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84–744 PDF 2003

S. HRG. 107–839

HUD’S FISCAL YEAR 2003 BUDGET

AND LEGISLATIVE PROPOSALS

HEARING

BEFORE THE

COMMITTEE ON

BANKING, HOUSING, AND URBAN AFFAIRS

UNITED STATES SENATE

ONE HUNDRED SEVENTH CONGRESS

SECOND SESSION

ON

THE EXAMINATION OF THE PRESIDENT’S PROPOSED BUDGET AND THE

LEGISLATIVE PROPOSALS FOR FISCAL YEAR 2003 FOR THE U.S.

DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT

FEBRUARY 13, 2002

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

(

COMMITTEE ON BANKING, HOUSING, AND URBAN AFFAIRS

PAUL S. SARBANES, Maryland, Chairman

CHRISTOPHER J. DODD, Connecticut

TIM JOHNSON, South Dakota

JACK REED, Rhode Island

CHARLES E. SCHUMER, New York

EVAN BAYH, Indiana

ZELL MILLER, Georgia

THOMAS R. CARPER, Delaware

DEBBIE STABENOW, Michigan

JON S. CORZINE, New Jersey

DANIEL K. AKAKA, Hawaii

PHIL GRAMM, Texas

RICHARD C. SHELBY, Alabama

ROBERT F. BENNETT, Utah

WAYNE ALLARD, Colorado

MICHAEL B. ENZI, Wyoming

CHUCK HAGEL, Nebraska

RICK SANTORUM, Pennsylvania

JIM BUNNING, Kentucky

MIKE CRAPO, Idaho

JOHN ENSIGN, Nevada

STEVEN B. HARRIS, Staff Director and Chief Counsel

WAYNE A. ABERNATHY, Republican Staff Director

MARTIN J. GRUENBERG, Senior Counsel

JOSEPH R. KOLINSKI, Chief Clerk and Computer Systems Administator

GEORGE E. WHITTLE, Editor

(II)

CONTENTS

WEDNESDAY, FEBUARY 13, 2002

Page

Opening statement of Chairman Sarbanes ........................................................... 1

Opening statements, comments, or prepared statements of:

Senator Allard ................................................................................................... 8

Prepared statement ................................................................................... 38

Senator Miller ................................................................................................... 10

Senator Carper ................................................................................................. 11

Prepared statement ................................................................................... 38

Senator Reed ..................................................................................................... 14

Senator Corzine ................................................................................................ 17

Prepared statement ................................................................................... 39

Senator Crapo ................................................................................................... 21

WITNESSES

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

Development ......................................................................................................... 3

Prepared statement .......................................................................................... 40

Thomas L. Jones, Managing Director, Habitat for Humanity International,

Washington Office ................................................................................................ 23

Prepared statement .......................................................................................... 41

Sheila Crowley, President and Chief Executive Officer, National Low

Income Housing Coalition ................................................................................... 27

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

Response to written question of Senator Sarbanes ....................................... 59

Joseph F. Reilly, Senior Vice President, JPMorgan Chase Community

Development Group, on behalf of the National Association of Affordable

Housing Lenders .................................................................................................. 29

Prepared statement .......................................................................................... 57

ADDITIONAL MATERIAL SUPPLIED FOR THE RECORD

Housing Wage Chart submitted by the Low Income Housing Coalition ............. 60

Endorsement letter submitted by Shelia Crowley ................................................ 61

U.S. Conference of Mayors Resolution, dated June 2001 ..................................... 91

(III)

(1)

HUD’S FISCAL YEAR 2003 BUDGET

AND LEGISLATIVE PROPOSALS

WEDNESDAY, FEBRUARY 13, 2002

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

The Committee met at 11:10 a.m., in room SD–538 of the Dirksen Senate Office Building, Senator Paul S. Sarbanes (Chairman of

the Committee) presiding.

OPENING STATEMENT OF CHAIRMAN PAUL S. SARBANES

Chairman SARBANES. The hearing will come to order.

We delayed the start of the hearing, and we may be interrupted

due to a series of votes. Oh, I can ignore those particular lights.

Pavlov should have done his experiments here in the Congress.

[Laughter.]

He could have used real, live humans, you know. Secretary Martinez, we are pleased to welcome you back before the Committee.

We appreciate your willingness to be here with us this morning. I

know that you have a previously scheduled meeting with the House

Subcommittee on Housing this afternoon. We are very mindful of

that, and I want to express my appreciation to the panel that is

going to follow the Secretary for their patience in staying with us.

Hearings that we held last year showed that the need for affordable housing in America continues to grow. Nearly 5 million lowincome American families pay over half their income in rent each

month, a situation which HUD itself describes as a worst case

housing need. These numbers undoubtedly will grow as unemployment rises. Actually, there are more and more working families

that are confronted with this problem. We have seen a decline in

the number of affordable rental units and decreasing vacancy rates.

There is some very helpful material in the testimony we are

going to hear later in the morning from the National Low Income

Housing Coalition about the extent and depth of the low-income

housing shortage in the country. They estimate that about 14 million households have serious housing problems, comprising over 13

percent of all households in the country. And of course, we are

using this housing wage concept to measure affordability and to indicate the severity of the housing problem.

The housing wage is the hourly wage that one must earn to be

able to afford modest rental housing if one works full time, 40

hours a week, 52 weeks a year. This is based on a family paying

no more than 30 percent of their income for housing. In making

this calculation, the Low Income Housing Coalition points out they

2

use HUD’s fair market rent as a proxy for rental housing costs.

That is a standard measure and differs by jurisdiction. The fair

market rent also represents what HUD says is the necessary rent

to be paid to afford housing that is decent and safe. It is set at the

40th percentile of rental housing costs. In any event, the housing

wage ranges from $8.50 an hour in West Virginia to $18.33 an hour

in California. In other words, you have to earn that hourly wage

in order to afford this housing standard, so we can see there is a

gap between what people earn and what housing costs them, and

it obviously puts them in a tremendous squeeze. This disparity between income and housing costs is one of the reasons that the Committee has been so concerned about this matter.

Mr. Secretary, I am not going to take the time to go through the

specifics of the budget. We will do that in the question period. We

are supportive of your stated efforts to expand minority homeownership. I think that is a very important objective.

I might note, however, that the NAACP, the La Raza, and the

National Hispanic Housing Council, have written to you about the

yield spread premium problem and how the use of yield spread premiums really runs counter to your announced intentions to try to

aid minority homeownership.

Finally, let me say—and we will need to discuss this later—there

is something of a problem that seems to have developed in terms

of consultation and effective interchange between staff at HUD and

staff of the Committee. The relationship between the Department

and the Committee is a complex one. On one level, we discuss and

debate the content of policy positions, budgets, legislative proposals, nominations, and the like, and often we are in agreement.

We try hard to see to maximize that. Sometimes we are in disagreement. But in addition, the Committee has the responsibility

for maintaining oversight over HUD’s operations and to see that

the Department carries out its programs and policies in an efficient

and effective manner.

In order to discharge that function, we really need a good interchange between Committee’s staff and HUD’s staff. We have encountered some difficulties in this regard, and I just wanted to

raise it to your level. I am not sure it has had the kind of visibility

at the Secretary’s level that it deserves. I can do chapter and verse

with you some other time. I will not take the time to do that now.

We really need a commitment by the Department to make senior

staff available to the Committee staff on a regular basis, so we can

follow what is going on at HUD. Sometimes we are finding out

about major changes at HUD through the grapevine, through outside parties and so forth, and I do not really think the system

should work that way. It is not a healthy way to proceed.

In closing, let me just note that the U.S. Conference of Mayors

has just passed a resolution supporting the establishment of a

housing production program which is not present in this budget.

We will probably address that in this hearing. Their resolution also

supports increased preservation of existing affordable housing and

a national strategy to meet the needs of the homeless. I know you

have a proposal on that and we look forward to hearing about that.

We are pleased to have you back before the Committee. I know

a number of my colleagues intend to join us but they may actually

3

be waiting for the final vote to take place. I thought we had better

get started, given that you have to go over to the House side, and

we want to honor that commitment. We would be very pleased to

hear from you.

STATEMENT OF MEL MARTINEZ, SECRETARY,

U.S. DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT

Secretary MARTINEZ. Thank you, Mr. Chairman, very much. It is

always good to be back with you and I assure you that before going

into my remarks on the budget that the staff issues you brought

to my attention are very important to me and I wish to deal with

them forcefully and energetically. I think the kind of bipartisan cooperation that you and I have had during this past year is really

very important to the success of HUD and to the success of the

work that we do, which I always find it to be something that we

all love to come together on. While we may differ on specifics of an

issue, we always should be doing our best to keep you informed

and make sure that we have the kind of cooperative partnership

that is designed to exist.

Thank you for the opportunity to join you this morning to talk

about the fiscal year 2003 budget for the Department of Housing

and Urban Development. The $31.5 billion HUD budget represents

a funding level increase of 7 percent over 2002 levels. By helping

Americans reach the dream of homeownership and ensuring affordable housing opportunities for those who rent, strengthening and

renewing communities, and preserving a safety net for the most

vulnerable, this budget will enable HUD to make a tremendous difference in the lives of millions of Americans.

The housing market in 2001 was extremely vigorous, and we entered the new year with homeownership rate at a record height.

Because we know that homeownership gives families a stake in

their communities and creates wealth, the HUD budget makes

owning a home a viable option for more Americans. In his State of

the Union Address, President Bush acknowledged our commitment

to expanding homeownership—especially among minority families.

As a first step, we have quadrupled the American Dream Downpayment Fund, to $200 million. This Presidential initiative will

help an estimated 40,000 first-time homebuyers overcome the high

cost of down payments and closing costs that are significant obstacles to homeownership.

A Tax Credit for Developers of Single-Family Affordable Housing

will promote homeownership opportunities among low-income

households by supporting the rehabilitation of new construction of

homes in low-income urban neighborhoods, also in rural America.

We are tripling the funding for the Self-Help Homeownership

Opportunity Program (SHOP) to $65 million, as committed by the

President last spring. That, and a lot of sweat equity, will make

possible the construction of 3,800 more homes for disadvantaged

Americans. SHOP is an excellent example of Government maximizing its resources by working with private-sector partners like

Habitat for Humanity.

Another very exciting homeownership initiative targeted at lowincome families will allow them to put up to a year’s worth of their

Section 8 rental voucher assistance toward a downpayment on a

4

home. And because we consider it an invaluable tool for prospective

homebuyers and renters, we have proposed making housing counseling a separate program. The increase in sub-prime lending has

made financial literacy more important than ever, armed with the

facts, a consumer is less likely to be victimized by predatory lending. We are funding the counseling program at $35 million, which

represents a $15 million increase over the previous fiscal year.

While we consider homeownership an important goal, we recognize that it is not an option for everyone. So, our budget preserves

HUD’s commitment to expanding the availability of affordable

housing for the millions of Americans who rent their homes.

The Section 8 tenant-based program today assists nearly two

million American families; our budget provides 34,000 more housing vouchers. The budget also dedicates $16.9 billion to protect current residents by renewing all expiring Section 8 contracts.

To encourage moderate-income rental housing production in underserved areas, we plan to reduce the mortgage insurance premium for Federal Housing Administration multifamily insurance.

Three times over the last 8 years, HUD has been forced to shut

down our multifamily mortgage insurance programs because of

lack of credit subsidy. Last year, the shutdown stopped the construction of some 30,000 rental units throughout the country and

clouded developers in uncertainty.

We made a commitment at HUD to a comprehensive review of

the credit subsidy program. We examined the statistical techniques

that were used to analyze loan performance. We thoroughly updated and refined FHA’s data and incorporated the major tax law

changes in the 1980’s that affected the profitability of multifamily

housing. Through our review, we were able to lower premiums,

create a self-sustaining program, provide the industry with stable

financing at a much lower cost, and provide thousands of new opportunities for rental housing across the country. In fact, the program made firm commitments to insure $1.25 billion worth of new

rental housing in just the first 4 months of the fiscal year. Reducing the premiums in fiscal year 2003 will lower the cost of building

over 50,000 affordable rental apartments each year.

The 2003 budget gives HUD new resources to further our mission of supporting the Nation’s most vulnerable. This includes lowincome families, homeless men and women, the elderly, individuals

with HIV/AIDS, victims of predatory lending practices and families

living in housing contaminated by lead-based paint. Let me highlight just a few of our proposals.

To better coordinate the work of the many Federal agencies that

reach out and provide a continuum of care to homeless men,

women, and families, the budget calls for doubling HUD’s funding

for the newly reactivated Interagency Council on the Homeless. Additionally, converting three competitive homeless assistance programs into a consolidated grant will eliminate the workload and

expense of administering three separate programs. More importantly, it will give local jurisdictions new discretion in how those

dollars are spent and will enable our Department to expedite the

time when the money gets out the door from 18 months down to

between 90 to 120 days.

5

HUD’s Lead Hazard Control Program is the central element of

the President’s effort to eradicate childhood lead poisoning in 10 years or less. The HUD budget will fund the program at $126 million, a substantial increase over the previous year. The budget also proposes spending $251 million under HUD’s

Section 811 program to improve access to affordable housing for

persons with disabilities. And many of the additional 34,000 Section 8 housing vouchers will aid non-elderly, disabled individuals.

In addition to addressing the Nation’s critical housing needs, programs such as the HOME Investment Partnerships Program and

the Community Development Block Grant (CDBG) Program stimulate economic development and job growth. Combined, these two

programs will distribute an additional $200 million in formula

funding to State and local governments. We have proposed changing the distribution of CDBG formula funds by reducing the size

of grants going to the wealthiest communities. This will help bring

dollars into those areas where they can do the most good.

We are excited about a brand new concept to address the large

backlog of repair and modernization projects in public housing. The

Public Housing Reinvestment Initiative represents a new way to

leverage the value of public housing by allowing public housing authorities (PHA’s) to borrow funds to make needed capital improvements. This project unlocks the value of public housing assets by

allowing PHA’s to convert public housing units to project-based

vouchers. The PHA’s can obtain loans by borrowing against individual properties—similar to private-sector real estate financing.

Innovative thinking like this represents a departure from the

way things were done so often the past—but being effective does

not have to mean spending more money. Government works best

when Government serves as a steward and facilitator, and measures success through results. By facilitating the involvement of new

local partners, the Public Housing Reinvestment Initiative will

breathe new life into public housing communities.

I am proud of our budget and the way it reflects HUD’s renewed

commitment to efficiency, accountability, and the principles of excellence expressed through the President’s management scorecard.

When Government spends efficiently, the funds go much further.

We reach more citizens. We help to change more lives.

The people of HUD know that the American Dream is not some

unattainable goal, because we see it achieved every day, so often

by families who never imagined owning their own home or reaching economic self-sufficiency. I am very confident that through our

budget—and the continued commitment of President Bush—HUD

will be better able to offer citizens the tools that they can put to

work improving their lives, and strengthening their communities

and their country, as they travel the road to achieving their own

American Dream.

I would like to thank each of you for your support of my efforts,

and I welcome your guidance as we continue our work together on

behalf of the American people.

Thank you.

Chairman SARBANES. Thank you very much, Mr. Secretary.

First, I want to comment on the Credit Subsidy issue. We were

quite concerned when HUD increased the premiums to 80 basis

6

points. It was at 50 when you did that, and now I understand you

have brought it back down to 57 basis points. That seems to have

provided some stability in the program, and I gather that those

who work with the program across the country feel they can move

ahead now on the basis of this change.

As you will recall, we expressed considerable concern when you

increased premiums. I am pleased that subsequent reexamination

has led to this result.

I have a couple of other programs I want to discuss right at the

outset and that I am very anxious to ask about. Late last year,

HUD said that there was an Anti-Deficiency Act violation with respect to the Outreach and Training Grant Program and the Intermediary Training Grant Program that provides technical assistance

to residents of assisted housing properties including those undergoing restructuring. At that time, funding to the nonprofits, which

operate the Technical Assistance Program, ceased, leading to layoffs of many small, nonprofit technical assistance providers around

the country. At the end of the session, Congress fixed that problem

by giving HUD $11 million to fund the contracts that may have

created the antideficiency. I am now told that the HUD IG has tentatively concluded that there was no antideficiency violation in the

first place. Yet, HUD has not released this funding.

T the National Low Income Housing Coalition, in their statement, which we will hear later in the morning, and I just want to

quote it because it is very strong:

We cannot stress strongly enough the urgency of this problem. Many communitybased nonprofit organizations have not been paid for their work, and the consequences to these organizations are dire. Several have laid off staff and others have

gone into debt to maintain services in anticipation of receipt of money owed. These

are small organizations that are at risk of going out of business if HUD does not

pay them immediately.

I do not understand why we have not been able to get that

money out to these nonprofits so they are not operating under this

tremendous pressure which is obviously impacting their ability to

carry out their activities. Apparently now, with the IG’s opinion, as

I understand it, we need not have gone through all this, but having

gone through it, having gotten the $11 million from the Congress

to deal with the antideficiency problem, you having gotten the

funds for a number of months ago, why isn’t that money out there?

Secretary MARTINEZ. Senator, first let me say that I think it is

very sad and unfortunate that a lot of organizations who have absolutely no blame in any of this have been impacted tremendously.

My heart goes out to them because I know that these are people

that are doing good work, in our communities and deserve and

need our support.

Chairman SARBANES. We want your pocketbook as well as your

heart.

[Laughter.]

Secretary MARTINEZ. I think it is important to let you know that

we do understand the pain and we care about that and are concerned about that. OMB has not yet apportioned the funds that the

Department had appropriated, but let me go back a step because

your question is excellent and the issue needs some explaining.

7

The Office of Multifamily Assisted Restructing was an entity operating outside and independent of HUD. Some time back, the Congress saw fit to take away their ability to distribute funds and put

them under HUD and now they are completely under HUD. So as

we go forward in the future, it will make it much easier for HUD

to manage something like this.

But the fact is, first of all, we took very seriously the issue of the

potential Anti-Deficiency Act. We had no access to OMAR’s records

and finally had to have the help of the IG to obtain the records,

which sometimes had to be obtained from the grantees themselves;

we could not get them from OMAR. We finally obtained all the

records, and the acting IG, by the way, because our permanent IG

is pending confirmation, but the acting IG has been diligently

working to get us the total picture. It now appears that there was

not an Anti-Deficiency Act violation in the first place, which is

great news, but it does not help the people who are out there suffering because of this whole problem, who did not need to suffer in

the first place.

