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39–819 CC 1997

HUD OVERSIGHT: MISSION, MANAGEMENT, AND

PERFORMANCE

HEARING

BEFORE THE

SUBCOMMITTEE ON HUMAN RESOURCES

OF THE

COMMITTEE ON GOVERNMENT

REFORM AND OVERSIGHT

HOUSE OF REPRESENTATIVES

ONE HUNDRED FIFTH CONGRESS

FIRST SESSION

FEBRUARY 27, 1997

Serial No. 105–8

Printed for the use of the Committee on Government Reform and Oversight

(

(II)

COMMITTEE ON GOVERNMENT REFORM AND OVERSIGHT

DAN BURTON, Indiana, Chairman

BENJAMIN A. GILMAN, New York

J. DENNIS HASTERT, Illinois

CONSTANCE A. MORELLA, Maryland

CHRISTOPHER SHAYS, Connecticut

STEVEN H. SCHIFF, New Mexico

CHRISTOPHER COX, California

ILEANA ROS-LEHTINEN, Florida

JOHN M. MCHUGH, New York

STEPHEN HORN, California

JOHN L. MICA, Florida

THOMAS M. DAVIS, Virginia

DAVID M. MCINTOSH, Indiana

MARK E. SOUDER, Indiana

JOE SCARBOROUGH, Florida

JOHN SHADEGG, Arizona

STEVEN C. LATOURETTE, Ohio

MARSHALL ‘‘MARK’’ SANFORD, South

Carolina

JOHN E. SUNUNU, New Hampshire

PETE SESSIONS, Texas

MIKE PAPPAS, New Jersey

VINCE SNOWBARGER, Kansas

BOB BARR, Georgia

——— ———

HENRY A. WAXMAN, California

TOM LANTOS, California

ROBERT E. WISE, JR., West Virginia

MAJOR R. OWENS, New York

EDOLPHUS TOWNS, New York

PAUL E. KANJORSKI, Pennsylvania

GARY A. CONDIT, California

CAROLYN B. MALONEY, New York

THOMAS M. BARRETT, Wisconsin

ELEANOR HOLMES NORTON, Washington,

DC

CHAKA FATTAH, Pennsylvania

TIM HOLDEN, Pennsylvania

ELIJAH E. CUMMINGS, Maryland

DENNIS KUCINICH, Ohio

ROD R. BLAGOJEVICH, Illinois

DANNY K. DAVIS, Illinois

JOHN F. TIERNEY, Massachusetts

JIM TURNER, Texas

THOMAS H. ALLEN, Maine

———

BERNARD SANDERS, Vermont

(Independent)

KEVIN BINGER, Staff Director

DANIEL R. MOLL, Deputy Staff Director

JUDITH MCCOY, Chief Clerk

PHIL SCHILIRO, Minority Staff Director

SUBCOMMITTEE ON HUMAN RESOURCES

CHRISTOPHER SHAYS, Connecticut, Chairman

VINCE SNOWBARGER, Kansas

BENJAMIN A. GILMAN, New York

DAVID M. MCINTOSH, Indiana

MARK E. SOUDER, Indiana

MIKE PAPPAS, New Jersey

STEVEN SCHIFF, New Mexico

EDOLPHUS TOWNS, New York

DENNIS KUCINICH, Ohio

THOMAS H. ALLEN, Maine

TOM LANTOS, California

BERNARD SANDERS, Vermont (Ind.)

THOMAS M. BARRETT, Wisconsin

EX OFFICIO

DAN BURTON, Indiana, HENRY A. WAXMAN, California

LAWRENCE J. HALLORAN, Staff Director and Counsel

CHRISTOPHER J. ALLRED, Professional Staff Member

R. JARED CARPENTER, Clerk

RONALD STROMAN, Minority Professional Staff

(III)

C O N T E N T S

Page

Hearing held on February 27, 1997 ....................................................................... 1

Statement of:

Cuomo, Andrew, Secretary, Department of Housing and Urban Development, accompanied by Paul Leonard, Assistant Secretary for Policy

Development & Research; Stephanie Smith, Deputy Assistant Secretary, Housing; and Michael Stegman, Deputy Assistant Secretary

for Policy Development ................................................................................. 15

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

Cuomo, Andrew, Secretary, Department of Housing and Urban Development:

Information concerning community development block grants ............. 46

Prepared statement of ............................................................................... 20

Gilman, Hon. Benjamin, a Representative in Congress from the State

of New York, prepared statement of ........................................................... 9

Pappas, Hon. Michael, a Representative in Congress from the State of

New Jersey, prepared statement of ............................................................. 14

Shays, Hon. Christopher, a Representative in Congress from the State

of Connecticut, prepared statement of ........................................................ 2

Towns, Hon. Edolphus, a Representative in Congress from the State

of New York, prepared statement of ........................................................... 4

(1)

HUD OVERSIGHT: MISSION, MANAGEMENT,

AND PERFORMANCE

THURSDAY, FEBRUARY 27, 1997

HOUSE OF REPRESENTATIVES,

SUBCOMMITTEE ON HUMAN RESOURCES,

COMMITTEE ON GOVERNMENT REFORM AND OVERSIGHT,

Washington, DC.

The subcommittee met, pursuant to notice, at 11:10 a.m., in room

2247, Rayburn House Office Building, Hon. Christopher Shays

(chairman of the subcommittee) presiding.

Present: Representatives Shays, Snowbarger, Gilman, Pappas,

Towns, Kucinich, and Allen.

Staff present: Lawrence J. Halloran, staff director and counsel;

Christopher J. Allred, professional staff member; R. Jared Carpenter, clerk; Ronald Stroman, minority professional staff; and

Ellen Rayner, minority chief clerk.

Mr. SHAYS. I would like to call this hearing to order and to welcome our guest, our witness, the Secretary of HUD, who has honored us by his presence. Our goal today is constructive oversight.

Our goal is to continue the dialog that we had with Secretary

Cisneros in his two appearances before this committee.

In the last Congress, this subcommittee examined HUD’s takeover of the Chicago Housing Authority, waste in the public housing

Tenant Opportunity Programs and the growing unsustainable cost

of insured multi-family housing subsidy contract renewals. The

question then and now is: can HUD overcome the internal and external obstacles to performing its missions? The internal challenges, acknowledged management weaknesses that have been a

part of HUD as long as I have been a part of Congress and certainly are not attributed to any one individual, any one administration, or any one party, and the external challenges, the budget constraints that Congress imposes, as well as the White House, on the

operations of HUD and the huge cost of past subsidy commitments

on multi-family projects.

This subcommittee looks forward to hearing from Secretary

Cuomo, to hearing Secretary Cuomo’s plans for HUD to meet these

challenges and commit continued constructive oversight to help the

people of HUD meet its mission and do an even better job.

At this time, I would like to acknowledge and ask if my co-friend

and co-worker in this effort, Mr. Towns, if he would like the floor.

[The prepared statement of Hon. Christopher Shays follows:]

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Mr. TOWNS. Thank you very much, Mr. Chairman, because the

Secretary of HUD is a New Yorker. That is the reason I was here

so early. I was delighted to see him.

Mr. Chairman, I am pleased to join you today in welcoming Secretary Cuomo to this subcommittee. I also want to commend my

fellow New Yorker for his sterling record of public service, first, as

an advocate for the homeless and then as HUD Assistant Secretary

for Community Planning and Development, where he did a magnificent job.

Mr. Chairman, throughout his public career, Secretary Cuomo

has demonstrated innovation, insight, leadership, and sensitivity to

the community as well. I am confident that as HUD’s Secretary he

will bring the same level of achievement and dedication to the entire range of HUD programs.

Secretary Cuomo faces many difficult challenges at HUD. One of

the most important will be what to do about the expiring Section

8 contracts. As the Secretary is well aware, 3 million Section 8 contracts supporting more than 6 million people will expire over the

next 5 years. It will be necessary for Congress and the administration to work in a bipartisan fashion, and I stress bipartisan fashion, to make sure that HUD has sufficient budget authority to

renew the expiring Section 8 contracts. Failure to renew those contracts would hasten the loss of affordable housing, devastate neighborhoods, and increase homelessness.

I am also concerned about certain provisions of H.R. 2 introduced

by Congressman Lazio. The bill includes a section which would repeal income base rent in housing developments. Such a repeal

would lead to rent increases for public housing tenants and further

segregation of the poor. Public housing authorities might direct

families choosing the pay income base rent to those properties

where the authority would lose the least money, while those families who agree to pay flat rent would be steered to better properties. And that concerns me. It would be essential in any reform

of such public housing that we keep income base rent capped at 30

percent.

Finally, Mr. Chairman, the General Accounting Office and the

Inspector General at HUD have consistently discussed with us the

continuing management problems at HUD. These are difficult problems which will require thoughtful solutions. I look forward to

working on them with the Secretary, knowing that he has the ability to provide the kind of leadership that is really needed during

these difficult days. I yield back.

[The prepared statement of Hon. Edolphus Towns follows:]

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Mr. SHAYS. I thank the gentleman. I agree with his statement.

At this time, I would like to invite the vice chairman of this subcommittee, Mr. Snowbarger, from Indiana, if he has a statement or

comments.

Mr. SNOWBARGER. From Kansas, Mr. Chairman.

Mr. SHAYS. I am sorry.

Mr. SNOWBARGER. The note is incorrect and I noticed that.

I would like to welcome the Secretary and say to you that I am

as new to this process as you are, but I hope you know more about

this issue than I do. I am looking forward to your comments today,

looking forward to establishing a long term relationship between

you and this committee so that we can address the housing needs

of those in the United States.

Thank you, Mr. Chairman.

Mr. SHAYS. Thank you. And I am sorry. Wrong State. [Laughter.]

Mr. SNOWBARGER. Oh.

Mr. SHAYS. Listen. It is a great State. He is the vice chairman.

Mr. Pappas, from New Jersey.

Mr. Gilman.

Mr. GILMAN. Thank you, Chairman Shays, and I thank you for

the opportunity—— Mr. SHAYS. I need to comment. This is the first time we have had

Mr. Gilman in this committee, so you have brought out the best.

Secretary CUOMO. Best in New York, anyway, Mr. Chairman.

Mr. GILMAN. I had to be here for a fellow New Yorker.

Mr. Chairman, I am pleased that we are holding today’s hearing

in light of GAO’s citing of HUD as a high-risk agency, and I look

forward to hearing from our newly appointed HUD Secretary, Andrew Cuomo, who I want to personally congratulate.

Secretary CUOMO. Thank you.

Mr. GILMAN. And wish him well in his new endeavors. We want

to know how he plans to address GAO’s concerns. As the agency

responsible for our Nation’s housing and community development

programs, it is imperative that HUD identify the problems that it

currently faces and develop a plan to seriously address those

issues. I am certain our new Secretary has some ideas of his own.

The mission of providing adequate housing for low-income families

in our communities is extremely important and one that should not

be jeopardized by any mismanagement. I have, throughout my tenure in Congress, fought hard for affordable housing programs for

low- and middle-income Americans. In fact, during the past two

Congresses, I introduced legislation which was approved by the

House and later stalled in the Senate to remove Rockland County’s

median income level from the New York Primary Metropolitan Statistical Area, the PMSA, and we look forward to working with you

on that problem.

