other areas and other families, rental assistance alone will remedy their housing

problems. Any effort to produce or rehabilitate additional housing should focus primarily on extremely low-income households, as these are the households with the

greatest needs.

Lack of Affordable Housing May Undermine Welfare Reform Efforts

Most families that leave welfare for work do not earn enough to afford decent

quality housing. Typically, households that previously received welfare benefits and

have at least one working member earn less than $3,500 per quarter—many studies

report average earnings far below this amount.5 Even if these earnings continue

without periods of unemployment or underemployment, which is unlikely, families

with incomes of $14,000 per year typically must pay more than half their income

for decent housing if they do not have housing assistance. On average, a family

must earn at least $12.47 per hour of full-time work—about $25,000 per year—to

afford a two-bedroom housing unit at the Fair Market Rent. In no county, metropolitan area, or State does a family earning the equivalent of full-time employment at

the minimum wage have enough income to pay the Fair Market Rent for housing

with one or more bedrooms without spending more than 30 percent of income for

rent and utilities.6 Federal guidelines set during the Reagan Administration provide

that rental housing is affordable when the costs of rent and utilities do not exceed

30 percent of a family’s adjusted income.

Families that pay too much of their income for housing or live in severely inadequate or overcrowded housing may have to move frequently. Such moves may interrupt work schedules and jeopardize employment and also may adversely affect

children’s educational progress. A recent study in Ohio found that 42 percent of families that had recently left welfare and paid more than half their income for housing

moved in the 6 month period after leaving welfare. In contrast, roughly 8 percent

of the general population moves in a 6 month period.7

High housing costs can leave families with insufficient remaining income for basic

necessities or to pay for child care, clothing for work, transportation, and other expenses that often must be met if families are to navigate successfully the transition

from welfare to work. Without housing subsidies or other assistance to help families

close the gap between housing costs and limited incomes, families may not be able

to move to areas with greater employment opportunities. By helping recipients rent

apartments they could not otherwise afford, tenant-based subsidies can enable poor

families to move to areas with better access to jobs or to areas where parents feel

safe enough to go to work and leave older children unattended or return from work

at night on public transportation. In many areas, however, vouchers must be coupled with strategies to increase the production of units that families can rent with

their vouchers.

Affordable housing also may enhance welfare reform efforts. Research increasingly suggests that vouchers and other Government housing subsidies can help promote work among long-term welfare recipients when combined with a well-designed

welfare reform program. Of particular note is the recently released evaluation of the

Minnesota Family Investment Program (MFIP) by the Manpower Demonstration

Research Corporation (MDRC). Taken as a whole, the gains it found—including reductions in poverty, increases in employment and earnings, and even increases in

marriage—are among the strongest ever documented for a welfare reform undertaking in the United States. Most of the success of MFIP was due to the substantial

increases in employment and earnings it generated among families receiving housing assistance, primarily Section 8 vouchers, in contrast to the limited or no gains

among families without housing assistance. This is one of a growing number of studies that find significantly greater welfare reform effects among families with housing vouchers—and sometimes other forms of housing assistance—than among other

71

8 Center on Budget and Policy Priorities, ‘‘Research Evidence Suggests That Housing Subsidies Can Help Long-Term Welfare Recipients Find and Retain Jobs,’’ June 2000, available on

the Internet at http://www.cbpp.org/6–27–00hous.htm; Cynthia Miller, Virginia Know, Lisa A.

Gennetian, Martey Dodoo, Jo Anna Hunter, and Cindy Redcross, ‘‘Reforming Welfare and

Rewarding Work: Final Report on the Minnesota Family Investment Program, Vol. 1: Effects

on Adults.’’ New York: Manpower Demonstration Research Corporation, August 2000. See

also, Barbara Sard and Jeff Lubell, The Value of Housing Subsidies to Welfare Reform Efforts,

Center on Budget and Policy Priorities, February 2000, available on the Internet at http://

www.cbpp.org/2–24–00hous.htm.

low-income families, suggesting that housing assistance may enhance the effects of

welfare reform strategies in promoting employment.8

The current shortage of affordable housing and the critical link between housing

and welfare reform underscore the need for additional funds for housing vouchers,

as well as for the production of new rental housing. The fact that millions of families are paying a disproportionate share of their income on rent or are living in substandard housing should signal that significant investments in low-income housing

programs are overdue. To fail to make such investments when as a Nation we have

the necessary resources will only exacerbate these problems.

The HUD Budget Proposals

In light of the affordable housing shortage, the millions of families with worst

case housing needs, and the apparent importance of affordable housing to sustaining

progress in the transition of families from welfare to work, the Administration’s new housing budget proposals must be carefully examined. Other witnesses today will

explain how proposed reductions in public housing funds may over time reduce the

number of livable public housing units, and in the short run may reduce the quality of life for families with children and elderly and disabled individuals living in

public housing.

I will address the Administration’s housing voucher proposals. In particular, I

will discuss the proposal to increase the number of families and individuals receiving housing vouchers by less than 40 percent of the number of additional vouchers

funded in 2001. In addition, I will discuss why the proposed halving of Section 8

reserve funds may, if enacted without change, result in fewer families receiving

voucher assistance without an explicit decision by Congress to take such a step.

Reducing Section 8 reserves also is likely to make it more difficult for families

that do receive vouchers to use them, particularly in areas with greater employment

opportunities.

Incremental Vouchers: Less than 40 Percent of Number Funded in Fiscal Year 2001

The Administration’s budget includes a request for $197 million for 33,700 incremental vouchers. While we strongly support the funding of additional Section 8

vouchers, we respectfully suggest that this proposal is inadequate in light of the

magnitude of families’ needs and the essential role of vouchers in a comprehensive

housing strategy.

The Administration’s proposed increase in the number of new vouchers is less

than 40 percent of the number of additional vouchers funded in 2001. In the fiscal

year 2001 budget, Congress provided funding for 79,000 so-called ‘‘incremental’’

housing vouchers, as well as 8,000 new vouchers for disabled applicants. Despite the

labels, both sets of new vouchers represent additions to the overall supply of Federal

housing subsidies. If any of these 8,000 earmarked vouchers are not needed to offset

the reduction of housing opportunities for disabled persons that occurs when certain

developments are restricted to elderly tenants—so-called—‘‘designated housing’’—

the remaining vouchers are made available to agencies that are willing to distribute

them to disabled applicants. The designation of public housing or privately owned

assisted housing as elderly-only does not displace disabled tenants in residence. It

does, however, prevent new disabled individuals from residing in the buildings. Because the earmarked vouchers are not used for the relocation of current assisted

tenants, but only for new applicants, they increase the supply of federally assisted

housing. In fact, then, 87,000 new, incremental vouchers were funded in fiscal year

2001. In contrast, the Administration has proposed only 33,700 ‘‘incremental’’ vouchers and no additional vouchers for disabled applicants.

The HUD briefing book states, ‘‘PHA’s will be encouraged to provide up to $40

million in voucher funds for nonelderly disabled persons.’’ It is unclear what steps

HUD intends to take and what the likely results may be. The most that PHA’s could

be asked to do, however, would be to move disabled applicants ahead of others on

their waiting lists. Encouraging PHA’s to rearrange their waiting lists does not increase the supply of housing assistance—it only serves to delay further the receipt

of voucher assistance by other applicants. Moreover, the chances that HUD’s actions

72

9 HUD 2001 at 5.

10See Summary of the Negotiated Rulemaking Session of July 19–20, available on the Internet at http://www.hud.gov/pih/programs/s8/jul19–20.pdf, page 3.

will result in additional vouchers for disabled applicants appear to be slim, in light

of HUD’s previous reluctance to prescribe conditions for approval of designated

housing plans. This is of particular concern in light of HUD’s recent finding that

very low-income households with disabled members have a higher incidence of worst

case housing problems than any other group.9

Ten Thousand Fewer ‘‘Tenant Protection’’ Vouchers

In addition, the Administration’s budget reduces another component of new

voucher funding in comparison with the fiscal year 2001 budget approved by Congress. The Administration seeks funding for only 30,300 ‘‘tenant protection’’ vouchers in fiscal year 2002. For the current year, Congress appropriated funding for

40,300 ‘‘tenant protection’’ vouchers—10,000 more than the Administration proposes. Tenant protection vouchers provide continuing housing assistance when public housing is demolished or private owners terminate their HUD contracts. If such

vouchers are distributed only to families that previously received Federal housing

assistance, they are not ‘‘incremental’’ vouchers because the number of federally assisted units is not increased. In such cases, the number of families with voucher assistance increases while the number of families with public housing or project-based

Section 8 assistance decreases by an equivalent amount.—When PHA’s receive

vouchers to replace previously unoccupied and uninhabitable public housing units,

however, tenant protection vouchers represent a real increase in the number of

households receiving Federal housing assistance.

It is possible that HUD anticipates fewer public housing demolitions and/or fewer

Section 8 opt-outs in fiscal year 2002 than in recent years, and thus less need for

tenant protection vouchers. HUD has not provided a rationale for the reduced request for tenant protection vouchers, and it is not clear if or why there would be

less need for such vouchers next year.

It is important to note, however, that the proposed budget language deletes the

HOPE VI program—Section 24 of the U.S. Housing Act—from the list of the purposes for which tenant protection vouchers may be issued. This may indicate that

HUD is not intending to provide new voucher funding to replace previously unoccupied units that are demolished with HOPE VI funds. (HUD’s policy has been to provide such replacement vouchers when requested by a PHA.) In addition, HUD may

be expecting that new voucher funding needed to relocate families in conjunction

with HOPE VI demolition or revitalization grants will come from the HOPE VI account. This, however, would force PHA’s that did not want to reduce the amount

of HOPE VI grant funds available for construction of replacement public housing

units to relocate families using existing resources—either vacant public housing

units in other developments or vouchers that become available through turnover. If

displaced public housing tenants get priority for these existing housing resources,

families on the agencies’ waiting lists will have to wait longer to receive housing

assistance. Either possibility would mean a net reduction in the supply of federally

assisted housing, as the number of newly constructed or rehabilitated public housing units plus new vouchers would be less than the number of public housing units

demolished.

Potential Problems with Reduction of Section 8 Reserves From Two to One Month

The Administration’s budget proposes to reduce PHAs’ reserves for the Section 8

voucher program from 2 months to 1 month of annual budget authority in fiscal

year 2002. This proposal would ‘‘save’’ $640 million in budget authority, which the

Administration uses to offset the cost of renewing Section 8 contracts in fiscal year

2002. While this proposal may appear to be harmless, for the reasons discussed

below it may result in a silent reduction in the number of families receiving voucher

assistance. It also may discourage PHA’s from taking the actions necessary to use

all their voucher funds and to facilitate families’ moves to better neighborhoods. In

1999, senior HUD staff expressed their belief that the 2 month reserve is necessary

and that reducing it to 4 weeks would represent ‘‘a serious threat to housing the

baseline families.’’ 10 HUD has not released any analysis indicating a basis to

change this conclusion.

As described below, reserves play an important role in the Section 8 program even

for the agencies that do not draw on them. The Administration’s proposal to reduce

Section 8 reserves by half may undercut efforts to increase the utilization of voucher

funds and to make families’ search for housing more successful.

73

11See 42 U.S.C. § 1437f(o)(1)(C). Under the certificate program, families paid 30 percent of

their income for rent and utilities. The PHA paid the remainder of the rental charge to the

owner. Certificates could be used only in units that rented below the HUD-determined Fair Market Rent. Under the new merged voucher program, PHA’s set a voucher payment standard between 90 and 110 percent of the FMR, with some exceptions. Families can choose to rent units

with costs that exceed the PHA’s payment standard—if the PHA determines that the rent is

reasonable. If they rent much more expensive units they pay 30 percent of their income plus

the rent in excess of the payment standard.

At best, the Administration’s proposal would result in only a one-time savings of

budget authority and make no difference in outlays—there would be no effect on

outlays if all PHA’s can serve the anticipated number of families with only 1 month

of reserves. This is unlikely to be the case, however, for some PHA’s, as explained

below. The BA savings would result from recapturing reserve funds that are not

spent in fiscal year 2001 and not having to reallocate these funds in fiscal year

2002. After fiscal year 2002, the status quo of 1 month of reserves would be maintained, and there would be no further BA savings. This means that for the fiscal

year 2003 budget, an additional $640 million in BA—plus inflation—will be required

to renew Section 8 contracts in comparison with fiscal year 2002, on top of the increase that will otherwise be required to renew additional expiring contracts and

maintain assistance to the same number of families. Today’s ‘‘savings’’ may set up

tomorrow’s program cut.