The good news I can tell you is that we have been assured now that by February 25, we will be able to put out $550,000. We have

a total of $1,290,000 in vouchers that have been requested. By February 25, we will pay $550,000 of them. The remainder we believe

we can pay by the first week in March, the balance of those. So,

I think we are now in the position where in the very near future,

we will be in a position to do that. This will be paid from the funds.

The IG report is expected on Thursday and the preliminary report,

assuming that nothing changes in the IG’s evaluation of the situation, from what we have been led to believe, which is the same as

you, this should happen on that schedule. So help is on the way.

We should, by February 25, begin to deal with the problem, and

have all the vouchers that have been presented fully paid by the

first week in March.

Chairman SARBANES. I do not understand what you are trying to get from the IG, because we gave you the $11 million to make up

the deficiency, if there was a deficiency, so I do not think we have

to await a determination as to whether or not there was a deficiency. We checked it out and OMB has told us with respect to

these funds that they are waiting for HUD to ask for the money.

Secretary MARTINEZ. Normally, my understanding is at OMB, it

takes about a month to apportion funds once appropriated. But the

problem was, and the reason that delay occurred even after the appropriation, is that our people, in an abundance of caution in a situation, where if you do have an antideficiency violation, we did not

want to compound if there was one by continuing to issue funds.

The delay was caused by the need for the IG to clearly tell us

who had gotten what funds. In other words, the funding problem

comes by funds that are allocated for a given year and whether the

funds have been spent for that year or not. So in order not to compound the violation of an antideficiency act, we needed to know, or

it was believed that we needed to know, exactly where if any violation had occurred, how much had been paid to each grantee and

how much was owed to each grantee.

They were presenting vouchers and we needed to be able to

verify and validate those. We were having to reconstruct OMAR’s

8

records while doing it, which the IG has done a great job of pulling

together, but as you can see has taken some time to get done.

Chairman SARBANES. I see my time has expired, but we are

going to have to pursue this. If there was no antideficiency violation, then these people were run through the wringer for no reason.

Even if there were a deficiency, Congress sought to correct it by

providing the $11 million that we had been told constituted the

antideficiency violation. We gave you $11 million as part of the appropriation. Now the appropriation bill was signed into law when?

Secretary MARTINEZ. On January 11, and on January 12 we requested the funds from OMB. So if OMB has told you that they

have not received the request from HUD, that is in error. On January 12 we requested the funds from OMB, and they are then to be

apportioned. And we have not received the apportionment.

Their payments we are going to make in fact, to further complicate something that is complicated already, are not going to be

made from the apportioned funds. They are going to be made from

existing funds anyway because the apportioned funds have not

been received yet.

So the bottom line is, to these people who have been suffering too

long through no fault of their own, we believe by February 25 we

will have payments to them and the completed payments by the

first week in March.

Chairman SARBANES. I just want to make this final point. It is

not just the providers and the people who work for them who are

suffering, personally or individually, but the whole infrastructure

that we have built to try to deal with affordable housing issues is

going to take a hit if these organizations go under.

We have worked very hard to get this infrastructure into place,

and you have as much a vested interest I would think in its working and continuing to function as anyone. These organizations are

under extreme pressure and that infrastructure is going to start

breaking down if we do not get the money out to these organizations to pay them for work they have already done and to allow

them to continue their activities.

Senator Allard.

COMMENTS OF SENATOR WANYE ALLARD

Senator ALLARD. Mr. Chairman, thank you.

I would ask unanimous consent that my full statement be made

part of the record.

Chairman SARBANES. It will be included in the record.

Senator ALLARD. I apologize for being tied up and not being here

to hear Secretary Martinez’s opening comments, but I am pleased

with a number of initiatives that you have in the budget. As you

know, success is measured by the number of people that we help

achieve self-sufficiency, not necessarily by how much money is appropriated. I think you have made a conscientious effort to meet

the demands of your Department with a very responsible budget,

and I commend you for that.

I know that you have combined some programs in order to bring

efficiency and also to increase flexibility. I think that is desirable.

I am particularly pleased with what you are doing in the way of

the Self-Help Homeownership Opportunity Program. In other

9

words, these are self-help type programs which I strongly support.

I believe that you do, too, Secretary Martinez.

So let me just move forward with some questions that I have.

The Administration proposed consolidation of three of HUD’s homeless assistance programs. Can you elaborate on this proposal?

Secretary MARTINEZ. Yes, sir. The proposal for a consolidated formula funding is something we believe will serve communities in a

better way. It is an allocation amount for cities, counties, and State

governments using a formula approach. However, there would be

no automatic entitlement to the funds by any unit of government.

Each eligible recipient would be required to evidence their performance in spending these funds has met the strong performance

standards HUD would lay out before a grant would be disbursed.

So, we would be looking at the timeframe that funds are getting

to the recipients or the necessary people that are involved, the evidence of objective programs in reducing the number of chronically

homeless people in the communities. In other words, we are making that a goal. We are enacting that goal by asking the communities to look at how well they do at that. Evidence on performance

in creating permanent supportive housing units targeted to homeless people. Progress in creating all components of a true continual

care system, and objective performance in developing and implementing communitywide and Statewide homeless management information systems.

So these are some of the things that we are incorporating into

that grant program which we hope is going to be a new and improved way of doing things. We look forward to a discussion on

this. This is an idea that we believe will work. We want the input

of the Congress on it as to how you view it and the community of

people who help people that are homeless.

Senator ALLARD. I commend you for trying to bring some innovation. As you know, I usually like to ask a question on the Government Performance and Results Act. I think this is very important.

Since this is your first budget, I am anxious to hear your comments

as to how you think that provision has impacted this budget and

how you anticipate it will impact future budgets.

Secretary MARTINEZ. Well, I think the Government Performance

and Results Act is very important, too. We take it very seriously.

It dovetails into a lot of the management agenda that the President

has advanced and which we are taking very seriously in this

Administration.

Tying the performance of programs to the funding and funding

to performance I think is something that will lead us to better understand what works and what does not work, and to insist on outcomes I think is also very important.

We are, in this year’s annual performance plan, including an interim adjustment to HUD’s strategic plan that will help better

align the strategic plan with this Administration’s priority, and

this will form the basis for a broad series of consultations with the

stakeholders and Congress as we develop a new strategic plan. We

look forward to working closely with the Congress as we develop

that. And you will have an opportunity as we put that in place of

seeing how performance squares with the hope and the funding.

10

Senator ALLARD. I would like to hear your view on how the Manufactured Housing Program reforms are being implemented.

Secretary MARTINEZ. I met recently with some representatives of

the industry who came to see us, and the implementation is moving forward. We have been a little delayed in the naming of a person to run the office. We have also had some discussions on the

issues of the fees that would be paid in order to fund the new

guidelines implementation. The bottom line is that it has been

slowly getting started, but we are moving forward and we are

working closely in consultation with the industry who is so interested in seeing that this takes place.

There are a lot of issues tied to financing opportunities for people

who choose this type of housing, and we want to make the system

work. At this point, it has not all happened nearly as fast as I

thought it would a year ago when we took the reins. This is one

of those areas where the progress has been rather slow.

Senator ALLARD. I would encourage you to move it along as

quickly as you can, because I think manufactured housing is one

alternative out there for affordable housing. With the passage of

the 2000 Reform Act, I think there is assurance that there will be

some quality premanufactured homes out there, and I have seen

some projects that are just remarkable.

Secretary MARTINEZ. It is a very good thing.

Senator ALLARD. I see that my time has expired, Mr. Chairman.

Thank you.

Chairman SARBANES. Thanks, Senator Allard.

Senator Miller.

COMMENTS OF SENATOR ZELL MILLER

Senator MILLER. Thank you, Mr. Chairman, and thank you, Mr.

Secretary, for being with us and thank you for the job that you do.

I apologize. I have a question and I am going to listen to the answer and then I have to get back because we have a farm bill on

the floor, and you know how important that is.

Here is my question. As you know, we have been trying to get

some data on which PHA’s were not spending their capital funds

in a timely manner. Where is the hang-up in getting this information? Why is it so hard to get information on which PHA’s had unexpended balances that were not spent within the regulated—the

required timeframes and even the amount of those balances? Why

can’t we get that information?

Secretary MARTINEZ. Senator Miller, I am just being told that

that information has been put together and was delivered this

morning. It is amazing how having a deadline of a hearing can

make some things happen.

[Laughter.]

Secretary MARTINEZ. I am delighted we are able to tell you that

today we were able to pull that together, and you should have it.

Senator MILLER. Thank you very much.

Secretary MARTINEZ. Maybe you will want to look at it over

lunch.

Senator MILLER. Thank you very much. I call that good timing.

Secretary MARTINEZ. Yes, sir. Thank you very much.

Chairman SARBANES. Senator Carper.

11

COMMENTS OF SENATOR THOMAS R. CARPER

Senator CARPER. Thank you, Mr. Chairman. And, Mr. Secretary

welcome today. Thank you very much for your testimony. I hope

you are doing well.

Secretary MARTINEZ. Thank you. Yes, sir.

Senator CARPER. I would be doing better if this mike would stay

put. In any event, first a question about your request for public

housing capital funding. Could you just walk me through it? It is

a little confusing. My sense is that you want to reduce the amount

of money that would be budgeted for capital funds by allowing

PHA’s to mortgage public housing facilities. And I just want to try

to understand how that might work.

Secretary MARTINEZ. What it is, we took, instead of a funding

level of last year at 2.8, we took it down to 2.4. And the point in

that was not only to reduce because there still is a great backlog

of unspent funds and really more importantly, the point was to try

to come up with a new way in which public housing can get at this

backlog of improvements that are needed to public housing by freeing up the market system, by allowing them to privately finance.

The concept is that they can now identify by unit the funding

stream that comes, so that unit, and a project can be itself the subject of private financing for the refurbishment and reconstruction.

They can then pledge a Section 8 or they can become a projectbased project, and the stream of funding that comes to them can

be a guarantee against the financing that they obtain. We think

this is going to free up housing authorities to improve projects and

to do a far better job than they have done in the past of bringing

to standards a lot of these projects that are in such bad condition.

Senator CARPER. What if it does not work?

Secretary MARTINEZ. If it does not work, then we need to be

there and continue to provide the funding. So, I would be very amenable to raising that back up to the level of where it has been in

the past. It is not intended to be a cut but an encouragement to

those that voluntarily seek to do it, after HUD approves the plan

to make sure that it is financially sound, to give them this option

to improve their housing stock.

Senator CARPER. I am intrigued by the notion, and I am a person

who likes to figure out what works to solve our problems and not

be doctrinaire about it. If this works and it is helpful to meeting

the capital needs of our housing authorities, then we should give

it a shot. I want to go back to my question of what if it does not

work. What if it does not work in 2003?

Secretary MARTINEZ. Well, it would be my assessment that the

small reduction is not going to have an impact on any current year

problems that there should be. But if it does not work, and if we

really see a problem developing, I would be very willing to work

with the Congress to see about providing some additional assistance if that was to be necessary. As I say, it is not intended to be

a punitive thing. It is only intended to be an encouragement to

move in this direction and see if we can make it work.

Senator CARPER. My concern, and I appreciate what you just

said, is hopefully it will work. If it does not work in 2003, I do not

want us to have to wait until 2004 to come back and fix it.

12

Secretary MARTINEZ. I would be willing to work with you midyear to see. I do not think it is going to come to that, because I

think this will work. I think this is a very exciting possibility for

us to go beyond the amounts that we would appropriate and give

local housing authorities the flexibility of picking a project that

they want to go fix and then go ahead and fixing it.

Senator CARPER. In addition to the roughly $400 million that we

are talking about for capital funding, I understand that another

maybe $55 million in the capital fund is now to be used or would

be used for something called the Resident Opportunities and Supportive Services Program, a program that has traditionally been

funded I think out of CDGB funds. I do not know if you are familiar with it, but it sounds like this could be another $55 million that

would not be available to use for general capital but would be used

for the Resident Opportunities and Supportive Services Program.

Secretary MARTINEZ. But this would be a transfer from CDBG

funds. It would not be from public housing funds. Well, a little confusion here. I guess it is being transferred out of the capital fund.

Senator CARPER. Historically it has been funded out of CDBG,

but as I understand it, it would be funded under your budget proposal, out of the capital funds, which would mean the $417 million

reduction would be more like $472 million.

Secretary MARTINEZ. Correct. I am sorry.

Senator CARPER. I just wanted to put that on the table and say

that caught my eye and it is a matter of some concern.

The other thing I want to get to is with respect to self-sufficiency

in housing and in welfare. In the State of Delaware during the

time I was Governor, we decided to try an experiment by limiting

the amount of time that people could be in public housing, receive

assisted housing. And we did not do it to be mean or punitive, but

we felt that there is only so much housing stock for low-income

housing, and there are a lot of people on waiting lists. The idea

that people would move into public housing and stay there forever

was not what the original intent was. The idea is to help people

through a period of time in their lives and then to try to ensure

that they have the skills and the earning power to go out and rent

or buy a house or apartment on their own.

We have been doing this experiment now for a couple of years.

It is a demonstration model. We will have an opportunity during

the time that you serve as Secretary and the time I serve as a Senator to find out how it is working and to learn lessons there, and

other housing authorities around the country where similar experiments are taking place. So this is something I have a lot of interest

in, and we have a sense of ownership on the issue.

My understanding, and somewhere in your budget, I know you

are interested in encouraging people to move out of public housing,

to be self-sufficient. Just take a couple of minutes and talk about

what you are proposing. I just want to better understand it.

Secretary MARTINEZ. Certainly. I think your proposal is very intriguing and it is one that I share your passion for. I think that

anytime you can bring someone into self-sufficiency, we are doing

a lot for them, and sometimes people need a push. I think that welfare-to-work and welfare reform proves that in a great way.

13

I recall being on the housing board of a local housing authority

years ago, and I thought it was sad that there would be three generations of people who have been using public housing. And I think

that sometimes that would not be a good way to have that kind of

multi-generational issue.

But I think we need to proceed carefully in this. I think it needs

to be on a pilot basis. I am intrigued by what Delaware is doing.

I remember you bringing this to my attention during my confirmation hearings. It is a concept that Assistant Secretary Michael Liu,

who is our Assistant Secretary for Public and Indian Housing, is

very closely looking at. We are trying to find a way that we can

do a control experiment with this ourselves so we can pilot it in

some communities and just see how it goes.

Again, it is not out of mean spiritedness, but it is out of a sense

of compassion for those that are on a waiting list looking to get into

public housing that we really need to give people the encouragement to move on into self-sufficiency and out of public housing.

It needs to also be applied with great care to those that are disabled, and to the elderly. It is not for everyone. There are people

for whom a safety net is always going to have to be there, but there

are many who can be encouraged to move. So, I share your interest

in this and look forward to working with you on it.

Senator CARPER. Thank you. My time has expired. Could I just

make one last quick statement? I think one of the reasons why welfare reform has been, by most people’s judgment, a terrific success—not for everybody, but for most people—is that case rolls are

down by half, and people who have gone to work are better off.

Under the old rules in welfare, people were better off when they

stayed on welfare. And the reason why people stayed on welfare in

some cases for a long time is because that was the smart thing for

them and their families. They were literally better off.

What we have done is change the rules. All of our States and

here at the Federal level as well, so that people are actually materially better off going to work, and we provide the support, child

care, and transportation, finding jobs, and earned income tax credit

to ensure that they are actually better off when they go to work,

and it has changed behavior in remarkable ways.

We need similar kinds of approaches with respect to public housing, not to just throw people out, but to change the incentives so

that the people would be better off. One of the exciting things that

we are doing in our State is when somebody actually goes to school

or gets a better job and their earning power goes up, instead of

their rent payment going up, that money goes into an escrow account, and it builds up in an escrow account, and it can be accessed

later on so that when a person who moves out of public housing,

the money is available in the escrow account to pay for a security

deposit on an apartment, or downpayment or closing costs on a

house. That is the kind of thing that we need to do.

Secretary MARTINEZ. We are going to look at your experiment

and see how it is faring and what we can learn from it.

Senator CARPER. Thank you. Mr. Chairman, I have a statement

that I would ask unanimous consent that it appear in the record.

Senator REED [presiding]. Without objection.

Senator CARPER. Thanks so much.

14

Senator REED. Welcome, Mr. Secretary. Thank you for joining us.

Secretary MARTINEZ. Thank you, Senator Reed.

COMMENTS OF SENATOR JACK REED

Senator REED. Let me first deal with an issue that is outstanding. Last October I sent a letter along with my colleagues,

Senator Allard, Congresswoman Roukema, Congressman Frank,

with respect to the termination issues in Section 8 project-based

contracts. I understand from your office that you did not receive

the letter. That is subject to another hearing, Treasury–Postal.

Secretary MARTINEZ. I am afraid it was an anthrax problem,

Senator, unfortunately. It is like the dog ate my homework excuse,

I know, but it is true.

Senator REED. It is never happened in my office, Mr. Secretary,

but anyway, let me go on with the substance of the question, which

is more important, and your response. We have had some indications that landlords were not following proper notice provisions in

terminating project-based contracts. And as a result, we asked for

your comments and your action with respect to this whole process

of terminating a Section 8 project-based contract and giving enhanced vouchers in the process of that termination.

Specifically, I am curious today whether HUD plans to publish

regulations implementing the statutory provisions on Section 8 contract terminations and enhanced vouchers. This is required under

Public Law 10674. Those regulations would be very helpful.

Secretary MARTINEZ. Senator, we are going to have to reply to

your letter more formally. I am afraid that I am not prepared today

to tell you where we are on that. I apologize for the delay in response, and we will get back to you immediately on that.

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

Mr. Secretary let me turn now to the issue of homelessness.

First, the goal of the Administration to end homeless in the United

States in 10 years is a laudable one, certainly one we support. But

it seems that to do that we would need on the order of about

200,000 units of supportive housing. And yet the funds, the renewal of existing permanent housing subsidies have been significantly diminished in this budget.

Furthermore, in addition to HUD, HHS has to provide resources

for the support of service. Now, I know you have revived the Interagency Council and that might be an appropriate coordination device. But the issue I think is, do we have the resources to meet this

great goal that we all share? Or are we essentially, and when we

talk about outcomes, setting up a lot of these programs for failure?

You know, we can rearrange the chairs on the deck and we can

talk about streamlining, but if they do not have money to keep

shelters operating, they are never going to be able to reduce homelessness. It is a major concern that I have, and I wonder if you

would comment upon this.