Currently, as you know, this New York Statistical Area includes

all of New York City and grossly misrepresents adjoining counties

median income. In fact, currently, Rockland County’s median income for a family of four is reported by HUD as $40,500 when, actually, the median income level should be $60,479 as reported in

the 1990 census, a difference of some $20,000. Accordingly, many

hard working families who cannot afford a piece of the American

dream are considered by HUD to be making more than is necessary

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to purchase a home and, therefore, are not eligible for affordable

housing assistance. By removing Rockland County from the current

PMSA, these families will be eligible for Federal and State affordable housing programs, something that many of us would like to

see come about. So I look forward to working with Secretary

Cuomo and with this committee in resolving problems such as the

one I mentioned. I am confident that by working together with the

Congress, HUD can once again successfully provide the kind of

needed housing in our communities. And I want to thank Chairman Shays for holding this meeting once again. Thank you.

[The prepared statement of Hon. Benjamin Gilman follows:]

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Mr. SHAYS. Mr. Gilman, it is really terrific to have you here because you are extraordinarily busy and you have pointed out,

again, to the new Members that no Member is too senior to plug

for a local project. [Laughter.]

Mr. GILMAN. Especially housing.

Mr. SHAYS. At this time, I would like to call the gentleman from

Ohio, Mr. Kucinich.

Mr. KUCINICH. Thank you very much, Mr. Chairman, members

of the committee, Mr. Secretary. As a former councilman and clerk

of courts and mayor of the city of Cleveland, I have had opportunities to be very much involved with HUD policies over the years and

I am glad to see that the Secretary is now in a position where he

can work with Congress to help construct an urban policy. Because

I think one of the things that we have really lacked over the last

few decades without in any way diminishing the contributions that

have been made by past Secretaries is a coherent urban policy

which addresses not only the housing needs of our various communities, but also the question of urban development and the choices

which we should make to encourage urban development and to

make sure that we have sustainable development as well.

So your participation as the Secretary of HUD and your vision

is going to be needed to help make the promise of HUD and the

potential of HUD become a reality. I think every Member of this

Congress is well familiar with the litany of problems which have

been the result of administrative challenges that have not been

met in HUD over the years; but you have a new opportunity and

with it comes a chance to help revive the fortunes of America’s cities. So I look forward to working with the chairman and with you

and the members of this committee in helping to move this country

forward on issues that relate to housing and urban development.

Thank you.

Secretary CUOMO. Thank you, sir.

Mr. SHAYS. I thank the gentleman. I would like to get some

housekeeping out of the way and ask unanimous consent that all

members of the subcommittee be permitted to place an opening

statement in the record and that the record remain open for 3 days

for that purpose. Without objection, so ordered.

[The prepared statement of Hon. Michael Pappas follows:]

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Mr. SHAYS. I also ask unanimous consent that our witnesses be

permitted to include their written statements in the record. Without objection, so ordered.

Mr. Secretary, before calling on you, I would like to just introduce some of the staff members in our committee who will be working with your people. We have on the minority side, Chanda Tuck,

right here and then we also have Ron Stroman, who works for the

full committee. And my chief counsel in this committee, Larry

Halloran, and also Chris Allred in the back right here, who handles

all housing issues.

And as you know, we swear in all our witnesses, including Members of Congress, so I would just ask if you would stand now and

I will swear you in.

[Witness sworn.]

Mr. SHAYS. Thank you very much. Mr. Secretary, we are delighted to have you here and you can summarize your statement,

just make whatever comments you want, and then we will get in

with the questioning.

STATEMENT OF ANDREW CUOMO, SECRETARY, DEPARTMENT

OF HOUSING AND URBAN DEVELOPMENT, ACCOMPANIED BY

PAUL LEONARD, ASSISTANT SECRETARY FOR POLICY DEVELOPMENT & RESEARCH; STEPHANIE SMITH, DEPUTY ASSISTANT SECRETARY, HOUSING; AND MICHAEL STEGMAN,

ASSISTANT SECRETARY FOR POLICY DEVELOPMENT AND

RESEARCH

Secretary CUOMO. I will not take a lot of the committee’s time

with an opening statement, because I think in your opening remarks you touched on the issues that, basically, we are here to discuss.

If I might, Mr. Chairman, please allow me to introduce some of

the people who are here from HUD just so we can put some faces

with the names.

Mr. SHAYS. Terrific.

Secretary CUOMO. We have Mike Stegman, who is the Acting

Chief of Staff of the Department.

Mike, if you could just signal.

Mr. SHAYS. Yes, he has acknowledged himself. He has raised his

hand. We can see him here.

Secretary CUOMO. And Paul Leonard, who is the Deputy Assistant Secretary for Policy Development and Research; Hal DeCell,

who is the Assistant Secretary for Congressional Affairs; Cheryl

Fox, who is a special assistant to me, works on all the issue briefings; Stephanie Smith, who is the Deputy Assistant Secretary for

Housing, which is an important area handling Section 8 issues,

among others; Mark Gordon, who is a senior advisor to the Secretary and Jon Sheiner, who is a Deputy Assistant Secretary for

Legislation.

I think, gentlemen, that I take over HUD at a very interesting

time in this country, many things going very, very well. President

Clinton, working with Congress, has certainly amassed an impressive record, putting the country in the right direction. But that is

not to say that we do not have a lot to do. The President is the

first to say there is still a lot that needs to be done. In his State

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of the Union Address, there are very few of us who can go back to

our homes or our districts and not see the challenges that face us

in cities like Bridgeport and areas like Brooklyn right across the

country. There are still real problems that have to be addressed,

and that is where HUD comes in and HUD’s mission as we see it.

One of the questions posed to me was what are the main obstacles facing HUD. And I think they were mentioned in your remarks, but I would say there were two. First and foremost, in my

opinion, is what we referred to as the Section 8 crisis, which is not

a glamorous topic. It is not an overly appealing topic. It is a technical topic, but it has a potentially devastating impact on the Department and housing, in general.

The second issue, as again you mentioned, is the overall management problems at HUD. And it is something that we are also making a top priority.

If I could refer you to the charts on your left, just to talk quickly

about this Section 8 problem. The Section 8 crisis, as we refer to

it, is the expiration of contracts that are coming due. These are

contracts that were signed 30 years ago, 20 years ago, or as recently as 1 year ago. And these contracts are now coming up for

renewal. They are expiring. The question is, what do we do once

they come up for renewal. Very, very big numbers: 1.8 million

units; 4.4 million Americans; 6 million Americans by about 2002.

You look at the impact which is all across the country where

these Section 8 units are coming up where they are expiring, New

York City, 111,000; Bridgeport, 3,300; Cleveland, 21,000; San Francisco, 16,000; Indianapolis, 15,000. All big numbers across the

country. And again, the universe is as high as 6 million people

2000, 2002. You cannot just afford to allow the contracts to expire

and lose the units to the inventory. The numbers are big on the

people who inhabit the units. They are also big on the cost of renewals. The cost to renew the contracts that are coming due, it is

just about $10 billion, a little less, about $10 billion. How much is

$10 billion? It is about half of HUD’s entire budget this year, just

from the cost of renewal.

Now, this is a problem that we have talked about for a long time,

but, as it is thorny, no one has really wanted to grapple with it.

So the numbers and the impact are devastating. What would happen to the people who are displaced if we allowed ourselves to lose

these units? I do not think it is overly dramatic to say you could

have massive homelessness in the Nation, which then triggers another problem as this committee knows.

So the first question we pose to the committee is, renew or not

renew. That is the question, to paraphrase. The second question is,

if you choose to renew, if you say we cannot lose these units, we

cannot have 4 million Americans homeless, we have to renew the

contracts, the question becomes, where does the funding come from

to renew the contracts?

This year, the 1998 budget which we are here to discuss, requires $5.6 billion in new budget authority to renew the contracts.

Where do you get the $5.6 billion?

One theory would say, we will take it from the existing HUD

budget. ‘‘If you want to renew the contracts, HUD, God bless you.

Take it from your budget.’’

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To take $5.6 billion out of the HUD budget, you would basically

have to cut everything else 35 percent across the board—public housing moneys would have to be cut $1.9 billion; the CDBG program, total program $4.6 billion, one of the strongest HUD programs, would have to be cut $1.6 billion. The HOME program

which is a model of a block grant affordable housing program

would have to be cut by $549 million. The homeless assistance

would have to be cut by $288. Housing for people with AIDS would

have to be cut $71 million.

In our opinion, if you tried to take the $5.6, the $5.6 billion necessary to renew the contracts, if you tried to take that from the

rest of the HUD budget, it would be a cut-and-shift-the-burden

strategy which would be counter productive. It is robbing Peter to

pay Paul. You would be trying to help communities on one hand

and hurting them with the other. These, 35 percent of the HUD

budget being cut, would have a truly disastrous impact on the communities that have been working long and hard to come back.

What is our solution to the problem? Twofold. First, we say, the $5.6 billion in new budget authority should not be taken from the

HUD budget, but should be additional BA added to the HUD budget. The President’s budget for 1998 does that. The HUD budget

goes up 30 percent. The 30 percent increase is just to take care of

this renewal crisis.

At the same time, we say it is not enough just to say new money

to cover it, how can we reduce the cost of these contracts and the

Section 8 program overall? So we have also come up with $2.4 billion in savings. So that our solution, the way we propose we address this crisis is twofold: $5.6 billion in new budget authority and

$2.4 billion in savings from reforms. What is in that $2.4 billion? There are a number of savings, the

most notable of which is what we call the ‘‘Mark-to-Market’’ proposal, the so-called portfolio re-engineering proposal which would

save about half of that $2.4, about $1.2 billion. It is a proposal we

have discussed for a couple of years. And what that says is this.

Of the expiring Section 8’s there is a segment of that portfolio

which the FHA has insured and we subsidize with Section 8 certificates and vouchers. The cost on some of those units are currently

in excess of the fair market rents. In other words, the taxpayers

subsidize apartment rents subsidies to the tune of 150, 160, sometimes 200 percent of fair market rent to landlords. So the American

taxpayer pays twice what the same unit could be worth just down

the block. We think that is unconscionable. We think it is intolerable. Something has to be done about it. We say, ‘‘Mark-to-Market,’’

which would say, ‘‘Reduce the FHA mortgage on the property

which would then allow you to reduce the Section 8 rents which

that project requires to be liquid down to fair market rent.’’ Reduce

that 200 percent, 160 percent, get it down in keeping with what

you have to pay. That, in a nutshell, is the Mark-to-Market proposal. You have to go project by project, reduce the FHA mortgage

and now you can reduce the Section 8 rent. We need legislative authority to do it, but it would bring us a very large savings, $1.2 billion, which would help us solve the overall problem. More importantly, I think, as a matter of fairness, as a matter of equity in

these times where we are all very concerned about balanced budgVerDate 11-MAY-2000 13:58 Apr 29, 2002 Jkt 078763 PO 00000 Frm 00021 Fmt 6633 Sfmt 6602 E:\HEARINGS\39819 pfrm09 PsN: 39819
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ets and fiscal austerity and government departments are

downsizing and working very hard to be efficient and intelligent

about it, you cannot justify paying a private landlord twice what

the going rent is for an apartment in light of everything else that

is going on and how precious these resources really are. That is the

Section 8 crisis. This year, 4.4 million Americans are affected.