A Possible Compromise: A HUD Headquarters Reserve

There may be a compromise solution that would allow the one-time recapture of

some Section 8 budget authority while ensuring that funds are available to those

PHA’s that need them. Instead of continuing to commit $640 million in budget authority to a second month of reserve funding for each PHA, some lesser amount

could be placed in a HUD headquarters reserve. Funds from the headquarters reserve would be available to those agencies—probably less than half of all PHA’s—

that need more than 1 month’s reserve to provide voucher assistance to the number

of families they are authorized to serve. Through such a mechanism the problems

detailed below could potentially be avoided.

In addition to stating clearly that HUD is permitted to hold a certain amount of

appropriated funds in a headquarters reserve, it would be important for Congress

to direct HUD to establish a simple and reliable method for PHA’s that need additional funds to obtain them to serve the number of families authorized by HUD. As

explained below, if PHA’s do not trust HUD to make needed funds available, they

are unlikely to incur additional costs in their voucher programs, and as a result

problems with using vouchers are likely to increase.

The voucher statute authorizes a HUD headquarters reserve. In merging the certificate and voucher programs into a voucher-based model, Congress authorized the

HUD Secretary to set aside up to 5 percent of annual Section 8 budget authority

as an ‘‘adjustment pool.’’ The stated purpose of the set-aside is to permit PHA’s to

increase their voucher payments so that the change from a certificate to a voucher

form of assistance does not require families to pay too much of their income for

housing.11 Despite this authorization, the appropriations committees and the Congress have in the past directed that funds that were not obligated to PHA’s were

to be recaptured and rescinded.

The paramount goal in considering the Administration’s proposal to reduce Section 8 reserves should be to keep the commitment to renew fully all expiring Section

8 contracts. This requires the appropriation of sufficient funds to provide voucher

assistance to the total number of families that Congress has authorized over the

years. A technical change in Section 8 reserves must not operate as a largely invisible means to shrink the size of the Section 8 voucher program. If access to reserves

is restricted, agencies with annual budgets that do not include sufficient funds to

meet increased costs may be required to reduce the number of families served and

possibly to terminate rental assistance payments to property owners, causing families to lose their housing. Even for agencies that do not need to draw on reserve

funds to maintain assistance to families, the reduction in reserves may discourage

adjustments in voucher payments to meet rising rent and utility costs. If agencies

do not increase voucher payments despite increased housing costs, more families

may be unable to use their vouchers or may be restricted to areas of poverty and

minority concentration. As a result, the Administration’s proposal to reduce Section

8 reserves by half may undercut efforts to increase the utilization of voucher funds

and to make families’ search for housing more successful.

Below is a brief explanation of why up to 2 months reserves in addition to annual

funding may be important for the effective operation of the voucher program.

74

12The renewal formula may be based on actual costs two fiscal years previously, depending

on the timing of the PHA’s fiscal year in relation to the calendar year, the PHA’s provision of

an audited year end statement to HUD, and HUD’s review. 13 HUD explained the critical role of PHAs’ increased flexibility to access reserves and how

the new reserve policy works in a notice issued April 19, 2000. See 65 Fed. Reg. 21,090.

The Role of Reserves in the Renewal of Section 8 Funding

Most Section 8 voucher contracts between HUD and PHA’s are annual. Under the

current system of renewing voucher contracts, a PHA receives a budget allocation

in advance of the calendar year based on its prior fiscal year’s average cost per

month for each family assisted.12 HUD adjusts the prior year’s average cost for inflation and multiplies the adjusted average cost by the number of vouchers the PHA

is authorized to administer. If a PHA’s costs in 2002 are much higher than the base

year’s costs plus the inflation factor that was used to calculate the PHA’s budget,

it will not have enough funds in 2002 to pay landlords unless it reduces the number

of families it serves.

The negotiated rulemaking panel that helped HUD develop the new renewal policy recognized the weakness of a methodology that calculates the cost of renewing

voucher contracts based on previous average costs—I was a member of that panel.

To remedy this problem, access to reserves is a linchpin of the new renewal policy.

Each year, HUD generally sets aside an amount equal to 2 months of each PHA’s annual budget as program reserves. If a PHA has not used any of its reserves in

the previous year, the existing reserve is merely adjusted to be equal to 2 months’ worth of a given year’s budget. PHA’s that have not been found by HUD to have

serious management deficiencies may draw on at least 1 month’s reserve, and a second month with HUD approval, to meet the costs of assisting the authorized number of families—if a PHA uses its reserves to serve additional families, in excess

of the number authorized by HUD, HUD will not reimburse the PHA and the PHA

will have to operate with reduced reserves. 13

Reasons a PHA’s Average Costs May Increase

A PHA’s average cost to provide housing assistance through the voucher program

may increase from year-to-year for a number of reasons—average costs also may decrease, but decreased costs do not require the use of reserves. The most obvious is

an increase in the voucher payment standard, which determines the maximum

amount a PHA contributes for a family’s rent and utility costs. Generally, PHA’s may set the payment standard between 90 and 110 percent of the HUD-determined

Fair Market Rent, and may set the payment standard higher or lower with HUD

approval.

HUD publishes FMR’s annually. When rent and utility costs are increasing, it is

likely that FMR’s will increase as well. When HUD increases the applicable FMR,

a PHA is likely to increase its payment standard. A PHA also may exercise its discretion to increase its payment standard in light of escalating housing and utility

costs. If PHA’s in areas hit by rapidly rising rents and/or utility costs are forced by

a reduction in reserves to choose between a needed increase in the payment standard and a reduction in the number of families they can assist, families in need of

housing assistance, as well as those that already have vouchers may suffer as a result. If a PHA responds to the quandary by keeping payment standards down, families that receive vouchers may not be able to use them and those that already have

voucher assistance will have to pay an increased share of income if rent or utility

costs increase. If a PHA instead chooses to increase its voucher payment standard,

families on the waiting list will have to wait longer to receive assistance.

Recently, HUD has increased FMR’s substantially in many areas to help

deconcentrate the areas in which voucher holders locate within a metropolitan area

and to enhance the likelihood that families will succeed in using their vouchers. In

January 2001, HUD increased the FMR to the 50th percentile—from the 40th percentile—in 39 metropolitan areas that contain about 500 PHA’s. HUD made this

change based on data indicating that in these areas, Section 8 users were overly

concentrated in a small number of census tracts. In calendar 2002, these PHA’s will

receive renewal funding based at least in part, and possibly entirely, on their costs

prior to the FMR increase. They are unlikely to have sufficient funds within their

annual budgets to provide assistance to the number of families they are authorized

to serve without using reserves.

Similarly, beginning in October 2000 HUD has permitted PHA’s with voucher success rates below 75 percent to increase their payment standards as if their FMR’s

had been increased to the 50th percentile. Agencies that have used this new flexibility to increase their voucher payment standards, enabling voucher holders to find

qualifying units, also will need to access reserves to avoid reducing the number of

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families served. Reducing reserves in 2002 may undermine the programmatic gains

achieved through these changes.

HUD has indicated that the fiscal year 2002 FMR’s are likely to be substantially

higher in many areas due to increased rents and utility costs. To implement the increased FMR’s without reducing program size, more PHA’s are likely to need to

draw on reserves, as their 2002 budgets will be based on the lower costs they incurred in 2000 or 2001.

Vulnerability of Small PHA’s to Increased Costs

Small PHA’s and the families they serve are particularly vulnerable to a reduction

in Section 8 reserves. About 1,800 of the 2,600 PHA’s that administer the voucher

program have fewer than 250 vouchers. Such small agencies have virtually no cushion in their regular annual budgets to accommodate a sharp cost increase, even for

a few families. If an unusual number of large families come to the top of the waiting

list or a few families move with their vouchers from inexpensive rural communities

to more expensive cities or suburbs in search of work, an Agency’s average costs

could substantially exceed its budget. In such a case, the PHA must rely on reserves

to assist as many families as it is authorized to assist.

Similarly, an Agency may issue vouchers to additional families to achieve full utilization of its voucher funds, expecting that not all families will succeed in finding

units. If more families than anticipated do succeed, however, a small PHA will not

have the flexibility in its regular budget to meet its full obligations. It will need to

draw on reserves to make payments to owners until some families leave the program through attrition.

The Completion of the Merger of the Certificate and Voucher Programs

May Affect Program Costs in 2002

In addition to the general factors that may affect a PHA’s need to access re- serves—such as rising costs or small agency size—reducing reserves in 2002 may

be particularly risky. The first full year of complete merger of the certificate and

voucher programs will be 2002—HUD rules required up to a 2 year lag to convert

families from the certificate program to the new voucher program. Conversion will

not be complete until October 2001. Because subsidies were generally capped at the

FMR in the certificate program, but may exceed the FMR in the voucher program,

it is reasonable to anticipate that conversion will cause some increase in average

costs. This is likely to be the case even in areas that have not experienced rapid

increases in rent and utilities in the last 2 years. Renewal funds in 2002 are based

on a PHA’s actual costs in 2000 or 2001, when most families were still under the

certificate program. As a result, many PHA’s may need to access their reserves to

continue providing assistance to families previously on the Section 8 certificate program, as well as to new families that receive vouchers that become available

through turnover.

The Role of Reserves in Influencing PHA Decision-Making

There is an important subjective factor that must be considered in assessing the

likely impact of the proposed reduction in reserves to 1 month. To avoid exhausting

their budgeted resources, many PHA’s would be likely to avoid increasing their average costs. If they are limited to 1 month’s reserves rather than the extra cushion

that 2 month’s reserves provides, PHA’s may be discouraged from increasing their

voucher payment standards. This may be especially true if HUD were to return to

the practice of making PHA’s provide burdensome justification of the need to access

reserves before granting permission. If PHA’s decline to increase payment standards

in order to avoid having to request access to reserves, with the resulting risk of

HUD’s delay or denial, fewer units will fall within the price range accessible to families with vouchers. Families may have less success in using their vouchers and

voucher holders may be further concentrated in poor neighborhoods. The net result

may be that PHA’s are unable to use all the funds appropriated for the voucher program, reducing the number of families receiving Federally assisted housing.

Predicting Need for Reserves Based on Available Data

A comprehensive analysis of the potential problems that may be caused by reducing Section 8 program reserves by half requires current data on reserve use, as well

as projections using current cost data. HUD will hopefully make such data publicly

available.

Data models that were developed for the 1999 negotiated rulemaking on the Section 8 renewal formula may, however, be instructive. HUD had consultants model

the likely need for reserve usage under the renewal system ultimately adopted—as

well as under other proposed methods. Based on actual costs in the mid-90’s, the

model showed that approximately 15 percent of PHA’s would need to use 1 month

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or more of their reserves in order to serve the authorized number of families during

the period between incurring increased costs and receiving increased funding. Due

to the factors enumerated above which are likely to cause actual average costs to

increase to an unusual extent in 2002, the projection that about 15 percent of PHA’s

would need more than 1 month’s reserves to maintain program size under the current renewal funding system is likely to understate the number of PHA’s that may

need to use a second month of reserve funds in 2002.

The model shows that if PHA’s experience ‘‘extreme variation’’ in costs, with average monthly costs changing from $460, to $650, to $690, to $500 over a 4 year period, such PHA’s would need all 2 months of reserves in year 2 to maintain program

size, in year 3 the 2 months of reserves—assuming HUD had replenished the reserve account—would be insufficient to provide assistance to the authorized number

of families. If such PHA’s did not receive additional funds on top of their 2 months

of reserves, they would have to reduce the number of families served in year 3. If

enough households did not leave the program to reduce program size by attrition,

some families’ subsidies would have to be terminated. In either case, such PHA’s

would not be able to issue vouchers in year 3 to any families on the waiting list;

they would have to reduce the number of families served to try to stay within budgeted funds plus available reserves. If PHA’s incur increased average costs but have

only 1 month’s reserve available, they would be forced to reduce the number of families served more rapidly than under this model. If attrition is not sufficient to keep

program costs within the annual budget plus 1 month reserves, payments to property owners would have to be terminated and families would lose their housing.

Conclusion

A decade of prosperity has done little to alleviate America’s housing needs. The

recent reduction in the number of families with severe housing needs is good news,

but at the same time the decrease in the number of affordable rental units on the

private market has accelerated. Half of all renters—about one-sixth of the households in this country—have moderate or severe housing problems; 4.9 million very

low-income households without housing assistance pay more than half their income

for housing or live in severely substandard housing. Relatively few of these households are likely to benefit from the Administration’s proposed tax credit to reduce

the costs of homeownership. The Administration’s HUD budget request largely fails

to respond to this unmet need for affordable rental housing.

The Administration’s request for 33,700 incremental vouchers is a positive step

but one that does not go far enough in light of the magnitude of unmet needs. The

requested increase is less than 40 percent of the 87,000 additional vouchers approved for fiscal year 2001—79,000 ‘‘fair share’’ vouchers and 8,000 for the disabled.