Secretary MARTINEZ. Let me clarify that our goal is to look at

chronic homelessness as the one that might be something we can

end. Obviously, there is going to be always people who fall hard on

their luck who as a result of circumstances will be homeless for a

period of time. But the population that typically is burdened with

additional problems—mental illness, addiction—those are people

15

that if we find a way to treat and to get into supportive situations,

we might be in a position to get them out of this cycle. That is

what our goal is. I know it is a lofty one, but I think in trying, we

might move the ball forward significantly even if we do not achieve

the complete goal in the end.

I do not think it is a question of resources. I think it is a question of connectivity between the delivery of services. I believe there

is a great need for people that are homeless to be able to access

governmental services that now seem to not be available to them,

whether it be veterans’ services, whether it be just plain old welfare assistance, whether it be Medicare. These are things that oftentimes the homeless population, because of the nature of their

lives, they do not have an established address. They do not have

a forwarding number. There are things like this that can be a real

hindrance on how they go about obtaining additional services.

It seems to me that what we can do best is to attempt first of

all to realize the full potential of all the things that are being done

for homeless Americans, and then begin to think whether or not

additional resources might be a part of the answer. I believe we

need to take this step first. That is why reenacting the Interagency

Council, the President did this some months ago. We now have an

Executive Director coming on board in March, and I look forward

to the work of this interagency task force or interdepartmental task

force to see what we can do to improve the condition now, given

the programs that we already have, but knowing full well that

there is great duplication and there is also a tremendous lack of

coordination which has always been there, but which we need to

try to address before we throw in the towel and say the only answer is more money.

Senator REED. Well, I do not think the only answer is more

money, but the answer certainly involves money. Let us take one

particular aspect, that is the Shelter Plus Care Program. Your

budget proposal for this fiscal year 2003 underfunds this program

by my count about $93 million. The budget would require homeless

assistance providers to shut down existing permanent housing programs for as many as 15,000 people with severe disabilities.

You show a small increase on paper for the program. But the

reason is because many of the programs that are operating on the

Shelter Plus Care receive 5 year funding, which was several years

ago. All of that is coming due now or much of that is coming due.

Simply increasing last year’s appropriation a bit is not going to

cover these renewal contracts that are coming up. In fact, the burden is about $193 million if you are going to renew all existing programs. You have $100 million in this line item.

It seems to me, again, of course you can coordinate better, you

can be efficient, you can connect people to the VA. But if you are

going to tell programs that are now funding housing that they do

not have money, those housing units will evaporate.

Secretary MARTINEZ. I would agree with you. And the intent I do

not think is to cut the funding in those kinds of programs but to

I think maintain a fairly level funding level.

I believe that the emergency shelter program, there is some confusion there in that the 2003 budget request does not contain any

funds for renewal of Shelter Plus Care vouchers because the 2003

16

vouchers were forward funded and fully covered in the 2002 appropriations. So there is no need in the 2003 budget to reflect what

we understand was already funded in the 2002 budget. So the

question really will arise again in 2004, and in the 2004 budget,

we will take care of any funding needs for this program. So our intent was not to cut, and I do not think that we have cut.

Senator REED. So there is $93 million that you already have

available from the 2002 budget, which you are prepared to commit

to the Shelter Plus Programs?

Secretary MARTINEZ. That is correct.

Senator REED. And the $100 million in this year’s budget will

cover all other contracts that will become renewable this year?

Secretary MARTINEZ. That is right.

Senator REED. And that will take you forward to 2004?

Secretary MARTINEZ. Yes. Then at that time, we will need to

fund it again. But 2002 funded it for this year as well.

Senator REED. Let me make the point, though, assuming that

you are accurate, and which I do, is that simply keeps us in the

business of the present level of homeless shelters?

Secretary MARTINEZ. Correct.

Senator REED. It does not address or does not move the ball forward in terms of the thousands of other chronically homeless which

this Administration has indicated that they want to see in shelters

within 10 years?

Secretary MARTINEZ. That is correct. We are not addressing any

additional funding needs this year. We are first going to look and

see where we are and what resources we have available that are

not currently being utilized by the homeless population.

Senator REED. Let me ask one other question, Mr. Secretary.

Just so I am sure, I know we funded units last year, but could you

go back and see whether that money was used to discharge obligations that were incurred last year and not obligations that are upcoming, so that we are both sure of what we are——

Secretary MARTINEZ. I will be glad to give you some clarification

Senator, so that we can be on solid footing about that.

Senator REED. Thank you.

Now let me turn to another issue which was raised by Senator

Carper’s questions. That is the $417 million cut from the capital

fund. The justification seems to be that PHA’s in the future will be

able to rely less on HUD’s funding as a result of this initiative,

your new approach to funding capital needs. But this is a program

that might not be undertaken by all PHA’s throughout the country.

Yet the PHA’s reductions in capital funding applies to every PHA

in the country. I think we find ourselves in the situation where

some might not avail themselves of this new, innovative technique.

In addition, some PHA’s might require 18 months to 2 years to become involved in this program. In the meantime, there has been a

significant diminution of resources for public housing capital funds,

and it seems that could be a real problem this year. It goes back

to what Senator Carper was saying. What happens this year when

PHA’s come to you and say we need money for capital funds? We

are not involved in this new approach to funding. We do not have

to be. Give us the money. And you say we do not have the money.

17

Secretary MARTINEZ. We believe that the availability of these

funds from the private sector is going to actually improve the condition of public housing. I do understand your concern, share your

concern, and I think it is something that we just will have to keep

a very close eye on as the year progresses. I am prepared to work

with you and other Members should we come into a situation

where a shortfall exists.

Senator REED. Let me ask another question, Mr. Secretary. I un- derstand in addition to the cut, there has been $120 million from

the capital fund earmarked for this new initiative. Is that correct?

Secretary MARTINEZ. It is available for the initiative. It is not

earmarked, but it is available. That doesn’t take it out of circulation, if you will.

Senator REED. So it can be used for traditional capital funding?

Secretary MARTINEZ. That is correct.

Senator REED. Thank you, Mr. Secretary.

Let me just recognize Senator Corzine, and if there is time available in your schedule and there are additional questions, we will

have a second round.

Senator Corzine.

STATEMENT OF SENATOR JON S. CORZINE

Senator CORZINE. Thank you, Senator Reed.

Welcome, Secretary Martinez. I apologize for being late. We had

more hearings in one morning than I think is manageable, and I

do not want to cover ground that you have already covered. I suspect you would think that I will ask another question about the

Drug Elimination Program and how the funds that were supposedly allocated or at least available in other areas, whether those

have been used. I would like to hear your response on that. I continue to be very troubled by the on-the-ground information that I

get feedback on from some of the public housing authorities in New

Jersey that were dependent on those and how they are feeling

squeezed with regard to those needs.

Also, I would love to hear your comments with regard to empowerment zones, and particularly second-level grants, which is

going to hit hard at a number of communities in New Jersey that

had expected some grants to flow on a continuous basis, made

plans, brought businesses into—particularly Cumberland County,

which is one of our poorer rural communities—Vineland, Millville,

and Bridgeton are important communities that are struggling with

very high unemployment rates and were making real progress, and

zeroing out the grants is an extraordinarily troubling issue for

those local communities.

I am sure you are going to hear from Congressman Lo Biando

on the House side and a number of other of my colleagues about

this. I would love to hear your comments on why you have taken

this program in the direction you have. I am obviously interested

in the specifics, but that may need to be communicated specifically.

But it is an extraordinarily important issue for us.

And then I also find it uneasy that with Congress in the business

of reauthorizing TANF this year, that there is no comment with regard to housing issues and the welfare-to-work needs that clearly

will need to be addressed within that program, the subsidies that

18

I think will be necessary to make sure that people can fully utilize

their welfare-to-work programs and then whether you have looked

at the family self-sufficiency program and some of the issues that

are associated with that that will necessarily be taken up in that.

I think that will be enough for the moment.

Secretary MARTINEZ. Yes, sir. I appreciate the menu. Can I pick

and choose? Let me say on the empowerment zone issue, Senator,

that as you know, empowerment zone has had several rounds. The

initial round was a series of tax credits and there are grants, and

those all have happened and taken care of. Then round two, which

created a series of direct grants. It has been our experience that

the grant program has not worked nearly as successfully as the

programs involving tax credits and those types of business incentives. That is just the empirical evidence on the ground. But the

more interesting point——

Senator CORZINE. I would certainly encourage you to come to

Cumberland County with me and you would see where those

grants have been very effectively used and brought new jobs.

Secretary MARTINEZ. I do not know specifically the Cumberland

County situation at this moment, and I would be happy to discuss

it with you. And I know the other Members of Congress might also

be interested in that. But as a whole, 80 percent of appropriated

funds from these empowerment zones have not been utilized to

date. We are more than halfway through the program. It stands to

reason that if we still have 80 percent already appropriated funds

remaining that in the balance of the time that the program will

have spanned out that the totality of the funds that are already

available may never be spent anyway. So that is the approach we

are taking. In other words, not funding additional dollars for a program where the currently appropriated dollars have not been utilized to the extent of 80 percent.

Senator CORZINE. As you can well imagine as a former business

person, though, that if you had bonded, if you had gone to the

banks under the projections that you were going to receive grants

and it had been indicated that those were going to occur, then for

them not to, you leave individual communities that maybe have

used those effectively high and dry.

Secretary MARTINEZ. Senator, I would have to say to you, not

knowing the circumstances, but just again from my own business

experience and yours, that I find it difficult to understand how private markets would fund and finance on the expectation of future

appropriations. In my experience in local government, I could never

get bonding or financing for anything that depended on a future

appropriation. Typically, those streams of funds did not lend themselves to credit, I have to wonder how they might have done that.

The bottom line is that the real success in this program comes

from the tax credit side of it, not from the grant side. There are

very specific guidelines that each of these programs presented of

how they would spend the funds. I would be pleased to work with

you on the local situation to see what we can be of help with. But

do understand that there is still a substantial amount of money

that is available to these empowerment zones through the already

appropriated funds.

19

Senator CORZINE. Well, it might bite differently in different

spots. I think that one needs to be careful that the general rule

does not end up impacting something that has already been committed and built upon I think is the case there.

Secretary MARTINEZ. We should look at that with you and try to

be of help where we can. Regarding drug elimination, the Congress

funded a $250 million increase to operating fund which, in other

words, we do not call the funding drug elimination grant dollars.

We call them part of the operating fund. But I believe between

what we attempted to do through our budget and what Congress

ultimately did, that pretty much a dollar-for-dollar restoration of

that program or of that funding is available to public housing authorities so that they can carry out any existing programs that

were worth pursuing and that were worthwhile.

We are working in a variety of ways with other agencies of the

Federal Government to take a very strong look at the drug issues

in public housing. As you know, the President has just announced

a very strong national effort on the issue of drugs, emphasizing the

treatment options. I think in a cooperative way, we are going to

find that there is going to be help available to public housing authorities in this area and in a way that is going to maybe be even

more effective.

Senator CORZINE. At some point I would appreciate it if your

staff could show me whether the funds that were allocated are still

going to fund the same activities with regard to drug elimination

activities and security and public housing authorities.

Secretary MARTINEZ. The unspent balances on those accounts,

and we can be very specific to any housing authorities in your area,

will tell us that there are still probably funds available that they

have not already tapped that could continue the programs that

they have existing.

Senator CORZINE. As I suggested the last time, I would love to

take you up to New Jersey and visit some of these public housings

and we can go to Cumberland County at the same time.

Secretary MARTINEZ. We should do that. I am going to be in New

York tomorrow as a matter of fact, it is not too far. But we should

do that and I will make it a point to maybe get with your office

and find a time when we can meet you on your turf and then we

can see some of these issues and try to deal with them on a very

individual basis.

Senator CORZINE. Thank you. And TANF reauthorization and the

family self-sufficiency program?

Secretary MARTINEZ. Let me have a moment if I could.

Senator CORZINE. Sure.

[Pause.]

Secretary MARTINEZ. I am told that we are working with OMB

on whether the programs can be expanded and enhanced, so we are

actively working on that.

Senator CORZINE. Maybe we should follow up with your staff and

see how this works.

Secretary MARTINEZ. Yes, sir.

Senator CORZINE. We are going to be working substantially in

the TANF reauthorization efforts this year, and I think housing is

20

such a key part of making sure that people who do go from welfare

to work are not impinged in their ability to continue to live.

Secretary MARTINEZ. We will work with you on that, sir.

Senator CORZINE. I have one second round question.

Senator REED. Thank you, Senator Corzine.

Mr. Secretary, let me say first I agree with your observation that

as a local elected official that no financial institution will lend to

a public entity based upon appropriations going forward because of

the uncertainty of the appropriations process. But isn’t that essentially what your proposal for public housing capital fund is? These

entities will go out to the financial markets, and ask to borrow

money to replace their capital expenditures. Part of what these

banks will look at is how much revenue will be coming into these

institutions.

And frankly, looking at your budget, and not just this year, but

looking ahead, I think most bankers would be very skeptical at the

kind of revenues that would be flowing from the Federal Government to public housing authorities. As a result, I think right now

we can at least look with a rather significant skepticism at your

proposal to replace appropriated public housing capital funds with

private lending.

Secretary MARTINEZ. Well, Senator, Section 8 has been a very dependable revenue stream, and I think the private financing sector

is used to funding Section 8 projects. So, I think it is something

they can relate to, something they can understand and something

that would lead—I mean, we are led to believe by the financial

world that there is great interest in this and that they will do that.

Do not forget, you have still an asset that can be collateralized.

In other words, there is a unit there, and so I believe that will lend

itself to an opportunity for financing. You raise a good point.

Senator REED. You do have an asset, Mr. Secretary, but I do not

know how many financial institutions would like to foreclose and

operate public housing with the kind of revenue streams that

might be forthcoming from this Administration and succeeding

Administrations.

Secretary MARTINEZ. I think there has been a very ironclad commitment to the Section 8 program and to maintaining the vouchers

and to not leaving anyone high and dry that has the opportunity

for a voucher. So, I think from that standpoint that it should work.

We hope it will.

Senator REED. Let me just raise another issue, Mr. Secretary,

and that is, with respect to the independent appraisal review process for appraisers, we have been informed that the independent appraisal review process has been stopped by your Administration. I

understand that the FHA is doing its own reviews, but only in response to specific complaints. In the past, because of the HUD IG

and the GAO, we have been persuaded that there is a need for

independent review of these appraisers. And can you tell us why

this was faulted?

Secretary MARTINEZ. Senator, the system was not identifying

risky loans. FHA’s default and claim rates were actually lower on

the loans identified as risky by REAC than for FHA loans as a

whole. The system was not cost effective. In 2 years, they identified

33 appraisers who were removed from FHA appraisers’ rosters.

21

And in our own field reviews, the FHA had identified 85. So, we

are satisfied with REAC’s work in general in FHA multifamily

projects and public housing. But the appraisal system really was

an exception. What we are doing is continuing to conduct appraisal

and field reviews on an individual loan basis, following up on complaints from homebuyers and Members of Congress. And that is

how we came about identifying 85 appraisers that were removed

from the rosters over the last 2 years.

We are also developing a new approach called Appraiser Watch.

FHA will identify appraisers with high rates of default and foreclosure and will then monitor their performance. The FHA may

then remove these appraisers from the FHA’s roster if there is not

a good reason for the high default rate.

So, we are planning to issue an Advanced Notice of Proposed

Rulemaking to establish this Appraisers Watch and this is going to

be somewhat parallel to the Credit Watch system, which has been

very successful in monitoring lenders. That is the approach we are

taking and the reason for the change.

Senator REED. Thank you, Mr. Secretary.

Senator Crapo.

COMMENTS OF SENATOR MIKE CRAPO

Senator CRAPO. Thank you, Mr. Chairman.

I apologize for being late but was unavoidably detained. And because I have not been able to be here for the rest of the hearing,

I will not ask any questions at this point.

Thank you.

Senator REED. I see that Senator Corzine has departed. And, Mr.

Secretary, I understand you have an appointment over on the

House side.

Secretary MARTINEZ. Yes, sir.

Senator REED. Thank you very much for your testimony.

Secretary MARTINEZ. Great being with you. And, Senator Reed,

I should point out that there is a significant funding increase for

lead-based paint. You did not bring it up, but I wanted to bring it

up with you.

Senator REED. Mr. Secretary, I have learned a great deal from

this hearing. I have learned first about appraisal. I have learned

about many things, but the most important thing, other than an

increase in lead, is I have heard that a cut in the budget is not a

reduction but an encouragement.

[Laughter.]

That is something that I will treasure. Senator Sarbanes has just

returned. He might have additional questions. But let me commend

you for the increase in the lead program.

Secretary MARTINEZ. Thank you. I know it is important to you.

Senator REED. I appreciate very much the effort, but we both understand we have still a long way to go to make sure we protect

children.

Secretary MARTINEZ. It is a still issue and it is still out there.

Senator REED. Mr. Chairman.

Chairman SARBANES. Mr. Secretary, I am not going to detain

you, because I know you have to get across the Hill. I know you

are still working on the yield spread premium issue.

22

Secretary MARTINEZ. RESPA reform, yes, sir.

Chairman SARBANES. Well, we held a hearing in January, which

I thought was very revealing. In fact, we sent the transcript of it

to you as well as the statements of witnesses. Subsequently, a

number of groups have weighed in on this issue. As I indicated in

my opening statement, both Hispanic and African-American groups

have written to you about what yield spread premiums do to potentially minority homeowners. So, we think the decisions that confront you are extremely important. I mean, it is very clear people

should not be lured into a higher interest rate and then the broker

who steers them into the higher interest rate gets paid additional

for that. It seems to me that is intolerable and we have to get at

this issue. I do think that having the availability of private suits

is an important discipline in this activity. But I just want you to

know we are very much focused on that issue and we will be in

close touch with you about it.

Secretary MARTINEZ. Senator, I would be happy at your pleasure

to discuss it more in detail either here or in private. And I also

would like to assure you that our process of RESPA reform is continuing aggressively. I believe, frankly, that what we have done so

far and what we plan to do will be considered about as pro consumer and as transparent as this process has ever been in its history. So, I am looking forward to bringing——

Chairman SARBANES. Are the consumer advocates involved with

you in that process?

Secretary MARTINEZ. Yes, sir, they are. They are invited to participate, and we are taking their input, and look forward—— Chairman SARBANES. One of the things that concerns me is, as

I understood it, we were moving toward maybe getting some consensus resolution of this issue when HUD issued its clarification.