The second challenge to HUD is, as you said, the overall management reforms and I see the lights are going off. Let me sum up——

Mr. SHAYS. Do not worry about the lights. That is not a problem.

Secretary CUOMO. OK. On the management reform side, as the

committee has pointed out, these are problems that have plagued

HUD for a long time. The GAO gives HUD the unique distinction

of being the only department that is, ‘‘a high risk’’ department.

Some of the reasons for that are historical. The high risk designation is, in part, because of the so-called HUD scandals in the 1980’s

and that is one of the things that got us that designation and one

of the things that continues to give us that designation. But there

is no doubt that as HUD has made progress and Secretary Henry

Cisneros did amazing things on the management side as GAO will

point out, there is still a long way to go on the management side.

That is going to be a top, top priority for me. The two priorities for

my tenure at this point will be the Section 8 crisis and improving

the management of HUD, earning the public trust, right across the

board, from both clients—be they private landlords, be they public

housing authorities, be they the residents of public housing, demanding more responsibility, ‘‘one-strike-and-you’re-out’’ policies on

criminal behavior and drug behavior. Demand responsibility from

our clients, also demand responsibility and managerial efficiency

and intelligence from ourselves. Begin cleaning up by cleaning up

your own house and that is what we want to do at HUD. We have

already made strides in that area in just the first few weeks. We

have mapped out a plan we think that will show real management

change in about 18 months, and we are going to pursue that aggressively. So the reforms on the management side at HUD, I

share this committee’s concern. I know they are long standing. I

know we have made progress, but I know that we have a long way

to go.

Before I was Secretary, I was Assistant Secretary in Community

Planning and Development. During those 4 years, the CPD, as they

call it, staff was reduced by 25 percent and at the same time, we

actually administered more resources. Literally did more with less,

consolidated applications, consolidated reports. We even won an

award from Harvard for the consolidation efforts that we did. So

that doing more with less, the consolidation, streamlining, getting

the funding, getting the authority back to communities that we did

at CPD for the past 4 years, is what we are looking forward to continuing doing with the entire department.

I also know from my past 4 years as Assistant Secretary that

nothing happens unless it happens together. That as hard as we

work at the Department, unless we are doing it in partnership with

Congress, we will not be successful. And in that mode, I come to

this committee and I say I am looking forward to a productive relaVerDate 11-MAY-2000 13:58 Apr 29, 2002 Jkt 078763 PO 00000 Frm 00022 Fmt 6633 Sfmt 6602 E:\HEARINGS\39819 pfrm09 PsN: 39819
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tionship, a close relationship, a synergistic relationship that helps

us both do what we want to do. And I think we can and I am looking forward to the opportunity and I am looking forward to beginning today. Thank you.

[The prepared statement of Secretary Cuomo follows:]

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Mr. SHAYS. Thank you, Mr. Secretary, that was very helpful.

What we are going to do is I am going to recognize Mr. Towns first.

We may have a vote and I may leave before they even call the vote

or as soon as they call it, and then I will come back and be able

to ask some questions. But I think what we will do is we will start

with Mr. Towns.

We are going to keep the 5-minute rules, given that we have a

number of Members, and then we are going to do another round

where we might take 10 minutes per Member just so that we can

have a first round. So Mr. Towns.

Mr. TOWNS. Thank you very much, Mr. Chairman.

And let me begin by saying, Mr. Secretary, I am elated to have

you to come before the committee, look forward to working with

you. I know of the outstanding job that you have done up to this

point. And the first question is the Genesis Project, which I took

the budget chair—Mr. Kasich, who visited the district, and, when

you take people to your district, you know, you want to show them

the best. So I took him to the Genesis Project to show him in terms

of what was going on there and how things could be done. This

project, of course, is in my district and provides housing for 150

families, as well as a wide range of other services as you know,

that are there to support these families, is a wonderful organization. And I wonder if you have any intentions of funding organizations like Genesis on a national level, because it seems to me that

is a way that we will be able to provide adequate housing and at

the same time, the housing will be protected. Because, as you

know, during the old days—and I say ‘‘the old days,’’ we would

build something and they would tear it down and, of course, we

would have to come back and build it all over again. But this is

something that really works. So I would like to get your views on

whether you plan to take this nationally?

Secretary CUOMO. Congressman, that is an interesting question

and a helpful starting-off point. I think before I answer the question, just as a matter of full disclosure, I would ask who the management of the Genesis Project was and who did that project in

your district?

Mr. TOWNS. Well, I must admit it was Secretary Andrew Cuomo.

Secretary CUOMO. Oh, well. [Laughter.]

Well, I think it is a great project. And I think it has a lot to do

with the leadership of the organization. I was actually with Chairman Kasich the other day and he reminded me of that visit which

was back, I guess, in like 1988 now. And he remembered the

project. This is in Bedford-Stuyvesant, Schnediker and Hinsdale, in

the Congressman’s district, and he had a tour and Congressman

Kasich had come out and I had led the tour and we discussed the

concept at that time. The concept was unique. This was transitional, quote/unquote, housing at a time before we really knew

about transitional housing. And it started to make the breakthrough that said, ‘‘Look. You have to do the housing as the foundation, as the starting point.’’ Everybody needs the housing just to

have the security, but then you have to build from there. And the

housing alone is often not enough to help the individual and often

not enough to help the community.

33

Comprehensive approaches, be they on the community development side or on the individual development side, specifically in a

homeless-related context, often are the most appropriate path to

follow. Genesis did that in Brooklyn. It has been open just about

10 years, now, actually, Congressman, since we first started that.

And I am pleased to be able to say that in my opinion, and, again,

I gave you the disclosure, but that it is working as well today as

it did 10 years ago. And if you go to the people and the neighbors

in the community, they will tell you that.

So that kind of approach that says comprehensive solutions, give

people housing, but also give them the services and the tools they

need to do for themselves and move on, Genesis is transitional. You

do not come and live there forever. You come, you get the services,

you get the help you need and then you move on to independence.

Independence is the goal. Right? Independence is the goal of all

these government programs. The goal of the government program

is to end the reliance on the government program. The goal of the

government program is to end the need for the program, to almost

self-terminate. And that is what Genesis is doing. Not for profits.

Comprehensive. In partnership with communities. I think that is

the way to go.

Mr. TOWNS. Right. I will tell you, it is working. No question

about it. In more ways than I think one would realize in terms of

the service that it provides to the community, community meetings

and being involved in community activities, and to see tenants suddenly recognize the importance of being involved in the community.

I want to extend the invitation to the chairman. My good friend

Mr. Kasich has already seen it, so I want to take the chairman

there to see it because I am hoping that, as we get people to see

it and they know what is going on, that we can buildup some support here. In fact, I may invite the entire committee after we take

the chairman out. You know, that is how excited I am about it.

But let me just move along to one other question in terms of the

legislation that has been put forth by Congressman Lazio, which is

referred to as H.R. 2, the Housing Opportunity and Responsibility

Act of 1997. The bill contains a provision to repeal the incomebased renting public housing or what is really known as the Brook

amendment.

This caused a tremendous uproar among public housing residents in the last term. Let me add that I opposed this provision.

I want to go on record right now indicating that. How can we balance HUD’s need to decrease its rental subsidies with the need to

maintain affordable low and moderate income housing? How can

we work out a balance?

Mr. SHAYS. If we could have a relatively, maybe a first pass at

that answer, because the gentleman’s time is up and I am going

to really try to respect——

Mr. TOWNS. I want to respect—I will even withdraw the question.

Mr. SHAYS. Why do we not withdraw it now and then we will do

it.

Mr. TOWNS. I will withdraw it.

Mr. SHAYS. And you will get to repeat it twice that you are

against the bill.

34

Mr. TOWNS. I want to cooperate because I want to get you to

Brooklyn. I withdraw it.

Mr. SHAYS. You can ask the question a second time and emphasize that you oppose the bill a second time.

Mr. Snowbarger.

Mr. SNOWBARGER. Well, if Mr. Towns would allow, I would be

happy to have the question answered in my timeframe.

Mr. SHAYS. If it is a question you want to ask.

Mr. SNOWBARGER. Go ahead and answer the question, yes.

Mr. TOWNS. I would like to thank the gentleman. Thank you.

Mr. SHAYS. Let me try to be economical with the time.

Secretary CUOMO. I do not think there is a short answer, Congressman. I think before we look to get the shortfall from the tenant who can least afford it by raising their rent, we should look to,

again, our own house. How can HUD do more with less? How can

the local public housing authority do more with less? How can we

get working families into that public housing who then can pay

more because the 30 percent is a larger number because they are

working and they have higher incomes. Use that mechanism to

make up some of the short fall. But I think the last place to go is

to a tenant who is barely making it and say, ‘‘You have to pay more

than the 30 percent Brook guarantee.’’ Mr. SNOWBARGER. Let me followup on a couple of things you

mentioned during your statements and in answer to the question

first. Explain to me, you are dealing with a freshman here, why are

we subsidizing up to 200 percent of these rents to landlords? How

did that come about?

Secretary CUOMO. Congressman, first, you have to appreciate you

are dealing with a freshman, also, but I had the same—I had the

same question when I walked in.

Mr. SNOWBARGER. Like I said, I hope you have more answers

than I have questions.

Secretary CUOMO. Yes. What happened on the Section 8 contracts, remember that many of these contracts were signed 30

years ago, 20 years ago, they came up with certain assumptions

and one of the assumptions was we, government, will sign the contract 20 years ago and we will pay escalators, adjustments to the

rent over a period of years. And we signed that 20 years ago.

As it worked out for many of these contracts, those escalators

have now brought the subsidies to a point where they exceed the

subsidies which are in the neighborhood fair market rents in the

neighborhood. We have been contractually bound in many cases to

be paying these.

The contracts expire. That is good news and bad news. The bad

news is now we have 4 million people, 6 million people in 2002,

that we have to figure out how to house. It is an expensive problem. That is the bad news. The good news is the contract expired,

you can do something different. You are no longer bound to pay 200

percent. You are no longer bound to use the same buildings if you

do not want to. You are no longer bound to say 100 percent of the

people in this building, all poor people, 100 percent every unit. You

do not have to do that. You can say, we are going to go to mixed

income in buildings because that is smarter. You can say, now, we

are going to use a Section 8 voucher, not just to pay a landlord’s

35

mortgage, but to allow a person to go buy their own home with a

Section 8 voucher. So the contract expired. You now can do all sorts

of creative things. You can repair the mistakes that you made in

that first contract signing, because you have learned a heck of a

lot over 20 or 30 years.

And first and foremost, you do not have to pay 200 percent for

a unit that you can rent in the marketplace down the block for half

the price.

Mr. SNOWBARGER. Can you describe those escalators for me? Apparently, it was not done just based on a CPI or something of that

nature. Was there a percentage increase guaranteed every year?

