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[Senate Hearing 107-403]
[From the U.S. Government Publishing Office]

                                                        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

                    U.S. GOVERNMENT PRINTING OFFICE
78-799                       WASHINGTON : 2002
____________________________________________________________________________
For Sale by the Superintendent of Documents, U.S. Government Printing Office
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            COMMITTEE ON BANKING, HOUSING, AND URBAN AFFAIRS

                      PHIL GRAMM, Texas, Chairman

RICHARD C. SHELBY, Alabama           PAUL S. SARBANES, Maryland
ROBERT F. BENNETT, Utah              CHRISTOPHER J. DODD, Connecticut
WAYNE ALLARD, Colorado               TIM JOHNSON, South Dakota
MICHAEL B. ENZI, Wyoming             JACK REED, Rhode Island
CHUCK HAGEL, Nebraska                CHARLES E. SCHUMER, New York
RICK SANTORUM, Pennsylvania          EVAN BAYH, Indiana
JIM BUNNING, Kentucky                ZELL MILLER, Georgia
MIKE CRAPO, Idaho                    THOMAS R. CARPER, Delaware
JOHN ENSIGN, Nevada                  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          THOMAS R. CARPER, Delaware
JOHN ENSIGN, Nevada                  DEBBIE STABENOW, Michigan
RICHARD C. SHELBY, Alabama           JON S. CORZINE, New Jersey
MICHAEL B. ENZI, Wyoming             CHRISTOPHER J. DODD, Connecticut
CHUCK HAGEL, Nebraska                CHARLES E. SCHUMER, New York

                      John Carson, Staff Director

             Tewana Wilkerson, Deputy Legislative Assistant

                                  (ii)

                            C O N T E N T S

                              ----------                              

                       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

                       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.
    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 
com-
mitment 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 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.
    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 
priorities 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.

              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.
    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.
    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 
Housing 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 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.
    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 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 lead-based 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.
    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 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 man-
agement, 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-increas-
ing 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 
Commission 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?
    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 
accountability 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 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.
    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, documen-
tations, 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.
    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 concluded 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.
    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 faith-based 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.
    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?
    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 enforcement, 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 people 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 half-empty 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 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.
    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 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.
    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 community 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.
    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.
    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.
    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.
    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.
    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.
    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 is limited to HUD. I think it is probably happening 
Government-wide. 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.
    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 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 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 
envir-
onments 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.
    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.
    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.
    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.
    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 
pro-
vide more families with decent, affordable housing that they 
simply 
cannot obtain on the private market. A greater share of house-
holds 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, 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 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.
    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 Sec-
tion 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.
    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 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:]
                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 
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.
    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 Reserva-
tion. 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 afford-
able 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 lower-
income 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).
    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 low-income 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 
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 Hispanic-American 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 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.
    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 availabil-
ity 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 implement 
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.
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 communities. 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 capability 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 performance 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.
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.
              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 program 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.
---------------------------------------------------------------------------
    \1\ These subsidies are linked either to the unit--project-based--
or to the resident--tenant-based--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.
---------------------------------------------------------------------------
    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 day-to-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.
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 de-
velopment 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 short-term 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 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.
---------------------------------------------------------------------------
    \2\ Section 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).
---------------------------------------------------------------------------
    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.
---------------------------------------------------------------------------
    \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.
---------------------------------------------------------------------------
    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.
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 
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.

    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.
---------------------------------------------------------------------------
    \1\ Conference Report 106-379, Fiscal Year 2000 VA, HUD, & 
Independent Agencies, page 90, cited the backlog as more than $20 
billion.
---------------------------------------------------------------------------
    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 agencies 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.
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 increased 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 pub-
lic 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 period 
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 Sec-
tion 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.
---------------------------------------------------------------------------
    \1\ The 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.
---------------------------------------------------------------------------
    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 low-income 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\
---------------------------------------------------------------------------
    \2\ The 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.
---------------------------------------------------------------------------
    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 more than half their income to live in 
physically inadequate or overcrowded housing. 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\
---------------------------------------------------------------------------
    \3\ Moderate 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.
---------------------------------------------------------------------------
    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.
---------------------------------------------------------------------------
    \4\ Kristi 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.
---------------------------------------------------------------------------
    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 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.
---------------------------------------------------------------------------
    \5\ See 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.
---------------------------------------------------------------------------
    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\
---------------------------------------------------------------------------
    \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.
---------------------------------------------------------------------------
    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 low-income families, suggesting that 
housing assistance may enhance the effects of welfare reform strategies 
in promoting employment.\8\
---------------------------------------------------------------------------
    \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.
---------------------------------------------------------------------------
    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 qual-
ity 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 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\
---------------------------------------------------------------------------
    \9\ HUD 2001 at 5.
---------------------------------------------------------------------------
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.
---------------------------------------------------------------------------
    \10\ See 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.
---------------------------------------------------------------------------
    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.
    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.
---------------------------------------------------------------------------
    \11\ See 42 U.S.C. Sec. 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.
---------------------------------------------------------------------------
    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.
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.
---------------------------------------------------------------------------
    \12\ The 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.
---------------------------------------------------------------------------
    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\
---------------------------------------------------------------------------
    \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.
---------------------------------------------------------------------------
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 
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 reserves--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 pro-
gram, 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 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.

  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 com-
plete 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 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.

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 
utilization. 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.

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. Finally, 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.

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.
    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.

   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 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 limited 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?

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. 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 iden-
tified 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 
request 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 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 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.
    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 HUD-determined 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 attract 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\
---------------------------------------------------------------------------
    \1\ Office 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.
    \2\ Id. at 26-32.
---------------------------------------------------------------------------
    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 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 assess-
ment 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\
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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.
---------------------------------------------------------------------------
    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.
    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.
 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 LIHTC- and 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 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.
---------------------------------------------------------------------------
    \4\ Section 8 administrative fees are governed by subsection 
(o)(q), 42 U.S.C. Sec. 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.
    \5\ U.S. Department of Housing and Urban Development, Section 8 
Administrative Fees: A Report to Congress, June 1994.
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    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. 
Sec. 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 Congress, 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.
---------------------------------------------------------------------------
    \6\ See 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.
---------------------------------------------------------------------------
    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 
ex-
ception 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 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 
contrast to the certificate program, were paying more than 30 
percent 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.

              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 middle-income 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.
---------------------------------------------------------------------------
    \1\ DHA 2001 Comprehensive Budget Documents--DHA Finance 
Department, April 10, 2001.
---------------------------------------------------------------------------
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\
---------------------------------------------------------------------------
    \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.

    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.
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.

          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.
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    \4\ DHA 200a Comprehensive Budget Document--General Information 
Program Client Demographics--December 31, 2000.
---------------------------------------------------------------------------
    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.

                 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 operating 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.
    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 desper-
    ate 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.
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 not been released and the 
fiscal year 2000 funding was just authorized in November. 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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