Further, the proposed reduction of 10,000 ‘‘tenant protection’’ vouchers compared

with fiscal year 2001 may reflect a real decrease in the supply of federally assisted

housing. The proposed increase of $2.2 billion to renew expiring Section 8 contracts

does not represent more households receiving Federal housing assistance. This increase in budget authority is like a mirage: it looks good until one looks at it closely,

and then it disappears. No additional families receive Federal housing assistance as

a result of this increase in budget authority—it is merely the necessary means to

transform multiyear obligations into annual funding. Indeed, the $2.2 billion requested increase for Section 8 renewals may be less than is required, as it relies

on the offset of $640 million from public housing Agency reserves for the voucher

program. To realize this offset the Administration proposes to reduce PHA reserves

from 2 to 1 month. This proposed reduction may require PHA’s with significant cost

increases to reduce the number of families they serve.

Rather than renewing all expiring Section 8 contracts as it purports to do, the

Administration’s budget may require a reduction in the number of families served

by the voucher program. In addition, if the reduction in program reserves deters

PHA’s from increasing voucher payments when rents and utility costs increase,

fewer families may be able to obtain housing with their vouchers and more voucher

funds would not be utilized.

In this era of budget surpluses, we can and should help provide more families

with the decent, affordable housing they cannot obtain on the private market. A

greater share of households with so-called worst case housing needs are working

than ever before, but their earnings are not sufficient to enable them to obtain decent housing they can afford. Lack of affordable housing may undercut the success

of welfare reform by making it more difficult for families to obtain and retain employment. If we really want to leave no child behind, we must increase our investment in low-income housing substantially through production and rehabilitation of

rental housing and additional housing vouchers.

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RESPONSE TO WRITTEN QUESTIONS OF SENATOR SARBANES

FROM MEL MARTINEZ

Capital Fund Unexpended Balances

Q.1.a. During your testimony, you stated that Public Housing Authorities had a large amount of unspent Capital Funds. Which

PHA’s have unexpended balances in the Capital Fund? Please provide detailed information on how much and what percentage of

each PHA’s funds are unexpended.

A.1.a. See the attached reports which are being submitted and contain the requested information for the top 100 PHA’s. A complete report containing this information for each of the over 3,200

PHA’s is approximately 600 pages in length, and is available upon

request.

Q.1.b. When did these PHA’s receive the funds that are currently

unexpended?

A.1.b. See the report submitted in response to Q.1.a. The Federal

fiscal year designator is used to identify the funding source year.

Q.1.c. Which PHA’s have unobligated balances in the Capital

Fund? Please provide detailed information on how much and what

percentage of each PHA’s funds are unobligated?

A.1.c. See the report submitted in response to Q.1.a.

Q.1.d. When did these PHA’s receive the funds that are currently

unobligated?

A.1.d. See the report submitted in response to Q.1.a. The Federal

fiscal year designator is used to identify the funding source year.

Q.1.e. Which PHA’s with unexpended balances have failed to meet

the time deadlines for expenditure established in the 1998 Public

Housing Reform Act?

A.1.e. For Federal fiscal years 1996, 1997, 1998, and 1999, the Office of General Counsel advised that, with respect to the 2 and 4

year obligation and expenditure deadlines, the language in the

1998 Public Housing Reform Act did not apply. The Annual Contributions Contract for fund obligation was signed on different

dates near the end of the fiscal year for each PHA. Therefore, the

Department used September 30 as the date for starting the clock

on fund obligation and expenditure. The obligation and expenditure

period based on prior regulations and notices was as follows:

Federal fiscal year 1996. Obligation Deadline: 3/31/98.

Federal fiscal year 1996. Expenditure Deadline: 9/30/99.

Federal fiscal year 1997. Obligation Deadline: 3/31/99.

Federal fiscal year 1997. Expenditure Deadline: 9/30/00.

Federal fiscal year 1998. Obligation Deadline: 3/31/00.

Federal fiscal year 1998. Expenditure Deadline: 9/30/01.

Federal fiscal year 1999. Obligation Deadline: 3/31/01.

Federal fiscal year 1999. Expenditure Deadline: 9/30/02.

The language in the PHRA does apply to funds provided in Federal

fiscal year 2000. However, this was the first year of program implementation and the PHA’s were not made aware of their funding

amounts until June and they signed their ACC’s thereafter. Therefore, HUD will use September 30 as the start date and the funds

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must be obligated under the statute by September 30, 2002 and expended by September 30, 2004.

Q.1.f. Which of these PHA’s has HUD worked with to identify the

cause of delays?

A.1.f. Currently, there is not a data system that collects such information. However, it is standard operating procedure for HUD staff,

when reviewing PHA performance, to provide technical assistance

to PHA’s that are performing poorly or to declare them troubled

and assist them through the Troubled Agency Recovery Centers.

Q.1.g. Which of these PHA’s has HUD provided assistance to in

correcting problems related to unexpended balances?

A.1.g. As a matter of operating procedures, when HUD staff meet

with a PHA, either on a monitoring visit or in providing program

technical assistance, the issue of obligations and expenditure of

funds in a timely manner is raised. In the past several years, notices and general letters have emphasized to housing authorities

their need to move funds through the pipeline expeditiously and responsibly.

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Section 8 Program Reserves

Q.2.a. HUD’s budget proposes to reduce the amount of reserves in

the Section 8 program from 2 months to 1 month. This represents

a reduction of almost $640 million available for operating the Section 8 program. During the Negotiated Rulemaking on the Housing

Certificate Fund, senior HUD staff indicated that a reduction in reserves to 1 month ‘‘would represent a serious threat to housing

baseline families’’ and that the 2 month reserve is necessary. The

Negotiated Rulemaking recommendations on Section 8 also reiterate that a 2 month reserve is necessary. What data do you have

to show that there has been a change in the last year that would

reduce the need for reserves, as determined in the Negotiated Rulemaking?

A.2.a. Because most PHA’s continue to be under leased, a limited

number access reserves to any significant degree. While the Department foresees some increased use of reserves in the future, it

cannot currently justify maintaining a 2 month—1⁄6 of budget—reserve level, given that PHA’s are not generally relying on reserve

funding. The Department has the capability to shift the necessary

funding to protect families in instances in which a 1 month reserve

proves to be inadequate.

Q.2.b. Did HUD conduct an analysis of the need for Section 8 reserves prior to the budget submission? Please provide this analysis

if it was completed.

A.2.b. After the fiscal year 2000 recapture, there were approximately 165 PHA’s that required varying degrees of restoration of

reserves to maintain a 2 month reserve. The total cost of such a

reserve restoration is a modest $47 million. There are only 130

PHA’s that have accessed the 2nd month of reserves. Restoration

of a 1 month—1⁄12 of budget—reserve level for these PHA’s would

cost only $7.4 million. Please see the attached restoration of the

1 month reserve list.

Q.2.c. Has HUD done an analysis of how many and which PHA’s

are using more than 1 month of reserves, and how many and which

PHA’s have requested the ability to use more than 1 month of reserves? Please provide any data/analysis on the use of reserves by

each PHA, and requested use of reserves.

A.2.c. As indicated previously, there are only 130 PHA’s that have

accessed the 2nd month of reserves. In order to restore a 1

month—1⁄12 of budget—reserve level, HUD would need to allocate $7.4 million to these PHA’s reserve accounts. Please see the attached restoration of 1 month reserve list.

Q.2.d. Policy changes may result in increased use of reserves by

PHA’s. What are HUD’s projections of how many and what PHA’s

will need to use more than 1 month of Section 8 reserves based on

recent and expected increased FMR’s and payment standards?

A.2.d. The PHA’s that will be most impacted by FMR increases and

payment standard increases are generally the PHA’s with the lowest utilization rate. HUD hopes that over time these PHA’s will

increase their lease-up rates so as to approach 100 percent utilizaVerDate 11-MAY-2000 09:37 May 08, 2002 Jkt 000000 PO 00000 Frm 00101 Fmt 6633 Sfmt 6601 78799.TXT SBANK4 PsN: SBANK4
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tion. Once they achieve full utilization they will perhaps need to

access reserve funding. HUD does not believe that these reform

measures will lead to accessing more than 1 month—1⁄12 of budget—of established reserve levels in 2002.

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Voucher Utilization

Q.3.a. You note in your testimony that voucher utilization is a

major concern to the Department and to families who are in need

of housing assistance. You said that 300,000 families were not assisted last year because of unutilized vouchers. Of these 300,000

vouchers, how many were newly allocated in fiscal year 2001?

A.3.a. HUD has allocated almost 79,000 new incremental vouchers

for fiscal year 2001. At this time, the Department is in the process

of obligating these vouchers to the PHA’s.

Q.3.b. Of these 300,000 vouchers, how many were special purpose

vouchers—that is reserved for litigation, etc.?

A.3.b. HUD’s data systems only track utilization at the housing authority level. HUD is in the process of upgrading its data systems

to keep closer track of utilization and to be able to track utilization

rates associated with special allocations. Because of the importance

of this issue, this system upgrade is in the process of being funded

on a priority basis this year.

Q.3.c. What is HUD’s analysis of the reasons that the remainder

of vouchers went unutilized?

A.3.c. There are a number of reasons that PHA’s do not fully use

their allocation of vouchers. In some instances, there is simply a

scarcity of units that voucher assisted families can afford. PHA’s

have tools at their disposal to ameliorate this situation, including

the ability to: (1) raise payment standards up to 110 percent of the

Fair Market Rent; (2) reach out and recruit landlords; (3) counsel

families so that they can focus their search in areas where they

have a greater chance of success; (4) use exception rents, and (5)

give families extra time to find a unit. HUD has adjusted the Fair

Market Rent to the 50th percentile in some areas with tight rental

markets to expand the pool of affordable housing. If a HUD established Fair Market Rent appears to be inadequate, PHA’s can conduct a ‘‘Random Digit Dialing’’ survey of the local market and

based on the results request a change to the Fair Market Rent.

Many PHA’s do not take full advantage of the tools available to

them. There are, however, some cases in which there is simply a

small supply of affordable housing in which case, there is little a

PHA can do.

Other reasons for underutilization of vouchers are as follows.

PHA’s, in some instances, can aggravate utilization problems

through poor management practices that reduce the chance of a

family successfully finding a unit. Some PHA’s do not process

Housing Quality Standards inspections fast enough leading to families losing units to other private sector renters that can act faster.

PHA’s sometimes under issue units to avoid having to rely on

voucher reserve funding. In some cases, landlords do not want to

rent to voucher families because of a perception that there will be

an administrative burden associated with voucher families, and/or

a perception that voucher families are not responsible tenants.

These perceptions make it harder for voucher families to find housing. In addition, sometimes there is a diminished need for voucher

assistance because there are few families on the waiting list. FiVerDate 11-MAY-2000 09:37 May 08, 2002 Jkt 000000 PO 00000 Frm 00108 Fmt 6633 Sfmt 6601 78799.TXT SBANK4 PsN: SBANK4
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nally, some PHA’s are not properly managing their waiting lists to

maximize voucher utilization.

Q.4. It is important to understand where vouchers go unused.

Please provide data on each PHA and their voucher utilization

rates. Please include information on how many vouchers at each

PHA are special purpose vouchers?

A.4. Please see attached information regarding PHA voucher utilization rates.

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Voucher Success Rates Study

Q.5. In addition to voucher utilization, voucher success rates are

important in understanding whether families are receiving the

housing assistance they need. I understanding that HUD has contracted for a study on voucher success rates. Please provide information on when this study is expected to be complete, what phase

the study is currently in, and any information that has been provided to HUD by the contractors about the findings of that study.

A.5. HUD has a contract with Abt Associates, Inc. to examine the

voucher success rates at 48 public housing agencies (PHA’s), and

to determine a national success rate as well. The success rate is defined as the percentage of families that are provided vouchers and

who, within the allotted time period, are able to lease a housing

unit that meets all program requirements. The study also compares

success rates according to the demographics of the voucher holders.

The study will be completed on August 10, 2001. Abt Associates

has provided HUD with an initial draft report. The Department is

in the process of reviewing this report at this time. The contractors

have suggested that the national voucher success rate now appears

to be between 65 and 75 percent.

FHA Multifamily Insurance Premiums

Q.6. Secretary Martinez, I want to applaud your recent decision to

raise FHA multifamily loan limits. This will make the program

useful in many more jurisdictions that have been shut out. Unfortunately, your proposal to raise FHA mortgage insurance premiums by 60 percent undercuts part of what you say you want to

accomplish. The increased premium will, in fact, undercut the feasibility of some projects and lead to an increase in rents. In order

to maintain these projects as affordable, the Government will have

to provide subsidy that would likely end up costing far more than

the premium increase.

Clearly, there is an alternative. My understanding is that, taken

as a whole, the programs within the FHA’s General Insurance and

Special Risk Insurance programs make money for the Federal Government. If these programs were treated as one for budgetary purposes, we would not need any credit subsidy, and many more

affordable units could be built. Would you be willing to work with

us to get this change made to budgetary treatment of FHA?