Secretary CUOMO. I have a team of people—— Mr. SNOWBARGER. The staff is looking at each other and they

cannot figure it out. So I may be asking the wrong—— Secretary CUOMO. I can get you more specific information because, Congressman, we have a number of programs that were

signed at different times all with slightly different deals at whatever time they were doing it. Remember, these contracts, some

were signed in the Sixties, some in the Seventies, some in the

Eighties. Some are very recent roll-overs. But interestingly, the

past couple of years, we have been trying to get legislation to do

something about this. When we do not get the legislation, and we

have been unsuccessful, there has not been a housing authorization

bill in 6 years, the result of doing nothing is continuing the status

quo where even if the contract has been expired, we have been renewing them at the excessive rents, rolling them over, if you will,

at the excessive rents because we have not come up with legislation

that changes the course significantly. So to do nothing is to continue the status quo. But specifically, I can get you the actual

terms of the contracts that were signed years ago that brought

those rents up.

Mr. SNOWBARGER. Well, I understand there may be multiple

ways of having done that. It would be helpful to me. Following up

on your statement there, what is it about the legislation that is required or that was passed that required you to roll over the same

terms?

Secretary CUOMO. Two things. First, before we can reduce the

rent in many cases, we have to reduce the mortgage. In other

words, we are both mortgage holder of many of these properties,

FHA mortgage, and subsidizer and rent-payer. And the mortgage

is matched to the rent. And we are paying out of both pockets. If

you want to reduce the rent, you have to reduce the mortgage so

you do not default on your own mortgage. We do not want to reduce the rent and then wind up with massive defaults on FHA

mortgages. So we need legislation to do that. When we have not

gotten the legislation, since nobody wanted to displace all the people who were in the units, Congress said, ‘‘Continue. Roll over. You

can pay 160 percent of fair market rent.’’ And that is what has

happened for the past few years.

Mr. SNOWBARGER [presiding]. Thank you. I think my time has

expired. Mr. Allen, do you have questions?

Mr. ALLEN. Yes, I do. I apologize for being late. And if some of

my questions cover matters that you went into before, my apologies.

36

I was once the mayor of Portland. I was on the city council in

Portland, ME, for 6 years. And my first question has to do with if

you went through the city of Portland right now, looked at the public housing, it works, and it works very well. And I think the Section 8 program works pretty well. We have gone through some periods where we had to make sure that we were paying, what we

were paying was more in line with market rents.

I know that your Department, of necessity, has to deal with some

of the larger cities in this country, and I am just wondering, are

there any issues that you foresee that will affect small cities and

more rural areas differentially than the larger cities in this country

that we ought to be aware of?

Secretary CUOMO. It is an interesting question, Congressman. I

think two things. First, the Section 8 crisis is almost unique to

HUD in that this problem affects almost all cities across the country. Different degrees, depending on the size of the city, because

that is the number of units—larger cities probably have more

units. But proportionately, it is still a devastating impact. New

York City’s number is 111,000 people on a larger universe, obviously. But Cleveland, 21,000; San Francisco, 15,000; and that is

across the country. And that is one of the powerful problems of this

crisis is the blanket effect across the country.

Having said that, public housing is interesting in a number of

ways to me. It really has gotten a bad rap, public housing. People

talk about public housing as if it was a failure. It is too often the

way it is portrayed. Public housing, oh, that was a mistake. That

was a problem.

It was not, really. Public housing is actually a great success story

in this Nation and it is actually a testament to what government

can do. Public housing works. Portland, public housing works; 95

percent of the time, public housing works. Public housing has been

too often typified by some of the large developments in the large

cities, Cabrini Greens in Chicago. That is not the face of public

housing. It is smaller. It is less dense. It is more welcomed by the

community, and it works.

What we want to do at HUD is change, as one of our management reforms, change our management depending on what the authority is and what its performance is. The smaller authorities that

are performing well, God bless them, let them run the business, devolve authority to them. Deregulate to the extent you can. Not irresponsibly, but deregulate. Portland Housing Authority is working.

Give them the funding and let them run it. Focus, instead, on the

larger, more troubled public housing authorities.

Mr. ALLEN. Just by way of an example, we have married to our

community policy effort to our public housing and we have been increasingly tough about people who have criminal records. They are

now being moved out of the public housing. It has made a huge difference. We have got educational programs. They are all—they all

seem to me to be moving along in the right direction.

One last question. The field operations for HUD in the State of

Maine consist of two people in Bangor and one person in Portland.

As you reduce the staff, you know, nationwide of HUD people, obviously, we would be concerned the field operations might take more

37

of a hit than the central, than the D.C. offices and I wondered if

you could respond to that.

Secretary CUOMO. Two things, Congressman. First, between the

headquarters and the field, I think your point—there is a lot of

wisdom in your point. And if there is a disparate impact in the reductions, I think it should be disparate toward headquarters if anything, because we are trying to get more authority out to the field

and we need people in the field to do that.

Having said that, 4 years ago, HUD was 13,000 people. In 4

years, I am pledged to reduce it to 7,500. That is almost a 50 percent reduction. So there are going to have to be fewer HUD people

in a lot of places. At the same time, we want to make sure we have

representation. And if it is only a couple of people now there, I

would have to do it all within the context, but I would rather see

a continued presence and a reduction in other areas that have

more people. But I would not, if we can avoid it, I do not want to

lose the presence entirely in an area.

Mr. ALLEN. Good. Thank you very much.

Secretary CUOMO. My pleasure.

Mr. SNOWBARGER. I apologize to the Secretary. We do have a

vote that is taking place right now and I think we are going to take

a brief recess. The chairman is expected back shortly. We will

stand in recess.

[Recess.]

Mr. SHAYS. I would like to call this hearing back to order. What

I would like to do, I was delinquent in doing this. The Secretary

may want to call on one of his staff that is to answer a specific

question. And so, what I am going to ask is any staff member that

might respond to a question, not necessarily will, but might, if they

would stand up and we will just take care of swearing you in and

then it may be that none of you will have to respond to anything,

but at least this way you have the flexibility. You can stay seated,

Mr. Secretary, but if the others would stand and raise their right

hand? And we will just make sure we identify who they are.

[Witnesses sworn.]

Mr. SHAYS. Thank you. Could you just each state your names?

Mr. STEGMAN. Michael Stegman.

Mr. SHAYS. And?

Mr. LEONARD. Paul Leonard.

Ms. SMITH. Stephanie Smith.

Mr. SHAYS. We will make sure you have cards for the recorder

if there is responses.

Take them down for any reason? Are we all set to go? Do we

have them anywhere?

Mr. Secretary, I can start. I can start and we can see if we can

recapture them.

Secretary CUOMO. We will get them back up.

Mr. SHAYS. OK. It strikes me that, first off, I will say to you in

this room we had the hearings, really, the Lantos hearings, and I

was part of that committee that looked into Section 8 housing. And

we knew of the tremendous abuse. One of the big abuses was that

people would get the housing and they would get a tax credit. They

would get financing and, in essence, what we found is they took all

their money out up front. And then HUD had this incentive to conVerDate 11-MAY-2000 13:58 Apr 29, 2002 Jkt 078763 PO 00000 Frm 00041 Fmt 6633 Sfmt 6602 E:\HEARINGS\39819 pfrm09 PsN: 39819
38

tinue with large subsidies in order to pay the mortgages that

would, if they went bankrupt, HUD ended up with.

And if you could just kind of sort out for me this process? I know

almost every community, particularly the large communities, have

Section 8 housing that is running out. And so, you have that one

issue. So one of my questions will be the mortgages run out at the

same time question. The other issue is when we had hearing on

Section 8 housing last time, we were really appalled with the condition of some of the housing and I can say that we have the same

circumstance, say, in Monteray Village in Norwalk. It is not

untypical, where we are actually paying higher than market rate

as you have pointed out.

I am unclear as to how you sort this out: (1) Are the mortgages

paid up by these individuals and, therefore, do we no longer have

the at-risk of HUD taking over the facility with the guarantee?

And (2) does this mean then that their cash needs are different because they do not have large mortgages? How do you sort all that

out?

Secretary CUOMO. Mr. Chairman, if I can, I said when you were

out of the room before, the expiration of the contracts is a good

news/bad news scenario.

Mr. SHAYS. OK.

Secretary CUOMO. Bad news is we are in danger of losing units

that would house about 6 million people by the year 2002, and the

cost of renewal is very high.

Mr. SHAYS. Is very what?

Secretary CUOMO. Is very high at a time when there are not many resources. That is the $5.6 billion that is required in new

budget authority plus $2.4 billion in savings. That is just the cost

of renewal. The HUD budget goes up 30 percent this year just to

cover the cost of renewal. We are not doing anything else. The rest

of the HUD budget is basically flat besides the renewal—— Mr. SHAYS. Is that a one shot or is it continuous?

Secretary CUOMO. No. That is not a one shot. That is the problem. This wave of expirations, of contract expirations, starts to

break in 1998, but it breaks in 1998, 1999, 2000, 2001, 2002 is the

main impact. We want to get something done now so we can reduce

the cost in the later years because the number gets higher as we

go out, not lower. 1998 is significant because one of the largest increases is in 1998 from 1997. A jump from 1997 to 1998. But 1998

to 1999, 2000, 01, 02, it is also a very, very significant number, so

we have to do something. That is the bad news is the impact on

the numbers.

The good news is you can now literally rewrite housing policy for

the first time in 30 years. The good news is the contracts are expired and you are no longer bound by the situations that you were

bound by. You are no longer handcuffed. How many times did we

walk through a community and we said, ‘‘Well, that’s a Section 8

project. We can’t do anything because we have a contract and it

would foreclose or default and it would be a tremendous problem.’’

The contracts expire. So I would say, now you have a chance to rewrite Federal housing policy, change the policy and start with a

blank slate. Do you want to renew that building? Maybe the building is an asset to the community. Maybe it is not an asset to the

39

community. I would pose the question: Do you want to renew that

building?

If you do want to renew the building, do you want to renew it

at 100 percent subsidized units? Some people think that mixed income is a good idea, not 100 percent. If you want to renew the

building, would you like to get in not-for-profit management, if it

was a possibility. Would you like to offer tenant mobility? If the

tenant chooses to leave the building, should the tenant have that

choice? If the tenant chooses to leave and leaves with a Section 8

voucher, should the tenant be able to use that Section 8 voucher

to buy their own home? Home ownership as opposed to rental.

These are all questions that are triggered when you are freed from

the contractual parameters.

Mr. SHAYS. But there are two contracts. Right? There is one that

is a subsidy. The other is the mortgage.

Secretary CUOMO. No.

Mr. SHAYS. Do the mortgages end when the—is that what is happening? Have they paid off their mortgage?

Secretary CUOMO. No. No. Here is the caveat. When you go to— and, again, there are a lot of different flavors within this.

Mr. SHAYS. Some can pay back early? Correct? You have the 20

and the 40.

Secretary CUOMO. Yes. You have different situations. Some have

the right to prepay at the end of 20 years, which is a different portfolio than the portfolio we are talking about here. This is basically

we want to reduce the rent, the Section 8 subsidy, but you have

to make sure that what you reduce the rent to can satisfy the mortgage. Because, as you have pointed out, you also, the Federal Government, hold the mortgage. You do not want to reduce the rent

to a level that would see that mortgage default because now you

have a lot of properties and a lot of foreclosures. So reduce the

mortgage, write down the mortgage, mark it to market, reduce the

mortgage as you are reducing the Section 8 rent. And you can reduce them both, but they both have to balance. In some cases, you

may be able to expire the mortgage.