Secretary MARTINEZ. If there had been any possibility of that occurring, Senator, I would not have. I mean, I practiced law long

enough that if the court does not have to rule, it does not. And I

was not looking forward to intervening. I only did it when I felt it

was necessary because there was no progress being made. But I believe that we are continuing to keep the consumer groups involved

and continue to look forward to their participation in what I believe

will be very sweeping RESPA reform, which I think will be good

for consumers, well beyond the issue of YSP, by the way.

Chairman SARBANES. This predatory lending issue has really

gained a lot of salience, as you know. In fact, it is even being covered on national television programs.

Secretary MARTINEZ. I know.

Chairman SARBANES. It is certainly an issue. This Committee

since I have taken the Chairmanship, has focused very intently on

and intends to continue to do so, and we look forward to working

with you in order to resolve the matter.

Secretary MARTINEZ. I am very proud of the work we have done

in that, Senator, and participating with the Baltimore Task Force,

and the work we have done there I think has been very historic.

We will continue to work closely with you and participate in any

way we can. I would like to take the experience of Baltimore to the

national scale, because it is desperately needed. I believe the statements that I have made and I know you have made as it relates

23

to the industry and the need for the industry to pay close attention

to their business practices is important. And so, I am with you on

that, and I look forward to working with you closely on that issue.

Chairman SARBANES. I hope when we look at the hard text we

are still together. Let’s see how it goes.

Secretary MARTINEZ. I have faith we will.

Chairman SARBANES. Thank you very much for coming today,

and we wish you well as you go over to the House side.

Secretary MARTINEZ. Thank you.

I need the help.

[Pause.]

Chairman SARBANES. If the panel would come forward, let us be

prepared to move on. The hearing stands in recess.

[Recess.]

Chairman SARBANES. The hearing will come to order.

First, we are very pleased to have this panel, and we very much

appreciate their steadfastness and their patience in hanging in

here with us. I think I will introduce each person as they speak

instead of doing them all at once.

Tom, I understand you have another engagement.

Mr. JONES. Yes, I am sorry.

Chairman SARBANES. That is all right. We understand that. Is

anyone else in a comparable situation?

[No response.]

First, we will hear from Tom Jones, who now for a decade has

served as Managing Director of the Washington Office of Habitat

for Humanity International. He has served as Pastor of large Presbyterian congregations here in Washington, Louisville, Orlando and

Miami, Florida, and in the academic world has been vice president

of a theological seminary and faculty member of two seminaries.

He has earned a Bachelor of Arts, Master of Divinity, Master of

Theology, Doctor of Ministry degrees, and he is doing this wonderful work now with Habitat, and we are very pleased to have him

here today and we looking forward to hearing from you.

STATEMENT OF THOMAS L. JONES, MANAGING DIRECTOR

HABITAT FOR HUMANITY INTERNATIONAL

WASHINGTON OFFICE

Mr. JONES. Mr. Chairman, thank you. I do apologize. At 2:00

p.m. we are doing a signing of an MOU with EPA about ways that

we might reclaim some brown fields to build some Habitat homes

and other low-income housing. So, we are going to do that event

with EPA administrators in Northern Virginia.

Mr. Chairman, on behalf of Habitat for Humanity International,

again I want to express appreciation to you and to your other distinguished colleagues for the vital part that you play and for the

commitment you have for working together toward our goal that

every person have a decent place to sleep every night. And especially we want to thank you and your colleagues for the ways you

demonstrate your support for self-help housing as a way for persons to achieve the American Dream of homeownership regardless

of economic standing.

Thank you for the way you not only support that in your leadership but also for what you and your colleagues are actually doing

24

as witnessed in the program that the Senate approved called ‘‘The

Houses the Senate Built.’’ I was thinking as I sat here earlier that

today as a result of what all of you Senators did last year in building two Habitat houses in Capitol Heights, two families, the Spencers and the Williams, now live in those houses, own their own

homes. Last night their kids did their homework in their own bedrooms. They got up this morning and had breakfast together in

their own homes as a result of this way that you and your colleagues are leading by doing.

Today, I am glad to say that 60 U.S. Senators have now agreed

and formally made relationships with Habitat for Humanity affiliates across the country to build Habitat houses this year as a continuing part of the Houses the Senate Built. Mr. Chairman, in

addition to your personal commitment, I am glad to report that

every Member of your Housing Subcommittee has agreed to do

this, and four other Members of your parent Committee already are

on board and are doing the Houses the Senate Built this year. And

I know your strong influence will prevail and you will have all of

your colleagues before long, not only on this Committee but also in

the whole Senate lined up to do this.

And I must, if I may have a personal privilege—which is the way

we Presbyterian clergy do it—to say thank you to you for training

Amy Randel and sending her to us, and for the great job she is

doing in serving our whole society right now.

It is a real honor to appear at the same hearing with Secretary

Martinez and with our other colleagues here who are involved in

our attempt to provide opportunities for everyone to have a decent

place to live. Truly Secretary Martinez and the Administration he

represents have focused attention on a commitment to homeownership, particularly to narrow the gap for minorities and low-income

persons. And like you, they too have walked their walk by building

Habitat houses with Habitat homeowner partners in various parts

of the country in this past year, and we are appreciative.

Mr. Chairman, Habit for Humanity is now starting its 26th year.

It took us the first 24 years to build the first 100,000 houses worldwide. At that time we took a commitment to build the second

100,000 houses in 5 years. That is a huge commitment, which will

be achieved only as all of the sectors—the public and the private,

organized labor, the nonprofit work together. And so far, this is

happening. At the present time, Habitat for Humanity is now

building a house someplace in the world about every 26 minutes.

In the United States, there are 1,628 Habitat affiliates in all 50

States. The average Habitat homeowner in the United States is in

the below 50 percent of median income. Just over 71 percent of all

Habitat homeowners in this country are minorities of AfricanAmerican, Hispanic, and Native American backgrounds.

Habitat for Humanity houses are still built by volunteers primarily, sold at no profit, and with a no-interest long-term mortgage

that each family can afford. But the recent huge success of Habitat

in this country has roots in two very important Federal programs—

one called SHOP, Self-Help Homeownership Opportunity Program,

and one called Capacity Building for Habitat for Humanity. As you

know, I believe, Habitat does not use Government funds to build

houses. But we do depend upon and appreciate very much the partVerDate 11-MAY-2000 10:50 Feb 20, 2003 Jkt 000000 PO 00000 Frm 00028 Fmt 6633 Sfmt 6633 84744.TXT SBANK4 PsN: SBANK4
25

nership with Government through which we do what we call ‘‘setting the stage.’’ Land and infrastructure and capacity building.

When the stage is set, we have found that motivates the private

sector to raise the funds and the resources, to build the houses.

The SHOP Program is important in ways that my words cannot

completely describe. SHOP was enacted by you, the Congress, in

1996. These funds can be used only for land and infrastructure.

They are available only to national and regional nonprofits who can

reach a certain threshold. They are there in order that nonprofits

might do more of what they do well. There is a complete accountability to the Congress through HUD by the national and regional

groups. This does not increase Government bureaucracy. The Government funds are used as seed funds, and all of the houses built

must include the self-help component, or ‘‘sweat equity.’’

Up until now, for every $10,000 of Government funds, a house

has to be produced. Both HAC, Housing Assistance Council and

Habitat, the two biggest users of SHOP, have realized from experience that we do need to raise that to at least $15,000 and hopefully

with a waiver that the HUD Secretary could make for very high

cost places. Land and infrastructure costs are going up. The average of both HAC and Habitat now is about $22,000 per unit.

When the mandated deadlines for Habitat for fiscal year 2001

are met, and they will be, Habitat, through its use of SHOP funds,

will have resulted in the building of 7,382 homes, all for homeownership, serving over 26,000 persons, almost 17,000 of whom are

children, now achieving the American Dream, living in their own

home. We strongly support and appreciate the Administration’s significant increase for SHOP.

Our Habitat experience each year since its inception is that when

we make the first announcement about the SHOP funds, we have

over 40 percent more Habitat affiliates requesting funds than we

have funds to grant. We have not been able to meet the needs of

some affiliates because of the large cost of land in some places. By

increasing the threshold from $10,000 to $15,000 and doing the

waiver, we are confident these funds will be used, they will be used

efficiently and effectively, and they will result in more Habitat and

other homes for homeownership for persons who perhaps in no

other way could own their own homes.

Mr. Chairman, every time that we do this, that we put a family

in their own home for homeownership, they are taken permanently

off your annual worry list to provide housing in other ways. Many

Habitat affiliates need land and infrastructure to set the stage.

Many need other forms of capacity building, and thus there is the

program called Capacity Building for Habitat for Humanity. We

support the Administration’s request for $5 million, and then can

greatly increase production if even more could be made available.

In our written testimony there is some information about the

proposed tax credit for homeownership. We have huge hope for

this. It is supported by the Administration. It is supported by many

of our colleagues in both the private and public sectors. We think

it will really revolutionize productivity for Habitat for Humanity.

This has happened in Florida where they have a corporate tax

credit which can be used for low-income housing.

26

As a result of the combination of that and the SHOP program,

some affiliates in Florida are our largest producers. The Jacksonville affiliate recently built 200 houses in 1 year, and will by the

year 2005 be building 500 houses a year by the combination of

these two programs.

Mr. Chairman, in many ways, a home is the cornerstone of life,

of what we call sustainable development. And homeownership is

still the dream for most families regardless of economic standing.

Together we can and we will make it possible for more and more

persons to achieve that dream with all of its benefits of self-worth

and dignity and equity-building and the like. Together, we will persevere until we have eliminated substandard housing from the face

of the Earth. And all of us will do it together, because it is right.

Thank you, Mr. Chairman.

Chairman SARBANES. Thank you very much. I am going to ask

a couple of questions and then excuse you so you can get to your

EPA meeting.

Mr. JONES. Thank you, sir.

Chairman SARBANES. Since this brown fields transfer presumably will help to address one of the problems you have specified

here in terms of acquiring land at a reasonable cost. This Committee has been focusing a lot of attention on predatory lending, I

think as you are aware. And not just on yield spread premiums,

though that is our current focus. But we held a hearing earlier this

year back last summer and went over a number of the abuses that

were taking place and so forth. What has Habitat run into in this

regard? I know Habitat homeowners get a zero percent mortgage,

don’t they, generally speaking?

Mr. JONES. Yes. Always.

Chairman SARBANES. Always. Okay. But I have heard reports of

Habitat homeowners being refinanced out of their zero percent

mortgages into high-rate mortgages, in the end maybe even resulting in foreclosures. Could you touch on that a little bit?

Mr. JONES. Yes, sir. As you can imagine, Habitat homeowners in

many cases are very vulnerable. When a less than moral person

comes to them with cash in hand, it is a temptation difficult to

refuse. So, we have taken several steps. One is we have supported

and continue to support the kind of leadership that you and your

Committee have given in terms of any legislation that alleviates

this temptation.

We also have taken other steps. We have 1,628 affiliates. Each

has its own 501(c)(3) nonprofit status, its own locally elected board.

So, we do not have legal control over these local affiliates, but we

have urged them and worked with them through our legal office,

our program offices, and in other ways. And we are now at the

point where most of these affiliates are doing what we call ‘‘soft’’

second mortgages. These are second mortgages which are paid off,

not in money, but in longevity. So the second mortgages have to

be handled before predatory lenders can begin to deal with them.

We have also attempted to work with our affiliates and the affiliate boards. What happens in Habitat is that you develop a relationship when you build this house as the homeowner does ‘‘sweat

equity,’’ you get to know them, and usually they do not let each

other down. And you really put that relationship in concrete, so to

27

speak, when they sign this 15, 20, or 25 year mortgage with the

local Habitat board.

And so, we are encouraging them to do more and more counseling about this, even before they become homeowners. We are

doing everything we can to work in terms of supporting legislation

and supporting the second mortgage concept because Habitat

homeowners would naturally be vulnerable.

Chairman SARBANES. I know you wrote to the Fed when they

were considering the HOEPA regulations, urging a provision

whereby a lender could not refinance a mortgage with a subsidized

interest rate without demonstrating that such refinancing would be

in the best interests of the borrower. Unfortunately, the Fed said

they wanted to consider that provision further.

Mr. JONES. It was not in the final rule.

Chairman SARBANES. But that would certainly address the situation that you ran into, would it not?

Mr. JONES. It would. We support that not only from the standpoint of Habitat for Humanity but also from all of our colleagues

who work with low-income persons.

Chairman SARBANES. Thank you. We appreciate your coming.

Mr. JONES. I apologize for leaving.

Chairman SARBANES. No, you are going to do good work, I guess

I should say the Lord’s work.

We will turn to Sheila Crowley, another Former Staff Member of

this Committee along with Amy Randel who is now working with

Habitat and, as Tom said, doing a very fine job for them. Sheila

actually worked with this Committee in 1996 and 1997 as a Social

Work Congressional Fellow. She is now the President and CEO of

the National Low Income Housing Coalition. She is on the Board

of the National Housing Trust, the technical assistance collaborative. She has a PhD from Virginia Commonwealth University,

and we are very pleased to have her back with the Committee.

We will be happy to hear from you.

STATEMENT OF SHEILA CROWLEY,

PRESIDENT AND CHIEF EXECUTIVE OFFICER,

NATIONAL LOW INCOME HOUSING COALITION

Ms. CROWLEY. Thank you very much, Senator Sarbanes. It is an

honor to be invited here today, and it was especially wonderful to

be invited by you as the Chairman. Thank you for having me.

Chairman SARBANES. I quoted good parts of your statement. I am

going to quote them again.

Ms. CROWLEY. I noticed that.

[Laughter.]

Chairman SARBANES. We will include the full statements in the

record, for you, Mr. Reilly, and Mr. Jones, of course, so if you could

go ahead and summarize your statements, please do so.

Ms. CROWLEY. I will. I have made specific reference to many

parts of the HUD budget. I am not going to use this time to go over

those. But there are several issues we urge the Committee to take

a careful look at.

I do want to thank you for your attention to the problem of the

OTAG grantees. Many of our affiliates at the State and local level

are in the position of really being in pretty bad shape right now.

28

I thank you on their behalf for pressing HUD on that. The HUD

budget proposal of 2003 is only meaningful if we ask ‘‘in comparison to what?’’ Compared to what many of us feared with the return

of the Federal budget deficit, the President’s proposal is a relief.

Compared to the 2002 HUD appropriations bill, the President’s

proposal is remarkably similar. Compared to HUD’s budget in the

last year of the Ford Administration, the 2003 HUD budget proposal is a shadow of its former self. Compared to the housing needs

of extremely low-income Americans, the budget proposal is wholly

inadequate and compared to what the total Government could afford to invest in low-income housing, if addressing critical housing

problems were a real and not a rhetorical priority, the President’s

2003 HUD budget proposal is unacceptable.

You did go over the numbers that I provided about the extent

and depth of the affordable housing crisis. The National Low Income Housing Coalition’s analysis of the American Housing Survey

data ultimately boils down to what we see as about 14 million

households that are extremely low income. Some are renters, some

are homeowners, some are homeless. They are all people with incomes under 30 percent of the area median income and they have

severe housing problems. They pay over half their income for their

housing. Just to make sure we have some perspective on that, 30

percent of the area median income in the District of Columbia is

$18,390 a year. These are the people who work in hotels, these are

cashiers, these are day care workers, these are the people upon

whom we depend upon to do their jobs so that we can do our jobs.

The affordable housing crisis can be invisible because so many of

these people are holding on by their fingertips and their plight only

becomes visible if they lose their grip and they slip into homelessness. The disparity between income and housing costs has serious

implications for a whole range of other social policy objectives and

I was glad to hear Senator Corzine ask the Secretary about what

HUD is doing on welfare reform.

To quote a Hudson Institute Report about welfare reform in Wisconsin, ‘‘It is no longer the case that success in the labor market

guarantees success and stability in the housing market.’’ Unfortunately, the proposed HUD budget makes no mention of the role of

housing in welfare reform, nor does the proposed HHS budget address housing in its plans for reauthorization this year. It is an absolute certainty that housing stability is essential to family stability. It is the bedrock upon which families thrive. And failure to

address the issue of affordable housing is antifamily. Some of us

can remember before there was contemporary homelessness, and

there were lots of poor people in 1970, but there was a small surplus of housing they could afford. Today, there is a severe shortage.

Between 1991 and 1999, we lost a million units of housing affordable to extremely low-income Americans. That is a 14 percent decline. The sharp Federal disinvestment in low-income housing

assistance began in the late 1970’s. Had we continued to fund lowincome housing assistance at the level authorized in the 1970’s, it

is safe to say we could have prevented much of the homelessness

of the 1980’s and 1990’s and the housing shortage we are experiencing today would not be as severe.

29

So mindful of these data, the proposed 2003 HUD budget has

serious shortcomings. Most of the increase that is called for will

simply allow housing programs to stay current; it is not a real

expansion of programs. The President does propose to expand the

housing vouchers by 34,000. We appreciate the emphasis on homeownership and the programs that he is offering to that goal. The

President’s goal to end long-term homelessness is laudable but it

is an empty promise because there are no resources in this budget

to actually house people.

Solving the affordable housing crisis is well within the capacity

of American ingenuity and resolve. We know what needs to be

done. We have to improve people’s incomes. We have to expand

vouchers. We have to preserve the current assisted and public

housing and finally we must build new housing. What is most disappointing about the President’s 2003 HUD budget is its failure to

address housing production in the face of such overwhelming need.

I will close by talking about the National Housing Trust Fund

Campaign, the National Low Income Housing Coalition, and our

partner organizations, some 1,900 of them now across the country,

are calling for the establishment of a National Housing Trust

Fund. Mr. Chairman, I would like to enter this list of endorsers of

the National Housing Trust Fund into the record.

Chairman SARBANES. It will be included in the record.

Ms. CROWLEY. The National Housing Trust Fund should be capitalized with dedicated sources of revenues sufficient to produce

and preserve 1.5 million homes for the lowest-income households in

the next 10 years. We look forward to a debate on S. 1248, the National Affordable Housing Trust Fund Act, in the Banking Committee this year.

Thank you again, Senator Sarbanes, for the opportunity to represent the members of the National Low Income Housing Coalition

at this important hearing.