A.6. I am glad that we agree FHA should be an effective and reliable source of housing development financing. Our proposal to raise

the mortgage insurance premium is intended to avoid the type of

disruption that has occurred in the last 2 years as subsidy funding

was being depleted. We think the 30 basis point premium increase

is a modest price to pay for this stability and the value of the Federal guarantee.

Your suggestion that we cross-subsidize risk categories in the

General Insurance Fund as a means of eliminating the need for

positive subsidy appropriations, unfortunately is contrary to the

Federal Credit Reform Act of 1990 which was intended to increase

annual budgetary control of credit activities. We believe our budgetary proposals address the financing needs for new apartment construction, without resorting to such a shift in budgetary policy.

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We share your concern over the possibility of adversely affecting

residents, but since rents in these developments are market rate,

there should be minimal if any impact. The mortgage insurance

premium is just one rather minor cost element that developers will

have to include in their project plan and feasibility analysis.

FHA Credit Subsidy Supplemental

Q.7. Last year, Congress appropriated an additional $40 million in

multifamily credit subsidy. My understanding is that there are a

number of obstacles to having those funds released. If those obstacles are legislative, will you commit to working with us to quickly

eliminate those obstacles?

A.7. Yes. The Department agrees that $40 million is needed and

has proposed that this sum be appropriated along with the immediate implementation of the annual premium change. These two actions will permit our multifamily mortgage insurance programs to

continue for the balance of this fiscal year without further interruption. The supplemental enacted last year requires an emergency

designation which waives budgetary controls with respect to this

spending. We do not feel this is appropriate and will be unnecessary with action on our new proposal.

Rural Housing and Economic Development

Q.8. One recently created program at HUD has been dedicated to

serving the capacity needs of rural areas—the Rural Housing and

Economic Development Program. This important program, sponsored by Senator Bond, provides capacity building to rural local

and State organizations in an environment where these groups are

vital for the survival of rural housing. During the first year of

funding in 1999, 749 applicants competed for only 91 grants. There

was a similar competition in the second year. There is obviously an

overwhelming demand for this program. The need for this program

is highlighted in the Administration’s fiscal year 2002 budget justifications, which says, ‘‘The previous rounds of funding recognize

that rural communities face different socio-economic challenges

than do cities. Many rural areas have been by-passed by employment, and low, stagnating wages. It is imperative that rural regions have greater access to community and economic development

funds that would foster investment in economic opportunities.

If this program is imperative, what are the justifications for your

proposal to cut the Rural Housing and Economic Development Program? Please provide information about how the specific needs addressed by this program will now be met.

A.8. The HUD Rural Housing and Economic Development Program

provides competitive grants for capacity building and support, including seed money, for housing and economic development in rural

areas. The Department of Agriculture already administers programs that are targeted specifically to rural revitalization. To include the Rural Housing and Economic Development Program in

HUD’s funding is a duplication of efforts by HUD and Agriculture

and distracts HUD from its core mission.

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RESPONSE TO WRITTEN QUESTION OF SENATOR SANTORUM

FROM MEL MARTINEZ

Public Housing Authorities

Q.1. Secretary Martinez, the Quality Housing and Work Responsibility Act of 1998 enabled public housing authorities to leverage

their capital funds. The Philadelphia Housing Authority is in the

process of finalizing a bond issuance totaling between $125 to $175

million to meet affordable housing demands. Public housing

authorities and the public finance community, including rating

agencies, investors, and bond issuers, views these transactions as

breaking new ground.

What effect if any, do you anticipate the proposed cuts to the

Public Housing Capital Fund will have on innovative investment

strategies, such as the Philadelphia Housing Authority’s bond

issuance, and the ability of public housing authorities to address

the risk concerns of the public finance community regarding capital

grant appropriation levels?

A.1. The Department has only approved two PHA’s to utilize future

capital appropriations to amortize a loan or bond issuance to date.

However, the Department has had discussions involving four other

PHA’s contemplating such financing. Each approval was done on a

case-by-case basis. The current policy thinking, not yet in any published format, such as a proposed regulation or HUD Notice, is that

a PHA may not pledge more than 25 percent of its annual capital

grant to amortize the bond or loan. That level of borrowing should

serve two purposes: first, prevent a PHA from getting into financial

trouble based on its borrowing and; second, provide a measure of

accommodation for its total capital needs in other areas. Should the

annual funding level go down, as would be the case in fiscal year

2002 over fiscal year 2001, there will still be more than sufficient

funding to meet the annual debt payment and to fund other

planned capital needs.

The Department has held several meetings with representatives

of the public finance community, including major banks, bond rating firms and bond issuers, both before and after the fiscal year

2002 budget proposal, and has discussed issues and procedures the

financial community would like to see implemented. At this time,

the Department does not feel that the proposed budget level for the

Capital Fund Program will have an impact on the investment

strategies of the PHA’s contemplating borrowing against future

Capital Fund appropriations.

RESPONSE TO WRITTEN QUESTION OF SENATOR SHELBY

FROM MEL MARTINEZ

FHA’s Supplemental Appropriation

Q.1. Mr. Secretary, the Omnibus Appropriations bill that was

passed last December contained a provision providing $40 million

for the Federal Housing Administration’s general and special risk

program account for the cost of guaranteed loans contingent upon

the funds being designated as emergency spending. Mr. Secretary,

do you intend to pursue such a designation for these funds?

A.1. The supplemental enacted last year requires an emergency

designation which waives budgetary controls with respect to this

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spending. We do not feel this is appropriate and will be unnecessary with action on our new proposal. Instead we have proposed

the appropriation of a regular supplemental of $40 million, along

with the immediate implementation of the new premium rate, will

permit us to continue multifamily mortgage insurance activities

without further disruption for the balance of this fiscal year.

RESPONSE TO WRITTEN QUESTIONS OF SENATOR REED

FROM MEL MARTINEZ

Homelessness Coordination with HHS and VA

Q.1. Secretary Martinez, I have noted from your public statements

your interest in homelessness, and particularly the importance of

working with the Department of Health and Human Services.

There is widespread agreement among people concerned with this

issue that HHS needs to play a bigger role, particularly when addressing the needs of homeless people with disabilities for services

such as behavioral health care. What are your plans for coordinating HUD’s homelessness programs with relevant efforts at

HHS? What are your plans for coordinating with other departments such as the Department of Veterans Affairs?

A.1. I am committed to refocusing HUD’s homelessness efforts

on providing housing. Since coming to HUD, I have learned that

year in and year out, over half of HUD’s homeless assistance funds

have been awarded for supportive services. Of all homeless funds

awarded last year, for instance, 43 percent were for housing while

53 percent went for supportive services—the remaining 4 percent

of funds were for administration.

We have taken steps in this year’s application to help address

this housing/services imbalance. First, the application emphasizes,

more than in past years, the importance of using mainstream programs to address the needs of homeless persons. Specifically, the

application requires each community to describe its strategy to

coordinate homeless assistance with each of the following mainstream assistance programs: Medicaid, State Child Health Insurance Program (SCHIP), TANF, Food Stamps, and service funding

through the Mental Health Block Grant and Substance Abuse

Block Grant Programs, Workforce Investment Act, and the Welfare-to-Work Grant Program. As stated in the application, the local

strategy should, at a minimum, provide for the systematic identification and enrollment of homeless persons eligible for these programs. Second, this year’s application incorporates the requirement

contained in the 2001 Appropriation Act regarding the use of mainstream programs. As stated in the law and described in application

materials, all applicants must certify that, if selected for funding,

they will coordinate and integrate their individual homeless project

with other mainstream health, social services and employment programs for which their homeless populations may be eligible. The

certification cites each of the mainstream programs cited above.

There is clearly more that can and will be done to correct the imbalance of HUD funds going to services versus housing. Secretary

Thompson of the Department of Health and Human Services and

I recently met and discussed how we can better use available HHS

mainstream programs to address the service needs of homeless persons, particularly for the chronically homeless, thus freeing up limVerDate 11-MAY-2000 09:37 May 08, 2002 Jkt 000000 PO 00000 Frm 00158 Fmt 6633 Sfmt 6601 78799.TXT SBANK4 PsN: SBANK4
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ited HUD’s resources for providing more permanent housing. Our

two Departments are now developing a plan of action and expect

to announce a joint initiative in the coming weeks. We recognize

that increased coordination with other Federal agencies, such as

the Department of Veterans Affairs, is also needed. With the reestablishment of the Federal Interagency Council on the Homeless

this year, which I strongly support, I foresee significant improvement in interagency efforts to address homelessness.

Permanent Housing for the Homeless

Q.2. As you know, for the past 3 years Congress has worked to

keep the homelessness system focused on results, by, among other

things, requiring that at least 30 percent of funding for HUD’s

homelessness programs be spent on permanent housing for people

who are homeless. I note that this requirement is included in the

Administration’s budget request for fiscal year 2002. What is HUD

doing to ensure that this requirement is met, and that more permanent housing is available for people who otherwise would remain homeless for long periods of time?

A.2. The annual Homeless Assistance competition is largely based

upon local decisionmaking and local priority setting. Mindful of this

policy, the Department included language in the 2001 NOFA that

strongly encouraged Homeless Assistance to begin planning for new

permanent housing projects, if they have not already, to be included as part of the 2001 and future competitions. In addition, as

a powerful incentive in the 2001 funding round, the ‘‘permanent

housing bonus’’ for eligible, new permanent housing projects placed

in the number one priority slot, was doubled to up to $500,000. Almost $40 million in bonus funds were awarded to new permanent

housing projects in the 2000 competition and this total is expected

to more than double this year. Finally, by establishing a funding

selection process that resulted in the replacement of over 300 nonpermanent housing projects—valued at approximately $100 million—with lower scoring permanent housing projects in the 2000

funding round, the Department sent the strongest possible message, and inducement, for applicants to submit permanent housing

projects instead of nonpermanent housing projects going forward.

By having taken such dramatic action in 2000, HUD has made

clear its seriousness in emphasizing permanent housing. By the nature of the competition, applicants can be expected to submit many

more new permanent housing projects than would otherwise have

been the case due to HUD’s forceful stand in implementing the 30

percent requirement in the 2000 funding round.

Preventing HOPE VI from Causing Homelessness

Q.3. HOPE VI has the beneficial aim of upgrading communities

that have formerly been marred by badly functioning public housing developments. The concern has been expressed, however, that

by reducing the number of deeply subsidized units a HOPE VI initiative can lead to increased homelessness. What is HUD doing to

find out whether residents who are relocated from public housing

as a result of HOPE VI later enter the homeless assistance system,

and to prevent that result from occurring?

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A.3. HUD is very concerned that all the residents of a HOPE VI

development, including those who do not wish to return to the revitalized site, receive services that will assist them in becoming economically self-sufficient. In making sure that HOPE VI residents

do not become homeless we are requiring the Public Housing Authority (PHA) to submit a relocation plan to HUD, and to track all

of their HOPE VI residents.

One of the fundamental tenets of the HOPE VI program is the

choice of housing. The relocation plan includes a section where a

PHA details the choices of the residents—for example return to the

site, receive a Section 8 voucher, or relocate to another public housing development—and lists the available resources that the PHA

has, to accommodate those preferences. HUD works with each

HOPE VI grantee to develop a comprehensive community and supportive services plan that has at its core a case management system. This system allows the PHA’s staff to work with each family

and helps provide an early warning, if a family is moving toward

homelessness. HUD has also contracted with the Urban Institute

to interview past—1993–1998—grantees, and present—1999– 2000—HOPE VI residents, to determine how the relocation process

is working. The Urban Institute will follow the present residents

over the next 3 years.

RESPONSE TO WRITTEN QUESTIONS OF SENATOR SARBANES

FROM STANLEY J. CZERWINSKI

Q.1. You discussed in your testimony how the cut of $700 million

in the Public Housing Capital Fund will have the consequence of

penalizing all public housing agencies. Can you explain how recapturing funds would work and why this would be a fairer system

than cutting Capital Funds across the board?

A.1. HUD has informed us that, should they receive $700 million

less than the fiscal year 2002 Capital Fund appropriation, they will

not alter how they distribute Capital Funds. This has the effect of

an across-the-board cut in funding for the Nation’s public housing

agencies. Currently, HUD uses a formula that allocates funds to

public housing agencies based on the number of units, age of the

housing stock, the Public Housing Assessment System (PHAS)

score, estimated need, and prior grant amounts. This formula

would be applied to the reduced appropriation and thus, each PHA

would receive less funding than in fiscal year 2001 because the

amount of the funding for all public housing agencies would be

$700 million less. HUD states that unexpended balances in this

program can cushion the cut. However, all public housing agencies

do not have unexpended balances. As a result, public housing agencies that have spent funds efficiently may not have unexpended

funds to cushion any fiscal year 2002 funding reduction.