Mr. SHAYS. I have a sense that the mortgages are, in some cases,

greater than the value of the property, except over time, part of the

mortgage has been paid back. But even then, probably if they defaulted, you would lose—HUD, the government, would lose.

Let me just tell you what I am thinking of. I think of the Section

8 housing that is not properly maintained and then I see Section

8 housing that is very well maintained. It happens to be, say, in

downtown Stanford, Four Acres. I know what that builder is going

to do. It has already been sold a few times, but they are not selling

it in my judgment so that they can renew Section 8 housing. They

are either going to go right out into the marketplace which was,

in one sense, the original design of this program, to create more

housing and then privatize it. Or they are just going to tear it

down because it is 4 acres in downtown Stanford and then you will

have hundreds of people without housing.

So what I am trying to sort out, and I really do not yet have a

clear picture of this, is the contracts are coming due, are ending for

the subsidies. They’re able to be bought out because this time has

arrived. So the ones who will want to buy-out, it seems to me,

40

would be the ones that are in prime choice areas. And the ones

that will want to continue are the ones that, frankly, took everything out of the project early on and are just going from month to

month.

Secretary CUOMO. Yes. I am going to ask Mike or Stephanie to

give you a sense of the numbers in two different portfolios, we call

the preservation portfolio which are those units where the owner

now has a right to prepay the FHA mortgage.

Mr. SHAYS. That is called preservation.

Secretary CUOMO. Preservation.

Mr. SHAYS. Do you need another chair?

Ms. SMITH. No. I’m fine.

Mr. SHAYS. OK.

Secretary CUOMO. And the other is the Mark-to-Market portfolio.

And if Stephanie could also speak to——

Mr. SHAYS. I am sorry.

Secretary CUOMO. Stephanie Smith. Your issue is might there be

units where the owner chooses to go to the market and not renew

the expiring contract.

Mr. SHAYS. OK. And I am making an assumption that in many

cases we still hold the mortgage insurance.

Ms. SMITH. Mr. Chairman?

Mr. SHAYS. Yes.

Ms. SMITH. The Secretary is referring to two distinct portfolios.

There is one portfolio for which we have Section 8 contracts which

are beginning to expire now and will continue to expire for the next

decade. And those Section 8 contracts rent significantly above market, as he mentioned.

Mr. SHAYS. Yes.

Ms. SMITH. We also have FHA insurance on the mortgage. The

structural flaw in the program is that the Section 8 contracts are

for 20 years. The mortgage insurance is for 40 years. So in all those

cases, the mortgage insurance usually runs for at least another 20

years, if not a little bit longer.

There are about half-a-million units which are expiring in the

next 10 years where the Section 8 contracts are significantly above

market and we have FHA insurance on the mortgage. The other

distinct portfolio which you are raising is the preservation portfolio.

In many cases, those Section 8 contracts are also expiring in the

next few years, by the end of the decade, but those are the projects

in which the owners have the right to prepay their mortgages. Congress restored that right to those owners last year. But if the

owner prepays the mortgage, that does not mean that he is released from the Section 8 contract. He has prepaid his FHA-insured mortgage. There is a certain set of restrictions that he is released from on the mortgage side, but he still has the Section 8

contract.

If the owner decides to opt out of the Section 8 contract at the

point of expiration, then he has to give the Department 1 year’s notice prior to opting out of the program. We then provide the tenant

at the expiration of that 1 year notice period with tenant-based

vouchers and certificates, so they continue to receive assistance,

but it may not be tied to that specific building.

41

So there are two very distinct portfolios that are being discussed

here at the moment. That portfolio which is sort of preservationeligible, there is about 350 or 400,000 units in that particular portfolio. Many of those units have Section 8 contracts with rents below

market because of the way they were developed 20 years ago.

Mr. SHAYS. I am sorry to ask such ignorant questions, but I learn

from my questions. Do I make an assumption that the face value

of the mortgage has been brought down over 20 years so maybe

then it actually is worth the market price? Or, do we still have

problems that even after 20 years of paying down the mortgage, it

is not a balloon mortgage? Right? It is a constant.

Ms. SMITH. It is not a balloon mortgage. It is an amortizing mortgage.

The best way I think to think about this, Mr. Chairman, is that

these are two distinct portfolios of properties.

Mr. SHAYS. Right.

Ms. SMITH. For the portfolio that the Secretary mentioned with

rents significantly above market, in many cases, the face value of

the mortgage is greater than the actual value of the property.

Mr. SHAYS. And hence, why we pay more.

Ms. SMITH. Right.

Mr. SHAYS. OK.

Ms. SMITH. In the case of the portfolio that is prepayment eligible which is below market, in many cases, there is not a lot of debt

remaining on those properties.

Mr. SHAYS. Yes.

Ms. SMITH. They were developed at a time where the mortgage

amount was smaller, the amount of debt remaining on the property

is significantly less. And in many cases, the value of the property

is probably equivalent to the value of the mortgage.

Mr. SHAYS. In some cases, they did not mortgage to the top.

Ms. SMITH. These are sort of two distinct ways in which these

portfolios——

Mr. SHAYS. It is hard for me to understand, though, how we are

in a very good bargaining condition if we still hold the debt insurance and they are basically telling us to pay more than the market

rate. I guess I do not really understand the Mark-to-Market. Are

you suggesting that, basically, we are going to buy down the mortgage by just writing it off?

Secretary CUOMO. You would have to—your point——

Mr. SHAYS. Thank you very much.

Secretary CUOMO. Thank you, Stephanie.

The dilemma you see is the real one. You would have to, under

this proposal, negotiate with that owner as to the bona fide expenses of operating the building, bona fide cost of operations, et

cetera, and what mortgage payment that building could satisfy to

keep it at the fair market rent and then you would have to reduce

in some cases the actual mortgage, write down the mortgage and

in those cases, there would be an expense to the FHA fund. Net,

when you do all of this, you are reducing the Section 8, you are reducing the mortgages. Some are a cost in the reduction of the mortgage because you would literally have to write it off. Net, the cost

is minimal. There are some scenarios where we can even figure out

42

making money with the right tax consequences. But there are scenarios where to reduce the rent you have to reduce the mortgage.

Mr. SHAYS. OK. And then that raises the question in my mind

of whether or not, since we have given a benefit to the owner of

these facilities who have already, frankly, made a lot of money off

of these facilities, they would have continued obligations to keep

them in the housing stream, in perpetuity. In other words, would

there be a quid pro quo for that for writing down the debt?

Secretary CUOMO. That is one of the issues that is being discussed in proposals that are going forward and it depends in whose

opinion. In my opinion, I would say, in the Department’s opinion,

I would say, yes. If we are going to reduce the rent, write down

the mortgage, reduce the rents——

Mr. SHAYS. We pay either way.

Secretary CUOMO. We pay either way.

Mr. SHAYS. Except, we are up for renegotiations. So that is where

we have some strength. If you wanted, you could basically close

them down and then you have the facility. And I would think in

some cases, if you did not have a willing negotiator on the other

side, you just close him down, take over the property. You will look

at those tradeoffs, I would gather.

Secretary CUOMO. And those would all be the tradeoffs on an individual basis. Again, Mr. Chairman, some buildings, you may not

want to renew. Some buildings you may say, this did not work. It

hurt the community. The people who live there do not want to stay

there. So you may choose not to renew a building.

Mr. SHAYS. They have to feel you may be willing to not give them

what they want in order to get what you want from them.

Secretary CUOMO. That’s exactly right. And right now, HUD is

in no negotiating position because if the owners do nothing, they

are basically renewed at the current rent. As a matter of fact, by

law, HUD is prevented from reducing the rent. So you have landlords who if nothing happens, if no legislation is passed, status quo

serve them. They will be rolled over, they will be renewed as much

as 160 percent of fair market rent.

Mr. SHAYS. I am going to get to Mr. Snowbarger in just a second,

but let me just pursue this point. That means, clearly, that you

would be looking to us to strengthen your bargaining position in

Congress, to give you a little more flexibility, I would think.

Secretary CUOMO. That is exactly what we are looking for.

Mr. SHAYS. And so, that will be something that you will be deciding with, I guess particularly Mr. Lazio, and the Senate side, I do

not know who that is. Who is the Senate side?

Secretary CUOMO. Mr. Mack. Senator Mack.

Mr. SHAYS. You will be working with them to figure out how to

proceed on that issue.

Secretary CUOMO. Yes, sir.

Mr. SHAYS. Let me just ask this one last question related to it.

Both GAO and the Inspector General’s Office have questioned the

ability of HUD to take on this massive project. This is going to take

some very smart energetic people who know the marketplace and

a whole host of different places. And you have alerted us so now

we have to be part of the solution. And I am happy you have. The

43

question is what steps are you taking and will be taking so that

you have a strong group within HUD that can take on this project.

Secretary CUOMO. Mr. Chairman, there are two sides to this

issue. The first one we have discussed, the impact, what kind of

legislative authority we need to actually do something about it.

Second, as you accurately point out, if you have the fix, the legislative authority to do a fix, how do you now implement it? Eight

thousand five hundred properties. How do you now implement it

with 8,500 properties across the country?

One scenario would say, ‘‘Well, we are going to bring HUD—hire

more people, increase the size of HUD and we will perform this

task.’’ That is not our recommendation.

We have a plan to downsize HUD. We want to stay on that

downsizing track and our implementation vehicle for this would

look to outside parties, outside third parties, be they housing finance agencies, be they subcontractors, but there is talent in the

private marketplace that can do this very well. This is a very

skilled expertise. These are people who have to be able to come to

the table and negotiate and know the facts because they are

against trained real estate developers on the other side. So our

opinion is there is expertise in the marketplace. Let HUD contract

for the expertise rather than trying to develop it in house.

Mr. SHAYS. I am struck by the fact that you really have almost

a war-room type of situation where I would almost visualize someplace in HUD where you have got a gigantic map and time lines

and so on, especially, if you are going to be farming out some of

this, because this is going to be a massive undertaking.

Secretary CUOMO. It is a massive undertaking. In any scenario,

it is a massive undertaking. It is massive even if you contract it

out. It is massive just to coordinate it. But I think it is a far more

doable task if you contract it out, get the best expertise you can get

out there and then manage the process of contracting out.

Mr. SHAYS. Well, I have not spoken to Mr. Towns and the other

members of the committee, I suspect that we are going to probably

have a few hearings on this issue to weigh in with the authorizing

committees to see how we could provide suggestions.

Mr. Snowbarger, has the gentleman from Ohio asked questions?

Mr. SNOWBARGER. He has not.

Mr. SHAYS. He has not. Do you mind if we—— Mr. SNOWBARGER. That would be fine.

Let me make just two real quick ones.

Mr. SHAYS. Yes.

Mr. SNOWBARGER. Two real quick ones, because they have to do

with the questions.

Mr. SHAYS. You have the floor.

Mr. SNOWBARGER. Thank you, Mr. Chairman.

They have to do with the questions that were asked by the chairman: We are talking about 8,500 properties out there and we are

trying to figure out what our leverage is. Do we have any analysis

of those properties in terms of are they in—now, I have got to figure out how to ask the question right. Are they in markets where

there are excessive units on the market? Are they in markets

where housing is very tight? Obviously, if there are excessive units

on the market, it seems to me we are in a pretty decent bargaining

44

position there. And then, how do those particular contracts relate

to these 200 percent rental subsidies that we were talking about

earlier? Do we have that kind of analysis that you have done already?