Chairman SARBANES. Thanks. Next we will hear from Joseph

Reilly. Mr. Reilly has been with JPMorgan Chase Community Development Group since 1989. The group provides financing for affordable housing and other community development projects in a

number of States; New York, New Jersey, Connecticut, Delaware,

Maryland, Pennsylvania, Washington, DC, and Texas, as well, as

I understand it. Prior to joining Chase, Mr. Reilly had several positions with the New York City Department of Housing Preservation

and Development, including 2 years as Director of its Vacant Building Program, New York City’s largest public/private initiative designed to finance the rehabilitation of the City’s vacant housing

stock. Currently, he serves on the boards of the Low Income Housing Fund, the Community Development Trust, and the Enterprise

Social Investment Corporation.

Mr. Reilly, we are looking foward to hearing from you.

STATEMENT OF JOSEPH F. REILLY, SENIOR VICE PRESIDENT

JPMORGAN CHASE COMMUNITY DEVELOPMENT GROUP

ON BEHALF OF THE

NATIONAL ASSOCIATION OF AFFORDABLE HOUSING LENDERS

Mr. REILLY. Thank you, Mr. Chairman.

30

During the 24 years, I have been involved in affordable housing

and community development, I have seen the issues from a variety

of perspectives. As you mentioned, I spent 6 years working for a

faith-based organization, another 6 years working for the New York

City Department of Housing Preservation and Development, and

for the past 12 years I have worked for JPMorgan Chase, where

I currently manage a staff of 40 professionals who finance affordable housing and commercial real estate projects in areas served by

our bank. Over the past 5 years, JPMorgan Chase has provided

over $2.6 billion in community development financing. We continue

to seek new and innovative ways to provide financing which will

strengthen the communities we serve.

While much has been done to solve the problems American families are facing in finding decent affordable housing, much remains

to be done. Many high cost areas like New York suffer from a profound shortage of both rental housing and homeownership opportunities, not only for very low-income families but also for low- and

moderate-income families. We have a growing crisis that requires

the ongoing attention of policymakers, and both short-term and

long-term measures to achieve our national goal of a decent home

in a suitable living environment for all Americans.

The good news is that during the past decade, our industry has

experienced a significant strengthening in learning how to produce

decent, affordable housing for low- and moderate-income families

and communities. For-profit and nonprofit developers, lenders, investors, community leaders, and government at all levels have

learned to collaborate as partners in devising new solutions and

creating financing strategies for producing affordable housing in

thousands of communities.

We have built the infrastructure necessary to have a major impact on housing needs, and coped with the often conflicting requirements of many Federal, State, and local subsidies we need to do

our work. We have learned over the years how to do it right—how

to build affordable housing for rent and homeownership that contains a mix of incomes, housing that is built with the discipline of

the private market and leverages public resources responsibly,

housing that is of high quality and lasting value, housing that

stays affordable over the long run, housing that people are proud

to call home.

Insured depository institutions like JPMorgan Chase are an important part of this community. The U.S. Treasury Department

documented that, from 1993 to 1998, the amount of mortgage lending to low- and moderate-income communities and borrowers by

CRA-covered lenders rose 80 percent. In 1998 alone, the Treasury

reported at least $135 billion in mortgages to these borrowers,

made by insured depository institutions.

As good as these solutions are, they come nowhere near meeting

the need. The public, nonprofit, and for-profit organizations that

have mobilized and partnered to provide affordable housing face

three major constraints in our ability to deliver more decent, affordable units.

First, Federal funds are often encumbered by well-meant legislative and regulatory constraints that impair needed flexibility to

meet community needs. Sometimes, something gets lost in the

31

translation of housing policy when it is regulated into practice. And

inevitably, the more tightly the subsidies are targeted to those

most in need, the greater the financing gap and the harder it is to

make the deal economically viable.

Second, we could finance more affordable housing if we had more

resources. There is no magic to the provision of affordable rental

housing. Affordable housing can only be built if public subsidies fill

the gap that exists between what families can afford to pay and the

costs associated with the construction, operation, and maintenance

of decent, affordable housing.

Federal programs such as HOME, CDBG, and the Low Income

Housing Credit have played valuable roles in helping to fill that

gap, but rarely do it alone. For example, many housing credit deals

in low-income communities require additional subsidies to fill financing gaps. But funding levels for all Federal programs have

failed to keep pace with rapidly growing need, and these programs

come with complex requirements that slow, or even discourage, development of new units.

Unfortunately, over the past decade the focus at the Federal

level has shifted to demand-side subsidies, which do not increase

the supply of affordable units. In addition, there is an aging housing stock of affordable units that needs new roofs, new mechanicals, and new systems to remain viable.

Third, in some States there is a scarcity of permanent financing

for multifamily affordable housing. Affordable housing developments often involve subordinated debt and low-income housing tax

credits that make multifamily mortgages ‘‘nonconforming’’ for sale

to the secondary market. Smaller projects also have difficulty attracting the required permanent financing.

In the short run, the more we can simplify the regulations, the

processes, and the paperwork of Federal assistance, the more we

will increase the efficiency of the programs and private sector participation. Simple, flexible funding sources that have had real impact with maximum efficiency include the Affordable Housing Program of the Federal Home Loan Banks and the Community Development Financial Institutions’ fund. A streamlined, permanent

loan product, which made ‘‘nonconforming’’ affordable housing

loans more attractive to investors, would also be extremely helpful.

In the long run, the Federal Government can be a catalyst for

attracting more private capital to affordable housing by providing

a stable, predictable source of capital that would not be subject to

the annual appropriations process, in keeping with the long-term

nature of community development.

It is also clear that the homeownership opportunities for lowincome families and communities are not keeping pace with the

rapidly growing need. The President’s Budget proposes a tax credit

for developing affordable homes that builds on the success of the

Low Income Housing Credit and would do much to alleviate the

shortage of affordable homeownership opportunities in our neediest

communities. NAAHL has endorsed the single-family tax credit

and asks Congress to enact it as soon as possible. Similarly, the

proposed quadrupling of the American Dream Downpayment Fund

will help many low-income homebuyers achieve their own home,

32

while the proposed increase in housing counseling funds will help

those struggling to keep their homes.

I want to thank everyone and thank the Chairman for having the

opportunity to speak here today. I appreciate the opportunity.

Chairman SARBANES. Thank you very much, sir, for a very strong

statement. I was struck by two things you said, and I just want to

underscore them. One, we have built an infrastructure, a public/

private infrastructure and, as you put it, We have learned over the

years how to do it right—how to build affordable housing for rent

and homeownership that contains a mix of incomes, that is built

with the discipline of the private market and not just public resources in a responsible way, that is of high quality and lasting

value, that stays affordable over the long run, and that people are

proud to call home.

I think that is extremely important. That is one of the reasons

I had that perhaps sharp exchange with the Secretary about the

OTAG and the ITAG funding for these community-based nonprofit

organizations, because their part of this infrastructure, it is hard

to get them up and going and it is very easy for them to fall down

and in effect go by the wayside.

We are extremely concerned about that but I think your point is

well taken, that we have this structure in place and we have the

vessels. We need to figure out how to put more liquid, more resources into them. That is why I think the Housing Trust Fund

idea holds a lot of prospects. We are going to have to examine that.

What is your own view on the Housing Trust Fund idea?

Mr. REILLY. I think a long-term sustainable source of financing

to encourage the development of affordable housing is an important

thing to have. I think it probably would be best that there are

sources that address the needs at various levels of income because

there are shortages at very low-, low-, and moderate-income levels.

Chairman SARBANES. You mentioned the CRA. How important a

player do you think CRA is in this picture?

Mr. REILLY. I think that CRA has encouraged lenders to be more

active in community development activities.

Chairman SARBANES. My understanding is that it has made

some lenders finally aware of the fact that actually they can do

well by doing good, that there is in effect a market there that is

profitable if they can get into it. And some of the financial institutions—yours is one of them—have been pretty active in that field,

is that not the case?

Mr. REILLY. We feel that we are one of the national leaders in

community development, financing community development projects, both residential and commercial. We feel very strongly that

we are a leader in that field.

Chairman SARBANES. Ms. Crowley, I would like you to take just

a couple of minutes and walk us through this housing wage. I did

a little bit of this with the Secretary this morning but you have

spelled it out well in your statement, and I think we really should

get it on the record. So if you would just take us through it stepby-step, the concepts, how they came about, and then give us some

of the figures, I think that would be helpful.

Ms. CROWLEY. Sure, I would be happy to do that. The housing

wage is a measure that was developed by Cushing Dolbeare who

33

is the founder of the National Low Income Housing Coalition, and

the coalition has been issuing reports based on this for about 10

years now. The housing wage is what you have to earn on an hourly basis, if you work full time, that is 40 hours a week, 52 weeks

a year, and you pay no more than 30 percent of your income for

your housing, in order to be able to afford the fair market rent. The

fair market rent is the only measure of rental housing cost that is

available on a jurisdiction-by-jurisdiction basis across the country.

So using the fair market rent allows us to really analyze this

problem in a very specific way down to the jurisdiction level. The

fair market rent is the figure that HUD generates that is used to

determine whether this is a fair price to pay for the rental housing

that HUD subsidizes. And at the moment, for most jurisdictions,

the fair market rent is at the 40th percentile of rental housing

costs, so in a given community, 40 percent of the rental housing

will cost less than the fair market rent, and 60 percent will cost

more than the fair market rent.

Essentially, that means that we are talking about some modest

rental housing that has to meet certain quality standards. We are

talking about what it costs to get decent housing. That is why we

use those measures and those variables. When you work that out

and begin to aggregate that up to the State and national level,

what you see is an enormous gap between what the housing wage

is and what real wages are.

Chairman SARBANES. Let me ask this question. Where does the

30 percent of income for housing figure come from? You have

explained the fair market rent, as the 40th percentile of rental

housing costs. Where do we get the figure, that the reasonable percentage of your income to devote to rent would be 30 percent?

Ms. CROWLEY. It is a generally accepted standard in the housing

industry. When you calculate what it is you could afford for a mortgage or for rent, that is what the standard is. It is codified in the

rent structure and the percentage of income that we charge to people who are receiving housing assistance.

So through the Section 8 program in public housing, et cetera,

what we say is that 30 percent is the standard of affordability.

Then we subsidize up to what the fair market rent is. It is important I think to note at the beginning of this effort of doing housing

subsidies that, in fact, we determined that 25 percent of your income was the reasonable percent to pay for your housing, and over

time that has been allowed to go up.

Chairman SARBANES. To 30 percent?

Ms. CROWLEY. Yes.

Chairman SARBANES. Why don’t we carry through with the wage

figures? We are trying to see how much income you would have to

earn so that 30 percent of that income would give you enough

money to have a house at the fair market rent, is that right, not

a house but a rental at the fair market rent?

Ms. CROWLEY. When you aggregate it up on the national basis, it is $13.87 an hour. It ranges from $8.50 an hour in West Virginia

to $18.33 an hour in California. In some jurisdictions, San Francisco being the most severe problem, it goes up to $33 an hour.

This map, which we appreciate the Committee using to illustrate

the extent of the housing crisis, we developed this year because we

34

were told there was an opinion within the Administration that if

you had two minimum wage earners in a household, then you could

afford to pay rent anyplace in the country.

The dark States are those States where even if you have two full

time minimum wage earners in your household at the prevailing

minimum wage in that State—some States have a higher minimum

wage than the Federal minimum wage—even if you have two of

them, you cannot afford to pay the housing wage. There are three

States; New York, New Jersey, and Hawaii where three full time

minimum wage jobs are insufficient to pay the housing wage.

Chairman SARBANES. That is a range from $8.50 an hour in West Virginia to $18.33 an hour in California.

Ms. CROWLEY. That is right.

Chairman SARBANES. In California, you could have two workers

at the minimum wage and still be way below what you need in

order to afford the fair market rent.

Ms. CROWLEY. I was in California recently visiting my daughter,

who is a renter in San Diego, and it is really astounding what the

housing market is like out there and how extraordinarily difficult

it is for people to find just a reasonable place to live, and not have

to pay very high percentages of their income for their housing. Consequently, they have lots and lots of people doubled up, living in

garages, and things like that.

Chairman SARBANES. I want to very quickly run through some

of these comments you have toward the close of your statement.

And Mr. Reilly, if you want to at any point come in on these, we

would be happy to hear from you.

Combining the competitive programs under HUD’s McKinney– Vento Homeless Assistance Programs—what are your thoughts?

Ms. CROWLEY. I think the evolution of the McKinney Homeless

Assistance Programs over time at HUD means that it makes sense

at this point to put that out as one source of funding for communities to make some decisions about how best to spend them. We

have to maintain the expectation that today we will focus that on

permanent housing as the Congress has directed in the last year,

that 30 percent has to go into permanent housing.

Our concern about this proposal, and listening to the Secretary’s

discussion about it, makes it sound a lot like a block granting of

the McKinney funds, which as you know has been something that

people have had very strong feelings about for many years. So, we

want to guard against that.

It is the opinion of the National Low Income Housing Coalition,

and many of our colleagues who are doing low-income housing development, as well as homeless service delivery, that maintaining

a Federal responsibility and a Federal oversight over homeless

service delivery is essential, and that devolving that to the community level in many ways accepts homelessness as a permanent condition, which we do not think it should be.

Chairman SARBANES. We also have this continuum of care concept. We do not want to lose that in any way, do we? Isn’t that an

important aspect of dealing with the homeless?

Ms. CROWLEY. Actually, I think it is. I think that getting rid of

the narrow confines of the categorical programs, would help make

the continuum of care work better. I have sat on a local continuum

35

of care decisionmaking board, and you spend a lot of time trying

to fit square pegs into round holes. And it will allow the programs

to be more tailored.

Chairman SARBANES. I wanted to actually have an exchange

with the Secretary on the capital funds for public housing, which

has been reduced again in this budget. And they are now floating

the idea of allowing the housing authorities, in effect, to take mortgages out on the public housing, which presumably then would

raise capital with which they could upgrade the public housing.

On the surface, it looks like a way to draw in additional capital.

How would you service the mortgage? You would have to build the

cost of servicing the mortgage either into the rents, or you would

have to give some grant year-by-year from the Federal Government

in order to service the mortgage. Wouldn’t that be the case?

Ms. CROWLEY. As far as I understand it. But I do not begin to

understand precisely what it is that they are proposing. I think we

should experiment with things; we should not always keep things

the same. We should experiment and I think that those are really

important questions that have to be answered.

I think that cutting the capital fund in anticipation of something

that may or may not pan out is rather premature. And in any

event, the backlog on repairs and modernization of public housing

is much greater than what the capital fund has been funded for

anyway. So if the Congress wants to consider allowing HUD to try

this, we should look at that carefully, figure out what the ramifications are. But it should not be in lieu of funding the capital fund

at the level that is required.

Chairman SARBANES. You could voucher someone out of public

housing, then make the unit available for unassisted housing. Do

you understand that that is part of the proposal?

Ms. CROWLEY. That they would make public housing available

for——

Chairman SARBANES. In other words, you could say to somebody,

we will give you a voucher. You can go somewhere else. Once that

was done, since their housing need had been met, the unit would

become available to rent it to someone who does not need assisted

housing. If that is the case, it would be a way of in effect over time

doing away with the public housing stock, particularly in the better

neighborhoods which would in many ways perhaps have an appeal

to be converted over from public housing into unassisted housing.

Ms. CROWLEY. My reaction to that is that most public housing

authorities have waiting lists for people looking for housing assistance. And so to then go into something that is going to make very

scarce resources available to people who do not need housing assistance seems to me to be not really meeting what their mission

is. I think, as you point out, it has the potential of ultimately loss

of public housing stock.

Chairman SARBANES. What kind of production programs do you

think we most need?

Ms. CROWLEY. We most need a production program that is going

to provide rental housing for extremely low-income people. There

are all sorts of other rationales for doing a production program for

other kinds of housing and other segments of the eligible population, but the data are very stark that over the last 10 years, the

36

loss of housing that is affordable to extremely low-income people

has been precipitous, while at the same time we have, in fact, seen

an increase in the number of units that are affordable to people in

the upper tier of the eligible group.

So if we are making decisions about where the most serious priorities are, that is where funds should be directed. But there is certainly room for doing a variety of other things if you decide to put

sufficient funding into that. But our position, and the position of

the National Housing Trust Fund campaign, is that that is where

the most serious unmet need is, extremely low-income households

and rental housing.

Chairman SARBANES. Can we get at that need through a kind of

hand-me-down process in housing, or doesn’t that work? If, for one

reason or another, you cannot provide the additional production at

that level, you provide it at a level somewhat higher. But then the

housing that those people were in gets passed down and becomes

more available.

Ms. CROWLEY. The traditional filtering down concept? We have

actually begun to talk about a filtering up process. There is so

much housing that is occupied by people who cannot afford that

housing, that if you simply build more housing that is affordable

to people in that income range, you are going to ease the gap for

people at that level but you are not going to do anything to solve

the problem for people at the lowest end. So, we really think that

if you begin to build housing affordable to, the lowest possible income end, then, in fact, what will happen is that you will free up

housing for people higher up.

Mr. REILLY. I think you also have to be concerned about the

quality of the housing that filters down. I think that we need to

be very conscious of the quality of housing.

If you just say, whatever is left over will be the low-income housing, the lowest-income housing, I think we should be concerned

about what the quality of that is, which is going to leave you with

a financing gap then as well—which is that housing which filters

down needs to be brought up to a certain standard. And in order

to do that, I look at this map and I see, here is how you quantify

what the gap is.

The overlay here should be, at some point, here’s what the housing cost is in that area, what it costs to build in that area, and

here’s how many units you need. You put it all together and you

figure out what the gap is.

But if you are going to have the lowest-income housing going to

be whatever is left over, bring it up to some certain standard, you

are going to have to finance that anyway. And people based on

their incomes are not going to be able to afford that anyway, so you

are going to have to subsidize it from that perspective.

Ms. CROWLEY. What we hear from the nonprofit development

world—and I will defer to Mr. Reilly on his assessment of this—

is that developing housing for the extremely low-income people is

something that they cannot do, because they do not have the resources to be able to do that. And so the other programs that are

available target the low-income housing tax credit-eligible group,

the HOME eligible group, and those people.

37

The whole idea behind the Housing Trust Fund is to create not

a program, but a new source of capital that will be specifically

dedicated to the production of housing for those people for whom

there are no resources at this point, and that those resources be

coupled with the other resources so that you can create a full range

of mixed income housing in any given community.

Chairman SARBANES. You have been very helpful, and the statements—we appreciate the obvious work and care that has gone into

them. We will stay in close touch with you as we proceed to work

on this budget.

Thank you all very much.

The hearing stands adjourned.