Instead of cutting funding for all public housing agencies, HUD

could identify those public housing agencies that have unexpended

balances that are not being used to support current or on-going

projects. HUD would then recapture the excess funding from those

public housing agencies and redirect it to public housing agencies

that have been efficiently spending their Capital Fund grants. This

approach does not have the effect of penalizing all public housing

agencies because some are carrying large unexpended balances.

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However, as we testified, HUD lacks the detailed information to

identify what project funds are no longer needed at the public

housing Agency level.

Q.2. Data provided by HUD shows that most Capital Funds are expended within 4 years, the legal time frame. Given that capital

programs spend out funds slowly across the board, has GAO identified the Capital Fund as having a problem with unexpended

balances?

A.2. We have not specifically identified the Capital Fund as a problem, but it is certainly a program effected by HUD’s management

of its unexpended balances. In our testimony on HUD’s fiscal year

2000 budget proposal, we stated that HUD had large overall unexpended balances and that these large balances could indicate inefficient utilization of funds. Accordingly, we recommended that

HUD’s Budget Office work with the program offices to identify programs with a history of large unexpended balances and the grantees that hold these balances—and the Capital Fund was one of

those programs. Subsequently, HUD commissioned studies of programs with the largest unexpended balances to determine why

they exist and how funds can be utilized more efficiently. In its

April 2000 report to HUD on the Public Housing Capital Fund,

Arthur Andersen reported that 93 percent of fiscal year 1996 funds

were expended within 4 years of appropriation. The report did,

however, identify ways that funds could be utilized more efficiently.

The suggested improvements included changes to planning, financing, cost estimating, and contracting.

As part of our work reviewing HUD’s fiscal year 2002 budget re- quest we determined that the Capital Fund has about $13.4 billion

in unexpended balances. Approximately $6 billion of unexpended

balances are related to paying debt service on various types of

bonds and securities used to build public housing years ago. This

funding will be spent at about $500 to $700 million per year over

a 20 year period and HUD has provided documentation of their

need for these funds. Of the remaining $7 billion, we recognize that

some of this unexpended funding may be recently appropriated and

not yet obligated to housing agencies and some may be obligated

by housing agencies, but not yet spent on long-term projects. However, HUD lacks the information needed to determine what portion

of the remaining funds is available for recapture. As we stated

above, HUD does not have needed information on unexpended balances at the public housing Agency project level that would allow

ready determination of funds no longer needed and therefore available for recapture.

Q.3. I understand that you are conducting a review of Operation

Safe Home. Can you provide us with information on the status of

that review and any results.

A.3. We issued our report on Operation Safe Home in response to

a request from Congressman Barney Frank on June 29, 2001. We

were asked to report on: (1) the amount and source of Operation

Safe Home funding and how it was spent; (2) the number of arrests

and convictions resulting from Operation Safe Home investigations;

(3) complaints lodged against OIG’s special agents engaged in Operation Safe Home activities; and (4) the impact Operation Safe

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Home activities could have on the OIG’s independence to conduct

audits and investigations of HUD’s programs.

In summary, we reported that: (1) since fiscal year 1996, the

Congress has earmarked $92.5 million to the HUD OIG to fund Operation Safe Home from HUD’s the Public Housing Drug Elimination Program; (2) the HUD OIG cannot accurately determine the

number of arrests and convictions that have resulted from Operation Safe Home activities because the data it maintains are unreliable; (3) OIG’s officials told us that they were aware of seven complaints lodged against HUD OIG’s special agents while engaged in

Operation Safe Home activities from January 1997 through May

2001; and (4) the HUD OIG’s independence to conduct audits and

investigations of HUD’s programs to reduce violent and drug-related crime in public and assisted housing is subject to question

given its role in Operation Safe Home.

Q.4. What has your office found about the HUD Inspector General’s Operation Safe Home and its ability to evaluate the program’s effectiveness, monitor its benefits and outcomes, and account for its expenditures? How much of Operation Safe Home’s

funding is obligated or unexpended?

A.4. While we did not undertake an overall assessment of the benefits, outcomes, and effectiveness of Operation Safe Home, we did

address both its ability to account for its expenditures, as well as

how it collects, maintains, and reports investigative data. In both

cases, we concluded that Operation Safe Home does not have the

necessary information systems and management controls to ensure

that the HUD OIG’s managers can readily monitor the obligation

and expenditure of funds and track the numbers of arrests and

convictions.

In particular, while the OIG provided us overall information on

the level of obligations and expenditures for task force activities, it

could not readily identify how much money was allotted to and obligated and expended by individual task forces or readily provide

detailed information on how the money was specifically spent. Thus

it did not have a reliable mechanism for estimating its funding

needs, allocating program resources, and determining how funds

were spent.

In addition, the HUD OIG cannot accurately determine the number of arrests and convictions that have resulted from Operation

Safe Home activities because the data it has maintained are unreliable. We found that the OIG lacked a single and reliable information system and instead used multiple data collection methods of

questionable reliability. Moreover, the OIG could not provide documentation supporting summary data, including the number of arrests, contained in 12 semiannual reports to the Congress. In the

absence of complete, consistent, accurate, and properly documented

information, the OIG has not had the means to accurately report

the results of its investigations and thus to provide the Congress

with reliable and supportable information on what Operation Safe

Home has accomplished.

Regarding your second question on obligations and expenditures,

from fiscal year 1996 though 2000, the HUD Inspector General allotted $37.5 million the funds earmarked by Congress from the

159

Public Housing Drug Elimination Program to pay for Operation

Safe Home task force activities and $35 million to pay for the salaries and expenses of special agents involved in Operation Safe

Home activities. We found about $10 million of the $37.5 million

allotted for task forces was not obligated. In addition, of the $27.5

million that had been obligated, about $8 million had not been expended by the end of fiscal year 2000. While these funds remain

available to the OIG until expended, more than half of the unexpended funds were obligated in fiscal year 1999 or earlier. We plan

to review these unexpended balances as part of our budget justification review of HUD’s proposed 2002 budget. In contrast, the

OIG expended all the funds it allotted for salaries and expenses

and also used about $3.9 million of other OIG funds to supplement

the Operation Safe Home salaries and expenses allotment.

I think it is important to note that the OIG has recognized weaknesses in its information systems and management controls and

has begun to address the problems. HUD’s proposed fiscal year

2002 budget request for Operation Safe Home was reduced from

$20 million to $10 million, and OIG officials told us that Operation

Safe Home’s unobligated balances would finance task force activities through fiscal year 2002. In addition, the OIG is taking action

to improve financial accountability, including developing an improved and more detailed method of tracking Operation Safe Home

funds. The OIG has also implemented a new management information system designed—among other things—to improve the reliability of its arrest and conviction data. We believe that these and

other actions planned by the OIG, once fully implemented, should

improve accountability over task force activity funds and enhance

the reliability of Operation Safe Home investigative data. Our report contains specific recommendations to the OIG to fully implement these corrective actions.

RESPONSE TO WRITTEN QUESTIONS OF SENATOR SARBANES

FROM BARBARA SARD

Q.1. The Administration and many in Congress have voiced concern over the underutilization of vouchers.

A.1. The answer to both of these subquestions is ‘‘yes.’’ First, I will

explain what I believe are the key causes of and solutions to the

problem of underutilization of vouchers. Then, I will provide specific suggestions of what HUD and Congress could do to ameliorate

the problem.

Publicly available data from March 2001 indicate that approximately 88 percent of vouchers were in use that month—these data

are posted on HUD’s web site and are based on housing agencies’

reports to HUD. Some of the unutilized vouchers are reserved for

future uses such as the relocation of tenants from public housing

that will be demolished. But a substantial portion of the unutilized

vouchers reflect the inability of families to lease housing with

vouchers they have received. Indeed, far more than 12 percent of

families issued vouchers are probably unable to use them currently.

Similar to airlines’ practices of overbooking flights, housing agencies that predict that some families will not succeed in renting

units over issue vouchers to achieve full utilization of the authorized number of vouchers.

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1Office of Policy Development and Research, U.S. Dept. of Housing and Urban Development,

The Uses of Discretionary Authority in the Tenant-Based Section 8 Housing Program, January

2001, 46–56.

While there is no good data available to track voucher utilization

over time, anecdotal reports suggest that the utilization problem

has worsened in recent years. It should be noted, however, that utilization appears to have improved somewhat since August 2000,

when only 86 percent of vouchers were reported to be in use. The

apparent increase in voucher utilization in the 7 month period from

August 2000 until March 2001 may reflect additional measures

that HUD took beginning in the fall of 2000 to facilitate voucher

use. Nonetheless, failure to utilize approximately 200,000 of the

vouchers authorized by Congress is most unfortunate in the face of

continuing severe needs for housing assistance.

Solving the problem of underutilization of vouchers may require

measures to:

• assist families to search more efficiently for available units;

• bring more owners into the program;

• increase the amount of subsidy that a voucher provides; and

• increase the number of rental units of adequate quality.

Measures directed at each of these objectives are not necessary in

all areas. Many areas have an adequate number of decent quality

units for rent at moderate prices. In such areas vouchers may still

be underutilized because too few of the owners of these units accept

vouchers. To remedy the problem of underutilization of vouchers in

areas with an adequate supply of moderately priced housing requires bringing more owners into the program and enabling families to search more efficiently for the units that are available. In

areas with available but overly expensive housing, an increase in

voucher payments is necessary. In areas where the limited number

of vacancies in rental housing of decent quality poses a serious barrier to voucher use, additional supply side measures are needed to

rehabilitate existing units or produce new housing.

Housing agencies that administer the voucher program already

have some of the tools necessary to undertake the types of measures necessary to improve voucher utilization. Agencies can use

their administrative fees or partner with other agencies to initiate

outreach programs to landlords or to provide services and benefits

to assist families to obtain housing. Housing agencies are also permitted to increase the amount of subsidy provided by a voucher to

110 percent of fair market rent (FMR), and they can request HUD

approval of a further increase if justified based on available data.

They can now ‘‘project-base’’ up to 20 percent of their vouchers in

particular developments, as well as use vouchers for homeownership. Yet many agencies that are not able to use all their vouchers

have not initiated such programs or taken advantage of the flexibility currently offered by the voucher program rules.

Recent data indicate that approximately 70 percent of the public

housing agencies (PHA’s) that administer voucher programs set

their voucher payment standard at 100 percent or less of the HUDdetermined FMR.1 Less than a quarter of the PHA’s that acknowledge that over concentration of poor and minority households is a

problem in their voucher program undertake special efforts to atVerDate 11-MAY-2000 09:37 May 08, 2002 Jkt 000000 PO 00000 Frm 00164 Fmt 6633 Sfmt 6601 78799.TXT SBANK4 PsN: SBANK4
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2 Id. at 26–32.

tract owners in nonconcentrated areas to participate in the voucher

program or to provide counseling or other assistance to voucher

holders to obtain units in such areas.2

Why don’t more PHA’s do more to help families locate units with

their vouchers or to ensure that vouchers pay enough to bring sufficient units within the reach of voucher holders? Some are hindered

by a lack of understanding of the flexibility afforded by current

rules, and are not aware of the steps they could take to improve

voucher use. Some are accustomed simply to complying with program rules rather than making their own decisions about how to

achieve program goals. I agree with Secretary Martinez’s statement

at the Committee’s April 25 hearing that a central cause of the current underutilization of vouchers is inadequate administration of

the program by some PHA’s. More effective management by the

agencies that administer the voucher program directly is central to

improved program performance. Both HUD and Congress could

take a number of steps to improve program management, as I will

explain below. Yet for a substantial number of PHA’s, underutilization of vouchers cannot fairly be blamed on management practices.

These PHA’s are doing what is possible within their funding and

market constraints. For the well-managed PHA’s that nonetheless

have inadequate program outcomes, additional policy changes are

needed. These policy changes also are outlined below.

While the policy changes noted below are likely to improve the

administration of the voucher program somewhat, achieving excellent and efficient administration of the Section 8 program requires

a fundamentally different delivery system at the local level. Approximately 2,600 PHA’s administer the voucher program. More

than two-thirds of these agencies have fewer than 250 vouchers.

The proliferation of small agencies greatly multiplies the obstacles

to effective HUD oversight or support. With an average of more

than 50 administering agencies per State—Texas has more than

400!—multiple administrators need to learn and understand complex program rules and policy interactions. In the absence of economies of scale, many of the rules are not followed, policies are not

understood, and scarce funds are spent on duplicative and sometimes ineffective program administrators. In addition, the existence

of numerous program administrators within a single metropolitan

area in itself creates barriers to the neediest families obtaining

vouchers or using them to move to better neighborhoods. Program

reforms should be designed to reduce or consolidate the number of

administering agencies, promote regional operation of the voucher

program and improve Agency performance, in addition to whatever

specific objective they may seek to achieve.