Secretary CUOMO. We can get you, Congressman, where the

buildings are. We have a more thorough breakdown of the cities

that you see on that chart. We have a breakdown by city of where

they are across the country. And then we know where the markets

are a little tight or a little soft. We also know the locations within

cities and, obviously, sometimes the housing market changes within different parts of the city. So we have that data and we can get

it to you.

Mr. SNOWBARGER. OK. And then, the last followup was on this

management side of things. I want to congratulate on the job that

you did in terms of downsizing with the Community Planning and

Development and it sounds like that is a part of the process for all

of the Department is a downsizing.

I guess I am curious as to where you see downsizing fitting in

at a point in time when the tasks that you are called upon to accomplish, at least for a short term here, are massively increased.

Secretary CUOMO. That is the challenge, Congressman.

Mr. SNOWBARGER. But apparently, you see that it can be done.

I mean, that is what you proposed.

Secretary CUOMO. Yes. Our plan is we were at 13,000. We are

now at about 10,000. The plan is to go to 7,500. Our challenge is

to not be driven by the number, but change the management plan,

change the mission of the Department which then can work with

a smaller work force. And I think it can be done. It is not—it is

by no means an easy task, but that is why I point to the CPD experience. We reduced the work force 25 percent and administered

more funding, ran more programs, got more things done than when

we had the larger work force. You can do it. You have to rethink

the mission, but we have to rethink the mission of HUD anyway.

Public housing areas. I was saying in response to Congressman

Allen, we have to have a new vision of how we want to manage

public housing in this Nation. The overwhelming majority of public

housing authorities work well. ‘‘Well, then, why are we spending a

lot of time regulating them and monitoring them? Deregulate and

let the high performers work. Focus on the troubled portfolio.’’

You start to make those kinds of changes in your mission, you

can do it. You start talking about contracting out more functions,

especially these highly specialized functions rather than trying to

hire a work force, train the work force, keep them up to date with

all the changes in the tax code and all the changes in the real estate law. Contract out with attorneys and accountants and housing

finance agencies that can do it. Those kinds of changes in the mission will then allow us to make the kind of efficiencies that we are

looking to make.

Mr. SNOWBARGER. You had mentioned earlier devolving a lot of

these responsibilities back to local authorities that have a track

record of managing well. Do you have any feel for how much of this

responsibility can be shifted?

Secretary CUOMO. Well, we have a little bit of apples and oranges. On this task, the Mark-to-Market task, the 8,500 properties,

45

that task is going to be staff-intensive whether we contract out,

whether we do part of it in-house and part of it—I do not see significant, if any, reductions in that area on the multi-family side.

That does not mean you cannot make those reductions in other

parts of the Department. In other words, the work force has to

come down. I am not saying it has to come down everywhere equally. It depends on where you can change the mission. This is not one

of those areas. The devolution is more on the public housing side,

to the high performing public housing authorities, the Portland

Public Housing Authority. If they are working well, devolve the responsibility, monitor them so when they get into trouble, we know

it, but otherwise devolve the responsibility and that is where you

can save staff.

Mr. SNOWBARGER. Well, I guess the question was on the public

housing side. Do you have a feel for how much of that can be devolved at this point? Or is it just anecdotal? You know, this one

works well. That one works well. We do not have any idea—— Secretary CUOMO. We are going to have a draft of a specific proposal in the next several weeks, Congressman, but the overwhelming majority of public housing authorities work well. It is a

handful that are the so-called troubled housing authorities that

really require attention.

Mr. SNOWBARGER. Thank you, Mr. Chairman.

Mr. SHAYS. If we could, we will get further into the troubled

housing authorities.

Mr. Kucinich.

Mr. KUCINICH. Thank you very much, Mr. Chairman.

Mr. Secretary.

Mr. SHAYS. And I think what we will do is we will go 10-minute

cycles now. OK?

Mr. KUCINICH. Thank you.

I have been informed by staff of the ongoing discussion you have

had about the Section 8 program and I have also been informed

that the housing court in the city of Cleveland has been experiencing a very brisk trade in evictions in connection with landlords

and contractors involved in Section 8. What I would like to have

happen is for somebody from your office contact the Cleveland

Housing Court, Judge Ray Biantra is the administrator of it, and

to see if there is anything that can be done to effectively intervene

to try to protect people from being thrown out of their homes.

I mean, the problem of homelessness in this country, as all of us

agree, is serious enough without contractors taking advantage of

various provisions that HUD may have. And you know, perhaps it

is within your authority to intervene to see if you can protect some

people from being thrown out on the street. So I would really like

you to look into that and I just wanted to mention that in connection with this overall discussion about the program, if you would.

Secretary CUOMO. It would be my pleasure, Congressman. I am

not familiar with the specifics that are going on in Cleveland, but

we will be shortly, as soon as we leave the hearing. As you know,

there are protections within the Section 8 program, and we will

find out what is going on.

Mr. KUCINICH. Yes. I have just been informed just now, myself,

and I thought I would notify you.

46

A question I have, Mr. Secretary and Mr. Chairman, there have

been instances in the past in which local governments have attempted to use community development block grant funds to attract jobs and companies from other States. I wondered if it is your

policy as Secretary if you thought it was appropriate use of community development block grant resources to be attracting, using

those resources to attract jobs and companies from one State to another?

Secretary CUOMO. No, sir. We have been aggressive in promoting

the use of CDBG for economic development purposes. CDBG is one

of the largest programs HUD administers, $4.6 billion, 20-year program. So it has consistency, continuity, an entire infrastructure

that understands how to use it. Historically, it was not used for

economic development. It did a lot of good things, social services,

infrastructure, public services, but not economic development primarily because HUD had not steered the program that way. It was

part of the President’s empowerment agenda, trying to get jobs into

cities. We have been pushing the CDBG program as a way to attract businesses, grow businesses, small business loans, micro-enterprise loans, community development banks, all can be done by

CDBG.

There is a specific prohibition against what they call piracy. New

definition of piracy. It is no longer on the high seas. For us, it is

stealing businesses from one city to the other by using EZ and EC

dollars. So that is specifically prohibited.

Mr. KUCINICH. Now, when you say it is prohibited, is it by regulation?

Secretary CUOMO. Yes, sir.

Mr. KUCINICH. By administrative rule? By what?

Secretary CUOMO. I know it is prohibited by regulation. I do not

know if it is in the law. I believe it is regulation.

Mr. KUCINICH. Excuse me?

Secretary CUOMO. I believe it is by regulation, sir.

Mr. KUCINICH. OK. And when were those regulations promulgated?

Secretary CUOMO. I do not know, but I can check. The anti-piracy

regulations on the CDBG?

You stumped the entire staff on that one, Congressman. It does

not happen often, but we can find out, and we will get back to you.

[The information referred to follows:]

The Empowerment Zones and Enterprise Communities Initiative, which benefits

105 urban and rural areas including Cleveland, Ohio, prohibits using funds to relocate businesses from one area to another [Section 1391(f)(2)(F) of the Omnibus

Budget Reconciliation Act of 1993.]

The Community Development Block Grant program requires communities to use

the funds in such a way that minimizes the displacement of existing businesses

[Section 105(a)(17) of the Housing and Community Development Act of 1974.] However, the 23-year old program does not clearly restrict the use of funds to relocate

businesses from one area to another.

Mr. SHAYS. And that is not, certainly, our objective. There may

be a number of questions, if I could just at this time say that if

we are not able to answer, we will just get the answer.

Mr. KUCINICH. OK. That is fine. And I agree with the Chair. It

is not my intention to raise questions that cannot be answered. I

would like to find out what the policy is to make sure that it is

47

in place and to make sure that it is enforced, that there is not any

movement of jobs being occasioned through the use of Federal

funds in community development block grants. And I appreciate

your expression of what your policy is, because that is going to be

very comforting to those of us who are concerned about keeping our

jobs in our communities and when I was mayor of the city, we used

that community development block grant program to go to, in fact,

to improve the infrastructure of neighborhoods. And that, in turn,

was responsible for helping to spark some local investment and

helped a lot of the businesses in the area. So I know about the

value of that program and I am pleased to see that you are intending to make sure that communities are protected in the use of

those funds. And I am very gratified to hear your policy. I just like

to know the history on it.

I have one other question, if I may, Mr. Chairman.

And this may be another one that, perhaps, you have already decided on and as a new Member, you may help me to catch up on

some of these issues. Before August 1996, I understand that HUD

had a J–1 visa waiver policy that allowed foreign physicians to

come into the United States and practice medicine in under-served

areas in the city where poverty-stricken people live. The program

helped to provide medical services to many people in lower income

communities. I wondered what the status is of that policy.

Secretary CUOMO. Congressman, could I just quickly step back to

your other issue on the tracking business. It’s a CDBG issue. It has

also been an empowerment zone issue. Cleveland is also an empowerment zone city and one of the problems is moving businesses

from one city rather than creating new jobs. And both were related.

And I will get you information on both, the empowerment zones

and the CDBG.

Mr. KUCINICH. I would be interested in that because, of course,

the empowerment zone is of great concern to Cleveland. I think we

received over $100 million.

Secretary CUOMO. Yes.

Mr. KUCINICH. In a program that has great implications for a

large area of Cleveland. So your looking into that would also be

very much appreciated.

Secretary CUOMO. Fine. I will do that, sir.

Second, on the J–1 visas. We are trying to get HUD downsized

and we are trying to get HUD to focus on our core mission. Some

tasks that are good tasks have to give way understanding the realities of the downsizing, et cetera. The J–1, the J–1 visa program,

well, I think very intelligent in its intent, was difficult for HUD to

administer. We were not really in a position where we can police,

verify whether or not the doctors are then working in the areas

where they are supposed to be working to qualify for these visas.

It is not in our usual portfolio, the function of monitoring doctors

and verifying where their service area is.

We discontinued the J–1 visa program at HUD. And we are now

considering what, if anything, should be done about it, but the program is now discontinued.

Mr. KUCINICH. I would like to say on behalf of my constituents,

Mr. Chairman, and members of the committee, that there is a

great concern in areas such as Cleveland, particularly where forVerDate 11-MAY-2000 13:58 Apr 29, 2002 Jkt 078763 PO 00000 Frm 00051 Fmt 6633 Sfmt 6602 E:\HEARINGS\39819 pfrm09 PsN: 39819
48

eign physicians have given their services in under-served areas,

that the J–1 visa program be continued and I—on the one hand,

it is comforting to know that the reason for its discontinuation

were more administrative which I suppose relates to the dollar

issues and not that the program, itself, proved to be a failure. What

I think would be helpful, as we are all government looking at ways

of doing better with Federal funds, it would be good to see if a cost

benefit analysis was arrived at with respect to that program. To

see if a discontinuation of it is not really more expensive in terms

of the toll on the health of the people in the areas where these physicians were looking. I would really appreciate it if you could do

that, because it would at least give us a chance to make an evaluation as to whether or not it was in the interest of the people to do

that. I would really appreciate it if you would consider that, Mr.

Secretary.

Secretary CUOMO. We will, Congressman.

One of the points I tried to get to in my opening statement was

there were two focuses at HUD: (1) Section 8 crisis; (2) management. Part of the management is restoring the public trust. I want

to make sure that if we are administering a program, we are sure

that it is being run properly.