[Whereupon, at 1:45 p.m., the hearing was adjourned.]

[Prepared statements, response to written questions, and additional material supplied for the record follow:]

38

PREPARED STATEMENT OF SENATOR WAYNE ALLARD

I would like to thank the Chairman for convening this hearing. I appreciate the

opportunity to learn more about the Administration’s fiscal year 2003 budget and

legislative proposals for the Department of Housing and Urban Development.

During my tenure as Chairman and Ranking Member of the Subcommittee on

Housing and Transportation I have consistently stressed the importance of outcomebased management. I am extremely pleased to see that the Administration’s budget

proposal for fiscal year 2003 begins to incorporate this principle.

I would like to highlight several key passages from the budget:

Increases in spending are assumed to reflect high priorities and reductions reflect low priorities. This is because everyone takes for granted that

more Government spending will translate into more and better Government

services . . . The assumption that more Government spending gets more

results is not generally true and is seldom tested . . . The initiative to integrate budget and performance has an important purpose—to improve programs by focusing on results. Dollars will go to programs that work; those

programs that do not work will be reformed, constrained, or face closure. . . Good intentions and good beginnings are not the measure of success. What matters in the end is completion: performance and results.

As I have noted at previous hearings, Government agencies should be judged by

results, not by the size of their budgets or the number of new programs. The success

of HUD will be determined by how many people it helps to achieve self-sufficiency,

not by how much money it spends.

I am pleased with a number of initiatives in the budget. In particular, I would

like to praise the Administration for its focus on homeownership. Through a number

of proposals, this budget will help boost the national homeownership rate beyond

its current record level. Not only does this emphasis help more families achieve the

American Dream of homeownership, it also makes important strides in moving families toward self-sufficiency.

Also, the Administration proposes to combine several of the homeless assistance

programs to eliminate duplication and increase flexibility. I have long advocated

such an approach and am pleased to see its inclusion.

I believe that the funding proposal for the SHOP also is a step in the right direction. I am a strong supporter of ‘‘self-help’’ programs, and organizations like Habitat

for Humanity provide a clear example of how successful this model can be. This program is a standard of how the Administration is prioritizing funding for programs

that have proven successful.

I would like to conclude by welcoming the witnesses to today’s hearing. Their comments will be helpful as the appropriations process moves forward, and as the

Banking Committee considers the Administration’s legislative proposals.

In particular, I would like to welcome Secretary Martinez back to the Banking

Committee. I have enjoyed working with you on housing matters over the past year,

and I look forward to continuing that good work this year.

Again, thank you to all of the witnesses for being here today. I look forward to

your testimony.

—————

PREPARED STATEMENT OF SENATOR THOMAS R. CARPER

Thank you Mr. Chairman for holding this important hearing.

At the end of last year, the Senate Banking Committee held hearings on housing

and community development needs looking forward to HUD’s fiscal year 2003 budget. The conclusion of those hearings was clear, there is simply not enough affordable

housing in this country.

Why is this important? It is important because unstable and unavailable housing

makes it harder for people to move from welfare-to-work, for children to learn and

perform well in school; for employers to hire and retain workers; and for communities to maintain stable and vibrant neighborhoods.

The lack of affordable housing goes well beyond the very low-income families that

we traditionally think of when we think of assisted housing. Housing is a major

issue for America’s working families. Dave Curtis, a fellow Delawarean who testified

last year before this Committee on behalf of the National Association of Homebuilders, spoke about the problems ‘‘workers in municipal jobs, such as teachers and

police officers, and in the services sector such as janitors, [and] practical nurses

...’’ have in finding both affordable rental and homeownership opportunities.

39

I look forward to hearing from Secretary Martinez about how HUD’s budget

addresses the problems of affordable housing. I also look forward to the testimony

of the other witnesses.

I hope that the Secretary will also address an issue concerning the continuing

crisis in the Outreach and Technical Assistance Grant (OTAG) and Intermediary

Technical Assistance Grant (ITAG) funds. In the 2002 appropriations process, Congress appropriated over $11 million in order to correct a possible Anti-Deficiency Act

violation made by HUD. This alleged violation resulted in the suspension of critical

technical assistance funds, leading many nonprofits to layoff workers or even close

their doors. In Delaware, the funding freeze has affected the important work of the

Delaware Housing Coalition, as well as the Greenfield Manor Resident Council. I

look forward to hearing the Secretary’s explanation concerning these funds.

—————

PREPARED STATEMENT OF SENATOR JON S. CORZINE

Thank you, Mr. Chairman, for holding this hearing on HUD’s proposed budget for

fiscal year 2003. I want to thank Secretary Martinez for joining us here today to

outline the agency’s goals for fiscal year 2003 and beyond. I also welcome the other

witnesses who will be joining us, and thank them as well for their testimony.

Mr. Chairman, now, more than ever before, we need a strong Federal commitment

to increasing affordable housing for all Americans, most specifically for low-income

families and those who have recently lost their jobs.

The Administration’s proposal has some good elements about it. One of them is

the creation of 34,000 new housing vouchers. I also think that the proposal to end

chronic homelessness over 10 years and the goal to provide physical improvements

to our existing public housing units are good measures.

Overall however, this budget falls short of meeting what I believe is HUD’s core

mission—fulfilling both the short- and long-term housing needs that America’s families, our communities and frankly, our economy, rely on.

While it is praiseworthy that the Administration seeks to end homelessness, their

budget proposal contains little new money for homeless programs—it merely consolidates existing programs.

Furthermore, the Administration espouses the need to physically improve public

housing; its budget actually cuts $441 million from the Public Housing Capital

Fund, the program which funds public housing repairs and rehabilitation.

And Mr. Chairman, once again this Administration does not appear to be committed to reducing crime and drug-related activities that plague public housing

developments. I consider zeroing-out the Public Housing Drug Elimination Program,

a program aimed at improving the safety at public housing developments, particularly troublesome. Now, more than ever, our communities need more resources to

maintain security, not less.

Mr. Chairman, as you are aware, Congress is reauthorizing Temporary Aid to

Needy Families (TANF), our Nation’s welfare program this year. The President’s

housing budget is completely silent on the specific housing needs that face welfare

recipients. Only 30 percent of TANF families receive housing subsidies, however,

modest housing costs more than 100 percent of TANF benefits in 47 States, including New Jersey. A key initiative of the President’s budget is helping individuals

achieve self-sufficiency. Yet, the President has not allocated any resources for new

welfare-to-work vouchers or any additional funding for the Family Self-Sufficiency

(FSS) Program.

Mr. Chairman, this budget has very negative implications for New Jersey, which

has the third highest housing costs in the country. This proposal does little to impact the dilemma faced by individuals who reside in high-cost States, like New Jersey, who still face skyrocketing housing cost—even during the midst of a recession.

And this proposal completely eliminates grant funding for Round II Empowerment

Zones, a program that has contributed mightily to the economic development of

Cumberland County, New Jersey.

Secretary Martinez, I hope that we can use this opportunity to discuss these concerns and that we can gain a better understanding of HUD’s, and your, commitment

to improving access to decent, affordable housing for all American families.

Thank you, Mr. Chairman.

40

PREPARED STATEMENT OF MEL MARTINEZ

SECRETARY, U.S. DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT

FEBRUARY 13, 2002

Chairman Sarbanes, Ranking Member Gramm, Distinguished Members of the

Committee, thank you for the opportunity to join you this morning to outline the

proposed fiscal year 2003 budget for the Department of Housing and Urban Development (HUD).

The $31.5 billion HUD budget represents a funding level increase of 7 percent

over fiscal year 2002. By helping Americans reach the dream of homeownership,

ensuring affordable housing opportunities for those who rent, strengthening and

renewing communities, and preserving a safety net for the most vulnerable Americans, this budget will enable HUD to make a tremendous difference in the lives of

millions of Americans.

The housing market in 2001 was extremely vigorous, and we entered the new

year with homeownership at a record high. Because we know that homeownership

gives families a stake in their communities and creates wealth, the HUD budget

makes owning a home a viable option for even more Americans. In his State of the

Union Address, President Bush acknowledged our commitment to expanding homeownership—especially among minorities.

As a first step, we have quadrupled the American Dream Downpayment Fund, to

$200 million. This Presidential initiative will help an estimated 40,000 first-time

homebuyers overcome the high downpayment and closing costs that are significant

obstacles to homeownership.

A Tax Credit for Developers of Single-Family Affordable Housing will promote

homeownership opportunities among low-income households by supporting the rehabilitation or new construction of homes in low-income urban and rural neighborhoods.

We are tripling funding for the Self-Help Homeownership Opportunity Program

(SHOP) to $65 million, as committed to by the President last spring. That, and a

lot of sweat equity, will make possible the construction of an additional 3,800 homes

for disadvantaged Americans. SHOP is an excellent example of Government maximizing its resources by working with private-sector partners like Habitat for

Humanity.

Another exciting homeownership initiative targeted at low-income families will

allow them to put up to a year’s worth of their Section 8 rental voucher assistance

toward a home downpayment. And because we consider it an invaluable tool for prospective homebuyers and renters, we have proposed making housing counseling a

separate program. The increase in subprime lending has made financial literacy

more important than ever; armed with the facts, a consumer is far less likely to be

victimized by predatory lending. We are funding the counseling program at $35 million, which represents a $15 million increase over the previous fiscal year.

While we consider homeownership to be an important goal, we recognize that it

is not an option for everyone; therefore, our budget preserves HUD’s commitment

to expanding the availability of affordable housing for the millions of Americans who

rent their homes.

The Section 8 tenant-based program today assists nearly two million families; our

budget provides an additional 34,000 housing vouchers. The budget also dedicates

$16.9 billion to protect current residents by renewing all expiring Section 8

contracts.

To encourage the production of moderate-income rental housing in underserved

areas, we plan to reduce the mortgage insurance premium for Federal Housing Administration (FHA) multifamily insurance.

Three times over the last 8 years, HUD has been forced to shut down our multifamily mortgage insurance programs because of lack of credit subsidy. Last year,

the shutdown stopped the construction of some 30,000 rental units throughout the

country and clouded developers in uncertainty.

We made a commitment at HUD to a comprehensive review of the credit subsidy

program. We examined the statistical techniques that were used to analyze loan

performance. We thoroughly updated and refined FHA’s data and incorporated the

major tax law changes in the 1980’s that affected the profitability of multifamily

housing. Through our review, we were able to lower premiums, create a self-sustaining program, provide the industry with stable financing at a much lower cost,

and provide thousands of new opportunities for rental housing across the country.

In fact, the program made firm commitments to insure $1.25 billion worth of new

rental housing in just the first 4 months of the fiscal year. Reducing the premiums

41

in fiscal year 2003 will lower the cost of building over 50,000 affordable rental

apartments each year.

The 2003 budget gives HUD new resources to further our mission of supporting

the Nation’s most vulnerable. This includes low-income families, homeless men and

women, the elderly, individuals with HIV/AIDS, victims of predatory lending practices, and families living in housing contaminated by lead-based paint. Let me highlight just a few of our proposals.

To better coordinate the work of the many Federal agencies that reach out and

provide a continuum of care to homeless men, women, and families, the budget calls

for doubling HUD’s funding for the newly reactivated Interagency Council on the

Homeless. Additionally, converting three competitive homeless assistance programs

into a consolidated grant will eliminate the workload and expense of administering

three separate programs. More importantly, it will give local jurisdictions new discretion in how those dollars are spent.

HUD’s Lead Hazard Control Program is the central element of the President’s

effort to eradicate childhood lead poisoning in 10 years or less. The HUD budget

will fund the program at $126 million, a substantial increase over the previous year.

The budget also proposes spending $251 million under HUD’s Section 811 program to improve access to affordable housing for persons with disabilities. And

many of the additional 34,000 Section 8 housing vouchers will aid non-elderly, disabled individuals.

In addition to addressing the Nation’s critical housing needs, programs such as

the HOME Investment Partnerships Program and the Community Development

Block Grant (CDBG) Program stimulate economic development and job growth.

Combined, these two programs will distribute an additional $200 million in formula

funding to State and local governments. We have proposed changing the distribution

of CDBG formula funds by reducing the size of grants going to the wealthiest communities. This will help bring dollars into those areas where they can do the most

good.

We are excited about a brand-new concept to address the large backlog of repair

and modernization projects in public housing. The Public Housing Reinvestment Initiative represents a new way to leverage the value of public housing by allowing

public housing authorities (PHA’s) to borrow funds to make needed capital improvements. This project unlocks the value of public housing assets by allowing PHA’s

to convert public housing units to project-based vouchers. The PHA’s can obtain

loans by borrowing against individual properties—similar to private-sector real

estate financing.

Innovative thinking like this represents a departure from the way things were

done so often in the past—but being effective does not have to mean spending more

money. Government works best when Government serves as steward and facilitator

. . . and measures success through results. By facilitating the involvement of new

local partners, the Public Housing Reinvestment Initiative will breathe new life into

public housing communities.

I am proud of our budget and the way it reflects HUD’s renewed commitment to

efficiency, accountability, and the principles of excellence expressed through the

President’s management scorecard. When Government spends efficiently, the funds

go much further. We reach more citizens. We help to change more lives.

The people of HUD know that the American Dream is not some unattainable goal,

because we see it achieved every day, so often by families who never imagined

owning their own home or reaching economic self-sufficiency. I am confident that

through our budget—and the continued commitment of President Bush—HUD will

be better able to offer citizens the tools that they can put to work improving their

lives, and strengthening their communities and their country . . . as they travel the

road to achieving their own American Dream.

I would like to thank each of you for your support of my efforts, and I welcome

your guidance as we continue our work together on behalf of the American people.

Thank you.

—————

PREPARED STATEMENT OF THOMAS L. JONES

MANAGING DIRECTOR, HABITAT FOR HUMANITY INTERNATIONAL, WASHINGTON OFFICE

FEBRUARY 13, 2002

Chairman Sarbanes, Ranking Member Gramm, and Members of the Committee,

thank you for the opportunity to represent Habitat for Humanity International. I

am Tom Jones, the Managing Director of the Washington Office of Habitat for

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Humanity International for the past 10 years. The Washington Office is a part of

the Executive Office of Habitat for Humanity International, located in Americus,

Georgia. The Washington Office serves as Habitat for Humanity International’s presence in the Nation’s Capital. We are privileged to represent Habitat for Humanity International with Congress and the Administration, professional and industry

groups, international groups and foreign embassies, other nonprofits, labor unions,

business corporations, and NGO’s. On behalf of Habitat for Humanity International, I am deeply grateful for the

opportunity to testify before the Senate Banking Committee. The Members of this

Committee have shown their commitment to expanding housing opportunities for

families seeking to improve the quality of their lives by passing meaningful legislation and holding hearings, such as this one, to determine the appropriate level of

Federal spending on housing needs. Many Members of this Committee have actively

demonstrated their support for self-help housing and homeownership by building

alongside Habitat for Humanity volunteers and homeowners to construct simple,

decent Habitat homes. In fact, The Houses the Senate Built program has now recruited 60 U.S. Senators, including Senator Sarbanes, every single Member of the

Housing and Transportation Subcommittee, and Senators Bayh, Johnson, Bennett,

and Crapo to build homes in their own States during this year. Our hope is that

this partnership with the Senate will place the issue of affordable housing at the

forefront of the Nation’s agenda and raise the awareness of the American public

that access to affordable, decent, and safe housing is an opportunity every person

and family should have.

Secretary Martinez has also reiterated this conviction and shown his unwavering

commitment to homeownership, particularly for minorities and low-income persons—who fall far behind the Nation’s historic homeownership rates. It has been an

honor to work with the Secretary on several Habitat builds and he and his staff

have put in countless hours on their most recent Habitat project, The House the

HUD Secretary Built, in Southeast Washington, DC. Habitat for Humanity is

firmly committed to working with the Secretary and the Department and with other

housing groups, such as the Homeownership Alliance, to increase homeownership

opportunities for low-income families and to enable more minorities to take advantage of the Nation’s most vigorous housing market in history.

Habitat for Humanity has spent the past 25 years building affordable homes for

homeownership in partnership with families who do not qualify for mortgages in the

conventional market. Supported by private donations, Government partnerships to

‘‘set the stage,’’ volunteer labor and homeowner’s ‘‘sweat equity,’’ the homes are sold

for no profit and financed by zero-interest, long-term mortgages that each family

can afford. The average Habitat house selling price was $48,585 in 2000. In September of that same year, we built our 100,000th house worldwide, providing shelter

for more than half a million people. We have now built over 120,000 homes worldwide, with over 42,000 homes built and renovated in the United States, by 1,628

affiliates located in all 50 States. Habitat is operating in 84 countries worldwide

with nearly 500 international affiliates. We have been named the 15th largest

homebuilder in the United States, in units completed, according to Builder Magazine. The national foreclosure rate for a Habitat home is about 1 percent.

Our homeowner families are typically first-time homebuyers who earn wages

below 50 percent of the area median. Just over 71 percent of Habitat homeowners

are minority and almost half are single parents raising school-aged children. Homeowners contribute 300–500 hours of their own labor in the building of their house

and other Habitat homes. By partnering with Habitat, families are able to move

from substandard, deteriorating, overcrowded, and unsafe housing, sometimes even

homelessness, into their very own homes they purchase with an affordable mortgage

and build with their sweat of their brows. Homeownership impacts the lives of its

homeowners beyond the building of a house: families gain substantial financial

equity, stability for their children, an enhanced sense of pride, safety and dignity,

and a legacy to pass to their children.

Homeownership, particularly in areas blighted by disinvestment and economic

distress, can be the key to community transformation, one house at a time. Homeowners are more likely to maintain their properties and be committed to the overall

health of their neighborhoods. Stable housing attracts economic development, favorably impacts school systems, and promotes active community organizations. While

it may not be an option for every family, homeownership is one of the most important building blocks for stronger communities and families.

The success of Habitat for Humanity in creating homeownership opportunities for

thousands of Americans who would otherwise never have the chance to own their

own home is, in part, due to the generous support of Congress and the Administration. Since 1996, Congress has appropriated funding for the Self-Help HomeownerVerDate 11-MAY-2000 10:50 Feb 20, 2003 Jkt 000000 PO 00000 Frm 00046 Fmt 6633 Sfmt 6621 84744.TXT SBANK4 PsN: SBANK4
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ship Opportunity Program, commonly known as SHOP, and the Capacity Building

for Habitat for Humanity Program, part of the Section 4 Capacity Building funds

that benefit other housing and community development organizations. To date,

funding received by Habitat for Humanity for SHOP alone will change the lives of

over 26,000 people—including almost 17,000 children—who would not become homeowners otherwise. We are deeply grateful for this funding and pleased that the

Administration has announced a significant increase in the SHOP program. The

success of the SHOP program speaks for itself and we urge Congress to consider

SHOP as an essential piece of the Nation’s overall strategy to expand homeownership to low-income households.