Q.1.a. Are there changes that you believe HUD could make to improve the voucher program?

A.1.a. Changes HUD could make to improve the voucher program:

As discussed above, improved administration of the voucher program at the local level could increase owner participation, enhance

families’ ability to obtain housing, and improve planning and coordination with other agencies. HUD could improve local program

administration through targeted training and technical assistance

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3 HUD has the statutory authority to contract with a public or private nonprofit entity, including a PHA that is not otherwise authorized by State or local law to serve the area in question,

to administer the voucher program when a PHA in an area ‘‘is not performing effectively.’’ Section 3(b)(6)(B)(iii) of the U.S. Housing Act of 1937. Consequently, no further statutory change

is required for HUD to implement its proposal.

and by aggressive enforcement of current remedies for poor program

enforcement, including competitive award of the right to administer

the voucher programs of underperforming agencies. These important proposals are explained briefly below.

To provide targeted training and technical assistance to improve

voucher utilization, HUD should regularly monitor each PHA’s utilization of voucher funds and the percent of families searching for

housing that are able to use their vouchers—on June 1, 2001,

PHA’s will have to report this ‘‘success’’ data to HUD through the

regular tenant characteristics reporting system. To carry out such

monitoring in a timely manner, HUD may have to develop new internal procedures. Scores from HUD’s existing management assessment tool for Section 8 programs, SEMAP, are not available until

120 days after the end of a PHA’s fiscal year. HUD should target

for training and technical assistance those PHA’s that are having

difficulty utilizing Section 8 funds and do not appear to be aware

of current policy options or the range of ‘‘best practices’’ in use by

other agencies. HUD may need additional funds for this purpose.

Over the course of 2001 each PHA that administers a Section 8

voucher program will receive its initial SEMAP score, enabling

HUD to know which PHA’s have not performed adequately under

the SEMAP performance indicators. In addition, during 2001

PHA’s that utilized less than 90 percent of their voucher funds and

leased fewer than 90 percent of their authorized number of vouchers in fiscal year 2000 will be subject to the sanction provisions of

the new Section 8 renewal rule—the renewal rule permits HUD to

reduce permanently the allocation of vouchers of PHA’s initially

identified as underutilizing vouchers that do not increase their rate

of utilization of voucher funds to 95 percent. HUD should enforce

the remedial provisions of SEMAP and the renewal rule aggressively, and seek new administrators for any agencies that do not

make adequate improvement within the corrective action period.

To achieve the best possible program management that advances

the deconcentration and self-sufficiency goals of the Section 8 program, HUD should use competitive criteria in seeking new program

administrators. Where possible, vouchers of low-performing agencies should be consolidated with the existing voucher programs of

top-performing neighboring, statewide or regional PHA’s that

would serve the initial Agency’s area. In a memorandum submitted

in January 2000 in response to the request of the Senate Subcommittee on VA–HUD Appropriations, HUD proposed to use competitive criteria to reassign the administration of the voucher

program away from agencies that have ‘‘troubled’’ status under

SEMAP, and to consolidate the programs of such agencies that

have fewer than 250 vouchers. Congress should encourage HUD to

proceed with this plan.3

In addition to these general measures, HUD could take a number

of particular steps that will enable PHA’s to achieve the program

changes necessary in their areas to improve voucher utilization.

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To increase funds available to PHA’s to provide services and benefits to help families obtain housing with vouchers, HUD should authorize PHA’s to use unutilized voucher funding for this purpose,

with certain protections—on behalf of the Center on Budget and

Policy Priorities and the National Low Income Housing Coalition,

I submitted a specific proposal to HUD in March 2001 to enable

certain PHA’s to use otherwise unutilized voucher funds to help

families use their vouchers to obtain housing. This change will help

PHA’s that do not use all their voucher funds to enable families to

search more effectively for the housing that is available, but it will

not help PHA’s that manage to use all their voucher funds but still

have low voucher success rates. To help families served by these

agencies, additional administrative funds are needed. HUD should

provide these agencies with supplemental administrative fees—

HUD has authority to provide supplemental fees under current law

but may need additional funds for this purpose. In addition, HUD

should issue a NOFA for the $10 million appropriated in fiscal year

1999 for Regional Opportunity Counseling subject to PHA agreement to participate in a rigorous evaluation of the effectiveness of

different services and benefits in increasing voucher success and

deconcentration. It is important to take advantage of this prior appropriation to improve voucher utilization and to learn what types

of measures work best under what circumstances.

Within the existing statutory framework, HUD could take a

number of steps to enable PHA’s facing escalating rent and utility

costs to increase voucher payments sufficiently for voucher holders

to be competitive in the local market and in neighborhoods outside

of areas of concentrated poverty. HUD should:

• Streamline its procedures for review and approval of requests for

payment standards above the discretionary range, including establishing a deadline of 90 days for action by its Regional Offices

and delegating more decisionmaking authority to the Regional

level.

• Revise its rules to permit approval of ‘‘exception payment standards’’ above the discretionary range without PHA submission of

rent data when necessary for improved program performance.

This option should be available when too many participating

families are paying too much for rent and utilities and when too

few families succeed in using their vouchers despite reasonable

efforts by PHA’s to improve success rates.

• Permit PHA’s to increase the payment standard above the discretionary range without HUD approval for vouchers used to lease

units financed with Low Income Housing Tax Credits or HOME

funds in developments located outside of poor neighborhoods—up

to the maximum reasonable rent allowed for such units—and for

vouchers for persons with disabilities when necessary as a reasonable accommodation.

• Improve the accuracy of FMR’s by increasing the number of annual local rent surveys performed by HUD and by revising the

methodology used to set FMR’s in light of rapidly rising utility

costs, current biases of phone surveys, and lack of adequate data

concerning unit quality—Congress should ensure that annual appropriations are sufficient for this purpose.

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4Section 8 administrative fees are governed by subsection (o)(q), 42 U.S.C. § 1437f(q), annual

appropriations acts, and HUD regulations and implementing instructions. HUD clearly explained the interaction of these provisions in its most recent notice of Annual Factor for Determining Section 8 Administrative Fees, 65 Fed. Reg. 10,316—February 25, 2000—also available

at http://www.hud.gov/pih/programs/s8/s8merger.html.

• Retain the amount of Section 8 reserves needed for PHA’s with

rising costs to assist the authorized number of families. (See my

initial testimony.)

HUD could help increase owner participation in the voucher program with measures aimed at federally-financed and at other

privately owned housing. To make more housing opportunities

available in Federally financed housing, HUD should:

• Direct each Regional Office to post on the web a list of LIHTCand HOME-financed multifamily rental properties in their jurisdictions, and make PHA’s and groups assisting Section 8 holders

aware of its availability. These developments have a duty under

Federal law not to discriminate against families and individuals

with Section 8 housing vouchers. HUD, in conjunction with IRS,

should develop guidance on the meaning of this duty in the

HOME and LIHTC statutes. In addition, HUD Regional Offices

should coordinate with State tax credit allocating agencies to

ensure LIHTC developments are aware of their duty not to

discriminate. • Revise its requirements for State and local Consolidated Plans to

require jurisdictions to identify barriers to voucher use and to

propose remedial strategies, including how CDBG and HOME

funds, as well as other resources could be used to overcome barriers to voucher use and rehabilitate or produce additional units

in which vouchers can be used.

To make more private market units available to voucher holders,

HUD should revise its regulations to help reduce delays in renting

units caused by Section 8 program rules. Such changes should permit PHA’s to make Section 8 payments for certain units after the

owner has agreed to rent the unit to the family and the PHA has

approved the rent amount, but prior to final inspection and approval by the PHA. Such a policy could apply to units that have

minor defects that are being fixed or lead hazards that are being

removed.

Q.1.b. Are there changes Congress could make to increase voucher

utilization?

A.1.b. Changes Congress could make to improve voucher utilization: In addition to encouraging or requiring HUD to make the

changes suggested above, there are several statutory changes and

appropriations measures that could help improve voucher utilization. Congress could promote the improvement of local program administration by authorizing the Secretary to use performance-based

factors in determining agencies’ administrative fees and by requesting a study from the General Accounting Office of what it should

and does cost to administer the voucher program. Fees now are determined by a formula governed by the number of vouchers an

Agency administers and the rental and labor costs in an area.4 Astonishingly, there has never been a study of what it should cost to

administer an effective housing voucher program under different

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5 U.S. Department of Housing and Urban Development, Section 8 Administrative Fees: A Report to Congress, June 1994.

market and geographical conditions. HUD last studied Section 8

administrative fees in 1994. At that time, HUD reported to Congress that ‘‘fair market rent levels have no apparent relationship

to the cost of administering the certificate and voucher programs.’’ 5

Yet the basic administrative fee continues to be based on historic

rental costs.

As the current fee system is structured, it rewards PHA’s that

maximize the leasing of units at the lowest possible administrative

cost. PHA’s earn their formula-based fee for each month a voucher

is used to rent a unit and are entitled to retain any fees they do

not spend on the voucher program to use for other housing program purposes. While rewarding the leasing of units is sensible, reliance on this factor alone creates a disincentive for PHA’s to assist

families to rent units in less poverty-concentrated neighborhoods.

It also may discourage PHA’s from serving families and individuals

that may have more difficulty obtaining housing—eligibility for the

‘‘hard-to-house’’ supplemental fee of $75 is too narrow to outweigh

this disincentive, as the supplemental fee is available only when

disabled individuals or families with three or more children lease

units. It does not apply to other applicants that may face greater

barriers in obtaining housing, such as those who are homeless,

have a limited prior rental history, lack transportation to look at

new units, are members of minority groups, and have teenage

sons, etc.

Further, the fact that agencies with small voucher programs cannot avail themselves of the economies of scale that larger agencies

can does not justify paying more per voucher administered by a

smaller program—the current fee structure pays more for the first

600 vouchers—rather than rewarding inefficient program size, the

fee structure should reward performance across a wider range of

goals while taking account of cost differences that agencies can do

little to alter, such as travel time to inspect units in sparsely populated rural areas. If fees did not differ based on program size, more

agencies may be encouraged to consolidate or form a consortia for

administrative purposes. Congress authorized such consortia in the

voucher program in the Quality Housing and Work Responsibility

Act of 1998 [QHWRA].)

Congress also should ensure that the criteria used to award new

voucher funds contain incentives to improve local program administration. Current law requires HUD to use competitive criteria to

decide which agencies within a State—or smaller allocation area—

receive incremental ‘‘fair share’’ voucher funds. (Section 213(d) of

the U.S. Housing Act, 42 U.S.C. § 1439.) The determination of the

specific selection criteria is left up to HUD. Congress could revise

Section 213(d)(4)(B) to require HUD to use criteria that: (a) encourage program consolidation, metropolitan area-wide administration

and development of local partnerships to provide assistance to families to obtain housing; and (b) reward Section 8 administering

agencies that are high performers on SEMAP and have a proven

ability to promote program goals of deconcentration of poverty and

resident progress toward self-sufficiency. It may be helpful to ConVerDate 11-MAY-2000 09:37 May 08, 2002 Jkt 000000 PO 00000 Frm 00169 Fmt 6633 Sfmt 6601 78799.TXT SBANK4 PsN: SBANK4
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6See Barbara Sard, New Administration Proposal Would Make Significant Improvements in

the Section 8 Program But Congress Should Approve Use of Funds for Services to Help Families

Obtain Housing, Center on Budget and Policy Priorities, September 21, 2000, available on the

Internet at http://www.cbpp.org/9–21–00hous.htm.

gress, in advance of specifying such criteria permanently in the

statute, to have HUD conduct a demonstration of the results of different competitive criteria. A share of new vouchers for fiscal year

2002 could be dedicated to such a demonstration.

As noted, some PHA’s need additional training and technical assistance to improve voucher utilization and otherwise improve program performance. Congress should ensure that HUD has sufficient funds for this purpose. Congress should appropriate funds for

voucher program technical assistance within the Housing Certificate

Fund, rather than including such voucher program funding within

the Public Housing Capital Fund as has been the previous practice,

continued by the Administration’s current budget proposal.

To increase funds available to PHA’s to provide services and benefits to help families obtain housing with vouchers, Congress should

make additional funds available to PHA’s that utilize all of their

voucher program funds but have unacceptably low success rates or

over-concentration of voucher families. With additional funds to

provide assistance to help families locate available housing and pay

up-front costs that may be required in a tight market, PHA’s can

increase families’ success in obtaining housing with their vouchers

and their ability to move to better neighborhoods. In addition, if

HUD fails to permit PHA’s that are unable to use all of their

voucher program funds to use a portion of these funds for services

and benefits to help families obtain housing, as recommended

above, Congress should authorize PHA’s to take this step—a provision similar to this recommendation was included as Section 206

of the House-passed fiscal year 2001 VA–HUD appropriations bill.6

It also may be necessary for Congress to clarify that PHA’s may

use voucher program funds or administrative fees to provide assistance with security deposits, moving expenses, or holding fees—to

compensate an owner for the time it takes the PHA to approve the

unit for rental—if PHA’s determine that such expenditures will

promote voucher program goals. Apparently some HUD staff believe that such uses of funds are not permitted by current law.