On the J–1 program, there was some suggestions that the certifications that were being put in, that doctors were working in those

areas, that there were some cases where that was not actually the

fact. And especially given the nature of this committee, I want to

be able to say that if we are running a program, I know that it is

working well and that we are in a position to run this program.

And that is one of the issues that was with the J–1 program,

whether or not the doctors were actually where they were supposed

to be to get the visas in the first place and what was HUD’s capacity to make sure that was the case, but we will—I will give you

the analysis that we have done back at the Department. And then

if you would like to chat about it, it will be my pleasure.

Mr. KUCINICH. Well, again, thank you, Mr. Chairman. I just

want to conclude this round by saying that this is a very important

department for so many of our urban areas. And as a person who

represents a substantial part of the city of Cleveland, I am grateful

that we have a Secretary who is showing this sensitivity to these

issues and I think that it augers well for your relationship with the

Congress. And I thank you so much for being here.

Secretary CUOMO. Thank you, sir.

Mr. KUCINICH. Thank you, Mr. Chairman.

Mr. SHAYS. I thank the gentleman.

Mr. Pappas.

Mr. PAPPAS. Thank you, Mr. Chairman.

Mr. Secretary, again, congratulations to you.

Secretary CUOMO. Thank you.

Mr. PAPPAS. I want to shift gears a bit and talk about two programs that I dealt with as a county official in New Jersey, that

being the community development block grant program and the

HOME Program.

First, a comment. The way it was structured, I believed was

probably a great example of how even at times the Federal Government can allow great flexibility at the local level where local govVerDate 11-MAY-2000 13:58 Apr 29, 2002 Jkt 078763 PO 00000 Frm 00052 Fmt 6633 Sfmt 6602 E:\HEARINGS\39819 pfrm09 PsN: 39819
49

ernment officials can include people from municipal government

and from the community to help make decisions. At least that is

how we did it in Somerset County, NJ. And for my more than a

decade as a county elected official, the CDBG program was very effective and one that really helped meet needs that were addressed

in neighborhoods and communities. I think we need to do more of

that. The HOME Program is not as old, at least my involvement

is not as long standing; but, again, I felt that is a great example

of how local governments could very effectively deal under some

broad Federal guidelines, but we could meet identified needs at the

local level. I would just encourage you to—you and your colleagues

here from the President’s cabinet to do that as frequently as possible.

Having said that, I am wondering if you could just comment and

I apologize because you may have covered this while I was absent

from the room, but if you could just comment as to how you view

those programs and how you view their continuation in your overall priorities.

Secretary CUOMO. Congressman, thank you for the opportunity

and thank you for the comment. The CDBG program and the

HOME Program, I would just affirm everything you said with the

only stipulation that I put a exclamation mark at the end of the

paragraph. CDBG and HOME, to me, are as close to the model of

Federal, local, State relations as you can get, because what they

say is everything we have been talking about for the past few

years: devolution, local control. But—but, not a blank check block

grant. Right? Oversight committee. We want to make sure the

funds are going to where they are supposed to go. Federal, Federal

purpose.

And that is basically what CDBG and HOME do. They say, ‘‘This

is the Federal goal, Federal purpose. This money is supposed to go

to provide housing affordability to low and moderate income people,

basically, the HOME Program.’’ Federal goal, but let the local community figure out how to do it. We cannot sit here and decide what

housing policies work for Somerset County or what community development needs are No. 1, 2, 3 in Somerset County.

Let’s set the Federal goal, affordable housing, community development for low and moderate income people under CDBG. Let

Somerset County figure out how to do it. Let them set the local

means. One caveat and one caveat only, they should include the

community when they start making those decisions, citizen participation process. CDBG started as a Republican program—since it is

bipartisan and in my opinion really a great model of what should

happen.

The HOME Program follows the basic template of CDBG. And as

the Congressman points out the HOME Program has only been

around since 1992, so it does not have the same institutional bearing or experience that CDBG does, but it is the same template:

Federal goals, local means, involve the community, let the community decide. And those are the two mainstays of HUD.

You know, when people talk about HUD, we have the FHA housing side, public housing and then the community development side

and the HOME and the CDBG program are the two pillars of community development. And where the funding goes in HUD, $4.6 bilVerDate 11-MAY-2000 13:58 Apr 29, 2002 Jkt 078763 PO 00000 Frm 00053 Fmt 6633 Sfmt 6602 E:\HEARINGS\39819 pfrm09 PsN: 39819
50

lion, I believe the largest single program is CDBG. And it works

well almost universally.

Mr. PAPPAS. We have had over the years, when I was county official, there were probably only three occasions in the 12 or more

years that I was involved in it there was any kind of a question

or objection from the community. And when you are dealing with

21 municipalities and my county and the number of local officials,

municipal officials that we got involved and people from the community, that is quite a track record. And I would even just, in conclusion, would just add that I think the HOME Program was even

as good as the CDBG program is, the HOME Program, I think, is

even improved—it is an improvement in that I viewed there is almost less bureaucracy involved, at least that was my experience in

New Jersey in the administration of it.

Secretary CUOMO. Well, Congressman, we ran the HOME Program—actually, 4 years ago at my confirmation hearing and the

confirmation of Secretary Henry Cisneros, the complaint was the

HOME Program, which at that time was not spending, because the

department had so many regulations on it, at that time 4 years

ago, only 3 percent of the money had been spent because there

were so many regulations. And it was made clear to me at the Senate confirmation that they wanted that changed. Today, we have

a spend-out of about 92 percent of the HOME Program, 110,000

units built. So it is working.

I do not like to say which is better, HOME or CDBG, because

that gets me into trouble, but they are both working well.

Mr. PAPPAS. Let me just say one other thing. You’re right. People

back home, I hope they do not hear that I said that, but the community support, the understanding that they have of how well it

works I think has been great. And I also think for both programs

the pressure that there is to make sure that this money is spent

within a reasonable amount of time I think is very appropriate.

There are many non-profit agencies or most instances whenever

there has been a proposal for some sort of housing, it is not housing rehabilitation of people’s homes that meet the criteria, but

where there have been non-profit community-based organizations

whether it is for people and whatever their circumstances. Some

just have not been able to put it all together and within a couple

of years they are not able to and that money has been reallocated

and it just works very well.

Secretary CUOMO. Thank you.

Mr. PAPPAS. Thank you.

Mr. SHAYS. I thank the gentleman.

At this time, I will call on Mr. Towns.

Let me give you an idea, Mr. Secretary, I know you have pressing needs and you have been very generous with your time. It is

about 15 of, now. We are going to get you out of here no later than

15 after and maybe sooner.

Secretary CUOMO. Mr. Chairman, whatever works. At the pleasure of the committee, my time is yours.

Mr. SHAYS. Thank you. You have been very cooperative, but it

will just give your staff an idea of how much. We will proceed

about a half-hour more. Thank you.

Mr. TOWNS. Thank you very much, Mr. Chairman.

51

There was testimony earlier about the empowerment zones and,

of course, empowerment of communities. Could you sort of give us

an assessment? I know you have not been around that long in

terms of your views, your feelings as to how they are working up

to this point?

Secretary CUOMO. Congressman, I think the empowerment zone

initiative, the empowerment zone program as designed by the Federal Government is working well primarily because it allows for the

individual circumstances that different cities and different communities bring. How are the empowerment zones doing? Which I think

is a different question than how is the empowerment zone program

doing. The empowerment zone program is doing well.

Mr. TOWNS. I agree with you.

Secretary CUOMO. The empowerment zones, it depends. It depends on what zone in what city in what context. The Cleveland

zone is going very well. Really going gangbusters. I have been to

the city a few times. They are actually attracting businesses from

the suburbs back into the city with the empowerment zone, which

is the exact opposite cycle that we have been seeing, businesses

moving out of cities to suburbs. So Cleveland, it is working very

well. Comprehensive, the communities involved, and it is bringing

back jobs which is the purpose of the program.

Some other cities we have had more obstacles in the startup.

Sometimes political obstacles, sometimes community obstacles.

Some of the situations that we are trying to solve are more complex

and they have opposition existing between and among community

groups. And then the empowerment zone has to work through that

context. So I think it depends. But the program, itself, is doing

well. By and large, the cities are doing very well, some better than

others.

Mr. TOWNS. Thank you very much. In New York State, in particular, we have been hearing a lot about privatization. You can go

to any housing development and another rumor has started that it

is going to be privatized. And of course, I am not saying, it is good,

bad or indifferent. I think the real question is based on what has

happened in Louisiana, and similar where there have actually been

some selling of, what happens to the poor and the homeless if that

happens? Is there any provision for them if there is move toward

privatizing?

Secretary CUOMO. I think, Congressman, there is no silver bullet

and sometimes we struggle for one solution that sounds like it is

the panacea and it is going to solve everything. And I think in that

context, sometimes privatization is thrown around. We privatize

and then, presto, change-o, all the problems are gone.

I do not think it is a silver bullet. I think it has its place in some

contexts and we have had good experience with privatization in

some context. I think it is always, when you talk about privatization, it is always important to make sure you protect those whom

it may not be in the private interest to serve. And that has to be

factored in. Otherwise, it will not work for those who most desperately need the help which is the point of the program in the

first place.

Mr. TOWNS. Mr. Chairman, I yield back. But I also, just before

I yield back, want to say that I am impressed with your sensitivity,

52

I am impressed by your commitment and your dedication. So I

want to let you know I look forward to working with you and trying

to be able to solve some of these problems. I know it is going to

require a lot, because, let’s face it, when you are cutting a budget

the way you are cutting it and at the same time the need for services are increasing, you have to almost be a miracle maker. What

we are saying to you is that I am hoping that this committee along

with the Congress will join you in terms of trying to be able to

come up with some solutions. So I look forward to working with

you.

Secretary CUOMO. Thank you very much, Congressman. Thank

you.

Mr. SHAYS. I thank the gentleman.

I am going to focus in on the distressed public housing, but I just

want to touch on the fact that you clearly have a massive undertaking here. Is it your intention to suggest reorganization of HUD?

Are you going to be coming in with any plan? Or are you just going

to be responding to proposals that have been made by others?

Secretary CUOMO. We will be coming in with a management plan

for HUD, Mr. Chairman. We will be coming in with a plan that is

driven by a new vision of the mission of the Department, how to

accomplish that and then a downsizing plan for the work force in

response to the revised mission.

Mr. SHAYS. Thank you. And clearly, your management needs are

acute. I mean I would say that to whoever was Secretary. I would

also say to you because I know it is so significant, I have some

sense of patience about how long it will take and so on, but it

would seem to me—if I were Secretary, I would almost have a crisis management team on this issue, I would have a crisis management team on management. And the other area that I am concerned about is the whole issue of distressed public housing. I am

pretty convinced from my obviously limited experience in my own

district, because I just have 10 towns, but I have a Stanford, a Norwalk, and a Bridgeport, but I have been on this committee, now,

for 10 years and one of the things that surprised me is if you have

a capable and talented public housing authority that really uses

money well and does not try to hire people for political reasons, but

just hires the best and the brightest, you can do extraordinary

things. If I can get a little parochial, I just am extraordinarily impressed with the housing director in Bridgeport and what HUD has

been able to do with this housing authority. And Mayor Ganum

happens to be a Democrat who has been a very good leader of that

community.