Self-Help Homeownership Opportunity Program (SHOP)

Congress originally authorized the SHOP program in 1996. It is a competitive

grant program, administered by HUD, providing funds to nonprofit, self-help housing organizations to ‘‘set the stage’’ for building homes below prevailing market

rates; money can only be used to purchase land and fund infrastructure expenses,

such as streets, utilities, water and sewer connections, and environmental clean-up.

For every $10,000 SHOP award, on average, one home must be constructed. SHOP

families invest 250–500 hours in sweat equity and earn below 80 percent of the area

median income. SHOP funds have been used to complement the work of Habitat affiliates in every State, making it possible for our larger affiliates to build multi-lot

Habitat neighborhoods, for fledging, all-volunteer-run affiliates to establish regular

building programs, and for every affiliate in-between to overcome the largest obstacle to house building—land and infrastructure expenses.

Habitat for Humanity competes with other nonprofit housing organizations for the

use of SHOP funds and our affiliates, in turn, compete for the funds awarded to

Habitat for Humanity International (HFHI). Historically, our affiliate’s requests

have exceeded available funds by over 40 percent. In the past round of fiscal year

2001 SHOP awards, our affiliates requested $28 million from an available $11 million award from HUD. HFHI anticipates requests to exceed $30 million from affiliates for the fiscal year 2002 round of funding, yet to be awarded from HUD. It is

our firm belief that the infusion of even more Federal money into the SHOP program will result in a substantial increase in requests from affiliates. In fact, the

most common request we receive in the HFHI/Washington Office from local affiliates all over the country is regarding additional funding for SHOP. The cost of land

and site development has increased so much that affiliates receiving SHOP awards

in each of Habitat’s eight regions far exceeds the average SHOP award; nationally,

the combined average of land and infrastructure expenses is $21,720. This amount

must be raised by affiliates before house construction can even begin.

The success of the SHOP program can be measured by numbers of homes produced: With the inclusion of the fiscal year 2001 awards, when mandated deadlines

are met, SHOP funds will result in a total of 7,382 homes. This translates into

26,132 Americans whose lives have been changed—over 16,551 of whom are children—living in their own home. For every $10,000 investment, the dream of homeownership becomes a reality. SHOP can also be measured by the amount of private

resources leveraged. Habitat affiliates and other self-help housing groups raise an

additional 4 to 10 times the amount of the initial investment of $10,000 to construct

each house.

The other large user of the SHOP program is the Housing Assistance Council

(HAC), a national nonprofit technical assistance organization. In five SHOP competition rounds since 1996, HUD has awarded $37 million to the Housing Assistance

Council. HAC conducts its own competitions and has passed this funding on to 137

local nonprofits in 40 States, helping 4,368 low-income families build self-help

homes using sweat equity, mostly in rural areas. Two thousand four hundred fifty

of those homes are fully or substantially complete, with the rest in various stages

of development. The families are all first-time homebuyers and put an average of

nearly 1,000 hours of sweat equity into their houses. In most of the local programs,

the homebuilding families work together in groups of 8 to 10. They learn about their

homes by building them and develop a community by working together.

Some of the local groups that are using HAC’s SHOP program include Colorado

Housing Inc., Community Action Commission of Fayette County (based in Ohio),

Florida Low-Income Housing Associates, Interfaith Housing of Western Maryland,

Proyecto Azteca (based in the Texas colonias), Self-Help Enterprises (in rural

California), Self-Help Housing Corporation of Hawaii, and Southern Maryland TriCounty Community Action.

Habitat for Humanity and the Housing Assistance Council recommend the following proposal to enhance the effectiveness of the SHOP program: Increase the

current limit of $10,000 per unit to at least $15,000 per unit to more accurately reVerDate 11-MAY-2000 10:50 Feb 20, 2003 Jkt 000000 PO 00000 Frm 00047 Fmt 6633 Sfmt 6621 84744.TXT SBANK4 PsN: SBANK4
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flect the actual cost of acquiring and developing land, and enable the HUD Secretary to determine a higher average, via a waiver, for housing in particular geographic regions where elevated land costs and infrastructure improvements make

the cost of acquisition too costly for affordable housing development. According to

our data, the national average per unit cost to ‘‘set the stage’’ for building a Habitat house is $21,720 ($10,217 for land and $11,512 for infrastructure). Data from HAC

reveals similar land and development costs of $22,000 per unit. In some regions of

the country, the cost of land and site development is so astronomical that additional

resources of 4 to 10 times the amount of a SHOP award is needed before construction on the house can commence, creating serious obstacles for affiliates and other

self-help housing developers in the area. Consider the cost of land and site development for the following Habitat affiliates:

• Southern Santa Barbara County Habitat for Humanity—$112,500.00 • Habitat for Humanity of Northern Virginia—$83,333.00 • Arundel, Maryland Habitat for Humanity—$28,111.00 • Metro Denver Habitat for Humanity—$35,000.00 • Greater Portland, Maine Habitat for Humanity—$47,000.00 • Bend, Oregon Habitat for Humanity—$34,250.00 • Habitat for Humanity of Suffolk, New York—$38,700.00

The Housing Assistance Council also reports that many of its users of SHOP

funds have very high land and site development costs. Some examples include:

• Burbank Housing Development Corp., California—$40,000.00 • Peoples’ Self-Help Housing, California—$50,889.00 • Colorado Rural Housing Development Corp.—$20,265.00 • Self-Help Housing Corp. of Hawaii—$86,765.00 • Interfaith Housing of Western Maryland—$36,306.00 • Rural Development Inc., Massachusetts—$25,600.00 • SE Wisconsin Housing Corp.—$32,091.00

It is our hope that HUD and Congress will support raising the maximum SHOP award to at least $15,000, as we strongly believe this change will make SHOP even

more competitive and attractive to affiliates and other self-help housing groups, who

will work even harder to find the additional private resources necessary to pursue

their building programs.

Capacity Building for Community-Based Housing Groups

Capacity Building is the key to increasing the organizational strength of community-based nonprofits. The Capacity Building for Habitat for Humanity Program, as

part of Section 4 Capacity Building funds which benefit notable groups such as

LISC and the Enterprise Foundation, enable Habitat affiliates to impact communities on an even more significant scale by jumpstarting house production. Habitat

affiliates essentially operate as local Community Development Corporations (CDC’s),

with their own elected board and 501(c)(3) nonprofit statuses. Many affiliates have

no paid staff and must rely on the good will and hard work of volunteers. Thus the

challenge for Habitat for Humanity is to provide technical assistance, training, information, and motivation to increase local building capacity.

The Capacity Building for Habitat for Humanity Program, in its fifth year of

funding, has been used to:

• Provide local volunteers with the skills, training, and knowledge for developing

resources through fundraising and securing gifts-in-kind from the private sector—

including faith-based organizations, businesses, foundations, civic clubs, labor

unions, individuals, and others.

• Foster new local, regional, and State official partnerships with organizations and

groups such as college and university campus chapters, faith-based groups, civic

clubs, prisons, professional groups, including realtors, bankers, homebuilders,

unions, local government, labor, etc. to enhance the productivity of local affiliates.

• Recruit and train local volunteers in communication skills and in ways to use

media opportunities to raise awareness and the public conscience to eliminate

substandard housing and to provide opportunities for every American to achieve

the dream of homeownership.

• Recruit persons for local board membership who have the leadership skills and

the diversity needed and to provide board development opportunities.

• Provide funding on a diminishing basis for affiliates to hire first-time staff or staff

for new positions that contribute to the affiliate’s growth, so that more people are

working at the local level to make housing happen.

• Provide training opportunities via electronic, web-based communication to result

in securing resources, understanding new methods of construction, discovering

sources for training and technical advancement, etc.

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• Focus efforts on the special housing needs and challenges in Rural Areas, Native

American Indian communities, the Colonias, and other populations traditionally

underserved by current housing programs and resources.

Within the context of requirements and regulations established for Capacity

Building for Habitat for Humanity funds, HFHI also conducts training and development of local affiliates at the local level, working with groups of 30–40 affiliates

through its affiliate support system; at the State level in all 50 States; through its

eight regional offices; and nationally. The program includes conferences, training

events, specialized technical assistance instruction, and provision of leadership at

every possible level. Because the majority of Habitat affiliates are located in rural

locations, a major focus is on the unique rural needs for training and technical assistance. Likewise, special focus is made on training and assistance for crucial

urban areas where housing needs are so great and which present unique challenges,

calling for specialized training and technical assistance.

Like the SHOP program, the success of the Capacity Building for Habitat for Humanity program is measured by the increase in numbers of families housed. In the

first round of the Capacity Building grant program, 60 Habitat affiliates built 1,976

homes over the course of the 3 year grant—67 percent more houses than they built

in the 3 years prior to the grant. In addition, affiliates must match every Capacity

Building dollar with $3 of private, nongovernmental funds and increase their building capacity by a minimum of 15 percent. This requirement has also been far surpassed; affiliates participating in the 1998 program alone have raised $146 million

in private funds to match the $4.5 million in Capacity Building dollars. It is our

hope that Congress will support the Administration’s request of $5 million for the

Capacity Building for Habitat for Humanity Program, as it is crucial to the building

efforts of our local affiliates.

Single-Family Homeownership Tax Credit (SFHTC)

While not a part of the HUD budget request, it is important to mention that the

Administration has made a significant housing proposal to promote affordable

single-family housing development. Habitat for Humanity strongly supports the Administration’s goal to increase homeownership and affordable housing production

through a Single-Family Homeownership Tax Credit, modeled after the highly successful Low Income Housing Tax Credit. The proposed credit of up to 50 percent

for the costs of constructing new homes for homeownership or rehabilitating existing

properties for families in low-income urban and rural neighborhoods will enable our

local affiliates and other housing developers to bridge the gap between the cost of

developing affordable housing and the price that low-income homebuyers can pay

for a home.

The proposed tax credit will enable thousands of low-income renters to become

first-time homeowners, increase the numbers of homeowners among African-American, Hispanic, and other minority families, and help to stabilize rising house prices

due to an increase in the production and supply of affordable housing. The SingleFamily Homeownership Tax Credit is more than a tool to expand homeownership

to thousands of families; it is a catalyst for neighborhood revitalization and community development. The availability of a new tax credit for homeownership, in addition to other housing programs for low-income families, will expand the range of

housing options for families and ultimately result in more families climbing the

ladder to wealth and savings.

Conclusion

Mr. Chairman, Habitat for Humanity believes that now more than ever, our Nation must invest in those sources we value the most—family, home, faith, and community. These are the building blocks of great nations. To provide stable, affordable,

decent homes for more families is perhaps one of the greatest investments the Federal Government can make to ensure the health and wealth of our Nation. It is our

hope that as you review the Administration’s fiscal year 2003 proposal for funding

for housing programs for those in this country who can least afford adequate shelter, that you would support additional resources to enable low-income families to

move from rental households into homeownership and capacity building assistance

for front-line, community-based housing providers.

Thank you for this opportunity to testify.

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PREPARED STATEMENT OF SHEILA CROWLEY

PRESIDENT AND CHIEF EXECUTIVE OFFICER,

NATIONAL LOW INCOME HOUSING COALITION

FEBRUARY 13, 2002

Chairman Sarbanes and Members of the Committee, it is an honor to be asked

to testify today on the fiscal year 2003 HUD budget and the degree to which the

President has addressed the critical housing needs of families and individuals in the

United States through his budget proposal. I appreciate the opportunity to be here

today with Secretary Martinez and the other witnesses you have called.

I am Sheila Crowley, President and Chief Executive Officer of the National Low

Income Housing Coalition, representing our members across the country who share

our goal of ending the affordable housing crisis in America. Our members include

nonprofit housing providers, homeless service providers, fair housing organizations,

State and local housing coalitions, public housing agencies, private developers and

property owners, housing researchers, local and State government agencies, faithbased organizations, residents of public and assisted housing and their organizations, and concerned citizens.

An assessment of the fiscal year 2003 HUD budget proposal is only meaningful

if we ask ‘‘in comparison to what?’’ Compared to what many people feared the fiscal

year 2003 HUD budget proposal would be with the return of the Federal budget deficit, the President’s proposal is a relief. Compared to the fiscal year 2002 HUD

appropriations bill, the President’s proposal is remarkably similar, with a few variations in either direction. Compared to the HUD budget in the last year of the Ford

Administration, the fiscal year 2003 HUD budget proposal is a shadow of its former

self. (See Appendix A.) Compared to the housing needs of low-income Americans, the

President’s fiscal year 2003 HUD budget proposal is wholly inadequate. Compared

to what the Federal Government could afford to invest in low-income housing if

addressing critical housing problems were a real, not a rhetorical, priority, the

President’s fiscal year 2003 HUD budget proposal is unacceptable.

I would like to use the time you have provided me today to make the case for

increased Federal investment in low-income housing. In my written statement, I address a series of specific policy issues that are part of the budget proposal, which

we recommend that the Committee carefully examine. Briefly, these include the

OTAG–ITAG crisis, use of Interest Reduction Payments for preservation of assisted

housing, transfer of the Emergency Food and Shelter Program from FEMA to HUD,

renewals in the Shelter Plus Care, Section 811, and Section 202 programs, combining the three competitive programs under McKinney–Vento Homeless Assistance

Programs, reduction of capital funds for public housing, defunding of HUD’s Rural

Housing and Economic Development Program, redistribution of CDBG formula, and

voucher utilization.

The Affordable Housing Crisis

The extent and depth of the low-income housing shortage is well-documented.

While some may make different assertions about causality, anyone who has seriously examined the numbers agrees that we have an acute problem. Anyone who

reads a daily paper is confronted with article after article about some aspect of the

housing crisis—skyrocketing rents, growing numbers of homeless families, Federal

housing assistance waiting lists closed because they are too long, owners of assisted

housing opting out of the Section 8 program, demolition of public housing, former

welfare recipients struggling to pay rent on below poverty level wages, families living in unhealthy and unsafe housing because it is all they can afford, vacant property abandoned by owners who cannot pay the taxes, and so on. These stories and

many more like them have crossed my desk in the last few weeks.

Let us run by the numbers again. The National Low Income Housing Coalition’s

analysis of the 1999 American Housing Survey data shows that there are 15,500,000

households in the United States who pay more than half of their income for their

housing, live in severely substandard housing, or both. The majority of these households—11 million—have extremely low incomes, that is, incomes at or below 30 percent of the area median. Because the American Housing Survey only counts people

who are housed, to get a true picture of the number of extremely low-income households with severe housing problems, we must add the estimated 2,000,000–

3,000,000 homeless families and individuals to this number. That takes us to

around 14 million very poor households with serious housing problems. These include both renters and homeowners, and comprise over 13 percent of all households

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1 Cushing N. Dolbeare. (2001). Low-income housing profile. National Low Income Housing Coalition, www.nlihc.org. 2 Jennifer Twombly et al. (2001). Out of reach: The growing disparity between wages and rents

in America. National Low Income Housing Coalition. www.nlihc.org. 3 Rebecca Swartz et al. (2001). Making housing work for working families. Madison, WI: The

Hudson Institute. 4 Ann O’Hara and Emily Miller. (2001). Priced out in 2000: The crisis continues. Boston, MA:

Technical Assistance Collaborative.

in the country.1 Imagine what would happen if 13 percent of households in America

did not have clean water or did not have access to basic transportation. Imagine

what we would do if this many people in our country contracted a serious illness

that the private health care system could not treat. In many ways the true extent

of the affordable housing crisis can be invisible because so many people hold on by

their fingertips and their plight only becomes visible if they lose their grip in this

very dangerous game of musical chairs.

Another way to frame the problem is with the use of the measure of unaffordability that we call the housing wage, which Senator Sarbanes and many others

have cited to illustrate the severity of housing unaffordability. Using readily available data and standard assumptions about housing and labor, we determine the

hourly wage that one must earn to be able to afford modest rental housing if one

works full time (40 hours a week for 52 weeks a year) and pays no more than 30

percent of income for housing. We use HUD’s fair market rent as the proxy for rental housing cost because it is the only housing measure that is standardized jurisdiction-by-jurisdiction, and because it represents what HUD says is the necessary rent

to be paid to afford housing that is decent and safe. In most places that is the 40th

percentile of rental housing costs in that jurisdiction, meaning 40 percent of the

rental housing is priced at the fair market rent or less and 60 percent of the rental

housing is above the fair market rent.

Although the housing wage is best understood as a local estimate of housing costs,

we can aggregate the data to the State and national level. The housing wage ranges

from $8.50 an hour in West Virginia to $18.33 an hour in California. In response

to an assertion by an Administration official last summer that if a family had two

minimum wage earners, it could afford rental housing anywhere in the country, we

showed in our 2001 housing wage analysis that in 33 States and the District of

Columbia that even two full time minimum wage earners is insufficient and in three

States—New Jersey, New York, and Hawaii—even three jobs at the prevailing minimum wage is not enough.2

The disparity between income and housing costs has serious implications for policy objectives that some may not associate with the housing crisis. Across the political spectrum, welfare policy analysts are calling attention to the impediment to

success of welfare reform created by the lack of housing that is affordable to former

welfare families. To quote a Hudson Institute report about welfare reform in Wisconsin, ‘‘Success in the labor market and success in the housing market are inextricably linked. Although an employed parent is more able to afford decent housing

and a parent living in stable housing is more likely to be able to find employment,

it is no longer the case that success in the labor market guarantees success and stability in the housing market.’’ 3 Unfortunately, the proposed HUD budget makes no

mention of the vital role that housing assistance plays in welfare reform, nor does

the proposed HHS budget address housing in its provisions for TANF and plans for

its reauthorization this year.

Housing stability is essential to family stability, which is essential to child wellbeing. Families with high housing costs burdens are often excessively mobile. That

means that children move from school to school, getting further behind academically

and socially with each move. High housing cost burdens mean parents have to work

many extra hours leaving them less time for parenting duties. The stress of homelessness, frequent moves, choosing between paying the rent or buying food, and the

resultant feelings of powerlessness and despair inhibit parenting capacity and leave

children vulnerable to abuse and neglect. Housing is the bedrock upon which families thrive and failure to address the lack of affordable housing is antifamily.