To make voucher payments more adequate, Congress should

amend the Section 8 statute to permit PHA’s to set the voucher payment standard up to 120 percent of FMR without HUD approval.

PHA’s now are permitted to set the voucher payment standard between 90 and 110 percent of the applicable HUD-determined Fair

Market Rent. To set the payment standard above 110 percent of

FMR a PHA must obtain HUD approval. While HUD has made

recent improvements in the process to receive approval of an exception payment standard, the revised policies do not cover all

situations where a higher payment standard is needed. In addition,

the burden on PHA’s still may be onerous and the delays are often

substantial—as recommended above, HUD should streamline its

current procedures, and could be directed to do so.

If the top of the discretionary range were increased to 120 percent of FMR, voucher utilization could be improved substantially.

Only PHA’s already at the maximum payment standard allowed

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without HUD approval—110 percent of FMR—would be likely to

take advantage of this new authority. When HUD surveyed PHA’s

in the first half of 2000, approximately 20 percent of PHA’s set

their voucher payment standard at 110 percent of FMR and did not

have HUD approval to exceed this level. This remedy would be targeted to that fifth of agencies that is likely to have the greatest

need for more flexibility in setting the payment standard. It is

important to note that 120 percent of the 40th percentile FMR is

significantly higher than 110 percent of an FMR set at the 50th

percentile. For example, in the Washington DC metropolitan area,

110 percent of the 50th percentile FMR for a two-bedroom unit is

$998, while 120 percent of the 40th percentile FMR for a two-bedroom unit is $1,036.

Congress should ensure that Section 8 program reserves remain

adequate to enable PHA’s that need to increase voucher payments

to achieve adequate utilization and deconcentration to do so without

reducing the number of families they serve. This issue is fully addressed in my initial written testimony.

To increase voucher acceptance by private owners, Congress

should clarify that recipients of funds under HUD’s Fair Housing

Initiatives Program may use funds to test for Section 8 discrimination where it may violate Federal or State/local law or when it may

be a pretext for discrimination prohibited by the Fair Housing Act.

In addition, to enable PHA’s to make payments to owners for the

period between an initial agreement by an owner to rent to a family with a voucher and the final approval of a unit after necessary

repairs have been made, as recommended above, it may be necessary for Congress to clarify that such payments are permitted

under the inspection provisions of the voucher statute, or to modify

subparagraph (8) of the voucher statute.

Voucher utilization could also be increased if more housing units

were available in areas where the supply of rental housing with the

needed bedroom sizes has been inadequate. Any new or expanded

Federal initiative to fund the production of such new rental housing should ensure that owners are required to accept vouchers, and

that the obligation is easily enforceable.

Some groups have urged that to increase voucher utilization Congress should remove or revise the cap on the share of family income that families may pay when they rent new units under the

voucher program. (Section 8(o)(3) currently limits new participants

in the voucher program and families that move to new units to

paying 40 percent of their adjusted income. All families must pay

at least 30 percent of their adjusted income for rent, the result of

this provision is to prevent a family from renting a unit if the cost

of rent and the PHA’s utility allowance exceeds the voucher payment standard by more than 10 percent of the family’s adjusted income.) It may be appropriate to make a minor change in this provision, such as changing the cap to 40 percent of gross rather than

adjusted income, it is very important to remember the purpose of

this provision. Congress was concerned that the adoption of a

voucher model for the entire tenant-based program could lead to

excessive rent burdens for families. HUD data indicated that a majority of families under the voucher component of the program, in

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cent of their income for rent and utilities, and many were paying

more than half their income. To avoid excessive cost burdens in the

new merged voucher program, Congress adopted two provisions as

part of QHWRA: the 40 percent cap and the requirement that HUD

monitor participants’ rent burdens and direct PHA’s to increase

their voucher payment standards when a significant percentage of

families were paying more than 30 percent of their income. Any

change in the 40 percent cap should be consistent with Congress’ overarching concern that most families should pay no more than 30

percent of their income—the current Federal housing affordability

standard.

Thank you for the opportunity to respond to these questions.

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1DHA 2001 Comprehensive Budget Documents—DHA Finance Department, April 10, 2001. 2 HUD, Capital Funding amounts per DHA Finance Chief Operating Officer calculations.

3 In accordance with HUD’s 5 Year Comprehensive Plan, Capital Improvement needs are identified by residents of the affected developments.

PREPARED STATEMENT OF SALVADORE CARPIO, JR.

EXECUTIVE DIRECTOR, DENVER HOUSING AUTHORITY

APRIL 25, 2001

Introduction

On behalf of the Housing Authority of the City and County of Denver (DHA), we

would like to thank U.S. Senator Wayne Allard for agreeing to submit this written

testimony into the record of the Proposed Fiscal Year 2002 U.S. Department of

Housing and Urban Development (HUD) Budget. We would also like to thank the

Senator for all his work on the U.S. Housing and Transportation Subcommittee of

the Senate Banking Committee and his leadership in progressive housing and transportation legislation.

Denver Housing Authority’s written comments focus on three key areas of the proposed HUD 2002 Budget. The three selected areas, reflect the areas we believe to

have a direct impact on DHA’s high performing housing programs.

They are:

• (1) Proposed reduction in Capital Fund.

• (2) Proposed reduction of Section 8 reserves to a 1 month level.

• (3) Proposed elimination of the Public Housing Drug Elimination Program

(PHDEP).

Background

The Housing Authority of the City and County of Denver (DHA) is one of the Nation’s most successful large public housing organizations, providing low- and middleincome residents with quality subsidized housing. DHA administers 4,570 Section

8 vouchers and 3,788 1 public housing units, approximately one third of which are

dispersed or scattered site units throughout the city. More than half of the Agency’s

operating revenue is generated through collected rent and grants. Federal funding

cuts during the 1980’s and 1990’s spurred DHA toward self-sufficiency. As such, the

proposed 2002 budget cuts will further impose long-term financial stress on DHA’s

capacity to satisfactorily address the growing demands for subsidized safe, decent

and affordable housing to Denver residents.

Capital Fund

Impact—The proposed reduction in Capital Funds will hinder DHA’s ability to maintain quality housing units in the public housing program. A 20

percent reduction—loss of $1,352,903 2—to DHA’s Capital Fund will result

in delay or elimination of physical improvements to developments and residential units, including but not limited to mechanical improvements, windows/doors/screens, lighting/defensible space, playgrounds/respite areas

and other development common areas.3

Further, Capital Funding is the primary source of funding for physical improvements directly related to the Public Housing Assessment System (PHAS). Long-term

maintenance/improvements will have to be deferred and may affect DHA’s ability

to remain either a high-performing authority or standard housing authority. Last,

to be rated by PHAS/REAC as a ‘‘troubled housing authority’’ and under the existing

PHAS’s scoring system. DHA could also face additional negative repercussions—for

example, loss of funding, HUD takeover, etc.)

Section 8 Program—One Month Limit on Section 8 Reserves

In 2000, DHA had a 100 percent lease up rate for its Section 8 Program—for 2001

9 percent are still looking for housing/due to lack of hard units in a tight housing

market. Statewide, Colorado has a 95 percent lease up rate—5 percent is due to lack

of hard units in a tight housing market.

Impact—The proposed reduction of Section 8 reserves to a month level—

as opposed to two (2) months) will leave the Housing Authorities with very

minimal resources to fund increased rent or utility costs during the year.

The effect would reduce the number of vouchers available for the Housing

Authority to assist eligible working poor/low-income residents.

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Public Housing Drug Elimination Program

As in many other cities throughout the Nation, Denver has experienced an increase in population and development. Often crime rates can be correlated with local

growth. Fortunately, this has not been the case in Denver.

Recently, the city of Denver and the Denver Police Department reported a ‘‘downward trend in crime rate.’’ In our view some of that ‘‘decline’’ can be attributed to

the Federal funding provided by HUD and DHA to the Denver Police Department.

Since 1991, DHA has implemented a nationally recognized, successful Public

Housing Drug Elimination Program (PHDEP). The Denver Police Department

(DPD) provides services for the designated sites over and above baseline services.

Additionally, the DHA PHDEP coordinates and ensures access to local programs as

alternatives to drugs and/or drug related crime.

DHA program—fiscal year 2000 HUD Funding at $947,837—in brief has three

primary components:

1. ‘‘community policing’’ strategies through dedicated foot patrols in and

around public housing;

2. on-site neighborhood storefront offices in coordination with DHA on-site

management; and

3. structured programs offered as alternative/prevention to drugs and drug

related crime.

Impact—DHA and DPD documentation reveals a 19 percent Total Decrease in Reported Crime at DHA Developments from 1992 through 1999

(Attachment A).

Security in Mixed Population Buildings/High-Rises/Developments

In 1999, DHA enhanced the DEG program with additional security and monitoring systems—mainly our VCR’s and cameras in target high-rise buildings. These

services are in addition to those not usually performed by local law enforcement

agencies on a routine basis.

Impact—This initiative has resulted in a total of 48 DHA Barring Letters

in 2000 sent versus 36 DHA Barring Letters in 1999. To date (4/13/01) we

have issued 16 Barring letters to a tenant whose guest, for one reason or another are considered ‘‘undesirable’’ and has been reported to have a negative

impact on quality of life at the DHA property.

Below are selected PHDEP program descriptions and are provided in collaboration

with the local entities that are responsible for providing such services.

Drug Prevention Centers

Drug Prevention Centers are located on-site and are the central locations

for all drug intervention and prevention activities implemented throughout

the DHA developments. Storefronts are located at the following developments: North Lincoln, South Lincoln, Westridge, Westwood, Sun Valley,

Columbine, Quigg Newton and Platte Valley. On-site locations for the Drug

Prevention Centers are in community centers or units that have been converted for DEG use. Denver Police Community Resource Officers (CRO)

have offices at the Drug Prevention Centers with private telephone Hotlines

for anonymous calls on crime and problem residences. During summer

months, foot patrols work out of the Centers. The foot patrols walk the

developments in order to deter crime and document problem units and

residents. CRO’s, as well as, DEG and Learning Center staff identify residents with drug use problems and refer them to intervention and prevention services provided by certified community-based organizations.

Academic Incentive Program

The Academic Incentive Program emphasizes education, working toward

a goal, and earning recognition at the Drug Prevention Centers. The AIP

is staffed by certified teachers. They assist residents in tutoring and homework assistance, as well as compiling hours individuals attend the AIP in

order to participate in the Sports Program and earn incentive points.

Youth Sports Program/Youth Leadership

Athletic Leagues support softball, basketball, floor hockey, soccer, flag

football, and volleyball. Youth Sports has been one of the most popular and

effective prevention programs implemented by DHA. This year-long training for resident youth includes self-esteem building, drug intervention and

prevention activities, community service projects and wilderness experience.

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4DHA 200a Comprehensive Budget Document—General Information Program Client Demographics—December 31, 2000.

Impact of PHDEP by Program Participation Levels—during 2000 a review

of the DHA Participation Level at DHA PHDEP sites. Our documentation

shows that we had a total of 17,036 individual visits to our structured alternative and prevention programming.

Recommended Action

DHA recommends HUD, the Administration and Congress to sustain the HUD

Public Housing Capital Fund at the previous fiscal year 2001 funding level of $2.9

billion and continue funding of the Public Housing Drug Elimination Program at

$310 billion.

Closing Comments

In closing, and on behalf of the Housing Authority of the City and County of Denver and the 22,227 4 individual family members served by DHA, we implore HUD

and the Committee to accept this testimony as firsthand experience and as a constructive critique of proposed budget that is not equitable nor reflective of the needs

of constituents of this Committee.

DHA commends and appreciates the HUD leadership in the proposed increase in

the Operating Subsidy and proposed increase in Section 8 renewals. Relative to the

Operating Subsidy, although it appears to be funded at this years level, it may not

take into account annual inflation, or may not have sufficient additional funding to

cover the higher cost for utilities. DHA also applauds the HUD Secretary homeownership initiative and welcomes the opportunity to work together in the future.

Again, thank you and the Committee for the opportunity to comment on the HUD

proposed 2002 budget. We would be happy to provide you, the Committee or HUD

with any additional information and stand ready to work with HUD on these critical

budget processes.

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PREPARED STATEMENT OF D. SCOTT MINTON

EXECUTIVE DIRECTOR, HOUSING OPPORTUNITIES COMMISSION

MONTGOMERY COUNTY, MD

APRIL 25, 2001

Good morning, Mr. Chairman and Members of the Senate Committee on Banking,

Housing, and Urban Affairs. My name is D. Scott Minton, I am the Executive Director of the Housing Opportunities Commission (HOC) of Montgomery County, MD.