Mr. TOWNS. Most Democrats are. [Laughter.]

Mr. SHAYS. That is true, most are. And in one case, in one case,

one of the most is in Bridgeport. Now, I could say all Republicans

are—[laughter.]

But I am concerned. I think we provide a lot of money to public

housing authorities. And if they use it well, they can use it to leverage, they can do a lot. But what concerns me is that I do not

think there is a real plan on how you decide when to take over a

public housing authority. And I do not know how you wean them

off the list. And if you could just touch a little bit about troubled

housing authorities?

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Secretary CUOMO. Yes, sir, Mr. Chairman.

First of all, on your overall point about the serious nature of this

problem, I could not agree with you more, and we do very much

have a crisis mentality on this issue. And I said in response to Congressman Snowbarger, we have a downsizing plan, a management

plan, but it is driven by how to get the job done. It is not a numbers game. And we will have personnel where we need personnel

and we need personnel to work this out.

Mr. SHAYS. You are talking about Section 8.

Secretary CUOMO. Section 8.

Mr. SHAYS. Yes.

Secretary CUOMO. Even though we want to go primarily to third

party outside sources to implement it, we still have to make sure

it is done right. So this is no doubt a priority.

On the distressed public housing, I could not agree more. Where

you have a good public housing authority, it is amazing the kinds

of things that they can do. Father Panis Village Hope Six Grant

which basically just—program on Hope Six was those comprehensive solutions devolved to the local authority, learning the lessons

that we have learned, but let the local authorities work it out. And

it has been working quite well. And what we would like to see on

the public housing side is more devolution, deregulation to those

high performing PHAs. Let us focus on the distressed public housing authorities.

And then the chairman raises another interesting point: What is

a distressed public housing authority? At what point do you become

a distressed public housing authority? HUD has a grading system.

We call it PHMAP, but it is actually a grading system that grades

the management of a housing authority. And you get a score. You

then have a passing score or a failing score. If you fail, you are now

a troubled housing authority. If you pass, you are an acceptable

performer. That score, that PHMAP score which we have revised

recently, we are going to have discussions about revising it again,

especially if we move more toward deregulation, because then that

score is very important. Based on that score, you will decide to deregulate or not. And that is the PHMAP score. And as I said, it

has just been revised within the past several weeks and we are

going to take a second look at it, especially if we go more toward

deregulation.

Mr. SHAYS. It just strikes me that you have a danger of making

sure that you do not manipulate it or game it. There are so many

ways you can make a decision on who is distressed. Obviously, you

have to have gradations. And I suspect that even with the limit of

staff that you have that you are going to have a hard time dealing

with all the distressed public housing that you have.

What I am trying to understand is do you have a management

team that focuses on this? A management team on Section 8, a

management team that focuses in on distressed public housing? A

management team that is focusing just on management problems?

Secretary CUOMO. Yes. You have the three main program areas.

We are talking about, one is the housing department. Nick

Retsinas, Stephanie Smith is the deputy who is here today. You

heard from her earlier. That is basically working on this as their

top priority. The Section 8 crisis is their top priority.

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Mr. SHAYS. Right.

Secretary CUOMO. Public housing, Assistant Secretary Kevin

Marchman is focusing on the public housing problem and we are

focusing on that PHMAP monitoring score, how to deregulate high

performers and how to handle the distressed public housing in this

country without HUD running out there and managing every

project. The third program area is community planning and development. That is the HOME Program, CDBG, and then fair housing

would be the fourth.

Mr. SHAYS. I am just going to express some concerns and then

I will be done and I do not know if any Member just wants to jump

in for later. It seems to me that there is obviously multi-discipline.

One of the things I was amazed to find is the Department of Agriculture has public housing for rural areas. And that was a surprise

to me. But I mean I can see a tough decision for you as Secretary

to decide, ‘‘Well, do you get into policing? Do you get into drug control issues? Do you get into welfare reform?’’ And I would think in one sense the answer is, yes. And the other

way, you are just saying, ‘‘Well, my gosh, I am just dangerously

spreading myself and the Department too thinly.’’ I am not asking

for a indepth explanation, but tell me how far you take the interdisciplinary and where do you sometimes bring another department in or do you say, ‘‘Heck, we can do it and we should do it?’’ Secretary CUOMO. I think, Mr. Chairman, you have to do both.

I think the interdisciplinary is almost forced, if you are going to

make any of these things happen because we talk about comprehensive solutions on the community level. Community development people, local housing authorities will say, ‘‘We need comprehensive solutions, otherwise it doesn’t work.’’ They will talk

about holistic solutions. They will talk about continuums. They will

say, ‘‘I cannot just do housing. I have to do housing and community

development and I have to have the jobs or else none of this

works.’’ That, by definition, is interdisciplinary. How do you do

that? I think on the highest level, it is interdisciplinary among Federal departments. Cooperation among Federal departments. It is

the point of the Vice President’s Empowerment Board that cross

cylinders, cross Federal departments, bring that coordination.

And then within HUD, it is the same thing. When we go to talk

to a city of Bridgeport or any city in the country and we say, ‘‘We

are here to help,’’ they do not ask us just for housing. They need

housing, but they need more than housing. And they need that

housing in a context. And they ask for economic development assistance, which we have a very large portfolio we did not really talk

about today, but we have significant efforts in economic development, job creation, which is more and more a priority. Welfare reform: at one point, the time limit is up. Somebody needs a job, otherwise nothing is going to work. They need the economic development. They need the policing. They need safety in public housing.

‘‘One strike and you’re out.’’ ‘‘Operation Safe Home.’’ Initiatives

that we have. CDBG works in that area. They need the community

development and they need the housing. So I think for us to do our

job, we have to be able to come up with a comprehensive solution,

albeit in a very intelligent and efficient manner, given all the other

constraints.

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Mr. SHAYS. I am just going to make a few observations and I welcome any of the other Members—we are going to get you out by

15 after, but—— Secretary CUOMO. Whatever. Take your time.

Mr. SHAYS. I know. The problem is not on your side.

One is that I spent about 3 years, but a year really focused on

how do we rebuild cities, since I represent three. And we met with

every conceivable group. And when we came right down to it, we

came down to this basic answer: the way you save urban areas is

to bring businesses back in to do two things, to pay taxes and help

create jobs. And of all the things, so I know that this Congress is

not as eager to have HUD in economic development, but if you

gave me a choice, frankly, of fixing up public housing in some instances or providing an area where you could bring in a business

and they could employ people there, I would encourage that.

Now, one of the ways I think that HUD can serve in a very dynamic way, you have the issue of impacted/non-impacted. And I

will not even localize it to a particular community. But in an area

where you are redoing significant public housing, your requirement

is to go into a certain number of non-impacted areas. And non-impacted areas sometimes tend to be low-zoned areas where you do

not have as much density. And one of the things that we found in

one of our communities is that when we did the vouchers, we actually created something we did not intend. We took home-owned

neighborhoods that were mixed. Black, Hispanic, white, but they

were home-owned. And they were solid. And then Section 8 came

in and really in some cases Section 8 pays more than the vouchers,

paid more than the market rate, which is kind of interesting. And

they came in and they ended up making some streets rental instead of home-owned. And it had a very kind of negative, unintended impact. And the irony was that in one of my communities,

the public housing is better than the neighborhood. They have a

flag. They have a shield up front pointing out this is public housing. It is well-maintained and they have upgraded neighborhoods.

And it would seem to me that one of the ways to rethink the whole

issue of impacted and non-impacted would be to give communities

some leeway if in the process of building more and impacted, they

have a partnership and require them to have partnership with the

business community and others to do economic development, store

fronts, a whole host of other things that really—then you have

taken the public housing that has been a catalyst for economic development without even your putting money in. But basically saying, ‘‘OK, we will forego to some measure the impact and non-impacted, but we have different requirements now. You have to upgrade the community economically by your doing that.’’ And it may

be a way for you to do that interdisciplinary just because of the

carrot that you have of saying, ‘‘Well, if you don’t, you are going

to go into single family neighborhoods.’’

I mean the silly thing was that we were having in one of our

communities, HUD was buying individual homes, just a plethora of

them and having minimal impact over all. So that is just the one

thing I just want to share with you.

Do you have anything you would like to share?

Mr. TOWNS. Thanks, Mr. Chairman.

56

Mr. SHAYS. We usually close by asking is there any question that

you wish we had asked. And also, with your indulgence—sometimes the staff who get to enjoy not saying anything, but also think

a lot in terms of your response to our questions—if any of your

staff want to make a point, we would welcome that. If there is

some point in hearing these questions and the answers of the Secretary, we would welcome you doing that. And I do not think the

Secretary would mind, because I am sure you would not contradict

him. But do any of you want to make an emphasis?

Secretary CUOMO. They are a shy group, Mr. Chairman.

Mr. SHAYS. They are shy.

Secretary CUOMO. Here, they are a shy group. Not at HUD. I can

promise you that.

Mr. SHAYS. No, but they are sizing you up. Any question that you

wish we had asked? [Laughter.]

Secretary CUOMO. Let me say, if I might, Mr. Chairman, I hope

we have made clear in this hearing and I know that the committee

stated it in your opener, so you did not need us to bring it to your

attention, but if we could reaffirm it, hopefully, the Section 8 problem we need help with. It is a desperate situation for the Department. I have been told by people who have been at the Department

from day one that this is the greatest crisis HUD has ever faced.

Forget the 1980’s and the scandals and everything else. This is it.

And it is not just for the Department. This is not an inside-thebeltway story.

Mr. SHAYS. Yes.

Secretary CUOMO. This is every city across the country—6 million Americans. This will be the legacy of affordable housing between now and the year 2000. What happens here will be what we

did with affordable housing as a Nation. And we need your help.

We cannot do it without Congress. We understand that.

Second, on the management, that is something that we can do.

That will be our priority. I have heard this committee, I have seen

it in your correspondence earlier, it will be my personal priority

and we will be working on it. And I hope to have in 18 months noticeable change that we can report back to the committee. And beyond that, Mr. Chairman, again, my 4 years as Assistant Secretary

showed me the only way anything happens is when it happens together, bipartisan, with Congress; and I am looking forward to a

productive relationship and I think we can do good things. We have

real challenges here, but we also have real opportunities. And met,

we can make things better than they are today if we work together.

Mr. SHAYS. Do you want to just thank the Secretary?

Mr. TOWNS. Right. Mr. Chairman, thanks a lot.

I would just like to thank the Secretary for coming and that I

really think that he shed a tremendous amount of light on many

subjects. And of course, as I indicated early on, I look forward to

working with you. It just feels good to have someone that truly understands the problems out there. And I think that also makes a

major difference. Sometimes you get a new Secretary, they have to

spend 21⁄2 years getting familiar with the problems that are out

there. And then by the time they get familiar with the problems,

they are gone. Your situation is so different. You are thoroughly familiar with the problems and we look forward to working with you.

57

Secretary CUOMO. Thank you.

Mr. SHAYS. I concur and thank you again for coming. Have a

great day.

Secretary CUOMO. Thanks for having us.

Mr. SHAYS. This hearing is adjourned.

[Whereupon, at 1:05 p.m., the subcommittee was adjourned.]

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