It is not just low-income families who are adversely affected by the lack of affordable housing choices. Disabled people who rely on Supplemental Security Income

have the most acute housing cost burdens. On a national aggregate, they must pay

98 percent of their income for a one bedroom rental unit, making independent living

without additional assistance a virtual impossibility.4

People of a certain age can remember the time before the onset of contemporary

homelessness. There were lots of poor people in 1970, but there was a small surplus

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5 Jennifer Daskal. (1998). In search of shelter: The growing shortage of affordable rental housing. Washington, DC: Center on Budget and Policy Priorities. 6 Cushing N. Dolbeare. (2001). Changing priorities: The Federal housing budget 1976–2006.

National Low Income Housing Coalition. www.nlihc.org. 7Kathryn P. Nelson. (May 3, 2001). What do we know about shortages of affordable rental

housing? Testimony before House Committee on Financial Services, Subcommittee on Housing

and Community Opportunity. 8 National Housing Trust. (2002). ‘‘Summary of opt out data and summary of prepayment

data.’’ Washington, DC: Author.

of housing that they could afford.5 Over the past two decades, we have experienced

a steady erosion of the housing stock that is affordable to the lowest-income people.

The sharp Federal disinvestment in low-income housing assistance that began in

the late 1970’s 6 correlates with the rise in homelessness in the 1980’s. Had we continued to fund low-income housing assistance at the level authorized in the mid1970’s, it is safe to say that we could have prevented much of the homelessness at

the end of the 20th century and the housing shortage we are experiencing today

would not be as serious.

This is not to say that there has not been affordable housing development. The

Low Income Housing Tax Credit has produced over 1,000,000 units of rental housing. The HOME program has been used for over 10 years to produce yet more

houses and provide additional rent assistance. But the American Housing Survey

data clearly show that there has been a precipitous drop in the number of units affordable to the lowest-income households, while there has been an increase in the

numbers of affordable homes for families in the upper tier of the low-income eligible

population. Between 1991 and 1999, there was a 14 percent decline in the number

of units affordable to extremely low-income renters, nearly a million units.7

It is important to translate what extremely low income means in the real lives

of ordinary people. The official definition is family income at 30 percent or less of

the area median. In Washington, DC, that is $18,390 a year. These are people who

make up the workforce on which all of us depend to do their jobs so we can do ours.

These are day care workers, hotel staff, cashiers, health care aids, wait staff, office

cleaners, receptionists, and other essential members of the workforce.

In light of these data, the proposed fiscal year 2003 HUD budget has serious

shortcomings. Most of the proposed increase will simply allow HUD to stay in place.

The only thing that the President’s proposal does to expand housing choices for

those with the most serious housing problems is to call for 34,000 new housing

vouchers. While the proposals to expand downpayment assistance and to add a LowIncome Homeownership Tax Credit are laudable, they do very little to ease the

affordable housing shortage for the lowest-income people. While the declaration to

end long-term homelessness in the budget blueprint is an important statement, in

the absence of new investment in housing production, it is an empty statement.

What Should We Do?

Solving the affordable housing crisis is well within the capacity of American ingenuity and resolve. We know how to build the best housing in the world. We have

nonprofit, for-profit, and public housing sectors that stand ready to produce, preserve, and rehabilitate enough housing for all American households. What is needed

is the political will to advocate for renewed Federal investment.

There are three basic ways to end the affordable housing crisis and a comprehensive strategy must include all three. One, we must improve the ability of low-income

people to compete in the housing market by improving their earning capacity and

passing living wage ordinances and increasing the minimum wage, or by subsidizing

the differences between what they can afford and what housing costs through housing vouchers. Although more housing vouchers each year has become a key symbol

of forward movement, the number of new vouchers each year has been miniscule

compared to the need. Further, problems with voucher utilization in many communities indicate that simply adding more tenant-based assistance is not enough.

The second thing we need to do is preserve the viable publicly assisted housing

we have, both Section 8 project-based and public housing. We have lost over 150,000

units of assisted housing in the last 6 years through opt outs and prepayments. 8

Public housing is lost to demolition and disposition, as well as HOPE VI. We should

eliminate poor quality housing, but we cannot afford to continue to lose this housing

stock in the absence of a commitment to replace it.

Finally, we must build new housing. The need for renewed Federal investment in

the production of housing affordable for the lowest-income households is widely recognized and should be a Federal priority. Despite the relative cost effectiveness of

vouchers over production, when there is an absolute shortage of physical units such

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9 U.S. General Accounting Office. (January, 2002). Federal housing assistance: Comparing the

characteristics and costs of housing program. Washington, DC: Author.

as exists now, production fulfills important policy objectives.9 What is most disappointing about the President’s fiscal year 2003 HUD budget is its failure to address production needs in the face of such overwhelming need.

The National Low Income Housing Coalition and 1,900 partner organizations

across the country are calling for the establishment of national housing trust fund

capitalized with dedicated sources of revenue sufficient to produce and preserve

1,500,000 homes for the lowest-income households. Housing trust funds are a proven

approach to funding affordable housing programs as evidenced by the over 200 State

and local jurisdictions that have established housing trust funds in the last 15

years. Most recently, Los Angeles established a housing trust fund capitalized with

a range of funding sources identified by the mayor totaling $100 million in 10 years.

We look forward to a debate on S. 1248, the National Affordable Housing Trust

Fund Act, in the Banking Committee this year.

Policy Issues of Concern

The Continuing OTAG–ITAG Crisis

Despite clear direction by Congress to do so last December, HUD has yet to release funds to pay outstanding invoices to OTAG and ITAG grantees as well as the

Corporation for National and Community Service for their work to preserve the assisted housing stock. We cannot stress strongly enough the urgency of this problem.

Many community-based, nonprofit organizations have not been paid for their work

and the consequences to these organizations are dire. Several have laid off staff and

others have gone into debt to maintain services in anticipation of receipt of money

owed. These are small organizations that are at risk of going out of business if HUD

does not pay them immediately. The damage to these organizations is obvious. HUD

should be keenly worried about the damage it does to the Department’s credibility,

especially given the Secretary’s promise to make HUD more efficient and effective.

Most critical, however, is the damage that will be done to residents, many of whom

are elderly and disabled, when their housing is jeopardized. We urge the Committee

in the strongest possible terms to demand that HUD make these payments in accordance with what Congress explicitly directed HUD to do.

Interest Reduction Payments

Section 531 of the HUD Multifamily Housing Reform provisions of the 1998

HUD–VA Appropriations Act provides that HUD may take ‘‘recaptured’’ Interest Reduction Payments (IRP) from the termination of Section 236 mortgages and convert

such funds into grants for the capital costs of rehabilitation to owners of certain

projects. Adopted over 4 years ago, the provisions of Section 531 have unfortunately

never been implemented by HUD. Meanwhile, millions of dollars of ‘‘recaptured’’ Interest Reduction Payments have been building up. There is a provision in the fiscal

year 2003 proposed HUD budget that appears to indicate that these funds should

now become available. These IRP recaptured funds are a precious resource for the

long-term preservation of the low-income housing. We ask that the Committee direct

HUD to assure that prepayment recaptures can be used to help recapitalize and assist in the financing of HUD insured and assisted housing stock.

Transfer of the Emergency Food and Shelter Program from FEMA to HUD

The Administration proposes to shift responsibility for the Emergency Food and

Shelter Program from FEMA to HUD. We urge the Committee to oppose this move.

This program has been one of the most effective means to distribute funds to needy

families ever devised by the Federal Government. Administered by a national board

of social service and faith-based organizations, these funds are spent quickly, effectively, and preventively to keep millions of people from losing their homes. Given

HUD’s poor track record of administering funds in a timely fashion, we have serious

questions about the efficacy of such a transfer.

Renewals of Shelter Plus Care, Section 811, and Section 202

A lingering unresolved policy issue is the future of housing subsidies begun under

specific programs that then must be renewed each year within the total funds provided for these programs. It is essential that we assure sufficient funds for renewal

of housing assistance provided through the Shelter Plus Care, Section 811, and Section 202 programs. For example, while the President’s fiscal year 2003 HUD budget

request does include a $10 million increase for the Section 811 program for people

with disabilities, it is expected that renewal of expiring tenant-based rent subsidies

under the Section 811 program will cost $32 million in fiscal year 2003. The absence

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of separate funding to account for upcoming rent subsidy renewals in the Shelter

Plus Care, Section 811, and Section 202 programs results in actual program funds

being reduced. We urge that renewals for these programs be shifted to the Housing

Certificate Fund and considered along with all other rental subsidy renewals.

Combining the Three Competitive Programs in HUD’s McKinney–Vento

Homeless Assistance Program

We applaud the move to make these funds more flexible and giving local service

delivery systems discretion in how best to use these funds in their individual communities. However, we continue to object in the strongest possible terms to the block

granting of McKinney–Vento Homeless Assistance Programs and trust that is not

what HUD has in mind.

Reduction of Capital Funds for Public Housing

While we appreciate the attempt to encourage public housing agencies to experiment with new ways of solving old problems, we do not think that the capital fund

should be reduced unless and until there is evidence that such an experiment is successful. Rather than reduce capital funds for public housing, we would urge HUD

to help public housing agencies to spend their capital funds more efficiently. Public

housing is publicly owned physical structures and the taxpayers have the right to

expect that the responsible agencies maintain them in good repair and plan for their

long-term use. For example, an appropriate use of new public housing capital funds

would be to retrofit elderly housing to accommodate the changing physical and

social needs of residents to allow them to ‘‘age in place.’’

Defunding HUD’s Rural Housing and Economic Development Program

This is a small, but important, program that improves the capacity of nonprofit

housing providers to develop affordable housing, in rural areas. The argument that

a rural program at HUD is duplicative of USDA programs ignores the fact that all

formula-based programs administered by HUD provide funds to rural areas. Cutting

this program is penny wise and pound foolish.

Redistribution of CDBG Formula

The President proposes to alter the CDBG formula so that the wealthiest communities will receive less money that then will be redirected to assist the Colonias. We

certainly agree that the Colonias need and deserve an infusion of funds for a host

of essential services, but it is unnecessary to take money that would help poor communities that happen to be in wealthier jurisdictions to help other poor communities. We can afford to do both if we only choose to.

Voucher Utilization

Finally, we look forward to working with the Committee in shaping legislation to

improve voucher utilization and to continue to expand the creative use of tenantbased assistance. HUD is implementing a ‘‘use it or lose it’’ approach, which will

redistribute housing vouchers from underutilizing communities to those that can

use them effectively. This a good short-term approach to maximizing the value of

housing vouchers. But the poor people in need of housing assistance in those communities that lose housing vouchers are the real losers. This brings us back to the

fundamental housing problem that the President’s fiscal year 2003 housing budget

fails to address—investment in new rental housing production for extremely low-income families.

Thank you for the opportunity to represent the members of the National Low

Income Housing Coalition at this important hearing.

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PREPARED STATEMENT OF JOSEPH F. REILLY

SENIOR VICE PRESIDENT, JPMORGAN CHASE COMMUNITY DEVELOPMENT GROUP

ON BEHALF OF

THE NATIONAL ASSOCIATION OF AFFORDABLE HOUSING LENDERS

FEBRUARY 13, 2002

Good morning, my name is Joseph Reilly, and I am a Senior Vice President in

the Community Development Group at JPMorgan Chase. During the 24 years I

have been involved in affordable housing and community development, I have seen

the issues from a variety of perspectives: A faith-based organization, the Northwest

Bronx Community and Clergy Coalition; New York City’s Department of Housing

Preservation and Development; and now with JPMorgan Chase, where I manage a

staff of 40 professionals who finance affordable housing and commercial real estate

projects in areas served by our bank. Over the past 5 years, JPMorgan Chase has

provided over $2.6 billion in community development financing. We continue to seek

new and innovative ways to provide financing which will strengthen the communities we serve.

While much has been done to solve the problems American families are facing in

finding decent, affordable housing, much remains to be done. Many high-cost areas

like New York suffer from a profound shortage of both rental housing and homeownership opportunities, not only for very low-income families but also for low- and

moderate-income families. We have a growing crisis that requires the ongoing attention of policymakers, and both short-term and long-term measures to achieve our

national goal of a decent home in a suitable living environment for all Americans.

Much Has Been Accomplished Over the Past Decade

The good news is that during the past decade our industry has experienced a significant strengthening in learning how to produce decent, affordable housing for

low- and moderate-income families and communities. For-profit and nonprofit developers, lenders, investors, community leaders, and government at all levels have

learned to collaborate as partners in devising new solutions and creative financing

strategies for producing affordable housing in thousands of communities.

We have built the infrastructure necessary to have a major impact on housing

needs, and coped with the often conflicting requirements of the many Federal, State,

and local subsidies we need to do our work. We have learned over the years how

to do it right—how to build affordable housing for rent and homeownership that

contains a mix of incomes, that is built with the discipline of the private market

and leverages public resources responsibly, that is of high quality and lasting value,

that stays affordable over the long run, and that people are proud to call home.

Insured depository institutions like JPMorgan Chase are an important part of this

infrastructure. The U.S. Treasury documented that, from 1993–1998, the amount of

mortgage lending to low- and moderate-income communities and borrowers by CRAcovered lenders rose 80 percent. In 1998 alone, Treasury reported at least $135 billion in mortgages to these borrowers, made by insured depository institutions.

Three Major Constraints

As good as these solutions are, they come nowhere near meeting the need. The

public, nonprofit, and for-profit organizations that have mobilized and partnered to

provide affordable housing face three major constraints in our ability to deliver more

decent, affordable units.

First, Federal funds are often encumbered by well-meant legislative and regulatory

constraints that impair needed flexibility to meet community needs. Sometimes,

something gets lost in the translation of housing policy when it is regulated into

practice. And inevitably, the more tightly the subsidies are targeted to those most

in need, the greater the financing gap and the harder it is to make the deal economically viable.

Second, we could finance more affordable housing if we had more resources. The

past decade has confirmed that there is no magic to the provision of affordable

rental housing. Affordable housing can only be built if public subsidies fill the gap

that exists between what families can afford to pay and the costs associated with

the construction, operation, and maintenance of decent, affordable housing.

Federal programs such as HOME, CDBG, and the Low Income Housing Credit

have played valuable roles in helping to fill that gap, but rarely do it alone. For

example, many housing credit deals in low-income communities require additional

subsidies to fill financing gaps. But funding levels for all Federal programs have

failed to keep pace with rapidly growing need, and these programs come with complex requirements that slow, or even discourage, development of new units.

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Unfortunately, over the past decade the focus at the Federal level has shifted to

demand-side subsidies, which do not increase the supply of affordable units. In addition, there is an aging housing stock of affordable units that needs new roofs, new

mechanicals, and sometimes new systems to remain viable, at the same time that

communities are seeking to replace the old public housing units with mixed-income,

affordable housing.

Third, in some States there is a scarcity of permanent financing for multifamily

affordable housing. Affordable housing developments often involve subordinated

debt and low-income housing tax credits that make multifamily mortgages ‘‘nonconforming’’ for sale to the secondary market.

To Do: Short-Term Ways To Leverage More Private Capital

The more we can simplify the regulations, processes, and paperwork of Federal

assistance, the more we will increase the efficiency of the programs and private sector participation. Simple, flexible funding sources that have had real impact with

maximum efficiency include the Affordable Housing Program of the Federal Home

Loan Banks and the Community Development Financial Institutions’ Fund. A

stream-lined, permanent loan product, which made ‘‘nonconforming’’ affordable

housing loans more attractive to investors, would also be extremely helpful.

To Do: Long-Term

The Federal Government can be a catalyst for attracting more private capital to

affordable housing by providing a stable, predictable source of capital that would not

be subject to the annual appropriations process, in keeping with the long-term nature of community development.

It is also clear that homeownership opportunities for low-income families and

communities are not keeping pace with rapidly growing need. The President’s

budget proposes a tax credit for developing affordable homes that builds on the success of the Low Income Housing Credit and would do much to alleviate the shortage

of affordable homeownership opportunities in our neediest communities. NAAHL

has endorsed this Single-Family Tax Credit and asks Congress to enact it as soon

as possible. Similarly, the proposed quadrupling of the American Dream Downpayment Fund will help many low-income homebuyers achieve their own home, while

the proposed increase in housing counseling funds will help those struggling to keep

their homes.

Thank you very much for the opportunity to be here today.

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RESPONSE TO WRITTEN QUESTION OF SENATOR SARBANES

FROM SHEILA CROWLEY

Q.1. Time limiting housing assistance was discussed at the hearing

we held on February 13, 2002. Does time limiting housing assistance make sense? Please explain why or why not.

A.1. Placing time limits on receipt of housing assistance, that is,

duration of time that one’s rent will be subsidized above 30 percent

of household income, is an idea that mistakenly equates housing

assistance with welfare and seeks to impose recent policy changes

made to welfare on housing programs, The problem begins with the

inaccuracy of the comparison between the two. Time limits are imposed on receipt welfare to motivate/force welfare recipients to go

to work and earn income in lieu of welfare payments. The presumption is that by going to work, the welfare recipient will improve, or at least not worsen, her household’s economic well-being.

We cannot make the same presumption about housing assistance. We have ample data to document that the cost of market

housing is so far above the wages of the majority of working lowincome people that they (1) have acute affordability problems, (2)

are at high risk of housing instability, and (3) need housing assistance themselves. The people who are receiving housing assistance

are the lucky one third of the eligible population, who are able to

bridge the gap between their income and housing costs only because they receive housing assistance.

Unless a household receiving housing assistance can improve its

income to minimally the level of the housing wage in its jurisdiction, then termination of housing assistance will have a significantly adverse effect on the household’s economic well-being.

Indeed, if a household was able to earn the equivalent of the housing wage, in most jurisdictions, it would long since have become ineligible for housing assistance.

Time limiting welfare is only feasible in a low unemployment

economy, in which there is a real possibility that employment will

follow welfare. Time limiting housing assistance is only feasible

when there is a surplus of housing that is affordable to the lowestincome households, so that they have somewhere to go. At a time

when we have an acute shortage of housing affordable for the lowest-income households, ending their housing assistance means that

most will acquire huge housing costs burdens, be forced to double

up, or end up homeless, The most likely scenario with time limiting

housing assistance is that most families will cycle out of public or

assisted housing into less stable housing circumstances and homelessness and back onto housing assistance waiting lists.

Discussion of time limits on housing assistance seems to be disconnected from an understanding of the nature of the affordable

housing crisis.

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