I am pleased to provide written testimony on how President Bush’s fiscal year 2002

budget would impact HOC’s operations, and I ask that it be included for the record.

HOC’s mission is to provide affordable housing and supportive services to residents. We are a multifaceted affordable housing Agency operating as a suburban

public housing, housing finance Agency, and as a housing developer. HOC’s oper- ating budget for fiscal year 2001 is $145.5 million, which includes 31 percent from

Federal grants.

The President’s fiscal year 2002 budget is recommending $1.1 billion in cuts for

the Department of Housing and Urban Development (HUD). This includes the discontinuation of $309 million in funding for the Public Housing Drug Elimination

Program. We urge the President and the Congress to act in the interest of thousands of families across the State of Maryland and restore these much-needed funds

to HUD’s budget.

HOC and other public housing agencies across the State of Maryland desperately

need this money to fund security activities and resident self-development programs.

It makes no sense to eliminate this important program that helps make public housing communities and the neighborhoods that surround them safe and wholesome.

Last year, HOC received more than $360,000 in PHDEP funds to help finance

community policing and self-sufficiency activities at public housing sites. And a recent HUD survey found that 86 percent of our public housing residents felt safe in

their communities, no doubt due to activities paid for through PHDEP funding.

The problems of substance abuse in America have been well documented over the

years. The Drug Elimination Program money is the primary resource that public

housing agencies have to offer educational and recreational programs to the children

in public housing properties. If these grant funds are not available then HOC will

have to eliminate a variety of programs that are currently serving nearly 500 families. This includes 92 youth participating in the girl scouts, 300 youth attending

summer camp, and 50 families enhancing their computer literacy skills for employment or job upward mobility. Other resident programs that would be discontinued

include the youth science club, General Education Diploma (GED) courses, parenting classes, and the early head-start program.

Of course, most of our Drug Elimination Program funds are spent on community

policing. The effect of the program on our public housing communities has been dramatic. Prior to the community policing efforts, several of HOC’s properties were

plagued with open-air drug markets. The drug dealers and their associates terrorized these properties at night. Fortunately, that has changed dramatically due to

the security measures and the increased police presence funded by the Drug Elimination Grants. As I previously stated, 86 percent of residents said they feel safe in

their communities. Without the additional police presence, this would not be so.

Additionally, the community policing program has provided our residents, particularly the children, with positive interactions with the police. Montgomery County

has an excellent Police Department, and the officers who have worked in our public

housing communities have taken a personal interest in the people they serve. Last

summer, HOC sponsored an event to honor a group of children who had completed

one of our summer programs. The event featured a disc jockey and a cookout. A police officer assigned to the property stopped by and immediately became the center

of attention with the children. He joined in their impromptu ball game and listened

to an unbelievable amount of chatter. Much has been said about measuring effectiveness of the Drug Elimination Grant. In our experience, the grant has allowed

us to add a certain amount of security in an often troubled and uncertain environment, and more importantly brings the community and police together in a positive

relationship that is often missing in the normal patrol. Moreover, thousands of families in Montgomery County have benefited from Drug Elimination Grant funds since

the program was begun 11 years ago.

Ironically, we have witnessed on the evening news a number of dilapidated public

housing structures being imploded in the past several years. This Committee, in

particular, has heard a litany of horror stories about deferred maintenance, lack of

upkeep and uninhabitable houses in public housing communities. I predict that the

Administration’s proposed budget cuts would only exacerbate this problem.

179

The funding levels for capital improvements have been barely adequate for many

years. Montgomery County and HOC are already subsidizing the capital needs of

public housing by at least $250,000 a year. Now, the Administration’s proposal will reduce capital funds by an additional $150,000. Anyone who operates a real estate

business knows that deferred maintenance is not a saving. The leaking roofs, deteriorating facades and inoperable systems will still be there creating other problems

that will also have to be repaired. The reduction in Capital Funds is a false savings

that will have to be repaid in future years. Please do not add to the number of public housing buildings that will have to be demolished because the Administration is

too shortsighted to fund basic maintenance.

In conclusion, HOC strongly opposes the President’s proposed cuts in public housing programs. I hope that this brief statement has conveyed to you the importance

of restoring $1.1 billion in program cuts to HUD’s fiscal year 2002 budget. This will

ensure that our neediest residents have housing that is decent, safe and secure,

where families and senior citizens can live without fear of drug-related crime or

leaky roofs. Thanks again for the opportunity to comment on this very important

issue. We strongly urge the Members of the Committee to restore adequate funding

to HUD’s public housing budget.

—————

PREPARED STATEMENT OF RICHARD WILSON

HOUSING AUTHORITY OF WASHINGTON COUNTY, MD

APRIL 25, 2001

Impacts of Cuts—Capital Fund

Richard Wilson of the Housing Authority of Washington County, Maryland:

• ‘‘One project that would clearly have to be put on the shelf is the addition of heat

pumps in elderly units. This project is being planned to respond to increasing energy costs and to provide a measure of summer comfort. The existing source of

heating is electric resistance baseboard, and heat pumps should shave 20 percent

off energy consumption. As our elderly residents age, we find more respiratory

problems. The summer air-conditioning advantage provided by heat pumps will

provide welcome relief for our elderly clients.’’

• ‘‘In fiscal year 2004 where we see the highest capital costs falling, cuts in HUD

assistance will threaten replacement of flooring, sidewalks, windows and porches.

In fiscal year 2005 a major parking lot repaving that has a $66,000 price tag will

have to be dropped. Delaying these repairs will result in more maintenance work

leading to higher operational costs for the Authority. Therefore, it seems to me

that the proper capital investment should be an intentional strategy for HUD and

Congress as it is for our organization which indeed may allow more efficient future use of operational funding.’’

In Baltimore City, the Capital Fund reduction would have a negative impact of

$6.7 million on its Housing Authority. The budget would also limit the ability of the

Housing Authority of Baltimore City to exercise its option to issue bonds secured

by the Capital Fund. The following reductions would result from the intended cut:

• Funding for the Claremont Homes would be eliminated resulting in the need

to consider the relocation of approximately 200 families. This site is in desperate need of new roofs, heating and plumbing systems, electrical upgrades, new

kitchens, bath, etc.

• Funding would be eliminated for the Electrical Distribution System Upgrade at

a family development—298—families resulting in continued power outages, loss of

heat, and potential fire hazards due to system overloads.

• Funding for major elevator repairs would be eliminated at two elderly developments. This will result in continued elevator breakdowns causing elderly residents

to become trapped in elevators.

• Funding for replacement furnaces at a development for adults and handicap people would be eliminated creating the possibility of emergency situations regarding

loss of heat and frozen pipes.

• Funding for repair and replacement of streets, sidewalks, and other paved areas

would be eliminated Authority-wide. This would result in the inability to eliminate safety hazards for residents, visitors, and the general public at the HABC’s

site.

• Funding for replacement of an air-conditioning chiller at a development for adults

and handicap people would be eliminated. This would result in health and safety

issues for these residents.

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In St. Mary’s County Housing Authority, Maryland loss/reduction in

Capital Fund will equal:

• No site improvements to existing building/community facilities—assets—for safety, pride, and accessibility. • No needed roof repairs. • No interior improvements to achieve safety, energy efficiency, and general replacement of fixtures/interior items based on the end of their life cycle. • No software, management improvements. • No resources for Housing Authority to participate in new community housing initiatives, for example, mixed use housing, homeownership, knowledge, skills, and

ability building for residents.

Ralph Benett of Housing Opportunities Commission of

Montgomery County Maryland:

The reduction in the Capital Fund would cause HOC to eliminate nearly $750,000

in physical improvements next year alone. ‘‘Our plan to upgrade the exteriors of

some of our multifamily and scattered site properties will be stretched out. Residents who expected improved security lighting or replacement of decade-old windows, for example may simply have to wait.’’

Sharon Jordan Legislative Spokesperson for the New York State Public

Housing Authority Director’s Association (NYSPHADA) said:

‘‘We are very concerned about the President’s Proposed Budget for HUD. His proposal cuts 25 percent—$700 million—from the Capital Budget which will result in

delays and cancellation of important modernization projects—for instance: new

kitchens and baths, or updated heating and cooling systems for our Senior Projects.

Temple Housing Authority, Temple, Texas writes:

‘‘The units of our multifamily complexes are scheduled to have central heating

and air conditioning (HVAC) installed in fiscal year 2001 and 2002. HVAC installation is critical to maintaining the THA’s ability to adequately serve our residents.

The cut in Capital Funding would delay this resident supported work indefinitely.

Replacement of 20-year-old roof systems would be placed on hold, as well as utility

system upgrades, replacement of appliances, vehicle replacements, maintenance

equipment purchases, staff training and computer upgrades. Reduction in Capital

Funding will lower our ability to pass HUD’s property inspections and effects our

ability to keep pace with routine maintenance.’’

St. Paul Housing Authority, St. Paul, Minnesota:

The proposed $700 million reduction in Capital funding would cut about $3 million from the PHA’s modernizing grant of about 9.5 million. The implications are

truly disturbing:

• A $3 million annual funding cut could force us to extend the completion dates of

current modernization projects or delay or cancel plans for future renovation.

• We would have to shelve or largely rewrite our 5 year modernization plan, which

has been developed over many months, with hundreds of hours of staff and resident participation, public hearings and other community input.

• Our Board and staff have to make program decisions almost monthly in reliance

on stable, predictable Capital Funding. The possibility of a 30 percent cut in modernization funding upsets the planning and contracting process Agency-wide.

• For example, this year we intended to begin working with staff, residents, and

architectural and engineering consultants to plan the major modernization of all

580 townhouse units at McDonough Homes. We expected this to be a 6 to 8 year

process, with a cost of $30–35 million. With the possibility of a $3 million annual

funding cut, we must decide soon whether to begin the process as planned, scale

it way back, or put it on hold. If the project time line would stretch to 12 or more

years, we have to question it.

• We have been considering whether to borrow capital to do the McDonough work

more quickly, then pay back the bonds over time. But if HUD’s modernization

funds are unpredictable bonds are risky propositions for both the PHA and for potential investors—hence higher interest rates.

Comments by the Housing Commission of Anne Arundel County,

Maryland on unexpended balances:

‘‘The argument that there exists a 6 billion-dollar allocation that remains unspent

is totally inaccurate. The Department may have made funding a decision and obligated funding for housing agencies but as of this date fiscal year 2001 dollars have

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ber. We want to spend the Capital Funds and our Agency has consistently exceeded

HUD’s standards for the expenditure of funds timely, and I trust this is the same

for essentially every authority.’’

Drug Elimination Grant Program

In Maryland, the Baltimore Housing Authority will experience:

• The loss of 12 police officers who patrol family developments.

• Closure of four Youth Development Centers that provide after-school tutoring and

structured recreation.

• The elimination of 19 trained counselors who provide resident services to move

from welfare dependency to economic self-sufficiency.

• The elimination of funds for physical safety improvements such as lighting and

fencing.

• The elimination of 23 building monitors who serve as tenant patrols in elderly developments.

• The elimination of 370,000 in drug treatment funds which have assisted over

1,200 families since 1994.

Roger A. John, Peoria Housing Authority, Peoria, Illinois said:

‘‘If the Administration takes away PHDEP, you might as well put up the welcome

sign for gang bangers. Our budget will not tolerate any more cuts.’’

Ruth E. Carlson, Worcester Housing Authority, Worcester, Massachusetts:

‘‘Drug prevention and educational programs made possible by PHDEP have allowed us to provide antidrug education, homework centers and community learning

centers staffed by school teachers. The ‘‘New Star’’ program focuses on young children who sign agreements to improve their grades, attendance and deportment. All

of these programs are geared to help the children become better equipped to succeed

in school and help the children build self-esteem and confidence to achieve better

education. The mentoring and encouragement that the children receive by everyone

involved is invaluable. So too, are the summer work programs that keep children

off the streets and allow these children the opportunity to learn work ethics and

responsibility.

It would be unconscionable to take these programs away from the underprivileged

children who need them the most. All will be lost, if PHDEP is lost. Education is

the most effective antidrug program there is.’’

Catherine A. Hoener, Resident of the Akron Metropolitan Housing Authority:

‘‘The Public Housing Drug Elimination Program (PHDEP) is important to residents of AMHA because many of the programs available at the family developments

give youth and adults something positive in which to involve themselves. For example, the Boys and Girls Club offers various activities such as Power Hour (tutoring),

Computer Education, and SMART Moves, which is a national program model for

Drug Education . . .

The PHDEP also provides security to many of our housing developments which

gives me assurance that my building is being protected. Without PHDEP many of

our buildings will no longer have officers patrolling them.’’

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